One paragraph on the Lehman bankruptcy
Do you know the old saying "A picture is worth a thousand words"? How about a new saying: "197 words is worth a thousand words"?:
To take one example: Lehman’s holding company (LBHI) filed for bankruptcy, but at the last minute its US broker-dealer (LBI) was kept out of bankruptcy by the NY Fed. The problem was that no one knew about this – most people thought LBI had filed too. Lehman had all sorts of problems getting employees to even show up for work; JPMorgan, which was LBI’s clearing bank, unilaterally shut off LBI’s access to its accounts for several days, and actually started seizing assets of LBI’s prime brokerage clients (a huge no-no); clearinghouses improperly limited LBI’s trading activity; the NSCC mistakenly seized a large amount of LBI’s customer securities; Lehman’s European broker-dealer (LBIE) stopped payments to LBI’s omnibus account even though LBI continued to make payments to LBIE; incoming customer securities to LBI weren’t getting properly segregated; counterparties simply stopped posting collateral they owed on OTC derivatives with LBI; and so on. That first week, the biggest challenge was simply getting someone at Lehman on the phone. (I saw a 63-year-old senior partner do a fist-pump you’d have to see to believe when he finally got an account executive at Lehman on the phone. Unquestionably the highlight of my week.)
The full article is here, hat tip goes to Matt Yglesias.
Economics and mental health care
Jacob, a loyal MR reader, writes to me:
I am a research assistant involved in an evaluation of the quality of mental health care. It turns out that much of “quality” from a clinician's perspective involves coercing/convincing/luring patients into treatment – patients should show up quickly (“initiation”) and repeatedly (“engagement”) and for a really long time (“continuation-phase treatment”). For example, health plans are graded on the proportion of depressed patients that they can keep on antidepressants for 6 months (link – pg 23).
So, how do you think about markets and individual-level-decision making among the severely mentally ill. On one hand, it feels inadequate to throw up ones hands and say everyone is the best ruler of themselves. But it also feels inadequate to defer fully to the experts. I’m sure this topic has been tackled elsewhere but a thoughtful analysis has evaded me so far.
A few points:
1. Here are some recent reported results about conceptualizing mental illness; I cannot vouch for them.
2. Here is an article about the fracturing of the concept of mental illness. Here is The Economist on the same topic.
3. The mentally ill have it tough in China.
4. Here is one story of rational economic man.
5. I disagree with Bryan Caplan's argument that mental illness is a false category; he is making an odd turn toward behaviorism. That the behavior can be reduced to preferences and constraints does not mean that is the best or only way of understanding the phenomenon (which is not just about behavior).
6. Here is the major paper on economics and mental health. Here is a collection on the same topic, by the same authors.
7. You won't find the answers to your questions in any of those places, or here. I do, in the meantime, hold two views. First, historically the concept has been used — indeed abused — to incorrectly rationalize a lot of forcible institutionalization. Second, it is not a meaningless concept, though fractured it may be.
Markets in everything
At $600,000 per week the 60 metre Lürssen superyacht Solemates designed by the great Espen Oeino is one of the world’s most exclusive charter craft. It’s also one of the most cutting edge thanks to a new system that lets guests control various functions via an iPad. Don’t happen to own one? Not a problem – the captain hands each guest their own iPad when they step aboard. Via the device they can control the shipboard entertainment and climate systems, adjust the blinds and lights in their cabins, and even summon a crewmember to bring more cocktails. The sleek yacht, launched in Monaco earlier this year, boasts a top speed of 15.5 knots with a range of 7,000 nautical miles.
There is a bit more, and a photo, here. For the pointer I thank Chris F. Masse.
Mexico fact of the day
Until the mid-1990s, Mexico spent just 0.008% of annual economic output on law enforcement, among the lowest rates in the world. The average officer earns $500 a month, or about half the average per-capita income in Mexico. Seven of 10 finished only primary school. More than 400 municipalities have no local police at all.
Here is much more, mostly on the battle with the drug cartels.
*The Economics of Enough: How to Run the Economy as if the Future Matters*
Assorted links
Querétaro notes
Enchiladas and crepes are especially common here, often with potatoes. The best meal cost one dollar and was bought on the sidewalk from a crouching elderly woman (for all the talk about "street food," often "sidewalk food" is where it's at). It was potato, nopalitos (cactus), finely ground white cheese, and a potent chile sauce on top of a fried blue corn tortilla.
At the local Arabic-Mexican restaurant, ten chalupas can be had for $2.10.
In Mexico never eat until you are full, because you will likely encounter something even better along your way. What is hard is not finding the food but rather enforcing the optimal stopping rule.
If you are trying to argue that Mexico is a "normal" country, this city is your Exhibit A.
The much-vaunted decline in the Mexican birth rate is somehow not in evidence here; perhaps that is an artifact of who visits the Christmas displays. Plenty of police are out with guns, as a signal to deter a potential drug gang invasion.
The aquaduct has 74 arches, some as high as 30 meters; opened in 1738, it was in its day considered the greatest engineering achievement of New Spain.
As Yana notes, on the streets you will see many examples of perfect competition.
Alfred Kahn passes away at 93
Assorted links
1. Heckman, Pritzker, and the Chicago City schools.
2. New summary/critique of libertarianism.
4. Population density: Fargo, DC, and Paris.
Women and alcohol
Is there a better blog post title? Here is the abstract of a new paper, "Women or Wine, Monogamy and Alcohol":
Intriguingly, across the world the main social groups which practice polygyny do not consume alcohol. We investigate whether there is a correlation between alcohol consumption and polygynous/monogamous arrangements, both over time and across cultures. Historically, we find a correlation between the shift from polygyny to monogamy and the growth of alcohol consumption. Cross-culturally we also find that monogamous societies consume more alcohol than polygynous societies in the preindustrial world. We provide a series of possible explanations to explain the positive correlation between monogamy and alcohol consumption over time and across societies.
That's by Mara Squicciarini and Jo Swinnen.
Are CEOS paid enough? A look at sudden deaths
From Bang Dang Nguyen and Kaspar Meisner Nielsen:
An efficient managerial labor market should compensate executives according to their contribution to shareholder value. We provide novel empirical evidence about the relationship between executive pay and managerial contribution to value by exploiting the exogenous variation resulting from stock price reactions to sudden deaths. We find, first, that the managerial labor market is characterized by positive sorting: managers with high contributions to value obtain higher pay. We find, second, that executives appear, on average, to retain about 80% of the value they create. Overall, our results are informative about the workings of the managerial labor market.
Six euros a day is a lot for an altruist and enough for the selfish
These Indonesian miners,in primitive conditions not seen in most places for more than a century, often wear no protection,carrying up to 100 kilos of sulfur on their shoulders, climbing steep rocky paths and descending the volcano for 3 kilometers, bare foot, twice daily, choking from stinking, toxic fumes. For this shortened, blinding, gagging life in hell, they are paid 6 Euros a day. These conditions destroy their lungs, eyes and other tissues. “We work in hell,” said the miners, “our eyes and lungs burn the whole day, but there’s nothing we can do. Otherwise, we’re scared we’ll have nothing to eat.”
Here is a very good photo and I thank Steve D. for the pointer.
Kalamazoo beer exchange
Depending on what customers purchase, the prices will rise or fall.
“It’s an ever-evolving happy hour,” Flora said.
The prices will never go higher than around 10 percent the base cost, but will drop to as much as 50 percent below base cost.
For example, a Bell’s Two-Hearted Ale may be $3 normally.
But, depending on the “market” activity (i.e. patrons buying tendencies) it could be as much as $3.25 or as little as $1.50 (prices fluctuate in increments of 25 cents).
The prices will change every 15 minutes and there will be, at random, a “stock market crash” – signified by air horns – when all 28 beers are sold at a low rate for five minutes.
The full story is here and I thank Dave Kirsammer for the pointer.
Here is a picture of Kalamazoo.
Japanese claims about China
In reality, China’s residential property bubbles are obvious. But the real danger lies elsewhere. So-called “loan platforms” established by local governments pose a much more serious risk. In the 1990s, China centralized its tax system and rendered local governments dependent on Beijing’s coffers. In order to make up the budget shortfall, local governments established these funding vehicles through which they can obtain commercial loans. In 2008, when Beijing mobilized a massive Â¥4 trillion pump priming, it ordered local governments to bear one-third the cost themselves. This triggered a stampede. As of the end of June this year, there are 8,221 platforms and their outstanding loan balance is Â¥7.7 trillion, of which 20 percent to 25 percent are deemed “problematic” by the China Banking Regulatory Commission.
That is from The International Economy, Fall 2010, from a senior and anonymous Japanese official, not on-line. Bernard Connolly discusses a related scenario and considers whether such defaults might lead to a depreciation (!) of the yuan. You should consider the claims speculative, though I do not think you should dismiss them.
For the pointer I thank Steve Hanke.