For the week, stocks finished mixed. The Dow Jones rose 1.4% to close at 12153, the S&P 500 added 0.8%, but Nasdaq finished down 0.3%. Nasdaq has declined 3 of the last 4 weeks while the Dow Jones has gained 3 of 4.
--U.S. Treasury Yields
6-mo. 0.02% 2-yr. 0.23% 10-yr. 2.06% 30-yr. 3.13%
Bonds were little changed, though the market was closed on Friday and thus didn’t have a chance to respond to Friday’s rally in European and U.S. equities.
--Federal Reserve Vice Chairman Janet Yellen said the central bank will be conducting its fourth round of stress tests on U.S. banks and whether they can withstand a recession.
“We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system,” said Yellen.
--France was furious after Standard & Poor’s mistakenly suggested that it had downgraded France’s triple-A credit rating on Thursday, sparking a sell-off in French government bonds. S&P said that due to a technical error, a message was automatically disseminated to subscribers suggesting the change. Off with S&P’s heads!
--A USA TODAY analysis finds “Households have reduced debt by $549 billion since 2007, mostly by cutting mortgages through defaults and paying down credit cards. During that time, the federal government has added more than $4 trillion in debt, pushing the country’s total borrowing to a record $36.5 trillion, excluding the financial industry, according to the Federal Reserve.” [Dennis Cauchon / USA TODAY]
--A week ago, as I went to post, there were rumors the $600 million in lost MF Global customer cash had been found, though I hastened to add it was “too soon to say this was fact.” And, indeed, a week later regulators still don’t know exactly where the cash is. Said an official with the Commodity Futures Trading Commission, “Their books are a disaster.”
Michael Goodwin / New York Post
“Across the land the cry is heard: ‘String up the bankers. Make ‘em pay for America’s suffering.’
“In other precincts, other villains are targeted: ‘The real crooks are in government. They’re to blame for the disaster.’
“Humbly, I nominate a candidate to satisfy both appetites.
“Let Jon Corzine pay the piper for all our sins.
“Corzine is the perfect poster boy for what’s ailing America. He went from Wall Street to politics, then back to Wall Street, and left a trail of wreckage everywhere. Yet he keeps failing upward, raising at least $500,000 for President Obama this year amid talk he could be named Treasury secretary.
“Now he is under investigation for bringing down MF Global….
“Corzine used his connections to get the low-watt company admitted to the exclusive club of ‘primary dealers’ of government debt.
“He quickly borrowed billions and ramped up risky trading in European government bonds, assuming he could make a killing when they are bailed out. He can tell it to the judge and shareholders.
“Corzine first made a fortune as a Master of the Universe at Goldman Sachs before being pushed out in 1999. He took his gilt and, running as a liberal Democrat, bought himself a seat in the United States Senate from New Jersey. He quickly tired of Washington and bought the Jersey governor’s chair.
“All told, he spent about $100 million of his own cash on the two races, but that was a pittance next to the billions of taxpayer dough he wasted.
“He nearly drove the Garden State into bankruptcy before voters tossed him out after one miserable term.
“Republican Chris Christie defeated him and is winning bipartisan support for cleaning up the Corzine mess. Now the courts and G-men will have to clean up the MF Global mess.
“If he dodges prison, retirement would seem the smart bet for Corzine. And a welcome relief for America.”
On Friday, the brokerage’s bankruptcy trustee fired 1,066 employees, a figure that should be on Corzine’s tombstone.
--General Motors, in a sign of the times, said it would probably shed more plants and workers in Western Europe owing to the continent’s debt crisis and looming recession. In particular, GM is looking to drastically cut back on its Opel-Vauxhall unit, where 8,300 jobs have already been eliminated. Overall, GM reported third-quarter earnings that were slightly better than expected, but it warned Q4 results would be flat due mostly to Europe.
--Friday, Bloomberg first reported that U.S. auto-safety regulators are looking into the safety of lithium-ion batteries that power electric vehicles after a Chevy Volt battery caught fire. Regulators have approached other automakers that sell vehicles with such batteries.
“The Volt caught fire while parked at a National Highway Traffic Safety Administration testing center in Wisconsin, three weeks after a side-impact crash test, said an agency official….
“The fire was severe enough to burn vehicles parked near the Volt, the agency official said. Investigators determined the battery was the source of the fire, the official said.”
Better not let the Volt fall into the hands of terrorists, I’m thinking. No one would think twice seeing it parked outside an embassy.
--The Dept. of Agriculture reported that China has become the top market for U.S. farm exports for the first time, surpassing Canada. For the fiscal year ending Sept. 30, U.S. exporters sold $20 billion in agricultural products to China. The mainland has been importing huge amounts of corn from the U.S., even though China is the second-largest corn grower in the world behind the land that spawned the Kardashians. Overall, U.S. farm exports were a record $137.4 billion this fiscal year and are expected to be a like amount in 2012. [Separately, the USDA said the nation’s corn crop will be the lowest in terms of yield per acre in eight years, though because farmers planted so much more last spring, the actual crop size will be the fourth-biggest in history.]
--Seven weeks to go and the broad-based CRB index of 19 commodities is still down on the year, per your editor’s prediction when the CRB peaked at 370…320.20 vs. a 12/31/10 close of 332.80…even as the price of oil has rebounded to nearly $100 and gold has recovered half of its loss from the highs.
--Libya’s interim oil minister said oil production should reach 700,000 barrels a day by year end, or half pre-revolution levels, but the post-Gaddafi environment is still fraught with tremendous uncertainty and there is no reason why any foreign company, outside the energy sector, would make new investments until the political situation becomes clearer. [I just saw a story, Sat. morning, that the militias started firing on each other today.]
--Meanwhile, the Obama administration announced this week that it would postpone until after the 2012 election a final decision on the proposed Canada-U.S. oil pipeline, another real profile in courage by a president not wanting to offend either his environmental base or union supporters who would benefit on the jobs front. Republicans can have a field day on this one. The White House says it needs the delay to reroute part of the pipeline to appease the environmentalists. The administration had previously said it would decide on the pipeline by year end.
--The European Union will overtake the United States as the world’s biggest oil importer in 2015, according to the International Energy Agency, owing to better fuel efficiency in the U.S. as well as increased domestic oil and gas production that even the Obama administration can’t stop.
But what cracks me up about the IEA’s periodic reports is their attempt to predict crude prices way in the future, like the latest call that oil will reach $120 a barrel in 2035. This is so freakin’ stupid. Why bother, IEA? [And of course if Iran is attacked, who knows how high the price of crude could soar? I still maintain, though, that in this instance right after the spike is the perfect time to ‘short’ the product and/or sector. Iran will not be able to close the Strait of Hormuz.]
--India reported its largest decline in domestic auto sales for October, off 23.8%, since December 2000. I’d say that’s a bit disconcerting.
--A.P. Moeller-Maersk A/S, the world’s biggest container shipping line, said it will lose money this year, lowering its initial forecast of a small profit as freight rates plunge. The whole freight business was yet another bubble in that the industry has added way too many ships, far more than demand warrants, at least today. Maersk said the global container fleet expanded by 224 vessels in the first nine months of the year. I’m assuming rats are also obtaining favorable passage rates.
--Speaking of rats, with Fannie Mae requesting an additional $7.8 billion from taxpayers after soured derivatives bets led to a loss of $5.1 billion for the recent quarter, Fannie has now hit us up for $111 billion, while sibling Freddie Mac is up to $72 billion. Well isn’t that special.
--Walt Disney Co. reported strong fiscal fourth-quarter earnings with net income up 30% over a year earlier. Revenue rose 7% as the media network division, including ESPN, continues to set viewership records. I was interested to see business was solid at Hong Kong Disneyland, which I went to a few years ago and was frankly very unimpressed, though I understand they’ve made improvements since then.
--Cisco Systems reported revenues rose 4.7% in its latest quarter, better than expected, as CEO John Chambers said “the company is seeing stability in our switching portfolio.” Gross profit margins increased in this important segment as well.
--Adobe halted development of its Flash Player for mobile browsers, surrendering to Apple in the war over web standards. Adobe’s decision means web developers who now use Flash tools to produce content will instead move over to newer HTML5 technology, not that I have the slightest idea what this is, which is why I have my own tech support.
By the way, I was told on Friday my Apple iPad app for StocksandNews isfinally on the way, sports fans. Like it might be available now. It probably behooves me to get an iPad myself, come to think of it.
--I apologize I just haven’t looked at the Olympus Corp. accounting scandal in Japan in great detail, but what I’ve read reeks of one of the all-time scams, whereby the company was way overpaying for small, basically bankrupt outfits that had zero to do with Olympus’ core business, first cameras and then a move into medical equipment, plus advisers on the deals were paid outrageously large fees. Then as the investments soured, the company tried to mask the losses. The entire board of directors is to be replaced and the whole scandal wouldn’t have been brought to light had the former CEO, Michael Woodford, not blown the whistle and given evidence to investigators in Britain and the U.S. For Japan, which likes to say its accounting is squeaky clean, this is a huge black eye on par with anything that has happened in the U.S., including Enron.
--Shares in Green Mountain Coffee Roasters Inc. traded at $115 on Sept. 20, less than two months ago. This week they closed at $43 after the company’s future earnings outlook disappointed the Street, this as hedge-fund manager David Einhorn questioned the company’s accounting, transparency and business practices. Green Mountain’s CEO denied the company has committed any wrongdoing.
--Jefferson County, Alabama, filed for bankruptcy in the largest such municipal filing in U.S. history, some $4 billion, though this was long expected. It eclipses the 1994 filing of Orange County, California, which had more population but less debt. Jefferson County’s problems were largely the result of a heavily-indebted effort to revamp its sewers. No word on whether they are now overflowing as a result of the action. Good thing I live uphill from there.
--Toyota recalled 550,000 vehicles worldwide – mostly in the United States – over steering issues. They say that unless you’re driving on the Bonneville Salt Flats, this can be a real problem. The models involved are mostly from 2004 and 2005, and include Camry and Lexus brands. Otherwise, drive on!
--Thailand’s floodwaters encircled another two industrial parks east of Bangkok, though mass transit systems and central commercial districts remained dry (at least as I write). Among the latest firms threatened by the ongoing, slow-motion disaster are Unilever, Johnson & Johnson, Isuzu and Honda. Earlier, Toyota said it could no longer estimate the financial impact from the Thai floods, a move Honda previously announced as a result of flooding at a separate location. The issue now is what will next year’s rainy season bring? Will companies abandon Thailand permanently and move production elsewhere?
--Boeing’s new 787 Dreamliner made its first commercial flight from Tokyo to Hong Kong on October 26, an All Nippon Airways trip. But on Sunday, ANA had to make a second approach at a west Japan airport before landing after a glitch forced the pilot to manually deploy the main landing gear, the airline said. Huh. A spokesman for Boeing gave no explanation for the problem but said the company understood “the backup procedures worked as expected.” [AFP]
--According to Johnson Associates, which puts out a closely followed annual survey on compensation, Wall Street bonuses will fall 20% to 30% this year from a year ago, with the sharpest declines in trading and investment banking.
But writing in the New York Times, Professor Nassim Nicholas Taleb, who coined the phrase “Black Swan,” opines:
“I have a solution for the problem of bankers who take risks that threaten the general public: Eliminate bonuses….
“(It’s) time for a fundamental reform: Any person who works for a company that, regardless of its current financial health, would require a taxpayer-financed bailout if it failed, should not get a bonus, ever. In fact, all pay at systemically important financial institutions – big banks, but also some insurance companies and even huge hedge funds – should be strictly regulated.
“Critics like the Occupy Wall Street demonstrators decry the bonus system for its lack of fairness and its contribution to widening inequality. But the greater problem is that it provides an incentive to take risks. The asymmetric nature of the bonus (an incentive for success without a corresponding disincentive for failure) causes hidden risks to accumulate in the financial system and become a catalyst for disaster. This violates the fundamental rules of capitalism; Adam Smith himself was wary of the effect of limiting liability, a bedrock principle of the modern corporation.
“Bonuses are particularly dangerous because they invite bankers to game the system by hiding the risks of rare and hard-to-predict but consequential blow-ups, which I have called ‘black swan’ events….
“Consider that we trust military and homeland security personnel with our lives, yet we don’t give them lavish bonuses. They get promotions and the honor of a job well done if they succeed, and the severe disincentive of shame if they fail. For bankers, it is the opposite: a bonus if they make short-term profits and a bailout if they go bust. The question of talent is a red herring: Having worked with both groups, I can tell you that military and security people are not only more careful about safety, but also have far greater technical skill than bankers.”
Now talk amongst yourselves.
--Australia’s upper and lower houses of parliament have finally signed off on the controversial carbon tax, requiring the country’s coal-fired power stations and other big emitters to “pay to pollute” starting July of next year. This vote has been years in the making.
--Las Vegas attracted more visitors in September than a year ago as convention attendance soared 49%. But, gambling revenues were down 6.6% over the same period. At least visitation was up a 19th consecutive month and occupancy neared 86%.
--With the cost of Thanksgiving dinner in the U.S. rising 13% this year, the biggest gain in two decades, according to the American Farm Bureau Federation, wild turkeys have been put on notice that if they know what’s good for them, they’ll stop harassing humans.
--Speaking of Thanksgiving, Wal-Mart is once again accelerating Black Friday, this time opening its doors at 10 p.m. on Thursday, which is atrocious behavior, at least to those of us for which this is our favorite holiday. So Boooo on Wal-Mart, which says its customers said they would rather stay up late to shop than get up early. And Booo on the customers, too. Take away their citizenship.
--U.S. Treasury Yields
6-mo. 0.02% 2-yr. 0.23% 10-yr. 2.06% 30-yr. 3.13%
Bonds were little changed, though the market was closed on Friday and thus didn’t have a chance to respond to Friday’s rally in European and U.S. equities.
--Federal Reserve Vice Chairman Janet Yellen said the central bank will be conducting its fourth round of stress tests on U.S. banks and whether they can withstand a recession.
“We are monitoring European developments very closely, and we will continue to do all that we can to mitigate the consequence of any adverse developments abroad on the U.S. financial system,” said Yellen.
--France was furious after Standard & Poor’s mistakenly suggested that it had downgraded France’s triple-A credit rating on Thursday, sparking a sell-off in French government bonds. S&P said that due to a technical error, a message was automatically disseminated to subscribers suggesting the change. Off with S&P’s heads!
--A USA TODAY analysis finds “Households have reduced debt by $549 billion since 2007, mostly by cutting mortgages through defaults and paying down credit cards. During that time, the federal government has added more than $4 trillion in debt, pushing the country’s total borrowing to a record $36.5 trillion, excluding the financial industry, according to the Federal Reserve.” [Dennis Cauchon / USA TODAY]
--A week ago, as I went to post, there were rumors the $600 million in lost MF Global customer cash had been found, though I hastened to add it was “too soon to say this was fact.” And, indeed, a week later regulators still don’t know exactly where the cash is. Said an official with the Commodity Futures Trading Commission, “Their books are a disaster.”
Michael Goodwin / New York Post
“Across the land the cry is heard: ‘String up the bankers. Make ‘em pay for America’s suffering.’
“In other precincts, other villains are targeted: ‘The real crooks are in government. They’re to blame for the disaster.’
“Humbly, I nominate a candidate to satisfy both appetites.
“Let Jon Corzine pay the piper for all our sins.
“Corzine is the perfect poster boy for what’s ailing America. He went from Wall Street to politics, then back to Wall Street, and left a trail of wreckage everywhere. Yet he keeps failing upward, raising at least $500,000 for President Obama this year amid talk he could be named Treasury secretary.
“Now he is under investigation for bringing down MF Global….
“Corzine used his connections to get the low-watt company admitted to the exclusive club of ‘primary dealers’ of government debt.
“He quickly borrowed billions and ramped up risky trading in European government bonds, assuming he could make a killing when they are bailed out. He can tell it to the judge and shareholders.
“Corzine first made a fortune as a Master of the Universe at Goldman Sachs before being pushed out in 1999. He took his gilt and, running as a liberal Democrat, bought himself a seat in the United States Senate from New Jersey. He quickly tired of Washington and bought the Jersey governor’s chair.
“All told, he spent about $100 million of his own cash on the two races, but that was a pittance next to the billions of taxpayer dough he wasted.
“He nearly drove the Garden State into bankruptcy before voters tossed him out after one miserable term.
“Republican Chris Christie defeated him and is winning bipartisan support for cleaning up the Corzine mess. Now the courts and G-men will have to clean up the MF Global mess.
“If he dodges prison, retirement would seem the smart bet for Corzine. And a welcome relief for America.”
On Friday, the brokerage’s bankruptcy trustee fired 1,066 employees, a figure that should be on Corzine’s tombstone.
--General Motors, in a sign of the times, said it would probably shed more plants and workers in Western Europe owing to the continent’s debt crisis and looming recession. In particular, GM is looking to drastically cut back on its Opel-Vauxhall unit, where 8,300 jobs have already been eliminated. Overall, GM reported third-quarter earnings that were slightly better than expected, but it warned Q4 results would be flat due mostly to Europe.
--Friday, Bloomberg first reported that U.S. auto-safety regulators are looking into the safety of lithium-ion batteries that power electric vehicles after a Chevy Volt battery caught fire. Regulators have approached other automakers that sell vehicles with such batteries.
“The Volt caught fire while parked at a National Highway Traffic Safety Administration testing center in Wisconsin, three weeks after a side-impact crash test, said an agency official….
“The fire was severe enough to burn vehicles parked near the Volt, the agency official said. Investigators determined the battery was the source of the fire, the official said.”
Better not let the Volt fall into the hands of terrorists, I’m thinking. No one would think twice seeing it parked outside an embassy.
--The Dept. of Agriculture reported that China has become the top market for U.S. farm exports for the first time, surpassing Canada. For the fiscal year ending Sept. 30, U.S. exporters sold $20 billion in agricultural products to China. The mainland has been importing huge amounts of corn from the U.S., even though China is the second-largest corn grower in the world behind the land that spawned the Kardashians. Overall, U.S. farm exports were a record $137.4 billion this fiscal year and are expected to be a like amount in 2012. [Separately, the USDA said the nation’s corn crop will be the lowest in terms of yield per acre in eight years, though because farmers planted so much more last spring, the actual crop size will be the fourth-biggest in history.]
--Seven weeks to go and the broad-based CRB index of 19 commodities is still down on the year, per your editor’s prediction when the CRB peaked at 370…320.20 vs. a 12/31/10 close of 332.80…even as the price of oil has rebounded to nearly $100 and gold has recovered half of its loss from the highs.
--Libya’s interim oil minister said oil production should reach 700,000 barrels a day by year end, or half pre-revolution levels, but the post-Gaddafi environment is still fraught with tremendous uncertainty and there is no reason why any foreign company, outside the energy sector, would make new investments until the political situation becomes clearer. [I just saw a story, Sat. morning, that the militias started firing on each other today.]
--Meanwhile, the Obama administration announced this week that it would postpone until after the 2012 election a final decision on the proposed Canada-U.S. oil pipeline, another real profile in courage by a president not wanting to offend either his environmental base or union supporters who would benefit on the jobs front. Republicans can have a field day on this one. The White House says it needs the delay to reroute part of the pipeline to appease the environmentalists. The administration had previously said it would decide on the pipeline by year end.
--The European Union will overtake the United States as the world’s biggest oil importer in 2015, according to the International Energy Agency, owing to better fuel efficiency in the U.S. as well as increased domestic oil and gas production that even the Obama administration can’t stop.
But what cracks me up about the IEA’s periodic reports is their attempt to predict crude prices way in the future, like the latest call that oil will reach $120 a barrel in 2035. This is so freakin’ stupid. Why bother, IEA? [And of course if Iran is attacked, who knows how high the price of crude could soar? I still maintain, though, that in this instance right after the spike is the perfect time to ‘short’ the product and/or sector. Iran will not be able to close the Strait of Hormuz.]
--India reported its largest decline in domestic auto sales for October, off 23.8%, since December 2000. I’d say that’s a bit disconcerting.
--A.P. Moeller-Maersk A/S, the world’s biggest container shipping line, said it will lose money this year, lowering its initial forecast of a small profit as freight rates plunge. The whole freight business was yet another bubble in that the industry has added way too many ships, far more than demand warrants, at least today. Maersk said the global container fleet expanded by 224 vessels in the first nine months of the year. I’m assuming rats are also obtaining favorable passage rates.
--Speaking of rats, with Fannie Mae requesting an additional $7.8 billion from taxpayers after soured derivatives bets led to a loss of $5.1 billion for the recent quarter, Fannie has now hit us up for $111 billion, while sibling Freddie Mac is up to $72 billion. Well isn’t that special.
--Walt Disney Co. reported strong fiscal fourth-quarter earnings with net income up 30% over a year earlier. Revenue rose 7% as the media network division, including ESPN, continues to set viewership records. I was interested to see business was solid at Hong Kong Disneyland, which I went to a few years ago and was frankly very unimpressed, though I understand they’ve made improvements since then.
--Cisco Systems reported revenues rose 4.7% in its latest quarter, better than expected, as CEO John Chambers said “the company is seeing stability in our switching portfolio.” Gross profit margins increased in this important segment as well.
--Adobe halted development of its Flash Player for mobile browsers, surrendering to Apple in the war over web standards. Adobe’s decision means web developers who now use Flash tools to produce content will instead move over to newer HTML5 technology, not that I have the slightest idea what this is, which is why I have my own tech support.
By the way, I was told on Friday my Apple iPad app for StocksandNews isfinally on the way, sports fans. Like it might be available now. It probably behooves me to get an iPad myself, come to think of it.
--I apologize I just haven’t looked at the Olympus Corp. accounting scandal in Japan in great detail, but what I’ve read reeks of one of the all-time scams, whereby the company was way overpaying for small, basically bankrupt outfits that had zero to do with Olympus’ core business, first cameras and then a move into medical equipment, plus advisers on the deals were paid outrageously large fees. Then as the investments soured, the company tried to mask the losses. The entire board of directors is to be replaced and the whole scandal wouldn’t have been brought to light had the former CEO, Michael Woodford, not blown the whistle and given evidence to investigators in Britain and the U.S. For Japan, which likes to say its accounting is squeaky clean, this is a huge black eye on par with anything that has happened in the U.S., including Enron.
--Shares in Green Mountain Coffee Roasters Inc. traded at $115 on Sept. 20, less than two months ago. This week they closed at $43 after the company’s future earnings outlook disappointed the Street, this as hedge-fund manager David Einhorn questioned the company’s accounting, transparency and business practices. Green Mountain’s CEO denied the company has committed any wrongdoing.
--Jefferson County, Alabama, filed for bankruptcy in the largest such municipal filing in U.S. history, some $4 billion, though this was long expected. It eclipses the 1994 filing of Orange County, California, which had more population but less debt. Jefferson County’s problems were largely the result of a heavily-indebted effort to revamp its sewers. No word on whether they are now overflowing as a result of the action. Good thing I live uphill from there.
--Toyota recalled 550,000 vehicles worldwide – mostly in the United States – over steering issues. They say that unless you’re driving on the Bonneville Salt Flats, this can be a real problem. The models involved are mostly from 2004 and 2005, and include Camry and Lexus brands. Otherwise, drive on!
--Thailand’s floodwaters encircled another two industrial parks east of Bangkok, though mass transit systems and central commercial districts remained dry (at least as I write). Among the latest firms threatened by the ongoing, slow-motion disaster are Unilever, Johnson & Johnson, Isuzu and Honda. Earlier, Toyota said it could no longer estimate the financial impact from the Thai floods, a move Honda previously announced as a result of flooding at a separate location. The issue now is what will next year’s rainy season bring? Will companies abandon Thailand permanently and move production elsewhere?
--Boeing’s new 787 Dreamliner made its first commercial flight from Tokyo to Hong Kong on October 26, an All Nippon Airways trip. But on Sunday, ANA had to make a second approach at a west Japan airport before landing after a glitch forced the pilot to manually deploy the main landing gear, the airline said. Huh. A spokesman for Boeing gave no explanation for the problem but said the company understood “the backup procedures worked as expected.” [AFP]
--According to Johnson Associates, which puts out a closely followed annual survey on compensation, Wall Street bonuses will fall 20% to 30% this year from a year ago, with the sharpest declines in trading and investment banking.
But writing in the New York Times, Professor Nassim Nicholas Taleb, who coined the phrase “Black Swan,” opines:
“I have a solution for the problem of bankers who take risks that threaten the general public: Eliminate bonuses….
“(It’s) time for a fundamental reform: Any person who works for a company that, regardless of its current financial health, would require a taxpayer-financed bailout if it failed, should not get a bonus, ever. In fact, all pay at systemically important financial institutions – big banks, but also some insurance companies and even huge hedge funds – should be strictly regulated.
“Critics like the Occupy Wall Street demonstrators decry the bonus system for its lack of fairness and its contribution to widening inequality. But the greater problem is that it provides an incentive to take risks. The asymmetric nature of the bonus (an incentive for success without a corresponding disincentive for failure) causes hidden risks to accumulate in the financial system and become a catalyst for disaster. This violates the fundamental rules of capitalism; Adam Smith himself was wary of the effect of limiting liability, a bedrock principle of the modern corporation.
“Bonuses are particularly dangerous because they invite bankers to game the system by hiding the risks of rare and hard-to-predict but consequential blow-ups, which I have called ‘black swan’ events….
“Consider that we trust military and homeland security personnel with our lives, yet we don’t give them lavish bonuses. They get promotions and the honor of a job well done if they succeed, and the severe disincentive of shame if they fail. For bankers, it is the opposite: a bonus if they make short-term profits and a bailout if they go bust. The question of talent is a red herring: Having worked with both groups, I can tell you that military and security people are not only more careful about safety, but also have far greater technical skill than bankers.”
Now talk amongst yourselves.
--Australia’s upper and lower houses of parliament have finally signed off on the controversial carbon tax, requiring the country’s coal-fired power stations and other big emitters to “pay to pollute” starting July of next year. This vote has been years in the making.
--Las Vegas attracted more visitors in September than a year ago as convention attendance soared 49%. But, gambling revenues were down 6.6% over the same period. At least visitation was up a 19th consecutive month and occupancy neared 86%.
--With the cost of Thanksgiving dinner in the U.S. rising 13% this year, the biggest gain in two decades, according to the American Farm Bureau Federation, wild turkeys have been put on notice that if they know what’s good for them, they’ll stop harassing humans.
--Speaking of Thanksgiving, Wal-Mart is once again accelerating Black Friday, this time opening its doors at 10 p.m. on Thursday, which is atrocious behavior, at least to those of us for which this is our favorite holiday. So Boooo on Wal-Mart, which says its customers said they would rather stay up late to shop than get up early. And Booo on the customers, too. Take away their citizenship.
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