A new study from the University of California, Davis, estimates that shareholders of Woods sponsors Nike and Gatorade maker PepsiCo have lost $5 billion to $12 billion in market value since news broke about the golf champ’s marital infidelity.  

While the public has focused on how the scandal has hit Woods’ endorsement earnings, the UC Davis study said the loss to shareholders of the companies who sponsor him would amount to decades’ worth of endorsement income.

When you want to make someone a key element of your entire marketing strategy, maybe it’s a good idea to vet him first. A lot of people knew what kind of man Tiger was.

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As I write this, President Obama is presiding over what he’s calling a “jobs summit.” This is just a colorful way of describing a bunch of federal and state politicians, economists, business people and labor leaders getting together at the White House to jaw about putting people back to work.

Now, at the risk of sounding extremely disrespectful, this jobs summit is truly laughable. Not that the nation’s 10.2% unemployment rate is any laughing matter, far from it. In fact, the sad state of employment in this country is something that makes my blood boil.

But what makes me even more furious is that the federal government has decided to take the lead in job creation, as if the government were the ultimate arbiter on jobs. . . .

You see, the hubris here is that the government can come up with some new magic policy prescriptions and/or new government programs that will rescue the nation from the ravages of unemployment. They act as if creating jobs were somehow as mysterious as physicists’ quest for a theory of everything. But really, isn’t the formula for job creation pretty well-known by now? . . .

You see, job creation really is no mystery. It’s largely a matter of tax cuts to encourage investment, entrepreneurship and risk-taking. It’s also a matter of reducing regulatory constraints on freedom and removing disincentives for expanding and starting businesses.

As David Malpass, an economist and the president of Encima Global LLC, recently wrote in Forbes.com, “The U.S. knows more than any country about how to create millions of jobs, having done it in the 1960s and again in the 1980s and 1990s. The answer lies in small businesses that take advantage of freedom, a sound currency and low tax rates. Anytime those three things are available, they hire like crazy.”

Once again, this is just another way of saying that capitalism is the real, and only, solution to job creation.

For some, though, the immense unemployment crisis is a golden opportunity to enact more government-dependency programs:

In a recent New York Times editorial, columnist and Nobel Prize-winning economist Paul Krugman said, “…it’s time for an emergency jobs program.” And his solution? “…the federal government could provide jobs by … providing jobs. It’s time for at least a small-scale version of the New Deal’s Works Progress Administration, one that would offer relatively low-paying (but much better than nothing) public-service employment.”

As Rahm Emanuel said, “Never let a serious crisis go to waste”.

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Scott Shane, Professor of Entrepreneurial Studies at Case Western Reserve, has noted sadly that too many small businesses “are started by unemployed or underemployed individuals who are motivated to do so partly by government incentives (e.g., government small business loans, grants, training and other encouragement) and by the relatively low opportunity costs for them of starting a small business, due to their current employment status.”

Such people don’t have their life savings and souls invested in their venture and have neither the motivation nor tenacity to hang on and keep trying until something works.

So many government programs have so many unintended consequences that at some point, the more cynical of us may begin to wonder just how unintended they actually are.

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Source.

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Joseph Demarest Jr., head of the New York office of the FBI, said it was clear that “the $20 million in illicit profits come at the expense of the average public investor.”  But is this really true?  Do insiders really profit at the expense of the individual investor?  And just what is wrong with acting on so-called insider information?

To answer these questions we must first remember that public companies are owned by shareholders, and not by the government (the exception here may be General Motors (GM) and the many bailout banking bums). Because we still have at least a modicum of private property rights in this country, I argue that company owners (shareholders) should have the right to decide if corporate executives—and/or those with whom they choose to share information—should be permitted to trade on and/or disseminate this inside information.

Of course, opponents of liberty such as Mr. Demarest will argue that insider trading is somehow unfair because the information possessed by company executives or, in this case, the hedge fund managers in question, is not equally available to every Tom, Dick and Harry investor on Main Street.

But here I ask you to put your philosophic hat on and ask, “How this is unjust?”  Why does the average investor have an equal right to the knowledge possessed by individuals in the know?

In most cases, insiders are those who have either worked hard to achieve a particular standing in a company, or who have the capital resources to uncover specialized information about companies (as presumably the hedge funds in this case had).  Why should we punish these people because they have knowledge that others don’t?  I think this question of knowledge egalitarianism must first be addressed before we throw the book at insiders.

The real issue here, as I see it, is not whether the hedge fund operators violated insider trading laws.  From a legal standpoint, it is entirely possible they may well have.  But my issue is why is insider trading considered wrong?

I have yet to hear a strong case made for its prohibition that doesn’t rely on some kind of zero-sum game analysis of the equity markets.  Moreover, I have yet to hear any argument that would persuade me that an individual shouldn’t be allowed to dispose of, and/or disseminate information in his possession unless he has voluntarily agreed to do so via contractual consent (such as in the case of non-disclosure agreements).

The bottom line here is that laws against insider trading violate the rights of shareholders, i.e. company owners, to decide the manner in which they can dispose of their property.  I submit to you that insider trading laws are as wrong as so-called “victimless crimes.”  Both, in my opinion, are immoral legal categories, and I think both types of laws should be relegated to the scrapheap of bad ideas.

Some well-known economists and law scholars have supported the idea of legalizing insider trading because they believe it to be beneficial for all investors:

Nobel Prize-winning economist Milton Friedman said, “You want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that.”

Dean emeritus Henry Manne of the George Mason University School of Law and the author of Insider Trading and the Stock Market, said in a radio interview that insider trading “helps to move the price of a share to its ‘correct level’” and trades made using privileged information provide an “actual reflection of what’s going on” with a particular stock.

And Donald Boudreaux of the Future of Freedom Foundation wrote, “Perhaps the greatest benefit of insider trading is that it causes equity prices to disclose all relevant information as quickly as possible.”

Insider trading is illegal because there is a government bureaucracy that kind of fights it. That, of course, means that it will stay illegal.

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Increasingly, homeowners with good credit and no late payments are making what appears to be a strategic decision to walk away when their home’s value falls below what’s owed.

“The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that,” concludes a report on research by Experian, the credit agency, and Oliver Wyman, a management consultant company.

The better their credit rating, the more likely homeowners were to default. The trend is most pronounced where prices have fallen furthest: Florida and the West, especially California.

The finding — that 588,000 borrowers appear to have strategically defaulted in 2008, a 128% increase from the year before — surprised the researchers. . . .

Strategic defaulters stand out among the 14 million to 15 million “underwater” mortgages, the researchers said, because they:

• Pay all their bills consistently and on time until abruptly stopping mortgage payments with no attempt to get current again.
• Keep current on other debts after defaulting on the mortgage.
• Keep up payments on home equity lines of credit, sometimes drawing out cash, before defaulting on both the first mortgage and credit line.

This “sophisticated” combination of moves and timing suggests borrowers are employing foreclosure as a calculated financial strategy, said [the researchers].

They conclude that 18% of the borrowers with mortgages 60 days past due in the fourth quarter of 2008 were acting strategically, up from 3% — “barely noticeable,” the report says — in late 2004. Most defaults, however, are driven by financial distress. Defaults due to troubled finances grew from 31% to 51% of loans in the same time frame. . . .

From 2005 to 2008, strategic defaults rose by 68 times in California, by 46 times in Florida and by three to 18 times in other regions. Strategic default was seven times more common among mortgages originated in 2006 than those begun in 2004.

After the government has taken your money to bail out the banks, will you feel obliged to keep your end of the mortgage deal with the bank when it stops making financial sense for you?

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(Via Division of Labour.)

Just imagine how much the entire world would benefit economically if the billions of poor people were middle-class consumers.

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Ken Johnson, 52, makes his living at George and Market St, outside the Myer store in Sydney’s CBD, where he sits for up to 16 hours daily, seven days a week.

On a good day, he said, he takes in $400 from generous passers-by.

On slower days, he still picks up amounts between $75 and $150.

“I’d be really disappointed if I did a long Friday and I only had $250,” said Mr Johnson, who has been living on the streets “since the late ’90s”.

“I knock off when I feel like it, or if I’ve done brilliantly. But on those good days, you might be on such a high that you go for a few more hours and get a bit more money.”

Mr Johnson wouldn’t say how much he earned last year. But he did reveal that donated coins and notes are stashed in a safe place, before being taken to a bank branch and deposited in his account several times a week.

Nice work, if you can get it. No taxes, too. I wonder how typical this success story is for the business model in question.

(Via Lone Star Times.com.)

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Taxpayers will sadly discover that this year will be one month shorter than last year. Why? Bailouts, big budgets, cap and trade energy costs and government medicine move Cost of Government Day one month later than last year.

Every year, the Americans for Tax Reform Foundation and the Center for Fiscal Accountability calculate Cost of Government Day, the day of the calendar year when the average American worker is done paying off his or her share of the cost of government. While other indices look primarily at taxation as a measure of the cost imposed by government, the annual Cost of Government Day Report takes into account the total spending burden as a percentage of GDP coupled with government regulations, an oft-forgotten, but significant burden also borne by the economy.

With Cost of Government Day falling on Aug. 12 this year, American workers had to work 224 days out of the year to meet the cost imposed on them by government. In other words, for 2009 the cost of government consumes a whopping 61.34 percent of national income.

Last year’s COGD date of July 16 was already the fifth latest it had been in 32 years. This year the day on which the average American worker has earned enough in cumulative gross income to pay off his or her share of spending at all levels of government and the often forgotten cost of regulation has been moved into the middle of August. With that, COGD 2009 falls 26 days later than last year, and even 23 days later than the previous record-late date of July 20, on which COGD fell in 1982.

Next year? Mid-September, the way things are going.

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The longtime head of Harvard Management Company, Jack Meyer, quit to start his own hedge fund in 2005 after growing fed up with criticism over the eight-figure salaries some of his managers were pulling down and with persistent meddling from top Harvard officials. Two particular annoyances were [Larry] Summers, who had been questioning Meyer’s investment strategies, and Robert Rubin, a member of the Harvard Corporation, who frowned on Meyer’s aggressive strategies and wound up on the “warpath” with Meyer, as one person put it.

When Meyer left, he took much of Harvard Management Company with him – including 30 portfolio managers and traders, as well as the chief risk officer, chief operating officer, and chief technology officer. The place became “like a Ferrari without the engine,” according to a portfolio manager who arrived after Meyer left. This angered Rubin, according to someone who knows him well: “In Rubin’s opinion, Meyer crippled the institution.”

“In the real world, people get fired for mismanagement like this,” says the article. In the real world, they surely do. In the Obama White House, though, Larry Summers is now the chief economic adviser to the president of the United States.

(Via Greg Mankiw.)

Plus: The Sad, Suffering Ivy League with its multi-billion-dollar endowments.

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It will only be available to existing customers in negative equity who want to move house.

Negative equity means that the value of someone’s home is worth [sic] less than the amount they owe on their mortgage.

Nationwide only offers new customers mortgages worth 85% of the value of the home they want to buy.

Under Nationwide’s new product, borrowers would take out a loan for 95% of the value of their new house at a fixed rate of 6.73% for three years or 7.48% for five years.

They would then be able to add on the negative equity from their old home, up to another 30% of the value of the new property, at a higher fixed rate of 7.23% for three years or 7.98% for five years.

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It’s not surprising that Democrats in Congress could not resist adding a “Buy American” provision to the fiscal stimulus bill earlier this year. It might seem sensible (or at least politically useful) to ensure that taxpayer dollars would be used exclusively to support American jobs.

But as states and municipalities start spending stimulus money, the idea is starting to look as counterproductive as it should have looked from the beginning. It is sparking conflict with American allies and, rather than supporting employment at home, the “Buy American” effort could ultimately cost American jobs.

Even the New York Times is not surprised that Democrats in Congress make legislation without much thinking. If it’s politically useful, they just can’t resist it.

(Via Mark J. Perry.)

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“There’s probably never been a worse time to have credit card debt.”

Think you’re safe because you don’t carry balances? How about paying interest starting from the day a purchase was made, because your bank decided to scrap grace periods?

There is advice on what you can do on the last page of the article.

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Obama’s proposed tax increases create a massive financial penalty for married couples, by subjecting them to much higher income taxes than if they had chosen to live together without getting married. (Unmarried people voted decisively for Obama. But as the Associated Press notes, “married people tend to favor” Republicans like McCain).

Under the tax increases contained in Obama’s recent budget proposals, a married couple making $232,000 a year would be in a higher tax bracket than many unmarried couples making $370,000 a year. Simply by getting married, a man and woman making $170,000 each would be pushed up from their current level of 28 percent to 36 percent. But an unmarried couple making $340,000 a year ($170,000 each) would be taxed at 28 percent. And a married couple making $380,000 would be taxed at 39.6 percent — not counting certain adjustments that bring the rate to 40.7 percent. (That’s just the federal standard rate. You have to add to that state income taxes (up to 10.3 percent), and federal self-employment taxes, which many small business owners pay — which could result in marginal rates of well over 60 percent).

Obama’s proposals impose tax increases on any single person making over $190,650. Worse, they increase taxes on all married couples making over $231,300 — even if each spouse only makes half of that, or $115,650, far less than the $190,650 that drives up the rate for singles.

If married folks vote Republican, then it’s entirely logical that Obama wants fewer of them by 2012.

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New York, which until eight months ago was the financial capital of the world, is no longer even the financial capital of the United States. Washington is.

They are from the government and they are here to help. Just don’t expect them to leave when they’re done helping.

(Via Dr. Mark J. Perry.)

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BerkShares -- a local currency in Great Barrington, Massachusetts

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That’s right – the city that once rang the Liberty Bell is now the heaviest-taxing city in America.

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