Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. An earlier version appeared at Project Syndicate.
August 26, 2024 — Over the past 85 years, Hollywood has had much to say about financial markets and institutions – often reflecting a distinctly populist perspective. At a time when both populism and financial volatility are much in evidence, what lessons might these movies hold about regulation?
- Wall Street speculators
Start with the Wizard of Oz. The 1939 movie was a populist allegory about money, though most devotees don’t know it. The Emerald City represents Wall Street, while the yellow brick road symbolizes the gold standard. The Cowardly Lion represents William Jennings Bryan, who, when the original book was written in 1900, was an agrarian populist candidate running for president against the monetary austerity of the gold standard and on behalf of western farmers (the Scarecrow) and eastern factory workers (the Tin Man).
Fifteen years later, the 1955 film East of Eden reflected the view of speculation as sinful. Cal Trask (played by the legendary James Dean) “goes long” in beans, in anticipation of an increase in demand if the United States enters World War I. Sure enough, the price of beans skyrockets. But when Cal offers the profits to his father, he is rebuffed. The father is morally offended by his son’s actions, which he sees as profiting off of others’ misfortunes.
Cal has been the agent of Adam Smith’s famous invisible hand: By betting on his hunch about the future, he has contributed to upward pressure on the price of beans in the present, thereby increasing the supply so that more is available precisely when needed (by the British Army). The speculation is “stabilizing,” in that the increased supply will dampen the price spike.
- Financial misdeeds
Thus, there is in fact a case in favor of the famous pronouncement, “Greed, for lack of a better word, is good,” by corporate raider Gordon Gecko (played by Michael Douglas). But in that 1987 movie, Wall Street, he makes his money on insider trading. So do the protagonist commodity traders (including Eddie Murphy and Dan Akroyd) in the 1983 comedy Trading Places, the most entertaining of the lot.
In the 2013 movie, The Wolf of Wall Street, a shady stockbroker played by Leonardo di Caprio makes his money by “pump and dump” victimizing of this clients. Although the audience is expected to have a sneaking admiration/envy for these rogues, they clearly have the moral failings that worried Cal’s father. Their schemes warrant regulation to protect the general public.
- Bank runs
Runs on banks are a form of destabilizing speculation. But they need not be attributable to evil big-city bankers or financial speculators, according to two Hollywood classics. In It’s a Wonderful Life, of 1946, ordinary depositors converge on the Bailey Brothers Building and Loan in small town Bedford Falls. Each demands their money back out of fear that others will do the same, depleting the institution’s reserves. Only by sacrificing his own honeymoon money does George Bailey (Jimmy Stewart) stave off failure. Some economists blame such 1930s bank crises in the US on the era’s federal prohibition against interstate banking.
In the 1964 Disney movie Mary Poppins, starring Julie Andrews as the nanny, depositors run on a London bank when one of them mishears the son asking for his tuppence, unimpressed by the bank chairman’s paean to the financing of railways and plantations across the British Empire (Dick van Dyke). The drama was inspired by real events: an anonymous letter triggered a run on deposits at Birkbeck Bank in 1910, the year in which the film was set.
We have known for some time the right sort of regulation to deal with bank runs. Government agencies ensure depositors — at least, up to some threshold — and should intervene in the event of bank failure. But to guard against moral hazard (excessive risk-taking ex ante in response to prospects of bail-out at the expense of the taxpayer), the agencies require that each bank keeps certain levels of reserves and investor capital. Such requirements intentionally constrain their profits, as a sort of ex ante insurance premium.
In the 2023 morality tale, Bank of Dave, a good-hearted businessman in the mold of George Baily tries to open a small bank in a small English town. The big London banks underhandedly try to stop him, ultimately relying on onerous capital requirement via a totally captured regulatory body. (In the movie, Dave manages to come up with the capital in the end. In real life, he did not.) The audience is unlikely to guess from this that big banks tend to lobby politically for lower capital requirements, not higher ones. The public has an interest in high capital requirements.
Many other movies are like Bank of Dave in confirming the public’s most cynical beliefs about how government actually works. In another Dave movie, in 1993, Kevin Kline plays a presidential look-alike who, while standing in at the White House, calls in an accountant friend who spends an afternoon straightening out the federal governments’ horrendous books.
Clearly, government regulation did fail, and markets did go haywire when the troubles of the US sub-prime mortgage turned into a global financial crisis in 2008. The crisis naturally provided Hollywood with a lot of inspiration, including Rollover, Margin Call, and Wall Street: Money Never Sleeps, among others.
- Short selling
In The Big Short, a few free-thinking investors in 2006-07 figure out that the US mortgages have been excessively packaged, sliced, and derivatized. There are great asides to the audience explaining financial concepts like derivatives. They “short” the market, i.e., they bet that it will implode, a bet that – with time – pays off. If you think about it, the episode illustrates the virtues of short sellers in that they give the market its come-uppance. By selling in an over-valued market, they are stabilizing speculators.
But financial market skeptics are often especially hostile to short sellers. In Dumb Money, the meme-stock-traders who bought GameStop stock in the mania of early 2021 considered themselves the good guys, who stood up to the short-selling hedge funds. (At least James Dean’s Cal bet in favor of something, rather than against it!) And yet, short selling serves an important purpose, as a check on excessive market exuberance, as we learned from The Big Short. One lesson for policy is that regulators had to step in and call a halt, when meme-market stockbroker Robinhood found itself short of capital.
- Reform of financial regulation
Many politicians campaign with rhetoric appealing to popular anger at the Gordon Geckos who work in the Emerald City. Some of those politicians, once in office, follow through and try to improve regulation. Examples include recent regulatory efforts to strengthen capital requirements in the “Basel III end-game.” In the United States, they build on the post-crisis Dodd-Frank legislation of 2010, which included regular stress tests for banks and strengthened regulation of derivatives.
Meanwhile another sort of politician also engages in campaign rhetorical attacks on evil bankers and speculators; but once in office, they in fact try to block or roll back the regulatory reforms. Evidently, they figure that the voters are too dumb to know the difference. Until the next crisis hits.
This post written by Jeffrey Frankel.
Nice flow of writing there. Like it. Hey maybe you and Menzie should get together and write a book next summer (not being facetious). Entertaining prose is hard to find in Economics and finance. I smell a best-seller.
https://jabberwocking.com/what-j-d-vance-really-said-about-tariffs/
What J.D. Vance really said about tariffs
Kevin Drum provides a short clip of J.D. Vance talking about tariffs and I do declare Vance is almost as dumb as Bruce Hall. Kevin to his credit corrects the incredible misunderstandings or misrepresentations of this utter dunce who says he want to be Vice President.
Exports are an interest of yours, since they are kinda related to transfer pricing, yes??
https://www.nytimes.com/2024/08/22/world/africa/large-diamond-botswana.html
Google Belgian Diamond Regime.
More directly to Botswana where diamond production is a really big deal:
https://blog-pfm.imf.org/en/pfmblog/2024/07/management-of-botswana-diamond-revenues
Management of Botswana’s Diamond Revenues
Keith Jefferis, July 8, 2024
I found this interesting:
Botswana has managed to avoid the worst excesses of corruption found in many mineral economies. There are a number of reasons for this, including competent and honest public sector officials, and a transparent fiscal regime laid out in key legislation (the Mines and Minerals Act, the Public Finance Management Act and the Tax Act), with little scope for off-budget spending. Dealing with a single company for most mineral revenues has also helped. Under the deal with De Beers, GoB has 50% of the seats on the board of the joint venture diamond mining company (Debswana), as well as two seats (and a 15% shareholding) on the board of De Beers, the parent company. This has helped with transparency and access to information. It also reduced the risk of transfer pricing. In its negotiations with De Beers, GoB brought in high level external expertise (legal, technical, financial) where necessary, to enable it to match the resources available to De Beers. Finally, the Pula Fund is under the management of the central bank, and has benefitted from the high level of expertise and independence that comes with this.
Hollywood offers us lessons about financial regulation, but that’s just Hollywood. We all know Hollywood is full of commies. Well, sometimes Hollywood is full of Jews, but that’s an inconvenient stereotype when discussing finance, so let’s stick with commies. In the world of practical men (cue music from Bible school):
Finance is good for me I know
Larry Summers tells me so.
From the earliest days of civilization, there have been limits on finance, but those limits grew out of ignorance, a reflection of primitivism. We now know that prolific financialization is good for us, and regulation is a hindrance to that proliferation.
Right?
‘Reassessing the impact of finance on growth’
Stephen G Cecchetti and Enisse Kharroubi
“This paper investigates how financial development affects aggregate productivity growth. Based on a sample of developed and emerging economies, we first show that the level of financial development is good only up to a point, after which it becomes a drag on growth. Second, focusing on advanced economies, we show that a fast-growing financial sector is detrimental to aggregate productivity growth.”
And there are also the problems attendant on the financial dominance of non-financial firms. Boeing’s terrible record with the 787, and apparently with the Starliner as well, stems from allowing financial ratios to drive manufacturing decisions:
https://hbr.org/2014/06/the-price-of-wall-streets-power
Boeing’s not the only one.
And let’s not forget the waste that results from Minsky moments: the Great Recession, Japan’s Lost Decade, the Asian Crisis, the Tesobono Crisis, the ’29 Crash, Evergrande and China’s growth problems, the South Sea and Mississippi Bubbles, the Panic of 1907, the Dot.Com bubble, the Panic of 354 BC in Athens, on and on.
It’s funny, Isn’t it, when bubble-headed Hollywood have accepted the lessons of history while Hayek, Freedman, Buchanan, Greenspan, Rubin and Summers think they know better?
I saw a super thick biography of Lew Wasserman in a used bookstore today, in good condition, could have picked it up for $6.99. Did I screw up not picking it up??
Depends on who wrote it. Behind the scenes, literally “the scenes”, can be quite fun reading.
“RONA is used by financial analysts to judge managers and companies, and the fixation on this kind of metric has influenced the choices of many firms.”
Oh gee – one of those geeky transfer pricing terms. Someone calm Matt Gaetz down is RONA is not some 17 girl. Operating profits relative to the sum of tangible fixed assets, inventories, and receivables net of payables. A rather simple minded term but at least people who look at this understand one needs to look at the balance sheet and not just the income statement. Yea – way over Bruce Hall’s head.
So I take a quick look at Boeing’s financials. Tangible net assets (not including recorded intangibles) is nearly $80 billion. So one might hope its operating profits would be around $8 billion per year. Nope – operating losses near $2.4 billion per year.
Not exactly maximizing RONA!
boeing is an example of a technology and manufacturing company that got fleeced by the financial crowd. my guess is not one person in upper management at boeing even considered the long term ramifications of crashing planes and stranded spacecraft. their focus was on how to maximize next quarters profit and how to collect as much as possible from the lastest government contract. deliverables were the problem of engineers. and the financial folks had no interest in talking to those people.
since the financial crash, i have been tempted on occasion to invest in boeing. why wouldn’t you invest in the biggest and best aerospace and aircraft producer in the world? i have seen worse charts. but never could convince myself to pull the trigger. they just seemed to always be digging a deeper hole. i tank the company probably needs broken up into a couple of parts. jets and rocket ships are not really similar in nature, from an engineering perspective.
I kept wondering why we saw Matt Gaetz on TV footage singing “Muh-muh-muh my ShaRONA!!!!” Weird……..
https://abcnews.go.com/US/video/house-ethics-committee-probes-rep-matt-gaetzs-alleged-111253588
For those wanting to pay close attention to the Gaetz story, journalist Will Steakin has been ABC’s pointman on this:
https://abc7chicago.com/post/florida-rep-matt-gaetz-investigation-sex-trafficking-house-ethics-committee/14977155/
It appears many of the dirty details are on Gaetz’ Venmo account, which eventually there is a decent chance will become public record. No word yet on if Harvard’s Alan “I had my tighty whitey undies on the entire time Punky Brewster massaged me” Pedowitz will defend Gaetz in court.
Of course Gaetz had his rich friend pay prostitutes to have sex with him. Just take a look at that ugly face and weird hairdo. What woman would do Matty unless she was paid a lot to do so? Ugh!
This might help, eventually, someday:
https://fred.stlouisfed.org/graph/?g=1t83H
Off topic – more climate news:
There are a number of potential tipping points in the regulation of global temperature. One that is common in climate models but not so common in the press is cloud feedback.
Clouds reflect sunlight away from the earth’s surface, reducing solar gain. Atmospheric CO2 concentrations regulate cloud formation. There is evidence that stratocumulus clouds will begin to break up as CO2 concentration rises above 1200 ppm:
https://www.nature.com/articles/s41561-019-0310-1
When might we reach 1200 ppm? Glad you asked. Apparently, as science-minded people are wont to say, it depends. If we focus on the trend on CO2 concentration, we may be on track to cross the threshold in 2035:
https://arctic-news.blogspot.com/2024/08/carbon-dioxide-growing-rapidly.html?m=1
Or, as indicated in the same article, we may need to think in terms of CO2 “equivalents”, not just CO2. Because of the accelerated release of methane into the atmosphere, the 1200 ppm level of CO2 equivalents could be reached as early as 2027.
Diminished statoculumus cloud cover would redult in an abrupt increase in solar gain, which leads to an abrupt increase in surface temperature over about 20% of the world’s oceans. Some land, too, but ocean temperature rise causes more serious chain reactions.
OK, I’ll stop boring you now. Well, except for one question: Who ya gonna vote for?
The red-state, head-in-the-sand, climate science denier governors (Abbott, DeSantis, Reeves) are all saying “Who coulda knew? But, the weather is always changing, climate science is a hoax, etc. etc. B.S.” as their constituents huddle in darkness and extreme heat after their electric grid goes down and their coastal towns get swamped. https://www.axios.com/2024/08/20/extreme-heat-texas-gulf-coast-states
If I was a Gulf State resident – this chart is especially concerning – “This is out of bounds from the kinds of variability that we’ve seen in [at least] the last 75 years or so,” Ben Kirtman, director of the Cooperative Institute for Marine and Atmospheric Studies, a joint initiative of the University of Miami and the National Oceanic and Atmospheric Administration (NOAA) – https://www.vox.com/climate/368324/hurricane-season-2024-gulf-mexico-ocean-warming
When do their constituents demand these GOP climate change deniers start adapting to climate change or vote them out of office? Or at least vote for Harris/Dem at federal level and hope the federal government keeps bailing you out.
the red head in the sand state of texas is problematic, because the republican’s in this state are a bunch of entitled, spoiled, cheating liars who simply break the law to maintain their grip on power. i used to think the state would turn purple or blue soon, but lately i have changed my belief somewhat. as long as folks like abbott, patrick and paxton are in power, they will continue to abuse and use back room politicking to keep their minority in power. texas is not a democracy at this point in time, but controls through the deliberate misuse of power. this is what concerns me about trump. texas has shown that in america today, authoritarian rule can actually be implemented. the texas attorney general should be in jail, but instead continues to abuse his political power in very undemocratic ways. america should be very disturbed by what is happening in texas today, folks. mark my words, texas is a preview of what you will get with trump.
Speaking of climate change and migration and adaptation by the the Biden and Harris admin – the savings provided via the Inflation Reduction Act on energy costs for households is huge. For solar panels alone: “The savings from solar vary from locality to locality, but recent research quantifying the savings in 2021 for about 500,000 households across the U.S. that have adopted residential solar finds that the median adopting customer saw total electricity bill savings of $2,230 annually.” https://home.treasury.gov/news/featured-stories/the-inflation-reduction-act-saving-american-households-money-while-reducing-climate-change-and-air-pollution
You don’t find this much in the corporate media and you do have to do a little digging to find out the impact Biden/Harris policies are having.
Of course the NY Times would much rather publish some vibe B.S. by a self-important editor “Opinion | Joy Is Not a Strategy” (behind a pay wall – so will not link) – it would be nice if NY Times editors would do a little googling before spouting off – https://democrats.org/where-we-stand/party-platform/ or listen to the board outline that Harris provided in her speech.
Another thing not discussed is that low prices on solar panels combined with dirt cheep next generation home batteries will kill the utility companies.
The cost of hydrocarbon energy and keeping the grid alive is weighing down utility companies and putting a floor on how low they can drive prices.
At the same time a lot of people, having to endure loss of power, are beginning to crunch the numbers for partially or fully going off grid. You can buy free standing solar panels for almost half the price of an installed roof system. And the free standing home systems can be pointed south regardless of the orientation of your home. Add home batteries and an emergency generator (for those 5 days a year…) and you can drop the grid and your power company.
The power companies with a large legacy of hydrocarbon electricity will get into a death spiral. They will neither be able to compete on cost, nor reliability.
My guess is that the first country to have a decentralized but interconnected grid will be Ukraine. Each little village will have a solar panel farm on one side of the village and a windmill on the other – with a battery in the middle. Each village would have its microgrid connected to the 3 nearest villages. Outlying farm houses would have their own solar panels and wind turbine with a battery and not be connected to a grid at all. Putins attack on Ukraines infrastructure is pushing forward the day when nobody will have any use for all his natural gas.
I am not quite as optimistic as you, but agree in general that individuals will have an outsized influence on the grid-if permitted. for instance, in texas, the state restricts one’s ability to return power back to the grid for profit. the utility is just protecting its monopoly. once batteries drop by about 50%, you will see a great increase in home installations. they are still a little too expensive. but that will change. especially as people continue to adopt EV. and if you are permitted to use the battery in your EV for your home for backup purposes (Tesla restricts this right now, as I understand), then the home battery arrangement becomes even more economical. the only people who are vocal against the electrification process are those with a vested interest in hydrocarbons, or those too stooopid to understand the change that has already arrived.
The undermining of Dodd-Frank has a lot of aspects some of which were rollbacks in specific regulations. Now we all know John Cochrane hates regulations which he considers “weeds in the garden” (Martha Stewart knows all about this as well as insider trading) but he is a big proponent of higher capital requirements. From the NYTimes article:
‘Capital requirements: Banks are required under Dodd-Frank to hold a certain amount of capital in reserve as a buffer against crisis. Bank executives dislike high capital requirements, which force them to limit stock buybacks and dividend payments, both of which can help lift share prices.’
Now as your links note, Trump’s 2018 actions went along with the big bankers and rolled back capital requirements. Now maybe I missed it but when did Cochrane ever bother to criticize Trump for that?
https://x.com/Acyn/status/1827739399267967132?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1827756750440661015%7Ctwgr%5Ea030389578807311c95ef508678385fe42766014%7Ctwcon%5Es3_&ref_url=https%3A%2F%2Fwww.msn.com%2Fen-us%2Fnews%2Fpolitics%2Ffox-news-host-confronts-trump-adviser-with-positive-biden-economic-record%2Far-AA1ppukY%3Focid%3Dmsedgdhppc%3DU531cvid%3D801d6c7d34684c0daddef89119db5b61ei%3D7
Kurtz: Don’t they get credit for things that are positive? The record breaking stock market. The Dow breaking 41000 on Friday
Miller: That’s simply because businesses think that President Trump is going to come back in. A big part of that, the RFK Jr endorsement
So let me get this straight. On days when the market falls, that’s the Kamala Krash. But when the market does well – that’s because of Trump?
I wonder as this farce when on whether Jason Pinocchio Miller’s nose got so long they had to abandon the studio.
Republican group cites notorious Dred Scott ruling as reason Kamala Harris can’t be president
https://www.msn.com/en-us/news/politics/republican-group-cites-notorious-dred-scott-ruling-as-reason-kamala-harris-can-t-be-president/ar-AA1pmSFT?ocid=msedgdhp&pc=U531&cvid=533cf905a827438b99e59b3eebaa50c8&ei=13
Birtherism on steroids.
Good golly, put GOP racism on display ahead of the election, by all means!
Natural “born” citizen isn’t a problem for Harris, since she was born in Oakland, California. That simple fact means some other motive must be at work in this silly claim. Signaling racism is the only motive I can think of.
Jesus.
I agree Trading places was the most entertaining of the lot but I di enjoy the big short
Feds take grocery merger to court amid 2024 fight over high food prices
https://www.msn.com/en-us/money/companies/feds-take-grocery-merger-to-court-amid-2024-fight-over-high-food-prices/ar-AA1pr62T?ocid=msedgdhp&pc=U531&cvid=9a9c1f91ffd24c7b81d49fc312a1c15e&ei=19
A challenge to the merger of the country’s two largest grocery store chains goes to trial Monday — the Biden-Harris administration’s latest and perhaps most consequential bid to combat high grocery prices. The administration sued to stop the $25 billion deal to merge supermarket giants Kroger and Albertsons in February, arguing that it would lead to higher food costs and fewer and worse jobs for unionized workers. They now have a chance to make their case before a federal judge in Oregon over the course of the three-week trial.
Moses raised the interesting question with respect to Botswana export of diamonds the transfer pricing implications. This story serves as background:
https://botswanaminingreview.com/is-botswana-getting-a-raw-deal-from-de-beers-diamonds/
Not sure why I can’t cut and paste key portions of this story but the essence is that the government gets to keep 25% of the diamonds but receives royalties and taxes on De Beer’s profits on the value of the rough diamonds. But there is something missing from this story.
De Beers has processing affiliates in low tax jurisdictions which may be paying below market prices for the rough diamonds. That’s the real transfer pricing story and De Beers is notorious at manipulating this game.
“Proving them wrong”: After raising minimum wage, California has more fast-food jobs than ever
https://www.msn.com/en-us/money/companies/proving-them-wrong-after-raising-minimum-wage-california-has-more-fast-food-jobs-than-ever/ar-AA1pszLy?ocid=msedgdhp&pc=U531&cvid=362f730720e34d81a3f69125a8411b1e&ei=15
‘Last year, California Governor Gavin Newsom signed the state’s fast-food minimum wage increase into law, which meant that employees at fast-food restaurants in the state went from making $15.50 per hour to $20 per hour. While the decision was lauded by many labor activists as part of broader efforts to improve working conditions and address wage disparities, some economists and fast-food industry members expressed concern over how the law would impact restaurants’ operating costs, which could result in reduced hours for workers or even job cuts.
However, according to new state and federal employment data, California’s fast-food industry has added jobs every month this year — including 11,000 new jobs since the wage increase officially went into effect in April. For instance, in May of 2023, there were 742,600 fast-food workers in the state; a year later, there were 743,300 workers. According to a release from Newsom’s office last week, since raising worker wages, every month this year has seen consistent fast food job gains, and nearly each month has seen more jobs than the same month last year.’
And Steve Koptis along with his fellow MAGA morons told us there was no such thing as monopsony power.
Two things…
1) There is some evidence that minimum wage increases during expansion don’t cost jobs, but do cost jobs during contractions. (If you see a potential problem with controlling for business-cycle effects, raise your hand.) We’re in expansion now. We’re in expansion most of the time.
2) It’s possible that some fast-food operators can’t turn a profit after a minimum wage hike, while others make sufficient profit to expand, with the balance resulting in an increase in fast-food employment. I think I read somewhere about how markets create pressure for efficiency and how that’s a good thing, but I could be mistaken.
The big problem with the logic of this “increase the wage and we will fire workers” narrative is that someone got to do the flippin flipping. The work amount doesn’t go down because your wage expenses increase. You already have been forcing the workers to run as fast as they can, so you cannot get more done by fewer workers. The idea that you would then invest half a million in a burger flipping robot, is not that convincing either – the profitability of those things are only marginally improved by higher workforce cost – and whereas you can fire and hire people according to how many burgers you are selling you cannot fire the robot (or the payments on it). So the robot is a risky fixed cost whereas workers are a very flexible cost that quickly adjust to sales.
The good thing about a community wide increase in minimum. wage is that it gives a lot more people the means to buy fast food often. So any minimal loss of labor due to automation, is more than compensated for by the fact that a lot more people can afford to buy that fast food product.
https://www.msn.com/en-us/news/opinion/letters-to-the-editor-what-small-government-conservatives-completely-miss-about-harris-price-gouging-plan/ar-AA1prqYL?ocid=msedgdhp&pc=U531&cvid=2a1ca2f58b54420094b2019ec25cf510&ei=13
Letters to the Editor: What small-government conservatives completely miss about Harris’ price-gouging plan
I earlier made a little fun at the expense of Jonah “momma’s boy” Goldberg and his lame LATimes oped attacking Harris’s economic proposals.
Three excellent letters doing an even better job of slapping down Goldberg’s stupid arguments. Take a read.
Stepped-up enforcement of sanctions against Russian energy exports:
https://splash247.com/us-cracks-down-on-russias-lng-dark-fleet/
Did Bruce Hall write this stupid trash?
Harris Sees Price Gouging at Grocery Stores. How the Kroger-Albertsons Deal Shows That’s Off the Mark.
https://www.msn.com/en-us/money/companies/harris-sees-price-gouging-at-grocery-stores-how-the-kroger-albertsons-deal-shows-that-s-off-the-mark/ar-AA1ptb1w?ocid=msedgdhp&pc=U531&cvid=e28adeffa4a94e83be58415b3b4eea49&ei=24
‘Supermarket giants Kroger and Albertsons went to court on Monday to defend their $25 billion deal, which has been a major target for antitrust regulators since it was proposed in 2022. The U.S. Federal Trade Commission’s antitrust case comes at a time when high grocery prices—and whether big food companies are to blame—are under the political spotlight once again as the presidential election drew closer. But politicians might be focusing on the wrong target when it comes to reining in food costs.’
Let’s stop right there. The focus is on the market power of food processing firms and not so much grocery margins. But this idiot reporter cannot get this right either.
‘In its latest fiscal quarter ended in May, Kroger’s gross margin was 20.3%, about even with the prepandemic level. After deducting the costs of running the business, its net profit margin was only 2.1%. At Albertsons, gross margin for the June quarter was 25.7%, down from 28% five years ago, while net margin came at 1%.’
Net margin deducting out things like interest expenses. Albertson’s operating margin over the last three years has been almost 3% while Kroger’s has been almost 2.5%. That’s pretty high for a sector where the asset to sales ratio is less than 20%. But wait you say, Kroger’s gross margin appears low – right? Well that is because its cost of goods sold includes certain operating expenses. From their income statement:
‘Merchandise costs, including advertising, warehousing’
If this reporter cannot be bothered to read the financial reports of a company that he or she should not be bothering us with his or her ignorant babble.
Let’s ignore the fact that margins prior to a merger are comletely irrelevant to whether the merger will violate anti-trust law, and that raising current margins suggesting that Ms. Liu is unqualified to offer opinions on this issue. And that her editor us a dimwit. We’ll let that pass.
The reporter doesn’t understand the implication of her own argument. She thinks Albertson’s and Kroger’s margins are low? Whatever. Why on earth would a low-margin firm want to spend billions just to acquire another low-margin operation?
Well, if “to increase margins” is the answer, then how is a merger going to increase margins? Ain’t gonna be “synergies”. Aside from the fact that “synergy” is a joke, these two firms do exactly the same things.
“Increase market concentration to gain market power” seems a likely answer, and a good reason to prevent the merger.
If Ms. Liu thinks it’s her job to argue for the merger, she needs to actually make the argument. What’s the motive behind the merger, other than gaining market power?
She reminds me a lot of Bruce Hall. She takes one quarter of financial data that she has already misrepresented. I took the last 3 years and the average operating margin for Albertson’s was nearly 3% and for Kroger it was around 2.5%. That is above what most grocers make and yea – a merger would allow them to further jack up their margins.
But Bruce Hall is not going to be worried until grocery stores get 30% operating margins as Apple gets that – making computers and smart phones, which Bruce thinks is a healthy form of fruit.
She decided to write something on those food processors!
https://www.marketwatch.com/articles/biden-meat-prices-usda-rules-fe6772ce?g=7e226449-9dc1-4adc-ac7d-18dbf32a7629&link=sfmw_tw&mod=mw_rss_bulletins
“Trade groups in the meat industry argue that the changes would only introduce unnecessary regulations and costs, and lead to even higher prices. “The Biden administration says these changes to the PSA’s regulations are about increasing competition, but they have nothing to do with competition,” said Julie Anna Potts, president of the North American Meat Institute, in a Tuesday statement.”
What is her job at Barron’s? Kissing up to the trade groups? Damn!
Republicans for Harris-Walz
https://www.documentcloud.org/documents/25071901-bush-mccain-and-romney-alumni-for-harris-statement
Bush, McCain, and Romney Alumni for Harris Statement
Signed by 238 Republicans with impressive credentials!
De Beers has processing affiliates in low tax jurisdictions which may be paying below market prices for the rough diamonds. That’s the real transfer pricing story and De Beers is notorious at maniputing this game.
https://www.airfryerguidance.com/?m=1
Not sure the connection with Air Fryers but your comment is spot on.
Good news from Georgia (beyond the Lil Jon performance last Tuesday):
Georgia governor demands removal of MAGA election board members after alarming votes
https://www.msn.com/en-us/news/politics/georgia-governor-demands-removal-of-maga-election-board-members-after-alarming-votes/ar-AA1ptx4T?ocid=msedgdhp&pc=U531&cvid=f0a8964870f84052ad3e2eb0f8e65f1d&ei=8
Georgia’s governor has asked his attorney general if he can remove state election board members after three right-wing members approved a series of alarming new rules. Republican Governor Brian Kemp asked Attorney General Christopher Carr for “guidance” on whether he can remove members of the state election board, the Atlanta Journal-Constitution reports. This comes after three right-wing members of the five-person board championed and passed a series of new rules that add extra requirements for county election boards to certify their results.
Look – I still think Stacey Abrams should be the governor of Georgia. But at least is not part of the Trump mafia. Expect Trump to have a Social Media melt down tonight!
Heat-related deaths in the US
https://jabberwocking.com/raw-data-heat-related-deaths-in-the-us/
Average temperatures in the US have gone up 2°F since 2000. That might not seem like much, but when the average increases a little the tail of the bell curve increases a lot. In the past decade, that small increase in average temps has caused the number of extreme heat waves to increase by upwards of 3x. Thus the very large increase in heat-related deaths.
Yea but climate change denier Bruce Hall would tell us getting rid of these people is a good thing. After all – he celebrated it when a lot of old people died from COVID19.
Menzie – I spent some time this morning – tallying up the federal investments in infrastructure and business investment in Wisconsin: $177 Million to WisDOT for roads and bridges etc – https://wtaq.com/2024/08/26/gov-evers-wisdot-announce-wisconsin-to-receive-over-177-million-to-support-76-projects-statewide-under-biden-harris-bipartisan-infrastructure-law/ – about $5 billion in covid relief funding directed by Evers (about $63 billion total to business etc.) https://www.politifact.com/factchecks/2023/mar/14/joan-ballweg/has-wisconsin-really-seen-63-billion-covid-relief/ – $1 billion to replace Blatnik Memorial Bridge in Superior (plus additional Minnesota and WI state funding) https://pbswisconsin.org/news-item/more-than-1-billion-in-federal-funding-awarded-to-replace-bridge-connecting-duluth-and-superior/ – $139M for drinking water infrastructure upgrades https://www.wpr.org/environment/wisconsin-funding-drinking-water-lead-pipe-infrastructure-upgrades – $1.1B in federal broadband funding approved for badly needed rural broadband investment https://www.wpr.org/economy/wisconsins-plan-for-1-1b-in-federal-broadband-funding-approved – nearly $50M in federal grant funding for Wisconsin Biohealth Tech Hub https://www.wpr.org/news/wisconsin-biohealth-tech-hub-to-receive-nearly-50m-in-federal-grants – and some notable business investments – Microsoft announces $3.3 billion investment in Wisconsin https://news.microsoft.com/2024/05/08/microsoft-announces-3-3-billion-investment-in-wisconsin-to-spur-artificial-intelligence-innovation-and-economic-growth/ and Oshkosh Defense awarded $1.5 billion Army contract for large transport trucks – https://biztimes.com/oshkosh-defense-awarded-1-5-billion-army-contract/ (Oshkosh Trucks makes military and utility trucks in Fox Valley in Wisconsin.)
(I am sure I am missing a lot in federal investments in renewable energy and electric charging stations and other areas such as USDA funding.)
Now – if only we can get rid of some of the obstruction WIGOP dingbats in the state legislature in the next election – and finally take the federal ACA/Medicaid Expansion Money – maybe we can move Wisconsin Forward! https://shepherdexpress.com/news/issue-of-the-month/why-does-wisconsin-turn-down-medicaid-expansion-money/ (come on WIGOP – it is time to let the Scott Walker/Tea Party/MAGA B.S. go and just take the billions in federal money for Medicaid expansion.- Let’s try and be more like progressive Minnesota)
If you love strawberries and if you use FRED data, here is a smart presentation:
https://moneynotmoney.com/historical-price-of-strawberries-in-united-states/#absolute_price
The average price of a pound of strawberries between 1981 and 2023 was $2.31, with the lowest price being $0.98 in 1981 and the highest $4.13 in 2023 (at least within the timeframe we have data for). Yes, I’m sorry to say, but strawberries in the United States has never been as expensive as it is today. However, if you look at the inflation adjusted price, a pound of strawberries actually peaked in 2004 at $4.99 (in today’s money)… When we adjust for inflation, we see that the price of strawberries actually peaked in 2004, when it cost $4.99 (in today’s money), and was at its lowest in 1986 when it sold for $3.18.
Some great charts of strawberry prices over time!
1)Immigrant pickers.
2) Whatever farmers are doing to strawberries to make then so bland.
Governor Abbott and Ken Paxton wants to make sure only white people get to vote in Texas:
Texas battles over Paxton-directed searches of Democrats: What you need to know
https://www.msn.com/en-us/news/politics/texas-battles-over-paxton-directed-searches-of-democrats-what-you-need-to-know/ar-AA1psZZn?ocid=BingNewsSerp
A Democrat trying to take one of the GOP’s most coveted Texas districts is at the center of an election-year probe by state Attorney General Ken Paxton (R) in what the nation’s oldest Latino rights group calls a campaign of “intimidation.” State authorities on Wednesday searched the home of Democratic Party organizers in Bexar County, the state’s fourth-largest county and an urban Democratic stronghold, seizing the cellphone of Cecilia Castellano.
Castellano is a Democratic candidate running for the state House seat now held by state Rep. Tracy King (D), who is retiring. Authorities also searched the homes of organizers throughout Bexar, Frio and Atascosa counties. On Monday, the League of United Latin American Citizens (LULAC) called on the Department of Justice to launch an investigation of its own, targeting Paxton’s office for violations of the Voting Rights Act of 1963.
Don’t you just love how Vance opens mouth and inserts foot? This one over the border issue!
https://www.msn.com/en-us/news/politics/jd-vance-s-attack-on-kamala-harris-border-policy-backfires-badly/ar-AA1px1kW?ocid=msedgdhp&pc=U531&cvid=40af922573a5486092391a8eebed1230&ei=8
JDVance’s Attack On Kamala Harris’ Border Policy Backfires Badly
Off topic – Ukraine and Belarus:
https://www.reuters.com/world/europe/ukraine-calls-belarus-pull-back-forces-border-2024-08-25/
I noted a while back how Lukashenko was making up a threat from Ukraine in order to justify a Belarusian troop biild-up on Ukraine’s border. Timing suggests Lukashenko wants to draw Ukrainian troops away from the front with Russia.
Well, what do ya know, Belarus IS building up near the border. Probably no need to fight. Just stretch Ukrainian forces thin
ISW has suggested it is just a bluff to try and draw some of Ukraines troops to the border. Supposedly there are some Wagner troops mixed in with Belarus forces at the border. So actual cross border raids are not out of the question.
Kroger boosts its operating margin using cash back fees:
https://www.consumerfinance.gov/data-research/research-reports/issue-spotlight-cash-back-fees/
Three major firms charge cash-back fees even though other competitors offer it for free. Three retail companies Dollar General, Dollar Tree, and Kroger, which also operate brands such as Family Dollar, Harris Teeter, Ralph’s, and others, charge fees for this service while other national retail companies sampled by the CFPB do not charge a fee. At the two largest dollar store corporations, cash-back fees for small withdrawal amounts are the highest in the sample ($1 or more for amounts under $50). Kroger, the country’s largest grocery chain, recently expanded cash-back fees to its Harris Teeter brand (75 cents for $100 or less), higher than those in place among its other brands (50 cents for $100 or less), in addition to higher fees for larger amounts.