Thursday, July 30, 2009

Morning Links

Some goodies this morning:

1. No green shoots here: This article from Bloomberg discusses the quarterly results from Nintendo and Sony. At the beginning of the retrenchment in consumer spending, certain market pundits suggested that video game sales would be resilient. Guess not. A 57% drop in sales of the formerly wildly popular Nintendo Wii is not a positive sign. Neither is the 31% drop in Playstation shipments. It may be true that the market for the hardware is saturated and most people who would like to buy have already bought. But remember, these companies make their money on software sales. How did overall sales hold up? Down 40% for Nintendo who blamed the 40% drop in sales in lack of “blockbuster software.” Hard for any single title to become a blockbuster if no one spending. The moral of the story? Beware financial prophets who claim that consumer spending is going to be back anywhere near boom time levels. New normal is the new reality.

2. Barney Frank wants your bonus: In his most recent opinion piece, Bloomberg’s Jonathan Weil discusses proposed legislation in the House that would give regulators the right to determine whether or not any financial institutions (possibly including hedge funds as well) with $1B in assets have compensation arrangements that lead to inappropriate risk. Listen, I am all for curbing excessive compensation and eliminating heads I win, tails you lose, especially when it comes to institutions that have many billions in assets. But, I don’t happen to believe it is worth anybody’s time to worry about the systemic risk posed by local banks in Michigan with $1B in assets. This appears to be the perfect example of Congress trying to over-regulate in reaction to a crisis that it should take some blame for creating.

3. Thaler responds to criticism: The following is Richard Thaler’s response to a WSJ op-ed piece by Judge Richard Posner in which he criticized Thaler and the Obama administration’s proposal to create a Consumer Financial Protection Agency (CFPA). In the piece he uses the disturbing story of a child who died in his crib to highlight the need for consumer protection. In comparing cribs to mortgages, Thaler states clearly that he does not advocate regulating that only pink cribs are sold or that only plain vanilla mortgages available. His baseline is that there should be a standard mortgage document (as there are standard leases for rental agreements) that can be changed in an obvious way to cater to individual needs. Regardless of your opinions on the CFPA, I suggest reading this to understand the potential benefits better. (Hat tip to James Kwak of The Baseline Scenario)