Category Archives: Economics

Why GM earnings are not what they appear

Perception: GM’s recent profits means that the federal bailout worked.

Reality: The bulk of the profits came from the sale of two divisions. GM’s stock is still trading below the IPO price paid by the government.

Economist brainiac Megan McArdle makes her usual impressive points. The highlights:

  • GM sold off big stakes in companies to generate the bulk of their profit.
  • GM still excessively dependent on big incentives and fleet sales to move cars.
  • GM’s most profitable sales are heavily dependent on gas guzzling SUVs and trucks, not the best position to be in when gas prices are exploding.
  • Even though GM’s largest competitors just had their supply chain badly damaged by an earthquake/nuclear meltdown, GM’s stock is trading below the IPO price.

The entire McArdle column is copied at end of post. Continue reading

Why Wi-Fi is not free, for now

Perception: Free Wi-Fi should be part of the benefits of staying at higher priced hotels.

Reality: Hotel companies offer free Wi-Fi [Wireless Fidelity?] at lower-cost properties because those hotels are generally newer which means the infrastructure was built to accommodate wireless access. They also usually have fewer rooms, so bandwidth needs are smaller.

A Wall Street Journal article examines how and why those policies are changing. Article is copied at end of post.
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Don’t carp about TARP

Perception: The Troubled Assets Relief Program [TARP], created in October 2008 at the height of the financial crisis, was a disaster and cost the taxpayers $700 billion.

Reality: Out of the $700 billion authorized, only $410 billion was used. All but $19 billion of that amount has been recuperated. TARP basically worked as intended.

The economist Robert Samuelson examines how and why the TARP Federal program cost much less than initially feared. Key points:

  • TARP invested $245 billion in banks [99% recovered].
  • TARP invested $165 billion in other programs.
  • Perception remains that TARP creates a problem economists refer to as a moral hazard.
  • Moral hazard defined – The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles.

The entire Samuelson column is copied at end of post.
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