Bank lending is getting expensive

Another idea

This seems too sensible to make it through Congress:

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

Now what?

Former student John Tamny has an idea:

It’s probably naive to ask this considering the basic governmental incentive to grow, but if Washington won’t countenance the market-clearing and cleansing process that would be a path to recovery, why not at least minimize the government’s role through basic industrial policy? We always hear about how tax cuts “cost” the Treasury versus “stimulus” and $700B in spending that will allegedly aid the economy at a profit, but if bank balance sheets really are a mess, why not zero out capital gains treatment on the purchase of toxic securities to foster a private rescue?

Houses vs. Stocks: its not even close

New research from Robert Shiller:

Shares have been remarkably consistent over the past two centuries in their 7% real returns. In Jeremy Siegel's book, "Stocks for the Long Term," he finds that real returns averaged 7.0% over nearly seven decades ending 1870, then 6.6% through 1925 and then 6.9% through 2004.

The average real return for houses over long time periods might surprise you. It's zero.

The argument for a bail out

Seems clear we are trading short run gain for long run pain. But here is a clearly articulated argument for doing so.

Banks can lend to consumers and investors about 12 times their capital base. If they have to write off 20% of their capital because of losses, that means they either have to sell more equity or reduce their loan portfolios. As an example, for every $1,000 of capital, a bank can loan $12,000 (more or less). If they have to write off 20% ($200), they either have to sell stock to raise their capital back to $1,000 or reduce their loan portfolio by $2,400. Add some zeroes to that number and it gets to be huge.

And that is what is happening. At first, banks were able to raise new capital. But now, many banks are finding it very difficult to raise money, and that means they have to reduce their loan portfolios. ...

I don't want to name names, as this letter goes to about 1.5 million people and I don't want to make problems for some fine banking names; but there is a silent bank run going on. There are no lines in the street, but it is a run nevertheless. It is large investment funds and corporations quietly pulling their money from some of the best banks in the country. They can do this simply by pushing a button. We are watching deposit bases fall. It does not take long. Lehman saw $400 billion go in just a few months this summer. Think about that number. Any whiff of a problem and an institution that is otherwise sound could be brought low in a matter of weeks. And the FDIC could end up with a large loss that seemed to have come from out of nowhere.

More Government Risk Subsidies

It seems like everywhere you look these days, people are looking for the government (i.e., taxpayers) to cover the costs of risky behavior. One of the most important lessons of economics (in my humble opinion, of course) is that if individuals don't pay the full cost of their risky behavior, they will engage in more of it. And, for some reason, we seem to have developed a fairly wide concensus in this country that it's not "fair" for people to pay higher prices to cover the cost of risky behavior.

Here's an article from Business Week that discusses the case of Citizens Property Insurance, a quasi-governmental insurer in Florida. Originally planned to be an insurer of last resort, it has become Florida's top underwriter of homeowners' insurance. What happened to the other insurance companies? As the article notes: "Faced with state-imposed limits on raising rates to cover their risks, insurers began to pull out of Florida." Isn't it obvious why rates needed to increase? Perhaps to cover the likely costs of damage? Instead, you will have taxpayers subsidizing the risky behavior of their fellow citizens (assuming the company can come up with the money to cover these risks in the event of future claims).

Financial innovation circumvents short-selling ban

Merton Miller, Nobel Laureate in economics, and thesis advisor to my colleague Bill Christie, once wrote that every important financial innovation was designed to circumvent regulation. An example from our textbook is that Euro dollars (dollar denominated savings accounts offered by European banks) were designed to circumvent Regulation Q, the 5.25% price ceiling on what US banks were allowed to pay depositors.

Now we see money flowing into betting markets to circumvent the ban on short-selling financial stocks.

BetsForTraders.com, a financial bookmaker, has reported volumes up by more than 400 per cent since last Thursday's ban, with almost all the increase in activity in bets against banking stocks.

Bad Economy=Entrepreneurial Opportunity?

Is the weak economy especially hard on smaller businesses? Or does it help create more entrepreneurial opportunities? Depends on who you ask. Here's the New York Times' view along with a counter-view from the Independent Street blog at the Wall Street Journal. (HT: Slate)

Economists against the bailout

Dear Fellow Economist:

I write to encourage you to sign the attached letter opposing a broad, open-ended bailout of the financial sector. ...

Wayne T. Brough
Chief Economist, FreedomWorks

-------------------------

September, 23 2008

An Open Letter to the United States Congress:

We, the undersigned economists, write to strongly advise against the proposed $700 billion bailout .....

In addition to the moral hazard inherent in the proposal, the plan makes it difficult to move resources to more highly valued uses. Successful firms that may have been in a position to acquire troubled firms would no longer have a market advantage allowing them to do so; instead, entities that were struggling would now be shored up and competing on equal footing with their more efficient competitors. ...

Is the stock market over-valued?

Historically, at least, P/E ratios look big. Unless of course you think that growth prospects have improved in the last five years.

Webinar on teaching MBA's to solve problems with economics

From: Betty Jung

Join us online with author Luke Froeb| View this message with images

Register Today

Join us online with author Luke Froeb Dear Professor Klein: Please join us for an online discussion about "Teaching MBA Students How to Solve Problems Using Economics" with author Luke Froeb. During this session, Professor Froeb will talk about how he uses his book in executive, full-time, and part-time degree and non-degree programs at Vanderbilt University. Professor Froeb has put two short (seven-minute) lectures that illustrate the basic problem-solving pedagogy on YouTube.com. This event will take place via WebEx (an online meeting manager) in addition to a simultaneous conference call. All you need to participate is a computer with an Internet connection, as well as a separate phone line. The session will last approximately one hour and will be held on: Wednesday, September 24, 2008 at 1 PM Eastern, 12 PM Central, 11 AM Mountain, 10 AM Pacific If you have questions about registration, please contact Adrienn Szabo, Online Workshop Manager, at adrienn.szabo@cengage.com or 650-413-7459. We look forward to your participation in this and other upcoming events! Sincerely, Betty Jung Marketing Manager, Economics Teaching MBA Students How to Solve Problems Using Economics Wed., Sept. 24, 2008 1:00 PM Eastern 12:00 PM Central 11:00 AM Mountain 10:00 AM Pacific Presented by:Luke Froeb, author of Managerial Economics: A Problem Solving Approach

The blame game is on

the Dem's have dirty hands:

... in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

Still in denial

From the Freddy Mac Website

9) Does Freddie Mac pose financial risk to American taxpayers?

No. Many independent, formal studies – conducted by government agencies and private rating agencies – confirm that Freddie Mac is adequately capitalized and manages its business risks well. Freddie Mac's obligations and securities do not constitute government debt and are not guaranteed by the Federal government.

Via Truth on the Market

Economics vs. The Real World

I am sometimes skeptical of how broadly economics can be used as a tool for predicting human behavior. One reason is that I think it is hard to model stupidity.

I was reminded of that when I read a story of a recent run on gas in Nashville. According to CNN.com, around 75% of Nashville gas stations ran out on Friday thanks to a rumor that the city was running out of gas. Kinda hard to predict that kind of behavior.

What spooked Paulson and Bernanke?

The decline in demand for commercial paper (used to purchase inventory or manage working capital) caused price of commercial paper to fall and the interest rate to rise. (inversely related to price). Quantity fell. [Note: the suppliers of loans demand commercial paper.]

[thanks do Doc for correcting me on prices vs. interest rates]

The great de-leveraging

Four years ago, SEC rule changes allowed the big investment banks to take on more debt. Predictably, leverage ratios increased from 12 to 1 to over 30 to 1. When the markets are going up, increased leverage is profitable, but exposes banks to more risk should they go down. But de-leveraging (selling assets to pay back lenders) is difficult in the face of so much uncertainty.

Nobody understands who owes what to whom — or whether they have the ability to pay. Counterparties have become afraid to trade with each other. Sovereign wealth funds are no longer willing to supply badly needed capital because they no longer know what they are investing in. The crisis continues because nobody knows what anything is worth. You simply cannot have a functioning market under such circumstances.

Everyone I ask says that this is going to take about two years to occur. But when everyone says that, I suspect that no one really knows. If I did, I wouldn't be teaching school, and I certainly wouldn't tell you.

What are they teaching in business school?

From Michael Ward at UT--Arlington

At the same time that you found an accounting error in the calculation of your monthly compensation, you also learn that your brother, who does not have health insurance, will lose his foot to diabetes. The accounting error will provide you with an extra $3,000 this month and you could use it to help your brother buy a prosthetic foot to get up and about. You know that the prosthetic will enable your brother to work and generate income well in excess of $3,000. Is it unethical to not report the error so that you can help your brother?

Will we ever see this again?

US TREASURY BONDS RATES

Maturity	Today	Yesterday	Last Week	Last Month
3 Month	0.01	0.64	1.58	1.70
6 Month	0.69	1.43	1.80	1.90
2 Year	1.56	1.80	2.18	2.32
3 Year	1.41	1.67	2.03	2.18
5 Year	2.51	2.60	2.89	3.06
10 Year	3.41	3.46	3.63	3.81
30 Year	4.08	4.10	4.22	4.44

yields from yesterday

M&A lies

From Deloitte:

1. Good enough is good enough
2. Smart companies don’t do dumb deals
3. M&A matters only during a boom
4. You’re on top of all the deals that matter
5. Acquisitions are the only deals that create value
6. Numbers don’t lie
   
7. Don’t worry about integration until the deal is done
8. This one looks clean. Just kick the tires.
   
9. It’s all about price
10. Customers will love it
11. It’ll be great for our people, too
12. Tax? We’ll figure it out later
    
13. International deals are like domestic deals, except you have to fly more
14. It’s not personal
    

Volatility rises as stock prices fall

Stockholders have to be compensated for increased volatility with higher expected returns, which means lower current prices.

Post-Hurricane Rescues

In watching the coverage of the aftermath of Hurricane Ike, I thought about the incentive effects of attempting to rescue those who chose not to evacuate prior to the hurricane. Why are we paying to rescue people who failed to heed pretty clear warnings (risk of "certain death" is pretty strong language) about the need to evacuate? It seems like we are sending conflicting messages - the warning says "don't engage in risky behavior" but the rescue effort says "but if you do, we'll try to help you anyway." I suppose the big problem is that we can not distinguish between those who are unable to evacuate versus those who are unwilling.

Knowing that someone will try to help if the evacuation warning is ignored makes it more likely people will stay. They don't pay the full cost of their risky behavior. But, I guess that seems to be pretty common any more. Engage in risky behavior and look for someone else to bail you out.

A profile in courage

Republicans prefer market discipline to regulation because of the swifter, surer, and harsher punishments that it metes out. Democrats prefer a kindler, gentler world of regulation, despite the perverse incentives that it creates. Nevertheless, it is unusual for any administration to draw a line in the sand in the throes of an election:

“Moral hazard,” said Paulson, “is something I don’t take lightly.” He’s saying bad financial behavior must be penalized, not rewarded. That’s the essence of the issue. The risk of failure is essential to an efficient economic system, and that includes financial risk.

Is this all they could get?

There is plenty of blame to go around for the mortgage crisis. But the White House, the Treasury, the SEC, the Fed, and the CEA, all tried--unsuccessfully--to reduce Freddie and Fannie's ability to gamble with tax payer money. However these reform efforts were thwarted by a small group of Senators who actively opposed reform and, in fact, weakened existing regulation. The conflict of interest was so apparent that it even got noticed by the Washington Post:

Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them. The companies fought successfully against increased regulation by cultivating their friends and hounding their enemies.

Top Recipients of Fannie Mae and Freddie Mac Campaign Contributions, 1989-2008

Name		Office	Party/State	Total
1. Dodd, Christopher		S	D-CT	$133,900
2. Kerry, John		S	D-MA	$111,000
3. Obama, Barack		S	D-IL	$105,849
4. Clinton, Hillary		S	D-NY	$75,550

Of those on the above list, guess which one has the temerity to blame Republicans for the lax regulation?

Demographic Profiles of McCain-Obama Supporters

According to a recent issue of Business Week, here (chart re-produced below) are some demographic characteristics of McCain and Obama supporters. The data were generated by the social and economic profiles of visitors to the candidates' official campaign sites (the profiles were generated by Hitwise, an internet tracking company). I wonder how my co-blogger is enjoying his Jonas Brothers' CDs.

Rent control for the rich

In our book, we say that price controls destroy wealth by preventing the movement of assets of higher valued uses. And Representative Rangel's over-consumption of rent-controlled apartments (he lives in three of them, and uses a fourth for an office) has shown us that when politics, rather than markets, are used to allocate apartments, it is the politically powerful who end up with them:

According to the New York City Rent Guidelines Board annual report, "Housing NYC: Rents, Markets and Trends," across the city there are 87,358 New York households reporting income of more than $100,000 a year which pay below-market rent thanks to the city's rent control and stabilization laws. A full 35% of all the city's apartments covered by the rent control regimes are rented by tenants who make more than $50,000 a year.

Moral hazard vs. adverse selection: McCain vs. Obama

I you think the main problem with our health care system is that patients consume medical care without regard to its costs because it is paid for with other peoples' money, then Senator McCain has a plan for you.

"The key to real reform is to restore control over our health-care system to the patients themselves," the Arizona Republican said during a visit to the Cleveland Clinic earlier this year. ...

At the heart of his plan is a tax credit -- $2,500 for individuals, $5,000 for families -- that anyone could use to buy their own insurance. Workers could use the tax credit to pay the premiums of their employer's plan, or they could use it to pay for another insurance plan of their choice.

If, on the other hand, you think that too few consumers are covered by existing plans, then Senator Obama's coverage guarantee is for you.

But it has had a troubled history in several states that tried it for people seeking coverage through the insurance market. Some states, such as Kentucky and South Dakota, eventually dropped the guarantee after insurers left. In the few states where guaranteed coverage continues, monthly premiums generally are much higher for younger, healthier people than in nearby states.

DISCLAIMER: I support McCain

We are not alone

Other countries, notably the UK, are going through a similar housing crisis.

Trying to Link Pay to Performance in D.C. Schools

Michelle Rhee is drawing a lot of attention as the new head of the the District of Columbia's public school system. One of her more controversial goals is to try to change the compensation system for teachers. As described in a recent Newsweek article

If they are willing to go on "probation" for a year—giving up their job security—and can successfully prove their talent, they can earn more than $100,000 a year and as much as $130,000, a huge salary for a teacher, after five years. If not, they still get a generous 28 percent raise over five years and keep their tenure. (All new teachers must sign up for the first option and go on probation for four years.) Rhee predicts that about half the teachers will choose to take their chances on accountability for higher pay, and that within five years the rest will follow, giving up tenure for the shot at merit pay hikes.

EXTRA CREDIT: will good or bad teachers give up tenure?

Why do foreign firms go home?

New working paper studying 59 foreign firms that decided to de-list from the US equity markets:

Our evidence supports the hypothesis that foreign firms list shares in the U.S. in order to raise capital at the lowest possible cost to finance growth opportunities and that, when those opportunities disappear, a listing becomes less valuable to corporate insiders so that firms are more likely to deregister and go home.

What happens when non-profits are worth $300 million?

Same things that happen with for-profits. The only difference is that the fights get much nastier because the property rights are not well defined. On the one wide is Nobel Laureate and Vandy alum Mohammed Yunnus vs. Norwegian shareholders who own part of his Grameen phone company.

Professor Yunus also highlighted a lapse in business ethics as a reason why Telenor should transfer management ownership to Grameen. Among other comments, he said that although both Telenor and Grameen Telecom were seeking growth in the phone company, Telenor's agenda to "maximize returns for the benefit of its owners" was in conflict with the "social and non-profit agenda of Grameen Telecom".

This is creepy

Hippies Wail for Dead Trees - Watch more free videos

Did Paulson pull a fast one on the Dem's?

There is much to criticize about the nationalization of the two government sponsored companies but judging from the interview of Christopher Dodd on NPR, it seems as if the Bush administration duped the Democrats into giving them the ability to get rid of the firms. In addition, the lobbying spigot that allowed the two firms to funnel money to politicians (mostly Democrats?) may be shut off.

UPDATE: Fannie and Freddie using our money to "invest" in Democrats

Another interesting angle on the takeover is that the US government did not want to punish the Chinese government for holding Fannie and Freddie debt. Recall that investment demand for dollar denominated debt increases demand for dollars which raises the "price" of a dollar measured in yuan. A strong dollar increases US demand for Chinese exports, and allows the Chinese government to uphold their end of the Faustian bargain they have struck with their citizens: in exchange for support of a totalitarian regime, the Government promises full employment with income growth. But, as we have blogged in the past, pegging your currency to the dollar means that you lose control of the money supply and this leads to inflation. See our previous post, China is busted by the laws of economics.

A little light in a very dark place

A sensible approach to enforcement of what the US calls "monopolization" and Europe calls "abuse of dominance."

1. [safe harbour]...only if the firm possesses, or is likely to achieve, monopoly power.
2. [antitrust law] does not prohibit the mere possession or exercise of monopoly power.
3. Acquiring or maintaining monopoly power through conduct harming the competitive process should be condemned.
4. [antitrust law] protects the competitive process but not individual competitors.
5. [acknowledge uncertainty] Distinguishing beneficial competitive conduct from harmful exclusionary or predatory conduct often is difficult.
6. [minimize expected costs of prosecution errors] ... standards should prevent conduct that harms the competitive process, but should avoid overly broad prohibitions that suppress legitimate competition.
7. [Practicability] standards eshould be understandable and clear to businesspeople and judges and must account for the possibility of error and administrative

A dissenting view from three current FTC commissioners.

“In short,” Commissioners Harbour, Leibowitz, and Rosch, wrote “the Department’s Report erects a multi-layered protective screen for firms with monopoly or near-monopoly power. As an inevitable consequence, dominant firms would be able to engage in these practices with impunity, regardless of potential foreclosure effects and impact on consumers. ...”

Competition between states for manufacturing

The US is becoming the low-cost manufacturing location of choice:

The reason is less the level of the dollar, which remains relatively low in spite of the euro’s recent plunge, but rather the huge level of incentives some US states are offering companies to set up factories in their region.

Tennessee, for instance, has just disclosed that it agreed to give German carmaker Volkswagen $577m in incentives for its $1bn plant in Chattanooga.

A senior executive at Fiat, the Italian industrial conglomerate, said: “With the amount of money US states are willing to throw at you, you would be stupid to turn them down at the moment. It is one of the low-cost locations to be in at the moment.”

ThyssenKrupp, the German steelmaker and industrial group, is receiving more than $811m to build a new steel mill in Alabama. It turned down even more from Louisiana, which reportedly offered as much as $2bn, as well as an additional $900m in cheap debt from Alabama, which it declined as it wished to remain debt-free.

Incentives are not new but their increasing size, plus the relative weakness of the dollar and increasing wages in China and eastern Europe, makes the US more attractive.

A VW official suggested the US also had a competitive advantage because European Union state aid rules made support for factories difficult. “It is more difficult in Europe.”

“States are willing to pay for new roads, re-train workers and offer huge tax breaks – that is a competitive package that not many parts of the world can match when you look at how productive US workers are and where the dollar is,” said the chairman of a large Swiss group.

Obama futures drop to $0.53

Latest predictions from intrade.net:

Incentive Design and Fruit Picking

Here's a really interesting article from Tim Harford at Slate describing a group of economists' efforts to design better incentive schemes for fruit picking at a British farm. The farmer figured out the obvious - pay by the piece of fruit picked; however, some other requirements were causing a problem. For example, the farmer had to ensure that all the workers made at least minimum wage, so he had to raise the piece rate at times when pickings were slim. But, it turns out under this system, the workers would monitor each other to discourage fast picking, resulting in the piece rate being raised. A simple solution was to have managers test-pick a field to gauge the difficulty and then set the piece rate. Picking productivity peaked.

Check out the article for a few other interesting solutions the economists came up with to increase productivity through better incentive schemes.

Housing bubbles are smaller where supply is elastic

The latest from Ed Glaeser:

places with more elastic housing supply have fewer and shorter bubbles, with smaller price increases. However, the welfare consequences of bubbles may actually be higher in more elastic places because those places will overbuild more in response to a bubble. ... the price run-ups of the 1980s were almost exclusively experienced in cities where housing supply is more inelastic. More elastic places had slightly larger increases in building during that period. Over the past five years, a modest number of more elastic places also experienced large price booms, but as the model suggests, these booms seem to have been quite short. Prices are already moving back towards construction costs in those areas.

What do these cities have in common?

America's Most Affordable Cities

1. Indianapolis, IN
2. Youngstown, OH
3. Dearborn, MI
4. Warren, MI
5. Grand Rapids, MI
6. Toledo, OH
7. Dayton, OH
8. Akron, OH
9. Syracuse, NY
10. Scranton, PA

Best places to launch a career

From the Economist

Ernst & Young

Deloitte & Touche

PricewaterhouseCoopers

Goldman Sachs

KPMG

Marriott International

Google

IBM

Lockheed Martin

J.P. Morgan

McKinsey on Pricing in a Downturn

The latest issue of The McKinsey Quarterly includes an article on pricing strategies during an economic downturn (registration required to read the article). Here's the abstract

An economic downturn can put incredible pressure on prices. But with costs also rising, the current downturn places particular urgency on getting pricing strategy right. Six pricing tactics demand greater attention from companies hoping to persevere through today’s economics straits.

Top interview mistakes

Written for attorneys (here and here), but advice extends to MBA's as well:

• Typos in your resume or cover letter.
• Invest in a comfortable or well-fitting suit, ... A flashy or ill-fitting suit can highlight a student's lack of comfort or familiarity with a professional workplace.
• They don't hit up enough employers.
• They think they only have to be nice to partners and attorneys. ... Some are rude to secretaries. Other people notice.
• They get discouraged too easily. ... They don't circle back and ask for guidance and help in getting to the next step.
• They wear iPods in the office.
• They don't want face time. They'll say they just want to be judged on their work.

If you can measure absenteeism, you can control it

In our book, we say that the main problem of business is how to align the incentives of employees with the goals of an organization. And that incentives have two pieces, performance evaluation and a way to reward good performance. But what happens when it is difficult to measure performance, as with government employees?

The government presents a unique challenge to any manager because it has no well-defined goals, few metrics to gauge its performance, and no sticks and only small carrots to align the incentives of employees with the goals of the organization. In addition, the employees are all lifetime civil servants, with better information than the political appointees who manage them and strong ideas about what the government should be doing. They can easily outlast the appointees who seem to come and go every few years or so.

In Italy, things have gotten so far out of hand...

Every Italian has a favourite story: the professor who gave less than 30% of the lectures in his courses; the judge, unable to sit or stand for long periods, found to be ocean-yacht racing. It would be funnier if the inefficiency of Italy’s 3.5m-strong public sector were not such a drag on the economy.

...that a politician has taken on the thankless management task of reform. Renato Brunetta, the public-administration minister in Silvio Berlusconi’s conservative government, is using input measures of performance because output is too difficult to measure.

He has imposed by decree a rule that, after the second absence in any year, only medical certificates issued by the public health service will be acceptable. Now he plans to introduce productivity bonuses based in part on attendance records.

As a result absenteeism among public sector employees has declined by 37%. If you think the government causes as many problems as it solves, this may be a step in the wrong direction.

Betting on Palin Withdrawal

Think that John McCain is likely to ask VP nominee Sarah Palin to withdraw from the ticket? Check out the prediction market, intrade, for the latest views of those willing to put their money down. As of Wednesday morning, bettors were rating the likelihood of withdrawal at around 10%, down from a high of nearly 20% last night.

Recessions are good for us

Even as people are worrying more, they're smoking, drinking and driving less:

...in certain ways, health does worsen in times of economic uncertainty. Medical science has accumulated a solid body of research showing that poverty and unemployment lead to higher rates of obesity and more cases of diabetes, asthma, kidney disease, cardiovascular disease, some cancers -- the list goes on.

But strange as it may seem, bad times can also be good for health. Forget individual health for a minute. This is about the macro picture, the health of entire societies. And there statistics show that as economics worsen, traffic accidents go down, as do industrial accidents, obesity, alcohol consumption and smoking. Population-wide, even deaths from heart disease go down during recessions.