MGM Mirage Trying to Make the Rules

A consistent topic on this blog is companies' trying to make the rules to control competition. Here's another clever example from Business Week.

MGM Mirage, which recently opened an $800 million casino in downtown Detroit, opposes approval of two Native American casinos in Michigan. One creative way MGM Mirage managers are fighting the approval is by funding a grassroots campaign called Gambling Watch.

To the average Michigan resident, Gambling Watch would likely be perceived as an anti-gambling organization opposed to the expansion of casinos in Michigan: a recent flyer proclaims: "Washington Poised to Force Two New Casinos on Michigan Families. Only You Can Stop the Special Interests." Those in the know realize, however, that the purpose of Gambling Watch seems most likely to be controlling competition.

Why is the Fed buying lousy debt?

Leading the stock market rally yesterday were bank stocks who can now trade bad debt to the Federal Reserve in exchange for high quality government securities. Guess who gets stuck holding the bag?

....Washington's real goal should be to accelerate foreclosures, making them cheaper and less onerous for all concerned, so the market can hit bottom and buyers and sellers can have confidence in prices. Otherwise, look out below.

How does McCain look to the Europeans?

From the Economist:

Though he is the only candidate who has dropped bombs on foreigners, Mr McCain is also the only one who embraces globalisation. While his Democratic rivals stoke popular fear of free trade, Mr McCain defends it stoutly. “I will leave it to my opponent to argue that we should abrogate trade treaties and pretend [that] Americans can secure our future by trading and investing only among ourselves,” he declared in his victory speech.

Mr McCain listed several other differences between his policies and the Democrats'. He favours low taxes and light regulation. They think they can keep companies from going overseas “by making it harder for them to do business here at home”. He favours school choice. They do not. They favour “big government mandates” to improve America's health care. He favours freer competition to bring down costs.

Truth in blogging: I am supporting McCain

Before you invest in a hedge fund...

We have blogged about the incentive alignment problem of hedge fund managers (Hedge fund managers misreport returns and Compensating Hedge fund managers), paid on a "2 and 20" (2 percent of the money they raise and 20% of the profit). Two economists mock this scheme as gambling with other peoples' money ("heads I win, tails you lose").

The bottom line is that hedge fund managers get paid for making bets that put their investors at risk, while taking very little risk themselves. If the fund blows up, the investors cannot tell whether it was due to bad management or just bad luck.

What's happening to economic consulting firms?

From finance.yahoo.com:Both LECG and CRAI have suffered big losses, which raises some interesting questions about the viability of publicly traded firms whose only asset is human capital. If all your assets can can walk out the door, it would seem that you have to pay them their marginal product, with nothing left over for shareholders. Am I missing something?

Spitzer v. incentive compensation

Eliot Spitzer used the office of State Attorney General to attack business abuses caused by common incentive compensation schemes. His major legacy:

Federalism: he took on cases as NY State Attorney General that changed the rules for business across the country. The prospect of 50 ambitious State AG's could Balkanize our national market.

"Looking over the legal landscape of the past few years, there has been this tremendous redistribution of legal power away from Washington, away from the Federal Government, away from Washington, D.C., back to the states. And who better than state Attorney Generals to step into the void to ensure that the rule of law is enforced?"

Note that State AG's are often referred to as "Governors in waiting" and can use high profile investigations to launch political careers.

Securities research: sued Merrill Lynch for promoting stocks of companies whose investment banking business Merrill wanted.

Merrill will put more emphasis on how well the securities an analyst shepherds to market perform, said Rosemary Berkery, Merrill's general counsel. She said analysts would still help bankers identify and evaluate companies that Merrill could take public. Now, the performance of those new stocks, not just the fees earned from them, will affect the analysts' compensation, she said.

That system may open up another conflict, though, some critics said. Analysts may be motivated anew to recommend shares of companies to help improve their short-term performance on that score, they said.

Business Insurance: sued insurance broker/agents like Marsh McClennan and several big insurance companies, like AIG, for business abuses by some brokers caused by incentive payments called "contingent commissions," which rewarded agents for how many of their clients renewed policies with the insurance companies. Now contingent commissions are rare in the industry.

Music Industry: attacked promotional schemes by music companies to encourage radio stations to play their music.

...a Sony BMG executive considered a plan to promote the song "A.D.I.D.A.S." by Killer Mike by sending radio disc jockeys one Adidas sneaker, with the promise of the second one when they had played the song 10 times.

The gifts, described in a $10 million settlement with Sony BMG that was announced yesterday by New York's attorney general, Eliot Spitzer, exemplify what Mr. Spitzer called a broad effort by the recording industry to curry favor with radio station programmers in exchange for their promises to play specific songs.

Past performance is no guarantee of future results...

This January saw stock prices decline markedly. But past returns are not good predictors of future performance. From Fidelity:

How does the US look to a Venezuelan ex-pat?

excerpts from a letter from Luis, a former student now working in Nashville:

At the turn of the century, it took 40% of the population to produce enough food to feed the [United States]. Today it takes 2.5%. That is an amazing growth in productivity. Does anyone think that the loss of all those farm jobs was bad? Not to say that it was not difficult for people to change their lives. Those people who came off the farm had to learn how to work in a new environment. It is no different today. As Rod Hunter notes:

" ... Mrs. Clinton and Mr. Obama ... are tapping into popular anxiety about the economy. Rather than trying to shut the world out, however, the next administration needs to pursue the domestic reforms necessary to ensure that American workers can thrive in the knowledge economy. These include shoring up our education system, clearing obstacles to worker mobility by making health care and pensions portable, and replacing the hodgepodge of displaced worker assistance programs with a single support, training and relocation system. The American worker, not the job, is the national asset."

All You Can Eat at the Ballpark

A number of Major League Baseball teams are offering selected stadium sections that include the right to gorge yourselves on a variety of ballpark refreshments (USA Today article here). As one example, seats in the right field bleachers at Dodger Stadium include all-you-can-eat Dodger dogs, nachos, peanuts, popcorn, soft drinks, and water at a per-ticket cost of $35 in advance (tickets were previously priced at $6 in advance).

The big concerns with offers like this are adverse selection and moral hazard problems (for a reminder, see this prior post: Here, Piggy, Piggy). For an interesting read on one fan's experience at Dodger Stadium, see this article from Slate. Best quote of the article (after the article's author stopped on the way home to buy seltzer):

This irony was further compounded when I got out of the car, bent over a parking pylon, and upchucked a cupful of partially digested jalapeños and nacho cheese. And then I did it again, followed by a magnificent spray of liquid vomit.

Nice!

The benefits of globalization

Unbelievable performance of Swan Lake by Chinese acrobats in Germany.