I Didn't Think So...
Not the point you’re trying to make, Don, but…
Krugman is a disaster. The cost of capital is not my only cost. Legal and compliance costs have risen dramatically. Looming Dodd-Frank and Obamacare are (believe it or not) just the tip of the iceberg.
My firm does actually borrow at the short end of the curve, so my rates are pretty close to zero. However, every other cost has risen dramatically. New regulations have increased costs so much that my carry is now higher than it was when interest rates where much higher, pre-2008. This has happened to every single firm in my industry and we’ve responded by reducing headcount and relying more on algos and getting out of certain businesses entirely.
I can only imagine what Dodd-Frank and Obamacare are going to do to costs and risk. Failure to comply perfectly with any regulation (even ones the regulator understands are impossible to comply with because the technology to do so is either prohibitively expensive or does not exist) results in fines and the possibility of being shut down. Fines and shut-downs and worse are a constant risk. Every new regulation increases the risk of both.
Of course, Krugman doesn’t think any of this is happening because it turns out in his world the laws of economics are suspended. Apparently, artificially increasing costs to the point that they more than offset any reduction in the cost of capital is not a reason to not invest. No wonder he’s such a fan of fiscal stimulus. Not only is he, in his own words, no longer an economist, but he is a big advocate of the of government investment math where the more negative the return, the bigger the investment allocation should be.
Greece, here we come.
September 8, 2011 at 6:37 pm
- You’re being too optimistic, unless you mean the fall of ancient Greece – then you’re spot on!
September 8, 2011 at 6:56 pm
- “New regulations have increased costs so much that my carry is now higher than it was when interest rates where much higher, pre-2008.”Name the specific most costly new regulation and how much it has added to your cost.
September 9, 2011 at 6:56 am
- You can relax, Morongeo. I’m not complaining about Obama per se. The most expensive rule was a hastily written piece of political stupidity that happened during the reign of Evil Bush. I’m betting you’ll find that much more believable.
- “My firm does actually borrow at the short end of the curve…”How much has borrowing at the short end of the curve saved you compared to your increased cost from regulation? Oh and just how do you earn your money and add to the productivity of the economy.
September 8, 2011 at 7:54 pm
- IOW…..DUR DUR DUR. I’m better than you.
September 8, 2011 at 8:51 pm
- “Oh and just how do you earn your money and add to the productivity of the economy.”Is this at all germane to her point?
- It’s germane to her poin tbecause I’m guessing she lying and won’t be able to point to a new regulation that’s effecting her and has passed during the Obama administration.
- See, Lead Pencil? It’ll all be perfectly logical and totally germane…. after you consume enough of a controlled substance of your choice to temporarily drop your IQ by 110 points.
posted by muirgeo @ Friday, September 09, 2011
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