April 2009

Freedom is not entirely free, at all.

Couple of months ago, I wondered what would happen if we let go of GM. Not necessarily the way we did to Lehman Brothers, but at least we should stop reassuring ourselves that “American Big GM” could remain the top leader in the industry. Hello, we can’t consider all corps TBTF (Too big to fail).

We need to come to realize what has caused the credit crisis. It does not make sense for the federal government to endlessly inject (future generations’) money into companies which have not made endeavors to restructure themselves in the competitive market, while having earned all the big bucks in good times. In a capitalist market, individuals/firms are free to pursue success, but are also responsible for whatever losses they incur.

According to the New York Times, in the near future, GM would shrink down to a size of 38,000 employees, compared to its peak of over 300,000 in the 70’s. However, GM is still facing possible bankruptcy if less than 90% of bondholders agree to accept GM’s $1000-for-225-shares offer.

It would be interesting to watch what’s happening with GM. And how their Good GM/Bad GM plan would turn out.


Around 200 something years ago, an Englishman Adam Smith proposed in his book “The Wealth of Nations” (Original title is too long) that humans’ self-interest (a fancy word for greed) acted as “an invincible hand” to drive the free market, and thus the society to grow and prosper. He was revered as “Father of Economics” for his theory.

The working mechanism of Smith’s theory is simple: Assume that all people are rational and profit-maximizing (another fancy word for greed), they would picked the best decision available, which produce maximum amount of products at the lowest cost.  At the end we will have the maximum amount of aggregated utility available in the society. The famous “invisible hand” was widely accepted by the Western World as the only way to bring a society to prosperity.

To ensure the “invisible hand” work its magic to the extreme, all sorts of regulations regarding the market must be removed (e.g. all sorts of government interventions). This is where the term “deregulation” came into play in early 1970s U.S.. The White House tried to lift all or most market restrictions to as to apply Smith’s theory to the real world.

The Wall street went bananas after the deregulation took place. It gave rise to investment banking, derivatives and crazy lending. People want crazy as if there is no tomorrow. As if the market would never collapse. It did in 2000 in form of “IT Bubble Burst”. But people still haven’t learn their lesson. The market strike us again in 2009. This time it is real big. Big enough to crush a government, and major investment banks, something we thought were invincible for the last century.

What happened? Why Smith’s “invisible hand” didn’t work this time? What did the big shots in huge corporations like AIG do? Shouldn’t they chose the best business decision for their company, which was also best for the society?

What we missed in Smith’s theory is that decision-makers made decisions what they thought was best at that moment. It still sounds alright. Except the fact that what the decision-makers thought was best does not necessary turn out to be what they have expected – decision-makers are not always right about what’s best.  They can be wrong. Very wrong. Smith’s theory to some degree assume decision-makers are wise enough to choose what’s best, which is impossible since humans are not perfect in any point of view.

Some people may argue that there is another mechanism in Adam’s theory to recycle bad decision-makers. Bad decision-makers shut their factory/company down after they made a mistake, so only good decision-makers are left in the market, therefore the market will continue to work at optimism condition. What the mechanism did not mention is the damage bad firms done to the economy when they leave the market. If bad firms are small, of course the good firms can easily help in recovering the loss. How if the bad firms are as big as AIG, GM? Can the good firms cover up for them this time?

Are we relying on greed too much?



If Laura, Kate and Sarah go out for lunch, they will call each other Laura, Kate and Sarah.
If Mike, Dave and John go out, they will affectionately refer to each other as Fat Boy, Godzilla and Four-eyes..

When the bill arrives, Mike, Dave and John will each throw in $20, even though it’s only for $32.50. None of them will have anything smaller and none will actually admit they want change back.
When the girls get their bill, out come the pocket calculators.
A man will pay $2 for a $1 item he needs.
A woman will pay $1 for a $2 item that she doesn’t need but it’s on sale.
A man has six items in his bathroom: toothbrush and toothpaste, shaving cream, razor, a bar of soap, and a towel
The average number of items in the typical woman’s bathroom is 337. A man would not be able to identify more than 20 of these items.
A woman has the last word in any argument.
Anything a man says after that is the beginning of a new argument.
A woman worries about the future until she gets a husband.
A man never worries about the future until he gets a wife.
A successful man is one who makes more money than his wife can spend.
A successful woman is one who can find such a man.
A woman marries a man expecting he will change, but he doesn’t.
A man marries a woman expecting that she won’t change, but she does.
A woman will dress up to go shopping, water the plants, empty the trash, answer the phone, read a book, and get the mail.
A man will dress up for weddings and funerals.
Men wake up as good-looking as they went to bed.
Women somehow deteriorate during the night.
Ah, children. A woman knows all about her children. She knows about dentist appointments and romances, best friends, favorite foods, secret fears and hopes and dreams.
A man is vaguely aware of some short people living in the house.
A married man should forget his mistakes. There’s no use in two people remembering the same thing!

Leave it to a Buckeye to conclude a study about how Facebook causes people to have lower GPA scores. It is pretty obvious that Facebook is a distraction but then again so is partying, TV, beer pong, playing sports, and anything else that college students do in their free time.

Ohio State University Aryn Karpinski student has announced a study that shows that people that use Facebook study less and have lower GPA scores. When Aryn reported this, FOX News and UPI jumped on pointing out Facebook as a culprit.

According to Aryn’s study of about 219 students, 148 Facebook users had a full grade point lower than those who don’t have Facebook. People that didn’t use Facebook reported that they study about 11-15 hours and those who had a Facebook account only studied 1-5 hours per week.

Keep in mind that there are now over 200 million active users on Facebook, many of them are medical students, lawyers, MBA students, PhD doctorates, entrepreneurs, and high school students with perfect SAT scores, etc. This is why I am taking the study conducted by the Ohio State doctorate student with a grain of salt.

Besides, undergraduate students at Ohio State are a small percentage of Facebook’s total user base. And of course they’ll spend a lot of time on Facebook, what else is there to do in Columbus, Ohio? Aryn should conduct the same study at The University of Michigan and Michigan State University. The results will be much different.

Reference from Wall Street Journal

[Business & Finance]

Dow:7920 (-138)   NASDAQ 1625   Oil $49   Gold $890 (-$3.8)

Bank stocks fell on fading optimism for the secotr and overall economy.
Retails sales tumbled 1.1% last month. Bernanke, however, is optimistic about the economy’s prospect.

Intel’s computer sales “bottomed out” in Q1, net dropped 55%.

J.P Morgan & Wells Fargo and others are stepping up foreclosures on delinquent home-owners. That could futher depress home prices.

The U.S. is considering announcing the resultes of bank stress test to give investors a clear picture into lender.

Some big U.S. banks are getting around TARP restriction on the hiring of foreign workers by placing recruits in overseas offices.

Drug companies & hospitals are raising prices despite economic slump.

UBS & Ashmore will start a fund to by distressed emerging-maket assets, an example of a private venture to repair the markets.

eBay to spin off its Skype Web-calling business in an IPO (Initial Public Offering, first sale of stock by a private company to the public) next year rather than selling the unit.

Yahoo to cut a significant numbers of jobs as its new CEO Bartz seeks to turn the company around.

Chrysler Financial raised some of its lending rates to vehicle buyers more than 1%.


N. Korea vowed to pull out of disarmament talks.

White House leaning toward keeping secret details allowed in CIA interrogations, despite calls to make the information public.

Pirates attacked three more cargo ships off the horn of Africa.

Reference from Wall Street Journal

[Business & Finance]

Dow Jones: 8083 Nasdaq: 1652 Oil: $52 Gold: $894

Banking institutions bolstered by capital infusions from government face intensified scrutiny from TARP’s oversight committee.

AIG’s financial products head said employee bonus may make wind-down of the unit more costly to taxpayers

Goldman Sachs is wrapping up $5.5b in commitment for a new fund to buy private-equity investments on the secondary market.

General Motors‘s plan for a brief stay in bankruptcy is likely to get challenged by bondholders who fear getting streamrolled.

Financial markets tied to environment have had mixed success. A market tied to greenhouse-gas emissions has doen better than one that rewards cuts in electricity.

Euro & US Dollar face volatility this week.


US ship Captain Phillip was rescued from the pirates.

Thai protesters clashed with troops in Bangkok amid a state of emergecy and after ex-leader Thaksin threatened to lead a revolution.

UN Security Council to approve a statement condemining N.Korea’s recent rocket launch and enforcing sactions.

China pledged $25b to aid Southeast Asian economies, including an infrastructure fund, loans and credits.

Obama plans to tell Western hemispheres that US is willing to discuss how to improve relations with Cuba but with stipulations.

Pope Benedict XVI said in an Easter message reconciliations is the only way to resolve Israeli-Palestinian conflict.

Election (1999) is a wonderful movie by Alexander Payne, adapted from the novel written by Tom Perotta. To be honest, I’m having a pretty good time with my Intro to Film class. If you get a chance to take one, I encourage you to do so. Not only does it help you to get familiar with some classics movies that people talk about all the time, all these great movies are popular for a reason – they are telling you something important, about life and how we should look at them.

There are a couple of major themes in the movie. Tracy Flick, who is an overachiever and tries to get as much attention as she can possibly get by taking up leadership roles in every possible clubs and organizations in her high school, strikes me the most. From time to time, we see such kind of person who tends to make everything perfect, works super-duper hard for her dreams and seems to be enjoying life a lot more than her counterparts. But what’s deep down there in their heart? The irony for Tracy is that, despite her active involvement in various activities and achievement in every field, she does not have real friends, and nobody signs on her yearbook, even though she is the editor creating the souvenir for the class. Achievers like her are lonely, because, on one hand, they tend to have some dictatorship tendencies and underestimate the values of slowing down and looking around the world. On the other hand, they don’t find it important to build a friendship/constructive relationship with others since they don’t share a common interest/ambition anyways. Tracy see little value in friends to help in her success. In other words, friends are only used as means to an end.

Let’s think about the “shining stars” in the entertainment industry or on Wall Street. Many are having a “great life” and earning big bucks. But among them, how many are truly enjoying themselves and not the slaves of a “golden handcuff” or materialism? What about us? What do we want to achieve? Where we are going? And most importantly, WHY? Is it going to do us good, or are we simply chasing an imagery oasis in a desert where we’ve already lost our way?

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