Given overall demand destruction on the part of consumers, reduced consumer confidence, and reduction in personal consumption expenditures, consumers should not see price increases but they do.  A consumer need look no further than the franchise fee that is passed on to her from their local government via the defacto tax collector, the cable company. www.altondrew.com

What are these fees being used for?  They are being used to build institutional networks that benefit county government operations.  They are also being used to fund public access television that rarely anyone watches.  These fees, which are capped at 5% of cable revenues but in fact account for a greater portion of your rate, are above the actual cost incurred by local governments for maintaining the public rights-of-way within which cable companies deploy their cable lines.  Public access television is a noble idea, but there are other alternatives by which consumers can obtain and produce this programming.  Also, if your local government wants to connect schools, libraries, and fire stations, it would be more cost effective to bid these contracts out versus holding incumbent cable companies hostage by requiring them to lay these facilities or risk not being approved to do business.  New entrants, because of these burdensome requirements, need not even apply.

Want to lower your rates?  Talk to your local government first. 

Some people are up in arms about banks using taxpayer money to purchase other banks.  The argument is that taxpayers did not sign on to have their money used for mergers and acquisitions.  Also, it may lead to the delay of bailout funds received by banks on Wall Street working their way down to the little guy on Main Street.  Getting the  money to Joe the Plumber would help to alleviate our current economic doldrums of slowing growth, foreclosures, and rising unemployment.  The opportunity costs of taxpayer-financed M&A are high, some would argue, especially given alternative uses such as improvement of our transportation and energy distribution infrastructures.

But is M&A really counterintuitive to stabilizing the financial markets and the economy on a whole?  Probably.  When you take a close look at the reasons for M&A, the reasons are corporate-centric and any hopes of stability flowing from M&A activity are mere repetition of the trickle down theory of the 1980s. The primary reason for any merger and acquisition is to increase shareholder wealth.  This increase in shareholder wealth results from the operating, financial, and managerial synergies that are created from the merger with or acquisition of some other asset or going concern. 

Allegedly some within government may have no objection to the use of bailout funds to finance M&A.  They are hoping that the increased shareholder value will be spent eventually on consumer purchases and drip down through the economy.  What we need, however, is an open spigot. 

What would have happenned had these very investors done their homework on the front end versus after the meltdown?  Might these investors have saved themselves sleepless nights and massive attorneys fees had they read their prospectuses or had a finance type review the 10-Qs and 10-Ks that these companies put out?  Any MBA student at the local college could have gladly completed a review for pizza, beer, and a fraction of the dollars that these investors are about to pay out to their attorneys.

If anything, this is a indicative of a failure to be accountable to ourselves when it comes to our money.  As the article points out, individual shareholders want someone else to pay for their losses.  We must have been deaf during the first part of the sales pitches on these investments.  All good investors and capitalists have known from the days of Marco Polo and Christopher Columbus that there is no guarantee of return and that risk is part of the game.  The best risk eliminator is patience and homework.  If you have neither then get out of the game and put your kids education money in bonds or a souped-up federally insured bank account.  

Times have changed.  Investors now act more like consumers.  Risk has been replaced by an expectation on the part of investors to walk away with both capital and principal with little or no risk.  Today's investor can sit in one of two classes.  She is either the traditional capitalist who acknowledges that her money is at risk or a "consumer" expecting to be made whole throughout the entire investment process.

Congress' bailout of investors further compounds this distinction.  Rather than allowing risk to set with the investor, Congress is embarking on a course where investor risk is spread across society.  Government is becoming the new AIG, insuring investor risk and in the long run reducing returns.

September 23, 2008  

There are two main arguments.  The first argument attributes the increases to significant changes in demand for oil.  For example, the past decade has seen an increase in demand in the emerging markets of China and India.  The second argument lays blame with oil futures speculators.  Speculators buy and sell oil futures contracts, betting on changes in market prices in order to realize gain.  

Any additional regulation or intervention on the part of the federal government should consider whether there is any market failure.  We do not view oil as a public good that cannot be provided by the market.    We see no externalities, where costs or benefits from prodcution or consumption are flowing to some non-consenting third party.  Nor do we see the existence of significant monopolies in either oil production or distribution.  Oil can be produced domestically providing a competitive alternative to foreign sources of oil. 

There may be an argument for the existence of information asymmetries, where information about the characteristics surrounding oil supply may not be properly distributed between buyers and sellers.  This may be the case since, for example, the Commodities and Futures Trade Commission does not impose limits on positions taken by oil speculators. 

Limits on speculation in, for example, wheat and soybean oils, have been establshed by the CFTC in order to reduce or eliminate the chance of price manipulation.  A speculator is limited to how many units of a good he has available for trade under a certain contract given a certain good.  In the case of oil futures, this is left up to the respective exchanges.  Also, unlike stock exchanges, the trade of futures contracts does not go through a clearinghouse mechanism. 

Should Congress choose to intervene in the oil markets via regulation, it should consider the conservative and incremental approach of requiring by statute that the CFTC establish position limits for oil speculators buying and selling oil futures.  Transparency would be further enchanced by requiring exchanges to establish clearinghouses.  Short of these recommended actions, no other government action should be necessary given that the fluctuations in oil prices may be the result of an increase in demand for oil brought on by an increase in the standards of living in emerging markets.