The Bank Bailout Game

I have posted the Bank Bailout Game I used successfully in my regulation class, G406, at http://rasmusen.org/g406/readings-refg406/07.adverse-selection.doc and http://rasmusen.org/g406/readings-refg406/07.adverse-selection.pdf.

A Banking Accountng Scam

I just read in NR that some big banks have realized that they can improve their balance sheets by buying toxic assets from each other in a tit-for-tat way at inflated prices. Suppose Apex and Brydox each have bonds worth $20 on the market, and on their balance sheets. Apex sells one to Brydox for $100, and Brydox sells one to Apex for $100. Now they can mark up their assets by $80 each.

The Amazing Waste from Turning Off Computers Each Night

I saw an article that illustrates why it's good for me to teach students about economic cost as opposed to raw accounting cost:

I leave my laptop running overnight because I know it'll take five minutes or more to get things going in the morning -- not just booting up, but launching the various apps I start the day with, downloading my overnight email, filtering out the spam, and otherwise "getting settled."

But all the power wasted while computers are sitting idle overnight adds up, and one study has finally tried to measure it. The tally: An estimated $2.8 billion wasted on excess energy costs each year in the U.S. alone....

The full report is available for download here (scroll down to "PC Energy Report US 2009")....

If you run a company with 1,000 PCs left on overnight, you can save about $28,000 a year if they are turned off after hours. That's not chump change.

One advantage of the economic way of thinking is that it makes one think of a question here. Why are companies so stupid as to not mandate that their employees turn off computers, if companies could save so much money? The economist naturally wonders if there is something that high-paid corporate executives know that the journalist is missing.

Let's do the full calculation. 1000 PCs * 5 minutes of employee time * 200 days per year * $60/hour or $1/minute = $1 million/year saving from leaving the computer on all night. That compares with $28,000 in energy savings costs.

You can adjust my numbers if you think they're wrong. Suppose its only 1 minute of employee time that it takes them to boot up, 100 days per year that they work, and $6/hour that your company pays them. Then the benefit in labor costs from leaving on the computers is only $100,000 per year, a mere four times the extra cost in electricity.

The US Federal Deficit

Heritage, via, Instapundit.

A Drug-Prescribing Doctor

Here's an interesting comment thread about Dr Ratts of Bloomington, whom many people say gave out painkillers freely and supplied many of the local addicts. Eventually his license to prescribe such medications was revoked. I don't know if anything more happened to him.

Sticking in New Laws in Conference Committee

A great example from the Weekly standard:,good for G406:

One of many highlights of the stimulus bill the Democrats just rammed through Congress is $8 billion for high-speed rail. What makes this appropriation special is that there was no money for high-speed rail in the original House legislation. The Senate bill had $2 billion. The legislation coming out of conference "compromised" on $8 billion.

How did this happen? Well, some of that $8 billion, as the Washington Post reported Friday, seems intended for "a controversial proposal for a magnetic-levitation rail line between Disneyland, in California, and Las Vegas, a project favored by Senate Majority Leader Harry M. Reid (D-Nev.). The 311-mph train could make the trip from Sin City to Tomorrowland in less than two hours, according to backers." Reid of course played a major role in putting together the final bill.

Alcohol Taxes

Philip Cook has a good post at VC on alcohol taxes. I might use it in G406.

As a thought experiment, consider increasing the alcohol tax by 10 cents per drink and then distributing the proceeds annually to every adult, $50 each. All but 7% would come out ahead on this deal. Given the preventive effect of higher alcohol prices, even that group would benefit from lower auto insurance rates and in other ways.

Bailout Political Pressure

It seems we already have an example of a bank that felt pressured to make bad loans from fear of losing government support. From the American Spectator:

Bank of America was the victim of a concerted shake-down operation that could be replicated around the country. Banks apparently now are expected to give money away to failed borrowers. This could become federal policy when Barack Obama, who supported this new example of Chicago blackmail, becomes president.

The Optimal Savings Rate

Some people think that although people make efficient decisions about how much to save personally, the social discount rate we use is too low. The market gets it right, but government does not. I think the opposite is true.

Individuals are too eager to consume in the present instead of the future. Think of a person as a sequence of selves over time. Most people are selfish and favor the present self over the future self. They save too little.

On the other hand, when it comes to decisions across generations, we have to remember that future generations will be richer than we are. Thus, we should not incur too much cost now in exchange for benefits for them later.