The Nation's Financial Condition

[PizzaSnake]

I’m afraid some, if not most, day traders are going to get a lesson in compounded risk.

https://www.nytimes.com/2021/11/15/opin ... hedge.html

‘As an investor, you’re not the 300 people rolling once each. You’re more like the lone person rolling again and again, repeatedly exposing yourself to the chance of a big loss. A post on the Flirting with Models blog stated it well: “If we have our arm mauled off by a lion on the African veldt, we cannot simply ‘average’ our experience with others in the tribe and end up with 97 percent of an arm.”‘

[PizzaSnake]

Duplicate.

[Farfromgeneva]

I’m afraid some, if not most, day traders are going to get a lesson in compounded risk.

https://www.nytimes.com/2021/11/15/opin ... hedge.html

‘As an investor, you’re not the 300 people rolling once each. You’re more like the lone person rolling again and again, repeatedly exposing yourself to the chance of a big loss. A post on the Flirting with Models blog stated it well: “If we have our arm mauled off by a lion on the African veldt, we cannot simply ‘average’ our experience with others in the tribe and end up with 97 percent of an arm.”‘

If (true) professional investors can’t measure vol(atility) well then of course retail investors don’t understand it. Very asymmetric risk skew, maybe be slightly ahead of broad based indices on the way up and blown to smithereens on the way down. There’s a reason the holy grail of institutional investors/Wall Street is getting more retail money involved in every sector of finance imaginable. Even if that’s not outwardly articulated.

Funny thing is Robert Merton used to tell potential investors for Long Term Capital Management that his risk arbitrage models was like picking up free nickels out of the air but it was really picking green up off the street with a steamroller in front of himself.

In life I’m trying to barbell more and live less by averages, it worked for me up to a point of climbing from “upper lower” class (I thought I was middle class as a kid in the 1980s but slowly realized not so much) but being somewhere higher up now recognize that I have more to lose running it down the middle and time value is declining exponentially as well.

[Farfromgeneva]

The MarbleGate guys are going to crush it on this w local govt money all because NYC sold a sovereign property right (exclusivity) and then let Uber and Lyft run roughshod over them. Could buy medallion loans for well less than 20 cents on the dollar for like 2-3yrs so getting a resolution at 40 cents (200/500) with partial govt subsidy is good for LPs.

Wall Street eyes NYC taxis as beleaguered drivers win relief

Debt restructuring eases painful burden and opens the way for new capital to enter the cab market
SUJEET INDAP

The plight of New York taxi drivers has become more appreciated in recent years, in part by a rash of suicides from anguished medallion holders
Sujeet Indap in New York

On behalf of the corporate and financial elite, Kirkland & Ellis has regularly squared off in some of the messiest commercial disputes imaginable. But a recent distressed debt transaction involving the powerhouse law firm felt a little more ennobling.

In a pro bono assignment, Kirkland’s financial restructuring group represented beleaguered New York cab drivers who had spent years attempting to resolve crushing loans to buy taxi medallions, the permits necessary to operate cabs. Drivers felt hopeless enough to resort to a recent round-the-clock hunger strike.

But in early November, lightning struck. A three-way bargain was forged between the city’s municipal government, a private equity firm that had become the single largest taxi medallion creditor, and an advocacy group that spoke for thousands of taxi drivers which had the likes of Kirkland and JPMorgan as their pro bono advisers.

The deal slashed loan balances, which for some had previously exceeded $500k, to just $170k allowing drivers to make more manageable monthly mortgage payments. The city stepped in as a backstop party to ensure that private lenders would remain shielded from future default.

The plight of New York taxi drivers — largely older immigrant men — has become more appreciated in recent years, in part by a rash of suicides from anguished medallion holders.

Under the New York system, the city’s taxi and limousine commission fixes the number of medallions. A marketplace of brokers, lenders, fleet owners and fixers developed over the years along with a colourful, if unsavoury subculture. Immigrants were sold on the vision that a medallion, whatever the cost, was the ticket to the American dream.

Medallions in the early 2000s had changed hands for $300k. A decade later the price had tripled. Yet by the end of the 2010s the taxi license was changing hands for just over $100k leaving many individual owners well under water.

The entry in the 2010s of rideshare providers, Uber and Lyft, was only part of the problem. The New York Attorney General in 2020 accused the city’s municipal government of profiting by more than $800m between 2004 and 2017 by fraudulently marketing medallions to the vulnerable. The city was then under pressure to lead a bailout.


An original $65m fund announced in September proved paltry enough that the New York Taxi Workers Alliance, an advocacy group, helped organise the subsequent hunger strike and ultimately brought more heavy hitters to the table including the US Senator Chuck Schumer. (JPMorgan’s Jamie Dimon, whose bankers were working with the Alliance, sent his well wishes.)

The private equity firm involved in the restructuring deal is Marblegate Asset Management, a distressed debt specialist. In 2018, it grabbed headlines for an unorthodox gambit: the firm would eventually begin acquiring loans tied to around 5,000 NYC taxi medallions, or about 40 per cent of total. Taxi medallion loans had previously been the province of local credit unions and regional banks.

The revised deal terms sets the value of taxi medallions held by Marblegate at a principal amount of $200k. $170k of that figure will become a 20-year loan with the remaining $30k covered by a city grant. The loan service payments are guaranteed by the city. The implied monthly payment for medallion holders is to be roughly $1,100 per month.

“This wasn’t a campaign to cancel debt completely but a collective effort to make it fairer,” said one person whose family owns a medallion.

What is a fair deal for New York’s cabbies?
Bhairavi Desai, the longtime leader of the Taxi Alliance, has thanked Marblegate for working in good faith, adding it had worked out well for the private equity firm headed by Andrew Milgram, who had become a licensed cab driver himself. “Any lender would consider a city-backed portfolio to be a prized possession,” she told the FT.

After the restructuring deal, more mainstream Wall Street institutions are beginning to see a way that they could play in the New York taxi ecosystem too.

One person involved in the taxi market speculated that following the restructuring, medallion debt would become standardised enough to be packaged in a securitised product. This person said the likes of Credit Suisse and Goldman Sachs have expressed preliminary interest in medallions. The two declined to comment.

Drivers themselves will benefit from a reset financing system. As even the taxi labour organiser Desai offered: “Every five to seven years, drivers need to purchase a new vehicle. This settlement allows new capital to look at the industry.”

[email protected]

[Farfromgeneva]

Anyone care to guess how I might feel about this based on my numerous prior comments on this subject:

Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1 Million as Prices Soar
Scheduled increase in loan limits is a boon for borrowers but also stokes debate over government’s role in housing market

Loan limits are expected to jump to just under $1 million in high-cost housing markets such as San Francisco
PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS
By Andrew Ackerman
Nov. 16, 2021 9:03 am ET

WASHINGTON—The federal government is about to back mortgages of nearly $1 million for the first time.

The maximum size of home-mortgage loans eligible for backing by Fannie Mae and Freddie Mac are expected to jump sharply in 2022, a reflection of the rapid appreciation in home prices nationally over the past year.

The increase may make it easier and cheaper for some borrowers to buy a home, particularly in more expensive areas of the country, but the higher limits are also likely to elevate debate about how big of a mortgage is too big to be backed by the government.

“Housing prices are expensive,” said Steve Walsh, president of Scout Mortgage in Scottsdale, Ariz., adding that some of his clients are unable to qualify for loans for modest-sized homes under the current limits.

“I don’t believe these people are looking for a castle, just a three-bedroom house with a backyard,” Mr. Walsh said.

By law, the loan limits are updated annually using a formula that factors in average housing-price increases nationwide.

Currently, the government-controlled mortgage companies can back single-family mortgages that have balances as high as $548,250 in most parts of the country and up to $822,375 in expensive housing markets, including parts of California and New York.

Those limits are expected to jump to a baseline level of about $650,000 in most jurisdictions and to just under $1 million in high-cost markets.

In all, about 100 counties out of more than 3,000 counties across the U.S. are designated as high-cost markets, according to the Federal Housing Finance Agency.

The precise loan limits are set to be announced Nov. 30 by the agency, which oversees the two mortgage giants, and the new limits will go into effect in January. Mortgages within the limits are called conforming loans; mortgages that exceed them are called jumbo mortgages, which tend to be more expensive for borrowers to obtain and generally have larger down payments for comparable borrowers.

Mortgage bankers and real-estate agents say the new limits should keep pace with the double-digit rise in home prices. Low mortgage-interest rates and buyers looking for more space during the pandemic has helped fuel the housing price surge in recent months, along with a significant shortage of new homes.

Nationwide, the median single-family, existing-home sales price rose 16% in the third quarter to $363,700 from a year before, a record in data going back to 1968, the National Association of Realtors said Nov. 10.

But some housing experts say the expected jump in loan limits raises questions about the appropriate role of the government in housing and whether taxpayers should effectively backstop sky-high housing prices, when Fannie and Freddie’s market share is already rising.

Fannie and Freddie, which guarantee about half of the $11 trillion mortgage market, don’t make loans. They instead buy them from lenders and package them into securities that are sold to investors.

The companies’ market share during the pandemic jumped to nearly 60% of all new mortgages, up from about 42% in 2019, according to the Urban Institute, a Washington think tank that conducts research on economic and social policy.

“For some policy makers, the one-million-dollar threshold will catalyze concern and conversation,” said Isaac Boltansky, a policy analyst at brokerage firm BTIG. “The annual loan limit formula is an elegant means of adjusting policy without disrupting markets, but it skirts the bigger and more consequential debates over the optimal and appropriate role of the government in the housing market.”

The government assumed control of the firms in 2008 during the height of the financial crisis to prevent their failure. Under the terms of their 2008 conservatorships, they currently have access to more than $250 billion in support from the Treasury Department.

Some housing-policy experts who are wary of Fannie and Freddie’s outsize role say the sharp expected rise in loan limits should prompt policy makers to debate the level of government support that is necessary for a mortgage. Borrowers who can afford million-dollar mortgages should be able to finance a home without government-backed financing, they say.

From aspirational residences to major commercial deals.

They favor policies that would eventually wean the mortgage market off government support and allow the market for nongovernment-guaranteed mortgages to take a bigger role, particularly for high-dollar loans.

“We’re continuing to go down a trail in which we see the Treasury, through the backstop of Fannie and Freddie in conservatorship, backing larger and larger loans, taking up more and more of the market,” said Ed DeMarco, a former top FHFA official who is now president of the Housing Policy Council, a housing-industry trade group. “At some point, you would expect Treasury and the Congress would want to ask, is this really where we want to be going?”

Mr. DeMarco’s group favors the FHFA using its powers as conservator of Fannie and Freddie to either freeze or drop the loan limits, essentially overruling the annual formula that calls for a rise in loan limits.

Real-estate agents say constricting the loan limits would punish borrowers in pricey markets where modest starter homes can fetch seven-figure prices.

In a 2021 housing survey, the California Association of Realtors found that about one-quarter of the homes sold between $1.25 million and $2 million were purchased by first-time home buyers. That figure was about 40% in the San Francisco area, the group said.

“Shrinking the government’s role in the mortgage market will only hurt first-time and low- and moderate-income home buyers,” said Dave Walsh, president of the California Association of Realtors.

Write to Andrew Ackerman at [email protected]

[NattyBohChamps04]

Everything the press said about the economy was wrong

Maybe apropos for the media matters thread too.

"Desperate for a dramatic angle to lure consumers back to TV news and websites, and weirdly anxious to bury Biden, the Beltway media have gone all in on the Doomsday narrative."

[MDlaxfan76]

Everything the press said about the economy was wrong

Maybe apropos for the media matters thread too.

"Desperate for a dramatic angle to lure consumers back to TV news and websites, and weirdly anxious to bury Biden, the Beltway media have gone all in on the Doomsday narrative."

yes.

And that's been my read on all this as well. A weird fascination to find some sort of 'bad news for Biden' that has led the MSM to be overwrought in it's breathless coverage of the travails faced, or supposedly faced, economically.

Not that we'd know it from the coverage, but US has had staggering job growth, huge wage growth, especially at the lower working class levels with a high proclivity to spend, a booming economy with high corporate profits, strong consumer savings and consumer debt reduction, and instead of celebrating this growth and better consumer balance sheets (oops we missed reporting on how strong the job growth really was over the summer while we banged the drum about a slow down), we're to believe that the only thing that matters is prices at the pump and grocery store, something being experienced all over the globe and certainly not driven by any US action or inaction...Even if we think that the only thing that matters is how voters will act a year from now, why all the hand wringing now about factors that may not be in play at all by then? It's almost as if the TV folks said, we HAVE to be more hyperbolic about how bad inflation is else we'll get flayed as apologists for the Dems...or worse, they love the ratings and they need the controversies.

And instead of focusing on a rather unparalleled legislative accomplishment, with bipartisan support (albeit limited), the whole narrative is about why it should have been "sooner" (yet not done in the prior Admin) as if that's a calamity. And now the handwringing over whether the next bill, which would be transformative as well, will pass, and when...

Horse race stuff, not actual policy and economics.

So, yeah, a media as well as economy story.

[kramerica.inc]

Biden’s Comptroller Pick Will Decimate Community Banking
If Congress wants to transfer more money to people for any reason, it should do so transparently.

https://www.cato.org/commentary/bidens- ... ty-banking

So, I worry about the future as the federal government continues to force changes on the banking industry. I’m especially fearful now that the Biden administration is openly pursuing its social goals through financial regulation and has nominated Saule Omarova to lead the Comptroller’s office.

To be clear, I am not a Republican, and my concern has nothing to do with politics or personalities. What worries me is a major shift away from a free society.

Ms. Omarova’s writings are clear. She favors a society organized around a central government that allocates financial resources. It has no room for private banks, large or small.

If Congress wants to transfer more money to people for any reason, it should do so transparently.

Ironically, Omarova wants to give government bureaucrats a level of control over people’s lives that far surpasses the ephemeral “economic power” that she decries private financial institutions for wielding. All slogans aside, she clamors for the type of society best known for destroying the living standards of millions of people while it enriches the ruling class.

Sadly, there is no doubt that Omarova shares these policy views with several members of Congress. They hold a hostile view of free markets that ignores history, and they insist that someone — such as Omarova — must “stand up to the industry.” That’s easy enough to pull off when the villain is “the big banks” or “Wall Street,” but not when it applies to community bankers, a most respected American institution.

Ms. Omarova insists that she is “a huge supporter of community banks that channel credit to American families and businesses in their communities.” But Americans should recognize that Ms. Omarova is a very capable lawyer and that there is enough room in her statement to disdain private community banks.

In particular, her writings leave no doubt that she believes private community bankers have largely failed to channel sufficient credit. Otherwise, she would not be promoting a massive government takeover of private banking. Besides, it is incredibly difficult to misinterpret her written desire for an “ultimate ‘endstate’ whereby central bank accounts fully replace—rather than uneasily co-exist with—private bank deposits.”

So, what, exactly, is left for community bankers to do in Omarova’s ultimate endstate?

Her plan suggests that licensed community banking institutions (CBIs) might “function as the Fed’s representative offices.” In other words, they would be wards of the state. Those lucky enough to receive federal blessing would be allowed to give out public funds at the behest of federal officials.

Omarova also supports a National Investment Authority (NIA), a publicly-backed entity that adapts “familiar tools of financial and legal engineering” so that it “overcomes obstacles that ordinarily impede or discourage private investment.” Supposedly, the United States needs the NIA because its “most pressing public policy challenge” is to ensure long-term economic development.

Naturally, Omarova does not believe the United States is a third world country. The problem, as she sees it, is insufficient economic development that meets her own social goals.

Again, it strains all reason to argue that Omarova is pro-community bank — she simply does not believe that private banks have done a good job of allocating credit. If she did, there would be no problem. But she does see a problem, and she wants to put government officials directly in charge of allocating funds to fix it.

Setting aside the many difficulties with wiping out an entire private industry, Omarova and her supporters miss the fact that simply “supplying more credit” will not solve most economic problems. No competent financial planner would suggest that a client with low and variable income take on more long-term debt precisely because it would set that person up for failure.

Creating a government agency to provide credit in this manner — which is precisely what Omarova and her supporters want to do — will not produce better outcomes.

Regardless of how Omarova’s supporters spin her views, the core issue in front of the Senate is whether Americans can expect politicians and bureaucrats to make better decisions than people who put their own livelihoods on the line in private markets.

History has definitively answered this question. It is completely irrational to trust that the government will not make an even bigger mess of private markets than it already has.

If Congress wants to transfer more money to people for any reason, it should do so transparently. Congress should not use the banking system to hide the failure of its social programs.

[a fan]

Biden’s Comptroller Pick Will Decimate Community Banking
If Congress wants to transfer more money to people for any reason, it should do so transparently.

https://www.cato.org/commentary/bidens- ... ty-banking

So, I worry about the future as the federal government continues to force changes on the banking industry. I’m especially fearful now that the Biden administration is openly pursuing its social goals through financial regulation and has nominated Saule Omarova to lead the Comptroller’s office.

To be clear, I am not a Republican, and my concern has nothing to do with politics or personalities. What worries me is a major shift away from a free society.

Ms. Omarova’s writings are clear. She favors a society organized around a central government that allocates financial resources. It has no room for private banks, large or small.

If Congress wants to transfer more money to people for any reason, it should do so transparently.

Ironically, Omarova wants to give government bureaucrats a level of control over people’s lives that far surpasses the ephemeral “economic power” that she decries private financial institutions for wielding. All slogans aside, she clamors for the type of society best known for destroying the living standards of millions of people while it enriches the ruling class.

Sadly, there is no doubt that Omarova shares these policy views with several members of Congress. They hold a hostile view of free markets that ignores history, and they insist that someone — such as Omarova — must “stand up to the industry.” That’s easy enough to pull off when the villain is “the big banks” or “Wall Street,” but not when it applies to community bankers, a most respected American institution.

Ms. Omarova insists that she is “a huge supporter of community banks that channel credit to American families and businesses in their communities.” But Americans should recognize that Ms. Omarova is a very capable lawyer and that there is enough room in her statement to disdain private community banks.

In particular, her writings leave no doubt that she believes private community bankers have largely failed to channel sufficient credit. Otherwise, she would not be promoting a massive government takeover of private banking. Besides, it is incredibly difficult to misinterpret her written desire for an “ultimate ‘endstate’ whereby central bank accounts fully replace—rather than uneasily co-exist with—private bank deposits.”

So, what, exactly, is left for community bankers to do in Omarova’s ultimate endstate?

Her plan suggests that licensed community banking institutions (CBIs) might “function as the Fed’s representative offices.” In other words, they would be wards of the state. Those lucky enough to receive federal blessing would be allowed to give out public funds at the behest of federal officials.

Omarova also supports a National Investment Authority (NIA), a publicly-backed entity that adapts “familiar tools of financial and legal engineering” so that it “overcomes obstacles that ordinarily impede or discourage private investment.” Supposedly, the United States needs the NIA because its “most pressing public policy challenge” is to ensure long-term economic development.

Naturally, Omarova does not believe the United States is a third world country. The problem, as she sees it, is insufficient economic development that meets her own social goals.

Again, it strains all reason to argue that Omarova is pro-community bank — she simply does not believe that private banks have done a good job of allocating credit. If she did, there would be no problem. But she does see a problem, and she wants to put government officials directly in charge of allocating funds to fix it.

Setting aside the many difficulties with wiping out an entire private industry, Omarova and her supporters miss the fact that simply “supplying more credit” will not solve most economic problems. No competent financial planner would suggest that a client with low and variable income take on more long-term debt precisely because it would set that person up for failure.

Creating a government agency to provide credit in this manner — which is precisely what Omarova and her supporters want to do — will not produce better outcomes.

Regardless of how Omarova’s supporters spin her views, the core issue in front of the Senate is whether Americans can expect politicians and bureaucrats to make better decisions than people who put their own livelihoods on the line in private markets.

History has definitively answered this question. It is completely irrational to trust that the government will not make an even bigger mess of private markets than it already has.

If Congress wants to transfer more money to people for any reason, it should do so transparently. Congress should not use the banking system to hide the failure of its social programs.

I don't get it. A long rant about Omarova's "past writings", that ends with "if Congress......" , hoping the reader doesn't notice the switch.

Omarova doesn't have the power to do what the writer is implying, and the writer knows that, which explains the switch in the last paragraph away from Omarova to Congress. So...what's the problem?

[kramerica.inc]

She is a "radical" nominee who wants to nationalize banking. She is to banking what Betsy Devoss is to Education.

https://www.wsj.com/articles/a-regulato ... 1635101487

Despite its relatively small size, the OCC has a sizable regulatory footprint. Altogether, the institutions the OCC oversees have assets worth almost $15 trillion. They represent 65% of all U.S. commercial banking assets, according to the OCC.

[a fan]

She is a "radical" nominee who wants to nationalize banking. She is to banking what Betsy Devoss is to Education.

So don't appoint her. I'm good with that.

I'm simply pointing out that she doesn't have to the power to do what the writer is implying. The Editorial Board cedes that point in the last paragraph.

[Farfromgeneva]

Everything the press said about the economy was wrong

Maybe apropos for the media matters thread too.

"Desperate for a dramatic angle to lure consumers back to TV news and websites, and weirdly anxious to bury Biden, the Beltway media have gone all in on the Doomsday narrative."

I understand the point he’s making (a rolling stone writer with no discernible financial training from what I could tell looking up his background) but there’s a number of issues I find pretty un compelling and problematic with his argument. Throwing data around without context makes him as guilty as those he’s arguing against IMO.

[Brooklyn]

"Reagan taught us deficits don't matter" ~ Dick Cheney


https://resources.arcamax.com/newspics/ ... 194813.gif


If this is true under Republican regimes, then it should be equally true when a Democrat is in the White House.

[PizzaSnake]

Everything the press said about the economy was wrong

Maybe apropos for the media matters thread too.

"Desperate for a dramatic angle to lure consumers back to TV news and websites, and weirdly anxious to bury Biden, the Beltway media have gone all in on the Doomsday narrative."

yes.

And that's been my read on all this as well. A weird fascination to find some sort of 'bad news for Biden' that has led the MSM to be overwrought in it's breathless coverage of the travails faced, or supposedly faced, economically.

Not that we'd know it from the coverage, but US has had staggering job growth, huge wage growth, especially at the lower working class levels with a high proclivity to spend, a booming economy with high corporate profits, strong consumer savings and consumer debt reduction, and instead of celebrating this growth and better consumer balance sheets (oops we missed reporting on how strong the job growth really was over the summer while we banged the drum about a slow down), we're to believe that the only thing that matters is prices at the pump and grocery store, something being experienced all over the globe and certainly not driven by any US action or inaction...Even if we think that the only thing that matters is how voters will act a year from now, why all the hand wringing now about factors that may not be in play at all by then? It's almost as if the TV folks said, we HAVE to be more hyperbolic about how bad inflation is else we'll get flayed as apologists for the Dems...or worse, they love the ratings and they need the controversies.

And instead of focusing on a rather unparalleled legislative accomplishment, with bipartisan support (albeit limited), the whole narrative is about why it should have been "sooner" (yet not done in the prior Admin) as if that's a calamity. And now the handwringing over whether the next bill, which would be transformative as well, will pass, and when...

Horse race stuff, not actual policy and economics.

So, yeah, a media as well as economy story.

“ especially at the lower working class levels with a high proclivity to spend”

I think necessity would be more accurate than proclivity…

Oh, and kill your TV. Watching it is bad for your mental acuity and health.

[MDlaxfan76]

Everything the press said about the economy was wrong

Maybe apropos for the media matters thread too.

"Desperate for a dramatic angle to lure consumers back to TV news and websites, and weirdly anxious to bury Biden, the Beltway media have gone all in on the Doomsday narrative."

yes.

And that's been my read on all this as well. A weird fascination to find some sort of 'bad news for Biden' that has led the MSM to be overwrought in it's breathless coverage of the travails faced, or supposedly faced, economically.

Not that we'd know it from the coverage, but US has had staggering job growth, huge wage growth, especially at the lower working class levels with a high proclivity to spend, a booming economy with high corporate profits, strong consumer savings and consumer debt reduction, and instead of celebrating this growth and better consumer balance sheets (oops we missed reporting on how strong the job growth really was over the summer while we banged the drum about a slow down), we're to believe that the only thing that matters is prices at the pump and grocery store, something being experienced all over the globe and certainly not driven by any US action or inaction...Even if we think that the only thing that matters is how voters will act a year from now, why all the hand wringing now about factors that may not be in play at all by then? It's almost as if the TV folks said, we HAVE to be more hyperbolic about how bad inflation is else we'll get flayed as apologists for the Dems...or worse, they love the ratings and they need the controversies.

And instead of focusing on a rather unparalleled legislative accomplishment, with bipartisan support (albeit limited), the whole narrative is about why it should have been "sooner" (yet not done in the prior Admin) as if that's a calamity. And now the handwringing over whether the next bill, which would be transformative as well, will pass, and when...

Horse race stuff, not actual policy and economics.

So, yeah, a media as well as economy story.

“ especially at the lower working class levels with a high proclivity to spend”

I think necessity would be more accurate than proclivity…

Oh, and kill your TV. Watching it is bad for your mental acuity and health.

True, much of it will rot your brain..guess my mom was right all those years ago.

Yes, necessity = "proclivity" much of the time, though it would be fair to say that as one rises in the Maslow hierarchy, the "proclivity" becomes less 'necessity' and more 'want'...at some point, the "want" becomes something worth saving for, but on the way up, most of those 'wants' are just stretches beyond the current, barely within reach but nevertheless within with each boost of income.

[Farfromgeneva]

https://m.youtube.com/watch?v=6YMWvhcUIl8

I'm ready to bug out, my sanity I can't hold
My needs and wants messed up my life on a whole.
Damn. Just wasn't satisfied with life.
The moral to the story is...your addiction to your needs and your
wants is what causes problems in your life. Make sure you got whatcha
need. Put at a safe distance all the things that you want. It's wants
that get you into trouble.
This is the balance of life, the balance to life on a whole.

[Farfromgeneva]

How Companies Raise Prices Without Raising Prices
Companies hope that by making price increases hard to see, they can escape notice and avoid a customer backlash

Many grocery shoppers assume that large packages will be cheaper on a per-unit basis. This is often not the case.
PHOTO: MARIO TAMA/GETTY IMAGES
By Utpal Dholakia
Nov. 21, 2021 5:30 am ET

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The demand curve imposes its tyranny on every business. Raise prices and sales will begin to falter. Cut prices and customers will flock to you. It’s usually either higher sales or higher profit.

The holy grail of pricing strategy is in finding ways to circumvent this seemingly ironclad economic law, to raise prices without losing sales. That becomes even more crucial at times like now, when input costs are increasing quickly, and raising prices is necessary just to keep the business running.

But we live in a time when customers have sharp eyes and loud voices. When a company raises prices directly, some vigilant customer is bound to notice and complain on social media, no matter how small the increase or valid the reason. A few complaints could then spiral into a firestorm of outrage, upturning even the most carefully orchestrated price increase.


The solution for many companies is to raise prices, but covertly. Companies hope that by making price increases hard to evaluate, they can then escape notice and avoid a customer backlash.

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Here are common ways companies raise prices covertly.

1. Unbundling services, lowering product quality and devaluing reward programs

My favorite pricing aphorism is, “Raise prices but keep them the same.” It sounds like a Zen koan, and it holds the key to a successful price increase. Consider this telling statistic from a recent Wall Street Journal article on airline prices: The average domestic airline ticket price is about the same today as 25 years ago, $260, versus $284 in 1996. And that’s before adjusting for inflation. How is it possible that the airline industry hasn’t increased ticket prices in over two decades?

It isn’t, really. Most of us are paying a lot more to fly today, thanks to a combination of three covert price increases. First, airlines have unbundled services so that fliers pay extra for checking luggage, boarding early, selecting a seat, having a meal and so on. The charges for these services don’t show up on the ticket price, but they are substantial. Second, the airplane seat’s quality, as measured by its pitch, width, seat material and heft, has declined considerably, meaning customers are getting far less value for the ticket price. And third, many airlines have steadily eroded the value of frequent-flier miles, increasing costs for today’s heavy fliers relative to those in 1996.

These practices are also common in other industries, whether it’s resort fees in hotels, cheaper raw materials in garments and appliances, or more-stringent restaurant and credit-card rewards programs.


The average domestic airline ticket price is about the same as 25 years ago, but airlines have found several other ways to raise the cost of flying.
PHOTO: BILL SIKES/ASSOCIATED PRESS
2. Shrinkflation and the quantity surcharge

Most people are familiar with shrinkflation—the common practice in the grocery industry of reducing weight, quantity or volume of a package while maintaining price. It works effectively as a covert price increase, because consumers are far more likely to notice price increases than equivalent weight or quantity decreases.

Less well known is a little psychological trick companies use with larger packages. Many shoppers assume that such packages with labels like “Party Size” or “Jumbo” will be cheaper on a per-unit basis. This is often not the case. Brands routinely exploit this common consumer belief by marking up larger packages more, and earning a greater margin on them. Researchers call this a “quantity surcharge.”

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At the same time, in many categories like cola and cookies, smaller packages still often cost a lot more per unit than standard-size packages, just as consumers expect.

The critical insight is that every product in a brand’s lineup has different markups and margins that aren’t always intuitive to customers. To raise prices covertly, the brand or the grocery store sells more of the higher-margin items by increasing their availability and visibility in the store, or withdrawing popular lower-margin items from circulation for a period. The prices don’t change, but customers pay more.


3. Disappearing deals and coupons

Incentives such as coupons, “buy one, get one” offers and free shipping are common in many industries. Every promotion lowers the actual price paid by customers. So it makes sense that companies can routinely raise prices covertly by reducing the incentives they offer.

Even increasing the threshold for free shipping, from $49 to $99, is tantamount to a price increase. Customers might grumble when they realize their favorite deal is no longer available, but relatively few of them change their behavior in response.

4. The sunk costs of memberships

Consider the following comparison: Which one is cheaper, a 64-ounce container of mayonnaise at a warehouse club that costs $7.99, or a 48-ounce bottle of the same brand at a supermarket for $5.94?

Most people will guess the warehouse club because of its low-price image. If you do the math, the price per ounce is roughly the same. But if you consider that the warehouse club requires a separate mandatory membership fee, the customer is actually paying more per ounce at the warehouse club.

Still, even though they pay it, most warehouse customers almost always ignore the initial fee, even if it’s recurring. They treat it as a sunk cost and fail to account for it in calculating the actual price they are paying for an item.

Known as two-part pricing, the membership fee camouflages the actual price paid by customers—and is behind the success of Costco, Amazon and likely your neighborhood gym. (A gym’s initiation fee, a landlord’s application or administrative fee, and an online ticket seller’s per-transaction processing fee all serve the same purpose.)


Most customers of warehouse clubs don’t factor membership fees into the cost of their purchases.
PHOTO: JOE RAEDLE/GETTY IMAGES
5. From good to better and from better to best

Another way to raise prices covertly is to introduce new, higher-quality versions at higher prices. This is called “good-better-best” pricing. Consumers like this approach because it gives them more choices. But its side effect is a stealthy price increase.


Many companies have used this method to benefit from higher consumer demand and earn higher prices during the pandemic. For example, Peloton lowered the price of its most popular basic spin bike by $350, or 16%, from $2,245 to $1,895. At the same time, it introduced a more expensive and profitable new bike for $2,495.

I believe that both moves effectively increased the average prices paid by Peloton customers, although the company won’t confirm that’s the case.

The smartest companies don’t raise their prices with great fanfare, because direct price increases are often met with customer resistance. What they do instead is to employ nuanced pricing strategies to increase prices covertly, often keeping their regular or visible prices unchanged. Most customers don’t notice, and some customers may even benefit by paying less. But in the end, the company enjoys higher sales and profit margins than before.

Dr. Dholakia is a professor of marketing at Rice University in Houston. Email him at [email protected].

[Typical Lax Dad]

The land of opportunity!!

[Farfromgeneva]

The land of opportunity!!

My nephew lives in that town! I’m going to have to check via FaceTime if he’s got any nice new stuff at his crib.

[Typical Lax Dad]

The land of opportunity!!

My nephew lives in that town! I’m going to have to check via FaceTime if he’s got any nice new stuff at his crib.

Walnut Creek is nice.