Secondary Sources: Financial Overaul, New York, Kindle Pricing
A roundup of economic news from around the Web.
- NY and Financial Overhaul: Barbara Kiviat wonders how much financial overhaul will impact New York. “I do reckon it’s valid to argue that one of New York City’s key business clusters is financial services, and that a city needs to protect its clusters because clusters boost efficiency and help to attract more jobs. At that RPA panel discussion, some people made the case that Midwest politicians lobby for Huge Corn, so why shouldn’t New York City officials get parochial about high finance? Honest sufficient. Interest groups make the world go ’round. I just don’t reckon the rest of us need to buy the hype. After all, New York City isn’t some auto-addicted town in the Rust Belt. New York is a major financial capital?that’s right. But it’s also a major capital for media and publishing. And publicity. And tourism. And film and TV production. And the theater. And fashion. Excluding all the companies that make their money in banking, insurance, real estate and other sorts of finance-related industries, New York City is still home to 45 Fortune 500 companies, including Verizon, Pfizer, News Corp., Colgate-Palmolive, Estee Lauder, Barnes & Noble and JetBlue Airways. And that’s not counting companies in the ‘burbs, small outfits like IBM and PepsiCo.”
- Financial Overhaul Bellwethers: Alan Blinder points to two bellwethers to watch in the financial overhaul bill. “Here are two bellwether issues to watch. The first is the fate of the proposed Consumer Financial Protection Agency (CFPA). You remember that thought: a proposed new agency to protect ordinary Americans from being duped. The banks, the Chamber of Commerce and many Republicans despise the thought. Even though Mr. Frank, the chairman of the House Financial Services Committee, is a huge supporter, he had to water it down a bit to get it through the House. One example: Banks with assets under $10 billion were exempted from compliance inspections by the CFPA. Still, the Frank bill did keep the CFPA as an independent, free-standing agency with rule-making and enforcement powers. As the Senate later proved, those were signal achievements. The second bellwether issue is the regulation of derivatives. Remember, the reputation quo here is no regulation at all; the Commodity Futures Modernization Act of 2000 placed most derivatives beyond the reach of regulators. What a mistake! Creative derivatives such as the notorious CDOs (collateralized debt obligations) and CDSs (credit default swaps) played huge roles in propagating and magnifying the financial crisis. Among other things, these and other derivatives made it too simple for financial gamblers to synthesize perilous amounts of leverage. One way or another, regulators must restrain the wild-and-wooly derivative markets.”
- Publisher Pricing: Donald Marron looks at publishers’ Kindle pricing. ” Under the first system, Amazon paid the publishers $13.00 for each e-book. Under the new system, publishers would hear 70% of the retail price of an e-book. To net $13.00 per book, the publishers would thus have to set a price of about $18.50 per e-book, well above the norm for electronic books. To be sure, so far above the norm that it generally doesn?t happen: ?I?m not sure the ?agency model? is best,? the head of one major publishing house told me. Publishers would assemble less money this way, about nine dollars a book, rather than thirteen; the unattractive tradeoff was to cede some profit in order to set a minimum price.” The publisher could also have prominent a second problem with this strategy: publishers will sell fewer e-books because of the increase in retail prices. Through keen negotiating, the publishers have thus forced Amazon to (a) pay them less per book and (b) sell fewer of their books. Not something you see everyday. All of which yields a fantastic topic for a microeconomics or business strategy class: Can the long-term benefit (to publishers) of higher minimum prices justify the near-term costs of lower sales and lower margins?”
Compiled by Phil Izzo