In the meantime, I thank you all for being rational classmates, and bringing interesting and diverse views to the table. Finally, on behalf of corporations everywhere (even though they are not “real people”), try to look with a little less anger and more rationality at how a corp behaves–they aren’t bringing personal motivations to the table!

The O’Grada (sorry, could not figure out how to properly punctuate his name) and White paper engages in micro-economic analysis of the 1854/57 bank runs, utlizing a robust set of data from the EISB. Robust, in the sense that it is extant, but troubling, in that it is such a limited sample set, particularly for the nation-wide 1857 panic. There seems to me to be an overconfidence in the economics. I am a big fan of this methodology, but I don’t think this is the best execution. One could easily question whether the variables are sufficient/correct. Interesting as a methodological piece, but I am not sure that it provides real answers. More interesting than the econometrics is the chart of deposits/withdrawals, and the growth charts presented early in the paper.

Mark Carlson is to be commended for supplying a thorough review of the literature. He articulately lays out the two competing strands of thought–illiquidity v. asymmetrical information, adds a “hybrid” category, and then does some base level analyses. Carlson’s paper is well-written, lucid, and informative, but his conclusions are (justifiably?) tentative.

Galbraith is a masterful writer. He tells a good tale and argues coherently. But, I take issue on two points. First, I think he may overstate the role of income disparity as a driving force behind the bubble and crash. That is simply a fact of the contemporary market, and has not changed in 80 years. It may be a symptom, but I think Galbraith goes too far it painting it as causal. Second, Galbraith disparages the role of “economic intelligence” during the bubble, and castigates economists as making things worse. Maybe so. But is it realistic to expect economists to be able to accurately model–if they model too pessimisticly, we deride them as harbingers of doom, and if too optimistically, Pollyannas. Perhaps the level of sophistication among those listening to the pundits at the time made them too susceptible to influence, a phenomena not unfamiliar to us today.

But, speaking of pundits (smooth segue, eh?), Galbraith is unquestionably the greatest pundit of them all! Not just because he acknowledged that another bubble might come along some day (his prognostications were a bit wishy-washy in my view), but because that Great Financial Wizard, MR. JIM CRAMER (typing in ALLCAPS to simulate his inimitable style SAYS SO!!

In all seriousness, someone probably thought this was covering the bases, and ensuring that someone didn’t try to use some satellite transmission of data or the next internet to illicitly transmit programming. But, in all honesty, contracts never cover any contingency. Companies dissatisfied with the result of a contract will always find alternative interpretations that serve their own interests, and will go to court to fight it out. I had a case like this recently. A clause in the contract said if the selling company got sued for conduct pre-closing, they were on the hook for it. The selling company got sued for antitrust violations, and voluntarily settled. They seized on another provision of the contract, and argued that was the applicable one. After 3 years of depositions, briefs, and appeals, my side (the purchasing company) won. The cost was close to $5M, for a relatively small case (less than $40M on the hook). My point is that attempts to bullet-proof contracts don’t work within our legal system, and companies are stuck defending frivolous lawsuits based on attempts to endrun the meaning and language of agreements. I have no solution.
In the meantime, I will think about whether the Bulgarian throat-singers are bound in an imaginary world of my own creation. I think I have an argument either way.

Walter Friedman’s Birth of a Salesman is one of those moments. I can’t think of a book where someone has brought issues of gender home in a meaningful way. Some books (hmm, let’s say the author’s name rhymes with Schminkley), pay lip service to providing some attention to gender, race or ethnicity, and appear to do so with one eye on the politically correct clock. Friedman, conversely, really latches on to the image of masculinity as a desirable trait for salesman during this developmental period. Military imagery, hale-fellow well-met bonhomie, and other stock masculine traits were desirable, and inculcated into these commercial travelers and salesmen by the “scientific” sales managers. Women were courted by management as assets to their husband-salesmen, and instructed to provide support services, bribed with the promise of some household item.

Fascinating stuff–I may have to read these things more carefully. Mike, I stand corrected–perhaps we have more in to talk about than we thought!

The short version is that the agencies (DOJ and FTC) are gearing up for increased enforcement of the Sherman Act Section 2 (monopolies) and the FTC Act Section 5 (sort of a catch-all).  However, the rate of filing of private actions has diminished over the past year or so–we don’t know yet how the increased government intervention will play out, but the financial incentives are certainly there for non-dominant firms to “ride-along” with the government.  Our theory is that loss of access to capital credit markets has made companies risk- (and litigation-) adverse.

As required by my publisher, this is an extract from the 2010 Antitrust Review of the Americas- a www.GlobalCompetitionReview.com special report.

For example, GM is undergoing just a disastrous turn of events.  The Saturn deal is either dead or close to it, Hummer and Opel deals are sputtering, but while people are aware of it, there just does not seem to be any real sadness amongst the American people for the decline of this iconic American company.  OK, so the Saturn brand is only about 15 or 20 years old, and was never all that beloved (although it is odd that it never really took off).  I don’t remember the last time I saw an Opel, and Hummers?  Hardly an American classic. But it is the lack of any real national feeling about GM that shocks me.  Perhaps corporations have some life-cycle in anthropomorphic terms–that is, while they can continue in perpetuity legally, maybe there is an expiration date on their pre-eminence.  I realize that I am engaging in the most loose analysis, not grounded on any empirical data, but in thinking about other companies that had this sort of status, I can think of a number that have this sort of 75-year lifespan.

What would Mike O’Malley think of this?  Is this important/interesting, or just a stray random musing?  I think the former, but invite comments.

Well, sometimes they don’t.  The Supreme Court will soon hear an antitrust case involving the NFL.  The NFL recently entered into a collective agreement with Reebok to produce all NFL-licensed jerseys and other apparel (e.g., that Bret Favre Minnesota shirt you just can’t live without, or, in my case, my spanking new Mark Sanchez Jets jersey).  American Needle had contracts with several teams, and sued on the grounds that the league was violating Section 1 of the Sherman Act, which prohibits collusive anticompetitive agreements in restraint of trade, subject to a Rule of Reason analysis (I oversimplify, since the vagaries of the Act are legion, and a real discussion would take a book, or at least a good journal article).  The NFL claims that it is a single entity competing against other forms of sports entertainment, and that the 32-teams compete in football, not in selling novelty items.

The NFL is rolling the dice here–they joined in American Needle’s appeal of a 7th Circuit decision in their favor.  Why do so?  In order to get the Supreme Court to rule that sports leagues are effectively exempt from certain provisions of the law, hence granting them de facto antitrust immunity.  With the new collective bargaining agreement right around the corner, it is unsurprisng that the NFL would seek a ruling at this time.  Other sports leagues are expressly (NBA) or implicitly (BCS) supporting the league in what could be a watershed moment in sports business history.  Yesterday, a group of economists filed a brief with the Court supporting the NFL position (expect a contrary group of economists to do the same soon on behalf of American Needle).

Legally, this is a close question.  There is a lot of nuance in the determination of single-entity, but leagues have generally done pretty well, albeit usually in a fact-specific context, such as the selling of broadcast rights or some other particular activity.  Here, the NFL is hoping to get a broader ruling.  Interestingly, Solicitor General Kagan argued that this case should not be heard (likely because the tea leaves favor the NFL).  The Court accepted anyways.

I would handicap the game this way: the NFL has four solid votes (Roberts, Scalia, Thomas, and Alito).  Kennedy is expected to vote for American Needle.  But, surprisingly, most pundits expect Breyer to vote with the Conservative Four, given his previous record in sports v labor cases, and some expect Sotomayor to do the same.  Ginsburg and Stevens are more likely to go against the NFL, but a 5-4 or 6-3 looks likely.  The impact will depend on the scope of the ruling.  If the Court rules narrowly on the issue presented, then the impact could be minimal.  But, if more likely, the Court rules in a way that broadly grants an implicit Sherman Act exemption, lockouts, changes to free agency, labor strife, and more exclusive merchandising deals will likely rain from the heavens.  My view is that there is probably sufficient pro-competitive rationale for this particular deal, and that the Court will rule more broadly.  Better get that Favre jersey now, before the prices go up…..

I’ve always had a soft spot for economic determinism, at least to the extent that there is some clean meaning to the phrase. In thinking about Chandler’s Visible Hand, I have thought a lot about that term, and what it means.  There are arguments that even a moderately technological society will overwhelm the culture and ethics of a less technologically advanced society (and not for the better) (Habermas), Heilbronner’s theory that technological determinism only occurs in periods of high society and low socialism, culturally oriented technological determinism (Leo Marx, perhaps? I’ve never quite gotten Machine in the Garden, since there are really very few machines in Marx’s gardens), or the more simplistic view that technology acts as a catalyst for change.  The latter seems to be at least implicitly present in Chandler’s work.  Repeatedly, the author takes us back to evolving technologies as the primary driver for change within the managerial and accounting structures of the firm.  And, one cannot deny that he is a persuasive writer.  The evidence presented supports the argument.  Of course, Chandler’s evidence cannot be seen as comprehensive (although he is thorough, it would be a valuable thought exercise to consider evidence he omits).  At the very least, his prognostication skills are less than spot on–his “ultimate business form” hardly stands the test of time.  Of course, many fine histories suffer from the same failing (e.g., John Appleman Williams wrote a brilliant history of US-Soviet relationships, but just 10-15 years before the end of the Cold War, was sanguine about the future of the USSR).

Lamoreaux et al do a fine job with their critique.  They reject determinism in favor of heterogeneity.  I am not so sure that it is quite so cut-and-dried.  Perhaps determinism comes in different degrees.  If technology is the inexorable underpinning, a necessary precondition to any of the multiple reactions, is it not deterministic?  Does deterministic mean monocausal?  I don’t think it does.  But I do think Lamoreaux and company introduce a number of important economic variables that undoubtedly were factors driving various reactions by business firms in an interative process, not as straightforward as that presented by Chandler, of organizational change.

The Lyles paper effectively demonstrates the relationship between various legislative pronouncements, behavioral reactions by banks, and what ultimately appears to be the efficient allocation of funds across the country.  There is a fair amount of theory behind this.  Presumptions of the ability to price-discriminate abound, and are necessary to the analysis.  Lyles is weakest (surprisingly) where he shows the numbers–one can question whether the somewhat slight deltas underlying his analyses are all that compelling in testing his model.  Nonetheless, Lyles sets out a model, and makes an argument that works in support thereof.  I haven’t had the chance to look for contrary evidence, but would suspect that this is not as clearcut as he presents.

Finally, last week’s New Yorker had a “Lords of Finance 2.0″ type article, detailing the 2008 crisis through the lens of the principal actors.  Included is Ben Bernanke (as the article mentions, he’s a historian).  If the article is to be believed, Bernanke drew only the shallowest learnings from the Great Depression.  I have some confidence that the author dumbed this down for a lay audiene, and that Bernanke thought more deeply than this.  If not, than no wonder the economy suffered as it did.

Sorry I won’t be there for what I expect will be an excellent discussion–I will eagerly await your comments.