Marginal Revolution

Chicken

Suppose that Monday morning, Ben Bernanke is presented with a deal, under which a buyer gets Bear assets on the cheap, Bear stockholders get paid out, and the Fed (implicitly or explicitly) bears residual risk. If the Fed doesn't approve, executives say, Bear will file for bankruptcy. Dr. Bernanke will then have an unappetizing choice. He can say yes, and hope that there aren't any more rumors out there about any other firms. Or he can say no, and make it very clear that if Bear Stearns files for bankruptcy despite the Fed's continuing provision of liquidity, he will do everything in his power to hold Bear executives personally responsible for the crisis that results.

Who do you think has more bargaining power in this game?  The firm with the reputation for obnoxiousness and recklessness, or a charming, intelligent and indeed gentlemanly central banker?  We may know soon enough.  Here is more, and here, and don't forget this.  Here is a news report, if you are interested in the background.

Update: Seems to be a deal...at about $2 a share.  Book value of about $80 a share. 

Cop in the Hood

Motivated primarily by a desire for court overtime pay, police officers want arrests on their own terms, ideally without victims, complaints, or unnecessary paperwork.  Young officers make more arrests than veteran officers.  These officers believe that making arrests is police work.  In my squad, the top three officers in arrest totals were three officers with the least experience.  An arrest-based culture can exist in a low-drug environment, but without a limitless supply of arrestable criminal offenders, an arrest-based culture cannot make a lot of arrests.  Neighborhoods, without public drug dealings will not produce a high number of arrests.

That is from Peter Moskos's truly excellent Cop in the Hood: My Year Policing Baltimore's Eastern District.  This is one of the two or three best conceptual analyses of "cops and robbers" I have read.  It is mandatory reading for all fans of The Wire and recommended for everyone else.

Assorted links

1. Greg Clark on China and Arrighi

2. Economists study African-American women

3. New futures/options on non-farm payroll

4. Gambler sues bookmaker after losing his money

5. Markets in everything: a whole radio channel devoted to Spitzer news

6. The raid on UC Berkeley?

Many thanks to readers for these pointers...

How many books should be facing out?

To boost sales, retailer Borders Group is taking a simple but radical approach, our colleague Jeff Trachtenberg reports in today’s Wall Street Journal. Borders is increasing the number of books that it displays with the cover facing out (rather than the spine facing out), even though this shelf-space-eating approach will require cutting inventory at each store up to 10%. Says one analyst: “Breakfast cereals are not stocked end-of-box out. […] It’s a little bizarre that it’s taken booksellers this long to realize that the point of self-service is to make the product as tempting as possible.”

The link is here.  I understand the basic model as follows.  Superstores first invest in high inventory and a tony reputation.  You start thinking of them as "the place to go" for books, or in an earlier era, for music.  They then devote more and more of their space to non-book items.  The number of greeting cards and chocolates stocked by my Borders has risen steadily over time, as have the size of the coffee shops.  Having more books "face out" -- at least they are books -- is one of the lesser aspects of this more general problem.  It's related to why most trendy restaurants peak in the first year and a half of their operation, followed by decline and then stagnation.  Once they have a high enough (and sticky enough) reputation, it is time to cash in and lower the quality of the product to the informed and more sophisticated buyers.