Economics for One

G. Edward Griffin’s The Creature From Jekyll Island: A Second Look At The Federal Reserve will profoundly change the way you view the entire banking and monetary system in the US and abroad. It is a fascinating read.

The title refers to the creation of the US Federal Reserve Bank, which took place at a then-secret meeting in 1910 (later confirmed by the participants), at a resort on Jekyll Island, just off the coast of Georgia.

Most of us grew up thinking of the Federal Reserve as a quasi-government organization that helps stabilize our money supply. How it does that is often a bit of a mystery, although it involves interest rates, and possibly reserve requirements. And it isn’t always clear what the relationship is between the Federal Reserve and the US government.

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Here is a list of the banks that have failed so far this year. Read more…

One of the challenges the insurance industry faces is “Moral Hazard.”

Moral hazard is a the observed phenomenon whereby, because something is insured, it becomes more likely to occur.  If a bad event (e.g. breakage or theft) will cost a certain amount, then if that event is insured, it will cost a bit less.  This makes the bad event less bad–which is the point of insurance.  Unfortunately, it also means that the insured person will not work quite as hard to prevent the bad event from happening, or, in extreme cases, may even cause the bad event to occur.

A silly illustration: if a grocery store could somehow insure every dozen eggs for $1000 against breakage, “Moral Hazard” is the insurance industry’s way of recognizing that there would somehow be a lot of broken eggs.

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American Express has begun demanding that some of their customers send in copies of their personal tax returns or face a cancellation of their account.  These US tax returns are then sent to India for review.

Customers who refused to send copies of their personal tax returns to American Express have had their accounts closed with prejudice.  They lose any reward points they may have accumulated, are required to immediately pay off the balance of any revolving credit, and have a negative report sent to the credit rating agencies, which results in a drop in their credit score.  If they fail to immediately pay off the revolving credit in full, they are sent to collections and face additional penalties.

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