What we’re reading (3/20)
“Dow, S&P 500, Nasdaq Sell Off To End Another Brutal Week As Iran War Rages” (Yahoo! Finance). “US stock losses accelerated on Friday, while oil prices remained high, as investors weighed the possibility that the US might try to seize a key Iranian energy terminal to unblock the Strait of Hormuz. The Dow Jones Industrial Average and the S&P 500 fell roughly 0.9% and 1.5%, respectively. Meanwhile, the tech-heavy Nasdaq Composite slid by a deeper 2% following a downbeat day on Wall Street.”
“United Airlines To Cut 5% Of Scheduled Flights As Fuel Prices Soar” (Reuters). “United Airlines (UAL) CEO Scott Kirby said on Friday the airline will cancel about 5% of this year's planned flights in the short term, as jet fuel prices surge due to the Middle East conflict. ‘If prices stayed at this level, it would mean an extra $11 billion in annual expense just for jet fuel,’ Kirby said in a message to employees posted on its website.”
“The Myspace Dilemma Facing ChatGPT” (The Atlantic). “OpenAI CEO Sam Altman made the provocative statement last week that in the future, intelligence will be “a utility, like electricity or water.” Instead of taking that claim as hubristic—as Altman claiming that smarts will be owned by OpenAI—consider a far more mundane and probable idea: AI could become, in just a few years, a commodity as invisible and anonymous as power or plumbing. Nobody cares what company makes the lights work or the toilets flush, so long as they do.”
“A Danish Fix For U.S. Mortgage Lock-in” (Marginal Revolution). “In the Danish mortgage market every mortgage is backed by a corresponding bond. Thus, if a home buyer takes out a 500k mortgage at 3% interest, a bond is issued that pays the lender 3% interest on 500k…It has two distinct advantages. The correspondence principle means that mortgage banks don’t bear interest rate risk but instead specialize in evaluating credit risk (the risk that the borrower won’t pay). Deep markets rather than banks take on the interest rate risk. This makes the Danish system very stable. Mortgages can be pre-paid by buying the corresponding bond at market rates and extinguishing it. If a Danish borrower takes out a 500k mortgage at 3% interest and then rates rise to 6%, for example, the value of that mortgage falls to $358k and the borrower can buy the corresponding bond, deliver it to the bank, and, in this way, extinguish the loan. In the US, a mortgage can be pre-paid only at a par. As a result, if interest rates rise, home owners don’t want to move because moving would require them giving up a 3% mortgage and replace it with say a 6% mortgage.”
“The 30-Year Debate Over The Minimum Wage Is Still Not Settled” (Wall Street Journal). “For decades, Econ 101 held that raising the minimum wages killed jobs. Then, in 1994, economists David Card and Alan Krueger published a paper saying the opposite. Economists have been fighting over the minimum wage ever since. Today the debate has never felt more relevant. Nineteen states raised their minimum wages in January, giving an estimated 8.3 million workers a raise. Three more follow later this year…How it all affects the job market remains deeply unsettled. At the heart of the debate: Does raising the wage floor reduce employment by making labor more expensive?”
