Finals? But what of the kittens?

"Surely you could study later"

More on the Trading Tax. UBB ponders some implications on the size of the financial sector and the trading tax. Mainly, if it would even stop "speculation" as opposed to "investment", and the disturbing thought that the financial sector is exactly the right size for a globalized economy.

For Every Action... The Epicurean Dealmaker ponders the UK's new tax on bonuses and a windfall tax for GS. Also, whoopie cushions.

Captain Blackbeard's College of Piracy
— Ye Olde Course Catalogue, Spring '10. McSweeney's.

Two from Felix "I can't believe my last name is Salmon and why am I wearing a purple suit" Salmon:

Information consumption charts of the day.

Why homes are not investments. As someone previously on the frontlines of both the housing and investments war, I have a sympathy to Salmon's view, insofar as homes were thought too much as an investment. They are, more rightly, a store of value that, when maintained, tends not to depreciate like, say, a 1993 Ford Taurus.

the geography of a recession. by latoya egwuekwe

By contrast, other news organizations have trouble with percentages

Negotiate Anything. Lifehacker. One should, I believe, attempt to skim lifehacker at least once a fortnight.

The Next Bubble. Kedrosky worries about the collapsing bubble in books about the financial crisis.

The Persistence of Poverty. with Rortybomb's thoughts and a discussion of increasing marginal utility.

Did Subjectivity Play a Role in CDO Credit Ratings? Your SSRN paper du jour.

The operating principle of blog-counting is that you remain an ongoing concern

emerging from midterms and vacations. all of November, to be sure.

NYMag on AIG, Feinberg, and exec pay

James Kwak on Trefis and KaChing, some web 2.0 start ups that do some neat, but, Kwak argues, ultimately useless and/or harmful stuff. the original NYTimes Article.

Krugman on taxing speculators. I can't remember where I saw it now (probably UBB or Epicurean Dealmaker), but the point was that the market consists of three people, people who think they're getting out at the top, people who think they're buying at the bottom, and people being paid to provide liquidity. My sense is that Krugman is giving the benefits of speculation little credit, but I only have a Grammy, and Krugman the Nobel. Arvind Subramanian agrees with Mr. Krugman. Alas, the only people who agree with me seems to be clusterstock, which is usually a symbol that I'm wrong.

Discretion and financial regulation. Interfluidity. "An enduring truth about financial regulation is this: Given the discretion to do so, financial regulators will always do the wrong thing." it gets better from there.

Department of "Markets are Everywhere": Indus Valley's Bronze Age civilisation 'had first sophisticated financial exchange system'


Even Adam Smith likes cats.

10.26.09

Seattle Times on Washington Mutual. Kerry Killinger moved headlong into riskier lending throughout the bubble. File under: management matters, possibly.

Why San Francisco is No. 1 for Young Professionals. Forbes.

Asian Leaders Focus on Freer Trade. NYTimes.

A few other pieces I read over the weekend.

Networks Too Big for Their Own Good. NYTimes. Build a network, but make it valuable.

Estimate Revisions and "The Earnings Season Racket". Bespoke. Are companies beating estimates or are estimates too low?

Abnormal Returns on Buy and Hold Investing. A great summary, and a great takeaway. Related: Do you think you can time the market? CWS.

Lab Rats, Michael Jordan, and Wall St Pay. Does more compensation always make people better at their jobs?

10.23.09 Shocking Friday Links

Shocking Cats

Okay, silliness aside (for now):

Insider Trading or Legitimate Market Research? Prof Bainbridge. The Galleon insider trading case intersects all of these issues, and this is a great summary of legal issues surrounding it and insider trading in general.

Jeffrey Chiang Will Be Receiving No New Offers Of Employment. Dealbreaker. A reminder as to the importance of ethics and truth telling. Also, the incestuous community of finance. We all know each other, or we can find out.

Too Big To Fail Policy. Economics of Contempt. for you aggressive readers out there.

Information is Stimulus. Interfluidity. This is a good point by Mr. Waldman. Namely that expectations and belief in actions/reaction will move the market. There was a lot of talk in September 08 about "making the rules of the game clear" because traders/investors can't make rational bets if they don't know the rules of the game.

How Freakonomics is Ruining the Dismal Science. TNR. For the record, I like the Freakonomics blog, if only because they had the "Thugs watch The Wire" series.

Toward a New Theory of the Cost of Equity Capital. Aleph Blog. I don't understand this enough to say anything smart about it, but hopefully in 7 weeks I will be able to look down my nose at it with derision.

And, in the our "Local News Posts", So You're Leaving San Francisco, which is in reality more a love song TO San Francisco.

10.19.09 “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner..."

John Cassidy's article in the New Yorker on the Behavioral basis for booms and busts. Related, from John Carney, Why Wall St Always Blows It.

Andrew Ross Sorkin on the financial collapse. NPR. He's doing the rounds for his most recent book, some of which is excerpted to vanity fair here.

Brazil Foreign Investment Tax Risks Harming Local Capital Markets, as was mentioned in our finance class today.

John Carney on shorting and naked shorting (reposted). Of course, short selling was banned for a few weeks at the height of the financial crisis last year. Barry Ritholtz has no kind words about it. And Paul Kedrosky examines some of the papers that came out analyzing the effect of the ban. In short "market quality decreased, spreads widened and volatility worsened in non-shortable names."

mental health break

I have been listening to this every morning before school.

I walk out of the house with a strut in my stuff.

10/07/09 I thence Invoke thy aid to my adventrous Song, That with no middle flight intends to soar Above th' Aonian Mount

A follow up to the short presentation today:

Going Private: Memoirs of a Sardonic Prive Equity Professional. This is a direct link to her "getting in" series of posts. Look at the faq and intro guide as well for more "grunt's view" of the PE industry.

PE Hub. Online forum for PE and PE issues.

Dealbreaker. Wall St gossip rag.

Cause its my Birthday. In which two nerds throw parties in cities to benefit malaria prevention. If you would like the Mitchell Friedman Cohort 2 mix CD, talk to me. A $5 donation will get you the mix CD of all the songs that Mitchell has mentioned throughout the class.

10.06.09 unless The eyes reappear As the perpetual star Multifoliate rose

As if on cue for my presentation for communications class tomorrow, a whole slew of links over the weekend about Private Equity:

The NYTimes has a big piece on how private equity firms make profits even when their portfolio companies go under.

Quelle Surprise! New York Times Fails to Call Private Equity Looting by Its Proper Name. Naked Capitalism. Yves Smith is her usual restrained self regarding the practice.

Shareholder Value for Beginners. James Kwak. "Because acting in the best interest of the shareholders, in a time of crisis (or simply given inside information that the bond market doesn’t have), can lead to what Yves Smith, following Akerlof and Romer, calls looting." So perhaps lenders forgot their due diligence.

Next LBO Verse, Same As The First? PE Hub. So what with the easy money gone, what will the future look like for PE?

Regarding the fast implosion of CIT

Goldman's Image Problem. Felix.

In Defense of Goldman's $1 Billion Payoff From CIT. Atlantic Business Channel. Covenants and Hedges are important. If the Government didn't get those into their deal well, they need better lawyers and bankers, don't they?

Well, off to write the actual presentation.

10/05/09 Dire one and desired one, Savior, sentencer

Financial Innovation as a Tax. Modeled Behavior. More on the Financial Innovation problem, complexity tax, Lemons, and who assumes the long tail risk.

How I Became a Keynesian. TNR. Richard Posner. POSNER?!?! HT, Crooked Timber, I think. I am bad at this blogging thing.

Are the Humanities in a Bubble? Now, I love bashing my former bastion of the academe as much as the next MBA-with-three-feet-of-Foucault-on-the-bookshelf, but trying to tell me that a PHD in Classics is an unsecured liability and thus SUBPRIME! DERIVATE! SPECULATION! is well, a bit incongruous. Sure the terms are right but the deployment is wrong. I often return to the following: Market prices convey a whole lot of information. Sometimes they know more than you, sometimes they don't. The problem is just what information are they conveying, and how are actors valuing the importance of said information. Avoiding wearing a tie for 40 years may, for some, be an adequate medium of compensation for most of those involved in the current academe bubble. Lord knows it wasn't for me.

From the "when do sign ups for class begin" file: Fights broke out as law students queued for up to 11 hours last night to secure the dissertation supervisor of their choice at Brunel University.

From the "Marketing" file: Moo Cards.

10/01/09 a skilful uncouth prison, a precise clumsy prison

Vanilla is a commodity. Interfluidity. I am confused as to if this applies to retail accounts, or merely loans and other things. We HAD a $10 per month account which was the hardest thing on earth to sell to people (though like silver tongued hucksters we did). The other thing that I would observe is that if we are supposed to be moving from the big mega banks to a "big enough to fail" model is that if you push margins down, you'll make it harder for the smaller institutions to exist.

Wrekin ruby’s £11m value falls like a stone. FT. (Hat Tip: CWS). File under: Assets, value of. Accounting, Hinky.

Goldman Sachs launches recruiting drive. If you dream, dream big, vampire squid wrapped around the face of America.

Everything You Ever Wanted To Know About Naked Shorting But Were Afraid To Ask. Clusterstock. I rarely read Clusterstock anymore, mainly because they bury you in a quantity of posts of dubious quality. This I will never do to you, dear reader, in so far as I find it taxing enough to subject you to the tiny amount of substandard posts I currently do.

Sleep is a kludge. HT: Economists do it with models.

Never Say Never. The Epicurean Dealmaker. The ED is the cream of econoblogging: knowledgeable, witty, insightful, funny, biting. He has a billion post series on Compensation right now. Its . . . amazing.

I suspect I will sleep most all of friday, and then into accounting post haste.

09/27/09 a detached sleepily indifferent smile, a wanderer's smile...

As we recover from bonfires and spreadsheets, slowly peeking to observe the shape of the next two weeks, you may hear a collective gasp. It seems the intrawebs have noticed as well:



Such moments lead to, well, we surely can't call it quiet reflection, but lets take some links to sooth the incessant mutterings of doubt:

The rising cost of MBAs: Overpriced or priceless? Economist. Opps. Maybe the wrong article for this week.

Top 100 MBA employers. CNN Money. There you go. Keep your eyes on the prize.

Top 100 Global Venture Capitalists. Red Herring.

Time to end our deluded obsession with club managers. FT. Another salvo in the longstanding debate as to what matters: institutional structure or individual leadership. See also, Do CEOs Matter? We should also note that Billy Bean is falling on hard times. Of course, Warren Buffet lost money last year as well.

The Urban Diet. Felix "I can't believe my last name is Salmon" Salmon. I could argue that the calories lost due to my increased walking and more careful eating is mitigated by the whiskey which helps keep the fog at bay.

Most of today's links are stolen from The BizDeansTalk Blog. It was the PR guru Mitchell Friedman who directed me to the site.

Back to the books.

What peaches and what penumbras!

File under: living the dream via creative accounting. 37SIGNALS VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT. (37signals) Hat tip ccq

Datablog. I expect y'all to have this put in two way tables by wednesday.

Do financial advisors improve portfolio performance? VoxEu. Given my previous job, this is of particular interest to me. In the middle of the financial crisis, we had to balance the clients desire to move to cash versus the difficulty of timing the markets. Considering the risk, and ease, of moving accounts, the collective will of clients won. So, an advisor may not fully mitigate the irrationality of the retail investor (and let us not discuss the irrationality of advisors, for we are human, mostly).

Alternative Investments, Illiquidity, and Endowment Management. Liquidity was, especially in our office, the main concern of clients. Of course, estimating proper levels of liquidity is one of those "rational actors determining self interest" things that behavioural economics likes to point out that we're really bad at.

Vanity Fair posts another few thousand words on TARP. The belief that no good financial journalism exists in the world is pretty dumb.

File under: Posts I'm linking to because I have the humor of a 7th grader. Meat Trends. Of course, the point of the excerpt is brilliant. Maybe Malthus can still be right.

Over half a million strategic defaulters in 2008. Felix. Financially savvy people most likely to default strategically. In other news, clouds are fluffy, water wet.

There Are No Villains in Financial Crises. Megan.

Further debates on Securitization: Felix picks on Zubin. Zubin responds

okay, time for me to get back to spreadsheets and other

09/23/09 as this flea's death took life from thee.

As the bifrucated semester continues, we become more and more occupied with presentations, papers, and other matters of import.

Why Goldman Always Wins. Megan McArdle talks about what Investment Bankers and Don LaFontaine have in common. The decision making process for one time transactions, or transactions upon which a lot relies upon, are the same: "When you have only one chance to get it right, you tend to open up your wallet and pray." I would put this into the strange market of CEO selection and payment as well. Insofar as if your selection turns out poorly, well, you know, you as a board member followed all the small signals you could to TRY to get the best candidate.

Finally, Some Real Action on Student Loans. James Surowiecki. Of interest to all business school students, I am sure.

How to reduce the mountain of debt. Felix. Felix does a pretty good job of deconstructing a Nassim Taleb meme of reducing the amount of debt in the world. I suppose we still run into the same problem: long term liabilities of pensions and companies demand high quality, long dated debt.

09/09/09 within his eye false teardrops gather

Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830. one for a quiet Sunday afternoon. What do you usually do?

Misdiagnosing the crisis: The real problem was not real, it was nominal (VoxEu. Scott Sumner, of the money illusion, makes his case. Dear God I hope this all makes more sense after Macro.

Overdraft Hell Revisited (Mother Jones). Overdraft Fees Revisited (Felix). Responding to this article in the NYTimes. Kevin Drum dares someone to defend them, and since my previous job was to be Professional Trash Talker, here we go:

Yves touches on it here at the bottom, but, yes, "transparancy" in terms of bank fees that Kevin Drum talks about would mean that, if certain numbers of the formerly unbanked are not subsidized by somebody, that they would return to being unbanked. Retail banks throughout the 00's rushed into "banking the unbanked" not because they were altruistic, but because they needed deposits to fund a lending boom and, yes, the unbanked are a good source of fees. A lot of ink was then spilled on the value of doing so, but lets not put carts before horses. WAMU and zero fee banking pushed fees from the visible into the invisible, and, from personal experience, that the unbanked are very cost conscious (and the plural of anecdote is data. But a transition from pricing the services that low deposit customers utilize directly rather than indirectly would reduce the number of these low deposit customers. Bank margins have, not to my knowledge, been increasing over the past, so there is no reason to think that a reduction in fee income would not result in increase fees across the board. Kevin Drum may talk about transparency, and for people who have more than $1000 in their bank account, this may be a good thing, but it is disengenuous to pretend that increasing up front fees on the low end would not reduce those being banked on the low end, with whatever attendant social costs that entails.

The externiality of the unbanked will be paid by someone, the question is just who. We can argue about the fairness of foisting that upon one small subset of people, but that doesn't mean that that is any better or worse than foisting it on a smaller scale on a larger number of people.

(update 9/23/09: Chase and Bank of America to Revise Fee Policies. (NYT). It should be said that the above argument may be seen as an intellectual argument. I don't advocate that the bank's fee policies were reasonable, but rather that to say that there may be more moving parts than the gifted and articulate Mr. Drum may have acknowledged.

Turning and turning in the widening gyre

How Did Economists Get It So Wrong? by a Mr. Paul Krugman in a paper you may have heard of called the New York Times. I'm not going to pretend that I know better than Mr. Krugman, but methinks that those people actually involved with the allocation of capital understand that the market is filled with inefficiencies. Though I think he hits on it when he mentions research that implies that people willing to exploit said inefficiencies must have adequate capital to do so. Though I suppose this is a question for a valuations class.

Football, Statistics, and Agency Problems. From the Baseline Scenario. I believe there was some sort of draft today. Another data point in the "when taking the correct path is offset by the forces of convention and reputation".

A Post Finance Job Market. Ezra Klien. I suppose few people, apart from myself, dream in excel spreadsheets. But it does lead to an interesting question: will the lower salaries for Wall St, coupled with the reduction in status, cause a Renaissance in law schools, med schools, and the like?

FOR THE READERS:

Vanity Fair profiles Henry Paulson. Vanity Fair, from my perspective, has had some of the most compelling reporting over the past year. I will agree with Mr. Purdum that we get much more expressive photographs our of Mr. Paulson, especially compared to Mr. Geithner, who looks like a Keebler Elf.

I suspect I have some Accounting Homework to do.

09.02.09 bodies lopped of every prettiness

Ben Bernanke's speech at the Federal Reserve Bank of Kansas City's Annual Economic Symposium, Jackson Hole, Wyoming.

Tracking the nation's bank failures. Great map and chart.

Stocks Hate the President -- Any President. via CWS

Citibank announces that something may have happened, but they aren't going to tell you what, where, who, or how this affects the P&L. NYT

The Behavioral Economics of Playing Hard to Get. Hat tip and title to Felix

Your Accounting Professor isn't kidding when she says read the footnotes. Really. Felix.

08.31.09 - Until human voices wake us

Character and Circumstance, from TheMoneyIllusion. "But we also have to overcome our perception that elections are about the future course of our country. Actually, they are about picking managers who will oversea public policy as we move into a future that is determined by the changing zeitgeist." A continuing position in the debate about structure versus personality, from a public policy perspective.

The Economics of Contempt picks on James Kwak and Simon Johnson over their critique of financial innovation, specifically CDOs and CDSs. The Free Exchange Blog weighs in. Personally, I think that there is a bit of complaining about "rain on a rainy day" problem here, insofar as I think that the final note on the securitization binge of the 00's won't be written until a few years after the Recast Wave of 11-12 has fully passed through the bank's balance sheet and we can see how well these financial innovations worked through The End Of The World™. But let us not let that stop pundits from punditing. Edit (Five Minutes After Originally Posted): Why financial innovation is bad. Wintermute. In addition to my new favorite word ("glibertarian"), Wintermutes throw three excellent points in the "Con" column for securitization. He fails, of course, in the putting the problem solved (#4) as insufficient housing stock versus demand for highly rated long dated paper.

"Better" Corporate Governance Made Banks Riskier. Clusterstock. Banks run more for the benefit of shareholders (fickle, demanding, short sighted, non-banker shareholders) fared worse during the crisis.

Do Markets Increase Trust? The Stash.

Oil and the Great Moderation. Hattip Paul Kedrosky. "Around half of the reduced volatility of inflation is explained by better monetary policy alone, and 57% of the reduced volatility of GDP growth is attributed to smaller TFP shocks." If we dovetail this with James Hamilton's observation on the causes here and the consequences of the Oil Shock of 2007 - 2008, well, I am reminded of an observation Milton Friedman made in A Monetary History of the United States, 1867-1960, wherein he observered Gold's ability to manage the money supply "better" than the young Federal Reserve because of its unmerciful impersonality.

Back to spreadsheets homework.

In which we begin another excercise in Internet Meta-Linking

So, as the campus is flooded with bright eyed first year MBA students, feverishly tapping on their laptops and re-learning excel, I thought I would aggregate - on some sort of regular basis - articles and blog posts that I have run into that are interesting. I assume that this would be interesting to other MBA students, mainly as a transitive property of personality.

Oh, sure, I could just repost the entirety of Abnormal Returns each day, but that would be cheating, and that blog is directed more towards a technical audience.

I may or may not post original works of thought and expression, but that may be a good thing, depending on your frame of reference.