Wednesday, April 28, 2010

4.28.2010 Markets in Everything

Markets in Business Schools. HT Dealbreaker

Markets in animated GIFs. HT Dealbreaker

Markets in FrakenFood.

Markets in Slow Food.

Markets in Hard Problems.

Markets in zero.

Silliness aside:

It's hard not to be a hater. The Economist.

Links to This Paper.

Another whitepaper on the new financial regulation.

Monday, April 26, 2010

4.26.10 "Finance as Magic"

Finance as magic. Worthwhile Canadian Initiative. A description of what finance does. Wonderment.

Wikibollocks: The Shirky Rules. A great takedown of Clay Shirky's essay “The Collapse of Complex Business Models”. This type of clear, analytical thinking in the face of pseudo intellectual hogwash is needed, especially in the management communication field. Management has so little bandwidth that distraction from real actual business issues - say understanding and managing complexity - is critical. Most of the finance and economics blogs latched onto this essay as another nail in the coffin of complex banking (Felix, for example). I, like Barauch, am afraid that we may have the exact size and complexity of financial system that we should have, given a banded range of over reaction to the downside during busts and rent seeking to the upside during booms. I still haven't seen a decent model for what size finance should ideally be. But that is another post.

Debt: The first five thousand years. Eurozine.

Lombard Street : a description of the money market by Walter Bagehot

The economist manifesto. The New Statesman. What WOULD Adam Smith thought of the financial crisis.

The guru of the bottom of the pyramid. An obit for C.K. Prahalad. Economist.

Chinese Savings and the Wealth Effect. An insightful post on why low interest rates mean different things in the US versus China.

Thursday, April 15, 2010

4.15.10 "it isn't as though Durkheim is an investment banker"

Our title comes from a conversation I had with a friend after observing that Karl Marx tied with Nietzsche on the list of most cited persons in the Humanities. Poor Karl. Lucky for Marx, his successors have more than taken up the mantle. It reminds me of one of my favorite quotes from Baudrillard's Simulations and Simulacra:

Watergate is not a scandal: this is- what must be said at all cost, for this is what everyone is concerned to conceal, this dissimulation masking a strengthening of morality, a moral panic as we approach the primal (mise-en-)scene of capital: its instantaneous cruelty; its incomprehensible ferocity; its fundamental immorality - these are what are scandalous, unaccountable for in that system of moral and economic equivalence which remains the axiom of leftist thought, from Enlightenment theory to communism. Capital doesn't give a damn about the idea of the contract which is imputed to it: it is a monstrous unprincipled undertaking, nothing more. Rather, it is "enlightened" thought which seeks to control capital by imposing rules on it. And all that recrimination which replaced revolutionary thought today comes down to reproaching capital for not following the rules of the game. "Power is unjust; its justice is a class justice; capital exploits us; etc." - as if capital were linked by a contract to the society it rules. It is the left which holds out the mirror of equivalence, hoping that capital will fall for this phantasmagoria of the social contract and fulfill its obligation towards the whole of society (at the same time, no need for revolution: it is enough that capital accept the rational formula of exchange).

all of which is besides the point. Let's get to this week's linkdump:

Who really failed? Biology Professor fails half of his class, is fired. And you thought Intro to Finance was hard.

The Secret of the Banks’ Success. Krugman. "Gross stupidity has been placed on hold." I don't think it was secret that the solution that was decided on after September 2008 was that financial institutions wouldn't be allowed to fail and, rather than further capital injections to make up for the rotten assets on their books, they would be allowed to earn away their bad books. This is, in fact, directly relates to the problems with mortgage writedowns. Someone, somewhere needs to take the loss if the principle on a mortgage is reduced. If it is going to be the bank, then they need more capital to offset the loss. That can come either from the benevolent coffers of the government à la TARP, or we can smack enough guarantees on the banks that they can earn those writedowns away. I don't know if anyone in January 09 was willing to give the bank's another check after the hullabaloo over paying their employees after TARP round one.

James Kwak talks about about Magnetar. The Baseline Scenario.

Deep Truth about the Markets and Investing. CWS. A great collection of simple rules for investors.

The Chinese late Qing dynasty approach to banking regulation. Marginal Revolution. Short but sweet.

Theories of the Crisis. Marginal Revolution. I need to hunt down the original papers, but I think that the demand for Long Dated High Return Assets is downplayed as a cause of the crisis versus "evil bankers." I'm not going to say caveat emptor but we were giving them what they wanted, and giving it to them good and hard.

Come on! You don't give the same discount rate to insurance as stock, and that includes global warming insurance! A good simple explanation on what discount rate one should use when calculating the effects of global warming.

Visualizing Public Pension Plan's Problems. Paul Kedrosky. I think he should have chosen the word "Picturing", but that's just my desire for alliteration.

CalPERS Responds to Stanford Policy Brief on Public Pension Funds. Friends don't let Friends go to Stanfurd (though I love Stanford Alumni, especially if they're hiring interns).

Economic Growth with Bubbles. NBER.

Off to class.

Wednesday, April 7, 2010

4.07.2010 "gateways to regulatory postmodernism"

Federal Reserve Bank of SF on housings drag on core CPE.

Angry Bear comments on Duffie on speculative trading. Its a good attack, but I think that Angry Bear throws the baby out with the bath water. Nor do I really understand any policy proscriptions that Angry Bear would have us make. It is very easy to discount "speculation" because family's can't get loans and ignore that most all international trade would cease to exist without the ability to hedge currency risk, something a speculator will gladly do, because of the mismatch in time frame of investment. I suspect that any valuation of the net benefit or loss from speculation would end up on the positive, if only because people only really mean "bad things that cause losses" when they think of speculation, and ignore the ways in which being able to hedge reduces prices for all sorts of things just outside our sight until we buy them at the grocery store.

Capital can’t be measured. Interfluidity. versus Don't believe what they say. Bronte Capital. We should quote Waldman at length:

Capital does not exist in the world. It is not accessible to the senses. When we claim a bank or any other firm has so much “capital” we are modeling its assets and liabilities and contingent positions and coming up with a number. Unfortunately, there is not one uniquely “true” model of bank capital. Even hewing to GAAP and all regulatory requirements, thousands of estimates and arbitrary choices must be made to compute the capital position of a modern bank.

There is an easy position to take to say that "banker's lied" or "finance depends too much on models" or "economics is rotten because of their assumptions". It pretends that there is some better way to, say, build a bank, that is just a bit of willpower away. I am hesitant to endorse the "boring banking" of Krugman, et all, if only because we exist in a world that is anything but boring, and with the multinational linkages and saver's desire for low risk, long dated assets, we're going to have to inject a bit of complexity, and that requires making a few assumptions.

US gov't fetches 8.5 pct return from bailouts. While that probably beats my trading account, the S&P is up 34.67% since 10.28.2010

Krugman’s Chinese renminbi fallacy. VoxEU.