finance
pontiff | March 23, 2009Sundries.
Warren Buffet is often attributed as saying, "only when the tide goes out do you discover who's been swimming naked" referring to how a bad economy exposes problems in a business. After reading too many comment sections on New York Times articles on the financial crisis, I think it should be "only when the tide goes out do you discover who's a real communist." (Note, dear reader beginning to flame me in the comments, that I didn't say whether I thought this was good or bad or neither good or bad.) Hard economic times really bring out the daggers in economic ideology. I love to…
razib | March 21, 2009Needed for AIG and the TARP: Silicon Valley Compensation Schemes:
The engineers of Silicon Valley startups are significantly smarter and work a lot harder than do the traders of Wall Street. Some of the engineers of Silicon Valley make fortunes: they are compensated with relatively low salaries and large restricted equity stakes in the startup businesses they work for, and so if the businesses do well they do very well indeed--in the long run, in the five to ten years it takes to assess whether the business is in fact going to be a viable and profitable going concern. And the engineers of…
razib | March 16, 2009I've kind of been thinking this already: Provoking the AIG Walk of Shame:
What would happen if those names were made public? The populist rage that's bubbling in this country is not something to be toyed with. The very prospect of having their names publicized should be enough to scare the pants off these people.
The only way to break these employment contracts is for the recipients to agree to it, and if fear is what it takes to make that happen, then so be it. If we can shame bank CEOs into taking $1 salaries and forgoing bonuses, surely we can get these yahoos at AIG to do the country a…
razib | March 10, 2009The Next Targets in the Madoff Case:
One source said that eventually, many members of Madoff's family will either be indicted by the US attorney's office for the Southern District of New York or cop a plea. "You have to look at the fact that Peter and [his daughter] Shana were compliance officers; they were supposed to look at all the statements to see if they were right," the source said. "Either they asked no questions, turned a blind eye, or they could not help but see the falsified trade tickets of blue-chip companies sent to clients."
razib | March 10, 2009Vanity Fair has a long profile of Walter Noel's clan up right now. Noel, if you don't know, is the head of Fairfield Greenwich, which funneled billions into Bernie Madoff's ponzi scheme. One of Noel's daughters has this precious quote:
Lawyers for aggrieved clients are hell-bent on finding and seizing whatever's left of the Noels' fortune. "I've been poor before. I can be poor again," Marisa said to a friend.
This is what she is referring to:
As they grew up, her daughters helped her with it. The eldest four--Corina, Lisina, Ariane, and Alix--went to public and private schools. They spent…
razib | March 4, 2009The author of Liar's Poker sure can write prose. Michael Lewis' massive article on Iceland is very interesting, and sheds light on a general phenomenon with a specific example.
razib | February 25, 2009How bank bonuses let us all down:
...Because banking is not about true risks but perceived volatility of returns: you earn a stream of steady bonuses for seven or eight years, then when the losses take place, you are not asked to disburse anything. You might even start again, after blaming a "systemic crisis" or a "black swan" for your losses. As you do not disgorge previous compensation, the incentive is to engage in trades that explode rarely, after a period of steady gains.
...
If capitalism is about incentives, it should be about true incentives, those resistant to blow-ups. And there…
razib | February 23, 2009Recipe for Disaster: The Formula That Killed Wall Street:
In hindsight, ignoring those warnings looks foolhardy. But at the time, it was easy. Banks dismissed them, partly because the managers empowered to apply the brakes didn't understand the arguments between various arms of the quant universe. Besides, they were making too much money to stop.
...
They didn't know, or didn't ask. One reason was that the outputs came from "black box" computer models and were hard to subject to a commonsense smell test. Another was that the quants, who should have been more aware of the copula's weaknesses,…
pontiff | January 28, 2009Via Alea: the CME trading simulation game. If only it were this easy:
I suspect that in the real world, doing the opposite of what I did would be required to actually make money :)
pontiff | December 11, 2008Holy mole: a $50 billion dollar Ponzi scheme run by Bernard L. Madoff. That's an astounding amount of money if true.
Update: This is now big news, of course. For an interesting read of someone who has been pursuing this fraud since 1999 see The World's Largest Hedge Fund is a Fraud by Harry Markopolos. h/t nakedshorts.
pontiff | November 9, 2008When sky's fall, apparently they do not fall equally everywhere (contrary to popular theory.) A partial is of those who've held up the sky (and even pushed higher) in this New York Times article:Bernard V. Drury is a rarity on Wall Street: a hedge fund manager who is making money rather than losing it.
While most hedge funds are sinking into red this year and unsettling the markets in the process, a handful of them are posting spectacular gains. Mr. Drury's fund, for instance, is up 60 percent since Jan. 1.
How did he do it? Mr. Drury, a former grain trader, is not giving away his secrets.…
pontiff | October 10, 2008You know it's a heavy volume day when even Google can't handle it:
Your message could not be posted to the DOW JONES INDUSTRIAL AVERAGE INDEX group because there have been too many messages posted to the group recently.
pontiff | October 9, 2008Fear
Google's view of capitulationIrrationality?
Anyone seen any old men with canes yet?
Crisis per capita winner? Iceland. Will the last one leaving Reykjavík please tear up that recipe for Súrsaðir hrútspungar?
Panics 1812, 1837, 1869, 1873, 1882, 1884, 1896, 1901, 1907,1937, 1973, 1987, 1989, 1992, 1997, 2001. Add 2008.
Just over a hundred years ago
Another hundred year reference: the Cub's ticket market.
Let's blame Van Buren:
pontiff | September 29, 2008Yes, it's all finance all the time, here at the Pontiff. Where else can you go to get your daily dose of extralusionary intelligence?
Once again it's a New York Times article Maybe Short-Selling Isn't So Bad, After All. Now I don't know much about how the changes in shorting stock (the removal of the uptick rule, where one could only short the stock on an up move in the stock, and the banning of shorting of a large group of stocks) effect trading, but I think I've plaid enough games in my life to know that the following argument is a good way to spot a sucker:Has the rule's removal been an…
pontiff | September 28, 2008From this Sunday's New York Times in an article entitled Wall Street, R.I.P.:In search of ever-higher returns -- and larger yachts, faster cars and pricier art collections for their top executives -- Wall Street firms bulked up their trading desks and hired pointy-headed quantum physicists to develop foolproof programs.
Quantum physicists? Come on media get it right. I'm pretty sure those were string theorists who ruined America ;)
Personally I think we should use the association of Ph.D. physicists as the cause of the Wall Street mess to lobby for higher science funding. "Sure you could…
pontiff | September 26, 2008There are many things I do not understand in the wide world of finance, but the one which perplexes me the most is why people believe that their money is safe under their mattress.
I mean come on people: mattresses? The odds of a fire in your household serious enough to call the fire department during the year are about one in three hundred. Sure the odds of the whole house burning down are lower, but do you really want to put it under a mattress?
And what about residential robbery? Your odds of a break in are somewhere around one in 250 per year. And if I'm a robber in these dire…
pontiff | September 25, 2008"Dreams of poverty excited universal enjoyment in Berkeley, coupled with the hope that the political and economic situation would worsen, throwing the country into ruin: this was the theory of the activists. Misfortune so vast it would wreck everyone, responsible and not responsible sinking into defeat..." - from The Transmigration of Timothy Archer by Philip K. Dick
pontiff | August 11, 2008IANAE (that's I am not a person with severe physics envy but who is compensated for this fact by earning a higher salary than a physicist), but I do not understand Brad DeLong:
Traders! Read the second page of the statistical release before you press the button!
Meredith Beechey...and Jonathan Wright have details:
FRB: FEDS paper 2007-5: "Rounding and the Impact of News: A Simple Test of Market Rationality":
Abstract: Certain prominent scheduled macroeconomic news releases contain a rounded number on the first page of the release that is widely cited by newswires and the press, and a more…
pontiff | July 14, 2008I recently rented a car and got dinged with a 13 dollar fee because I didn't drive 75 miles (and, did not see the tiny sign indicating the new rule that if I drove so little I would be rewarded by not having to fill up the fuel tank for a mere 13 dollars. Having a receipt could have gotten this fee waved.) My first thought on seeing this fee was wondering if they actually took their average mile per gallon for seventy five miles and set the fee so that at current fuel prices they would always make money on this? A sort of rental car arbitrage?
My second thought was, I wonder if they…
pontiff | June 23, 2008Pascal's Wager is a classic for those who want to argue about the existence of God, but now, according to Peter L. Bernstein, of the New York Times, we should be using it for financial risk calculations. Say what?
Bernstien starts out fine: For example, the average annual inflation rate in the United States was only 1.4 percent from the end of 1954 to the end of 1965. But in 1965, who could have imagined that inflation would average nearly five times that rate over the next 15 years?
In short, our forecasts are wrong from time to time.
I might quibble a bit with the "time to time", BTW...…