Posted by Marc Hodak on March 5, 2009 under Economics | 
People are beginning blame the 20% drop in the Dow since January 20th on the Big O. Barry Ritholtz disagrees. He says that you can’t blame the first 44 days of stock price declines on Obama if you don’t blame the ’00-’03 bust on Bush. Point.
There are some differences, though (many differences, actually, but some count more than others). The market is forward-looking. In principle, the only thing that will change a market value is new information.
What was the new information driving the market’s drop in Bush’s first few years?
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Posted by Marc Hodak on March 4, 2009 under Executive compensation, Scandal |
The big report today on the cover of the W$J and Reuter’s feed was that Merrill’s top ten paid executives earned $209 million for 2008.
The story (Version 1 – Wall Street Journal): 2008 was a horrible year for nearly everyone; big banks like Merrill were responsible; they would have failed, but they got bailed out by us (taxpayers); their top executives, far from suffering like the rest of us, made millions, or tens of millions (from us!). But the NY AG is investigating the bonuses, so they may be made to pay for their greed. The moral of the story? Greed is alive and well on Wall Street, and we’re getting taken advantage of, except that our valiant public servants may set things straight.
The un-story (Version 2, teased from the same set of facts): Read more of this article »
Posted by Marc Hodak on March 3, 2009 under Politics |
The following exchange was between Bernie Sanders and Ben Bernanke:
“My question to you is, will you tell the American people to whom you lent $2.2 trillion of their dollars?” Sanders asked, referring to the size of the Fed’s balance sheet.
Bernanke responded that the Fed explains the various lending programs on its website, and details the terms and collateral requirements.
When Sanders pressed on whether he would name the firms that borrowed from the Fed, the central bank chairman replied, “No,” and started to say that doing so risked stigmatizing banks and discouraging them from borrowing from the central bank.
“Isn’t that too bad,” Sanders interrupted, cutting off Bernanke’s answer. “They took the money but they don’t want to be public about the fact that they received it.”
For those of you following at home, Bernanke is the Republican and Sanders is the socialist. Confusing, I know.
Posted by Marc Hodak on March 2, 2009 under Executive compensation, Invisible trade-offs, Unintended consequences |
Nassim Nicholas Taleb has written a good description of what is now widely understood to be one of the key perverse incentives that fueled the recent credit bubble–i.e., the trader’s option:
Take two bankers. The first is conservative. He produces one annual dollar of sound returns, with no risk of blow-up. The second looks no less conservative, but makes $2 by making complicated transactions that make a steady income, but are bound to blow up on occasion, losing everything made and more. So while the first banker might end up out of business, under competitive strains, the second is going to do a lot better for himself. Why? 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.
Like like many others cognizant of the moral hazards of the trader’s option, Taleb throws up his hands and recommends hiving off the risky portions of banking from the “utility” parts of banking, and heavily regulating the compensation of the latter. So easily said, isn’t it?
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