Impressions for 2009-06-28

• Magicians And Mathematicians – Paul Wilmott
  We've learned the hard way how important it is to measure and manage risk. Despite the thousands of mathematics and science PhDs working in risk management nowadays we seem to be at greater financial and economic risk than ever before. To show you one important side of banking I'd like you to follow me in an exercise with parallels in risk management.
  (tags: risk math finance psychology investment wilmott statistics prediction management quant)
• If You Liked This, Sure to Love That – Winning the Netflix Prize – Clive Thompson
  The reason, Bertoni says, is that “Napoleon Dynamite” is very weird and very polarizing. It contains a lot of arch, ironic humor, including a famously kooky dance performed by the titular teenage character to help his hapless friend win a student-council election. It’s the type of quirky entertainment that tends to be either loved or despised. The movie has been rated more than two million times in the Netflix database, and the ratings are disproportionately one or five stars.
  (tags: statistics math modeling prize netflix culture movies taste competition business internet)
• Buffett and Derivatives: Enthusiasm, Anger, Disbelief, Acceptance – Paul WIlmott
  In my experience there are just four stages of dealing with derivatives, and they are: naive enthusiasm, as one experiences the glorious possibilities of derivatives in one's portfolio, then righteous anger as one suffers horrendous losses, followed by confused disbelief, as one realises that no one fully understood the risk in these dastardly creations, least of all the bankers, and finally a reluctant acceptance as one admits that these things are here to stay. Let's go through these stages one by one, while I explain what each means in terms of risk.
  (tags: wilmott finance investment derivatives buffett quant crisis markets cdo modeling)
• Irreversible Damage: Why Little Action on Banking Can Do Great Harm – Economix Blog – NYTimes.com
  If you value America’s political strength, this is the wrong time to be loading the country up with debt as part of a wait–and-see policy. There are only three ways out of excessive debt: rapid growth (which, sadly, seems unlikely), high inflation (which is completely undesirable), or default (which leads to many other problems).

  It would be much better not to take on so much government debt. But the only way to do that is to take on the bankers.

  (tags: bailout banking risk crisis economics simon_johnson nationalization finance recession politics regulation markets stimulus recommended)
• Don’t! – Jonah Lehrer – The New Yorker
  Once Mischel began analyzing the results, he noticed that low delayers, the children who rang the bell quickly, seemed more likely to have behavioral problems, both in school and at home. They got lower S.A.T. scores. They struggled in stressful situations, often had trouble paying attention, and found it difficult to maintain friendships. The child who could wait fifteen minutes had an S.A.T. score that was, on average, two hundred and ten points higher than that of the kid who could wait only thirty seconds.
  (tags: psychology children self-control life desire gratification brain education new_yorker human attention)

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Impressions for 06/28/2009

• Don’t! – Jonah Lehrer – The New Yorker

  Once Mischel began analyzing the results, he noticed that low delayers, the children who rang the bell quickly, seemed more likely to have behavioral problems, both in school and at home. They got lower S.A.T. scores. They struggled in stressful situations, often had trouble paying attention, and found it difficult to maintain friendships. The child who could wait fifteen minutes had an S.A.T. score that was, on average, two hundred and ten points higher than that of the kid who could wait only thirty seconds.

  tags: psychology, children, self-control, life, desire, gratification, brain, education, new_yorker, human, attention

• Derivatives Tug of War Takes Shape – Floyd Norris

  But, he added, experience had shown that to be wrong. Now, he said, he teaches that derivatives allow risk to be shifted from those who understand it a little to those who do not understand it at all. That is not a bad description of how the risks of bad mortgage loans were transferred from those who made the loans to those who bought troubled collateralized debt obligations.

  We would be much better off as a society if that particular transfer of risk had been regulated, or even prevented.

  tags: finance, derivatives, wall_street, risk, regulation, banking, corruption, greed, crisis, government, secrecy, cdo, obama

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/26/2009

• Op-Ed Columnist – The End of the Beginning – NYTimes.com

  I said the Islamic Republic has been weakened. Why? I see five principal factors. The first is that the supreme leader’s post — the apex of the structure conceived by the revolutionary leader Ayatollah Ruhollah Khomeini — has been undermined. The keystone of the arch is now loose.

  Khamenei, far from an arbiter with a Prophet-like authority, has looked more like a ruthless infighter. His word has been defied. At night, from rooftops, I’ve even heard people call for his death. The unthinkable has occurred.

  tags: iran, islam, authority, government, election, democracy, revolution, politics, justice

• Obama and ‘Regulatory Capture’ – Thomas Frank – WSJ.com – Annotated

  It was not merely structural problems that led certain regulators to nap through the crisis. The people who filled regulatory jobs in the past administration were asleep at the switch because they were supposed to be. It was as though they had been hired for their extraordinary powers of drowsiness.

  The reason for that is simple: There are powerful institutions that don’t like being regulated. Regulation sometimes cuts into their profits and interferes with their business. So they have used the political process to sabotage, redirect, defund, undo or hijack the regulatory state since the regulatory state was first invented.

  tags: regulation, finance, law, corruption, wall_street, government, politics, obama, policy, business

• What Next For The Global Crisis? « The Baseline Scenario

  If the size, nature, and clout of finance is the problem, then the official view is nothing close to a solution. At best, pumping resources into the financial sector delays the day of reckoning and likely increases its costs. More likely, the Mother of All Bailouts is storing up serious problems for the near-term future.

  tags: bailout, finance, banking, future, simon_johnson, regulation, government, policy, economics, crisis, responsibility, gdb, greed, usa

• Too Big To Fail, Politically « The Baseline Scenario

  In order to get to the point where you can reform like FDR, you first have to break the political power of the big banks, and that requires substantially reducing their economic power – the moment calls more for Teddy Roosevelt-type trustbusting, and it appears that is exactly what we will not get.

  tags: simon_johnson, finance, regulation, reform, obama, oversight, politics, banking, management, lobbyists, law

• It Takes A Citi « The Baseline Scenario

  All regulators must ultimately fail and, when that happens, markets may well also misprice risk. The question is: When this Twin Failure occurs next time, how much will be on the line?

  You cannot design a financial system that is immune to crash – this would be like declaring earthquakes illegal. But in the aftermath of unexpectedly high damage from a serious earthquake, it makes sense to completely overhaul your building code and retrofit vulnerable buildings. In fact, if you largely ignored what the earthquake revealed in terms of structural weakness, wouldn’t that be negligence?

  tags: finance, risk, regulation, simon_johnson, markets, cds, crisis, bubble, citigroup, derivatives, protection

• Rick Bookstaber: The 7 Habits of Highly Suspicious Hedge Funds

  Hedge funds can lever, delve into wide-ranging and risky markets and readily employ the so-called innovative securities to increase risk in ways that are difficult to discern. And unlike the trader at the bank, the hedge fund can operate without anyone seeing what it is doing. No one is looking over its shoulder at the trading positions each night.

  tags: hedge_fund, investment, finance, habits, fraud, madoff, risk, secrecy

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/25/2009

• Felix Salmon » Credit card datapoint of the day

  The thing to pay attention to here are the 95% confidence intervals as much as the red and blue lines. What they show is that the lowest bank penalty rates are vastly, and needlessly, higher than the highest credit-union penalty rates. People choose credit cards based on which one has the lowest introductory APR, or sometimes based on which one has the lowest purchase APR. They don’t (although they should) choose a card based on which one has the lowest penalty APR. And as a result, banks can ratchet up those penalty APRs to eye-watering levels, and make lots of extra money, without worrying about losing market share.

  tags: credit_cards, credit, finance, greed, regulation, chart, felix_salmon

• If It’s Too Big to Fail, Is It Too Big to Exist? – Eric Dash

  Today, amid the wreckage of the gravest financial crisis since the Great Depression, bigness is one of our biggest problems. Major banks, the Detroit automakers, the financial basket case that is the American International Group — the only reason these giant, sclerotic companies are still standing is that they have been deemed “too big to fail.”

  tags: finance, economics, banking, bailout, government, regulation, crisis, business, risk, policy

• How a Wall Street Revamp Expands the Status Quo – Gretchen Morgenson

  More than two years after the crisis began, “too big to fail” remains “too problematic to address” with anything other than more souped-up regulation. Given that earlier efforts at policing these entities failed so miserably, why should anyone think that a new-and-improved regulatory approach will fare better?

  tags: morgenson, finance, regulation, government, incentives, economics, crisis, bailout, banking, risk, treasury, wall_street, recommended, policy

• Debts Coming Due at Just the Wrong Time – Gretchen Morgenson

  It has been a long slog through the credit morass, and investors are understandably eager to think they are emerging onto higher ground. Still, the bad debt that was amassed by consumers and companies in recent years hasn’t been fully purged, even with the help of the Troubled Asset Relief Program. And the debt on financial companies’ balance sheets must do a lot more shrinking before we can move on from this ugly chapter in financial history.

  tags: banking, debt, credit, siv, business, finance, government, bailout, crisis, fdic, morgenson

• Citigroup Is Said to Be Raising Pay for Workers – NYTimes.com

  After all those losses and bailouts, rank-and-file employees of Citigroup are getting some good news: their salaries are going up.

  The troubled banking giant, which to many symbolizes the troubles in the nation’s financial industry, intends to raise workers’ base salaries by as much as 50 percent this year to offset smaller annual bonuses, according to people with direct knowledge of the plan.

  tags: compensation, citigroup, banking, bailout, government, regulation, incentives, finance, wall_street, greed

• Well – How the Food Makers Captured Our Brains – NYTimes.com

  Dr. Kessler isn’t convinced that food makers fully understand the neuroscience of the forces they have unleashed, but food companies certainly understand human behavior, taste preferences and desire. In fact, he offers descriptions of how restaurants and food makers manipulate ingredients to reach the aptly named “bliss point.” Foods that contain too little or too much sugar, fat or salt are either bland or overwhelming. But food scientists work hard to reach the precise point at which we derive the greatest pleasure from fat, sugar and salt.

  The result is that chain restaurants like Chili’s cook up “hyper-palatable food that requires little chewing and goes down easily,” he notes. And Dr. Kessler reports that the Snickers bar, for instance, is “extraordinarily well engineered.” As we chew it, the sugar dissolves, the fat melts and the caramel traps the peanuts so the entire combination of flavors is blissfully experienced in the mouth at the same time.

  tags: food, health, diet, nutrition, fat, sugar, salt, taste, bliss, industry, appetite, business, psychology

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/20/2009

• Get Smarter – Jamais Cascio – The Atlantic

  Pandemics. Global warming. Food shortages. No more fossil fuels. What are humans to do? The same thing the species has done before: evolve to meet the challenge. But this time we don’t have to rely on natural evolution to make us smart enough to survive. We can do it ourselves, right now, by harnessing technology and pharmacology to boost our intelligence. Is Google actually making us smarter?

  tags: to_read, humanity, humans, society, evolution, intelligence, future, information, energy, global_warming, food, agriculture, medicine, technology

• Extremism, Conspiracy Theory And Murder : NPR

  Chip Berlet has studied extremism, conspiracy theories and hate groups for more than 25 years. In a recent report for PublicEye.org, he says that the murders of abortion provider Dr. George Tiller and Holocaust Museum guard Stephen T. Johns exemplify the potential for violence that often lurks within extremist groups.

  Berlet argues that right-wing pundits share some of the moral responsibility for the actions of their followers. He summarizes the analysis in his report in a June 10 Huffington Post article about Johns’ murder: “Apocalyptic aggression is fueled by right-wing pundits who demonize scapegoated groups and individuals in our society, implying that it is urgent to stop them from wrecking the nation.”

  tags: extremism, politics, conspiracy, ideology, radio, recommended, murder, crime, racism, interview, abortion, holocaust, right-wing, media, hate

• Economy Got You Down? Many Blame Rating Firms : NPR

  It’s hard to overstate the ratings agencies’ role in the worldwide financial system. They’ve been around for a century, assigning a letter grade to everything from railroads to school districts, even entire countries. Standard and Poor’s gives Argentina a B-, for instance. That grade is supposed to answer investors’ most basic question: If I loan someone money, will I get it back?

  tags: credit, economics, rating, firms, finance, derivatives, mortgage, housing, bubble, crisis, leverage, banking, ethics, greed, blame, responsibility, recommended, radio

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/18/2009

• Draft Details New Rules for Markets – WSJ.com

  Hedge funds and other private pools of capital would have to register with the Securities and Exchange Commission. Thousands of financial institutions would be required to hold more capital in reserve to protect against unexpected losses, and companies would also have to retain a portion of the credit risk for loans they have packaged into securities.

  tags: obama, federal_reserve, finance, banking, regulation, fdic, treasury, government, markets, derivatives, hedge_funds, capital, responsibility, transparency, crisis

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/17/2009

• Regulating AIG: Who Fell Asleep On The Job? : NPR

  It wasn’t a huge apology, but Polakoff was clearly saying, “Blame us.”

  The OTS regulates thrifts, and holding companies like AIG that own thrifts, which is another name for savings and loans. The lawmakers were surprised.

  “I was struck by your acknowledgment that you were the regulator that we’ve been looking for,” said Sen. Mel Martinez (R-FL). “I think we had assumed there wasn’t one.”

  “Yes, sir,” Polakoff told him. “I’m the one.”

  tags: radio, aig, insurance, blame, regulation, finance, crisis, ots, banking, government

• blog.pmarca.com: The Psychology of Entrepreneurial Misjudgment, part 1: Biases 1-6

  As a company grows, stock options and other forms of equity-based motivation become less and less useful as an incentive tool, since it becomes harder for many employees in a large company to see how their individual behavior would have any effect on the stock price of the overall corporation. So, more tactical incentives kick in, such as cash bonuses.

  The design of tactical incentives — e.g. bonuses — is a whole topic in and of itself, and is critically important as your company grows. The most significant thing to keep in mind is that how the goals are designed really matters — as Mr. Munger says, people tend to game any system you put in place, and then they tend to rationalize that gaming until they believe they really are doing the right thing.

  tags: to_read, management, startup, entrepreneurship, incentives, bonuses, compensation, stock, business, andreesen

• Wake up: the American Dream is over – The Observer

  Even America’s richest think they’re getting too many tax breaks from a government determined to keep the poor in their place. As poverty in the US grows, Paul Harris wonders what happened to the Land of Opportunity

  tags: usa, dream, wealthy, wealth, taxes, poverty, poor, inheritance, gap, opportunity, politics, inequality

• The Cost Conundrum – Atul Gawande – The New Yorker

  What a Texas town can teach us about health care.

  tags: health, health_care, obama, government, to_read, insurance, incentives, texas, entitlements, spending, reform, usa, doctors, medicine, recommended

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/16/2009

• Appetite for Distraction: Classical Music as Foreground Music – eMusic Spotlight

  To a public with an insatiable appetite for distraction, music can become a dulling force, rather than a wellspring of drama, narrative energy and visceral experience. And so the most effective way to prepare for an encounter with classical music, be it a Verdi opera or a John Dowland song, is to surround oneself with a little tonic silence.

  tags: music, classical, distraction, society, appreciation

• Leon Panetta and the C.I.A. – Jane Mayer – The New Yorker

  Can Leon Panetta move the C.I.A. forward without confronting its past?

  tags: panetta, cia, torture, abuse, law, obama, politics, cheney, intelligence, national_security, policy, to_read, government, jane_mayer, washington

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/14/2009

• The Big Hate – Paul Krugman

  And that’s a threat to take seriously. Yes, the worst terrorist attack in our history was perpetrated by a foreign conspiracy. But the second worst, the Oklahoma City bombing, was perpetrated by an all-American lunatic. Politicians and media organizations wind up such people at their, and our, peril.

  tags: krugman, hate, extremism, politics, holocaust, right-wing, media, radio, usa

• The Great Unwinding – David Brooks

  The members of the political class face a set of monumental tasks. First, they have to persuade a country to postpone gratification for the sake of rebuilding the country. This country hasn’t accepted sacrifice in 50 years.

  tags: brooks, economics, sacrifice, future, politics, saving, gdp, debt, government, taxes, usa, policy, recommended

• The Right Way to Fix Wall Street’s Pay – FiveThirtyEight

  That is, the excessive wages paid by Wall Street not only lure talent away from other parts of the private sector, but also from the public sector, where employees are subject to government wage controls. The very people who might be the most capable of enforcing regulations on the banks instead wind up working for them.

  tags: wall_street, economics, compensation, incentives, government, regulation, nepotism, corruption, finance, 538, elitism

Posted from Diigo. The rest of my favorite links are here.

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Impressions for 06/13/2009

• Dave Brubeck: An Unlikely Hit, 50 Years Strong : NPR Music

  In 1959, jazz pianist Dave Brubeck topped the pop charts and shook up the notion of rhythm in jazz with an odd-metered song called “Take Five.”

  tags: radio, jazz, brubeck, anniversary, music, history, npr

• Bank execs still cash in on the way out – Marketplace

  Despite efforts from the government to limit executive compensation, many banks are still paying out huge sums to departing CEOs. Steve Henn reports in collaboration with the investigative newsroom ProPublica.

  tags: banking, compensation, ceo, regulation, government, management, business, incentives, bonuses, greed, radio

Posted from Diigo. The rest of my favorite links are here.

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