Friday Quote

February 27, 2009

The payoff of a human venture is, in general, inversely proportional to what it is expected to be.

– Nassim Taleb, The Black Swan


Anecdotes

February 27, 2009

A great anecdote at The Strump, but an even better observation.

It’s also confirms something that I’ve known for quite some time. Very frequently, the people who appear well-dressed on the outside are frequently very broke. I’ve also been doing taxes for many years and I see the same thing – people that spend their money on high-priced items usually (but not all the time) have financial cancer.

From my experience, this is very true in NYC.


Bailouts

February 24, 2009

Some more bailouts from America, err, I mean American Express.

American Express Co. (AXP) is offering a $300 incentive for customers to cancel their accounts as the card issuer and payments processor grapples with surging loan delinquencies and reduced card-member spending.

[…]

American Express is making the offer to a “relatively small” number of credit- card holders. It is intended to give them an incentive to pay down debt with the company and help them manage their finances, said spokesman Molly Faust. American Express has 44.2 million credit cards in force among U.S. consumers and small businesses.

So if you “manage your finances”, keep paying your bills.  If you need help managing your finances, here’s some money.


The Dollar

February 23, 2009

From the AFP,

US Secretary of State Hillary Clinton Sunday urged China to keep buying US debt as she wrapped up her first overseas trip, during which she agreed to work closely with Beijing on the financial crisis.

[…]

“By continuing to support American Treasury instruments the Chinese are recognising our interconnection. We are truly going to rise or fall together,” Clinton said at the US embassy here.

[…]

Yang indicated Saturday that China would not deviate drastically from its US Treasury policies, but gave no overt promises either way.


Bailouts.

February 19, 2009

Via Dealbook, US Sues UBS to Disclose Customer Names,

The suit, filed in Miami on Thursday, seeks to require the Swiss banking giant to turn over information on as many as 52,000 U.S. customers who hid their accounts from the U.S. government in violation of tax laws. Federal tax authorities said a request for the records under a Swiss treaty may only result in the production of records for about 300 accounts, Reuters says.

The question is how many politicans will be on that list?


The Ascent of Money, Naill Ferguson

February 17, 2009

Written through a series of anecdotes (sort of Malcolm Gladwell style), the book covers the development of the many types of instruments and markets that are a part of today’s modern financial system.  Starting with the development of the Bond Markets, it touches on Equity Markets, the Insurance Market, the Housing Market, and finishes with a section on Modern International Finance.  Generally, each chapter covers some about what brought about the origin of each market innovation and details some of the implications that each brings to bear in the financial markets and the world.

While Mr. Ferguson plies through history, he attempts to weave a story of the Ascent of Money, how each individual innovation has developed to create the web of financial systems the world uses every day.  His one failing, however, is to tie the individual anecdotes together to provide for the larger picture, many of the individual examples remain just that.

In addition to his major anecdotes, there are many incongruous parts that do not seem to fit anywhere within the framework.  In the final section, in a discussion of Long Term Capital Management, Ferguson introduces the Black-Sholes option pricing formula.

Feeling a bit baffled?  Can’t follow the algebra?  Too be honest, I am baffled too.  But that was just fine by the quants.  To make money from this insight, they needed markets full of people who didn’t have clue to price options but relied instead on their (seldom accurate) gut instincts.

Granted Mr. Ferguson is a historian, but if the example is only to prove the complexity of the models used by these groups, it doesn’t serve it purpose.  If the motive was to take a dig at the intentions of those employing the models, perhaps it worked.  Ulterior motives come to bear in other examples.  While discussing stock bubbles, Mr. Ferguson includes,

Like Law, too Lay had friends in high places.  Himself a long-time ally of the Texan energy industry, President George H. W. Bust supported legislation in 1992 that degulated the industry and removed government price controls.  Around three quarters of Enron’s $6.6 million in political contributions went to the Republican Party, including $355,000 from Lay and his wife in the 2000 election.

The regulation, and subsequent deregulation, of commodity markets (which are only briefly covered) could possibly provide for some interesting commentary from a historical perspective.  Unfortunately, other than an initial discussion of commodity futures, this irrelevant lecture is as far as Ferguson gets into commodity markets.  This appears to simply be an ax to grind, and provides for a random, disconnected interlude in the commentary.

Overall, while perhaps a very smart man, Ferguson’s writing makes him look like a very small man.


Bailouts

February 16, 2009

Speaking of bailouts, someone sent this to me a while ago but I am just getting around to commenting on it now.  While those in Washington DC rail on those in the financial services industry for excessive pay, does it strike any of them as odd, perhaps even hypocritical, that five of the counties with the highest median household income are part of the Washington DC Metropolitan Area?  The New York City Metropolitan Area only has three of the ten.  Perhaps one region of the country is making a disproportionate amount of the income in this country?  And how does a region that does not produce anything have such a level on income?

1     Loudoun County, Virginia            $107,207
2     Fairfax County, Virginia                $105,241
3     Howard County, Maryland           $101,672
4     Somerset County, New Jersey      $97,658
5     Morris County, New Jersey           $94,684
6     Douglas County, Colorado              $92,824
7     Montgomery County, Maryland  $91,835
8     Nassau County, New York               $89,782
9     Prince William County, Virginia    $87,243
10     Santa Clara County, California    $84,360

via Wikipedia