Weekly Roundup 18: A Curated Linkfest For The Smartest People On The Web
Warning: Today’s list is massive & divided into two parts.
Here are some links to articles that didn’t make our front page. Several of the articles are very insightful I highly recommend reading them. As always, the articles are from different fields but should make you a more well rounded investor. Take Care.
(Click on the titles to access the articles)
1. Consumers Stop Buying As Number Of Options Increase – Via – Science Daily – It is a common belief that having more options is better, and that people tend to go to stores that provide them with more choices. However, a new study in the journal Psychology & Marketing reveals that when people cannot easily determine which option is preferable, they are more likely to leave the store empty-handed.
2. When Will There Be Good News? Does it Help There Already Was Some? – Via Aid Watch – In the midst of the general doom and gloom, fears about how the crisis will affect poor countries, and fierce criticism of markets, states, and aid agencies, perhaps it’s healthy to step back to the big picture, to recognize there has already been some very real good news. The graph below shows some overall statistics for the developing world:
3. China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries – Via NYTimes.com – US Treasuries are risk free. We assume that all the time in finance classes. (For instance see CAPM). Now China is calling that into question.
4. When Did The Crisis Begin – Via Interfluidity – I like reading James Surowiecki, because he’s smart, and because I tend to read exactly the same facts he reads and draw precisely the opposite conclusions. In two recent Surowiecki posts (here and here), Surowiecki points out that during the banking crises of the early eighties and early nineties, banks were arguably as insolvent as our banks are today, but hey, with a little time and without any radical changes, everything turned out great. The means by which banks recover their rude health, if you give them time, deserves a critical review. I mean to pen some nasty polemic about that, but for the impatient, Yves Smith tells much of the story (with all too little nastiness). See also here, and think about how much poorer people who run credit card balances have paid over the years on loans tied to the “prime rate”.
5. World Mint Reports Soaring Demand For Gold Coins – Via Jesse’s Cafe Americain – LONDON (Reuters) – Mints around the world say demand for gold coins has risen sharply as interest in the precious metal soars on the back of financial instability and concerns over the inflation outlook. The Royal Canadian Mint, which produces Maple Leaf bullion coins, said it quadrupled its production capacity late last year as demand for gold and silver bullion products leapt. Gold was one of the few commodities to rise last year as turmoil in the financial sector sharpened investors’ appetite for assets seen as a safe store of value, such as bullion.
6. The Political Economy of Vertical Integration – Via Organizations & Markets – An understudied area in the organizations literature is the effect of organizational form on lobbying, rent-seeking, tax-rate arbitrage, and similar kinds of political behavior. The accounting literature on transfer pricing looks at the ability of vertically integrated multinationals to shift income between tax jurisdictions to reduce the overall tax burden, and regulators have expressed concerns about diversified multinationals putting downward pressure on environmental and labor regulations (by threatening to withdraw production from countries with high tax or regulatory burdens). Of course we know that as industries mature, firms are more likely to open lobbying offices in state or national capitols. But, in general, we know little about how firms organize to take advantage of political processes and institutions.
7. Sustainable flows and investment victims: Ponzi vs. pensions – Via Socializing Finance – Bernie Madoff was sent to jail yesterday after he pleaded guilty to operating the world’s largest Ponzi scheme. His investment advisory firm had provided unusually and consistently high returns on clients’ investments, which turned out to be bogus, meaning that he wasn’t in fact investing the money, but instead paid out the money he got instantly to others who had trusted their money to him earlier. Pension schemes are sustainable as long as there is more money flowing in than flowing out.* The technique is to take the money from the new contributors and give it to the old ones.
8. Activist Arbitrage: A Study of Open-Ending Attempts of Closed-End Funds – Via Harvard Law School – was co-written with Michael Bradley, Alon Brav, and Wei Jiang, and which was recently accepted for publication in the Journal of Financial Economics, we conduct a comprehensive empirical study of the attempts of activist arbitrageurs to open-end closed-end funds in the U.S. Unlike the traditional pure-trading arbitrage, activist arbitrageurs do not simply wait for convergence, but rather take actions to open-end the target fund, knowing that upon open-ending the price of the fund’s shares will be forced to converge to the NAV.
9. Key Changes To TALF – Via Harvard Law – On March 3, 2009, the U.S. Treasury Department and the Federal Reserve announced the formal launch of the Term Asset-Backed Securities Loan Facility (TALF). The TALF provides government financing to private investors for the purchase of certain AAA-rated asset-backed securities (ABS), with the objective of making credit more readily available to consumers and small businesses. The TALF program may be attractive to a broad range of investors because it provides non-recourse financing with favorable interest rates and limited downside risk.
10. Peak Oil? 2008 New Oil Production Record – Via Al Fin – Instead of declining, oil production set a new record yet again in 2008 — despite the drop in prices and voluntary “production cuts” by OPEC members. It seems that the more eager Peak Oil fanatics are to see oil production decline, the higher production gets.
11. The Myth Of Systemic Collapse – Via Money Science – Contagion theorists argue that the global financial system is inherently fragile, meaning that if several significant institutions fail, the system will implode. But the evidence points to the opposite conclusion. The financial system is robust and able to deal with the failures of some of its largest institutions.
12. Modularity for Value Appropriation: Drawing the Boundaries of Intellectual Property – Via Modularity is important at all levels of a firm, from strategy to business model to product design to operations. In industries with complex systems such as electronics, computer hardware and software, autos, and chemicals, modularity is the property of being divided up into discrete components—called modules—that have tight linkages within, but loose linkages to other parts of the system. The modules in turn must work together in order for the system as a whole to function and be valued. The link between modularity and value appropriation is especially tight when intellectual property (IP) is at stake. As distinct from many tangible products, which are sold once and for all with the purchaser obtaining all rights of use, IP is often not transferred in an unconditional way. According to Joachim Henkel (Technical University Munich) and Professor Carliss Y. Baldwin (Harvard Business School), IP-oriented modularity allows firms to better capture value in situations where knowledge and value creation are distributed across many different actors and aspects of the system. Key concepts include:
13. AIG Again? – Via Skeptical CPA – “The federal government is overhauling its $150 billion bailout of [AIG] in a bid to bolster the battered insurer, but is plan will expose US taxpayers to more financial risk. The new deal, the government’s fourth for AIG, represents a nearly complete reversal from the one first laid out in mid-September. Back then, federal officials acted as a demanding lender, forcing the insurer to pay a steep interest rate for what was expected to be a short-term loan.
14. EC4024 Lecture 12, International Money Markets – Via Stephe Kinsella
15. Nationalization & Capitalism – Via Baseline Scenario – This is my last post on nationalization for at least a week, and hopefully a lot longer than that. I’m tired of writing about it. But I was listening to Raghuram Rajan on Planet Money, and things became a little more clear to me. Rajan was saying that he had some concerns about nationalization and didn’t think it was necessary to fix the banking system. His concerns were sensible, I have counter-arguments for them, and I don’t want to get into a detailed debate here. More importantly, he agreed with the nationalizers that the system is broken, hasn’t been fixed, and needs to be fixed – he just thinks you could do it a different way.
16. 20 Things You Didn’t Know About Time – Via Discover Magazine – The beginning, the end, and the funny habits of our favorite ticking force.
17. The Recession Causes & Cures – Via Adam Smith – The present recession is the direct consequence of first, the formation and then the bursting of speculative asset-price bubbles in the housing and financial markets, made possible by a combination of three factors. An excessive growth of liquidity in the financial markets was tolerated by the central banks, the Federal Reserve and the Bank of England. The behaviour of these two bodies encouraged the development of two significant beliefs amongst financial market players: that debtors would always be bailed out by the increased availability of cheap money, and the belief that many financial institutions were too big to be allowed to fail. The combined effect of these three factors was to encourage behaviour on the part of market participants that ranged from the reckless to the fraudulent. Lesser contributory factors included the failure of regulatory agencies to identify, let alone restrain, such behaviour, and the pressure exerted on the commercial banks by Governments in both countries to make extensive housing loans to households who were poor credit risks in the name of ‘social inclusion’.
18. The Future Of Capitalism – Via Filtnib – Back when I studied economics at A-level, my teacher instilled a healthy scepticism of absolutes. He had no time for teenage leanings towards purist doctrines; neither communism nor an uninhibited market economy, said Mr Walker, would ever succeed alone. The only answer then, was a mixed economy – one that encouraged the best aspects of the market while tempering animal spirits with a certain degree of state intervention, in order to protect the weak and provide public goods such as healthcare and education.
19. Queen Raina Of Jordan Has A You Tube Channel -(She’s very intelligent, kind and beautiful)- Via Youtube
20. Real Wage Inequality – Via Cafe Hayek – About half of the return to a college education over and above that of a high school education, is eaten up by higher costs of living—college grads tend to live in high wage but high cost urban areas. So says this working paper by Enrico Moretti (HT: Peter St. Onge). He recognizes that the higher costs of living are partly because of higher amenities in urban areas. Clever insight. Might be important.
21. Primer On DEPOSIT INSURANCE SYSTEMS: BASEL COMMITTEE ON BANKING SUPERVISION – Via Cambridge Forecast – The Basel Committee on Banking Supervision and the International Association of Deposit Insurers (IADI) today issued the Core Principles for Effective Deposit Insurance Systems for public consultation. The Financial Stability Forum, in an April 2008 report on the financial crisis, called on authorities to agree on an international set of principles for effective deposit insurance systems. The Basel Committee/IADI core principles are the result of that recommendation. The core principles address a range of issues including deposit insurance coverage, funding and prompt reimbursement. They also address issues related to public awareness, resolution of failed institutions and cooperation with other safety net participants including central banks and supervisors.
22. Primer: THE MEDIEVAL ORIGINS OF MODERN BANKING: PROFESSOR RAYMOND DE ROOVER BOOKS – Via Cambridge Forecast
23. Perfection Of Quantitative Easing – Via Cassandra Does Tokyo – The Brits are now offically obsessed with quantitative easing, first not comprehending it, then wryly examining it, finally yielding to a stoic skepticism about it’s parochial impacts. There is a certain anodine perfection to the phrase, quantitative easing, unlike anything else in the entire rather utilitarian financial or economic lexicon. It sounds wonderful, functionally-useful tonic, though certainly not dangerous or hazardous to our well-being. Yet it remains sufficiently innocuous so as to escape scrutiny and with it, the associated public examination that prying eyes bear. It is entirely Madison Avenue rather than inflated Goebbels-like propaganda or overly-wooden Soviet or Pyongyang slogans.
24. Survey Data On Internet Uses – Via Crooked Timber – The Pew Internet & American Life Project (PIP), a very important source on data about Americans’ Internet uses, has completely revamped its Web site. Among other things, it is now even easier to download their data than before. These are made available in SPSS format only. I use StatTransfer in such cases (for conversion to Stata), any other tools that have worked well for folks?
25. Comparing the future- a historical look at budgets – Via Economic Policy Review – These are just some of the adjectives being used to describe the 2010 budget proposal submitted to Congress by President Obama. The Republican opposition has already begun to refine its red scare messaging, while liberal special interest groups are salivating over the pork that’s coming out of the budgetary oven. The seemingly optimistic economic assumptions underpinning the budget’s spending goals have led some economists to question whether the President can get what he wants without raising taxes, while others are goading him to spend more.
26. Ponzi Paradigm: Stock Market Boom Is An Illusion– Via Paul Krugman Archive – Charles Ponzi wasn’t the first to try it, but he has joined Dr. Bowdler and Captain Boycott among those whose names will forever be terms of abuse. And the classic scam that bears his name — using money from new investors to pay off old investors, creating the illusion of a successful business — shows no sign of losing its effectiveness. Robert Shiller’s terrific new book, “Irrational Exuberance,” contains a brief primer on how to concoct a Ponzi scheme. The first step is to come up with a plausible-sounding but complicated profit opportunity, one that is difficult to evaluate. Ponzi’s purported business involved international postage reply coupons. In a more recent example, Albanian scammers convinced investors that they had a profitable money-laundering business. From that point on it’s all a matter of timing and publicity. An initial group of investors must be pulled in, large enough to attract attention but not too large; then a larger second group, whose investments can be used to pay off the first, a still larger third group, and so on. If all goes well, stories about how much early investors have made will spread, attracting ever more people, and the continuing success of the company will silence or drown out the skeptics.
27. Macroeconomic imbalances and the current recession – Via Antonio Fatas – While there is no doubt that the current recession is fundamentally linked to excesses in financial markets and asset prices, there were still some classic macroeconomic imbalances that preceded the crisis. For years we have been talking about global imbalances and how certain advanced economies (the US in particular) were building large deficits. A current account deficit is simply a measure of the difference between spending and income for a country. The source of spending can be many (government, companies – in the form of investment- or consumers). In the case of the US, consumption grew to levels that we had never seen before. The chart below displays household consumption as a ratio to GDP for the US and four other advanced economies.
28. Other Potential Causes of Happiness – Via Economix – Earlier this week we mapped out the different well-being levels for each of the nation’s 50 states, as measured by the Gallup-Healthways Well-Being Index. We also examined the relationship between income and happiness, and another more prurient theory for why Utah scored so high on the well-being index.
29. How Appropriate Is Your Medical Care? – Via Economix – Uwe E. Reinhardt is an economics professor at Princeton. This post is the second in a series begun last week on what’s wrong with the health-care system’s status quo. When Americans seek the professional advice of a physician for a perceived medical problem, they usually assume that the physician is fully up to date on the latest medical science pertaining to the problem at hand, will arrive at an accurate diagnosis, and formulate the best, most appropriate treatment plan to respond to the patient’s condition.
30. Podcast: Founder Of Wikipedia – Via EconTalk – Jimmy Wales, founder of Wikipedia, talks with EconTalk host Russ Roberts about the birth and growth of Wikipedia. He talks about the role of Hayek’s insights into the design of Wikipedia, how Wikipedia deals with controversy, the reliability of Wikipedia relative to traditional reference sources and the future possibilities for projects that rely on voluntary contributions of time and creativity.
31. Another side of the administration’s tax plan – Via Macroblog – While discussions of the Obama administration’s tax plan focus on the expected impact on consumer spending and the federal deficit, not much attention has been given to the incentives of the plan for work effort. Different tax rates, deductions, and rebates provide varying degrees of incentives to work less or work more, and those incentives differ across income groups. Here I want to focus on just one of the proposed changes: the reinstatement of the 39.6 percent marginal tax rate for the wealthy.
32. Healthcare and Competitiveness – Via Greg Mankiw – NEC director Larry Summers and CBO director Doug Elmendorf are old friends of mine and great economists. On most things, they agree. But compare these passages regarding the economic impact of healthcare costs.
33. Digital readers will save writers and publishing, even if they destroy the book business. – Via Big Money – Amazon announced the second iteration of its Kindle electronic reading device last month. The next day, HarperCollins announced that it would close its Collins division to substantially reduce head count and limit the number of books it acquires to publish. It was almost as if Harper was acting out a ritual dismemberment upon hearing the news.
34. The most interesting book on economics ever? – Via Mises – We’ve finished with scanning and uploading volume 1 of Rothbard’s Austrian Perspective on the History of Economic Thought — a book we’ve long dreamed of getting online. I feel sure that this will draw more attention to the printed books, which were once unaffordable but are now available at an excellent price. In any case, I’m thrilled to announce the online edition of Economic Thought Before Adam Smith by Murray Rothbard.
35. California $Billions In The Hole Again – Via Global Economic Analysis – California is imploding faster than expected. Let’s take a look starting with a flashback to something I wrote on February 16, 2009: California One Vote Shy On Budget Impasse. Here is the key snip.
36. Boomers’ Future Went Down The Drain – Via Global Economic Analysis – The attitudes and values of boomers heading into retirement are changing. They have to. In the wake of a stock market and home price collapse, most boomers are not prepared for the future. Let’s explore that idea with a look at Is the Future Going Down the Drain? Baby Boomers Going Bust.
37. Why Are Delinquencies So Common?– Via Supply & Demand – Employment has fallen 3 percent so far in this recession (about 4 million). Full time employment has fallen 5 percent. Thanks to unemployment compensation, high rates of pay for many of those who still have jobs, and last year’s increase in social security benefits, real disposable personal incomes have been rising for the last six months. Yet 12 percent of households with mortgages are late on their mortgage payments. Just yesterday I read how, in a Catholic high school near Chicago, 20 percent (sic) of the students were taken out of class because they were delinquent on their tuition payments [employment in the Chicago area has fallen about the same — a bit less — than it has in the nation].
38. Science and Truthiness – Via Think Markets – President Obama seems to be setting himself up as the scientific President. He has a Nobel Prize winning physicist for his Secretary of Energy. Monday he reversed the ban on stem-cell research and issued an interesting memo meant, presumably, to restore scientific integrity to the Executive Branch of the federal government.
39. World and Market Making: an anthropological point of view – Via Culture By – Tell me if this rings a bell. You are reading a New York Times article this morning. It’s an article by Dennis Overbye on the physicists who migrated to Wall Street and are now on the firing line as we look for someone to blame for the meltdown. And you come across this passage. Dr. Derman said the idea of a “right level” [for prices] is a “bit of fiction.” And then this: Dr. Taleb [in The Black Swan] has waged war against one element of modern economics in particular: the assumption that price fluctuations follow the familiar bell curve that describes, say, IQ scores or heights in a population, with a mean change and increasingly rare chances of larger or smaller ones.
41. Why Immigration Is Good For American Business – Via Carpe Diem – For all its current economic woes, America remains a beacon of entrepreneurialism. Between 1996 and 2004 an average of 550,000 small businesses were created every month. One factor is a fairly open immigration policy. Vivek Wadhwa of Duke University notes that 52% of Silicon Valley start-ups were founded by immigrants, up from around a quarter ten years ago. But since 2001 the threat of terrorism and rising xenophobia has made immigration harder. Today more than 1m people are waiting to be granted legal status as permanent residents. Yet only 85,000 visas a year are allocated to the sort of skilled workers that might go on to found sucessful businesses of their own.
42. The Case For Working Less – Via Progressive Economist – The economic case for shorter working time was made 100 years ago this August in Winnipeg by Sydney J. Chapman. It was the standard model accepted by the elite academic establishment – Alfred Marshall, A.C. Pigou, Lionel Robbins and J.R. Hicks cited it as authoritative. This was not some obscure “debate among scholars from eons ago whom no one knows.” No debate was needed. It was an open and shut case. One hundred years later, the theory stands undisputed… and ignored.
43. The Real Unemployment Number – Via NPR – “Today we learned that there are 12.5 million people who are unemployed, and we have another 8.6 million people who are working part-time because they cannot find full-time jobs. Now, you’re talking about 20 million people in this country who are either unemployed or underemployed. I don’t want to freak out people, but the unemployed number, we start talking about 15, 16 percent.”
44. Income Education & Ignorance – Via Offsetting Behavior – Bryan Caplan asks for more details on the relative effects of income and education on economic thinking. Of course, in most work looking at political ignorance, education matters more than income. That’s also what I found when I looked at the correlates of ignorance two posts ago. And, in Caplan’s work, education matters a lot while income doesn’t matter at all in explaining what makes people think like economists.
45. Understanding Economic Statistics: An OECD Perspective – Via Economic Indicators – Good economic statistics are fundamental for good research and policymaking, and Understanding Economic Statistics: An OECD Perspective shows how to avoid confusion and get to the information the user really wants. Its aim is to help readers to better understand how to use economic statistics in general and OECD statistics in particular. If you want to know how the production of international statistics is organised, who the main data producers are and what databases are available over the internet, this is the book for you. Students and researchers will find it useful in gathering the evidence they need to do their work. The book will help journalists and other analysts evaluate economic trends or assess the effectiveness of policies.
46. Escape From Cubicle Nation – If you want to become an entrepreneur and only plan on buying one book, we recommend Escape from Cubicle Nation. It covers not only the emotional issues associated with leaving corporate life but also the nuts and bolts of launching a business. If you’re thinking about making the transition from working for somebody else to working on your own, we’ve got a great business book recommendation for you.