Weekly Roundup 62: A Curated Linkfest For The Smartest People On The Web

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Weekly Cartoon (Via Econosseur ):


Weekly Joke (Via ND.edu):

What does an accountant use for birth control?

His personality.

Most Important Article(s) Of The Week!!!!!!!


Jared Diamond Explains Haiti’s Enduring Poverty
– Via OpenCulture – Jared Diamond, the Pulitzer Prize-winning author of Guns, Germs & Steel (and Collapse: How Societies Choose to Fail or Succeed), offers some timely thoughts on why Haiti, once a fairly prosperous country, has sunk into enduring poverty — a condition not comparatively shared by its neighbor on the same island, the Dominican Republic. According to Diamond, Haiti’s environmental conditions offer a partial explanation. But you will also find clues in the country’s language, and in the legacy of slavery that has shaped Haiti’s economic relationship with Europe and the US. This interview — quite a good one — aired this morning in San Francisco.

Simple Passwords Remain Popular Despite Increasing Risk Of Being Hacked-Via NYT – Back at the dawn of the Web, the most popular account password was “12345.” Today, it’s one digit longer but hardly safer: “123456.” Despite all the reports of Internet security breaches over the years, including the recent attacks on Google’s e-mail service, many people have reacted to the break-ins with a shrug.

We all have a stake in corporate behavior – Via SF Gate – Corporations are crucial institutions in our society. Consumers rely on them for everything from the basic provisions of food and clothing to the more dispensable delights of computers and cell phones. Workers rely on them for jobs. Communities need them for a tax base. Shareholders rely on them for profits that fund retirement, or entrepreneurial activity.

Freedom Of Financial Choice Is A Myth – Psy-Fi Blog – As we’ve navigated the nether regions of investing folklore like a drunken Frankenstein’s monster in search of a late night high cholesterol snack you may have formed the opinion that this author is somewhat sceptical of all investment processes that don’t explicitly guard against human psychological perversity and highly doubtful that those that do can overcome ingrained biases and an industry dedicated to causing us to do exactly the wrong thing at exactly the wrong time. Still, scepticism isn’t cynicism, and along the way we’ve found one small chink of light in the gloom; the finding that if you give people a financial education early enough in life it improves their money management.

Planet’s most biodiverse corner under threat
Via Futurity.org- Adding to the body of research on distracted driving is a new report showing that driving impairs our ability to comprehend and produce language.


Driven To Distraction
– Via ScienceDaily — It is well known that having a conversation (for example on a cell phone) impairs one’s driving. A new study indicates the reverse is also true: Driving reduces one’s ability to comprehend and use language.

Richard Thaler: Homeowners underwater but will they leave the pool – Via NYT – MUCH has been said about the high rate of home foreclosures, but the most interesting question may be this: Why is the mortgage default rate so low?

Miguel’s Weekly Favorites:

Does power increase hypocrisy? – Via Cognition & Culture – Five studies explored whether power increases moral hypocrisy, a situation characterized by imposing strict moral standards on others but practicing less strict moral behavior oneself. In Experiment 1, compared to the powerless, the powerful condemned other people’s cheating, while cheating more themselves. In Experiments 2-4, the powerful were more strict in judging others’ moral transgressions but more lenient in judging their own transgressions. A final study found that the effect of power on moral hypocrisy depends on its legitimacy: When power was illegitimate, the moral hypocrisy effect not only disappeared but reversed, with the illegitimate powerful becoming more strict in judging their own than others’ behavior. This pattern, which might be dubbed hypercrisy, was also found among low-power participants in Experiments 3 and 4. We discuss how patterns of hypocrisy and hypercrisy among the powerful and powerless can help perpetuate social inequality.

Consumer Behavior: Does 9 Just Sound Cheap? – Via Priceless Blog – We have all heard of calculating prodigies, those rare souls able to perform astounding feats with numbers. For many of these individuals, numbers have colors, flavors, sounds, or other qualities alien to the rest of us. Mental calculator Salo Finkelstein detested the number zero and adored 226. The Russian mnemonist S.V. Shereshevskii associated the number 87 with a visual image of a fat woman and a man twirling his mustache. This is known as synesthesia, the association of a sensory experience with an unlikely object. A recent study suggests that most people may have a bit of number synesthesia. It might help explain the mysterious appeal of prices ending in the digit 9 (as in $19.99).

The Psychology Of Power: Power corrupts, but it corrupts only those who think they deserve it Via Economists – REPORTS of politicians who have extramarital affairs while complaining about the death of family values, or who use public funding for private gain despite condemning government waste, have become so common in recent years that they hardly seem surprising anymore. Anecdotally, at least, the connection between power and hypocrisy looks obvious.

A toy model of money, growth, and inequality – Via Interfluidity – I’ve been trying to develop my intuitions about how inequality might affect aggregate growth. It’s not like this is a new question. Theoretical arguments have been made both ways, and an empirical literature found a consensus in the 1990s (inequality looked bad for growth), then squinted harder to find little relationship in the 2000s. For some careful theorizing about how inequality might harm growth, take a look at this paper by Philippe Aghion, Eve Caroli, and Cecelia Garcia-Penalosa (”ACG”). They tell three stories, with very careful models: i) when capital markets are imperfect, inequality might reduce the efficiency of investment, as the less productive opportunities of the wealthy are funded in preference to the more productive opportunities of the poor; ii) the borrowing required to fund investment under inequality impose agency costs, because entrepreneurs expend less effort when the benefits and costs of their labors are shared with financiers; and iii) unequal access to investment opportunities may combine with financial market imperfections to create macroeconomic downcycles during which savings cannot be efficiently invested.
Pitt research explores how categories and environment create satisfied and well-informed consumers – Via Eureka Alert –
“How can retailers help consumers become more informed about the products they use while also making them happy?” write authors Cait Poynor, Pitt assistant professor of business administration in the Joseph M. Katz Graduate School of Business, and Stacy Wood, University of South Carolina professor of marketing. The answer seems to be in organizing products tailored to customers’ knowledge levels. Their research indicates that simply organizing a store’s existing stock in different ways can improve consumers’ learning and their degree of satisfaction.


Those Less Motivated to Achieve Will Excel on Tasks Seen as Fun
Via ScienceDaily — Those who value excellence and hard work generally do better than others on specific tasks when they are reminded of those values. But when a task is presented as fun, researchers report, the same individuals often will do worse than those who say they are less motivated to achieve.

MIT economist finds temporary jobs may actually reduce workers’ income and employment prospects – Via Physorg- While the U.S. economy struggles, one form of employment is on the rise: Temporary jobs. In December, the country lost 85,000 jobs overall, but added 47,000 temp positions, according to the Bureau of Labor Statistics. Increasingly America relies on these contingent employees — or “disposable workers,” as BusinessWeek put it in a recent cover story.

Wall Street Pay: A Primer Via Brookings – Wall Street will be paying near-record bonuses for 2009 and the public is furious, given Wall Street’s role in triggering the recent severe recession. Unfortunately, there is a great deal of misunderstanding surrounding the whole complex topic. This paper attempts to explain the underlying issues comprehensively by giving the facts and the arguments from all sides, as well as expressing a few of the author’s own opinions. For the record, I was a Wall Street investment banker for nearly two decades, primarily at J.P. Morgan, ending in 2008. I now work at the Brookings Institution analyzing government policy related to finance. (Paper)

Joseph Stiglitz: Why we have to change capitalism – Via Telegraph.co.uk – In an exclusive extract from his new book, Freefall, the former World Bank chief economist, reveals why banks should be split up and why the West must cut consumption.

Mind Reading, Brain Fingerprinting and the Law – Via ScienceDaily — What if a jury could decide a man’s guilt through mind reading? What if reading a defendant’s memory could betray their guilt? And what constitutes ‘intent’ to commit murder? These are just some of the issues debated and reviewed in the inaugural issue of WIREs Cognitive Science, the latest interdisciplinary project from Wiley-Blackwell, which for registered institutions will be free for the first two years.

Exclusive Features : (The Must Reads)

Oil windfalls and living standards: New evidence from Brazil – Via Voxeu- Does the “resource curse” exist? This column presents new evidence from Brazil. Municipalities that receive oil windfalls report significant increases in spending on infrastructure, education, health, and transfers to households. However, the windfalls do not trickle down and much of the money goes missing. Indeed, oil revenues increase the size of municipal workers’ houses but not the size of other residents’ houses.

Murray Rothbards Lecture On Economic Theory – Via Mises – Murray is in GREAT form in this new series of lectures on economic theory. He is marching through the whole works here. This is the first lecture, and, warning, it is hilarious!

China on Path to Become Second-Largest Economy
– Via NYT China said on Thursday that its economy rose by 10.7 percent in fourth quarter compared with a year ago, as the country continued to surge forward even as many other nations are still trying to punch through the global recession. That was up from a revised growth rate of 9.1 percent in the third quarter.

Boxed In: The Constraints of U.S. Foreign Policy – Via World Affairs Journal – To this day, Americans deny that they are an imperial power, even when—well, during one of the World Series games last fall, at the patriotic seventh-inning stretch, with the cameras turned to soldiers and sailors among the fans, Derek Jeter of the Yankees said on behalf of the players that those guys were the real heroes, and the commentator said that their thoughts were with all the brave American men and women of the armed forces, in the 175 countries where they are based.

The Politics of Humanitarian Aid: U.S. Foreign Disaster Assistance, 1964–1995 – Via Missouri – Previous studies of U.S. foreign aid have firmly established that foreign policy and domestic considerations strongly influence allocations of military and economic development assistance. Uncharted,however, is the question of similar influences on U.S. humanitarian aid. Analyzing U.S. foreign disaster assistance data from 1964 through 1995, this paper concludes that foreign policy and domestic factors not only influence disaster assistance allocations but that they are the overriding determinant. This impact is, however, somewhat differential: the initial “yes/no” decision to grant disaster assistance is markedly political, but the subsequent “how much” decision is also not devoid of political considerations.

Parametric estimations of the world distribution of income Via Voxeu-World poverty is falling. This column presents new estimates of the world’s income distribution and suggests that world poverty is disappearing faster than previously thought. From 1970 to 2006, poverty fell by 86% in South Asia, 73% in Latin America, 39% in the Middle East, and 20% in Africa. Barring a catastrophe, there will never be more than a billion people in poverty in the future history of the world.

Mervyn King: Monetary policy developments – Via BIS – Some dates are easier to remember than others. 1789 and the French Revolution, 1989 and the fall of the Berlin Wall, 1929 and the Wall Street Crash are easily recalled. How will 2009 be remembered: as the year when the world economy fell off a cliff but was rescued by government and central bank intervention around the world? Or the year when we finally recognised that genuine reform to the international monetary and banking system was essential to restore prosperity? Time will tell.

Prop Trading: Gambling with House Money – Via NPR – We take a closer look at proprietary trading, which is under attack by the latest proposal from the Obama administration. The new banking regulations proposed by the president call for a ban on commercial banks engaging in potentially risky trades with their own funds– or, in some cases, your funds. So we called up MIT Sloan School of Management professor Andrew Lo to shed some light on the murky world of ‘prop trading’, as the cool kids like to call it.

The greenness of China: Household carbon dioxide emissions and urban development
Via Voxeu- China’s economic growth has profound environmental implications. This column estimates the household carbon emissions of China’s major cities. Even in China’s most polluting city, per household emissions are just one-fifth of those in San Diego, the greenest city in the US.

Finance & Investing:

Compensation in the Financial Industry – Via HLS – We find that the top-five executive teams of these firms cashed out large amounts of performance-based compensation during the 2000-2008 period. During this period, they were able to cash out large amounts of bonus compensation that was not clawed back when the firms collapsed, as well as pocketing large amounts from selling shares. Overall, we estimate that the top executive teams of Bear Stearns and Lehman Brothers derived cash flows of about $1.4 billion and $1 billion respectively from cash bonuses and equity sales during 2000-2008. These cash flows substantially exceeded the value of the executives’ initial holdings in the beginning of the period, and the executives’ net payoffs for the period were thus decidedly positive.

Tom Barrack: Don’t Stress the Distress
– Via Colony Capital – Both distressed investors and investors in distress are anxious and discontent because they are languishing in the doldrums of “status quo.” The unanticipated tranquility of zero interest rates and the new mantra of “pretend and extend” by holders of debt instruments have sent both groups into a holding pattern that has become a bit surprising.

What if America’s Urban Economies Were National Ones? – Via Streetsblog – The U.S. Conference of Mayors released a report this week with some dire conclusions for the nation’s cities: Even the payroll growth that many prognosticators anticipate this year won’t make a dent in double-digit urban unemployment. Half of the 363 biggest metro areas won’t return to their pre-recession jobs levels until 2013 or beyond.

A Spin-off for Loews? Via Lonely Value Investor – Loews Corp (L) is set to announce earnings on February 8th. With that date fast approaching, I thought it was time to revisit our running discussion of the company.

Chearp Stock, 1/22/2010 Update –
Via Cheap Stocks – Well we couldn’t post a gain this week. But at least we were down less than the averages. We “only” lost 2.5% last week and remain in positive territory for the year with a 4% gain.

Assessing the systemic risk of a heterogeneous portfolio of banks during the recent financial crisis – Via BIS – This paper extends the approach of measuring and stress-testing the systemic risk of a banking sector in Huang, Zhou, and Zhu (2009) to identifying various sources of financial instability and to allocating systemic risk to individual financial institutions. The systemic risk measure, defined as the insurance cost to protect against distressed losses in a banking system, is a summary indicator of market perceived risk that reflects expected default risk of individual banks, risk premia as well as correlated defaults. An application of our methodology to a portfolio of twenty-two major banks in Asia and the Pacific illustrates the dynamics of the spillover effects of the global financial crisis to the region. The increase in the perceived systemic risk, particularly after the failure of Lehman Brothers, was mainly driven by the heightened risk aversion and the squeezed liquidity. Further analysis, which is based on our proposed approach to quantifying the marginal contribution of individual banks to the systemic risk, suggests that “too-big-to-fail” is a valid concern from a macroprudential perspective of bank regulation.

Videos & Media

Bill & Melinda Gates: Why We Are Impatient Optimists

The Power of Charts

Google & The Study of History – Via CSPan – Historians talked about historical research and the use of web-based search engines like Google. Among the topics they addressed were book digitization, intellectual property issues, academic scholarship, and the scope of current book scanning projects being performed by Google. They also answered questions from the audience.

Behind The Curtain–The Full Monty

Academic Papers:


Computational Complexity and Information Asymmetry in Financial Products – Via SSRN – Traditional economics argues that nancial derivatives, like CDOs and CDSs, ameliorate the negative costs imposed by asymmetric information. This is because securitization via derivatives allows the informed party to nd buyers for less information-sensitive part of the cash ow stream of an asset (e.g., a mortgage) and retain the remainder. In this paper we show that this viewpoint may need to be revised once computational complexity is brought into the picture. Using methods from theoretical computer science this paper shows that derivatives can actually amplify the costs of asymmetric information instead of reducing them. Note that computational complexity is only a small departure from full rationality since even highly

Efficient Regulation – Via NBER – Regulation of economic activity is ubiquitous around the world, yet standard theories predict it should be rather uncommon. I argue that the ubiquity of regulation is explained not so much by the failure of markets, or by asymmetric information, as by the failure of courts to solve contract and tort disputes cheaply, predictably, and impartially. The approach accounts for the ubiquity of regulation, for its growth over time, as well as for the fact that contracts themselves are heavily regulated. It also makes predictions, both across activities and across jurisdictions, for the efficiency of regulation and litigation as strategies of enforcing efficient conduct.


Automatic Stabilizers and Economic Crisis: US vs. Europe
Via Policy Pointers – This 39-page working paper analyzes the effectiveness of the tax and transfer systems in the European Union and the US to act as an automatic stabilizer in the current economic crisis


How Law Affects Lending
– Via Oxford

The State of the World’s Indigenous Peoples – Via Policy Pointers – This 250-page report on the state of the world’s indigenous peoples reveals alarming statistics on poverty, health, education, employment, human rights and the environment

Other Interesting Articles:


Maplecroft Global Risks Index pinpoints most hazardous countries for business Via Malecroft – The 26 most significant non-financial risks faced by international business have been analysed and rated to create a ranking of 175 countries by Maplecroft.

Why Peak Oil Doom is for Dummies: Hotelling Rule – Via Alfin – The “Hotelling rule”, named after the late US mathematician Harold Hotelling, states that the price of an exhaustible commodity should converge towards the price of a substitute resource.

Heartbreak and Home Runs: The Power of First Experiences Via Psych Today – From winning the science fair to losing a first boyfriend, certain youthful experiences cast a long shadow, revealing character and at times actually shaping it.

Infographics: (Click On Image For Larger Version)

How You Can Be Tracked 24/7!

The Price Of Drugs WorldWide

The US & Consumer Fraud

Don’t Flush Your Credit Down the Drain

About Miguel Barbosa

I run this site.

24. January 2004 by Miguel Barbosa
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