Weekly Roundup 64: A Curated Linkfest For The Smartest People On The Web

I spend 8 hours every Sunday putting this together…If you like this roundup kindly include a reference to SimoleonSense.com .Thanks!

Weekly Cartoon (Via Google ):

Weekly Joke (Via Econosseur):

Q:  What do you get when you cross the Godfather with an economist?

A:  An offer you can’t understand.

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

Attention All Blackswaners!!! World Economic Forum Creates Tool To Visualize RisksHighly Recommended!

Divided Attention – In an age of classroom multitasking, scholars probe the nature of learning and memory: – Via Chronicle – Imagine that driving across town, you’ve fallen into a reverie, meditating on lost loves or calculating your next tax payments. You’re so distracted that you rear-end the car in front of you at 10 miles an hour. You probably think: Damn. My fault. My mind just wasn’t there.

The High Cost of Low Educational Performance – Via OECD – While governments frequently commit to improving the quality of education, it often slips down the policy agenda. Because investing in education only pays off in the future, it is possible to underestimate the value and the importance of improvements. This report uses recent economic modelling to relate cognitive skills – as measured by PISA and other international instruments – to economic growth, demonstrating that relatively small improvements to labour force skills can largely impact the future well-being of a nation.

Free: Searchable World Government Data – Via Guardian – Governments around the globe are opening up their data vaults – allowing people to check out the numbers for themselves. Now The Guardian has created one single interface to rule them all.

Miguel’s Weekly Favorites:

Video: We feel, therefore we learn: The neuroscience of social emotion. Daniel Siegel – Via SlowTv –Andrew Lo& Robert Merton, Systemic Risk and the Refinancing Ratchet Effect – Via SSRN – The confluence of three trends in the U.S. residential housing market – rising home prices, declining interest rates, and near-frictionless refinancing opportunities – led to vastly increased systemic risk in the financial system. Individually, each of these trends is benign, but when they occur simultaneously, as they did over the past decade, they impose an unintentional synchronization of homeowner leverage. This synchronization, coupled with the indivisibility of residential real estate that prevents homeowners from deleveraging when property values decline and homeowner equity deteriorates, conspire to create a “ratchet” effect in which homeowner leverage is maintained or increased during good times without the ability to decrease leverage during bad times. If refinancing-facilitated homeowner-equity extraction is sufficiently widespread – as it was during the years leading up to the peak of the U.S. residential real-estate market – the inadvertent coordination of leverage during a market rise implies higher correlation of defaults during a market drop. To measure the systemic impact of this ratchet effect, we simulate the U.S. housing market with and without equity extractions, and estimate the losses absorbed by mortgage lenders by valuing the embedded put-option in non-recourse mortgages. Our simulations generate loss estimates of $1.5 trillion from June 2006 to December 2008 under historical market conditions, compared to simulated losses of $280 billion in the absence of equity extractions.

Behavioral Finance: Shlomo Benartzi Save More Tomorrow Plan Boosts Retirement Contributions – via UCLA

A Story About Motivation – Via Harvard – Because when we consider whether to do something, we subconsciously ask ourselves a simple question: “Am I the kind of person who . . ?” And money changes the question. When the lawyers were offered $30 an hour their question was “Am I the kind of person who works for $30 an hour?” The answer was clearly no. But when they were asked to do it as a favor? Their new question was “Am I the kind of person who helps people in need?” And then their answer was yes.

Video: Neuroplasticity and the ‘use it or lose it’ brain. – Via SlowTv –The decoy effect as a covert influence tactic – Via JBDM – The purpose of this research was to determine whether individuals could use the decoy effect to influence others’ choices. In study 1, undergraduates (n = 50) and executive master’s of business administration (EMBA) students (n = 24) read an employee selection scenario in which they were randomly assigned to prefer one of two candidates that were equal in overall attractiveness, but that had different strengths and weaknesses. They were then asked to choose one of three inferior candidates to add to the choice set that would make their preferred candidate more likely to be chosen by other decision makers. The correct inferior candidate was asymmetrically dominated – dominated by one of the two existing candidates, but not the other. Participants chose the correct decoy candidate at better than chance levels. In study 2, undergraduates and EMBA students (total n = 66) completed a set of four decision tasks, in which they were asked to choose from potential decoy alternatives that would highlight their preferred job candidate or the product they preferred to sell to a customer. Participants again chose the correct option at better than chance levels. When participants provided free-response reasons for their choices, these responses indicated a fairly strong recognition of the influential nature of creating a dominating relationship. Implications for understanding this effect and how it may be used by hiring managers, sales personnel, and others who attempt to influence others people’s decisions at work, are discussed.

Loss aversion in the eye and in the heart: The autonomic nervous system’s responses to losses – Via JBDM – The common view in psychology and neuroscience is that losses loom larger than gains, leading to a negativity bias in behavioral responses and Autonomic Nervous System (ANS) activation. However, evidence has accumulated that in decisions under risk and uncertainty individuals often impart similar weights to negative and positive outcomes. We examine the role of the ANS in decisions under uncertainty, and its consistency with the behavioral responses. In three studies, we show that losses lead to heightened autonomic responses, compared to equivalent gains (as indicated by pupil dilation and increased heart rate) even in situations where the average decision maker exhibits no loss aversion. Moreover, in the studied tasks autonomic responses were not associated with risk taking propensities. These results are interpreted by the hypothesis that losses signal the subjective importance of global outcome patterns.

Lawyers, Guns, and Money: How big banks, powerful lobbyists, sneaky attorneys, and a host of businessmen funnel dirty cash into the US. – Via Motherjones – Among Bank of America’s 50 million customers, Pierre Falcone was far from ordinary. An infamous global arms dealer who unlawfully sold weapons to Angola for its civil war and an international fugitive, Falcone was convicted of tax fraud and illegal arms dealing in 2007 and 2009 and is currently serving six years behind bars. Yet for nearly two decades, Falcone and his relatives freely used 29 different bank accounts to funnel at least $60 million into the US from secretive havens like the Cayman Islands, Luxembourg, and Singapore, and from shell corporations and secret clients. Despite his criminal record and worldwide notoriety, Bank of America essentially treated him like any other depositor.

Economists, Crises and Cartoons – H/T Paul Kedrosky Via SSRN – Economists have occasionally noticed the appearance of economists in cartoons produced for public amusement during crises. Yet the message behind such images has been less than fully appreciated. This paper provides evidence of such inattention in the context of the eighteenth century speculation known as the Mississippi Bubble. A cartoon in The Great Mirror of Folly imagines John Law in a cart that flies through the air drawn by a pair of beasts, reportedly chickens. The cart is not drawn by chickens, however, but by a Biblical beast whose forefather spoke to Eve about the consequences of eating from the tree of the knowledge. The religious image signifies the danger associated with knowledge. The paper thus demonstrates how images of the Mississippi Bubble focused on the hierarchy of knowledge induced by non-transparency. Many of the images show madness caused by alchemy, the hidden or “occult.”

Video: How Will You Manage Employment/Unemployment
– via Cool Infographics – Loaded with labor statistics, How Will You Manage? is a new infographic video put together by XPLANE for Kronos Workforce Management. Using a mix of statistics, illustrations and some infographics the video does a good job of looking at our changing workforce, and the challenges faced by both companies and employees.

Exclusive Features : (The Must Reads)

Five things you should know about climate change via Ars Technica – Writing about vaccines, evolution, and even dark matter has ended up setting off contentious discussions here at Ars. But no area seems to bring out impassioned arguments as reliably as climate change. Covering the latest scientific results can bring forth cries of scientific fraud, conspiracies, and denialism; considering policy implications can be even worse. It can be really difficult for anyone not well-versed in the debate to get any sense of the science at all, something that’s clear from the huge gap between the scientific community’s acceptance of climate change and the public’s wariness about the topic. So it’s probably useful to step back from the latest findings, and look at science’s basic understanding of how greenhouse gasses can force climate change, which often gets lost in the arguments.

People are Deciding to Paying Credit Cards before Mortgage
– Via Calculated Risk – The percentage of consumers current on their credit cards but delinquent on their mortgages first surpassed the percentage of consumers up to date on their mortgages but delinquent on their credit cards in the first quarter of 2008, according to TransUnion.

Is a Sovereign Debt Crisis Looming? – Via Carnegie Endowment- This US article argues that sustaining growth—not withdrawing stimulus—should remain most countries’ top priority if they are to break the debt spiral

The Counterfeiter: The story of how one of pharma’s biggest enemies was nabbed in Houston, Texas – Via TheScientist – Drugs can pass through a dozen or more hands on the way to the pharmacy and a consumer’s medicine cabinet. The patchiness of the drug distribution network and the absence of a proper paper trail, as investigative journalist Katherine Eban revealed in her 2005 book Dangerous Doses, has allowed unscrupulous middlemen to launder counterfeit medications within the legitimate supply chain that leads to a local pharmacy. Foreign-produced drugs are also illegally “diverted” into the domestic supply chain.

Black Swans, Male Strippers and Uncertainty Via Big Think – “This too, shall pass.” Folk tales say this was engraved on a ring given to King Solomon, who had demanded a gift that would make him sad when he was happy, and happy when he was sad. I recall it whenever I’m confronted with the claim that history has a positive direction–that, by and large, we’re progressing toward a more peaceful, just and prosperous future. And conversely, too, when I hear someone say we’re on an inevitable path of decline and doom.

British Library to Offer 65,000 Free eBooks Via OpenCulture – More than 65,000 19th-century works of fiction from the British Library’s collection are to be made available for free downloads by the public from this spring.

Finance & Investing:

Nobel Winner: Robert Merton Lectures – A Functional Perspective on Financial System Design with Observations on Issues from the Financial Crisis – Via NYU – The entire structure you see globally, of the financial system, is largely driven by the fact there’s a true uncertainty. Non-predictability, and it’s significant. And if you look at the most modern parts of finance, or at least what–it’s not so modern anymore, but it’s finance–the whole derivatives area and all the applications that have come out of it, that model succeeded, not just intellectually but in practice, precisely because what it didn’t have is an input.

Tom Barrack’s Latest: Real Estate is Cyclical but the American Dream is Not – Via Colony Capital – Today, the dream has turned into a nightmare and our children and our children’s children will inherit tens of trillions of dollars in debt. We are not concerned with dreaming the dream and working to get there — we are concerned with “living the life” and making sure someone gives it to us. We are in the midst of a populist revolution, which is shifting incentive from opportunity to entitlement. We are having a hard time separating heroes from villains. Yet through it all, the underlying foundation stone of everyone’s dream – be it opportunity or entitlement – revolves around the dream or hope of prosperity, self-fulfillment and ownership. Real estate has always been an inherent part of the American Dream ñ the dream to own a home, a house, a gas station, a bakery, an office, a store. Through good times or bad times, the pureness of the desire has remained steadfast. Only the belief and conviction in how to get it and preserve it has faltered.

More Retail Closures Likely – Via Bloomberg

This Crisis Won’t Stop Moving – Via NYT – YOU know we’re in trouble when we’re told that the economic problems in Greece, Portugal and Spain, the most indebted countries in the euro zone, are likely to remain safely contained in those nations.

Boech Investment Letter: Global Disequlibria: Don’t expect lasting stability – Our basic view remains unchanged;
we remain positive on equity markets, credit spreads and most commodities because liquidity flows are still very positive and key indicators discussed below are supportive. However, we still are very concerned about the artificial nature of the economic recovery and financial markets and when the relatively benign environment might change for the worse.

Five myths about how to create jobs – Via Washington Post – With the unemployment rate in the United States lingering just below 10 percent and the midterm elections just nine months away, job creation has become the top priority in Washington. President Obama has called for transferring $30 billion in repaid bank bailout money to a small-business lending fund, saying, “Jobs will be our number one focus in 2010, and we’re going to start where most new jobs do, with small business.” The fund is among several measures — tax incentives, infrastructure projects, efforts to increase exports — that the White House has proposed to help boost employment. As Americans consider the various approaches, we must have realistic expectations. We need to debunk some myths about what it takes to stimulate job growth.

Contagion: From Foreign Exchange Research, Barclays Capital – Via Zero Hedge – The key lesson from the ERM crisis of 1992 and the Asian crisis of 1997 is that contagion can emerge quickly and often in unpredictable ways. Unwinding of leveraged positions by distressed market participants, herding behaviour among investors, and loss of liquidity that gives way to general flight to quality can all lead to heightened correlations between markets and, in extremely circumstances, set off a self-filling crisis on a regional/global scale. There have been clear signs over the past week that the distress in the Greek government bond market is increasingly being felt in other euro area countries such as Spain and Portugal. The most likely explanation of this development is the “demonstration effect” – the Greek crisis is likely to have caused investors to re-evaluate the fundamentals of these countries. Spain and Greece may not have strong financial or economic links, but their fundamentals have a lot in common.

Weekly List of Insider Transactions
– Via Shadow Stock

Video: Value Investor Vito Maida Says Canada Is Fully Valued Via Financial Post:

Videos & Media:

Four Simple Lessons About Cost, Price, Maring and The Options Available To Businesses in the 21st Century
Fixed to Flexible – The Ebook

When Real-Time Isn’t Fast Enough: The Future Of the Web (LeWeb 2009) – Via Ideaslab –

Lecture: From Poverty to Prosperity: Intangible Assets, Hidden Liabilities and the Lasting Triumph over Scarcity – Via Cato – The discipline of economics is not what it used to be. For years, conventional economists told us an incomplete story that leaned on the comfortable precision of mathematical abstraction and ignored the complexity of the real world. What they left out of the story were the positive forces of creativity, innovation, and advanced technology that propel economies forward. They also left out the negative forces that can hold economies back: bad governance, counterproductive social practices, and patterns of taking wealth instead of creating it. From Poverty to Prosperity narrates and explains the revolutionary reorientation of economics in recent decades toward a new focus on understanding the huge differences in the standard of living across time and across borders. Mixing interviews with the world’s most important economists with their own clear and insightful analysis, Arnold Kling and Nick Schulz have produced an illuminating and thought-provoking guide to what they call “Economics 2.0.”

Lecture: MultiMedia at Your Fingertips 2.0 – Boosting the Multimedia Knowledge Transfer: From Research to Products
– Via Video Lectures – Opinions, experiences and visions regarding the trends and challenges in multimedia research and knowledge transfer will be presented by internationally well-known academic and industrial experts. A Multimedia knowledge market will concentrate on the demonstrators of multimedia research from TU Delft and its scientific and industrial partners, both national and international ones, and will provide a venue for networking, discussions, meetings and creating new collaborations.

Academic Papers:

Why Does Spain not Have a Policy for Latin America? – Via Policy Pointers – Spanish policy brief argues that since the region is not a priority for the EU, Latin America offers an excellent platform for Spain to develop an independent policy and influence the European agenda

Staying, Dropping, or Switching: The Impacts of Bank Mergers on Small Firms – Via Oxford – Assessing the impacts of bank mergers on small firms requires separating borrowers with single versus multiple banking relationships and distinguishing the three alternatives of “staying,” “dropping,” and “switching” of relationships. Single-relationship borrowers who “switch” to another bank following a merger will be less harmed than those whose relationship is “dropped” and not replaced. Using Belgian data, we find that single-relationship borrowers of target banks are more likely than other borrowers to be dropped. We track postmerger performance and show that many dropped target-bank borrowers are harmed by the merger. Multiple-relationship borrowers are less harmed, as they can better hedge against relationship discontinuations.

Insider Trades and Demand by Institutional and Individual Investors – Via Oxford Journals – There is a strong inverse relation between insider trading and institutional demand the same quarter and over the previous year. Our analysis suggests a combination of factors contribute to this relation. First, institutional investors are more likely to provide the liquidity necessary for insiders to trade. Second, insiders are more likely to buy low valuation and low lag return stocks while institutions are attracted to the opposite security characteristics. Last, the results are consistent with the hypothesis that insiders are more likely to view their securities as overvalued (undervalued) following a period when institutions were net buyers (sellers).

The Dynamics of a Financial Dislocation: The Panic of 1907 and the Subprime Crisis Via CFA

The Current Financial Crisis – Via Sage – It is now clear that the global economy is facing the worst economic and financial crisis since the Second World War. The crisis manifested itself initially in the subprime mortgage market in the US, but quickly spread to Europe; in the breakdown in the market for credit default swaps—a huge, unregulated and thoroughly opaque market; and in the general collapse of the markets for securitised instruments across the global financial system. It was aggravated, most analysts agree, by the initial policy missteps in handling the crisis, including in dealing with the problems at Lehman Brothers, which effectively froze the interbank market.

How Central Bank Policies Affect Global Economies and Markets – Via CFA – The world is more interconnected now than ever before, and as a result, central bank policy affects not only the country’s domestic economy but also the economies of other nations. To have an edge in this environment, investment professionals need to pay attention to global (not just U.S. or even European) central bank policies with an eye, in particular, on Japan, China, and India.

Other Very Interesting Articles:

Brain Dopamine Receptor Density Correlates With Social Status – Via Science Daily – People have typically viewed the benefits that accrue with social status primarily from the perspective of external rewards. A new paper in the February 1st issue of Biological Psychiatry, published by Elsevier suggests that there are internal rewards as well.

Power Of Kindness – Via Dr Deb – Research says that witnessing simple acts of everyday kindness, such as one person giving up a seat on the bus, holding a door open for another, or helping someone pick something that dropped to the floor can promote altruism. This pychological phenomenon that makes us feel great, lifts our emotions and motivates us to do good is called elevation. Witnessing an uplifiting act inspires us to do the same for others. In essence, kindness is contagious. –

World in Chaos and Market Meltdowns, Too Costly To Bear Via Marketoracle – Though this piece was originally released via our paid research publication – The Investor’s Mind – in September 2006, if not timeless, its contents are certainly applicable to our current markets and economic environment. While we have taken the liberty of updating some of the charts, it is largely unchanged:


Mapping Global Brand Interest Via Tablaue Software – Highly Recommended

Payday Loans vs Starbucks vs McDonalds – Via Payday loans

About Miguel Barbosa

I run this site.

07. February 2004 by Miguel Barbosa
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