Original source: SimoleonSense.com .
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I wanted to share with you the funny bumper sticker that I saw last year.
It goes, “Accountants work their assets off!”
Must Read Articles For All Weekly Visitors
The Financialisation of the American Economy!!! - via MoneyScience – This paper presents systematic empirical evidence for the financialization of the US economy in the post-1970s period. While numerous researchers have noted the increasing saleince of finance, there have been few systematic attempts to consider what this shift means for the nature of the economy, considered broadly. In large part, this ommission reflects the considerable methodological difficulties associated with using national economic data to assess the rise of finance as a macro level phenomenon shaping patterns of accumulation in the US economy. This paper develops two discrete measure of financialization and applies these measures to postwar US economic data in order to determine if, and to what extent, the US ecomomy is being financialized. The paper concludes by considering some of the implications of financialization for two areas of ongoing debate in the social sciences: (1) the question of who controls the modern corporation; and (2) the controversy surrounding the extent to which globalization has eroded the autonomy of the state.
How to commit the perfect crime - via Dan Ariely – here is a certain perverse pleasure in contemplating the perfect crime.You can apply your ingenuity to the hypothetical issues of choosing a target, evading surveillance and law enforcement, dealing with contingencies and covering your tracks afterward. You can prove to yourself what an accomplished criminal mastermind you would be, if you so chose.
How Soros Broke the Pound – via Paul Kedrosky & Atlantic – The 1992 crisis came to a head on Friday September 9, when currency speculators forced the devaluation of the Italian lira. By the following Tuesday, Britain was facing the same fate. In this excerpt from More Money Than God, his new history of hedge funds, Sebastian Mallaby tells the story of the crisis from inside the cockpit of George Soros’s Quantum Fund.
Black Swan Perfect Games Mirror Market Crises: Roger Lowenstein - via Business Week – To baseball fans, the perfect game hurled by Roy Halladay of the Philadelphia Phillies last week was a moment to savor. For financial mavens, it was a reminder of the unpredictable nature of markets. Halladay was the 20th pitcher in history to record a perfect game — to set down all 27 batters in order. Fans were stunned because Halladay’s gem occurred only three weeks after the 19th perfect game, by Dallas Braden of the Oakland Athletics. Except for a bad call by an umpire in a game two days ago, Armando Galarraga of the Detroit Tigers would have recorded the third perfect game of the season.
Decision Making & BP: ‘not prepared’ for deep-water spill - via FT – BP did not have all the equipment needed to stop the leak from its Macondo well in the Gulf of Mexico in the aftermath of the explosion on an oil rig six weeks ago, the UK company’s chief executive admitted.
Do BRK Shareholders Pay Enough for Buffett’s Personal Security? - Via Classic Value Investors – Warren Buffett’s security has not been a big priority to Buffett, Berkshire Hathaway’s board of directors, and Berkshire Hathaway stockholders for years. Buffett is unlike other billionaires or CEOs because even though he is worth over $40 billion, he still lives in a house that he bought for $30,000 in 1958. He hates spending money because he understands the time value of money, and because he is able to compound his money at high rates of return, spending a $1 today means giving up a lot more in the future. Therefore, it is no surprise that he hasn’t been too excited to spend money on something like personal security.
The Mindhacks Weekly Roundup - via Mindhacks – Awesome linkfest of cognitive and psychological material
From the oil spill to the financial crisis, why we don’t plan for the worst - via Posner @ Washington Post – The BP oil spill in the Gulf of Mexico is the latest of several recent disastrous events for which the country, or the world, was unprepared. Setting aside terrorist attacks, where the element of surprise is part of the plan, that still leaves the Indian Ocean tsunami of 2004, Hurricane Katrina in 2005, the global economic crisis that began in 2008 (and was aggravated by Greece’s recent financial collapse) and the earthquake in Haiti in January.
What is data science? – via Oreilly Radar – We’ve all heard it: according to Hal Varian, statistics is the next sexy job. Five years ago, in What is Web 2.0, Tim O’Reilly said that “data is the next Intel Inside.” But what does that statement mean? Why do we suddenly care about statistics and about data?In this post, I examine the many sides of data science — the technologies, the companies and the unique skill sets.
Glenn Reynolds: Higher education’s bubble is about to burst - via Washington Examiner – Buyers see that everyone else is taking on mounds of debt, and so are more comfortable when they do so themselves; besides, for a generation, the value of what they’re buying has gone up steadily. What could go wrong? Everything continues smoothly until, at some point, it doesn’t. Yes, this sounds like the housing bubble, but I’m afraid it’s also sounding a lot like a still-inflating higher education bubble. And despite (or because of) the fact that my day job involves higher education, I think it’s better for us to face up to what’s going on before the bubble bursts messily.
How poverty shapes the brain - via Globe & Mail – Over the past four decades, researchers have established how poverty shapes lives, that low socioeconomic status is associated with poor academic performance, poor mental and physical health and other negative outcomes. Dr. Swain is part of a new generation of neuroscientists investigating how poverty shapes the brain.
James K. Galbraith: Why the ‘Experts’ Failed to See How Financial Fraud Collapsed the Economy - via Big Picture -I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including “rational expectations,” “market discipline,” and the “efficient markets hypothesis” led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did. Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word “naughtiness.” This was on the day that the SEC charged Goldman Sachs with fraud.
A Direct Test of Rational Bubbles - via MoneyScience – The recent introduction of new derivatives with future dividend payments as underlyings allows to construct a direct test of rational bubbles. We suggest a simple, new method to calculate the fundamental value of stock indices. Using this approach, bubbles become observable. We calculate the time series of the bubble component of the Euro-Stoxx 50 index and investigate its properties. Using a formal hypothesis test we find that the behavior of the bubble is compatible with rationality.
Understanding: Biased Expectations - via Iterative Path – Before you make the big decision to quit your job to start your own venture or to move to a different city to start fresh, be aware of the highly biased opinion we have about our abilities. The very trait that defines an entrepreneur, unbridled optimism, works against them by preventing them from interpreting the data in an unbiased manner.
Wharton professor Gavin Cassar says,
Ed Chancellor: The dreadful potential of frugality - via The global financial crisis came as a startling surprise to most academic economists. The Cambridge economist Wynne Godley, who died last month, was an exception. Prof Godley brilliantly anticipated the severity of the US economic collapse with its ballooning fiscal deficits and high unemployment rates. If economists are to learn anything from the financial debacle they might start by studying Prof Godley’s legacy.
Miguel’s Weekly Favorites
Why so many artists have lazy eyes, and other things art can teach us about the brain – via Scientific American – As someone who has worked in pen and ink for decades, cartoonist Jules Feiffer realizes that “what we see is often quite divorced from what is actually there,” he noted. He calls the two-dimensional representations metaphors, noting that “the metaphor is often more understandable than the real thing.”
Clay Shirky: What I read - via Open Culture – In general, there’s no real breaking news that matters to me. I don’t have any alerts or notifications on any piece of software I use. My phone is on silent ring, nothing alerts me when I get a Tweet and my e-mail doesn’t tell me when messages arrive.
How Singapore casinos discourage gambling (by locals, not tourists) - via Nudge – To discourage locals from gambling, the government collects casino entrance fees — $70 for a 24-hour period or $1,400 for a year — from all Singaporeans and permanent residents. Almost 30,000 people, mostly recipients of public assistance or those who have filed for bankruptcy, are automatically barred from entering.
Deep in thought: What is a “law of physics”, anyway? – via Scientific American – One thing that’s both disconcerting and exhilarating about physics is how many seemingly simple questions remain unanswered. When you hear the questions that physicists struggle with, you sometimes say to yourself, Wait, you mean they don’t even know that? Physics might be defined as the subject that tries to figure out why the world may look incomprehensibly complex at first, but on closer examination is governed by simple laws. Those laws, applied repeatedly, build up the complexity. From this definition, you’d presume that physicists have at least sorted out what they mean by “law.”
Paul Bloom, Yale psychology professor, on the Pleasures of Imagination – via Openculture – Our main leisure activity is, by a long shot, participating in experiences that we know are not real. When we are free to do whatever we want, we retreat to the imagination—to worlds created by others, as with books, movies, video games, and television (over four hours a day for the average American), or to worlds we ourselves create, as when daydreaming and fantasizing. While citizens of other countries might watch less television, studies in England and the rest of Europe find a similar obsession with the unreal.
Defending the indefensible: a how-to guide - via Foreign Policy -Powerful states often do bad things. When they do, government officials and sympathizers inevitably try to defend their conduct, even when those actions are clearly wrong or obviously counterproductive. This is called being an “apologist,” although people who do this rarely apologize for much of anything.
Dear Investors: No Need For A Drawdown Drama - via Psyfi Blog – Whenever markets go into free-fall we see a certain drama play out: participants firstly refuse to believe things are going wrong, then gradually subside into confusion before eventually capitulating and demanding that something needs to be done and that someone’s to blame. Generally, of course, the people most to blame are the ones in the mirror in the morning who’ve either let greed get in the way of good sense or fear in the way of opportunity.
“The Upside of Irrationality” reviewed - via NYT & Leadon Young – Consider an experiment economists call “the ultimatum game”: The experimenter gives one player, the sender, $20 to distribute between himself and another player, the receiver. An egalitarian sender might propose a split of $10 each. A more selfish sender might propose to give the receiver only $1, keeping $19 for himself. If the receiver accepts the deal, the two players collect their shares. If the receiver rejects the deal, both walk away with nothing. Were humans perfectly rational, the receiver would accept whatever is offered: even a dollar is better than nothing, right? Instead, researchers find, receivers will reject an overly lopsided deal, gladly giving up their shares just to punish the stingy senders.
Evolution & Jetlag - via Frontal Cortex – Jet lag is an annoyance of modern life for which our pleistocene brain is completely unprepared. This ability to zip around the globe, to trapeze from time zone to time zone, is an invention of the late 20th century. Unfortunately, the brain is an organ of routine, equipped with a stubborn circadian clock. We are wired to expect a 24 hour day, and when our day extends far beyond that, the result is a set of symptoms that remind us we are far from home.
Memory is Fiction – via Frontal Cortex – Over at Slate, William Saletan has finished a wonderful series on the distortions and dishonesties of memory. Although our memories always feel true, they’re extremely vulnerable to errant suggestions, clever manipulations and the old fashioned needs of storytelling. (The mind, it turns out, cares more about crafting a good narrative than staying close to the truth.) Needless to say, this research has profound implications for everything from eyewitness testimony to talk therapy.
Video: Imperial History of the Middle East – via Stumble Upon
Video: Nathan Myhrvold on Charlie Rose – via Value Investing World
Video: How Steve Jobs fired design research & usability guys at Apple. - via Leadon Young -
Happiness May Come With Age, Study Says - via NYT – It is inevitable. The muscles weaken. Hearing and vision fade. We get wrinkled and stooped. We can’t run, or even walk, as fast as we used to. We have aches and pains in parts of our bodies we never even noticed before. We get old.
The Palliative Function of Ideology - via The Situationist – Jaime Napier is an Assistant Professors of Psychology at Yale University. Her primary research interest is the effects of societal injustice, including how members of advantaged and disadvantaged groups diverge in their perceptions and explanations of injustice; how political and religious ideologies may ameliorate the outrage associated with perceived injustice; and the consequences of accepting or rationalizing injustice on individual subjective well-being and self-esteem.
Book Review The Invisible Gorilla – What We Miss - via NYT – In “The Invisible Gorilla,” Chabris and Simons begin by talking about their study and its implications for everyday life. It is a mistake, they argue, to see it as revealing a bug in our software, rather than an inherent limitation. Our brains are physical systems and hence have finite resources. The real problem here — what Chabris and Simons call “the illusion of attention” — is that we are often unaware of these limitations; we think that we see the world as it really is, but “our vivid visual experience belies a striking mental blindness.” They go on to explore a series of related illusions having to do with perception, memory, knowledge and ability, providing vivid examples of the real-world problems these illusions cause.
Why Red Ink Graders are Tougher - Via The Situationist – Last week, NPR’s All Things Considered included a story by Guy Raz about California psychology professor Abraham Rutchick‘s study of how people use red and blue pens to grade papers. Rutchick tells host Raz that the red graders were way tougher than those who used blue pens. Here are some excerpts from the interview (which you can listen at this link).
How language reflects the balance of good and bad in the world - Bps Research – Imagine a garden filled with sweet smelling flowers and weeds. The flowers vastly outnumber the weeds, but the latter are more varied. And there’s another asymmetry – whereas the flowers have a pleasant scent, the weeds aren’t just scent-less, they’re poisonous, they can kill. According to a new study, life is like this garden. Positive events outnumber negative events, but negative events are more varied and potent. Paul Rozin and colleagues say that the English language reflects this state of affairs and so do at least twenty other languages.
Transportation, Travel and the Built Environment - via MIT -Zegras observes that fundamentally, people do not desire travel …. they wish to have accessibility. Travel is a derived demand, prompted by our activities. If we could make better use of telecommunications, or, if our cities were more compact, perhaps we would find less need for vehicle trips.
Thoughts on the Monty Hall problem – Tim Hartford – Tom Ellis, who developed a problem that is even harder than the hardest logic problem ever, writes with some puzzle-thoughts that may be of interest:
Understating the Benefits of Avoiding Low-Probability Disastrous Consequences - via Big Picture – The big flaw in the business critique of regulation is not so much that it overstates the costs, but that it understates its benefits — in particular, the benefits of avoiding low-probability events with disastrous consequences.
Living in denial: When a skeptic isn’t a skeptic - via NS – WHAT is the difference between a skeptic and a denier? When I call myself a skeptic, I mean that I take a scientific approach to the evaluation of claims. A climate skeptic, for example, examines specific claims one by one, carefully considers the evidence for each, and is willing to follow the facts wherever they lead.
Exclusive Picks + Financial Topics
From Oil Spills to Opportunities - via Street Capitalist – A lot of investors are fixated on BP plc (NYSE:BP) and Transocean (NYSE:RIG) because they are in the headlines so much. I think that part of the reason stems from the fact that investors like to be involved in the things they read about. There is a certain level of excitement. I saw this same behavior during the financial crisis. Most people end up becoming obsessed with certain stocks just because they are constantly in the news. I can see the appeal, it gives you something that you can bring up in conversations with your friends. But often, it is not really prudent investing.
Hold Your Schadenfreude: If Europe’s economy goes down, it’s taking America’s with it- Via FP – Although the crisis in the international credit markets today is not yet as severe as it was in 2007 and 2008, there are mounting signs that Europe’s debt troubles are producing another global credit crunch. A top U.S. Federal Reserve official has already felt compelled to warn of dangers facing the American economy, and President Obama has said that he’s monitoring the situation closely.
Steve Forbes Interview with Bruce Greenwald - via Value Investing World
Quant firms tinker with factor weightings - via Abnormal Returns – A growing number of quantitative equity managers are striving to match their computer models to changing market environments better as they fight to reverse the performance drought they’ve been in since the start of the financial crisis in mid-2007.
Banks Say No. Too Bad Taxpayers Can’t. - via NYT -FROM the earliest days of the credit crisis, the nation’s big financial institutions have been less than forthcoming about ballooning loan losses buried inside their books. To some degree this is understandable: denial is a powerful thing, after all, and writing off troubled loans during a period of severe stress is, for bankers, the equivalent of getting a root canal.
China’s Property Market Freezes Up - via WSJ – BEIJING—Government policy changes have thrown China’s booming property market into a period of paralysis that some industry executives say will last for several months, weighing on global growth prospects already battered by the turmoil in Europe. A rebound in China’s property market has been central to the nation’s rapid recovery from the financial crisis, but surging housing prices had led to increasingly open discontent from middle-class families in major cities. After months of indecision, Beijing in mid-April announced a package of policies intended to blow the froth out of the market by restricting speculative purchases.
Barry Sternlicht New York Times Profile - via Investors Consigliere – Perhaps such brio is a prerequisite for an investor wading into the worst real estate wipeout in generations. Indeed, Mr. Sternlicht, 49, has been one of the downturn’s busiest buyers. In the last year and a half, his private equity firm, Starwood Capital, has raised more than $3 billion. He has bought land in Florida and ski lodges in Colorado. He created a real estate finance company, Starwood Property Trust, which he took public last August in a successful initial public offering. And on Friday he ended an aggressive but unsuccessful run at Extended Stay Hotels, which was being auctioned off in bankruptcy court.
Academic Research Worth Reading
The economics of interchange fees - via Marginal Revolution – Fresh off of the most substantial national liquidity crisis of the last generation and the enactment of sweeping credit card regulation in the form of the Credit CARD Act, Congress continues to deliberate, with a continuing drumbeat of support from lobbyists, a set of new regulations for credit card companies. These proposals, offered in the name of consumer protection, seek to constrain the setting of “interchange fees”— transaction charges integral to payment card systems—through a range of proposed political interventions. This article identifies both the theoretical and actual failings of such regulation. Payment cards are a secure, inexpensive, welfare-increasing payment mechanism largely unlike any other in history. Rather than increasing consumer welfare in any meaningful sense, interchange fee legislation represents an attempt by some merchants to shift costs away from their businesses and onto card issuing banks and cardholders. In particular, bank-issued credit cards offer a dramatic improvement in the efficiency and availability of consumer credit by shifting credit risk from merchants onto banks in exchange for the cost of the interchange fee—currently averaging less than 2% of purchase value. Merchants’ efforts to cabin these fees would harm not only consumers but also the merchants themselves as commerce would depend more heavily on less-efficient paperbased payment systems. The consequence of interchange fee legislation, as Australia’s experiment with such regulation demonstrates, would be reduced access to credit, higher interest rates for consumers, and the return of the much-loathed annual fee for credit cards. Interchange fee regulation threatens to constrain credit for consumers and small businesses as the American economy begins to convalesce from a serious “credit crunch,” and should be accordingly rejected.
Wikipedia Accurate But Poorly Written - via Time – Take that, Wikihaters. A new study says Wikipedia is as accurate a source for cancer information as a professionally reviewed resource — assuming you can wade through the lousy prose. Cancer researchers from Thomas Jefferson University compared the accuracy of oncology information on the popular open-source encyclopedia with that on the National Cancer Institute’s Physician Data Query (or PDQ), a professional database that is peer-reviewed and edited. Both were fact-checked against textbooks to see whether cancer patients can trust the information they’re getting online.
Are Women Afraid to Speakup - via HBR – In our previous posts here and here, we tackled myths related to 1) whether employees withhold ideas; 2) why employees hold back; and 3) the types of issues employees speak up about, and don’t. This post is about who speaks up and who withholds input. We look at three groups of employees: higher-paid, more senior staff; expert employees; and women — and we explode the myth that non-professional employees and women are more reticent than others.
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