Wednesday, November 30, 2011

Fed Faces New Scrutiny for Trillions in Assistance to Banks After Crisis | PBS NewsHour | Nov. 29, 2011 | PBS

Just shaking my head....we have so little idea of what goes on. Think that Enron or Adelphia etc were bad when they hid billions? Try trillions!

Fed Faces New Scrutiny for Trillions in Assistance to Banks After Crisis | PBS NewsHour | Nov. 29, 2011 | PBS:

"JUDY WOODRUFF: What did you learn about the scope of what the Fed did and who the recipients were?

BOB IVRY: It was a lot bigger than we thought, Judy, compared to TARP. TARP was the Treasury program that helped the banks get through a tough time in 2008.

And that was lending up to $700 billion. In one day, the Fed had loans out totaling $1.2 trillion. So, that one day in December of 2008 just completely dwarfs the much better known TARP program."

Now clearly it is not all bad. For instance, the Fed (in its role as lender of last resort) should be making these loans to the firms that needed it, but what about those that didn't need it but wanted a nice handout?

Also there is a debate as to how much of this was previously disclosed:

"JUDY WOODRUFF: Now, we know that you and Bloomberg News went to great lengths to get this information. There was a FOIA, a Freedom of Information, request that went all the way, I gather, to the Supreme Court.
But we did at the NewsHour talk to Fed officials today. And they say the extent to which this was hidden, was secret is being overstated here to some extent. They're saying that they made weekly reports about the amount of lending; then, ultimately, the information came out after the Dodd-Frank bill was passed into law.
BOB IVRY: They did disclose the information in aggregate form, meaning that you just got a lump: This particular program, for instance, lent this week this amount of money.
What we didn't know before very recently was that a bank like Morgan Stanley took $107 billion in one day or that Bank of America or Citigroup were borrowing on a single day at their peak almost $100 billion.
So, all that is now public. And that's because Bloomberg and Bloomberg News sued the Federal Reserve to get this money and to get this"
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Tuesday, November 29, 2011

Gross / Fink: Heavy Hitters Special, Nov. 17 - Video - Bloomberg

Gross / Fink: Heavy Hitters Special, Nov. 17 - Video - Bloomberg

Nov. 22 (Bloomberg) -- Bill Gross, co-chief investment officer at Pacific Investment Management Co., and Laurence Fink, chief executive officer of BlackRock Inc., discuss the European sovereign-debt crisis, the U.S. economy and investment strategy. Bloomberg's Erik Schatzker moderated the Nov. 17 event hosted by the UCLA Anderson School of Management and Bloomberg Television. (Source: Bloomberg)

From Bloomberg.
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Thursday, November 24, 2011

The Missing Logic of Boards

Dr. Seuss Wooden NickelImage via Wikipedia
From The Conference Board's  Roger Martin via MBA Depot

"A board of directors is asked to span a wide (and widening) gulf, resolving the tension between two very different markets with very different actors. On the one hand, boards are intended to act on behalf of outside shareholders... On the other hand, the board must deal closely with executives...motivated to maximize their own returns, even at the expense of shareholders."

and one more:

"It raises the question: Why would we imagine that the directorial agents would act any differently than the executive agents? After all, directors and executives are drawn largely from the same pool: Current and former senior executives are highly sought as directors. Yet we choose to apply agency theory to executives and not to directors. We assume that executives will maximize their self-interest but that directors will not. This is a failure of logic."

BTW the logic is the same as that of Dr. Seuss!  Here it is from "The Economics of Dr. Seuss"---and it was in an older Brealey and Myers(?) text when I was a grad student.
"... Out west, near Hawtch-Hawtch, there’s a Hawtch-Hawtcher Bee-Watcher. His job is to watch… is to keep both his eyes on the lazy town bee. A bee that is watched will work harder, you see.
Well…he watched and he watched. But, in spite of his watch, that bee didn’t work any harder. Not mawtch.
So then somebody said, “Our old bee-watching man just isn’t bee-watching as hard as he can. He ought to be watched by another Hawtch-Hawtcher. The thing that we need is a Bee-Watcher-Watcher.”
WELL… The Bee-Watcher Watcher watched the Bee-Watcher. He didn’t watch well. So another Hawtch-Hawtcher had to come in as a Watch-Watcher-Watcher.
And today all the Hawtchers who live in Hawtch-Hawtch are watching on Watch-Watcher-Watchering-Watch, Watch-Watching the Watcher who’s watching that bee. You’re not a Hawtch-Hawtcher. You’re lucky you see."

perfect for my class' Nexus of Contracts and Governance discussion.

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Margin Call Movie Trailer 2011 Official HD - YouTube

I had never even heard of this, but I definitely want to see it.

Margin Call Movie Trailer 2011 Official HD - YouTube:
"When entry-level analyst Peter Sullivan (Zachary Quinto) unlocks information that could prove to be the downfall of the firm, a roller-coaster ride ensues as decisions both financial and moral catapult the lives of all involved to the brink of disaster. Expanding the parameters of genre, "Margin Call" is a riveting examination of the human components of a subject too often relegated to partisan issues of black and white."

HT to the Big Picture!
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FT Alphaville » Randomness and the lost lesson of Bill Miller

Mutual fund
Image via Wikipedia
FT Alphaville » Randomness and the lost lesson of Bill Miller:

FT Alphaville uses the retirement of Bill Miller to discuss randomness and probabilities:

" A newsletter published by Credit Suisse-First Boston in 2003, a few years before the streak ended, calculated the odds of a manager outperforming the market on chance alone for 12 straight years to be one in 2.2 billion.

But what if Miller’s streak wasn’t so remarkable to begin with?

The statisticians like those from CSFB were considering the odds that a specific fund would outperform for 12 straight years if the fund begins investing at a specific time. But as Mlodinow explained, maybe the better question to ask is actually this: given the number of mutual funds that have existed in the modern era, what are the odds that any of them would have beaten the market over any 15-year period of time on chance alone?

Answer: 3 out of 4."

Important to remember that! 
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Wednesday, November 23, 2011

A look at Olympus

I want to use Olympus in class, so I put together a short recap from various sources:

From the BBC:
"The Japanese camera and medical equipment company, Olympus, has admitted to hiding investment losses dating back to the 1990s. The revelation came after the firm's British president, Michael Woodford, went public with allegations that the company had wasted $1.4bn (£880m) on buying companies for inflated prices, as a way of covering up old losses. He was subsequently fired. The company's shares plunged in value when Olympus bosses confirmed the attempts to conceal losses and apologised

BTW the BBC piece is an absolutely great interview with former CEO Michael Woodford which will be the part of another class on Japanese governance which is rapidly being shown to be far from adequate.

From the Economist:
"The scandal first hit global headlines on October 14th, when Michael Woodford, a Briton who had recently taken over as Olympus’s boss, was sacked. Mr Woodford had just told the board that the unusual payments merited investigation....Olympus’s shares fell 29% on November 8th, their daily limit. They are now 80% lower than before Mr Woodford was ousted. The Tokyo Stock Exchange has placed the firm on a watch-list for delisting."
From CBSNews'Is Olympus scandal tip of a Japanese iceberg?

"No corporations like losses (unless the engineered kind that reduce taxes). Announcing them to investors is painful, so you can understand why executives might want them to go away. But there's a big difference between wishful thinking and corrupt financial engineering, which is what some people at the top of Olympus allegedly did.
Although the details are still sketchy, apparently Olympus had suffered decades of losses on investments. Instead of admitting to one level of ineptitude, a few executives took things to a whole new level. They covered over the losses and then disguised them as acquisitions. Oh, they acquired companies, but the prices were sometimes outrageously high and the size of the fees to advisors, stunning."

From Time:
"...a publicly listed brand-name corporation spends hundreds of millions of dollars to buy companies that at the time of the acquisitions have zero revenue and dubious assets. That's what Olympus...did.......Japan Inc. is notorious for poor board and shareholder oversight. While the apparent lack of credible checks on top management is not unique, the details of the Olympus case are still stunning. From 2006 to '09, Olympus made four acquisitions, three of which had nothing to do with the company's core businesses, which are digital imaging and medical paraphernalia. Those three outfits, for which Olympus paid close to $1 billion.....In the fourth case, Olympus, after acquiring a British-based medical-instruments company for $2.2 billion in 2008, forwarded $687 million as "a transaction fee" to two investment bankers — also into a Caymans account that subsequently vanished.Read more:,9171,2098601,00.html#ixzz1eVbSgwWH

While some are saying the faked transactions were shams to cover past losses, some are now wondering if they weren't payments to organized crime. Bloomberg addresses this in a piece that covered Warren Buffett's trip to Japan to consider buying some firms. There he was asked about Olympus. He said it was not a a reason to avoid Japan stocks as a whole, but wondered.
Buffett Is No Match for Mobsters With Tattoos: William Pesek - Bloomberg:
"Olympus, as venerable a name as there is in Japan, demonstrates the point. Investigators want to know what happened to at least $4.9 billion they say is unaccounted for at the camera maker. Of all the bizarre questions surrounding this sordid tale, the role of organized crime groups, or yakuza, is the most tantalizing. Police are looking into how much of the missing cash went into the pockets of these gangs."
and then this:
"With their full-body tattoos and amputated fingers, the yakuza have long held a unique place in the public imagination. Unfortunately, that goes for Japan’s economy, too. Adelstein calls the yakuza “Goldman Sachs with guns” because of the prowess with which their groups’ roughly 80,000 members infiltrate companies through extortion and intimidation. "
Olympus for their part maintain that money did not go to "anti-social" groups (i.e. organized crime).

Stay tuned.

Note to my classes: if you are still looking for a case, this would be a good one.
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Tuesday, November 22, 2011

Income inequalities and how they hurt

The traditional economist in me has trouble with this.  Why would people care if others have more than they do?  If I am happy, it should not matter if my neighbor gets $20,000 or $200,000 or $200,000,000 a year so long as (s)he has enough to live.

On the other side has been a growing field of research that has shown that inequalities hurt the overall "happiness" and even the health of residents of a country.  While we cover some of it in Behavioral Finance class, I was surprised by the enormity of the findings.

Worth watching even if you may not agree with all of it.

Why Do Listed Firms Pay for Market Making in Their Own Stock? by Bernt Ødegaard, Johannes Skjeltorp :: SSRN

Why Do Listed Firms Pay for Market Making in Their Own Stock? by Bernt Ødegaard, Johannes Skjeltorp :: SSRN:

" A recent innovation in equity markets is the introduction of market maker services paid for by the listed companies themselves. We investigate why firms are willing to pay a cost to improve the secondary market liquidity of their shares. We show that a contributing factor in this decision is the likelihood that the firm will interact with the capital markets in the near future, either because they have capital needs, or that they are planning to repurchase shares. We also find significant reductions in liquidity risk and cost of capital for firms that hire a market maker."
a look-in gives a better summary:
"In several electronic limit order markets, market participants have appeared with promises to maintain an orderly market in a particular stock, for example by keeping the spread at or below some agreed upon maximum. The innovation of these Designated Market Makers (hereafter DMMs) is that they charge a fee to the firm that has issued the equity to keep an orderly market in the firm's stock.
DMMs have appeared in several countries such as the Netherlands, France, Germany and Sweden. The DMM introductions have been studied for all these markets, where the main question examined is whether liquidity improves following the initiation of DMM agreements. A consensus finding in this research is that liquidity improves...."

I did not know this. It will definitely make its way to class!

Cite: Ødegaard, Bernt Arne and Skjeltorp, Johannes Atle, Why Do Listed Firms Pay for Market Making in Their Own Stock? (October 20, 2011). Paris December 2011 Finance Meeting EUROFIDAI - AFFI. Available at SSRN:

How to Lose Money Investing in Bonds - Yahoo! Finance

How to Lose Money Investing in Bonds - Yahoo! Finance:

" Maturity dates and durations are other good tools for assessing the impact rising interest rates will have on the value of your bonds. A bond's maturity is the scheduled date when an issuer stops making interest payments and returns your principal. Duration is a measure of how sensitive a bond's price is to changes in interest rates. It takes several factors into account, including time to maturity and the interest rate. Bonds with shorter maturity periods typically have a lower duration and are less at risk of declining in value than bonds with a longer maturity period."

Sound familiar class??? FYI for others. Here is a Bondpricing spreadsheet we use in class. It is a tad dated, but works for introductory classes and shows Duration.

Madoff Associate Says Fraud Went Back to 1970s -

Bernard Madoff's mugshot           Image via WikipediaMadoff Associate Says Fraud Went Back to 1970s -

Wow. Shocking how how long it has been going on.
"Madoff’s multibillion-dollar Ponzi scheme stretched back at least to the early 1970s, when his employees used historical information on stocks to create false trades that could be placed on customer statements, a former trader revealed as he pleaded guilty on Monday to criminal charges."
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Risk Aversion vs. Individualism: What Drives Risk Taking in Household Finance? by Wolfgang Breuer, Michael Riesener, Astrid Salzmann :: SSRN

The (Markowitz) efficient frontier. CAL stands...Image via WikipediaRisk Aversion vs. Individualism: What Drives Risk Taking in Household Finance? by Wolfgang Breuer, Michael Riesener, Astrid Salzmann :: SSRN:

"We ask why the prevalence of stockholding is so limited. We focus on individuals’ attitudes towards risk and identify relevant factors that affect the willingness to take financial risks. Our empirical evidence contradicts standard portfolio theory, as it does not indicate a significant relationship between risk aversion and financial risk taking. However, our analysis supports the behavioral view that psychological factors rooted in national culture affect portfolio choice. Individualism, which is linked to overconfidence and overoptimism, has a significantly positive effect on financial risk taking. In micro data from Germany and Singapore, as well as in cross-country data, we find evidence consistent with low levels of individualism being an important factor in explaining the limited participation puzzle."

Two studies in a week that find culture effects financial decision making. (here is the other one)
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Monday, November 21, 2011

Models Behaving Badly Led to MF’s Global Collapse – People Too: Emanuel Derman

An over reliance on short-term financing is at the root of the problems according to Emmanuel Derman but he cautions it is not exactly a repeat of Long Term Capital Management.

My favorite line is that we should use models to predict what we should pay for an asset (i.e. intrinsic value) not for predicting what the market should be.  He is also very good talking about what Goldman's risk management was like when he was there (not just checking a box for regulatory reasons).

A look-in: from Yahoo's Daily Ticker
"MF Global's collapse — and the inability of investigators to find about $1.2 billion in "missing" customer funds, which is twice the amount previously thought — has only further undermined confidence among investors and market participants alike.

Emanuel Derman, a professor at Columbia University and former Goldman Sachs managing director, says MF Global was undone by an over-reliance on short-term funding, which dried up as revelations of its leveraged bets on European sovereign debt came to light."

The Neuroeconomics Revolution - Robert J. Shiller - Project Syndicate

The Neuroeconomics Revolution - Robert J. Shiller - Project Syndicate

just one short look-in:

"Efforts to link neuroscience to economics have occurred mostly in just the last few years, and the growth of neuroeconomics is still in its early stages. But its nascence follows a pattern: revolutions in science tend to come from completely unexpected places. A field of science can turn barren if no fundamentally new approaches to research are on the horizon. Scholars can become so trapped in their methods – in the language and assumptions of the accepted approach to their discipline – that their research becomes repetitive or trivial."

Friday, November 18, 2011

Crushing the Cost of Predicting the Future -

Crushing the Cost of Predicting the Future -

Gee, I wish I knew how this one would turn out:

" A company called Recorded Future looks at 100,000 Web pages an hour, scanning across 50,000 sources that include everything from Securities and Exchange Commission filings to Twitter comments. The idea is to look for statements about the future, like notice of an annual meeting or predictions about when a product might be released, look at past developments and then create a “temporal index” that suggests trends.

“The Web has come to reflect the world,” says Christopher Ahlberg, the co-founder and chief executive of Recorded Future. “We can use that to predict things.”"

Charter jet passengers hit up for cash mid-flight -

Charter jet passengers hit up for cash mid-flight -

"Comtel Air passengers on a Tuesday flight from to Birmingham, England, from the Indian city of Amritsar were hit up for 130 pounds -- about $200 each -- during a layover in Vienna. They were allowed off the aircraft to take the money from teller machines, a process that took about seven hours. There were varying accounts of what the money was to pay for, ranging from fuel to fees.

Lal Dadrah, a freelance photographer who captured the scene, called it "a complete, utter sham."....

"I could not believe what I was witnessing," Dadrah told British network ITN. "It was as if we'd been held hostage against our wills, with the 24,000 pounds we all eventually had to pay being the ransom.""

Well, I guess we have more reasons to "fly by the balance sheet"...Wow!

Thursday, November 17, 2011

Cultural Values, CEO Risk Aversion and Corporate Takeovers by Thorsten Lehnert, Bart Frijns, Aaron Gilbert, Alireza Tourani-Rad :: SSRN

Cultural Values, CEO Risk Aversion and Corporate Takeovers by Thorsten Lehnert, Bart Frijns, Aaron Gilbert, Alireza Tourani-Rad :: SSRN:

Another in a growing list of papers that claim to show managers' biases influence firm decisions. In this paper the authors take a tack away from manager's individual characteristics and focus on where they are from:
"... argue that managerial risk aversion at a national level is a cultural trait and affects the net synergies. CEOs of firms located in countries with higher level of risk aversion, measured by Hofstede’s (2001) uncertainty avoidance score, show less takeover activity, engage more in diversifying takeovers and require higher premiums on takeovers...."

one look-in:
" In this paper, we explore the question of how risk aversion as a cultural trait impacts acquisition decisions at a country level using a national measure of risk aversion, Hofstede’s (2001) uncertainty avoidance measure. We argue that since takeovers are a risk to the firm’s value and hence a CEO’s position, a more risk averse CEO will require higher compensation before undertaking an acquisition. Hence, a more risk-averse CEO will only engage in a takeover if the expected net synergies are large enough."

and that is exactly what they find. Interesting.

Cite: Lehnert, Thorsten, Frijns, Bart, Gilbert, Aaron B. and Tourani Rad, Alireza , Cultural Values, CEO Risk Aversion and Corporate Takeovers (October 12, 2011). Paris December 2011 Finance Meeting EUROFIDAI - AFFI. Available at SSRN:

Voices: John Longo, On Behavorial Finance - Financial Adviser - WSJ

Voices: John Longo, On Behavorial Finance - Financial Adviser - WSJ:
"There are two broad types of mistakes that investors make. The first is cognitive biases....

The second type of mistake is a behavioral bias, which is more insidious. A non-financial example of this is a smoker who knows that smoking is bad for his or her health but continues to smoke anyways because of the short-term pleasure of the experience."
Which is a nice introduction to behavioral finance. But what is more interesting and why the article gets mentioned is what his firm does with this information:

"We cover the first 12% of losses, and then the product doubles the return of the S&P, up to a cap. This gives our clients peace of mind because they are essentially shielded from small market downturns, such as the two we’ve seen this year. This makes them less likely to panic and make mistakes."

Which is exactly the type of thing that should be developed to protect ourselves from ourselves.

(note to my students: tying this to Ariely's comments that we wear glasses for our eyes, but must develop similar type technologies to deal with our mental biases, would make a great test question :) )

Tuesday, November 15, 2011

Can the Fed Talk the Hind Legs Off the Stock Market? by Louis Raes, Sylvester Eijffinger, Ronald Mahieu :: SSRN

Can the Fed Talk the Hind Legs Off the Stock Market? by Louis Raes, Sylvester Eijffinger, Ronald Mahieu :: SSRN:
They find that central bank "talk" acts somewhat as a counterbalance to prevailing market conditions. This effect is most pronounces where we think it would be: cash constrained, cyclical firms.

From the abstract:
"...central banks influence financial markets' expectations of its future policy. In bad times, monetary policy communication inducing an upward revision of the path of future policy is good news for stocks. During an expansion the effect is weak and on average negative...."
and from the paper itself:
"We show that there is a role for central bank communication. In contrast to earlier studies we find that central bank communication has an impact on stocks. The impact is expected to be the most pronounced for financially constrained companies in cyclical industries during a recession"
Incidentally, this is also my new winner of the best title for a paper, EVER. Can the Fed Talk the Hind Legs Off the Stock Market? (June 13, 2011). Paris December 2011 Finance Meeting EUROFIDAI - AFFI. Available at SSRN:

Sunday, November 13, 2011

Congress: Trading stock on inside information? - CBS News

Congress: Trading stock on inside information? - CBS News:

"Schweizer: There are all sorts of forms of honest grafts that congressmen engage in that allow them to become very, very wealthy. So it's not illegal, but I think it's highly unethical, I think it's highly offensive, and wrong.

Steve Kroft: What do you mean honest graft?

Schweizer: For example insider trading on the stock market. If you are a member of Congress, those laws are deemed not to apply.

Kroft: So congressman get a pass on insider trading?

Schweizer: They do. The fact is, if you sit on a healthcare committee and you know that Medicare, for example, is-- is considering not reimbursing for a certain drug that's market moving information. And if you can trade stock on-- off of that information and do so legally, that's a great profit making opportunity. And that sort of behavior goes on."

Wow. Just wow.

a Dec 13, 2011 video update from Senator Joseph Lieberman:

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Sisters of St. Francis, the Quiet Shareholder Activists -

Sisters of St. Francis, the Quiet Shareholder Activists -

"Long before Occupy Wall Street, the Sisters of St. Francis were quietly staging an occupation of their own. In recent years, this Roman Catholic order of 540 or so nuns has become one of the most surprising groups of corporate activists around.

The nuns have gone toe-to-toe with Kroger, the grocery store chain, over farm worker rights; with McDonald’s, over childhood obesity; and with Wells Fargo, over lending practices. They have tried, with mixed success, to exert some moral suasion over Fortune 500 executives, a group not always known for its piety.

”We want social returns, as well as financial ones,” Sister Nora...."

I sit on the investment board for a The Franciscan Sisters of Allegany and will vouch for their sagacity when it comes to socially responsible investing.

When Markets Move in Sync - Finding the Downbeat -

When Markets Move in Sync - Finding the Downbeat -
"Stocks have been moving largely in lock step with one another, and with many other assets as well. Especially when prices fall, this can be a source of great frustration. After all, when markets become more highly correlated, it not only makes diversifying a portfolio seem like a pointless exercise, it also reinforces the feeling that there’s no place to hide."
"As investors have grown more fearful of macroeconomic threats like the European debt crisis and weakness in the global recovery, fundamental factors that typically drive individual security prices have taken a back seat.
which leads to potential buying opportunties:
"The good news is that whenever the good gets thrown out with the bad in periods of high correlations, mispricing and distortions take place in the market that create wonderful buying opportunities,” said Robert D. Arnott, chairman of the investment management firm Research Affiliates in Newport Beach, Calif. "

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Thursday, November 10, 2011

'Tis better to give than to receive?

'Tis better to give than to receive?:

" The researchers also found another interesting pattern of neural activity in the septal area. In addition to being a pleasure center, this region plays a role in threat- or stress-reduction by inhibiting other regions of the brain that process threats, such as the amygdala. Researchers found that the women who showed greater activity in the septal area also showed less activity in the amygdala.

"This finding suggests that support-giving may have stress-reducing effects for the person who provides the support," said Eisenberger, who directs UCLA's Social and Affective Neuroscience Laboratory. "Activity in the septal area during support-giving was negatively correlated with activity in the amygdala, which is a region known to play a role in fear and stress responses. If there is something about support-giving that leads to reductions in amygdala activity, this suggests that support-giving itself may have stress-reducing properties."

"Giving to others has benefits," said Inagaki, the lead author of the study....

read more here.

Cross posted on
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Penn State football scandal will cost school millions - Yahoo! Finance

Penn State football scandal will cost school millions - Yahoo! Finance:

"Their brand has been irrevocably tarnished," said Marc Ganis, head of SportsCorp Ltd., a sports marketing firm. "In a matter of days, they have plummeted from being perceived as the cleanest, most ethical brand in college sports to the lowest of the lows. Moral breaches of this magnitude are not easily forgotten or dismissed in our country."

Ganis said perhaps the most significant near-term dollar risk for Penn State is the damage the scandal -- which cost Hall of Fame coach Joe Paterno his job -- could do to fundraising, which is not included in the reported athletic department revenue.

"They used Paterno like crazy," he said. "This iconic figure was a magnet for fundraising. Now he's radioactive."

Several years ago I helped co-author a paper on what happened when athletes "fell from grace", not surprisingly the stock price of the firms whose goods the athlete sponsored also fell. But in these cases at least some probability of such a fall was built in, I do not think anyone saw this one coming. Universities do not have "stock prices" per se, but this one is going to hurt in all areas. From admissions to athletics and fundraising.

Wednesday, November 09, 2011

Unemployment by Major – Some Degrees Pay and Some Leave You Paying

Unemployment by Major – Some Degrees Pay and Some Leave You Paying:

"...the common theme has been for years – and probably will continue to be the following: The majors that are HARD, have a focus on MATH and PROBLEM SOLVING will continue to be the ones in high demand and at least have pretty good pay. ... So, longer term, Finance/Accounting has continued to be where it’s at on the East Coast"

HT to EverydayFinance

Tuesday, November 08, 2011

Wall St. Pay Expected to Fall 20% to 30% -

Wall St. Pay Expected to Fall 20% to 30% -

A large part of me wants to say that this has been a long time coming and unlikely to be the end.

Wall Street bonuses are set to fall by an average of 20 to 30 percent this year from a year ago, according to a closely watched compensation survey. It would be the weakest bonus season since the financial crisis and a reflection of the leaner times confronting the industry

Saturday, November 05, 2011

Gender and Prejudice in the Mutual Fund Industry by Stefan Ruenzi, Alexandra Niessen-Ruenzi :: SSRN

Sex Matters: Gender and Prejudice in the Mutual Fund Industry by Stefan Ruenzi, Alexandra Niessen-Ruenzi :: SSRN:

I dislike this. Short version: because of a stereotype that females are not as good of investors (even with quite a bit of empirical evidence which suggests they are AT LEAST as good as males and often better), investors penalize female money managers.

From the paper:
"Our starting point is the conjecture that investors might be prejudiced against female fund managers.1 Their prefer- ence for male managed funds leads to lower inflows into female managed funds and might eventually induce firms to hire less females, because mutual fund companies generate their profit from fees charged on assets under management.
Our empirical investigation of all single managed U.S. equity mutual funds from 1992 to 2009 shows that female managed funds indeed experience significantly lower inflows than male managed funds. The growth rates due to inflows of female managed funds are about one third lower than those of male managed funds. This result is obtained after controlling for the impact of past performance and other fund characteristics."

Which is clearly a behavioral bias that is quite disturbing and unfortunately will likely be used in any gender based lawsuits for glass ceilings etc.

Ruenzi, Stefan and Niessen-Ruenzi, Alexandra, Sex Matters: Gender and Prejudice in the Mutual Fund Industry (October 13, 2011). Paris December 2011 Finance Meeting EUROFIDAI - AFFI. Available at SSRN:

New Dogs New Tricks: CEO Turnover, CEO-Related Factors, and Innovation Performance by Frederick Bereskin, Po-Hsuan Hsu :: SSRN

New Dogs New Tricks: CEO Turnover, CEO-Related Factors, and Innovation Performance by Frederick Bereskin, Po-Hsuan Hsu :: SSRN:

"We find that CEO turnover is associated with significantly greater quantity and quality of future innovation, measured with the number of patents, citations, patents per research and development dollar, and citations per patent in the subsequent three year and five-year periods. New internal CEOs are associated with more and better innovation than new external CEOs. We also find that innovation quantity and quality are positively associated with CEO overconfidence, option compensation, and information asymmetries. These empirical results remain robust to controlling for potential endogeneity issues and confirm the critical role of CEOs in innovation performance."

a few look-ins:

"Although firm performance around the time of CEO turnover has received attention from previous studies (Murphy and Zimmerman, 1993), the effect of CEO turnover on innovation performance has not been previously studied."


"...we find that CEO turnover leads to significantly more patents and citations in the following five and three years. The occurrence of CEO turnover increases the number of patents over the following five-year and three- year periods by 106% and 99%, respectively, and increases five- and three-year patent citations by 273% and 258%, respectively. Forced turnover has a generally insignificant effect on innovation performance, though.
Moreover, new CEOs from inside the firm are associated with higher levels of innovation performance than new CEOs from outside the firm."

I also like their discussion of how over confident CEOs invest more in R&D and hence get more results...this builds on similar findings in recent papers.

Friday, November 04, 2011

Market Volatility Aplenty, and a Change May Be Afoot -

Market Volatility Aplenty, and a Change May Be Afoot -

interesting article...

"S.& P. 500 over a 13-week period to the total of daily moves.

The index closed at 1,260.34 on Aug. 3 and was at 1,237.90 on Wednesday of this week, for a net decline of 22.44 points, or 1.8 percent. But during that period, the total move of the index was more than 1,392 points, as it rose more than 684 points on good days and fell more than 707 points on bad days. That meant that the index traveled nearly 1,370 points more than it had to and that the excess volatility figure was 109 percent, the highest figure since 2009.

There were several violent swings of excess volatility during the Great Depression, but from 1940 through 1987 the figure never got as high as 100 percent."

The chart is particularly interesting.

Thursday, November 03, 2011

RSA Animate - Drive: The surprising truth about what motivates us - YouTube

RSA Animate - Drive: The surprising truth about what motivates us - YouTube: This lively RSAnimate, adapted from Dan Pink's talk at the RSA, illustrates the hidden truths behind what really motivates us at home and in the workplace.

Wednesday, November 02, 2011

Wall Street Isn't Winning It's Cheating | Matt Taibbi | Rolling Stone

Wall Street Isn't Winning It's Cheating | Matt Taibbi | Rolling Stone

I am not a huge Matt Taibbi fan usually, but he has one of the better takes I have seen on the Occupy Movement in which he points out that while envy may play a role, it is not the only thing going on here. More importantly many Americans are fed up with what they see as a slanted playing field.

a few look-ins:
"Success is the national religion, and almost everyone is a believer. Americans love winners. But that's just the problem. These guys on Wall Street are not winning – they're cheating. And as much as we love the self-made success story, we hate the cheater that much more.
In this country, we cheer for people who hit their own home runs – not shortcut-chasing juicers like Bonds and McGwire, Blankfein and Dimon."
My personal favorite (which alas is pretty close to dead-on)
"Ordinary people have to borrow their money at market rates. Lloyd Blankfein and Jamie Dimon get billions of dollars for free, from the Federal Reserve. They borrow at zero and lend the same money back to the government at two or three percent, a valuable public service otherwise known as "standing in the middle and taking a gigantic cut when the government decides to lend money to itself."
and another
"Time after time, when big banks screw up and make irresponsible bets that blow up in their faces, they've scored bailouts. It doesn't matter whether it was the Mexican currency bailout of 1994 ..., or the IMF/World Bank bailout of Russia in 1998... or the Long-Term Capital Management Bailout of the same year, Wall Street has long grown accustomed to getting bailed out for its mistakes.

Paul Zak: Trust, morality -- and oxytocin | Video on

Paul Zak: Trust, morality -- and oxytocin | Video on

Maybe we should forget "shovel ready projects" and just up everyone's Oxytocin.

More oxytocin =more trust = better economy? Maybe.

Tuesday, November 01, 2011

MF Global Acknowledged Diverting Customer Funds -

MF Global Acknowledged Diverting Customer Funds -

Yikes...this keeps getting worse:

From the Wall Street Journal:

MF Global Holdings Ltd. admitted to federal regulators that money had been diverted out of customer accounts, according to a federal official who said the move violated the law....Regulators still don't know where the customer funds went, who directed the move or how widespread the practice was, the official said"

Say What? In 30-Year Race, Bonds Beat Stocks - Bloomberg

Say What? In 30-Year Race, Bonds Beat Stocks - Bloomberg:

" Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago. ....Stocks had risen more than bonds over every 30-year period from 1861, according to Jeremy Siegel, a finance professor at the University of Pennsylvania’s Wharton School in Philadelphia, until the period ending in Sept 30."

MF Exposes Risk Volcker Wants to Curb - Bloomberg

MF Exposes Risk Volcker Wants to Curb - Bloomberg:

"Nineteen months after former New Jersey Governor Corzine became chairman and chief executive officer, MF Global Holdings Ltd. (MF) yesterday filed for bankruptcy. Corzine’s decision to boost risk-taking, including a $6.3 billion wager with the firm’s own money on European government debt, triggered the collapse."

It seems like another case of high risk "traders" eventually having their luck run out.

"“In the wake of 2008, when we all should have learned a lesson, Jon Corzine told me himself that it was a relatively staid, not risk-oriented firm and he needed to ratchet up the risk,” William Cohan, author of “Money and Power: How Goldman Sachs Came to Rule the World,” said on Bloomberg Television. “Well, he does that and it blows up in his face and for the first time he can’t unwind the trade. "

as an FYI MF Global would not be affected by Volcker rule as it is too small to have to qualify.