Are rising costs and regulations detering public equity sales?

Short Version: more firms are choosing to sell public equity in Europe than in US. Is it because of increased regulations? Maybe. No doubt they play a role.

Bloomberg.com: Exclusive:

"Fees in Europe range from 1 percent ...5.4 percent... Underwriting fees for more than half of the deals in Europe are undisclosed...By comparison, 71 of the 111 initial stock sales on U.S. exchanges this year paid commissions of 7 percent or more."

and later:

" `The fact that the number of IPOs here is limited, despite the well-being of the economy, suggests there is some friction in the capital market,'' said Luigi Zingales, a finance professor at the University of Chicago Graduate School of Business"

PMI vs PiggyBacking

Another financing option lures home buyers: PMI - OregonLive.com:

"Home buyers who can't come up with a 20-percent down payment -- and at today's real estate prices it can be a stretch -- must buy private mortgage insurance, or PMI, to guarantee that the lender will be reimbursed if the buyer defaults on the loan.

But in recent years, buyers have been circumventing the requirement by paying less than 20 percent down, borrowing 80 percent with a conventional 30-year first mortgage and borrowing the rest of the down payment...."

In class we do very little personal finance. This year as the semester wound down we tried to spend some "free" time on the topics. It was well received. PMI was one of the things we did cover.

How much can you expect to make on Wall Street?

Wall Street Ren - Career: "Trader Monthly/Options Group

2006 Wall Street Bonus Survey"


Thanks to Anonymous! (S)he left a comment with this link and it was too interesting not to highlight!

Breaking the Silence on Finance - New York Times

Breaking the Silence on Finance - New York Times

"People talk about their sex life and their kids and you can open up and share about your past and mistakes you’ve made, and that’s always a catharsis and is emotionally and spiritually freeing,”... “But people don’t want to talk about their money.”What are we afraid of? One concern is that we will be branded failures. When we were living in caves, we fought for physical survival (and showed off our muscles). Now we fight for financial security (and show off our S.U.V.’s)."

Goldman and the NASDAQ plan "private" markets

First the news: Goldman Sachs the latest to offer unregistered trades - May. 24, 2007:

"Top IPO underwriter Goldman Sachs Group Inc. this week launched a platform allowing an exclusive club of big investors to trade unregistered, privately placed securities, in the latest challenge to U.S. equity markets.

Private placements have become a big deal on Wall Street, another alternative for companies that want to raise capital but don't want the regulatory and disclosure requirements that come with a public listing."

And later:

"Under SEC rules, companies can sell securities without registering them as long as issues are limited to qualified institutional buyers and investors with at least $100 million of assets and there are no more than 499 stockholders."

As an addition, the NASDAQ has plans to do the same. (is the market big enough for two "markets"?)

Wow, talk about a story that could be used for a great class discussion!

Five quick teaching ideas:
1. What risks are there in trading unregulated securities?
2. Who will be active in this market?
3. What are the advantages? Disadvantages? from both the investor and the firm perspective
4. What role have increased costs (SOX etc) played in this?
5. If this catches on and liquidity is present, what predictions do you have about the number of IPOs?

Alphaville does a great job covering this!

Thanks to Greg (arguably the worlds best administrative assistant!) for suggesting this story!

Update on some things we covered in class

Updates on Home Depot, Adelphia, and the XM/Sirius potential merger:


* Home Depot had their annual meeting and it was quite a change from last year's! The new CEO made a point to be more open! From the NY Times:

"Frank Blake confronted the past, saying he regretted last year’s now infamous annual meeting, when members of the board stayed home and his predecessor, Robert L. Nardelli, refused to take questions from investors.

“There is no better way to deal with a mistake than to acknowledge it, fix it and move forward,” Mr. Blake said. “We apologize for last year’s meeting. It was a mistake and we won’t do it again.”

Over the next two hours, Mr. Blake strove to make this year’s meeting a model of openness "

* The Rigas's conviction was upheld today. From the Houston Chronicle:

"The 2nd Circuit Court of Appeals upheld the conviction of the 82-year-old Rigas and his son, Timothy J. Rigas, on charges of securities fraud, conspiracy to commit bank fraud and bank fraud. The court did reverse their conviction on one lesser count.

Lawyers for the men had argued that fraud charges should be thrown out because accounting terms were not explained to the jury.

"Defendants are wrong," the Manhattan appeals court wrote bluntly. It added that the government was not required to present expert testimony about accounting requirements because the requirements are not essential to the securities fraud.""

* Anti-trust? C/Net reports that "...the U.S. Senate's antitrust subcommittee on Wednesday urged regulators to block Sirius Satellite Radio's proposed acquisition of XM Satellite Radio Holdings."

I obviously have no inside information and am not an expert on it, but I think it should be allowed to go through. MP3s, CDs, and local radio seem to provide competition.

*Totally unrelated, but interesting Merrill Lynch employees will now get three sick days a year instead of 40. Interesting that it was announced just before the "beach flu" season hits.

Ideoblog: The first exchange-listed law firm

I guess more note revamping is in the works.

From Ideoblog: The first exchange-listed law firm:

"Slater & Gordon Ltd . . . became the first law firm in the world to list on a stock exchange on Monday. Already the firm's principals along with initial investors have booked a princely premium with the stock closing at $1.40, after gaining 40 cents on the initial public offer (IPO) price."

Law firms and accounting firms have been the traditional examples of firms that do not go public but remain partnerships. If Slater and Gordon start a new trend, it will be interesting to watch how the public law firms perform (and whether they behave differently as a result of their going public.)

Corporate Governance Blog: International Poison Pills

Stephen Deane at the Corporate Governance Blog has a very interesting article on the growing use of poison pills (not that kind!) in Japan and France.

Institutional Shareholder Services -- Corporate Governance Blog: ISS Releases New Report on Poison Pills in Japan, U.S., Canada and FranceSubmitted by: Stephen Deane, Director, ISS Center for Corporate Governance:

"Even as takeover barriers are falling in the United States, they are rising in Japan, France and elsewhere in Europe. European and Japanese companies are seeking to insulate themselves from unsolicited offers by adopting new takeover defenses such as poison pills....

Poison pills are popping up in Japan and France for the first time. France adopted legislation last year that legalizes poison pills,...In Japan, poison pills were as unknown as hostile bids until two years ago. Takeover defenses last year trumped Japan's only hostile bid by a domestic blue-chip company....To protect themselves from that possibility, hundreds of companies likely will place management proposals on proxy ballots in the coming weeks asking shareholders to approve poison pills"

I guess time to redo my notes ;)

What's going on? A look around

I should be working on a paper (have three in various stages but am sick of all three, so a quick update on things and a look around (much like the old newsletter).

The Blogging World and other News

In the most important blog article of the week, at the Financial Rounds the UnknownProfessor announced the good news on his son who is cancer free! Less important he also has a really cool group of links that would help people who are considering getting a PHD.

FreeMoneyFinance has an interesting (although not necessarily the final word) on why smart people make a higher income but do not necessarily have greater wealth. The article proposes many good points to which I would add look at medians. If intelligent people are overconfident, they are apt to take greater chances and thus while having higher average income, median income may be closer to the overall average. But regardless, the suggestion of living below your means is a good one!

I must confess I do not really understand much about China buying into the Blackstone Group. They say they are doing it as an investment, which may be, but just seems strange. I guess that is what happens when you have large surplus.

The NY Times writes on a recent study by Booz Allen, Hamilton that finds that boards of directors are getting much more active in replacing underperforming CEOs. That is not surprising and fits the evidence Jon Matt (one of my graduate students) found when he looked at trends in Governance for his independent study paper.

The BBC reminds us that globalization is not an immediate win for all. There are growing pains. While the long term prognosis is good, those who are losing out as the markets do deserve help and sympathy, BUT should not halt free trade!

The World Bank (while mired in political problems) did find time to report that the Carbon Market is booming. From TreeHugger: "According the new World Bank Report, just out:- "The carbon market grew in value to an estimated US$30 billion in 2006 " which is about 300% the size of it in 2005. This is good news as it creates incentives for firms to cut carbon emissions.

John Bogle recently appeared on Consuelo Mack's Wealth Track (26 minute video) I find Bogle interesting every time I hear him. Definitely recommended. Here is talks about the lower returns we should expect in the future. (Very similar to his Fall 2006 presentation in Rochester).

Super Bowl, World Series, World Cup? World table tennis championship (if there is such an animal)? Nope. the America's Cup is the most valuable championship to host.

Prepay mortgage or save more? This is always an important question facing homeowners and the Washington Post tries to shed some light on the answer.

Inside the BonaBubble:

BonaResponds did not go to Kansas after all. We were all ready to go and got a call saying that they really did not need our help, so we waited. We will be ready next time! BTW this is open to everyone, alumni, students, staff, or just readers of the FinanceProfessor blog! ;) If you want to go help in Mississippi or Louisiana contact us! BonaResponds@sbu.edu

Construction has begun on the library addition. and of course La Verna the new coffee house has opened!

The trail through the soon to be names Bob's Woods (to the East of Campus) is almost done. It was started as part of BonaResponds' spring local service day and we've been back working on it about 4-5 times since. It is going to be great. The official grand opening will be this fall, but if you are in the area, check it out now!

I sprained my ankle yesterday so I getting my full of ice, elevation, and aspirin. Fortunately it is not that bad but sure scared me when it happened!

Oh yeah, the Baseball team is in the A-10 playoffs! Three of their players are in my classes, so if you are reading this, GOOD LUCK!!


Ok, I will go do some regressions now...lol...

Some summer reading

With the end of classes, comes summer reading/ristening. So I figured I would share some of those books either started (I generally have 4 or 5 going at once.)

1. A Guide to Equity Index Construction by Daniel Broby. Good stuff. Will definitely be used in class next semester!
2. A Behavioral Approach to Asset Pricing by Harsh Shefrin. This one has been on by "to-read" list for a while. teaching SIMM in the fall gave me the kick I needed. It is the most technical of the books on the list but definitely have learned quite a bit and it will be useful in class! (Especially read the chapters on prospect theory).
3. Train your Mind, Change your Brain I am almost done with this. Very interesting! It fits perfectly with what I have always thought: namely you can teach an old dog new tricks, and the brain (and body for that matter) is much more flexible then traditional thought has given it credit for. Super short version: brains change based on environment and inputs. Well written and easy/fast to follow. (if you know anyone with who has had a stroke this should be a MUST read!--see pages 102-106ish).
4. Five Minds for the Future by Howard Gardner- Disciplined, Synthesizing, Creative, Respectful, Creative. I am not very far into it, but so far seems good!
5. Ideas that Stick. By the brothers Heath. First of all, any book with duct tape on cover is a given purchase. But this is awesome. Short version: covers how to get your ideas across and how to get them to "stick". Sure some is common sense, but very well done, interesting, and even fun! And useful not only in teaching, but also writing, managing, and just about everything else!
6. Long Way Gone: memoirs of a boy soldier--by Ismael Beah. The story of a 12 year old (yeah 12) boy who gets involved in the Sierra Leone Civil War. Unreal. FTR I almost didn't get it when I saw it was Oprah's list, but I did and it is good (and only sounds like a Dixie Chick song title).
7. I just ordered Pearl Harbor by Newt Gingrich and William Forsctchen. If it is even a fraction as good as the alternate history Civil War Trilogy by the same two co-authors (the best since Fama and French!), it will be great (Grant Comes East, the middle of the trilogy, is one of my favorite books of all time!)

Rules change, behaviors change: a NASCAR example

People maximize their own utility and react to rules changes. This simple idea (which really is core to all of economics and finance) is the foundation of every class I teach. So when I get a chance to show this simple idea in practice I am always excited. So much so I can't wait to finish the paper to show you some results.


Following the 2003 NASCAR season, officials changed the rules and created the Race for the Cup or Race for the Championship. What this entails is that for the last 10 races of the year are essentially a playoff where everyone can race, but only the top ten are allowed to win the overall championship. This changed racers' incentives. For instance, if you were out of the top ten, you might as well go for broke (i.e. win the race) even if this might result in you being in an accident and not finishing the race.

Sure enough, that is exactly what appears to have happened. For those racers out of the top ten in races 16-36 (I looked forward ten as well since those out of the top ten presumably also have the incentive to take chances to get into the top ten before the cut off), the likelihood of the racing ending as a result of an accident has increased.

This was found with the regression:

Accident = Intercept + B (Out of Top Ten Dummy Variable * New Rules Dummy Variable)

Variable Coefficient Standard Error t-Stat P value

Intercept	0.077215	0.005831	13.24109	2.89E-39
X Variable 1	0.024846	0.008633	2.878087	0.00402

So while this is just one look and a very preliminary one at that, it does appear that when the racers were rewarded more for higher finishes, they took more chances to get the higher place. Which of course is exactly what an economist (finance person) would predict.

Hopefully I will find some time and put this into a real paper, but at least I will be using it in class.

Thanks to James Kane and Anthony Dimario for the data collection on this and to Jonathan Godbey for helpful suggestions!

I did not know that...

While most of us know what a mutual fund is, FundSavvy does have a col site and some interesting facts that I sure did not know, for instance on their What are Mutual Funds? page:

"The popularity of mutual funds may be relatively new but not their origin which dates back to 18th century. Holland saw the origination of mutual funds in 1774 as investment trusts before spreading to Anglo-Saxon countries in its current form by 1868."

Marketplace: China loosens control on currency — a bit

Baby steps are better than no steps!

Marketplace: China loosens control on currency — a bit:

"Starting Monday, China will allow its currency to rise or fall 0.5% a day. The limit used to be 0.3%"

Why have investment banks been so profitable? From the Economist

The Economist gives us another great article! This one is on investment banking. Not only does it provide a short history (going back pre-JP Morgan), but also brings us up to date with a look at the current (very profitable) state of investment banking.

The alchemists of finance | Economist.com:
A relatively long look-in:

"Brokerage used to be described as a haulage business, lugging money, as a member of the Rothschild dynasty once put it, “from point A, where it is, to point B, where it is needed”.... But any haulage firm would be flabbergasted by the trading profits and returns on equity seen in investment banking in recent years....earnings from capital-market-related activities at the top ten global investment banks have risen by almost two-thirds in two years....That sort of profit increase is comparable with Apple's rewards for inventing the iPod.... Yet in investment banking there is nothing nearly so tangible to which to ascribe the gains.

Bankers themselves are fuzzy about explaining their trading profits....But it is clear that three powerful forces are at work, all of them overlapping and mutually reinforcing....

The first is the alchemist's trick of turning debt (mostly leaden) into derivatives (mostly liquid); the second is the emergence of a new class of leveraged client (hedge funds and private equity); and the third is seeking out new capital markets, and clients, around the world. Moreover, in all these pursuits the firms are now using not just their clients' money but, to differing degrees, their own too."

Which predictably lead to a discussion of whether this leads to increased risks (probably), whether investment banks have taken enough precautions (maybe), and a warning that these profits have arisen in "an unusually benign economic climate" that will eventually come to an end.

Good stuff! Check it out!

Thanks to FT Alphaville for pointing this one out!

SSRN-A Unified Theory of Ten Financial Puzzles by Xavier Gabaix

Just found this while reading through papers for the upcoming Texas Finance Festival and found this by Gabaix (he of larger firms = more CEO pay fame). His new paper is really interesting, a tad challenging, and nothing if not ambitious!

In it this important paper potentially explains "a host of puzzles." How big is a host? About 10 accoring to the paper.

A portion of the abstract:
SSRN-A Unified Theory of Ten Financial Puzzles by Xavier Gabaix: "This paper [offers] a unified explanation for a host of puzzles about stocks, bonds and exchange rates. It builds on the Barro-Rietz view, that risk premia come from the probability of macroeconomic crises or disasters, and adds a variable intensity of disaster that can be asset-specific. Agents have stochastic assessments (which can be rational or behavioral) about the fundamental value that their assets would have if a disaster occurred. The model appears to explain...puzzles on stocks, bonds and exchange rates"

So what puzzles? Pretty much everything that is tied to risk and return differences. For instance:

"(i) equity premium puzzle...(iii) excess volatility puzzle (the fact that equity prices are so volatile) (iv) value-growth puzzle (stocks with high price-dividend ratios have abnormally low future future) (v) upward sloping nominal yield curve...(vii) corporate bond spread puzzle (the spread between corporate and government bond rates are higher than warranted by the U.S. historical experience)...."

As the author states the work is preliminary (some minor typos etc), but don't let that stop you, it has the potential to be HUGE!!! Which makes it I^3 on potential alone!

Cite:
Gabaix, Xavier, "A Unified Theory of Ten Financial Puzzles" (January 31, 2006). Available at SSRN: http://ssrn.com/abstract=976436

NPR : Q&A: The World Bank at a Crossroads

NPR : Q&A: The World Bank at a Crossroads:

"The World Bank was founded in 1944, charged with the monumental task of eradicating global poverty. It offers loans to countries that might not otherwise get them. Since its inception, the bank has lent or given $400 billion.

Yet critics say the World Bank is a bloated, corrupt organization that has outlived its usefulness."

While not ground breaking, this one would be good for either an international finance or a financial institutions and markets class.

SSRN-The Economics of Islamic Finance and Securitization by Andreas Jobst

SSRN-The Economics of Islamic Finance and Securitization by Andreas Jobst:

"Islamic lending transactions are governed by the precepts of the shariah, which bans interest and stipulates that income must be derived as return from entrepreneurial investment. Since Islamic finance is predicated on asset backing and specific credit participation in identified business risk, structuring shariah-compliant securitization seems straightforward. This paper explains the fundamental legal principles of Islamic finance,..... In addition to a brief review of the current state of market development, the examination of pertinent legal and economic implications of shariah compliance on the configuration of securitization transactions informs a discussion of the most salient benefits and drawbacks of Islamic securitization. "

Interesting!

Chrysler deal: Cerberus CEO puts value on privacy - USATODAY.com

Chrysler deal: Cerberus CEO puts value on privacy - USATODAY.com:

"In Greek mythology, Cerberus is the three-headed hound that guards the entrance to Hades. But in the early 1990s, Cerberus was more like a junkyard dog, buying the debt of troubled companies, taking control and improving their operations.

As Cerberus grew and became more interested in larger companies, Feinberg hired prominent public figures — including former vice president Dan Quayle and former Canadian prime minister Brian Mulroney — to put the hell hound image behind him.

Last year, Feinberg succeeded in buying control of GMAC, the finance arm of General Motors. With the help of Cerberus Chairman John Snow, former Treasury secretary under President Bush, he has now engineered the Chrysler deal."

If Bonaventure people need more reason to follow this one, our on campus fitness center is named the Richter Center after Cerberus' co-founder William Richter. (for a nice history of the firm see this Business Week article.)

The Green Children Foundation

I just stumbled upon this on YouTube. The video, while too short, is pretty good. :)

"Last year, The Green Children shot a music video in Bangladesh to celebrate the work of Professor Muhammad Yunus, the father of microcredit and founder of The Grameen Bank"


The Green Children Foundation:

"We believe in the ability of the poor. With the use small loans (microcredit) people all around the world are bringing themselves out of poverty. We are focused on raising awareness about this fantastic method of poverty alleviation."

BTW they also have a very good description of Microfinance with some case studies as well.

A look back to the 1987 Stock Market Crash

Almost 20 years ago the stock market lost over 20% in the course of a single day and about 30% over a two week period. Now the Fed's Mark Carlson looks back at the crash in a fascinating history piece.

A Brief History of the 1987 Stock Market Crash

A quick look in:

"The market crash of 1987 is a significant event not just because of the swiftness and severity of the market decline, but also because it showed the weaknesses of the trading systems themselves and how they could be strained and come close to breaking in extreme conditions. The problems in the trading systems interacted with the price declines to make the crisis worse. One notable problem was the difficulty gathering information in the rapidly changing and chaotic environment. The systems in place simply were not capable of processing so many transactions at once."

Not surprisingly given it is a Fed governor pays particular attention to the Fed's response which was (correctly) to add liquidity to the market.

A definite must read!

Thanks to Research-Finance.com for the link!

Are people really this clueless?

The Buffalo News: Business:

"Most Americans — regardless of gender — lack the basics they need to accumulate the money that will be essential for retirement, but more women than men are missing some of the nuts and bolts, according to research by Dartmouth College professor Annamaria Lusardi.

In surveys of individuals she found that only 55 percent of workers knew that government bonds provide a lower rate of return over 20 years than the stock market, on average.

Only 52 percent knew that holding a single stock was significantly more dangerous than investing in a stock mutual fund."

And only half of people over 50 understood two critical facts — that inflation undermines the buying power of a person’s savings, and that the compounding effect of your investment return (or interest rate) makes a tremendous difference in the money you will accumulate over many years."

Open-Source vs. Microsoft

Microsoft claims software like Linux violates its patents - May 28, 2007:

"...there's a shadow hanging over Linux and other free software, and it's being cast by Microsoft (Charts, Fortune 500). The Redmond behemoth asserts that one reason free software is of such high quality is that it violates more than 200 of Microsoft's patents. And as a mature company facing unfavorable market trends and fearsome competitors like Google (Charts, Fortune 500), Microsoft is pulling no punches: It wants royalties. If the company gets its way, free software won't be free anymore.

The conflict pits Microsoft and its dogged CEO, Steve Ballmer, against the 'free world' -"

SBU's Students in Money Management

WIth Steve Horan gone from SBU, I am taking this under my wings. Which is to say short sell now! But seriously, it will continue to be run by the students. I figured some of you might be interested in the new web site.

Students in Money Management:

"The St. Bonaventure University Students in Money Management Fund (the Fund) seeks to offer undergraduate students the opportunity to participate in all aspects of portfolio management by managing a portfolio consisting of donors’ pledges. The Fund also seeks to use a portion of its returns to promote student-affiliated service projects, to be nationally recognized, and to have one million dollars under management."

alfred Chandler

True he was not a finance professor, but he did study the history of finance and helped establish the importance of looking at business history.

Harvard's Alfred Chandler dead at 88:

"Alfred D. Chandler, Jr., the renowned Pulitzer Prize-winning Harvard Business School historian who founded the field of business history, died on Wednesday, May 9, at Youville Hospital in Cambridge, Mass., at the age of 88. In his long and legendary career, he chronicled and analyzed big businesses around the globe in a prolific and extraordinarily influential corpus of books and articles"

An exclusive conversation with Warren Buffett - Charlie Rose

An exclusive conversation with Warren Buffett - Charlie Rose

It doesn't get much more interesting than listening to Buffett talk.

Where are the shareholders' mansions? CEOs' home purchases, stock sales, and subsequent company performance - Knowledge@W. P. Carey

Short version: bigger house, smaller returns.

The "why" may still out there, but interesting finding!

Where are the shareholders' mansions? CEOs' home purchases, stock sales, and subsequent company performance - Knowledge@W. P. Carey:

"In a new study, W. P. Carey finance professor Crocker Liu, director of the school's Center for Real Estate Theory and Practice, and David Yermack, professor of finance at New York University, examined the size, cost, and financing of the primary residences of CEOs of the Standard & Poor's 500.

Liu and Yermack discovered important correlations with future company stock performance: The larger and more costly the home, the worse the stock performance. Also, when a CEO liquidates company shares or options to finance a home purchase, even if the sale represents a small share of the CEO's total holdings, it bodes poorly for future company performance."

Very interesting. Some confounding variables (for instance is it a wealth effect, timing effect, or merely loss of focus?) but really cool finding! BTW the authors go to great lengths (aerial photos, controlling for if it is a new house or not, distance from office etc) to control the confounding variables.

Assistant professor of Finance at Simon School and still in teens?

From the Australian:

"TWO Russian-born sisters are due to become assistant professors of finance in New York later this year, at the tender ages of 19 and 21, university officials said.Angela Kniazeva and her younger sister Diana were due to take up their new positions in September at the University of Rochester, where half of their students will likely be older than them.

The pair, who already have masters degrees in international policy from Stanford University in California, will pick up their doctorates from New York University's Stern business school after five years of study."

Gee, I feel old now.

Buffett: Index funds better for most investors | Reuters

Buffett: Index funds better for most investors | Reuters:

"Warren Buffett said on Sunday most investors are better off putting their money in low-cost index funds, though he believes he can still outperform major market indexes.

'A very low-cost index is going to beat a majority of the amateur-managed money or professionally-managed money,' Buffett said at a press conference, a day after the annual shareholder meeting for his Berkshire Hathaway Inc."

Interesting stat on Dow

CNNMoney.com Market Report - May. 4, 2007:

"The Dow has now risen in 23 of the last 26 sessions, marking its longest bull run since the summer of 1927, when the indicator ended higher in 24 of 27 sessions, according to Dow Jones."

Congratulations Eric Lie!

press-citizen.com | Local News:

"University of Iowa finance professor Erik Lie has been named one of the world's most influential people by Time magazine....In the overall list, Lie is included with other notables that include Oprah Winfrey, George Clooney, Roger Federer, Tony Dungy, Nancy Pelosi, Hillary Clinton, John Roberts, Pope Benedict XVI, Al Gore, Elizabeth Edwards, Condolezza Rice and Chien-ming Wang.

Lie was named to the list for his work in uncovering the stock options backdating scandal currently roiling corporate America"

Chavez threatens to nationalize banks, steel producer

He just does not get it. And he wonders why the economy is so messed up!

globeandmail.com: Chavez threatens to nationalize banks, steel producer:

"Venezuelan President Hugo Chavez on Thursday threatened to nationalize the country's banks and largest steel producer, accusing them of unscrupulous practices.

“Private banks have to give priority to financing the industrial sectors of Venezuela at low cost,” Mr. Chavez said. “If banks don't agree with this, it's better that they go, that they turn over the banks to me, that we nationalize them and get all the banks to work for the development of the country and not to speculate and produce huge profits.”"

Three Quick sports stories

Three sports stories of this week definitely had some overlap to business, economics, and Finance.

a. The first round of the NFL draft was the longest (measure by time) in history. Many announcers and reporters mentioned it but none (that I saw at least) correctly explained why-- you do not exercise an option early.

Why? Consider the following. Suppose you are drafting 12th and have your heart set on a running back from Cal. Your team in now on the clock meaning you have 15 minutes to select. Why wait until the last minute? Because some other team might make you a trade offer that is simply too good to pass up. If that offer does not come, you are still in the same position as you were. (In more academic speak waiting stochastically dominates selecting early).

b. By now I think the whole world has seen the NY Times story on white referees in the NBA calling more fouls in black ball players and vice versa (although more weakly). I'm Not really sure if it has much finance insight but it does use regression analysis and minimally is economic in the Freakonomics perspective. (in fact they have two articles about it!)

c. One tenet of labor markets is to reward good performance and punish bad performance. Thus it was with particular interest that I read that the Yankees fired their strength coach (presumably a fitness coach as I doubt he was hired merely to increase strength) after a string of injuries that have the Yankees floundering near the bottom of the AL East. While undoubtedly other things also played into their injuries, lifting at the expense of flexibility does seem to be something that might lead to these injuries. And from a personal perspective, I have to admit a bias as I do not think Joe Torre deserves to be fired.


back to proctoring an exam...

National Bankrutpcy debate?

Want to start a debate? Bring up the idea of national bankruptcy.

For instance James Kazoun writes over at ArabicNew.com that
Iraq and Lebanon should declare bankruptcy:

"I am not aware of any such bankruptcy laws for countries, but there should be one as well. But in such absence, setting precedence should do it. Now that Iraq supposedly have a democratic government, this government should declare bankruptcy and clear its citizens from all financial commitments they had no say in. Not doing so, would be highly irresponsible.

Such acts are usually discouraged by saying that a country reneging on its debts would not be able to get future loans from lenders. That is not likely to be the case, but if that is the case, that would be very healthy for Iraq."

The US experience aside (see Alexander Hamilton's arguments), the idea of a national bankruptcy does appear to make much economic sense and it is nothing new (for instance back in an old FinanceProfessor.com Newsletter the following was reported:

" The IMF endorsed a national bankruptcy law that would allow nations who are unable to make their debt payments the ability temporarily suspend their payments while they negotiate with creditors. (If you think about it, a bankruptcy is little different from a “time-out” in basketball-designed to allow the team to regroup). Several countries, most notably the US, is still opposed to the plan.
http://news.bbc.co.uk/2/hi/business/2638741.st"

Cheating at Duke

As a reminder to everyone doing finals, DON'T CHEAT!!

From Business Week:

"....school officials said that Duke is taking disciplinary action against 34 of the school's first-year MBA students—almost 10% of the school's 2008 class—for allegedly cheating on an open-book, take-home final in one of the school's required core classes. It is the largest episode of cheating in the school's history, officials said. "There is a great deal of concern. The honor code is a cornerstone for the culture that we have here, and we take a violation of it quite seriously," said Mike Hemmerich, Fuqua's associate dean for marketing and communications."

From NY Times:

"The final was an open-book test....But many students collaborated....School officials declined to identify the course, the professor or the students, citing confidentiality....

Nine of the students face expulsion, according to the ruling, which was distributed within the business school on Friday. Fifteen students were suspended for a year and given a failing grade in the course; nine were given a failing grade in the course, and one got a failing grade on the exam. Four students accused of cheating were exonerated."

Reminder, DO NOT CHEAT!