The Federal Reserve proposed a program to sell term deposits to banks to absorb some of the banking system’s $1 trillion in excess reserves now threatening to accelerate inflation as the economy recovers."
"The first study, led by corporate-governance expert Lucian Bebchuk of Harvard Law School, looked at more than 2,000 companies to see what share of the total compensation earned by the top five executives went to the CEO. The researchers call this number—which averages about 35%—the 'CEO pay slice.'
It turns out that the bigger the CEO's slice of the pie, the lower the company's future profitability and market valuation...."
"Aquinas, in his great Summa, raised a question that had been discussed by Cicero. A merchant is carrying grain to a famine-stricken area. He knows that soon other merchants are following him with many more supplies of grain. Is the merchant obliged to tell the starving citizenry of the supplies coming soon and thereby suffer a lower price, or is it all right for him to keep silent and reap the rewards of a high price? To Cicero, the merchant was duty-bound to disclose his information and sell at a lower price. But St. Thomas argued differently. Since the arrival of the later merchants was a future event and therefore uncertain, Aquinas declared justice did not require him to tell his customers about the impending arrival of his competitors. He could sell his own grain at the prevailing market price for that area, even though it was extremely high."
"...public resale of restricted and control securities if a number of conditions are met...."included in these conditions is a volume condition:
"Trading Volume Formula. If you are an affiliate, the number of equity securities you may sell during any three-month period cannot exceed the greater of 1% of the outstanding shares of the same class being sold, or if the class is listed on a stock exchange or quoted on Nasdaq, the greater of 1% or the average reported weekly trading volume during the four weeks preceding the filing a notice of sale on Form 144."Which brings us to the paper by Peterburgsky:
"I examine whether the double-counting of reported trading volume on Nasdaq plays a role in insiders’ decisions to move their firms. Specifically, since volume on Nasdaq is exaggerated and SEC Rule 144 ties the limit on insider selling to total volume, insiders of troubled firms may be able to use private information to take advantage of other shareholders by switching to Nasdaq and unloading more stock. Consistent with the hypothesis, I find that insiders engage in heavy selling of company stock in the months following the move. Post-announcement abnormal returns are strongly negative."
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"“The Enron case illustrates one of the most pernicious effects of insider trading: It gives executives a reason to distort reports on corporate performance and find other ways to manipulate markets to their own benefit,” Strudler notes."
" We characterize the microstructure of the market for Treasury inflation-protected securities (TIPS) using novel tick data from the interdealer market. We find a marked difference in trading activity between on-the-run and off-the-run securities, as in the nominal Treasury securities market. We find little difference in bid-ask spreads or quoted depth between on-the-run and off-the-run securities, in contrast to the nominal market, but we do find a sharp difference in the incidence of posted quotes. Intraday activity differs strikingly from the nominal market, with activity peaking in the mid-to-late morning. Announcement effects also differ from the nominal market, with auction results and consumer price index announcements eliciting particularly sharp increases in trading activity"
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"We find that voting with one’s feet is done largely by institutions that have less than 1% ownership in the firm while institutions that hold block levels of ownership at the time of the CEO turnover announcement significantly increase their ownership levels leading up to the turnover event. Moreover, we find evidence of activism in the financial press that is significantly related to CEO turnover. We conclude that voting with one’s feet is not a major mechanism by which institutions force corporate change."
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"Paul Zak, a neuroeconomist and director of the Center for Neuroeconomics Studies at Claremont Graduate University in Claremont, Calif., has devoted his research to explaining this type of generosity. 'I investigate the biological basis for generosity, focusing on the neuroactive hormone oxytocin,' he says in his blog for Psychology Today. 'Our studies have shown that this hormone partially explains generous behavior because it makes us feel more connected to others.'"
"Long-only buyers—those who tend to hold the stock rather than flip it on the first day—have always been critical participants in successful new issues. Mr. Fox added that issuers 'focus less on allocations when every deal is doing well than when they do in a more differentiating market period like we are in today.'"
"In a bill submitted to the French parliament this week, all companies listed on the Paris stock exchange would have to ensure female employees made up 50% of their board members by 2015. If passed, a gradual implementation of the law would see businesses obliged to have women in 20% of board seats within 18 months, and 40% within four years.
"Financial examiners and compliance officers are expected to be two of the 30 fastest-growing U.S. occupations over the next 10 years, according to a Labor Department report released last week."
Farnam Street: A Dirty Word or a Dirty World? Attribute Framing, Political Affiliation, and Query Theory: "The main distinction was between a surcharge described as a 'carbon tax' and an identical charge described as a 'carbon offset'.
The tax was unpopular - no real surprise. But when people were asked if they supported making the carbon offset mandatory - which is of course exactly equivalent - the response was highly favourable"
"Cadbury (CBRY.L) teased shareholders with the prospect of rival bids and promised bigger dividends and stronger growth as it again knocked back a 10 billion pound ($16.2 billion) offer from Kraft Foods (KFT.N)."
"'We have developed for the first time a system level model of a large gene network to decipher the underlying principles of the bacteria game theory and how an internal network of genes and proteins is used to calculate risks in this complicated situation,' he said.
This has applications to human society because many people encounter similar dilemmas during their own lives. For example, should people ignore side effects and vaccinate against a new potentially lethal virus or should they not vaccinate and take the risk of being infected with the possible consequences? If the majority of the population is going to get vaccinated, then it is better for each individual not to get vaccinated. However, if most people will not be vaccinated then it is better to be vaccinated."
Visualizing Bank Failures ( 2008-2009 ) from Michael J Bommarito II on Vimeo.
"Paul Samuelson, Nobel Prize-winning economist and author of the best-selling economics textbook in history, died today at his home in Belmont, Massachusetts. He was 94."
"Women also, apparently, make better money managers according to another study by two professors at UC Davis [3]. That study found that overconfidence caused men to trade stocks 45 percent more often than women, thus lowering their net portfolio returns by 2.65 percent per year (compared with 1.72 percent lower returns for women traders). Moreover, several studies show a link between profit and gender. Companies with several high-ranking women at either officer or director levels tend to have higher earnings per share, return on equity and stock prices than competitors with few or no senior women."The article mentions other studies as well and I know the evidence suggests strongly that there are differences between genders when it comes to risk financial risk taking.
"The sweeping story of the three economic bubbles that defined the decade begins with the tech bubble, its apex marked by AOL’s audacious takeover of Time Warner. The deal signified the heights and hope of the dot-com boom, a chapter that saw the creation of scores of high-flying internet companies, many of which would die an early death. The middle of the decade brought the housing boom and the formation of the real estate bubble. It was the age of easy money, with banks all too eager to fund new construction, and developers and homeowners all too eager to take on loans they couldn’t afford. The last bubble of the decade to burst was the credit bubble, exemplified by private equity firms awash in money and on the lookout for takeover targets. In some cases, these private equity deals and leveraged buyouts resulted in a lucky few making a fortune, with the targeted company loaded up with debt and ruined in the process."
"Goldman Sachs announced on Thursday that its top executives would forgo cash bonuses this year and that it would give shareholders a say in determining compensation......While Goldman will give shareholders a say on pay, the bank would not be required to bow to its investors wishes. Still, a vote against Goldman would be deeply embarrassing for the bank."
Some fear that inflating the nation’s debt away is the path of least resistance for political leaders who can’t make the hard choices on taxation and spending....
For those who detest inflation–and that’s most economists and policy makers–the bad news comes first. The paper says a review of the U.S. experience since World War II shows “eroding the debt through inflation is not farfetched.”"
"Thakor says it is important to determine the root causes of the financial crisis in order to prevent it from happening again. 'We had this double fragility in the financial system from high borrower and bank leverage....
To get at root causes of the current crisis and prevent future meltdowns, Thakor offers these proposals:
- create an agency to gather information and monitor the interconnectedness of institutions, including the shadow banking system
- increase the minimum regulatory capital requirements for banks (a controversial, but necessary calibration according to Thakor)
- provide thoughtful research-based policy prescriptions that halt the tide of over-regulation
Blaming executive compensation or pumping more liquidity into the system is not going to fix the financial crisis, says Thakor."
"City minister, Lord Myners, spent this afternoon calling the heads of all major banks in the City to try to reassure them about the tax, which is being introduced immediately, bankers reckoned there would be a race to circumvent the rules by raising basic salaries, deferring bonus payments or shifting bankers' contracts overseas."and my favorite line:
"One lawyer said the one-off 50% tax on bonuses of more than £25,000 that will be paid by banks, rather than bankers, could become a job creation plan for Frankfurt, Paris and Zurich"
"Mexico spent $1.172 billion to buy oil hedges for 2010, covering a possible revenue shortfall if production falls for the sixth straight year and prices don’t recover from about a five-year low.
Mexico purchased put options that give it the option, not the obligation, to sell its oil for $57 a barrel next year, the Finance Ministry said in an e-mail statement today.
“We want this as an insurance policy...,"
| The Colbert Report | Mon - Thurs 11:30pm / 10:30c | |||
| Fed's Dead | ||||
| ||||
"Women who received testosterone made significantly higher offers than those who received placebo — an average of 3.9 money units compared with the placebo group's average offer of 3.4 money units.
'In the socially complex human environment, pro-social behaviour, not aggression, secures status,' says Michael Naef, an experimental economist at the Royal Holloway, University of London, who is a co-author on the paper."
"U.S. homeowners have lost about $5.9 trillion in value since the housing market peak in March 2006 as mounting foreclosures and the recession weighed on prices, according to Zillow.com.
Almost half a billion dollars was wiped out this year through Nov. 30, as the market headed for a third straight annual decline. New foreclosures and higher mortgage rates in 2010 may hinder a rebound, the property data service said today in a statement."
"At NetJets, the returns have been disappointing — and lately the losses severe. Through his investment company, Berkshire Hathaway, he bought the private jet travel business, which caters to the affluent, for $725 million in 1998. Even though Berkshire does not provide detailed results for this small piece of its empire, insiders confirm that Mr. Buffett has yet to recover his investment.
With problems mounting at the unit — heavy losses and allegations of business improprieties — Mr. Buffett...."
"At NetJets, the returns have been disappointing — and lately the losses severe. Through his investment company, Berkshire Hathaway, he bought the private jet travel business, which caters to the affluent, for $725 million in 1998. Even though Berkshire does not provide detailed results for this small piece of its empire, insiders confirm that Mr. Buffett has yet to recover his investment.It goes on to say that David Sokol (who many believe will eventually replace Buffett) has been assigned to straighten things out.
With problems mounting at the unit — heavy losses and allegations of business improprieties...."
"A generous candy stash raises a co-workers status, but sometimes the rules of exchange get confusing. Behavioral economist Dan Ariely uses his Predicably Irrational insights to help Marketplaces Eve Troeh understand social norms and social contracts"
The FDIC issued a report today that shows that many Americans do not have access to banking or choose not to use the banking system.
First the results:
From FDIC.gov:
An estimated 7.7 percent of U.S. households, approximately 9 million, are unbanked. These households do not have a checking or a savings account.... In addition to the unbanked households, an estimated 17.9 percent of U.S. households, roughly 21 million, are underbanked. These households have a checking or savings account but rely on alternative financial services. Specifically, underbanked households have used non-bank money orders, non-bank check-cashing services, payday loans, rent-to-own agreements, or pawn shops at least once or twice a year or refund anticipation loans at least once in the past five years
From USATODAY:
"Nearly 30 million households have no bank account or have one but also use alternate financial services at least occasionally, according to the FDIC report. The survey, the FDIC's first in-depth study of the issue, was conducted by the Census Bureau.
The problem is most acute among minorities: 53% of African-American households and 43% of Hispanic households use check cashers or similar services instead of or in addition to banks.
Buying money orders and cashing checks are the most frequent transactions, the survey shows. Those using check cashers and other services say they are faster, cheaper and more convenient than banks — even though they pay a fee to cash a check they could deposit in a bank account for free."
And from the UPI:
"Nine million households, including a fifth of households earning under $30,000 a year, have no bank account, the report to be released Wednesday says."
Now we can argue some about the definitions (for instance are you underbanked if you use Money Orders twice a year? and what percentage are in transit (closed account at bank A, have yet to open one at bank B)? But regardless of those issues, the numbers are pretty big but as any student of banking should say, somewhat predictable. Why? As fees go up, small accounts pay a higher proportion. Thus it may be expected that some close their accounts. And indeed, nearly half of those who are "unbanked" did in fact close their accounts.
Working with many of these "unbanked" through BonaResponds has given me a new appreciation of the importance of banking. Being "unbanked" definitely limits their access to capital (for instance this past year heard : "We will install insulation as soon as we can sell our tractor") and increases transaction costs. But it also prevents credit histories and thus makes future loans even more difficult.
"Nearly 30 million households have no bank account or have one but also use alternate financial services at least occasionally, according to the FDIC report. The survey, the FDIC's first in-depth study of the issue, was conducted by the Census Bureau.
The problem is most acute among minorities: 53% of African-American households and 43% of Hispanic households use check cashers or similar services instead of or in addition to banks."
Who says there's a credit crunch?
Somali pirates are raising money through a local equity offering:
In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate.
Great as a teaching tool, but maybe, just maybe a tad illegal?
"Who says there's a credit crunch?
Somali pirates are raising money through a local equity offering:
In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate."
"Who says there's a credit crunch?
Somali pirates are raising money through a local equity offering:
In Somalia's main pirate lair of Haradheere, the sea gangs have set up a cooperative to fund their hijackings offshore, a sort of stock exchange meets criminal syndicate."
Hostile takeovers from Marketplace on Vimeo.
"We find that shorts establish significant positions more than a year before the average restatement announcement, those positions increase as the announcement month approaches, and the largest positions are held in companies that will announce an accounting irregularity that attracts class action litigation. Shorts are thereby well positioned to profit from the lengthy string of negative returns that precede the announcement of a severe accounting irregularity. Afterward, we find average short interest is sticky, and shorts retain positions in firms that experience a further price decline. In the six months after an announcement, positions in heavily shorted restating firms (i.e., short interest exceeding 2.5 percent before the announcement) earn an additional 24 percent (31 percent with class action litigation). We conclude that shorts have the skill to play an important private-sector role in identifying and disciplining companies with accounting irregularities."
"The results reveal that during misstatement years, accruals and cash and credit sales are unusually high, while return on assets and the number of employees are declining. In addition, misstating firms finance more of their assets through operating leases and have relatively less PP&E. We find that market pressures appear to affect incentives to misstate. Misstating firms are raising new financing, have higher market-to-book ratios, and strong prior stock price performance. We develop a model to predict accounting misstatements."
"Between October 2002 and October 2003, a spatial analysis of U.S. census records and the Korean Business Directory was performed to clarify the distribution of the Korean population and their institutions in the Los Angeles area.Sunday services and other meetings in four Korean congregations, and board meetings of Korean Churches for Community Development (KCCD) and the Korean American Museum (KAM), were observed.... Analysis of the data reveals that Korean congregations play a pivotal role in creating social capital for the Korean immigrant community in Los Angeles: many Koreans have built close social networks through the ethnic churches.In fact, Korean churches act as small business incubators in Koreatown, placing information and financial capital within the reach of immigrant entrepreneurs.Because these Koreans place more trust in those from the same religious group than in those from the same ethnic group, it appears that faith-based social capital can be more important than ethnic resources in the establishment of immigrant businesses. (SAA)"
