When Did The U.S. Last Default On Treasury Bonds? : NPR

When Did The U.S. Last Default On Treasury Bonds? : NPR:

NPR interviewed Ball State finance professor Terry Zivney, who's now a professor of finance at Ball State University in Indiana, co-authored a journal article called "The Day the United States Defaulted on Treasury Bills about a technical default on $120 Million in 1979:

""Prof. ZIVNEY: ....They said there were technical errors, word-processing errors. But I'm sure the thousands of people that did not receive their $120 million were not, you know, mollified by hearing it was just a technical difficulty.

SIEGEL: A hundred-twenty million dollars was the amount of federal debt that was at issue. You apply the dictionary definition of default, and this was a default on the debt they held. But $120 million was a tiny sliver of the Treasury's debt.

Prof. ZIVNEY: Yes, it was. The Treasury had around $800 billion outstanding at that time, so it was a very small proportion. However, professor Richard Marcus of the University of Wisconsin, Milwaukee, and I did some research. And we concluded that the defaults of 1979 raised the interest rates that the government had to pay on their securities by about six-tenths of 1 percent.

SIEGEL: Six-tenths of 1 percent - not on $120 million, but you're saying on the 800 billion, almost a trillion dollars.

Prof. ZIVNEY: Yes. And so six-tenths of 1 percent of a trillion dollars is around $6 billion a year on a $120 million mistake."

One of best finance books in a while

I really wish I were teaching a derivatives class this semester as I would definitely use Essays in Derivatives by Don Chance in some fashion.  I am reading it now and it is VERY good.  It presents the material in a very usable format appropriate for MBA or upper level undergraduate students (if you want to read that as "easy" you can, but it is very well done)

Socioeconomic status as child dictates response to stress as adult

From ScienceDaily: Socioeconomic status as child dictates response to stress as adult:

This one is not surprising but it is important and does not fit in the view of traditional economics. Traditional economics often assumes that people will look decisions similarly and that the past does not matter. Behavioral economists would suggest that past events do influence decisions. This paper by a Griskevicius supports the behavioral school:

"Published in the Journal of Personality and Social Psychology, "The Influence of Mortality and Socioeconomic Status on Risk and Delayed Rewards: A Life History Approach" by Carlson School assistant professor of marketing Vladas Griskevicius found that people respond to feeling threatened differently depending on whether people grew up in relatively resource-scarce or resource-plentiful environments.found those who grew up resource deprived or felt poor were more likely to take risks for immediate rewards when they felt threatened. Subjects who were raised in a more predictable world never worrying about their needs responded to the same stressors by becoming more cautious.....

According to Griskevicius, a prototypical example of the findings is a kid who grows up in a bad neighborhood. "If he hears gunshots down the street, this triggers a 'live fast and die young' psychology. He will feel the urge to get what he can while he can because the future is uncertain." This response is likely related to why poorer individuals purchase more lottery tickets.

The research also suggests that efforts using a "you never know what's going to happen tomorrow" approach to persuade at-risk kids to stay in school or avoid risky behaviors might be ineffective.

"Why should I go to school if I might not be around to see the benefits of my education?"

From ScienceDaily.


Which I think most would agree with. However, if we leave the world of homo sapiens, I have a bit of trouble reconciling this behavior with that in felines. Cats that had spent time "on the street" tend to get fat when they are brought inside. Many veterinarians suggest this is because they are saving as they fear their next meal. To fit the model presented by Griskevicius, the cats must enjoy eating more and thus over eat to their harm. Not sure. But I totally believe that past stressors influence current decisions which was the initial premise.

Dunkin' Donuts' parent announces IPO price range

Image by Getty Images via @daylifeDunkin' Donuts' parent announces IPO price range:

I know some local patrons who if they could use their frequent coffee points to accumulate shares who would make a million! ;)

More seriously, this will be a good case to watch for classes as students are aware of the firms, relatively easy to value, and will be in the news.

"The parent of Dunkin' Donuts plans to raise as much as $461 million when it takes the company public, up from the $400 million it originally estimated.

Dunkin' Brands Group Inc., which runs Dunkin' Donuts and Baskin-Robbins, disclosed the estimated pricing in a regulatory filing on Monday. It didn't say when the stock might start trading."

I know some local patrons who if they could use their frequent coffee points to accumulate shares who would make a million! ;)

More seriously, this will be a good case to watch for classes as students are aware of the firms, relatively easy to value, and will be in the news.

Related articles

• Dunkin' Donuts' parent company announces IPO price range (usatoday.com)
• Dunkin' Brands Seeks $460.6 Million in Initial Offering (businessweek.com)
• Dunkin' Donuts goes public. Krispy Kreme who? (unstoppableassistants.wordpress.com)

A Neuroeconomics Argument For Gender Equality In Finance - Young Men Are Idiots

More on the gender and finance debate: Seems like the women win again:

A Neuroeconomics Argument For Gender Equality In Finance - Young Men Are Idiots:

"Writing in The Guardian, Tim Adams cites a study showing that in a survey of 2.7 million investors which found in 2008-2009, men were much more likely than women to sell stocks at price lows. Men were confident they could make accurate assessments about the future based on short-term financial news. Women, the study surmises, were more likely to acknowledge when they didn't know something and lost less money than men did."

I definitely recommend you read the article. It is better than the excerpt above. :)

Executive Pay at Big Companies Rose 23% Last Year - NYTimes.com

Executive Pay at Big Companies Rose 23% Last Year - NYTimes.com:

"The final figures show that the median pay for top executives at 200 big companies last year was $10.8 million. That works out to a 23 percent gain from 2009. The earlier study had put the median pay at a none-too-shabby $9.6 million, up 12 percent."

Well at least they outpaced inflation ;).

Southwest Hedging

Virtually every semester a focus of attention is hedging in the airline industry and no firm is studied more than Southwest, so it was surprising when I heard new numbers in this piece.  Staggering numbers in fact:

"While its point to point service and low-cost, low-fare contributed to the company’s past success, its intensive fuel hedging programs is also largely responsible for these past profits. In fact hedging alone saved Southwest Airlines over $3.5 billion and made up almost 83% of the company’s total profits between 1998-2008. ^{[1] [2]} "

Related articles

• Spike in fuel prices erasing airline profits (seattlepi.com)
• Is Alaska Air the Perfect Stock? (fool.com)

Pandora shares soar in first day of trading - Yahoo! Finance

Pandora shares soar in first day of trading - Yahoo! Finance:

"The shares of popular but unprofitable Internet radio service Pandora Media Inc. soared more than 50 percent in its market debut Wednesday.

Its shares opened at $20 a share and rose as high as $26 in early trading on Wednesday, up from its offering price of $16. At its high, that valued Pandora at $4.2 billion."

Gains to Merging Firms and Their Rivals: Evidence from Canada by Jean-Yves Filbien, Maher Kooli :: SSRN

Gains to Merging Firms and Their Rivals: Evidence from Canada by Jean-Yves Filbien, Maher Kooli :: SSRN:

Filbien and Kooli find (not surprisingly) that takeovers are bad for the pother firms in the industry.

"We examine the wealth creation for acquiring and target firms' shareholders to Canadian merger and acquisition announcements. We also investigate the potential determinants of the stock market reactions. Further, we explore the impact of these announcements on the gains of the target firms' rivals. Takeovers are beneficial to the shareholders of merging firms. However, we show that Canadian rival firms lose abnormal returns"

When Overconfident Traders Meet Feedback Traders by Laurent Germain, Fabrice Rousseau, Herve Boco :: SSRN

When Overconfident Traders Meet Feedback Traders by Laurent Germain, Fabrice Rousseau, Herve Boco :: SSRN:

An interesting follow up to the idea that herding is not good for markets.

"...model in which overconfident market participants and rational speculators trade against trend-chasers. We show that the growth and the burst of a financial bubble stem from positive feedback trading. However, the presence of overconfident traders and the risk aversion of the informed speculators enhance the strength of bubbles (creation and burst). The positive feedback trading enhances the negative serial correlation of prices and the volatility of prices. We show that positive feedback traders destabilize prices more than their overconfident opponents. Generally, overconfidence increases the volatility of prices and worsens the market efficiency."

Herding is detrimental in the world of investment - The Irish Times - Fri, May 27, 2011

Herding is detrimental in the world of investment - The Irish Times - Fri, May 27, 2011:

"Herding, which in a biological sense is the tendency for some species to seek safety in numbers, is easy to understand from an evolutionary perspective. Being part of a group and taking cues from others reduced the risk of falling prey to a predator on the Serengeti for example, whilst simultaneously increasing the odds of a successful hunt for meat. Furthermore, imitation of others was a successful strategy that enabled the rapid transmission of good ideas throughout a group of humans, while monitoring the actions of others also yielded important information about resource availability and mating potential.

However, though herding proved beneficial to our ancestors in the African savannah, the same behaviour typically proves detrimental in the investment world. The human instinct to imitate others can lead to the mispricing of assets as individual investors base their decisions on expert opinion and slavishly make investments simply because the experts expect the uptrend to persist."

Moral Markets: Paul Zak discusses Oxytocin, Trade, and Human Nature

The Year's Highest Paid CEOs - WSJ.com

The Year's Highest Paid CEOs - WSJ.com:

"The median value of salaries, bonuses and long-term incentive awards for CEOs of 350 major companies surged 11% to $9.3 million, according to a study of proxy statements conducted for The Wall Street Journal by management consultancy Hay Group."

Rodney Paul on the Dodgers' payroll problems

Did you hear this?



Still, sports commentator Jon Weinbach says don't worry too much about the players.

Jon Weinbach: What would happen if the Dodgers missed payroll is Major League Baseball would fund them -- essentially taking money from all the other owners. So in effect, every owner in major league baseball would be funding the L.A. Dodgers.

Weinbach says McCourt has seriously cut back spending on the team. Rodney Paul, sports economist at St. Bonaventure University, says that's sent the wrong message.

Rodney Paul: It's just you don't want to have a team give the signal that we don't care about winning. As soon as you do that, most fans are not going to be able to justify spending the money to go out to the park.

There are reports the team's attendance is down 12 percent.

Paul: To be able to not have that be generated hurts not just the Dodgers but the league overall -- television ratings, ticket sales, etc.

BTW I am biased as Rodney is a good friend, but he is leaving SBU for Syracuse.  It is going to be a big loss!

Related articles

• Dodgers reportedly cannot make May payroll (seattletimes.nwsource.com)
• Dodgers lack funds to meet this month's payroll (aol.sportingnews.com)
• Major League Baseball to Frank McCourt: Don't blame us, pal! (hardballtalk.nbcsports.com)
• MLB: Dodgers Can't Cover Their Payroll- OPINION: Divorce and Dodgers - A Fine Mess (foxnews.com)
• LA Dodgers: Reportedly Unable to Make Payroll, Is Frank McCourt Era Over? (bleacherreport.com)