Real Fin Reform

So much of the debate has become dominated in populist clap trap measures (looking at you Huff Post), that an idea this sound doesn't get much audience.

From Barry Ritholtz:

While researching Bailout Nation, I did discover one group of Wall Street firms whose senior management took a very measured approach to managing risk. They managed to engage in risk taking and speculation in a fashion that was responsible, and avoided trouble.

The group? Wall Street partnerships.

There is a simple explanation for this: Unlike corporations, Partners have “joint and several liability.” Every partner is fully liable, up to the full amount of the relevant obligation, for the actions of every other partner. This has the effect of focusing the minds of management on exactly what the worst case scenario of their behavior can wreak. Imagine if a partnership like Lazard Freres (since gone public) or Brown Brothers Harriman embraced risk the way their publicly traded brethren did. The liabilities form the losses falls first tot he partnership. Once those assets are exhausted, the creditors can proceed to recover losses from the personal assets of every partner. Bank accounts, Houses, boats, vacation property, 401ks, cars, jewelery, watches, etc. are all fair game for creditors.

The obvious problem is how to encourage banks to move to this model? Merely mandating that any bank (define as you like) become a partnership of some sort runs into any number of problems, not the least of which is the inefficiency of cutting them off from equity financing. But perhaps there could be a new legal structure whereby a partnership could sell a minority stake as equity on to the market. This would allow the financial flexibility of equity without the agency problem inherent in risk allocation with what amounts to other people's money.

Presumably the cost of financing for a bank with this new hybrid structure would be lower. If it wasn't constructed so, then what is the point? The hope is that such an advantage would essentially drive several firms to to this model so as fund themselves more cheaply.

Someone smarter than me can punch holes in that, but for now it's a start.

TdJ

The Power of the Unknown

There might be no greater cognitive or decision making skill than honing one's ability to be self-aware of one's ignorance. It's a skill evolution has largely had little use until recently.


The Anosognosic's Dilemma (From NYT)

Dunning and Kruger argued in their paper, “When people are incompetent in the strategies they adopt to achieve success and satisfaction, they suffer a dual burden: Not only do they reach erroneous conclusions and make unfortunate choices, but their incompetence robs them of the ability to realize it. Instead, like Mr. Wheeler, they are left with the erroneous impression they are doing just fine.”

It became known as the Dunning-Kruger Effect — our incompetence masks our ability to recognize our incompetence.

...

DAVID DUNNING: People will often make the case, “We can’t be that stupid, or we would have been evolutionarily wiped out as a species a long time ago.” I don’t agree. I find myself saying, “Well, no. Gee, all you need to do is be far enough along to be able to get three square meals or to solve the calorie problem long enough so that you can reproduce. And then, that’s it. You don’t need a lot of smarts. You don’t have to do tensor calculus. You don’t have to do quantum physics to be able to survive to the point where you can reproduce.” One could argue that evolution suggests we’re not idiots, but I would say, “Well, no. Evolution just makes sure we’re not blithering idiots. But, we could be idiots in a lot of different ways and still make it through the day.”

I am really looking forward to the next 4 parts.

Bullshit!

I generally like Penn Jillette. He isn't nearly as smart as he thinks he is, but he means well and can make some good points. This wasn't one of them. Watch how he juxtaposes the argument that Tea Party supporters can't be racist unless they explicitly state they are, but Presidents can want to limit personal freedom despite no one ever remotely expressing anything remotely like that.

You defended the Tea Party during a segment on Larry King not long ago, but you also said you don't agree with them on a lot of things. What things would that be?

Pretty much everything. (Laughs.) My only point was, when you're arguing with someone, you shouldn't pretend to know what's going on in their heart. To say that the only reason the Tea Party is against the president is because they're racist, I think that's unfair. We know what racist people look like. They don't deny it. They just don't!

Well, some of them do.

There are racist organizations throughout the entire world, including the Dalai Lama, and they absolutely state it outright. "Our guys with our colored skin are absolutely better than your guys with your colored skin." If the Tea Party isn't publicly stating "We think people of other races should be treated differently," then you don't get to call them racist.

I think you kind of do though, especially when there are Tea Party protestors carrying signs that read "Obama. What You Talking 'Bout Willis?" Isn't that at least a teeny bit racist?

Yeah, but if you know a Beatles fan who rapes somebody, that doesn't mean all Beatles fans are rapists. [...]

There really is a line-in-the-sand political mentality these days, isn't there? You choose a side and you stick to it.

Absolutely there is. When I disagree with Obama, people always say, "Well, you're a big Bush guy then." And I'm like no, I didn't like Bush either. I disagree with Bush and Obama on all the stuff they agree on, which is pretty much everything. They both want to kill people, they both want the government to be bigger, and they both want less freedom for individuals.

Tune du jour

Even when there isn't time for anything else...

Hate first, ask questions later

When protesting first amendment rights, err, I mean a Mosque near Ground Zero one can never be too careful. From NorthJersey.com:

At one point, a portion of the crowd menacingly surrounded two Egyptian men who were speaking Arabic and were thought to be Muslims.

"Go home," several shouted from the crowd.

"Get out," others shouted.

In fact, the two men – Joseph Nassralla and Karam El Masry — were not Muslims at all. They turned out to be Egyptian Coptic Christians who work for a California-based Christian satellite TV station called "The Way." Both said they had come to protest the mosque.

"I'm a Christian," Nassralla shouted to the crowd, his eyes bulging and beads of sweat rolling down his face.

But it was no use. The protesters had become so angry at what they thought were Muslims that New York City police officers had to rush in and pull Nassralla and El Masry to safety.

"I flew nine hours in an airplane to come here," a frustrated Nassralla said afterward.

Can't start happening soon enough

Where is Vegas again?

click to enlarge

Src: Billshrink

Yep, that sounds about right

From Barry Ritholtz's amazing take down of Art Laffer of Laffer curve fame.

That the money losing OpEd page of the WSJ produces its most well read articles goes a long way in explaining one thing: Why 80% of money managers underperfom every year. Filling your head with Ideology, becoming a “magical thinker,” ignoring data, making up your own facts — these are a recipe for under-performing asset managers.

If I were to create a list of questions to ask potential managers of my money, one of them would be: “Do you read the WSJ OpEds?”

If the answer were yes, I would not walk but run in the opposite direction.

Socialism and the Socialists it helps

Lane Kensworthy compares government handouts between the US and two lions of socialism, Sweden and Denmark, and finds that the handouts are similar but the beneficiaries likely aren't. A cliff notes in statistics:










Look out for an upcoming book on these issues from Lane Kenworthy as well.

Tune du jour

The Blues don't get much better than this head bobbing version of "Goin' Down Slow"

Pete Rose used a corked a corked bat

Pete Rose putting himself before the game of baseball and lying about it? Where have I heard this one before.

A few years back, Pete Rose addressed the corking rumors.

"Go up to Steve Wolter and get that 4192 bat," Rose said in 2004. "Take it to an examiner and see if there's any cork in it. I guarantee you there won't be.

"If somebody has a corked bat that has my name on it, bring it on down."

Rose has yet to respond to requests for comment.

But the story behind the bat is an interesting one. (From deadspin)

Where is the US stimulus?

Being more than devoured by the state and local governments. Government spending has been a net drag for the last two quarters.

From Ezra Klein:

Tune du jour

Still raining here.....

Tune du jour

Something in a rainy Sunday. A song that holds up amazingly well over a decade on.

World Cup of Chaos Part 1 of 2,134

World Cup in Africa during a global recession? I think our hopes outpaced the reality here. I really want to be wrong, but this isn't a great start.

Thousands of soccer fans stampeded outside a stadium Sunday before a World Cup warmup match between Nigeria and North Korea, leaving 10 people injured, including a policeman.

That number is at 14 by some accounts and will doubtlessly go up.

Monumental Upset: Porizkova on the depression of lost fame is an interesting read

I don't know why I even read it. OK, I do. The staying power of her once hotness. But her candor is to be commended.

Celebrities can't help being entitled. When you speak, the room goes quiet. Everyone wants to know every little thing about you. You are simply the most fascinating person ever to the admiring gazes around you every time you walk outside. How can you not buy into it? Especially if you did nothing much to earn your fame, like say, models, reality stars, and ousted mistresses. (The people who have earned their fame would have done whatever it is they do regardless of fame or money. These special and talented folks usually are also the ones to disdain fame, if not the money.)

I remember going to the funeral of a friend of mine who was a very famous makeup artist. Almost every famous woman he had made even more beautiful took turns to eulogize him. It took me a little while to realize they didn't so much eulogize him as they did themselves. There were a lot of cute, heartwarming, and delightful stories - about themselves. My friend was featured only in the background. I am by no means innocent in this entitlement myself. To this day, when someone taps my shoulder in a supermarket, I turn around with a pretend sigh and my hands ready to autograph, only to be asked to move so the person behind me can reach the tomato soup.

Mandatory (dated) photo of her:

No, Matt Drudge, you can't buy me a drink

Helen Thomas says something crazy (crazy anti-Semitic that is), and Drudge puts this picture up. It's not exactly a news item that Drudge is bending over backwards to drag Obama into this as if somehow he should not have appeared with an institution (for better or worse) of the White House press corp on their birthday just in case they say something nuts one day. Drudge is in a bit of downward spiral towards the lowest common denominator these days, no news there. But what makes this interesting is how willingly people accept this type of overt attempt at manipulation.

The bar pickup is a cliché at this point. Guy walks up to girl and tries through an awkward combo of humor, wit, and association with success indicators to essentially convince the girl that she should get with him. As any pickup artist will tell you, the key is to evoke an emotional response in the girl. And in most cases it's so transparent that it really doesn't do anything more than tell the girl, that yes, this dude is available. Women, the type that find themselves in this situation often, have a pretty good bullshit detection system. And culturally we hold women who haven't in somewhat lower regard. In films and television this scene centers on the question of "will she be dumb enough to follow for this self-interested overt grab?" We assume that only a sucker would fall for this and buy something they didn't already want. (Obviously if they like the guy before he opens his mouth this question is "will this idiot drop the ball?")

And yet, this is the same game that Drudge and others run all the time, and no one seems to be much put off by it. How is this type of overt attempt to evoke an emotional response or force an association any different than the unwanted advances of a pick up artist? No matter whether I agree or disagree with the sentiment being conveyed this way, I am automatically put off. And you should be too. Anyone trying to sell you something unsolicited should be distrusted until proven otherwise. Used car dealers, door to door salesmen, pick ups artists, Drudge and anyone else dragging unnecessary emotive elements into the conversation.