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kottke.org posts about finance

Intermediaries and the financial crisis of 2008

posted by Jason Kottke   Aug 11, 2016

In the most recent video from Marginal Revolution University, Tyler Cowen explains how the role of financial intermediaries contributed to the financial crisis of 2008. He highlights homeowners and banks taking on too much leverage, poorly planned incentive systems, securitization of mortgages, and banks making loans that are over-reliant on investor confidence.

By 2008, the economy was in a very fragile state, with both homeowners and banks taking on greater leverage, many ending up “underwater.” Why did managers at financial institutions take on greater and greater risk? We’ll discuss a couple of key reasons, including the role of excess confidence and incentives.

In addition to homeowners’ leverage and bank leverage, a third factor played a major role in tipping the scale toward crisis: securitization. Mortgage securities during this time were very hard to value, riskier than advertised, and filled to the brim with high risk loans. Cowen discusses several reasons this happened, including downright fraud, failure of credit rating agencies, and overconfidence in the American housing market.

Finally, a fourth factor joins homeowners’ leverage, bank leverage, and securitization to inch the economy closer to the edge: the shadow banking system. On the whole, the shadow banking system is made up of investment banks and various other complex financial intermediaries, highly dependent on short term loans.

When housing prices started to fall in 2007, it was the final nudge that pushed the economy over the cliff. There was a run on the shadow banking system. Financial intermediaries came crashing down. We faced a credit crunch, and many businesses stopped growing. Layoffs ensued, increasing unemployment.

We Work Remotely

John Oliver takes on the debt buying industry

posted by Jason Kottke   Jun 06, 2016

On Last Week Tonight last night, John Oliver not only blasted the debt buying industry but ended up starting a company, bought $15 million worth of medical debt from Texas, and forgave it.

Update: I forgot to add, Occupy Wall Street did a similar thing back in 2012.

OWS is going to start buying distressed debt (medical bills, student loans, etc.) in order to forgive it. As a test run, we spent $500, which bought $14,000 of distressed debt. We then ERASED THAT DEBT. (If you’re a debt broker, once you own someone’s debt you can do whatever you want with it - traditionally, you hound debtors to their grave trying to collect. We’re playing a different game. A MORE AWESOME GAME.)

Update: It’s disappointing that Last Week Tonight did not acknowledge the work and assistance of the Debt Collective and their Rolling Jubilee.

At the last minute Wilson told us LWT did not want to associate themselves with the work of the Rolling Jubilee due to its roots in Occupy Wall Street. Instead John Oliver framed the debt buy as his idea: a giveaway to compete with Oprah. The lead researcher who worked on this segment invoked the cover of journalism to justify distancing themselves from our project.

The Panama Papers

posted by Jason Kottke   Apr 04, 2016

A huge cache of data has leaked from a Panama-based tax firm that shows how some of the world’s politicians and the rich hide their money in offshore tax havens. The video above, from the Guardian, is a quick 1:30 introduction on how these offshore havens work.

The documents show the myriad ways in which the rich can exploit secretive offshore tax regimes. Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.

A $2bn trail leads all the way to Vladimir Putin. The Russian president’s best friend — a cellist called Sergei Roldugin — is at the centre of a scheme in which money from Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married.

Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.

Here is an important bit:

Are all people who use offshore structures crooks?
No. Using offshore structures is entirely legal. There are many legitimate reasons for doing so. Business people in countries such as Russia and Ukraine typically put their assets offshore to defend them from “raids” by criminals, and to get around hard currency restrictions. Others use offshore for reasons of inheritance and estate planning.

Are some people who use offshore structures crooks?
Yes. In a speech last year in Singapore, David Cameron said “the corrupt, criminals and money launderers” take advantage of anonymous company structures. The government is trying to do something about this. It wants to set up a central register that will reveal the beneficial owners of offshore companies. From June, UK companies will have to reveal their “significant” owners for the first time.

There is much more here, including Lionel Messi’s involvement.

Update: The Panama Papers have claimed their first political victim. The now-former prime minister of Iceland has resigned because of his family’s offshore investments.

Simple advice for personal finance

posted by Jason Kottke   Mar 07, 2016

Index Card

The Index Card is a new book by Helaine Olen and Harold Pollack about simple advice for personal finance. The idea for the book came about when Pollack jotted down financial advice that works for almost everyone on a 4x6 index card.

Now, Pollack teams up with Olen to explain why the ten simple rules of the index card outperform more complicated financial strategies. Inside is an easy-to-follow action plan that works in good times and bad, giving you the tools, knowledge, and confidence to seize control of your financial life.

I learned about their book from a piece by Oliver Burkeman on why complex questions can have simple answers.

But there’s a powerful truth here, which is that people dispensing financial advice are even less neutral than we realise. We’re good at spotting the obvious conflicts of interest: of course mortgage providers always think it’s a great time to buy a house; of course the sharp-suited guys from SpeedyMoola.co.uk think their payday loans are good value. But it’s more difficult to see that everyone offering advice has a deeper vested interest: they need you to believe things are complex enough to make their assistance worthwhile. It’s hard to make a living as a financial adviser by handing clients an index card and telling them never to return; and those stock-tipping columns in newspapers would be dull if all they ever said was “ignore stock tips”. Yes, the world of finance is complex, but it doesn’t follow that you need a complex strategy to navigate it.

There’s no reason to assume this situation only occurs with money, either. The human body is another staggeringly complex system, but based on current science, Michael Pollan’s seven-word guidance — “Eat food, not too much, mostly plants” — is probably wiser than all other diets.

Burkeman wrote one of my favorite books from the past year, The Antidote: Happiness for People Who Can’t Stand Positive Thinking.

A History of the Slave-Breeding Industry in the United States

posted by Jason Kottke   Feb 02, 2016

American Slave Coast

The American Slave Coast: A History of the Slave-Breeding Industry by Ned & Constance Sublette is a book which offers an alternate view of slavery in the United States. Instead of treating slavery as a source of unpaid labor, as it is typically understood, they focus on the ownership aspect: people as property, merchandise, collateral, and capital. From a review of the book at Pacific Standard:

In fact, most American slaves were not kidnapped on another continent. Though over 12.7 million Africans were forced onto ships to the Western hemisphere, estimates only have 400,000-500,000 landing in present-day America. How then to account for the four million black slaves who were tilling fields in 1860? “The South,” the Sublettes write, “did not only produce tobacco, rice, sugar, and cotton as commodities for sale; it produced people.” Slavers called slave-breeding “natural increase,” but there was nothing natural about producing slaves; it took scientific management. Thomas Jefferson bragged to George Washington that the birth of black children was increasing Virginia’s capital stock by four percent annually.

Here is how the American slave-breeding industry worked, according to the Sublettes: Some states (most importantly Virginia) produced slaves as their main domestic crop. The price of slaves was anchored by industry in other states that consumed slaves in the production of rice and sugar, and constant territorial expansion. As long as the slave power continued to grow, breeders could literally bank on future demand and increasing prices. That made slaves not just a commodity, but the closest thing to money that white breeders had. It’s hard to quantify just how valuable people were as commodities, but the Sublettes try to convey it: By a conservative estimate, in 1860 the total value of American slaves was $4 billion, far more than the gold and silver then circulating nationally ($228.3 million, “most of it in the North,” the authors add), total currency ($435.4 million), and even the value of the South’s total farmland ($1.92 billion). Slaves were, to slavers, worth more than everything else they could imagine combined.

Just reading that turns my stomach. The Sublettes also recast the 1808 abolition of the transatlantic slave trade as trade protectionism.

Virginia slaveowners won a major victory when Thomas Jefferson’s 1808 prohibition of the African slave trade protected the domestic slave markets for slave-breeding.

I haven’t read the book, but I imagine they touched on the fact that by growing slave populations, southern states were literally manufacturing more political representation due to the Three-Fifths clause in the US Constitution. They bred more slaves to help politically safeguard the practice of slavery.

Update: Because slaves were property, Southern slave owners could mortgage them to banks and then the banks could package the mortgages into bonds and sell the bonds to anyone anywhere in the world, even where slavery was illegal.

In the 1830s, powerful Southern slaveowners wanted to import capital into their states so they could buy more slaves. They came up with a new, two-part idea: mortgaging slaves; and then turning the mortgages into bonds that could be marketed all over the world.

First, American planters organized new banks, usually in new states like Mississippi and Louisiana. Drawing up lists of slaves for collateral, the planters then mortgaged them to the banks they had created, enabling themselves to buy additional slaves to expand cotton production. To provide capital for those loans, the banks sold bonds to investors from around the globe — London, New York, Amsterdam, Paris. The bond buyers, many of whom lived in countries where slavery was illegal, didn’t own individual slaves — just bonds backed by their value. Planters’ mortgage payments paid the interest and the principle on these bond payments. Enslaved human beings had been, in modern financial lingo, “securitized.”

Slave-backed securities. My stomach is turning again. (via @daveg)

Update: Tyler Cowen read The American Slave Coast and listed a few things he learned from it.

2. President James Polk speculated in slaves, based on inside information he obtained from being President and shaping policy toward slaves and slave importation.

3. In the South there were slave “breeding farms,” where the number of women and children far outnumbered the number of men.

Update: In his book The Half Has Never Been Told: Slavery and the Making of American Capitalism, Edward Baptist details how slavery played a central role in the making of the US economy.

As historian Edward Baptist reveals in The Half Has Never Been Told, slavery and its expansion were central to the evolution and modernization of our nation in the 18th and 19th centuries, catapulting the US into a modern, industrial and capitalist economy. In the span of a single lifetime, the South grew from a narrow coastal strip of worn-out tobacco plantations to a sub-continental cotton empire. By 1861 it had five times as many slaves as it had during the Revolution, and was producing two billion pounds of cotton a year. It was through slavery and slavery alone that the United States achieved a virtual monopoly on the production of cotton, the key raw material of the Industrial Revolution, and was transformed into a global power rivaled only by England.

(via @alexismadrigal)

Artisanal cash

posted by Jason Kottke   Aug 11, 2015

Artisanal Cash

Cities, businesses, and artists are producing small batches of paper currency designed to be spent locally. I love the £20 note from Bristol, England (above)…it’s got Wallace’s head on it!

The local currency, though, is intended not as collectible but to encourage trade at the community businesses where they are accepted, rather than chain stores, where money taken in tends to flow out of town and into the coffers of multinational corporations. (Compare it to the farmers’ market: Homegrown lettuce now has a whole new meaning.)

“If you use a local currency, you keep the money local, and that has a ‘lifts all boats’ vibe to it,” said David Wolman, the author of “The End of Money.”

Buy now, pay later

posted by Jason Kottke   Mar 09, 2015

This metaphorical explanation of the post-2008 Irish banking crisis works equally well as an explanation for contemporary global financial markets in general.

Mary is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar — she will go broke.

To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary’s ‘drink now, pay later’ marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar.

Soon she has the largest sales volume for any bar in Dublin — all is starting to look rosy.

By providing her customers freedom from immediate payment demands Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.

Consequently, Mary’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary’s borrowing limit.

He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into Drinkbonds and Alkibonds. These securities are then bundled and traded on international security markets.

The new investors don’t really understand that the securities being sold to them as ‘AAA’ secured bonds are really the debts of unemployed alcoholics. They have had a ‘rating house’ certify they are of good quality.

The world’s worst contract

posted by Jason Kottke   Feb 27, 2015

In 1997, Max-Hervé George’s father bought a unique policy from a French insurance company that functions like Grays Sports Almanac from Back to the Future II, only for financial markets. The policy allows George to invest in investment funds offered by the insurance company at prices up to a week old, essentially traveling back in time with knowledge of which investments will increase in price the most.

For instance, he might have his money in an Aviva fund invested in the French stock market. Lets say the Nikkei 225 rises 5 per cent during the week. He’ll tell Aviva to move his investments into its Japanese fund, at the price before the market moved.

At last report, in 2007, George’s investments were worth €1.4 million and growing at a rate of 68.6% per year. Assuming that rate holds and he continues investing his entire allocation optimally, George will be a billionaire in five years, would be able to buy the insurance company in question by 2025, and be worth a whopping €234 billion by 2030.

See also how you could have turned $1000 into $167 billion by trading the S&P 500 perfectly last year.

Michael Lewis’ Wall Street wish list

posted by Jason Kottke   Dec 16, 2014

Michael Lewis has Eight Things I Wish for Wall Street.

2. No person under the age of 35 will be allowed to work on Wall Street.

Upon leaving school, young people, no matter how persuasively dimwitted, will be required to earn their living in the so-called real economy. Any job will do: fracker, street performer, chief of marketing for a medical marijuana dispensary. If and when Americans turn 35, and still wish to work in finance, they will carry with them memories of ordinary market forces, and perhaps be grateful to our society for having created an industry that is not subjected to them. At the very least, they will know that some huge number of people — their former fellow street performers, say — will be seriously pissed off at them if they do risky things on Wall Street to undermine the real economy. No one wants a bunch of pissed-off street performers coming after them.

(via nextdraft)

Shake Shack IPO

posted by Jason Kottke   Sep 05, 2014

Dang! It looks as though the Shake Shack is gonna IPO at a value of $1 billion. (BTW, $1 billion would buy you about 210 million ShackBurgers.)

At that level, Shake Shack would debut at 50 times projected earnings of about $20 million this year, the people said, asking not to be named because the details are private. The company has tapped JPMorgan Chase & Co. and Morgan Stanley to manage the share sale, said the people.

That valuation would put it in line with other dining chains that have tapped into investor appetite for new stocks in recent years. El Pollo Loco Holdings Inc. (LOCO), which raised $123 million in July, now trades at about 60 times projected 2014 earnings, while Potbelly (PBPB) Corp. trades at over 64 times estimated earnings, data compiled by Bloomberg show.

The Shack has about 50 locations worldwide. But their flagship Madison Square Park location will be closing for a few months soon for renovations…hopefully they’ll have it back open for the IPO.

Update: And the Shack filed for their IPO on Dec 29, 2014.

Shake Shack is a modern day “roadside” burger stand serving a classic American menu of premium burgers, hot dogs, crinkle-cut fries, shakes, frozen custard, beer and wine. Founded by Danny Meyer’s Union Square Hospitality Group, LLC (“USHG”), Shake Shack was created leveraging USHG’s expertise in community building, hospitality, fine dining, restaurant operations and sourcing premium ingredients. Danny’s vision of Enlightened Hospitality guided the creation of the unique Shake Shack culture that, we believe, creates a differentiated experience for our guests across all demographics at each of the 63 Shacks around the world. As Shake Shack’s Board Chairman and USHG’s Chief Executive Officer, Danny has drawn from USHG’s experience creating and operating some of New York City’s most acclaimed and popular restaurants, including Union Square Cafe, Gramercy Tavern, Blue Smoke, The Modern, Maialino and Marta, to build what we believe is a new fine casual restaurant category in Shake Shack.

There are now 63 Shake Shacks. 63! I just wish the one across from the office would reopen. (via @caseyjohnston)

Update: From Tyler Cowen, Does the Shake Shack IPO mean you should stop eating there?:

A simple theory of IPOs suggests that they arrive when a product or company is experiencing “peak buzz,” or at least when the insiders in the privately held company think they are at or near peak buzz. This will maximize the expected returns on the IPO when it comes to market.

When it comes to food, peak buzz usually arrives a wee bit after peak quality, given reputational lags. So if you are seeing peak buzz, it is probably time to bail on the restaurant, at least on a restaurant which is going to be sold. Bailing on the restaurant may in fact be slightly overdue.

To test Cowen’s theory1, I went to the Shake Shack in Grand Central today (12/31/14). I stood in line for 10 minutes, ordered my customary Shack burger with fries (long live the crinkle cut), and then waited an additional 10 minutes for my food. Verdict: as delicious as ever. Service was snappy and friendly. Well worth the wait and price for me: I got exactly what I wanted.

  1. This is BS actually. I’ve been jonesing for a Shack burger for weeks now and I finally made it happen today.

Mixed signals vs. noise

posted by Jason Kottke   Jun 19, 2014

Over the course of his 3000 columns at The Motley Fool, Morgan Housel has learned a few things:

I’ve learned that short-term thinking is at the root of most of our problems, whether it’s in business, politics, investing, or work.

I’ve learned that debt can cause more social problems than some drugs, yet drugs are illegal and debt is tax deductible.

I’ve learned that finance is actually very simple, but it’s made to look complicated to justify fees.

Unfortunately, the list is undermined almost completely by the get-rich-quick advertising on the site, including this bit at the end of the article, which I can’t even tell is an ad or just a promotion:

Opportunities to get wealthy from a single investment don’t come around often, but they do exist, and our chief technology officer believes he’s found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.

Short-term thinking is at the root of most of our problems, click here now. Now!

Trending: insider trading

posted by Jason Kottke   Jun 17, 2014

A new study finds that insider trading is much worse than commonly thought: a quarter of all public company deals may involve some kind of insider trading. From the NY Times:

The professors examined stock option movements — when an investor buys an option to acquire a stock in the future at a set price — as a way of determining whether unusual activity took place in the 30 days before a deal’s announcement.

The results are persuasive and disturbing, suggesting that law enforcement is woefully behind — or perhaps is so overwhelmed that it simply looks for the most egregious examples of insider trading, or for prominent targets who can attract headlines.

The professors are so confident in their findings of pervasive insider trading that they determined statistically that the odds of the trading “arising out of chance” were “about three in a trillion.” (It’s easier, in other words, to hit the lottery.)

Only about 5% of the deals are ever litigated by the SEC. (via mr)

Reimagining Monopoly

posted by Jason Kottke   May 14, 2014

Mike Merrill reimagines the game of Monopoly to better represent the modern financial system by adding the banker as a player, convertible notes, and Series A financing.

Each player starts with only $500. That’s a nice bit of cash, but it’s going to be expensive to build your capitalist empire. Baltic Avenue will cost you $80, States Avenue is $140, Atlantic is $260, and that leaves you just $20. Even if you’re the first to land on Boardwalk you won’t be able to afford the $400 price tag. Another $200 from “passing Go” is not going to last that long. You need more money.

At the start of the game the banker will offer each player a convertible note of $1000 at a 20% discount and 5% interest*. Armed with $1500 the player is now ready to set out on their titan of the universe adventure! (Of course players are not required to take the convertible note.)

That sounds fun? (via waxy)

More on Michael Lewis and high-frequency trading

posted by Jason Kottke   Apr 02, 2014

Michael Lewis’s new book about high-frequency trading dropped on Monday with less than 24 hours notice and the media is scrambling to catch up. There’s plenty of love for Lewis and his books out there, but Tyler Cowen has been linking to some critiques. For Bloomberg, Matt Levine writes:

In my alternative Michael Lewis story, the smart young whippersnappers build high-frequency trading firms that undercut big banks’ gut-instinct-driven market making with tighter spreads and cheaper trading costs. Big HFTs like Knight/Getco and Virtu trade vast volumes of stock while still taking in much less money than the traditional market makers: $688 million and $623 million in 2013 market-making revenue, respectively, for Knight and Virtu, versus $2.6 billion in equities revenue for Goldman Sachs and $4.8 billion for J.P. Morgan. Even RBC made 594 million Canadian dollars trading equities last year. The high-frequency traders make money more consistently than the old-school traders, but they also make less of it.

And here’s Matthew Philips on What Michael Lewis Gets Wrong About High-Frequency Trading:

1. HFT doesn’t prey on small mom-and-pop investors. In his first two TV appearances, Lewis stuck to a simple pitch: Speed traders have rigged the stock market, and the biggest losers are average, middle-class retail investors-exactly the kind of people who watch 60 Minutes and the Today show. It’s “the guy sitting at his ETrade account,” Lewis told Matt Lauer. The way Lewis sees it, speed traders prey on retail investors by “trading against people who don’t know the market.”

The idea that retail investors are losing out to sophisticated speed traders is an old claim in the debate over HFT, and it’s pretty much been discredited. Speed traders aren’t competing against the ETrade guy, they’re competing with each other to fill the ETrade guy’s order.

And Felix Salmon:

This vagueness about time is one of the weaknesses of the book: it’s hard to keep track of time, and a lot of it seems to be an exposé not of high-frequency trading as it exists today, but rather of high-frequency trading as it existed during its brief heyday circa 2008. Lewis takes pains to tell us what happened to the number of trades per day between 2006 and 2009, for instance, but doesn’t feel the need to mention what has happened since then. (It is falling, quite dramatically.) The scale of the HFT problem - and the amount of money being made by the HFT industry - is in sharp decline: there was big money to be made once upon a time, but nowadays it’s not really there anymore. Because that fact doesn’t fit Lewis’s narrative, however, I doubt I’m going to find it anywhere in his book.

Flash Boys

posted by Jason Kottke   Mar 31, 2014

Michael Lewis (The Big Short, Liar’s Poker) is back with another book about the financial markets: Flash Boys: A Wall Street Revolt. It’s the story of high-frequency trading and the traders who are fighting against it.

Flash Boys is about a small group of Wall Street guys who figure out that the U.S. stock market has been rigged for the benefit of insiders and that, post-financial crisis, the markets have become not more free but less, and more controlled by the big Wall Street banks. Working at different firms, they come to this realization separately; but after they discover one another, the flash boys band together and set out to reform the financial markets. This they do by creating an exchange in which high-frequency trading-source of the most intractable problems-will have no advantage whatsoever.

The characters in Flash Boys are fabulous, each completely different from what you think of when you think “Wall Street guy.” Several have walked away from jobs in the financial sector that paid them millions of dollars a year. From their new vantage point they investigate the big banks, the world’s stock exchanges, and high-frequency trading firms as they have never been investigated, and expose the many strange new ways that Wall Street generates profits.

From a Bloomberg article about the book:

His latest target, high-frequency trading, comprises a diverse set of software-driven strategies that have spread from U.S. equity markets to most developed countries as computer power grew and regulators tried to break the grip of centralized exchanges. While the tactics vary, they usually employ super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies on more than 50 public and private venues that make up the American equities market.

I don’t know too much about it but from what I’ve read, high-frequency trading seems to involve huge Wall Street banks using the Office Space/Richard-Pryor-in-Superman-III trick of shaving fractions of a penny off of trillions of trades every year, except that it’s perfectly legal. The NY Times has an excerpt of the book to further whet your appetite.

The First National Bank of GameStop

posted by Jason Kottke   Mar 18, 2014

An anonymous user of 4chan has come up with a brilliantly harebrained scheme for their personal banking. They use video game retailer GameStop as a bank.

Gamestop Bank

Here’s how it works: whenever a paycheck comes in, this person goes to GameStop and pre-orders a bunch of upcoming video games. Whenever they need money, they go to the GameStop and cancel a game or two to make a withdrawal. Here’s the entire scheme:

Does anyone else use Gamestop as a bank?

I got really pissed off with US Bank because I kept overdrafting my account even though I opted out, and the same thing happened with my credit union when I got a debit card.

Now whenever I get paid I go preorder a whole shitload of games. Whenever I need money, I go to the nearest gamestop and ask for my money back on a game I don’t want and make a withdrawal. The lines are shorter at gamestop than at the bank and I can trade in old games and have money go straight to my savings account. Gamestops are just as prevalent as banks in my town and I work at a mall so it’s even more convenient than running an errand to the bank or using an ATM and getting charged.

The gamestop people are starting to catch on that I’m just moving money around and only buying one preordered game a year, if that, but there isn’t shit they can do about it. The best part is, since I always preorder every game coming out I’m still guaranteed to get all the exclusive content whether or not I’m sure I want a certain game. It’s like they’re rewarding me for banking with them.

I love the bits about the trade-ins and the rewards. (via @caseyjohnston)

All the personal finance advice you’ll ever need

posted by Jason Kottke   Sep 19, 2013

After chatting with personal finance expert Helaine Olen, Harold Pollack wrote down all the personal finance advice you’ll ever need on a 4x6 index card:

Finance Advice Index Card

Unless you’re an insider or get particularly lucky, you’re just not going to beat this. (via ezra klein)

Luxury handbag-backed lending

posted by Jason Kottke   Aug 19, 2013

A Hong Kong lending company accepts luxury handbags as collateral for loans.

Yes Lady provides a loan within half an hour at 80% of the bag’s value — as long as it is from Gucci, Chanel, Hermès or Louis Vuitton. Occasionally, a Prada purse will do the trick. Secondhand classic purses and special-edition handbags often retain much of their retail prices.

A customer gets her bag back by repaying the loan at 4% monthly interest within four months. Yes Lady says almost all its clients quickly pay off their loans and reclaim their bags.

The company recently lent about US$20,600 in exchange for a Hermès Birkin bag, but Yes Lady’s purse-backed loans start at about US$200.

(via marginal revolution)

Hot IPO: a pasta restaurant

posted by Jason Kottke   Jul 02, 2013

What has been the hottest IPO of the year so far? Some new-fangled technology perhaps? Or maybe a trend-setting company from one of the coasts set to take their product offering national and then global? Nope, it was a Denver-based, pasta-centric restaurant chain called Noodles & Co. The company’s IPO bucked a lot of trends (including, it seems, the war on flour). Here’s The Daily Beast on how a pasta chain punked Wall Street.

[That’s Dave Pell’s take from Nextdraft, but I have to weigh in here. I’ve eaten at Noodles & Co many times. I ate there last week, actually. The restaurants do well because the service is friendly & responsive, your order comes out quickly, and the food is remarkably good for the money you pay (like at Chipotle). No one would ever mistake the Pad Thai or Japanese Pan Noodles for the authentic thing, but they are both delicious. I like the Steak Stroganoff so much that I crave it even when surrounded by the amazing and varied food choices of NYC. No idea if Noodles & Co would do well in Manhattan, but they’d definitely have one customer. -jkottke]

Apple CFO Jerry Seinfeld: “What’s the deal with our stock price?”

posted by Jason Kottke   Jan 24, 2013

Apple reported their Q4 2012 financial results yesterday and here’s what Apple CFO Jerry Seinfeld had to say about it.

OK, I need to wrap this up. But first, raise your hand if you use a computer. That’s what I thought. Have you tried doing anything without a computer lately? It’s impossible. You want money from the bank? ATM computer. You want gas for your car? Pump computer. You looking for a news story explaining why your shares dropped 5% even though our gross margin was over 40%? Computer computer.

Apple CEO George Costanza, who is also CEO and chairman of Vandelay Industries, added, “George is getting upset!”

Two gun control suggestions

posted by Jason Kottke   Dec 18, 2012

Eliot Spitzer has a pair of suggestions related to gun control: pressure the owners of gun companies and regulate the sale of bullets.

There may be too many guns to rid the streets of guns, but there are not that many bullets, especially in the calibers needed for the types of weapons used in these shootings. Let’s create a regime that makes sale of bullets to anybody not licensed to carry a gun illegal, makes resale illegal, micro-stamps bullets so they can be traced. No Second Amendment issues here.

There is some movement on the first issue already. Cerberus, a private equity firm that owns a large gun company, is selling the company because of pressure from their investors.

The private equity firm said it had made the investments in gun manufacturers on behalf of its clients, which include pension funds and other institutional investors. Cerberus added that it was the role of legislators to shape the country’s gun policy.

“We believe that this decision allows us to meet our obligations to the investors whose interests we are entrusted to protect without being drawn into the national debate that is more properly pursued by those with the formal charter and public responsibility to do so,” Cerberus said.

This is where the phrase “passing the buck” comes from.

Warren Buffett: a minimum tax rate for the wealthy

posted by Jason Kottke   Nov 28, 2012

In an op-ed for the NY Times, Warren Buffett proposes a minimum tax on high incomes, specifically “30 percent of taxable income between $1 million and $10 million, and 35 percent on amounts above that”. He argues that higher tax rates will not curtail investment activity.

Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent - and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.

Under those burdensome rates, moreover, both employment and the gross domestic product (a measure of the nation’s economic output) increased at a rapid clip. The middle class and the rich alike gained ground.

(via df)

Time for some new economic rules?

posted by Jason Kottke   Nov 15, 2012

From before the election, which seems like it was several months ago already, a piece from Clayton Christensen about how investors and companies should shift their thinking about allocating capital. Christensen’s gist is that efficiency is creating pools of excess capital which is not being reinvested into the types of industry that create jobs.

The Fed has been injecting more and more capital into the economy because — at least in theory — capital fuels capitalism. And yet cash hoards in the billions are sitting unused on the pristine balance sheets of Fortune 500 corporations. Billions in capital is also sitting inert and uninvested at private equity funds.

Capitalists seem almost uninterested in capitalism, even as entrepreneurs eager to start companies find that they can’t get financing. Businesses and investors sound like the Ancient Mariner, who complained of “Water, water everywhere — nor any drop to drink.”

It’s a paradox, and at its nexus is what I’ll call the Doctrine of New Finance, which is taught with increasingly religious zeal by economists, and at times even by business professors like me who have failed to challenge it. This doctrine embraces measures of profitability that guide capitalists away from investments that can create real economic growth.

Read all the way to end; Christensen offers some suggestions for shifting capital allocation.

The People’s Bailout: Occupy is forgiving personal debt

posted by Jason Kottke   Nov 09, 2012

Occupy Wall Street continues to show that it’s more than just a simple protest movement. They have been doing amazing work with Hurricane Sandy relief and now there’s Rolling Jubilee. Here’s how Rolling Jubilee works:

OWS is going to start buying distressed debt (medical bills, student loans, etc.) in order to forgive it. As a test run, we spent $500, which bought $14,000 of distressed debt. We then ERASED THAT DEBT. (If you’re a debt broker, once you own someone’s debt you can do whatever you want with it - traditionally, you hound debtors to their grave trying to collect. We’re playing a different game. A MORE AWESOME GAME.)

This is a simple, powerful way to help folks in need — to free them from heavy debt loads so they can focus on being productive, happy and healthy. As you can see from our test run, the return on investment approaches 30:1. That’s a crazy bargain!

This has my vote for idea of the year. Well, until the debt sellers catch on and either raise the price due to demand or refuse to sell to untrusted brokers.

25 richest people of all time

posted by Jason Kottke   Oct 17, 2012

From a site called Celebrity Net Worth (I know, blech), a list of the 25 richest people of all time, adjusted for inflation. Gates, Buffett, and Rockefeller all make the list but the big cheese is Malian emperor Mansa Musa I, with a net worth of $400 billion in today’s dollars.

Mansa Musa I of Mali is the richest human being in history with a personal net worth of $400 billion! Mansa Musa lived from 1280 - 1337 and ruled the Malian Empire which covered modern day Ghana, Timbuktu and Mali in West Africa. Mansa Musa’s shocking wealth came from his country’s vast production of more than half the world’s supply of salt and gold.

(via @DavidGrann)

The rise of the high-speed trading bots and “quote spam”

posted by Jason Kottke   Aug 08, 2012

Technology Review has an animated GIF originally posted by Nanex Research that shows the activity generated by trading bots on US exchanges. It’s pretty quiet for a couple years and then starts going nuts.

Algorithmic trading lets financial firms to spot and exploit market patterns at lightning speeds. This can bring a tidy profit, but it also puts computers in charge of making decisions that can cost a company millions, and that may have an unpredictable effect on the rest of the market.

If I’m reading the original source correctly, it seems like the vast majority of the activity is not trades but quotes — Nanex calls it “quote spam”. Basically the bots are asking for prices on stocks/options/etc. over and over again, looking for price advantages that they can then exploit via trades. The quote spam is swamping the communications systems:

Quote spam has exploded with no signs of stopping, while trade frequency has stalled and is actually lower than it was years ago. Each day is plotted in a separate color over the course of a trading day (9:30 to 16:00 Eastern): older data uses colors towards the violet end of the spectrum, recent data towards the red end of the spectrum. The gaps you see between color groups on the quote chart (left-side) is when system capacity was upgraded to handle the increase in traffic, and quote spam jumped to fill the new capacity that very same day.

(via @cory_arcangel)

Update: Quote spam is not about asking for prices, it’s about sending out millions of buy/sell offers hoping for a small percentage to reply…just like email spam. (thx, @falfa)

A banking system in India run by kids

posted by Jason Kottke   Aug 01, 2012

The Children’s Development Khazana is a bank staffed and patronized exclusively by children. It started in New Delhi in 2001 and has since opened up more than 200 branches in half-a-dozen countries.

The branches are run almost entirely by and for the children, with account holders electing two volunteer managers from the group every six months.

“Children who make money by begging or selling drugs are not allowed to open an account. This bank is only for children who believe in hard work,” said Karan, a 14-year-old “manager”.

During the day, Karan earns a pittance washing up at wedding banquets or other events. In the evening, he sits at his desk to collect money from his friends, update their pass books and close the bank.

“Some account holders want to withdraw their money. I ask them why and give it to them if other children approve. Everyone earns five per cent interest on their savings.”

Money, Power and Wall Street

posted by Jason Kottke   Apr 05, 2012

Frontline is doing a four-hour show about the world financial crisis, which, according to many people featured on the program, is ongoing.

Since 2008, Wall Street and Washington have fought against the tide of the fiercest financial crisis since the Great Depression. What have they wrought? In a special four-hour investigation, FRONTLINE tells the inside story of the struggles to rescue and repair a shattered economy, exploring key decisions, missed opportunities, and the unprecedented and uneasy partnership between government leaders and titans of finance that affects the fortunes of millions of people around the world.

The program airs on April 24th.

Maximizing shareholder value is “the dumbest idea in the world”

posted by Jason Kottke   Dec 29, 2011

Steve Denning, writing in Forbes:

In today’s paradoxical world of maximizing shareholder value, which Jack Welch himself has called “the dumbest idea in the world”, the situation is the reverse. CEOs and their top managers have massive incentives to focus most of their attentions on the expectations market, rather than the real job of running the company producing real products and services.

Denning is summarizing the ideas contained in Roger Martin’s new book, Fixing the Game: Bubbles, Crashes, and What Capitalism Can Learn from the NFL.

In Fixing the Game, Roger Martin reveals the culprit behind the sorry state of American capitalism: our deep and abiding commitment to the idea that the purpose of the firm is to maximize shareholder value. This theory has led to a massive growth in stock-based compensation for executives and, through this, to a naive and wrongheaded linking of the real market — the business of designing, making, and selling products and services — with the expectations market — the business of trading stocks, options, and complex derivatives. Martin shows how this tight coupling has been engineered and lays out its results: a single-minded focus on the expectations market that will continue driving us from crisis to crisis — unless we act now.

(thx, david)

Amazon’s long-term thinking

posted by Jason Kottke   Dec 21, 2011

Amazon is somewhat of an unusual company for American investors because it focuses on the long-term (10- 20-year timelines) instead of the short-term (quarterly earnings).

“If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people,” Mr. Bezos told reporter Steve Levy last month in an interview in Wired. “But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We’re willing to plant seeds, let them grow-and we’re very stubborn.”

Like Apple, Amazon is one of those large market cap growth stocks that investors don’t really know what to do with. Both stocks are still undervalued compared to much of the rest of the market, IMO.