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kottke.org posts about money

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.

The Spanx billionaire

posted by Jason Kottke   Mar 09, 2012

Sara Blakely is one of the few women who has joined the Forbes Billionaires list without help from a spouse or an inheritance. She came up with the idea for Spanx and spent two years and $5000 developing it and the $1 billion company it would become.

Blakely, then 27, moved to Atlanta, set aside her entire $5,000 savings and spent the next two years meticulously planning the launch of her product while working nine to five at Danka. She spent seven nights straight at the Georgia Tech library researching every hosiery patent ever filed. She visited craft stores like Michaels to find the right fabrics. She sought out hosiery mills in the Yellow Pages and started cold calling, only to be told no repeatedly. Immune to rejection thanks to years selling door-to-door, she decided just to show up. At the Acme-McCrary hosiery factory in Asheboro, N.C., she was turned away, only to receive a call from the manager two weeks later. He had daughters, he told her, who wouldn’t let him pass up her invention.

A chart of almost all the money

posted by Jason Kottke   Nov 21, 2011

An epic chart from XKCD: Money - A chart of almost all of it, where it is, and what it can do. It’s broken out into “dollars, thousands, millions, billions, trillions”…here’s just a little snippet of the billions section:

Xkcd Money

Winning at the game of money

posted by Jason Kottke   May 10, 2011

James Somers noticed that his equity derivative-trading roommate was the only one of his young professional friends who comes home from work “buoyant and satisfied”, so he accompanied him to work one day to see what his job entailed. Turns out he basically plays video games all day.

A trader’s job is to be smarter than the market. He converts a mess of analysis and intuition into simple bets. He makes moves. If his predictions are better than everyone else’s, he wins money; if not, he loses it. At every moment he has a crystalline picture of his bottom line, the “P and L” (profit and loss) that determines how much of a bonus he’ll get and, more importantly, where he stands among his peers. As my friend put it, traders are “very, very, very competitive.” At the end of the day they ask each other “how did you do today?” Trading is one of the few jobs with an actual leaderboard, which, if you’ve ever been on one, or strived to get there, you’ll recognize as being perhaps the single most powerful driver of a gamer’s engagement.

That seems to be the core of it, but no doubt there are other game-like features in play here: the importance of timing and tactile dexterity; the clear presence of two abstract levels of attention and activity, one long-term and strategic, the other fiercely tactical, localized in bursts a minute or two long; the need for teams and ceaseless chatter; and so on.

Athleticism and competitiveness are often downplayed when we talk about white collar careers but are essential in many disciplines. Doctors (surgeons in particular) have both those traits, founding a startup company is definitely competitive and can be as physically demanding as running, teachers are standing or walking all day long, and even something like programming requires manual dexterity with the mouse & keyboard and the stamina to sit in a chair paying single-minded attention to a task for 10-12 hours a day. (via @tcarmody)

“Much of what investment bankers do is socially worthless”

posted by Jason Kottke   Dec 03, 2010

From the New Yorker a week or two ago, John Cassidy has an article about the social value of what Wall Street and investment banking. It’s not a pretty picture.

Lord Adair Turner, the chairman of Britain’s top financial watchdog, the Financial Services Authority, has described much of what happens on Wall Street and in other financial centers as “socially useless activity” — a comment that suggests it could be eliminated without doing any damage to the economy. In a recent article titled “What Do Banks Do?,” which appeared in a collection of essays devoted to the future of finance, Turner pointed out that although certain financial activities were genuinely valuable, others generated revenues and profits without delivering anything of real worth — payments that economists refer to as rents. “It is possible for financial activity to extract rents from the real economy rather than to deliver economic value,” Turner wrote. “Financial innovation…may in some ways and under some circumstances foster economic value creation, but that needs to be illustrated at the level of specific effects: it cannot be asserted a priori.”

Turner’s viewpoint caused consternation in the City of London, the world’s largest financial market. A clear implication of his argument is that many people in the City and on Wall Street are the financial equivalent of slumlords or toll collectors in pin-striped suits. If they retired to their beach houses en masse, the rest of the economy would be fine, or perhaps even healthier.

I particularly enjoyed the characterization of banking as a utility:

Most people on Wall Street, not surprisingly, believe that they earn their keep, but at least one influential financier vehemently disagrees: Paul Woolley, a seventy-one-year-old Englishman who has set up an institute at the London School of Economics called the Woolley Centre for the Study of Capital Market Dysfunctionality. “Why on earth should finance be the biggest and most highly paid industry when it’s just a utility, like sewage or gas?” Woolley said to me when I met with him in London. “It is like a cancer that is growing to infinite size, until it takes over the entire body.”

p.s. Thanks to Typekit, the New Yorker’s web site now uses the same familiar typefaces that you find in the magazine. Looks great.

The case against pennies

posted by Jason Kottke   Sep 24, 2010

Man, that guy really hates pennies, aka “disgusting bacteria-ridden disks of suck that fail to facilitate commerce”.

US dollar redesign

posted by Jason Kottke   Aug 26, 2010

A very nice US currency redesign by Dowling Duncan.

Dowling Duncan Money

When we researched how notes are used we realized people tend to handle and deal with money vertically rather than horizontally. You tend to hold a wallet or purse vertically when searching for notes. The majority of people hand over notes vertically when making purchases. All machines accept notes vertically. Therefore a vertical note makes more sense.

The note imagery relates to the value of each note:

$1 - The first African American president
$5 - The five biggest native American tribes
$10 - The bill of rights, the first 10 amendments to the US Constitution
$20 - 20th Century America
$50 - The 50 States of America
$100 - The first 100 days of President Franklin Roosevelt.

Needs more guilloche but other than that: fire up the presses.

A short history of debt

posted by Jason Kottke   Apr 28, 2010

David Graeber has been researching the history of money and debt for a book he’s writing. This abbreviated version of his findings makes for really interesting reading.

However tawdry their origins, the creation of new media of exchange — coinage appeared almost simultaneously in Greece, India, and China — appears to have had profound intellectual effects. Some have even gone so far as to argue that Greek philosophy was itself made possible by conceptual innovations introduced by coinage. The most remarkable pattern, though, is the emergence, in almost the exact times and places where one also sees the early spread of coinage, of what were to become modern world religions: prophetic Judaism, Christianity, Buddhism, Jainism, Confucianism, Taoism, and eventually, Islam. While the precise links are yet to be fully explored, in certain ways, these religions appear to have arisen in direct reaction to the logic of the market. To put the matter somewhat crudely: if one relegates a certain social space simply to the selfish acquisition of material things, it is almost inevitable that soon someone else will come to set aside another domain in which to preach that, from the perspective of ultimate values, material things are unimportant, and selfishness — or even the self — illusory.

The enormity of Zimbabwe’s inflation

posted by Jason Kottke   Dec 15, 2009

There are at least 2 crazy passages in this article about the amount of inflation in Zimbabwe over the past 30 years.

Hyperinflation in Zimbabwe, the former Rhodesia, was a quadrillion times worse than it was in Weimar Germany.

In grade school, quadrillion was always an exaggeration but not here:

The cumulative devaluation of the Zimbabwe dollar was such that a stack of 100,000,000,000,000,000,000,000,000 (26 zeros) two dollar bills (if they were printed) in the peak hyperinflation would have be needed to equal in value what a single original Zimbabwe two-dollar bill of 1978 had been worth. Such a pile of bills literally would be light years high, stretching from the Earth to the Andromeda Galaxy.

Andromeda Galaxy! It’s our nearest galactic neighbor but still 2,500,000 light-years away. (via daveg)

Living on $500,000 a year

posted by Jason Kottke   Oct 29, 2009

Who knew that a long article about F Scott Fitzgerald’s tax returns could be so interesting?

The five months of furious short-story writing in 1923-24 had left him with a stake of $7,000. In Great Neck, that would only cover two and a half months of expenses. How could he stretch the $7,000 to gain the time to finish Gatsby? Earlier, as he was struggling to save, a friend wrote from France to suggest that Fitz-gerald join the many Americans living well in Europe on the strong American dollar. The friend wrote that it cost one-tenth as much to live in Europe: he had just finished “a meal fit for a king, washed down with champagne, for the absurd sum of sixty-one cents.” Fitzgerald thought, based on the friend’s recommendation, living expenses on the off-season Riviera would be low enough to let him finish Gatsby without any short-story interruptions.

The giant pool of money, an update

posted by Jason Kottke   Oct 02, 2009

This American Life recently aired a follow-up to their well-received program about the recent financial crisis called Return To The Giant Pool of Money.

We catch back up with the people we met in 2008, to see how they’ve fared over the last 18 months. We talk to Clarence Nathan, who in 2008 received a half million dollar loan that he said he wouldn’t have given himself; Jim Finkel, a Wall Street finance guy, who put together and managed complicated mortgage-based financial securities; Richard Campbell, the Marine who was facing foreclosure; and Glen Pizzolorusso, the mortgage company sales manager who led the life of a b-list celebrity.

Interview with a lottery winner

posted by Jason Kottke   Sep 21, 2009

On Reddit, an informal Q&A with a $30 million lottery winner about how the money has changed his life.

I went to the lottery’s website after finding the ticket and realized that I had won. I freaked out ran up to my apartment’s door and locked all the locks. It was completely irrational.

(via cyn-c)

Living without money

posted by Jason Kottke   Jul 24, 2009

Daniel Suelo, who lives in a cave near Moab, Utah, has gone without using money since 2000.

“When I lived with money, I was always lacking,” he writes. “Money represents lack. Money represents things in the past (debt) and things in the future (credit), but money never represents what is present.”

The idea started to take shape when Suelo was on a Peace Corps mission to Ecuador. As he monitored the health of the population of the village he was staying in, he noticed that their health declined as they made more money — “It looked like money was impoverishing them.” You can find out more about Suelo’s philosophy on his web site and follow his adventures on his blog, both of which he updates at the public library.

Mo’ money, mo’ socioeconomic issues

posted by Jason Kottke   Apr 10, 2009

New Scientist has collected a bunch of studies related to the pychological impact of money on people.

Almost all of us, for example, are “loss averse” — it hurts more to lose £50 than it feels good to win £50. We also value money in relative rather than absolute terms — we consider £10 irrelevant when buying a house but not when paying for a meal. Similarly, finding £100 will give many people more pleasure than having a heating bill cut from £950 to £835, even though this gains them more in real terms.

What happened to Iceland?

posted by Jason Kottke   Mar 12, 2009

Michael Lewis, who is seemingly cranking out 10,000 words a day about finance and sports these days, writes in the pages of Vanity Fair about the Icelandic financial collapse. It’s an amazing story.

That was the biggest American financial lesson the Icelanders took to heart: the importance of buying as many assets as possible with borrowed money, as asset prices only rose. By 2007, Icelanders owned roughly 50 times more foreign assets than they had in 2002. They bought private jets and third homes in London and Copenhagen. They paid vast sums of money for services no one in Iceland had theretofore ever imagined wanting. “A guy had a birthday party, and he flew in Elton John for a million dollars to sing two songs,” the head of the Left-Green Movement, Steingrimur Sigfusson, tells me with fresh incredulity. “And apparently not very well.” They bought stakes in businesses they knew nothing about and told the people running them what to do — just like real American investment bankers!

But it was all essentially make-believe.

A handful of guys in Iceland, who had no experience of finance, were taking out tens of billions of dollars in short-term loans from abroad. They were then re-lending this money to themselves and their friends to buy assets — the banks, soccer teams, etc. Since the entire world’s assets were rising — thanks in part to people like these Icelandic lunatics paying crazy prices for them — they appeared to be making money. Yet another hedge-fund manager explained Icelandic banking to me this way: You have a dog, and I have a cat. We agree that they are each worth a billion dollars. You sell me the dog for a billion, and I sell you the cat for a billion. Now we are no longer pet owners, but Icelandic banks, with a billion dollars in new assets. “They created fake capital by trading assets amongst themselves at inflated values,” says a London hedge-fund manager. “This was how the banks and investment companies grew and grew. But they were lightweights in the international markets.”

Colorful German banknotes from the 1920s

posted by Jason Kottke   Feb 19, 2009

In Germany in the 1920s, towns, banks, and companies printed their own money called notgeld.

Notgeld was mainly issued in the form of (paper) banknotes. Sometimes other forms were used, as well: coins, leather, silk, linen, stamps, aluminium foil, coal, and porcelain; there are also reports of elemental sulfur being used, as well as all sorts of re-used paper and carton material.

A Flickr user has uploaded hundreds of examples of the notgeld notes collected by his wife’s family; they’re so colorful! (via design observer)

The Icelandic financial crisis

posted by Jason Kottke   Nov 24, 2008

The story is a bit out-of-date, but this overview of the cause and effects of the Icelandic financial crisis is still worth a read.

Picture a pig trying to balance on a mouse’s back and you’ll get some idea of the scale of the problem. In a mere seven years since bank deregulation and privatisation, Iceland’s financial institutions had managed to rack up $75bn of foreign debt. In his address to the nation, Haarde put the problem in perspective by referring to the $700bn financial rescue package in America: “The huge measures introduced by the US authorities to rescue their banking system represent just under 5 per cent of the US GDP. The total economic debt of the Icelandic banks, however, is many times the GDP of Iceland.”

The end of Wall Street and Michael Lewis’ new “fucking book”

posted by Jason Kottke   Nov 12, 2008

Michael Lewis takes a look at the current financial crisis and traces its roots back to the 1980s and the events chronicled in his book, Liar’s Poker. He begins by introducing us to some analysts and investors that saw the whole thing coming. One of those people is Steve Eisman.

“We have a simple thesis,” Eisman explained. “There is going to be a calamity, and whenever there is a calamity, Merrill is there.” When it came time to bankrupt Orange County with bad advice, Merrill was there. When the internet went bust, Merrill was there. Way back in the 1980s, when the first bond trader was let off his leash and lost hundreds of millions of dollars, Merrill was there to take the hit. That was Eisman’s logic-the logic of Wall Street’s pecking order. Goldman Sachs was the big kid who ran the games in this neighborhood. Merrill Lynch was the little fat kid assigned the least pleasant roles, just happy to be a part of things. The game, as Eisman saw it, was Crack the Whip. He assumed Merrill Lynch had taken its assigned place at the end of the chain.

It’s a fantastic article, well worth reading to the end…the final dozen paragraphs are the best part of the whole thing. Who knew deviled eggs were so pregnant with metaphor?

As I was reading the article, Matt Bucher dropped a note into my inbox. As hoped for months ago, Lewis is writing a book about this whole mess.

MONEYBALL and THE BLIND SIDE author Michael Lewis’s untitled behind-the-scenes story of a few men and women who foresaw the current economic disaster, tried to prevent it, but were overruled by the financial institutions with whom they worked, sold to Star Lawrence at Norton, by Al Zuckerman at Writers House (NA).

The Portfolio piece will definitely find itself into the book, as will this piece on Meredith Whitney, this one on Goldman Sachs, Lewis’ subprime parable, and other pieces from Bloomberg, Porfolio, and his upcoming gig at Vanity Fair. One question though…what happens to Lewis’ forthcoming book on New Orleans? Did that just disappear?

The irony of poverty

posted by Jason Kottke   Nov 04, 2008

On the irony of poverty:

On the one hand, lack of slack tells us the poor must make higher quality decisions because they don’t have slack to help buffer them with things. But even though they have to supply higher quality decisions, they’re in a worse position to supply them because they’re depleted. That is the ultimate irony of poverty. You’re getting cut twice. You are in an environment where the decisions have to be better, but you’re in an environment that by the very nature of that makes it harder for you apply better decisions.

This American Life on the financial crisis

posted by Jason Kottke   Oct 13, 2008

This radio program made the rounds last week, but I finally got caught up this weekend so I’ll add my voice to the chorus urging you to listen to This American Life’s episode on the financial crisis, Another Frightening Show About the Economy. Paired with The Giant Pool of Money from back in May, this is an excellent overview of what’s going on in the financial markets right now. The hosts of the two shows are also doing a daily blog/podcast thing at Planet Money In addition, the last half of this week’s TAL concerns the political angle of the financial mess. I haven’t had a chance to listen yet, but check it out if you’re into that sort of thing.

The financial crisis, a Pokemon parable

posted by Jason Kottke   Oct 08, 2008

This is perhaps the most succinct explanation of the current financial crisis I had read: The Financial Crisis, as Explained to My Fourteen-Year-Old Sister.

Kevin: Imagine that I let you borrow $50, but in exchange for my generosity, you promise to pay me back the $50 with an extra $10 in interest. To make sure you pay me back, I take your Charizard Pokémon card as collateral.

Olivia: Kevin, I don’t play Pokémon anymore.

Kevin: I’m getting to that. Let’s say that the Charizard is worth $50, so in case you decide to not return my money, at least I’ll have something that’s worth what I loaned out.

Olivia: Okay.

Kevin: But one day, people realize that Pokémon is stupid and everyone decides that the cards are overvalued. That’s right — everybody turned twelve on the same day! Now your Charizard is only worth, say, $25.

The only thing that’s missing is the part of the explanation where the parents swoop in and pay Kevin full value for that Pokémon card, which allows him to keep lending money in exchange for cardboard rectangles.

Cans of mackerel are prison currency

posted by Jason Kottke   Oct 07, 2008

In the US federal prison system, cans of mackerel have replaced outlawed cigarettes as the de facto form of currency.

“It’s the coin of the realm,” says Mark Bailey, who paid Mr. Levine in fish. Mr. Bailey was serving a two-year tax-fraud sentence in connection with a chain of strip clubs he owned. Mr. Levine was serving a nine-year term for drug dealing. Mr. Levine says he used his macks to get his beard trimmed, his clothes pressed and his shoes shined by other prisoners. “A haircut is two macks,” he says, as an expected tip for inmates who work in the prison barber shop.

See also the economics of POW camps.

What the financial crisis means for high-end prostitutes

posted by Jason Kottke   Sep 29, 2008

High-end prostitutes see an uptick in business — for a few months anyway — during times of financial hardship and crisis.

Their clients were coming to them for a mix of escape and encouragement. As Jean, a New Yorker and a 35-year-old former paralegal turned “corporate escort” (her description) told me, “I had about two dozen men who started doubling their visits with me. They couldn’t face their wives, who were bitching about the fact they lost income. Men want to be men. All I did was make them feel like they could go back out there with their head up.”

Indeed, forty percent of encounters between high-end prostitutes don’t involve sex…like therapy with occasional benefits.

Michael Lewis’ mansion

posted by Jason Kottke   Sep 26, 2008

Michael Lewis rents a mansion in New Orleans and finds in the experience a parable about the thirst of Americans for better housing than they can afford, the subprime mortgage crisis, and the ensuing financial panic.

The real moral is that when a middle-class couple buys a house they can’t afford, defaults on their mortgage, and then sits down to explain it to a reporter from the New York Times, they can be confident that he will overlook the reason for their financial distress: the peculiar willingness of Americans to risk it all for a house above their station. People who buy something they cannot afford usually hear a little voice warning them away or prodding them to feel guilty. But when the item in question is a house, all the signals in American life conspire to drown out the little voice. The tax code tells people like the Garcias that while their interest payments are now gargantuan relative to their income, they’re deductible. Their friends tell them how impressed they are-and they mean it. Their family tells them that while theirs is indeed a big house, they have worked hard, and Americans who work hard deserve to own a dream house. Their kids love them for it.

(thx, kabir)

Michael Lewis’ new book on financial insanity

posted by Jason Kottke   Sep 24, 2008

Ok, Michael Lewis *is* writing a book about the current financial situation. Sort of. It’s called Panic: The Story of Modern Financial Insanity.

When it comes to markets, the first deadly sin is greed. Michael Lewis is our jungle guide through five of the most violent and costly upheavals in recent financial history: the crash of ‘87, the Russian default (and the subsequent collapse of Long-Term Capital Management), the Asian currency crisis of 1999, the Internet bubble, and the current sub-prime mortgage disaster.

It’s out in December so I imagine that it won’t include the current Lehman/AIG/Merrill/bailout kerfuffle, but that’s what “with new material” paperbacks are for. (thx, paul)

American Express card, 1963

posted by Jason Kottke   Sep 22, 2008

American Express card from 1963

That’s from the Smithsonian. Here’s a non-plastic card from 1958.

Michael Lewis on the financial collapse

posted by Jason Kottke   Sep 22, 2008

Michael Lewis looks on the bright side of the current financial crisis and finds five positive aspects.

Our willingness to believe that we can hire some expert to tell us how to outperform markets is a big problem, with big consequences. It underpins Wall Street’s brokerage operations, for instance, and leads to a lot more people giving out financial advice than should be giving out financial advice. Thanks to the current panic many Americans have learned that the experts who advise them what to do with their savings are, at best, fools.

God I hope he writes a book about all this someday, sort of a Liar’s Poker 2. He can call it Fool’s Roulette or something.

Guilloches

posted by Jason Kottke   Sep 04, 2008

Experiments with Guilloche patterns, those fine geometric patterns you find on European banknotes.

Banknote patterns fascinate me. I can get lost for hours in all the details, seeing how the patterns fit together, how the lettering works, the tiny security ‘flaws’ — they’re amazing. Central to banknote designs are Guilloche patterns, which can be created mechanically with a geometric lathe, or more likely these days, mathematically. The mathematical process attracted me immediately as I don’t have a geometric lathe and nor do I have anywhere to put one. I do, however, have a computer, and at the point I first started playing with the designs (mid-2004) Illustrator and Photoshop had gained the ability to be scripted.

Relatively rich

posted by Jason Kottke   Sep 03, 2008

Social scientist Dalton Conley on how rich people are now working longer hours than poor people in America.

This is a stunning moment in economic history: At one time we worked hard so that someday we (or our children) wouldn’t have to. Today, the more we earn, the more we work, since the opportunity cost of not working is all the greater (and since the higher we go, the more relatively deprived we feel).

In other words, when we get a raise, instead of using that hard-won money to buy “the good life,” we feel even more pressure to work since the shadow costs of not working are all the greater.

The increasing income inequality in the US is partially to blame, says Conley. Those in the middle and upper middle classes are working harder and longer, trying to keep up with the Joneses who are growing more wealthy at an even faster pace. Conley’s got a book coming out in January on the same topic called Elsewhere, USA. (via ah)

Cliche busting: worth its weight in gold?

posted by Jason Kottke   Aug 29, 2008

The monetary density of things…or what substances are worth their weight in gold, including $50 bills, LSD, and antimatter.

People have been saying that the new industrial grade swimsuits like the LZR Racer are worth their weight in gold. As you can see, this is clearly inaccurate. But such a suit is worth its weight in marijuana or industrial diamonds.

Using a FAQ at NASA, I calculated that a pound of aerogel is worth about $23,000…more if the aerogel has a particularly low density. One other note: printer ink is more than 50% more expensive by weight than silver is. (via mr)