After reviewing my links today, I remembered why I fell in love with Footnoted.org, and thought that I would give it a bump here on my site.  Not only because I wish the continued success of their site, but also because I think that anyone interested in business and investing should have it bookmarked.  Seriously, this site is just cool.  They continuously are pouring through the footnotes and financial statements of companies and pulling out interesting bits of information such as compensation, excesses, or filling in missing pieces that weren’t disclosed in your daily paper.  The site has received numerous praises such as Best of Web 2007 by Business Week and Must-reads in a Web 2.0 World by Fortune Magazine among many others.  Now, there is a hefty annual fee for those that want more in-depth articles; however, there is still a lot for the non-subscriber to sink their teeth into. This site demonstrates that modern journalism on the web can work and they do it well.

Economics would likely not be described as a lively topic for most people; however, its importance encompasses us all.  Whether we like it or not, knowing a thing or two about economics can be useful in understanding the world around us.  Above is a video created by John Papola & Russ Roberts, George Mason University economist and Spike TV executive producer respectively, which will cover the opposing philosophies of the economists John Maynard Keynes and F.A. Hayek.  The catch?  It is presented as a semi-rap battle with obvious similarities to what you will find in mainstream rap music.  Perhaps to address and reach a larger audience.  You can view the original post here, where you will also find the lyrics.  Enjoy!

Sometimes the simplest of phrases can have mountains of truth.  Mr. Micawber, a character from Charles Dickens novel David Copperfield, understood well the relationship between income and spending.  As many who had spent past their means in the years before the recent crisis can surely relate:

“Annual income, twenty pounds; annual expenditure, nineteen nineteen six; result, happiness.  Annual income twenty pounds, annual expenditure, twenty pounds ought and six; result, misery.”

-Charles Dickens, David Copperfield, pg 153

While reading the World In 2010, an annual production by the Economist magazine to predict and analyze the coming year, I found one article titled “The end of the affair”, to sadly mirror my own feelings about the future of the MBA or more importantly the value of business education.

Years ago when I applied to become a Finance major for my undergrad, business seemed to be the sure thing to go into;  a field that could be pinned down and quantified just as any other scientific discipline. Unfortunately, in the aftermath of a financial collapse reading about corporate greed and ethics are much more common than hearing of the brilliance of top finance companies.

As I have myself struggled to even find work with a finance undergrad in the poor economy, it looks to be much worse for the thousands of people graduating with their shiny new MBA.  With massive school debt looming and jobs under fierce competition, these new graduates will I think find it hard to justify the money spent.  The glamor of wanting to enroll into the program myself has diminished.

Business school in my view may have been overvalued.  Many leave school, I speak for myself but can only assume others feel similarly, with an unimpressive amount of tangible skills.  Often one of the biggest tools at your disposal upon graduation is the ability to speak the jargon but the inability to understand the mathematics or complex systems underneath is lacking.  I don’t expect an MBA program to be much different.

To self-criticize, I have not gone through the program myself, and therefore can only speak to what I have read and heard.  The MBA program may well still be a valuable program for some who already have a technical background e.g., engineering, math, IT, and are pursuing a more managerial role in their office.  However, I think with a gluton of MBAs looking for work and a need for workers with more at their disposal than fancy terminology, the program overall looks less enticing.

Grant Thornton, an accounting firm, put out a new report this month seeking to address a “precipitous decline in the number of publicly listed companies.”  While I am unclear about the solutions they pose to the problem as they are out of my scope of knowledge, I do find the issues addressed to be very real, and highly disturbing.

The argued main cause of delistings in the US exchanges is from a process they termed “The Great Delisting Machine,” or a trend towards lower commission and trading costs, which they see as starting back in 1996 with the birth of online brokerages.  One of the damaging products of this Delisting Machine is “Casino Capitalism.”  Casino Capitalism they claim is pushing out long-term quality investors through such means as: black pools, hedge funds, naked shorts, predatory shorts, high-frequency trading firms, OTC derivatives and credit-default swaps, credit surrogates (see full report for detail).

At this point, you may be wondering the obvious question, and the one assumed by this report: is a decline in the amount of publicly listed companies a bad thing?  Their answer is an emphatic YES.  The highest projection they calculated (formula explained in report) shows the loss of potential jobs at 22 million, and this number doesn’t account for any multiplier factors.  They point to a study by Global Insight which finds that “92% of job growth occurs after a company goes public.”  Accordingly, if the amount of IPOs is decreasing you could expect that potential jobs are being lost.

One additional concern is that this is not a global phenomenon but a US one.  The time period covered for their analysis was 1991-2008 and of all the developed nations who had reliable data no one suffered as much as the US.  In fact, Hong Kong over this span of time achieved a 253.2% growth in listings compared to a -22.2% reduction for the US.

For the complete report and Grant Thornton’s recommended solutions to this problem please turn to the pdf file they have at their website found here.

Still feeling the after-effects of the mortgage collapse?  Most of us are with a dragging economy, high unemployment, and nagging debts.  What exactly happened with mortgages, and what happened to all the money invested?  Questions whose answers will lead us to understanding why we are where we are today.

I have just finished listening to a great pre-recorded radio broadcast of This American Life, the issue titled, The Giant Pool of Money.  It is slightly dated now having been recorded back on 5/9/2008 but still, I believe, highly relevant.  It last for about an hour and covers the mortgage crisis and what exactly happened at varying levels from the CDO trader to the new homeowner.  I encourage everyone reading this to give it a listen and if you don’t have the time at the moment, bookmark it!  You can listen to the full episode by simply clicking on full episode link under the picture of the dollar bill.

This American Life: The Giant Pool of Money

I realize that this blog has been largely neglected for some time as I have given my attention to my more universal blog at Lateral Drift but I saw a quote from The Economist today and thought I would share it using a popular column I write at the other website.  Here are some words from the wise:

“Andrew Lo, of MIT’s Sloan School of Management, was fond of pointing out that in the physical sciences three laws can explain 99% of behaviour, whereas in finance 99 laws can explain at best 3% of behaviour.”

-The Economist, Sept. 26th - Oct. 2nd 2009

While doing some casual reading this evening I came across the following interesting statement.

“The cost of heart disease and stroke in the United States has been estimated at $432 billion for 2007, including health care expenditures and lost productivity.”
-The Blue Zone by Dan Buettner

This is a pretty shocking estimate and although the number could have quite a bit a fidget room even at half that amount it is a considerable amount. I think this makes the case as has been brought up on numerous occasions for the practice and additional emphasis on preventative medicine in our county. Encouraging and creating incentives to not smoke, live a non-sedentary lifestyle, and have a healthy diet could save our state billions of dollars while also having many positive side-effects.

Where ever you might stand on this issue it will certainly be heavily debated as the US looks for ways to save on spending and improve the state of our health care system. Simple changes in philosophy could make a dramatic difference.

Math, yes, the stereotypically nerdy, the unjustly named boring, and maybe not so wrongly named difficult.  It is, despite these truths and fictions, a matter of great concern especially for those who wish to further their knowledge of finance and economics. Readings of many graduate level or higher papers in these fields are littered with mathematical terms and without the appropriate level of understanding can be impossible to follow.  More importantly, mathematics and it’s applications can have major consequences for the financial industry and beyond.

In a extremely interesting article posted on wired.com, Felix Salmon discusses how a formula designed by David X. Li brought the financial system to a halt in the current crisis.  It is an important reminder that math can be extremely powerful (profitable) but also dangerous if not correctly understood.  I think that had financial institutions better understood the true risk that they had been taking they would be in a better position today.

Now, if you are like me and are curious to continue to learn mathematics as a way of furthering your understanding of finance, economics, or math itself, I have a couple recommended sites I would like to share with you that have been invaluable to me.  The first is MIT OpenCourseWare, which is not only a superb access point for watching full classroom periods for select MIT math courses but is a great source for numerous other disciplines.  Second, Free Online Books, which appears to be a legit website and has been a great resource for working through whole textbooks at no cost.

Happy Learning!

Image courtesy of SXC.hu, HAAP Media Ltd

New regulation is certain.  The failure of private firms to self-regulate in a manner that would provide for the long term stability of the financial system and our country is apparent.  The ability for corporations to choose the amount of regulation imposed upon them by changing the form of their identity has provided an enormous and dangerous loophole.  Take for example hedge funds who have seen their business untouched by the peering eyes of the SEC.  With vast amounts of cash and leverage their activities were allowed to go unchecked and drastically increased systematic risks.  But how much regulation is too much and can regulation take a form that will not stifle financial innovation but instead will encourage it’s progress through careful monitoring?

Tim Geithner, the treasury secretary, today outlined some new ideas going forward for regulation on risk in our country.  The full text can be found here at the WSJ.  One of the basic ideas covered in his testimony was that all financial bodies should face clearer regulation and end the practice of spotty coverage.  He stated that he is encouraging hedge funds and other forms of private capital to register with the SEC and it is my understanding that he will look to make this law.  The Madoff episode struck to the heart of the matter by showing that without the correct oversight the consumer is the adequately protected.

He has also proposed that the federal government for the first time will be regulating the markets for credit defualt swaps and OTC deratives.  He said that he “…will bring unparalleled transparency to the OTC derivatives markets by requiring CCPs and trade repositories to make aggregate data on trading volumes and positions available to the public and make individual counterparty trade and position data available on a confidential basis to federal regulators, including those with responsibilities for market integrity.”

He goes on further to mention the need for stricter monitoring of the money market funds and resolution authority that would deal give the treasury the ability to deal with institutions that are not covered under the FDIC resolution authority such as, “…bank and thrift holding companies and holding companies that control broker-dealers, insurance companies, and futures commission merchants, or any other financial firm posing substantial risk to our economy.”  Considering that the firm is a threat for systematic risk and is on the verge of bankruptcy the treasury would be able to do a number of things in order to stabilize the firm including placing it under conservatorship.

It is to be seen if the treasury secratary will be granted his entire wishlist by the end of the legistlative editing process but many of these ideas are likely to be seen in one form or another as there seems to be the politcal will.