Friday, September 25, 2009

Google's option repricing.

Today the Wall Street Journal talks about the huge windfall that Google's employees received because the company repriced their stock options back in March.

At the time, Google argued that it was only fair to reset the strike price of the options because so many of them were so far out of the money due to the stock market collapse. Google wasn't alone. On March 23 Bloomberg reports that a range of companies were doing this.

When Google reset the options, the price of the stock was at $308, today the price is at $494. In effect Google orchestrated a massive wealth transfer from shareholders to employees. We're not talking chump change here either. The WSJ estimates the transfer was around $1.5 billion.

Their argument that they wanted to retain the best just doesn't fly. Would you quit your job with Google in the middle of the worst recession in 80 years?

As the Wall Street Journal points out, "Google is a different kind of company" - yes - one that gleefully fleeces its own shareholders.

Thursday, September 24, 2009

Finance Films

The Economist has a blog posting talking about finance films. The conclusion is that overall, they tend to be not very good.

The comments on the post make for interesting reading and perhaps might contain a few suggestions for your netflix queue.

My personal faves are
Boiler room
Wall Street
Barbarians at the Gate
Rogue trader

Feel free to post any that I might have missed (as comments).

Wednesday, September 23, 2009

Sensationalist Wall Street Journal

Felix Salmon argues that the Wall Street Journal is taking a turn for the worse under its new ownership by using sensationalist headlines. I think he has a point. You used to be able to rely on the WSJ for pretty unbiased solid coverage of financial news. Now there seems to be an underlying agenda.

Financial Times Alphaville

FT Alphaville is a blog sponsored by the Financial Times, which is the UK equivalent of the Wall Street Journal except that it is not owned by Rupert Murdoch.

The blog is updated from London, New York and Tokyo and is designed to be a 24 hour news service. Its free - and also provides links to other blogs as well as the FT. I'll be adding it to my blog reader.

Monday, September 21, 2009

Front running a merger

Today (Sept 21) Dell indicated that it will buy Perot systems. But, on Sept 18, call option volume on Perot systems spiked. Seems a little suspicious....

Read more here.

Saturday, September 19, 2009

Tariffs on tires are a bad idea.

The Economist is unimpressed with the latest round of trade tariffs on tires (or tyres) as they say across the pond.

Pick 3 lottery stupidity

The NC education lottery is designed to generate funds for NC schools. Whether or not it is effective in that goal is debatable, but what it really is, is a tax on the mathematically challenged.

Exhibit A: The triangle troubleshooter (a column in the Raleigh News and Observer) reports the terrible wrong done to a poor woman who purchased 2 "Pick Three" tickets and, shock, horror, got the same number on both tickets. Oh the humanity...

The classic line from the lottery player is
"I don't have faith in this system," she said. "It doesn't make sense to me mathematically. There should be enough numbers that each ticket would be individual."

Consider the facts - its a pick THREE. There are 1000 possible numbers (assuming you allow 000), and 581,468 tickets are sold.

I propose that all proceeds from the lottery be directed to teach the citizens of this great state the basics of probability theory.

But until that happens, don't play the lottery unless a) you are severely mathematically challenged or b) you don't feel like you pay enough state tax.

Wednesday, September 16, 2009

What do economists think?

Greg Mankiw posts a link to "what economists believe". Take a look and see if you agree!

Mankiw also mentions the recent tire tariffs imposed by President Obama on Chinese tires. Most economists think tariffs are a very bad idea (me included). It does make you wonder though why new Presidents are so quick to levy tariffs. For example, GWB did a similar thing in 2002.

The price is right and the EMH

The Guardian has a short article talking about two components of the EMH (Efficient Market Hypothesis).

The conclusion is slightly amusing.
But that still leaves the first part of EMH intact; that you can't beat the market unless you have insider information. It implies that most of us are better off stowing our savings in a cheap fund that tracks the stock market, rather than with some expensive smarty-pants fund manager. There you go, an idea from economics that might save you money: who'd have thought it?

Tuesday, September 15, 2009

How did economists get it wrong?

Well, first you have to accept the premise of the title, but assuming that you do (and even if you don't), Paul Krugman has a lengthy article on the evolution of macroeconomics and how it relates to the current situation. I don't know whether I buy it all, but I'm not a macro-economist and I don't have a Nobel prize.

HT: My friend Bill.

Did Lehman's collapse start the crisis?

Two very reputable economists from Chicago, John Cochrane and Luigi Zingales suggest that the true cause of the crash probably has more to do with the TARP they eloquently state...
In effect, these speeches [about TARP] amounted to "The financial system is about to collapse. We can't tell you why. We need $700 billion. We can't tell you what we're going to do with it." That's a pretty good way to start a financial crisis.

HT: Greg Mankiw

Friday, September 11, 2009

Healthcare in the UK

With all the talk about healthcare reform, the topic of systems in other countries crops up a lot. For example, Britain's NHS is frequently portrayed as a disaster by the media in the US.

This short documentary (again on Frontline) talks about the UK system. This is clearly not the solution for the US, but I think it indicates that there are, perhaps, alternatives that work pretty well. As always, its all about getting the incentives right.

Breaking the bank...

Breaking the Bank is an excellent documentary on PBS (produced by Frontline) that documents the hour by hour collapse of Lehman and the back room deals done as more banks imploded. A lot of focus is paid on the buyout of Merrill by B of A, which started out as a great deal until the true state of the mess that was Merrill's balance sheet became apparent.

You can watch it online, and I strongly recommend it to all my students. My only disagreement with the documentary was in the closing minutes where it is stated that basically the whole mess was Wall Street's fault, and now the Feds are running the show. I fundamentally disagree with this take. I, like many (or most) other economists put a large amount of the blame for the mess not on the lack of government regulation, but on the very poor and misguided regulation that encouraged subprime lending and allowed firms to abdicate their responsibility for risk management.

Anyhow, check out the show, its compelling viewing.

Wednesday, September 9, 2009

Alan Greenspan - it will happen again...

The ex-fed chief talks about the current mess and the likelihood of it happening again.

The cost of the financial meltdown

An interesting graphic from the BBC. The UK doesn't look too healthy.


My colleague, Craig Newmark, posts a link to another critique of PowerPoint. I actually don't use PPT in my lectures. I used to, but I found that I was boring myself. I am sure some folks can use it creatively, but it is so easy for it to become a crutch.

Tuesday, September 8, 2009

The new auto industry breakdown

Just in case you weren't keeping up on all the changes to the US auto industry, here's a handy graphic to bring you up to speed.

Friday, September 4, 2009

Linux and high frequency trading.

Its not often that you find an article about linux (I am a user), stock trading, and a local company here in Raleigh (Red Hat).

Its all a bit geeky, but if you're so inclined, read on. Apparently RedHat Linux powers the world's fastest stock exchange.

Incidentally, I use ubuntu linux.

The problems with alpha...

In my MBA class this semester, we haven't gotten to alpha yet... but this post on the unknown professor's blog touches on the weakness of alpha. The whole video is worth watching.

The source of the video is "falkenblog", and a more detailed post on the topic is here.

The quote:
One should remember that Enron was the subject of Harvard Business School case studies in 'best practices' management, they emphasized their 'risk management' and received plaudits there.

made me laugh out loud.

CNBC - it makes my head hurt

The dumbest TV presenters are not on the afternoon chat shows, they are on CNBC. The Self-Evident blog has an excellent post on the latest CNBC idiocy.....

My favorite quote "I don't understand how that relates to what Larry was saying" - right because you are STUPID.

Actually for pure comedy value, CNBC is excellent.