81–90 of 214 posts
If you're taking a lot of risk and it blows up in your face, you SHOULD lose your shirt.
The people who are NOT involved in your decision should NOT be made to pay.
People can only learn from mistakes if behavior and outcomes are tightly coupled, not if all the outcomes happen to other people and you start getting all your bonuses next year like nothing ever happened.
I'm an engineer. I could go into a high-risk career trying to cure cancer, or I could flip houses. By my (admittedly rough and speculative) math, I'd make more money doing the second. This has nothing to do with finance and everything to do with how capitalism privileges owners. Just because I can do something (e.g. cure cancer) doesn't mean I should do it out of some regard for the "public good", requiring great sac…
In a way this is partly a good thing. If everyone focused on going to space or curing cancer and were unsuccessful for quite some time we'd be in trouble. While there is a place for these endeavors and they are very important we have to be careful not to allocate too much focus to them.
The British Engineer Charles Babbage (Father of the Computer in many respects) wasn't afforded the opportunity to complete the first working mechanical calculator because of cost restrictions by the British Gov't, an invention which could have altered the British course in History. High risk projects in Science and Engineering may rarely pay off, but when they do the ROI is incalculable in many ways. Flipping houses, not so much.
Curing cancer is a place holder for any number of fields that are still under-explored. Finance really shouldn't be a driver of growth, especially when the growth is concentrated in public financing of debt, it just doesn't seem sustainable.
The derivatives market is valued over $700 trillion dollars (forbes, 2013 est.), while the GDP of the world is S$74.31 trillion (2013). There's also options and swaps markets. While their benefit is dubious, deregulation has allowed these markets to ballon to ridiculous levels.
These markets keep investment capital away from more beneficial investments, such as tech firms, infrastructure and research and development. These are things we desperately need investment in. At the same time the property market doesn't need more investment, and is devastating if speculation is allowed to occur.
I'm an engineer. I could go into a high-risk career trying to cure cancer, or I could flip houses. By my (admittedly rough and speculative) math, I'd make more money doing the second. This has nothing to do with finance and everything to do with how capitalism privileges owners. Just because I can do something (e.g. cure cancer) doesn't mean I should do it out of some regard for the "public good", requiring great sac…
More likely, if you go into a career trying to cure cancer; there is a big pharmaceutical company or research institution behind it. They may be taking a big risk; but the career risk for you personally is not that big. You'll draw a salary even if you don't cure cancer.
The lack of regulation is more of a concern than the human resource allocation or event the debt to GDP ratio. The derivatives market is valued over $700 trillion dollars (forbes, 2013 est.), while the GDP of the world is S$74.31 trillion (2013). There's also options and swaps markets. While their benefit is dubious, deregulation has allowed these markets to ballon to ridiculous levels. These markets keep investment…
The US finance industry uses self-generated work which generates commissions. One of the drivers behind this is the tax preference for debt over dividends. There's been a trillion dollars worth of stock buybacks since 2008, an action taken mostly to reduce taxes. That generates work for Wall Street, and wealth for those "near the money", working on various deals. Then there are "hedge funds". Hedge funds, as a class,…
I think you're taking an overly pessimistic view on a number of things. Both volatility and bid-ask spreads are down considerably since the growth of high-frequency trading. Buybacks in general are bad for everyone involved because they're often done when valuations are high, however, they can be beneficial to shareholders when valuations are low. Shorting helps facilitate price discovery and options are used to prot…
False. Lousy studies of hedge funds show they outperform, but the second you take into account survivor bias, the opposite is true. There have been huge numbers of terrible hedge funds created and liquidated that swamp the few successful ones that everybody hears about.
The US finance industry uses self-generated work which generates commissions. One of the drivers behind this is the tax preference for debt over dividends. There's been a trillion dollars worth of stock buybacks since 2008, an action taken mostly to reduce taxes. That generates work for Wall Street, and wealth for those "near the money", working on various deals. Then there are "hedge funds". Hedge funds, as a class,…
The US finance industry uses self-generated work which generates commissions. One of the drivers behind this is the tax preference for debt over dividends. There's been a trillion dollars worth of stock buybacks since 2008, an action taken mostly to reduce taxes. That generates work for Wall Street, and wealth for those "near the money", working on various deals. Then there are "hedge funds". Hedge funds, as a class,…
I think you're taking an overly pessimistic view on a number of things. Both volatility and bid-ask spreads are down considerably since the growth of high-frequency trading. Buybacks in general are bad for everyone involved because they're often done when valuations are high, however, they can be beneficial to shareholders when valuations are low. Shorting helps facilitate price discovery and options are used to prot…
Same with mutual funds. With both mutual funds and hedge funds, investors are paying a ton of money for nonexistent skill.
Reminds me of a story. One of my local universities (top 3 in the country) had a chemistry lab competition and invited high schools from local cities to participate. My younger sister was selected to be part of her school's team. So she went and won the competition. The deen of science was so impressed by her performance that after the reward ceremony he invited her to enrol in the science program. She replied no and…
Basically, the authors come up with a toy model that, given a long list of assumptions, produces the reported result.
They then test these results by running a simple cross-country regression with no time dimension and a sample size of around 300.
I don't place much stock in these kinds of studies. Empirically speaking, there are just too many confounds in cross-country studies for them to be convincing. Theoretically speaking, the assumptions are highly unrealistic for all the reasons that have been said before. With a little bit of ingenuity, these models can be made to say just about anything.