Opinion

Ben Walsh

from Felix Salmon:

Counterparties: Pandefenestration

Ben Walsh
Oct 16, 2012 21:47 UTC

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Just one day after his company reported third quarter earnings, Vikram Pandit is unexpectedly out as Citigroup's CEO. Pandit and the board don't agree on why. Pandit claims that resigning was his decision and that he "been thinking about this for a long time". The board sees things differently. It reportedly ousted Pandit due to Citi's subpar financial performance and his "poor execution".

Pandit is being replaced, effective immediately, by Michael Corbat, the man who until yesterday was responsible for Citi's business in Europe, the Middle East, and Africa. As recently as August, such a change seemed unlikely. Pandit "told colleagues that he intends to stay [on as CEO] for several years", according to Suzanne Kapner at the WSJ. Even then, however, there was increasing pressure from the board of directors to outline succession plans and groom his potential replacements.

Citi's stock is down 90% since Pandit took over as CEO in late 2007, and has lagged all its rivals. More broadly, as the FT's Tracy Alloway points out, Citi's share price over Pandit's tenure is worse than every other financial company in the S&P 500, save AIG. And beyond financial failings, Pandit also had the issue of "regulatory baggage" that he could never seem to shake.

In the past few months, there have been even more setbacks. In April, Citi failed the Fed's stress test and had its $8 billion share buyback program rejected. In September, the bank was forced to take a $3 billion loss on the sale of its Smith Barney stake to Morgan Stanley. Citi also failed to spot on the surge in housing that drove JP Morgan and Well Fargo's results. That lead to yesterday's earnings, which Matt Levine characterized described as an "excellent 88% decrease in profit".

from Felix Salmon:

Counterparties: Economists who did good

Ben Walsh
Oct 15, 2012 22:20 UTC

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Lloyd Shapley and Alvin Roth have won the Nobel Prize in economics "for the theory of stable allocations and the practice of market design". To put it differently, they won the Nobel for their work on "matching markets" through investigations into marriage, or dwarf tossing, or illegal horse meat.

Alex Tabarrok of Marginal Revolution drills down into exactly why matching markets matter to our everyday lives: "Matching is a fundamental property of many markets and social institutions. Jobs are matched to workers, husbands to wives, doctors to hospitals, kidneys to patients."

A bubble we can use: mortgage refinancing

Ben Walsh
Oct 12, 2012 22:45 UTC

Since the financial crisis, banks have struggled to fill the multi-billion-dollar hole that mortgage securitization caused in their income statements. Announcing their quarterly earnings this morning, JP Morgan and Wells Fargo seem to have found at least a partial replacement: mortgage refinancing.

JP Morgan’s third quarter produced a record $5.7 billion in profit. Importantly, that result also reversed a four-quarters-long trend of declining year-over-year financial performance. Their mortgage business originated $47 billion in loans and produced a record $2.4 billion in revenue (full financial details here). But this wasn’t a sudden blow-out: JP Morgan has had over $2 billion in mortgage related revenue for each of the first three quarters of 2012, a 234% increase over the same period in 2011.

Wells Fargo also came in with a strong $4.9 billion in profit, up 22% from last year’s third quarter. They originated $139 billion in mortgages and $131 billion in the second quarter.  Mortgage revenue and income were down substantially, but only, it seems, because of a decision to keep more mortgages on balance sheet, thus missing out on an estimated $200 million in revenues from selling mortgages it originated. But the value is still there.

from Felix Salmon:

Counterparties: Small enough to fail?

Ben Walsh
Oct 11, 2012 22:13 UTC

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Too big to fail is a problem that has ostensibly been solved, thanks in part to banks' "living wills". But, as Sheila Bair has argued, simply saying that you're no longer too big too fail does little to remedy the market's perception of an implicit government backstop.

Daniel Tarullo, the Fed's expert this thorny issue, has a simple proposal -- he wants to limit the amount that banks can borrow from the markets.

Why un-revised jobs numbers matter

Ben Walsh
Oct 9, 2012 19:14 UTC

Ignore Friday’s completely baseless conspiracy-mongering from Jack Welch about the jobs numbers. The really interesting and pretty simple question is whether you should even pay attention to the Bureau of Labor Statistics’ monthly jobs data and economists’ predictions of them at all. Matt Yglesias argues the revisions are consistently large enough that we should all just chill out and just wait for more reliable data. He’s not alone in scolding the hype surrounding a number that’s going to change anyway. If you’re an ordinary observer, that argument makes complete sense. If you’re a trader, though, there’s plenty of reason to pay attention to the initial numbers: it moves markets, and that’s as much a rationale as a trader needs. There’s also a data-driven explanation of why both economists’ consensus of the initial number and the number itself should move markets.

This month, BLS’ numbers showed that the US economy added 114,000 jobs in September. Based on the Reuters poll of economists, the consensus prediction was an increase of 115,000.  In the context of a labor force larger than 150 million people, that’s a pretty accurate prediction. Economists aren’t always that good, of course, but they’re better than most people think.

Over the last ten years, according to data from Thomson Reuters Datastream, the correlation between the economists’ consensus, represented by the Reuters poll, and the initial BLS reported number has been 0.921 — darn strong. And much stronger than the correlation between the the far less labor-intensive “it’ll just be the same this month as it was last month” method: month over month correlation is 0.811. That gap between the two correlations quantifies the skill and expertise that goes into producing economists’ consensus. Consensus is the closest thing we have to tomorrow’s jobs numbers today and it tends to be closer than it’s given credit for.

from Felix Salmon:

Counterparties: Angela’s murky trip to Athens

Ben Walsh
Oct 9, 2012 22:00 UTC

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During Angela Merkel's six-hour visit to Athens today, her first in three years, she was officially given the "red carpet treatment", Reuters' Noah Barkin and Harry Papachristou write. The purpose of her trip was a symbolic show of support for Prime Minister Antonis Samaras and his government's reforms aimed at turning around the country's battered economy. Ordinary Greeks seemed intent on producing a different kind of symbolism:

Tens of thousands of demonstrators defied a ban on protests, gathering in Syntagma square to voice their displeasure with the German leader, who many blame for forcing painful cuts on Greece in exchange for two EU-IMF bailout packages worth over 200 billion euros.

from Felix Salmon:

Counterparties: Hyperinflation is so hot right now (in Iran)

Ben Walsh
Oct 5, 2012 22:17 UTC

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The official Iranian rial-to-US dollar exchange rate has been surprisingly steady over the past several months. That's somewhat odd, because in 2010, the US and EU imposed tough new sanctions against Iran. But in recent weeks, says the Cato Institute's Steve Hanke, "hyperinflation has arrived in Iran":

Using new data from Iran’s foreign-exchange black market, I estimate that Iran’s monthly inflation rate has reached 69.6%. With a monthly inflation rate this high (over 50%), Iran is undoubtedly experiencing hyperinflation.

from Felix Salmon:

Counterparties: But are you happy?

Ben Walsh
Oct 3, 2012 22:24 UTC

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One of the most common economic assumptions is that, broadly speaking, economic growth makes us all happier. Grow GDP, the argument goes, and we all get more stuff, and more stuff makes us happier. But a recent paper, as Izabella Kaminska writes, says "economists [may] be considering too narrow a set of determinants of well-being".

The Chairman of the FSA, the UK's chief financial regulator, Adair Tuner (lead author of the eponymous 2009 review into the financial crisis) has been even more direct in his criticism, once calling most financial activity "socially useless". Robert Skidelsky writes that Turner's new book, Economics after the Crisis, attacks three basic economic tenets:

from Felix Salmon:

Counterparties: The misery of flying

Ben Walsh
Oct 1, 2012 22:15 UTC

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On some level, complaints about modern air travel are absurd. Think about that famous Louis CK bit: "You're flying! It's amazing!...You're sitting in a chair, in the sky!" But Gary Shteyngart's awesomely scathing rant about American Airlines relays an experience bad enough to go beyond Tyler Brûlé's the walk-to-my-gate-was-too-long-and-I-had-to-interact-with-plebes shtick:

You, American Airlines, should no longer be flying across the Atlantic. You do not have the know-how. You do not have the equipment. And your employees have clearly lost interest in the endeavor. Like the country whose name graces the hulls of your flying ships, you are exhausted and shorn of purpose. You need to stop ... Flight 121 from Paris to New York began on a clear autumn afternoon. It ended over 30 hours later.

from Felix Salmon:

Counterparties: The state of the economy, restated

Ben Walsh
Sep 27, 2012 22:23 UTC

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Are you better off than you were 24 hours ago? The US labor market is, according to the Bureau of Labor Statistics.

The BLS released revised employment data that shows the US added 386,000 more jobs from January to March than previously thought. That variation, 0.3% of total nonfarm jobs, is exactly average: "the annual benchmark revisions over the last 10 years have averaged plus or minus three-tenths of one percent of total nonfarm employment". This revision won't be the last: another will be released in February 2013, covering all of 2012. But as Bill McBride at Calculated Risk notes, the preliminary revision we got today is usually "pretty close to the final benchmark estimate".

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