Opinion

Ben Walsh

from Counterparties:

German Constitutional Congestion

Ben Walsh
Feb 10, 2014 23:24 UTC

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Is the European Central Bank behaving in a constitutional manner? On Friday, the German Constitutional Court said no -- but declared that the European Court of Justice should have the final say in the matter. At issue is a key weapon in the ECB’s crisis-fighting arsenal.

In the midst of the European sovereign-debt crisis, the ECB announced it would buy unlimited amounts of member states’ bonds, if needed. ECB chief Mario Draghi famously said he would do “whatever it takes”, and that promise has, so far, been enough: the ECB hasn’t needed to actually use the bond-buying program, called Outright Monetary Transactions.

German citizens appealed to the Constitutional Court, saying the program, which Draghi laid out in this 2012 statement, amounted to economic, not monetary policy. (The ECB is barred by the Lisbon Treaty of 2007 from making economic policy). Now the German Court has decided that the program violated the EU treaty, but has referred the case the to the European Court of Justice to have the final say.

FT Alphaville says that court’s ruling is based on a pretty basic misunderstanding of how the OMT works: the Court seems to think that OMT calls for debt restructuring and/or haircuts, when in fact the ECB said it would buy bonds on their standard, pre-existing terms.

from Counterparties:

Turkey’s underwhelming shock-and-awe

Ben Walsh
Jan 29, 2014 23:35 UTC

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After an emergency midnight meeting yesterday, Turkey's central bank acted in defiance of the country's prime minister and raised its overnight lending rate to 12% from 7.75%. The move came in the context of declines in the lira and other emerging market currencies. In the last year, the lira has fallen more than 20% against the dollar, and is down 4.25% in the last month.

The lira strengthened against the dollar after the announcement, but the gains proved transient and were gone just 16 hours after the announcement. The lira ended Wednesday essentially flat, down 0.22% against the dollar.

from Counterparties:

The Berkshire range

Ben Walsh
Jan 27, 2014 22:45 UTC

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Warren Buffett’s Berkshire Hathaway, no stranger to exotic insurance risks, is insuring Quicken’s $1 billion prize for picking a perfect NCAA tournament bracket. The odds of picking the winner of all 63 basketball games are absurdly low: somewhere in the realm of 1 in 128 billion to 1 in 772 billion. Those odds raise the question of why Quicken is even looking for insurance in the first place. Maybe, as David Merkel points out, “those seeking insurance on unlikely events think the events are more likely than they actually are”.

Warren Buffett is very good at both the insurance business and the publicity business. A combination of those talents is presumably why Quicken is probably paying more than the $0.01 fair value (the payout multiplied by the odds, or $1 billion times 1/128 billion) for the policy. How much more Quicken is paying, however, isn’t clear, and there just may not be enough data to accurately price the policy.

from Data Dive:

The state of America’s unions

Ben Walsh
Jan 24, 2014 19:16 UTC

The percentage of American workers in unions was constant at 11.3% from 2012 to 2013, new data from the Bureau of Labor Statistics show. In 1983, the first year the BLS started collecting this data,  that number was 20.1%.

The rate of unionization among public-sector workers is five times higher than for private-sector workers, at 35.3% and 6.7%, respectively. In terms of occupations, education, training, library, and law-enforcement/first-reponse workers have the highest unionzation rate at 35.3%. Farming, fishing, and forestry workers have the lowest unionization rates at just 2.1%. There's also a very strong geographical split in unionization:

Here's the BLS:

30 states and the District of Columbia had union membership rates below that of the U.S. average, 11.3 percent, while 20 states had higher rates. All states in the Middle Atlantic and Pacific divisions reported union membership rates above the national average, and all states in the East South Central and West South Central divisions had rates below it.

from Data Dive:

Economic mobility in America: relatively constant, but more consequential than ever

Ben Walsh
Jan 23, 2014 18:05 UTC

U.S. economic mobility -- the chances of moving up or down the income scale -- has been relatively unchanged over last 20 years. That's the conclusion of a new study by a team of economists led by Harvard's Raj Chetty, who find that "intergenerational mobility [has] remained extremely stable" for Americans born between 1971 and 1993. The NYT's David Leonhardt explains:

The study found, for instance, that about 8 percent of children born in the early 1980s who grew up in families in the bottom fifth of the income distribution managed to reach the top fifth for their age group today. The rate was nearly identical for children born a decade earlier.

Combining these findings with earlier research on Americans born between 1950 and 1971, the economists conclude that "rank-based measures of social mobility have remained stable over the second half of the twentieth century in the United States". The researchers chart that stability, along with a map showing how economic mobility varies across the United States:

from Counterparties:

Overworked and overpaid

Ben Walsh
Jan 21, 2014 22:35 UTC

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“Overwork has become a credential of prosperity”, writes James Surowiecki on the growing cult of overwork among knowledge workers. It’s not just the beleaguered and well-compensated junior investment bankers who are putting in long hours:

Thirty years ago, the best-paid workers in the U.S. were much less likely to work long days than low-paid workers were. By 2006, the best paid were twice as likely to work long hours as the poorly paid, and the trend seems to be accelerating. A 2008 Harvard Business School survey of a thousand professionals found that ninety-four per cent worked fifty hours or more a week, and almost half worked in excess of sixty-five hours a week.

from Counterparties:

Fluid regulation

Ben Walsh
Jan 15, 2014 23:26 UTC

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On Thursday, 7,500 gallons of a toxic chemical, 4-methylcyclohexane methanol (MCHM), spilled from the tank where it was waiting to be used to clean coal into the Elk River in West Virginia.

The spill has highlighted the odd, overlapping, and somehow porous regulation of industrial chemicals, the infrastructure that holds them, and the companies that sell them. MCHM is one of the more than 60,000 chemicals exempt from the Toxic Substances Control Act (TSCA), on the grounds that they were in in use when the law was passed in 1976. As a result, its safety and safe use isn’t regulated by the Environmental Protection Agency.

from Counterparties:

The problem with requiring junior bankers to take time off

Ben Walsh
Jan 14, 2014 23:16 UTC

Banks want to make the lives of their junior investment bankers more pleasant. Goldman Sachs, for instance, has instituted a 36-hour weekend. JP Morgan liked the way those old National Guard commercials sounded and is giving its junior bankers one weekend a month off.

As Matt Levine points out, these rules are fairly silly. Junior bankers cater to the whims of senior bankers, and senior bankers cater to the whims of clients. Being a senior banker has very little to do with being a good manager; in fact, it’s often antithetical to being a good boss. What's more, the most important working hours for junior investment bankers tend to be late at night, and very early in the morning. Levine’s proposal for banks to cut out the useless daylight facetime and let junior bankers just work nights and weekends is as good as rules on this subject get. Not only is Levine right that a lot of deals happen over the weekend, but weekends are important when things are quiet, too. Some of the best, most helpful (and least stressful!) work junior bankers do is done at 11:30 on a Saturday morning.

The problem is, even a good rule isn’t the best way to make junior investment bankers' lives better. The best solution is for senior investment bankers to be better managers. But in a client service business, people tend to get promoted for servicing clients, and that can involve precisely the sort of tedious, repetitive work that makes junior bankers miserable. Management ability is a nice to have, not a must-have.

from Counterparties:

Trading with élan

Ben Walsh
Jan 10, 2014 22:55 UTC

The trial of former SAC analyst Mathew Martoma began today. Prosecutors say the case is “not about science or trading... The case is about cheating”. Martoma’s lawyer countered that the government has simply charged an innocent person. “This case is like ‘The Exonerated’”, he said.

The prosecution’s case is that Martoma allegedly got information about an Alzheimer’s drug’s clinical trials from a doctor working on the trials. Martoma then allegedly used this information to recommend SAC short shares of the drug’s developers, Elan and Wyeth, netting $276 million for SAC when the shares slumped. The defense counters that there were many reasons to sell or short Elan and Wyeth, and that “insider trading is not one of them”. The prosecution, they say, is overly dependent on the doctor who allegedly gave Martoma the trial results and who has since been pressured, they claim, into cooperating with the government in exchange for immunity.

DealBook’s Matthew Goldstein and Alexandra Stevenson report that Martoma was expelled from Harvard Law for electronically altering his transcript, sending the forged document to 23 judges, and then fabricating emails and creating a “counterfeit report from a computer forensics firm” to conceal his actions. Alex Tabarrok points out that Martoma previously worked as a medical ethicist at the NIH, and that an undergraduate professor wrote in a letter of recommendation that “no one has contributed more to our class discussions of Sissela Bok’s Lying, nor was anyone in our class as acute on the issues of moral capacity raised by Camus’ The Plague”.

from Counterparties:

Europe’s new low

Ben Walsh
Jan 9, 2014 23:04 UTC

Mario Draghi is back in unfortunately familiar territory. Reuters writes: “the European Central Bank on Thursday forcefully underlined its determination to take action” if something that is already a problem becomes even more of a problem. Today, the ECB held rates steady and Draghi addressed Europe’s latest inflation reading of 0.8% in December, which is still well below the central bank’s 2% target. Excluding fuel and food, inflation hit a record low of 0.7%.

Antonio Fatas parses an interview Draghi gave with Der Spiegel, and likes “his honesty and clarity when he asserts that all German fears about increasing inflation in the Euro area have turned to be wrong”. Fatas is unsure, however, whether Draghi can do much, against both Germany’s objections and his own structural limitations, to move inflation higher.

Worryingly low inflation is not a new phenomenon in Europe. In November, Ryan looked at the growing fear of disinflation, if not deflation, in Europe. Matt Yglesias doesn’t think the ECB is being forceful on inflation. On the contrary, he argues it is being unacceptably blasé:

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