Opinion

Ben Walsh

from Counterparties:

Wall Street’s thin white line

Ben Walsh
Jul 30, 2013 22:01 UTC

The ink on SAC’s indictment is barely dry, but Dylan Matthews argues that the entire case should be dropped. In fact, he writes, insider trading should be legalized. Laws against insider trading are “justified as providing an even playing field for small investors” despite the fact that a “playing field doesn’t exist”.

Bethany McLean looks at the history of the market-as-level-playing-field notion and concludes it “isn’t level, it never has been, and I’m not sure it can ever be”. Attempts to achieve fairness have all sorts of perverse effects, she writes, from the deteriorating quality of stock research, to financial folly by individual investors. “Nobody”, Matt Levine says, “goes around saying ‘let the little guy compete with trained neurosurgeons in neurosurgery’”.

John Carney, who has been, in his own tongue-in-cheek description, “an insane idiot on insider trading” for years, notes that the argument for legalizing insider trading isn’t new: it was first proposed in 1966 by academic Henry Manne. (The WSJ has a good summary of his arguments, or if you’re looking for something lighter, an animated bear.)

Matt Yglesias takes an opposite tack: insider trading should remain illegal, in part, because legalizing it would mean a huge diversion of management resources away from running companies and toward personally profiting from their inside information. Regulators should minimize that “diversion of effort” by making insider trading illegal, Yglesias argues, and those laws “ought to be a model for looking at further curbs on speculative activity”.

Justin Fox, meanwhile, wonders why authorities aren’t focusing on more important financial misdeeds:

from Counterparties:

The fight for Dell

Ben Walsh
Jul 18, 2013 21:32 UTC

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Michael Dell is in an awkward position, and not just because earlier today a lack of shareholder support forced him to postpone a vote on his $24.4 billion, $13.65-a-share buyout proposal to July 24. Dell is trying to convince shareholders that the growth prospects of his eponymous company are limited. Supporting the founder’s buyout, write Reuters’ Nadia Damouni and Anna Driver, are investors who are “ready to cash out of a company increasingly vulnerable to a crumbling PC market and already a shadow of an earlier self that led the global market and stood as a model of industry innovation”.

Dell's gloomy pitch seems to be winning last-minute converts. Michael de la Merced reports that “a number of big institutional investors switched their votes to yes” last night, including Blackrock, Vanguard, and State Street. Some of those investors, Merced says, may have been waiting in hopes that a higher offer would materialize.

from Counterparties:

Banks’ problem with success

Ben Walsh
Jul 16, 2013 22:16 UTC

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Things are almost too good for US banks right now, Tom Braithwaite argues. Goldman Sachs is the prime example: it handily beat expectations for its quarterly earnings today, making $1.93 billion in profit. That’s double last year’s number. Wells Fargo’s second quarter earnings were $5.5 billion, up 20% from a year ago. And JP Morgan’s profits in the second quarter jumped 31% to $6.5 billion; the bank is now on track to earn $25 billion this year -- that’s basically $100 million every working day. Even the phrases “Citigroup earnings” and “soundly beat Wall St expectations” are now appearing in the same sentence.

The problem, Braithwaite writes, is that these are the exact banks who “have spent a lot of time, energy and money warning of the potential ill-effects of ramping up regulation”. Kevin Roose doesn’t think we should pay attention to what bankers had to say about regulation at all.

Being a CEO has never been more valuable

Ben Walsh
Jul 2, 2013 22:13 UTC

There are a number of reasons no one is particularly worried about wage stagnation among CEOs:

    Over the last 30 years, CEO pay increased 875%, according to the Economic Policy Institute

    In 2012, CEO pay at large companies rose 6.5%, according to Equilar

    The average ratio of S&P 500 CEO pay to employee pay is 204 to 1, according to Bloomberg (the ratio rises to 273 to 1 when companies outside the S&P are included).

First quarter growth goes from lackluster to dismal

Ben Walsh
Jun 26, 2013 16:57 UTC

The newest estimate by the Bureau of Labor Statistics says the US economy grew at an annual rate of 1.8% in the first quarter. Previously, growth was earlier reported to be 2.4%.

There were two main drivers to the downward revision: growth in consumer spending, which fell to 2.6% from 3.4%, and business investment, which fell to 0.4% from 2.2%.

There’s a chance that slower than estimated consumer spending in the first three months of 2013 may have improved in the second quarter (consumer confidence just reached its highest level in five years). Still, the 0.6 percentage point drop in first quarter growth is bad news for the US economy, where, as Sober Look put it, “the consensus seems to be that the US consumer will come to the rescue once again”.

from Felix Salmon:

Counterparties: Government’s governance problem

Ben Walsh
Jun 12, 2013 22:21 UTC

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The US and UK have a unique sort of corporate governance mess on their hands. Both countries are trying to deal with the complications of owning a multi-billion dollar financial institution, and are having a hard time doing so.

Britain’s problem is RBS, which the government owns 81% of as a result of 2008 bailout that ended up costing $71 billion. In the US, it’s Fannie Mae and Freddie Mac, the mortgage giants that have been under federal conservatorship since 2008.

from Felix Salmon:

Counterparties: Living longer with less

Ben Walsh
Jun 10, 2013 22:31 UTC

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Americans with $1 million in savings may be in for a dispiriting surprise -- they still haven’t saved nearly enough. The problem, reports the NYT’s Jeff Somer, is that bond yields have fallen and life expectancies have risen.

A  65-year old couple with a $1 million nest egg of tax-free municipal bonds that withdraws 4% per year, Somer says, has a 72% chance of running through their retirement savings before they die. The even larger problem is that the millionaire 65-year old couple is far from typical. The median household retirement account balance for Americans aged 55-64 is just $120,000.

from Felix Salmon:

Counterparties: America’s consistently dissatisfying jobs market

Ben Walsh
Jun 7, 2013 21:44 UTC

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America's jobs market seems to have found its boring, dissatisfying comfort zone.

The Labor Department announced today that the US economy added 175,000 thousand jobs in May. (Unemployment ticked up a notch to 7.6%.) Matthew O’Brien writes that this is basically the same thing that’s been happening for the past two and a half years. “There were 175,000 new jobs a month in 2011, 183,000 in 2012, and 189,000 so far in 2013.” Kevin Roose thinks “there's something to be said for this kind of quiet, steady progress”.

from Felix Salmon:

Counterparties: The unbearable lightness of silicon beings

Ben Walsh
Jun 4, 2013 22:04 UTC

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If you build a company on something lighter-than-air, will it inevitably float back to earth? Kara Swisher reported yesterday that Zynga is laying off 520 employees and closing its LA and New York offices. The company’s core business -- selling desktop games for Facebook -- is declining, and the company says it is focusing on the faster-growing but less profitable mobile market. Zynga’s stock is now down 70% since it went public in December 2011.

Two years ago, Zynga was declared the winner of the “great social game Gold Rush”. Better than anyone, it figured how to make money out of the inordinate amount of time wasted on Facebook. It never was, and won’t ever be, a “frighteningly ambitious startup”. Despite being a big financial success, Zynga always had limited ambition.

from Felix Salmon:

Counterparties: Bits of laundry

Ben Walsh
May 29, 2013 21:21 UTC

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Even criminals need financial intermediaries. Yesterday federal prosecutors shut down Liberty Reserve, a currency exchange and payment processor, and indicted seven people connected to the company. The indictment called the company a “financial hub of the cybercrime world... including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking”, and alleges it laundered $6 billion via 55 million illegal transactions for one million users over the last seven years.

The Tico Times has a detailed article on the history of the Costa Rica-based business, not to mention “flashy cars, lavish gifts, multiple identities and armed Russian henchmen”.

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