Usury: It’s a bad idea to give banks an incentive to drown individuals in debt.
Allison Schrager of the Economist (who went to Edinburgh), Simon Constable of Dow Jones (St Andrews), and I (Glasgow) appeared on a panel at the British Consulate in New York Thursday, moderated by Nick Wapshott. My back-and-forth with Constable over natural sellers of CDS didn’t make the final edit, but here’s the stuff which did:
Matthew Turner points me to this rather interesting datapoint from the IMF’s International Financial Statistics for Ecuador. The country’s has had 845,000 ounces of gold for as far back as the statistics go — until January 2009, when they jumped to 1.76 million ounces, and then February 2009, when they rose further to 1.93 million ounces. That’s an increase of 1.085 million ounces (or about 37 tons of gold) in the space of two months — which at present prices is worth almost exactly $1 billion.
Andrew Ross Sorkin takes aim at GM’s bondholders today:
Not three hours after the president spoke on Monday I received an e-mail message from a group representing G.M. bondholders — people who are likely to have an enormous influence over the future of the Detroit carmakers…
By the end of the e-mail message, they were complaining that they were “very disappointed that the government and company have had virtually no real dialogue with bondholders while designing the proposed restructuring plan.
The e-mail message came from the same group that two weeks ago grumbled that “G.M. bondholders have been asked to make deeper cuts than other stakeholders,” and threatened to send G.M. into bankruptcy…
I called Gabe Roth, the spokesman listed at the bottom of the message, and asked if I could speak with some of the bondholders the committee represents. The answer: “No. We’re not making them available.”
I followed up by asking which investors were members of this ad hoc committee. “We’re not making that public,” Mr. Roth said.
I reminded Mr. Roth that government money was at stake, and that we taxpayers might end up bailing out the bondholders. Doesn’t the public have a right to know whom they are negotiating with — or against? He demurred.
Mike at Rortybomb finds some empirical research on what happens to loan rates when banks get bigger and more consolidated. The results make intuitive sense: as competition falls, loan rates go up. The exception is loans which can be securitized, like auto loans: those rates can fall as economies of scale improve.
Why size matters: Steve Waldman is a fan of banks getting smaller.
The Government Crackdown on Peer-to-Peer Lending: I think it should be regulated by someone. If not the SEC, then who?
One thing drilled into every MBA student is that sunk costs are irrelevant, while opportunity costs are paramount. Which is a lesson this year’s graduating class will put to good use. Let’s say that in any given year, there’s a graduating MBA who has the choice between creating a green-energy start-up, on the one hand, or joining Goldman Sachs, on the other. Normally, the start-up loses, because the opportunity cost of going that route — all that foregone Goldman remuneration — is enormous: it probably has a present value of a good $10 million.