Felix Salmon

Idiotic online brokerage of the day, April fool edition

April 6, 2009

I hope the SIPC is looking into this:

Online brokerage site Zecco somehow failed to predict that surprising customers with multi-million dollar trading balances for April Fools would encourage their customers to make actual trades with their newfound riches. When Zecco realized what was happening, they responded by panic-selling the purchased stocks at a loss and charging the balance to customers, along with a $19.99 broker-assisted trading fee. One poor schmo bought $1 million worth of shares that were later sold for less than the purchase price.

How stock-market indices underperform

April 6, 2009

One frequent complaint made about stock-market indices is that they’re not truly representative of the stock market as a whole, since they exhibit what’s known as “survivorship bias”. If a company is failing it drops out of the index, to be replaced by a more successful firm. In turn, that should boost the index’s return, right?

Stanford’s receiver war

April 6, 2009

Alex Dalmady, who first revealed to the public that Stanford International Bank was a Ponzi scheme, has a very handy post up about what he’s calling the “receiver war” between Antigua and the US.

Default is easier when you have practice

April 6, 2009

OneEyedMan, in the comments, makes a good point about the cost of default:

If you have less outstanding debt, even after a bankruptcy discharges it, then you are immediately less likely to default. However, in comparison with another firm that doesn’t default, if at some future date you have the same financials, expect the debt markets to charge you more to borrow money. That’s how the UK was able to beat up France time and again. By not defaulting on their debt they had lower borrow costs so they borrowed more. Borrowing more funded bigger wars.

Is it harder to borrow after you’ve defaulted?

April 5, 2009

There are lots of things a company spokesman can say to reassure reporters and investors that his firm is in good financial shape. This is not one of them:

Why hedge fund managers shouldn’t lever up

April 5, 2009

Howard Marks of Oaktree Capital, whatever his merits as a hedge-fund manager, is a spectacularly good memo-writer. And his latest makes a particularly germane point:

Andy Beal shows how bankers should gamble

April 5, 2009

I love the Forbes profile of Andy Beal, the Texas banker who — much more than say Warren Buffett — is an expert at making billions by zagging when everybody else zigs.

Can the administration control the dollar?

April 5, 2009

On the Brian Lehrer show Friday, I talked about the G20 meeting and the way that the US is taking a more mulilateral, as opposed to unilateral, approach to global leadership. What I didn’t mention is another huge difference between the beginning of the Obama administration and the end of the Bush administration: the strong dollar. Which is something exercising Andy Harless:

Annals of unjustifiable government subsidy, kraft process edition

April 4, 2009

Christopher Hayes has the astonishing story of how a well-intentioned tax provision, designed to get the transportation industry to add alternative fuels to their gasoline and diesel, has turned into an $8 billion subsidy for the US paper industry, which is needlessly adding diesel to its “black liquor” — a byproduct of the paper-manufacturing process which is burned for fuel. The unintended windfall for the paper industry is massive: