I spent the past couple of days in Berkeley, participating in a number of events at the inaugural Berkeley Ideas Festival. The highlight for me was interviewing Donald MacDonald, the architect of the new (and magnificent) Bay Bridge. But I was also asked to present a little “provocation” on the second morning, in between heavier sessions covering topics like the effect of 3D printing on the manufacturing workforce and the rise of the plutocracy.
I’m reading Megan McArdle’s new book in galleys right now; its title is “The Up Side of Down: Why Failing Well Is the Key to Success”. Given the subject matter, McArdle spends just as much time discussing bad failures as she does discussing good ones — not the things which turned out in the end to be “the best thing that ever happened to me”, but rather the truly catastrophic things which result in wholesale destruction of wealth, health, or people’s lives.
I’ve been a bit obsessed with trying to get a feel for exactly how much money bond funds might go down if and when interest rates start to rise. And now, thanks to the wonderful Jake Levy at BuzzFeed, I can show you, in animated, rubbable-GIF form!
Are you worried that JP Morgan is being robbed of $13 billion that rightfully belongs to shareholders? Richard Parsons (not the former Citigroup chairman, but rather the former Bank of America executive vice president) is shocked by the size of the JP Morgan settlement, trotting out a line of criticism which is pretty standard in Wall Street circles:
Last weekend, at the IMF annual meetings, I moderated an official panel with the snooze-worthy title “Sovereign Debt Restructuring: Lessons from Recent Experience”. But the room was packed, and attention was rapt: everybody wanted to know what the panelists in general, and one in particular, thought about the subject at hand. All eyes were on first deputy managing director David Lipton, who kicked off proceedings with a dry but important speech in which he praised a recent Brookings report as “excellent”.
Merrill Lynch closed its Octans 1 CDO in September 2006. By April 2008, a year and a half later, the CDO had completely imploded, inflicting roughly $1.1 billion of losses on its outside investors. Now, five and a half years after that, the SEC has finally got around to launching a lawsuit against the CDO manager, Wing Chau.
Now that the ban on general solicitation is over, all manner of weird companies are emerging from the nether regions of the internet, trying to persuade people to part with their money in return for a nominal stake in some unlikely investment. One of the glossiest of these new companies is Fantex, which just filed a prospectus for its first athlete-IPO.
There’s a strain of triumphalism coursing through the blogosphere today, on the grounds that the bonkers wing of the Republican party is going to have achieved exactly none of its own goals, while inflicting upon itself a massive black eye. The markets are feeling vindicated too: over the past week of DC craziness, the stock market has risen, pretty steadily, a total of about 2.5%. As a trading strategy, “tune out all news from inside the Beltway” seems to have worked very well — it’s a complete vindication of the Nassim Taleb idea that investors shouldn’t read the newspaper. On top of that, the potential debt default was by its nature almost impossible to trade: outside a few obscure instruments like US CDS, it’s very difficult to make money from a trade betting that tails are going to get fatter, for a short while.
The big question in Washington this week is whether, in the words of the NYT, we’re going to see “a legislative failure and an economic catastrophe that could ripple through financial markets, foreign capitals, corporate boardrooms, state budget offices and the bank accounts of everyday investors”. In this conception — and I have subscribed to it just as much as anybody else — the sequester is bad, the shutdown is worse, and the default associated with hitting the debt ceiling is so catastrophic as to be unthinkable.