American Idol creator gambles on an encore

May 31, 2010 14:48 UTC

By Rolfe Winkler

Pop impresario Simon Fuller is ready for an encore. He wants his hit TV show American Idol back. This time it’s shaping up to be a duet, as Fuller has another deep pocket to join his own. The empire is bigger too, with image rights to Elvis Presley and Muhammad Ali added to the mix. But Fuller may yet come to regret a return to the same stage.

With a fortune built on the back of the Spice Girls, Fuller sold his TV talent show to CKX in 2005 for $174 million. He’s now ready to fork over $600 million, with one of Britain’s wealthiest bankers, Roger Jenkins, to buy back the whole company, according to the Wall Street Journal. That works out to about $6.50 a share.

It would be a nice premium to Thursday’s closing price of $4.32, but it’s little more than the $6 the shares traded at in late March when the company confirmed sale talks with then-boss Robert F.X. Sillerman, who resigned to launch his own bid. The market seemed skeptical, knocking the shares 30 percent below the $6 he was believed to be offering. It’s still not clear if a bid ever materialized.

Fuller’s offer may appear to shortchange CKX investors. But valuing the company at a modest seven times estimated 2010 EBITDA may not be so bad given the ratings for the American Idol finale sank to 2002 levels and its star, Simon Cowell, just left to launch a competing singing show.

Fuller and Jenkins likely view CKX as a cornerstone for a budding entertainment empire, having put together a $1 billion fund for acquisitions. Still, it seems like they’re paying a full price for the privilege.

The Idol worship follows another entertainment mogul’s return to his roots. Haim Saban just reacquired the Power Rangers kids franchise that started his road to riches. Like Saban, Fuller probably feels he knows his baby best, and is well suited to keep it strong. That may be true. But at the premium Fuller is willing to pay, current CKX investors should be happy to make this a swan song.

Bank failure Friday

May 28, 2010 23:44 UTC

Happy long weekend everyone!


–Failed bank: Bank of Florida – Southeast
–Acquiring bank: EverBank, Jacksonville FL
–Vitals: assets of $595.3 million, deposits of $531.7 million
–Estimated DIF damage:$71.4 million


–Failed bank: Bank of Florida – Southwest
–Acquiring bank: EverBank, Jacksonville FL
–Vitals: assets of $640.9 million and deposits of $559.9
–Estimated DIF damage: $91.3 million


–Failed bank: Bank of Florida – Tampa Bay
–Acquiring bank: EverBank, Jacksonville FL
–Vitals: assets of $245.2 million and deposits of $224.0 million
–Estimated DIF damage: $40.3 million


–Failed bank: Granite Community Bank, N.A., Granite Bay CA
–Acquiring bank: Tri Counties Bank, Chico CA
–Vitals: assets of $102.9 million and deposits of $94.2 million
–Estimated DIF damage: $17.3 million


–Failed bank: Sun West Bank, Las Vegas NV
–Acquiring bank: City National Bank, Los Angeles CA
–Vitals: assets of $360.7 million and deposits of $353.9 million
–Estimated DIF damage: $96.7 million

Morning Links 5-28

May 28, 2010 13:17 UTC

For some people, CDOs aren’t a four-letter word (Goldstein, Reuters) Great sleuthing from Matt. He tells the story of Donald Puglisi, who continues to make major bank as the rubber-stamp independent director for toxic CDOs.

Wall Street’s War (Taibbi, Rolling Stone)

FASB’s mark-to-mayhem (Alloway, Alphaville)

“Housing production credit crisis”? (CR) There is still a huge overhang of shadow inventory. 7.3 mln homes in foreclosure or in default. Not all of the defaulted ones will end up being repossessed by the bank, but the point is that there’s not shortage of inventory. We don’t need to stimulate supply…

PIC: Oil spill operations overview (OilDrum, ht CB) A fish’s-eye view. Plus, another new BP logo.

Drilling for certainty (Brooks, NYT)

The web shatters focus, rewires brains (Carr, Wired) “Even as the Internet grants us easy access to vast amounts of information, it is turning us into shallower thinkers, literally changing the structure of our brain.”

Critics destroy “Sex and the City 2″ (Rust, AtlanticWire) Don’t count on box office figures to suffer…

Buffett subpoenaed to testify before Crisis Commission (Fortune, ht Ed Harrison)

VIDEO: 8 month old reacts to ear implants that let him hear for the first time (YouTube) Priceless.


Linking to the neo-cons’ greatest water carrier re: the Gulf disaster is regrettable. As anyone who has read the WSJ account of the accident two days ago can instantly surmise, there were corners cut and steps ignored that were standard operating procedure for any ORDINARY oil platform of the last thirty years: 052748704026204575266560930780190.html?m od=WSJ_hps_LEADNewsCollection

Let Brooks regurgitate Taleb’s ‘Fooled by Randomness’ to the conservative demographic of the NYT who would never read the book. Your readers deserve better-MUCH better.

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Buffett warned Congress about derivatives…

May 27, 2010 14:46 UTC

…in 1982.

Fast forward 28 years and the Oracle dispatched lieutenants to Washington to fight sensible derivatives reforms that would have made it more expensive to maintain his $63 billion portfolio of them. Luckily the White House beat back the “Berkshire provision.”

In the 1982 letter obtained by Forbes,  Buffett waxed philosophic on the dangers of derivatives. His analysis was remarkably prescient. The kind of wisdom one might expect from him today. But as has been clearly demonstrated over the past two years, Buffett is less concerned with sound public policy than with protecting his own interests.

His investment in Goldman was an effort to profit from TARP; he benefited more than anyone from FDIC’s explicit guarantee of bank debt while arguing that such guarantees are unfair; he mocked Treasury’s stress test, which forced banks to raise much needed capital; he opposed Obama’s sensible bank tax, which would charge TBTF banks for the implicit government guarantee they receive; and he was first to propose a public-private partnership to leverage public money to overpay for banks’ toxic assets.

The bottom line is that Buffett is more hard-nosed capitalist than financial straight-shooter. His advocacy of higher taxes for the rich tends to fool media hagiographers into believing he’s willing to sacrifice his interests or those of his investors for the public good. But he’s simply not the unbiased arbiter of sound financial policy that many still believe him to be…

(ht Scott Frew)


It is worth noting that even WB’s seemingly populist and magnanimous stance on taxing the rich is not entirely what it seems.

All of his jawboning has been on increasing income taxes for high-earners. But his wealth has almost as much to do with tax avoidance (because his income is unrealized) as as with investment returns. The overwhelming majority of WB’s wealth has compounded untaxed for 50 or 60 years. I have no problem with that generally, for why should someone pay taxes on unrealized gains? But lets not think he would be harmed by the taxes he advocates.

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Lunchtime Links 5-26

May 26, 2010 18:28 UTC

Fed’s next move could be reduced rate on dollar-euro swaps (Hilsenrath, WSJ) The Fed is charging so much that it discourages European central banks from drawing on the swap lines. That’s good. If we’re dealing with a liquidity problem, as opposed to a solvency problem, the idea is to lend freely, but at penalty rates, not market or below-market rates…

Geithner to urge European bank stress tests (Lodge, CNBC) Sound advice. The stress test is Geithner’s biggest achievement as Treasury Secretary. It can be argued that banks still have too little capital, but at least they’ve got a lot more than they did. Geithner deserves credit for forcing them to do so. Euro banks could benefit greatly by going through the same exercise.

Thirst for knowledge may be opium craving (eurekalert) “Neuroscientists have proposed a simple explanation for the pleasure of grasping a new concept: The brain is getting its fix.”

The net worth of U.S. presidents in today’s dollars (Atlantic) Washington was worth over $500 million…

House Republicans, meet the world wide web (Milibank, WaPo)

Some spat-upon NYC bus-drivers take months off (AP) “The indignity is considered an assault under the drivers’ union contract. That entitles them to take a paid break.”

Oscar….just…he just…jumped man. It was horrible! (imgur)


“Sound advice. The stress test is Geithner’s biggest achievement as Treasury Secretary. It can be argued that banks still have too little capital, but at least they’ve got a lot more than they did.”

Yet at the same time people are blaming the higher capital requirements for causing the banks to retract lending at the worst possible time…

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Lunchtime Links 5-25

May 25, 2010 15:50 UTC

Question of the day: Why is there still nearly $3 trillion parked in money market mutual funds? They yield nothing, they aren’t FDIC guaranteed, they CAN break the buck, and they’re less liquid than bank accounts. Thinking back to autumn ’08, when credit markets start to seize up, cold hard cash stuffed in your mattress looks more appealing. You can withdraw cash from a bank account, not so a money market fund. Not that I’m recommending that, it’s just that if you’re not getting any benefit by holding the money market fund, why bother? (401k money may be stuck, but others aren’t…)

Does Buffett deserve his outsider’s rep? (NY Mag, ht Ed Harrison) This blog’s view is no, of course. Good piece, though it misses many of the other public policy issues Buffett has been on the wrong side of. PPIP, the stress test, the bank levy. Also, his bank holdings survived thanks to TLGP.

Case-Shiller: house prices “weakening” (CR) Mortgage rates may be plumbing their lows, thanks to flight-to-safety buying of Treasuries, and that may cause demand to pick up a bit. But so much was pulled forward by the expiration of the homebuyer’s tax credit on May 1st, you gotta think prices are headed back down. Especially considering that there are 7.3 million homes that are in foreclosure or delinquent. That’s a lot of shadow inventory.

InterOil smashed again after lame press release (BizInsider) IOC has been a favorite short for hedgies for a long time. Looks like it’s finally working out for them.

Four Spanish savings banks make initial merger pact (NYT) This came after the Bank of Spain took control of CajaSur. Marc Chandler at Brown Brothers Harriman offers this thought today: “The European debt crisis is not simply a Greek phenomenon.  Spain is the focus now.  Spain (sovereign and private) owes foreign investors roughly $1.1 trillion.  In comparison, Greece’s external debt is closer to $236 bln.”

Germany eyes wider short-selling ban (Graham/Aloisi, Reuters) Populism that will fail to stabilize markets. If Europeans truly want to squeeze the shorts, they should announce dramatic budget cuts that solve their underlying solvency problem.

LIBOR reverse cliff-diving (Reuters)

Hubble finds a star eating a planet (NASA) This is an artist’s rendering, not a pic from space. Still, pretty cool.

Useless cat (imgur) Click on image to enlarge.




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Sunday reading 5-23

May 23, 2010 15:51 UTC

Must Read — Padded pensions add to NY’s fiscal woes (Walsh/Schoenfeld, NYT) Putting in overtime for a utility, and counting that as hours worked for the police force in order to pad pension payouts.

Must Read 2Why Legendary Investor more worried than ever (Zweig, WSJ) I spent 5 hours in the “cage” at the NY public library reading their only copy of Seth Klarman’s book, Margin of Safety, back in 2007. Copies of the out-of-print book are so rare/valuable, they’re no longer allowed to circulate. This piece is full of great pearls of wisdom from one of America’s most successful and least well-known investors.

A billionaire goes all-in on gold (Pleven/Cui, WSJ) Gold is more than a bit frothy to go all-in, IMHO.

For Millenials, traditional markers of adulthood prove elusive (Rubin, Chicago Trib) Interesting piece. It’s mostly about how new college grads just can’t find jobs. Going back to Klarman, by propping up the economy Japan-style, we’re setting ourselves up for years of stagnation. So what are all these kids going to do with themselves? In Japan, the lack of economic dynamism may have been a crucial factor in the emergence of the grass-eating boys. Will something similar happen here?

U.S. drops criminal probe of AIG execs, including Joe Cassano (Plumb, Reuters) Cassano ran AIG Financial Products, using his corporate parent’s high credit rating to absorb much of the credit risk Wall Street was manufacturing during the bubble.

VIDEO – Cashing in on the end of the world (Reuters)

The 21st century orchestra? (Neil deGrasse Tyson)

Freedom = jumping off a swing (reddit)

Kung-Fu Bear…

Bank failure Friday + teachable moment for investors

May 22, 2010 01:40 UTC

Just one small bank shuttered tonight.


–Failed bank: Pinehurst Bank, St. Paul MN
–Acquiring bank: Coulee Bank, La Crosse WI
–Vitals: assets of $61.2 million, deposits of $58.3 million
–Estimated DIF damage: $6.0 million

As a reminder, FDIC still has $63 billion of cash on the balance sheet despite the fact that it showed a negative balance of $20.7 million at the end of Q1.

How’s that? Assets = Liabilities + Equity.

Cash assessments collected from banks are assets on the left side of the balance sheet, but how they’re accounted for on the right side can be complex. Normally FDIC counts these as its own capital, as equity, also called the DIF’s “balance.” But because these were regular assessments collected up front, they’re counted as deferred revenue — a liability — instead of as equity.

So FDIC has more than enough cash raised from banks to pay for bank failures on its radar. The issue is banks that aren’t on its radar, i.e. the TBTFers. Those guys have raised a fair amount of capital, but if any one goes down, it would quickly overwhelm the DIF, forcing FDIC to borrow from Treasury.


For those that don’t understand deferred revenue, it’s a simple accounting idea that’s important to master because it’s the key to finding the best investments, the kind that made Warren Buffett rich.

In a nutshell, deferred revenue is revenue that’s been received, but not yet earned. For example, a newspaper business might charge for a yearly subscription up front, but it has to deliver the product over the following 12 months.

The idea behind your basic income statement is to match revenue with expenses incurred to generate it. So if I get paid up front to deliver 12 months worth of newspapers, then I recognize the revenue over 12 months even though I got all the cash on day 1.

On the asset side of the balance sheet, cash is cash. But on the right side, instead of as equity, it’s counted as deferred revenue, a liability I have to work down by delivering my product over the specified period of the contract with my customer.

So why is having lots of deferred revenue the characteristic of a good business? It reduces risk. Wouldn’t you rather get paid up front to deliver a product or service than to put all the work in first? For instance, retailers have to invest in inventory to stock their shelves for the Xmas season. But maybe the retailer screws up, stocking his shelves with tickle-me-Elmos and slap bracelets when kids today are looking for a Blu-Ray PS3 or the latest Justin Bieber album. Retailers can quickly go out of business this way, investing in inventory that doesn’t sell.

There’s also the problem of receivables collection. Powerful customers can demand I deliver my product today, and then not pay me for 30 to 90 days. Sometimes, they may not pay me at all and I have to write off what they owe me as uncollectable.

These risks are removed if the equation is flipped and I get paid before I deliver my product.

Warren Buffett’s path to riches was paved by the ultimate deferred revenue business: insurance. He gets paid premiums up front and only incurs expenses as claims are filed. In the meantime, he gets to hold on to the premiums (called “the float”), which he can invest in the stock market. And if no claims are filed, then he gets to keep the cash collected. Pretty cool.

So, when looking to invest, always pay attention to how cash flows into and out of a business.

In particular, calculate “capital employed” on the balance sheet. There are a few different ways to do it, but the way I was taught:

Capital employed = (receivables + inventories + prepaid assets + net fixed assets) – (accounts payable + accrued expenses + deferred revenue)

If this figure is consistently negative over time, it’s a sign of a good business.

Walking away without, er, walking away

May 21, 2010 16:29 UTC


Who says you can’t get something for nothing?

James Hagerty quotes interesting data from LPS Applied Analytics that shows banks struggling to handle the backlog of mortgage delinquencies are allowing non-paying borrowers to stay in their homes longer.

One in six are living rent-free for at least two years. One in two are doing so for more than a year, but less than two.

This lunch isn’t totally free, of course. The borrower’s credit report takes a hit. Meanwhile the bank’s stockholders absorb the losses.

As walking away gains cachet, expect more underwater borrowers with nerves of steel to play chicken with their banks.

Lunchtime Links 5-21

May 21, 2010 15:01 UTC

Euro’s slide may give U.S. more rope to hang itself (Crane/Swann, Reuters) Great piece from my Breakingviews colleagues Agnes and Chris. Flight to the dollar helps keep U.S. borrowing costs low, but that’s a curse because it discourages us from dealing with our own debt problem.

Vix-ated (Alloway, Alphaville) Neat table. For those that didn’t notice, the volatility index for the S&P 500 shot up over 20% near day’s end yesterday, closing at 45.79. For those tempted to write that off as paltry compared to levels over 80 reached post Lehman’s collapse, Tracy shows the fear index is flashing a deeper shade of red than it did during many previous black swans…

Senate passes financial reform legislation (Herszenhorn, NYT) It includes the tough Lincoln amendment that would force banks to get out of derivatives trading. But that is expected to die when the Senate bill is reconciled with the House bill.

Spitzer’s name arises as CNN tries to fill a seat (Stelter, NYT) Blodget resurrected himself via the media, his former nemesis may also.

The Hot Box from Hell (Reilly, ESPN) The Sauna world championship…

Auto journalist’s son crashes $180k Porsche (Cheney, Globe&Mail) Oops.

Brooklyn blogger lands Prokhorov interview (Koblin/Alexander, Observer) Not every day you get to sit down with a Russian billionaire in a Brooklyn bar. Given that no restrictions were put on the interview, I would have taken the opportunity to talk about Russia. What’s Putin really worth? $40 billion? There’s one interesting question about Prokhorov’s dealings in Zimbabwe, which the billionaire said is just a couple guys doing “stock market research.” Yeah, right. Zim doesn’t have functioning markets of any kind…

16 items they only sell at Chinese Walmarts (Buzzfeed) Last one is hilarious.

Lunchtime Links 5-20

May 20, 2010 16:53 UTC

FDIC says things look great! (Wutkowski, Reuters) FDIC’s quarterly profile of the banking sector was full of good news. Loss estimates for failed banks are down; bidders are paying more for failed banks; the deposit insurance fund has plenty of cash and the problem bank list only grew a bit. In other words, there’s light at the end of the tunnel. Trouble is, that light could be a freight train in the form of higher rates or reduced government support for housing. As support is removed, to the extent it flows through to mortgage rates, we’ll see house prices head back down, giving the banking system more seizures…

Breaking down major U.S. financial reform proposals (Drawbaugh, Reuters) Very useful summary…

Class of ’10 ready to flood U.S. labor markets as ’09 grads wait tables (Dorning, Bloomberg)

Teachers facing weakest market in years (Hu, NYT)

HD pic of oil spill from NASA (imgur) You can see the oil getting picked up by a current. Could bring it back around to the east coast.

A smoking gun in BP’s Deep Horizon mess (Thom Hartman, ht Felix) BTW, if this reads like Greek to you, watch both parts of 60 Minutes’ EXCELLENT interview with Mike Williams, one of the rig’s survivors. Not only is there lots of great detail about what happened, Williams story is astounding.

Gold at $800, say some analysts (Cendrowski, The bear case for gold is a good one. The Greek debacle reminds us that debt deflation still looks like the most likely outcome for the world economy. As the price level falls, so will gold, depending on how central banks handle deflation of course. Therein lies the bull case, which is that gold remains a must-have insurance policy to protect portfolios from the risk that indebted countries suddenly lose their ability to borrow. That could prompt monetary authorities to monetize huge quantities of debt…

Font directory (Google) Cool tool

Great Depression II (Hume, Alphaville)

Landis admits doping, accuses others including Armstrong (WSJ) Kudos to Floyd for owning up.


“As the price level falls, so will gold, depending on how central banks handle deflation of course. Therein lies the bull case, which is that gold remains a must-have insurance policy to protect portfolios from the risk that indebted countries suddenly lose their ability to borrow.”

Mish did an excellent job of explaining why gold performs better in real terms during deflation:
http://globaleconomicanalysis.blogspot.c om/2007/02/is-gold-inflation-hedge.html

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Lunchtime Links 5-19

May 19, 2010 14:56 UTC

Consumer prices unexpectedly fall (Mutikani, Reuters) The Fed will view this as support for its low rate policy. But while consumer prices are falling, asset prices have been on a tear, taking a breather only after the Greek crisis erupted. The re-inflation of asset prices is investors’ response to low rates: they’re chasing risk. That encourages more bubbly lending, sowing the seeds of more violent debt deflation later.

Italy suspends mark-to-market rules on banks’ government bond holdings (Cohen, Dow Jones) Dirty little secret folks: Basel capital rules allow banks to treat government bonds as “riskless,” meaning they are assets against which they needn’t hold any capital. Bottom line, banks have literally zero cushion to absorb losses on government securities. Italian banks’ exposure to Greek loans is small compared to France/Germany, but they could have significant holdings of bonds of peripheral European countries that may be at risk of default, a problem which their regulator appears willing to paper over…

CHART — Mortgage purchase applications “plummet” (Culp, Reuters) “Plummet” is the lobbyist’s word. Demand was pulled forward thanks to the homebuyers tax credit and is now crashing. You can see how a similar dynamic played out last fall, when it was believed the credit would be allowed to expire on schedule. This time around it will expire. It’s chief Senate proponent, Georgia’s Johnny Isakson, has said it’s not going to be re-upped.

Clients worried about Goldman’s dueling roles (Morgenson/Story, NYT) Great story. Yves has some good thoughts too.

Roubini says U.S. bond market may face “vigilantes” (Ryan, Bloomberg) Just give it time. Honestly, referring to sellers with pejoratives like “vigilante” and “wolfpack” gives pols the political capital to blame “speculators” rather than actually deal with their debts.

Fiduciary amendment attacked as loophole ridden (Kearney, Reuters)

A new clue to explain existence (Overbye, NYT)

No trespassing (reddit)

Lifelock CEO’s identity stolen 13 times (Zetter, Wired)

Kevin Costner wants to help clean up the oil spill (Youtube) Call it penitence for Water World.


While the BASEL based Risk based ratio does allow for a 0% weighting of gov’t debt, at least in the US the other ratios are based only on total assets, regardless of type.

Thus meaning that a bank can not lever up ad infinitum to buy more and more gov’t securities.

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Euro’s deep dive continues…

May 18, 2010 20:02 UTC

As of this writing, the euro is cliff-diving again. It’s now down near $1.22, a four-year low. The proximate cause of the sell-off is a German plan to ban naked short-selling in stocks and certain government bonds.

Some thoughts from currency strategist Win Thin of Brown Brothers Harriman:

Euro selling has accelerated, which we can attribute to two possible factors. First, the German ban seems to be a bit of “flailing.” Given the questions we raised in our earlier note, it appears to be half-baked and not really thought out, and plays into market doubts about European policy-making credibility. The second, and perhaps more important, factor is the fact that if the Europeans are in effect trying to take away legitimate investment vehicles, then investors that are negative on Greece and Portugal can only take recourse in limited ways, the biggest one being to simply short the euro.

emphasis mine


If only Milton Friedman were alive today.

He would be shouting from the rooftops that we need Friedmanite helicopter drops and tax cuts financed out of printed money.

Moving debt from one place to another just cannot work any longer. Sovereigns need to delever. The private sector needs to delever.

The only was for this to happen is for the monetary base to increase dramatically.

It won’t be inflationary because the debt overhang is gigantic all over the world.

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Lunchtime Links 5-18

May 18, 2010 13:38 UTC

Blackstone-led group drops bid for Fidelity National (Davies, Reuters) Probably smart. Even at $32 per share, the buyout shops would have paid nearly 9x this year’s anticipated EBITDA while deploying over 5x leverage. Doable, but not cheap. Yes, Fidelity National has stable cash flows to pay debt, but its business is not immune to business cycle hiccups. Meanwhile, FIS is going to lever up anyway to buy back shares.

Assisted homeowners as indebted as ever (Treasury) Take a look at the table on page 5. Back-end debt-to-income is up to 64% of pretax income. It was 61% last month. The few homeowners that are getting mortgage modifications are still carrying far more debt than they can handle.

Banks embrace “extend and pretend” as U.S. hotels await rebound (Brandt, Bloomberg) Another reason the Fed can’t raise rates: if it did, real estate prices will head back down and there’d be no more pretending these extended loans will recover.

Washington pushes for free credit scores (Sutton,

CHART: U.S. Housing starts up on tax credit, but still way off peak (Culp, Reuters)

Effort to bring Fannie/Freddie on budget fails (Indiviglio, Atlantic)

Near misses fuel gambling addiction (ScienceBlogs, ht Kedrosky) Gambling game manufacturers know this, apparently, and design their machines to exploit it.

Teen mom Bristol Palin to earn $15-$30k per speech on lecture circuit discussing, er, the perils of teen pregnancy (WaPo)

United States of Funk (imgur) ?

Ultra-cool graffiti (reddit) Can you see the face?

Shock therapy

May 18, 2010 12:35 UTC

The “flash crash” in U.S. stock markets on May 6 shocked investors. As one response, it makes sense to coordinate circuit-breakers and other safety switches across trading venues. But the goal shouldn’t be to eliminate sudden drops. Markets are volatile, and smart traders build in a margin of safety. That’s a useful message that is reinforced by the odd surprise.

It’s still not clear what caused the near-thousand-point cliff-dive on the Dow Jones Industrial Average. The most likely explanation is a confluence of factors, including riots in Greece, a decline in the S&P 500 index below an important moving average, an indigestibly large trade in a popular futures contract, and — as the plunge gathered momentum — the disappearance of some high-frequency, high-volume traders from the market.

The bulk of the losses reversed almost as quickly as they materialized. So market forces did, eventually, equilibrate. But one flaw stands out. While market-wide circuit breakers — designed to force a breather in trading when prices move violently — weren’t activated, some other mechanisms covering only parts of the fragmented stock-trading markets did kick in.

On the New York Stock Exchange, for instance, so-called liquidity replenishment points were triggered, forcing trades onto other platforms that didn’t have similar brakes. This may have added to the volatility. Coordinating such tools might help damp irrational market swings in the future.

Other potential fixes offer little protection, however, and won’t come without costs. Deliberately widening bid-ask spreads might concentrate buyers around fewer price points, but would raise investors’ trading costs. Requiring high-frequency traders to stay in the market may have merit, but it won’t stop precipitous drops, the biggest of which happened in 1987, long before such traders existed.

In any case, volatility can be healthy. The “Great Moderation” in the years running up to 2007, notably the extreme predictability of U.S. monetary policy, led to complacency and, ultimately, the credit crunch. Unexpected drops remind investors to operate with healthy margins of safety. That’s a lesson of the recent crisis that no-one should try to regulate away.