Monday, December 29, 2008

YouTube Trailer - Broke: The New American Dream - film by Michael Covel

For a review of this film, see "New Movie Challenges Biz Pundits", by Jonathan Hoenig, of SmartMoney.


More Entities with Exposure to Madoff

SmartMoney's Interactive TreeMap: Map of the Market, created by Martin Wattenberg

Interactive TreeMap: Map of the Market
(Created by Martin Wattenberg)

This interactive map was developed in 1998, but still is very useful today. It has been following the market over the past ten years or so on the SmartMoney website.

For more information about how to understand and use the map, read "Instructions: Map of the Market", and "Secrets to Using the Map of the Market"

Sunday, December 28, 2008

Financial Planning Application on a Microsoft Surface Multi-Touch Table

This is an interesting interactive application to assist with financial planning tasks. The application, developed by Razorfish, utilizes the multi-touch capabilities of Microsoft's Surface comptuting table.

Microsoft Surface Financial Services Application - Razorfish Demo from razorfish - emerging experiences on Vimeo.

Unfortunately, there are some problems with this application, as pointed out by Jonathan Brill in his recent Point & Do blogpost. In this application, coins are used as part of the interaction. It is not clear why this approach would be useful. It might be fun to play with if you had lots of time to kill in a bank's lobby.

Friday, December 19, 2008

SEC Charges Wall Street Professionals and Others with Widespread Insider Trading: Matthew C. Devlin and other representatives of Lehman Brothers.

"Defendants Devlin, Bouchareb, Daniel Corbin, Bowers, Faulhaber, Holzer, Glover, Corbin Investment Holdings, LLC and Augustus Management, LLC are charged with violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Exchange Act Rules 10b-5 and 14e-3. The SEC seeks injunctive relief, disgorgement of illicit profits with prejudgment interest, and civil penalties. Defendants Checa, Checa International, Inc. and Lee Corbin are charged as relief defendants and the SEC seeks their trading profits."

US Securities and Exchange Commision's Complaint (pdf)

It's not such a great time to be a "greed is good" type, is it?

Economic Sounds: Madoff Was Magnet For Some, Not All, Investors- Audio from NPR

Madoff described his system as a split strike conversion strategy?

New York Law School invested some money with Madoff, and now is preparing a lawsuit against this money manager. In this broadcast, Millicent Holmes discusses the concerns she had about Madoff's system a few years ago, and her surprise at how long it took regulators to go after Madoff after an article in Barrons brought up doubts about his system's methods.

Listen to the interview.

On-line article

MAR/Hedge no.89 May 2001 "Madoff top charts; skeptics ask how" (pdf) (Michael Ocrant)

Barron's 5/7/2001 Article about Bernie Madoff: "Don't Ask, Don't Tell"

SMF Blog Post: Don't Ask, Don't Tell: Barron's 2001 Madoff Article

"....But Madoff's investors rave about his performance -- even though they don't understand how he does it. "Even knowledgeable people can't really tell you what he's doing," one very satisfied investor told Barron's. "People who have all the trade confirmations and statements still can't define it very well. The only thing I know is that he's often in cash" when volatility levels get extreme. This investor declined to be quoted by name. Why? Because Madoff politely requests that his investors not reveal that he runs their money."

From the Wall Street Journal Online documents:

The World's Largest Hedge Fund is a Fraud
pdf (11/7/2005 Submission to the SEC)
Suggests that Madoff Securities "is the world's largest Ponzi scheme".

Thursday, December 18, 2008

Blinded by Truthiness: NY Times Article: On Wall Street, Bonuses, Not Profits, Were Real

Looking at the various entries I've posted to this blog, I've noticed a common thread. Much of our financial system is built on something that is fake. Hedge funds. Short selling. Bonuses for CEO's running companies that are not all that sound.

Many people followed the herd mentality. Groupthink. A recent example is all of the people who lost money investing with Bernie Madoff, or trusted financial advisers who funnelled some of their funds into Madoff's Ponzi scheme.

Trust has been lost.

Our system has rewarded perceived movers and shakers in the financial industry. Just think about the huge amount of money that people made from selling mortgages and mortgage-back securities! What about the CEO's who earned large bonuses, even though their companies weren't doing so well, were not run well, or were tanking behind the scenes?

A recent article in the New York Times, On Wall Street, Bonuses, Not Profits, Were Real (12/17/08 - Louise Story). According to the article, in 2006, Dow Kim, at Merrill Lynch, had a salary of $350,000, but received a bonus of $35 million, for overseeing his company's mortgage business traders.

"...Merrill's record earnings in 2006 - $7.5 billion - turned out to be a mirage. The company has since lost three times that amount, largely because the mortgage investments that supposedly had powered some of those profits plunged in value.... Unlike the earnings, however, the bonuses have not been reversed."

Fueled by greed? Yes. But also blinded by "truthiness".

Truthiness" is a term that sprung from the head of comedian Stephen Colbert's head.

According to Colbert, Truthiness is 'What I say is right, and [nothing] anyone else says could possibly be true.' It's not only that I feel it to be true, but that I feel it to be true. There's not only an emotional quality, but there's a selfish quality."

New York Times Series: The Reckoning (Articles exploring the causes of the financial crisis)

New York Times Reader's Comments

Graphic from the New York Times:

How will trust be restored in our financial markets? There is a long road ahead.

Financial Meltdown 101: Interactive Multimedia timeline by TruthDig on Capzles.

(The above screen is interactive. You can slide the photos back and forth, and select one to see the the content on the screen.)

Capzles is an interactive multimedia story timeline that I found when looking for timelines about the financial crisis. Meltdown 101 was created by TruthDig, a member of the Capzles community. Capzles can contain audio, video, blog post, photos, and other forms of content. More information can be found on the Capzles website.

Tuesday, December 16, 2008

Fakin' it: IT Factory's Stein Bagger, fooled banks, KPMG, Deloitte, and Ernst & Young

There has been quite a bit of discussion about the concept of trust in the financial world. As the world-wide economy continues to struggle, the fakes are like cockroaches scurrying about to get out of the light.

A recent article in the Wall Street Journal reveals that Denmark's Entrepreneur of the Year, Stein Bagger, was a fake. Bagger's "fake" company, IT Factory, was audited by Deloitte, and later KPMG, and even was named as IBM's Best Partner for software. According to the article, Bagger's company owes IBM about $23 million dollars.
Danske Bank may be out $64 million.

Bagger's academic credentials were fake, too. Apparently he hired an artist/actress to "play the role of an official at San Francisco State University, and institution that does not exist", just in case anyone became suspicious.

"The gist of the allegations is that Mr. Bagger used a web of phantom firms to get money from banks and then used these same companies to place big purchase orders for IT Factory software and services. He was buying from himself using other people's money."

For Denmark's Entrepreneur of Year, Something Was Rotten: Stein Bagger Pleads Guilty to Faking Software Deals; His Ph.D. Was Phony, Too. -Andrew Higgins, WSJ 9/17/08
Emails From Bo Svensson to IBM Management
Email to Actress Hired to Play Role of University Official

One good thing about the struggling economy is that the cockroaches will have nowhere to hide when their houses of cards tumble down around them!

Francine McKenna's Blog: Re: The Auditors "Madoff and Blagojevich: Stealing - Easier When No One is Watching"

Francine McKenna's blog, re: The Auditors, is a great place to get good information regarding topics related to finance, accounting, and the economy. One of her recent posts sheds some light on the latest scandals in our society:

Madoff and Blagojevich: Stealing - Easier When No One Is Watching

I was delighted to discover that McKenna had posted a video of musicians performing a song related to her topic, also in keeping with the theme of the Economic Sounds and Sights blog.

Jane's Addiction's Been Caught Stealing, via Terranaomi

Quotes from McKenna's blog post:
"Ethical relativism is alive and well. The extreme sense of entitlement and unadulterated self-interest inherent in some of the worst offenders is an example of pure evil...I see bad people...."The smart money KNEW Bernie had to be cheating, because the returns he was generating were impossibly good. Many Wall Streeters suspected the wrong rigged game, though: They thought it was insider trading, not a Ponzi scheme.
And here's the best part: That's why they invested with him." "


Naked Capitalism: SEC Skipped Normal Inspection of Madoff Hedge Fund

Monday, December 15, 2008

Unregulated Funds of Funds & Bernie Madoff: Videos from CNBC

SIPC Liquidating Madoff Securities' Assets

Future of Hedge Funds

Revealing Video: Madoff
(Bernie Madoff- In his own words)

Zuckerman on Madoff
Zuckerman did not know that 30 Million of his charitable funds were funneled by a fund manager into Madoff's scheme. It was part of another fund that put 9 billion with Madoff. This calls into question the "fund-to-fund" methods of fund management, without due diligence.

Madoff Fallout

Sunday, December 14, 2008

The Walking Zombies of Wall Street: Video Discussion by WSJ's Evan Newmark and Dennis Berman

The problem? How will Wall Street bankers make money? What jobs will they do?

"They just don't have much work. Debt and stock markets are virtually shut, merger volume is down by 28%, and whole lines of structured finance are closed for good"

Saturday, December 13, 2008

From Ponzi to Madoff: Interactive Graphic from the Wall Street Journal

Here is the link:

From Ponzi to Madoff

"The arrest of investment manager Bernard Madoff for allegedly running an ongoing $50 billion swindle is the latest scam of the kind made famous by Charles Ponz in the 1920's. In these schemes, early participants are paid returns from the principle received from later and different investors." -Wall Street Journal

Friday, December 12, 2008

Market Wizards or Wizards of Oz? Bernard Madoff, hedge funds, and loss of trust.

Market wizards, or Wizards of Oz?

Right now there is a discussion on CNBC about Bernard Madoff's fraud/ponzi scheme.
"Low volatility, with consistent growth of 8-10 percent every year, quick liquidity... Put it all in there!".

People with millions listed to the wizard and put most of their money in
Madoff's funds. And now the money is gone, and trust is lost.

Some of Madoff's clients:
Sterling Equities, owned by Fred Wilpon (NY Mets owner)
Benedict Hentsch (Swiss private bank)
Bramdean Alternatives (U.K. asset manager)
Fairfield Greenwich Group - Fairfield Sentry Ltd.(Hedge fund firm)
Kingate Management -Kingate Global Fund Ltd.
Fix Asset Management
Pioneer Alternative Investments- Primeo Select Fund
Union Bancaire
Optimal Investment Services SA
For more information, see "Factbox-Firms exposed to Madoff's alleged fraud"

Wizards of Oz = Hedge Fund Managers?

Kenneth C. Griffin, founder of the Citadel, has been called a hedge-fund wizard. According to an article in the NY Times (10/7/08), "Between 1998 and 2007, he handled investors an average annual return of 20 percent, more than three times that of Standard & Poor's 500-stock index."

An article in the Chicago Tribune (12/12/08), mentions that quite a few smart people work at the Citadel..."generous payouts helped Citadel recruit a stable of PhDs, market wizards and computer gurus who could engineer a recovery."

I guess things were too good to be true. According to CNBC, Citadel's funds are down about 50%, and the company will not allow investors to withdraw funds for several months.


Hedge Fund Wizards (Washington Post, 12/19/07)
Nearly one year ago, Dean P. Foster, a professor of Statistics at the Wharton School of Business, and H. Peyton Young, a professor of Economics at the University of Oxford, wrote this article. Here is a quote that foreshadowed the current crisis:

"Hedge funds are risky for another reason. It is extremely difficult to tell, based on past performance, whether a fund is being run by true financial wizards, by no-talent managers who happen to get lucky or by outright scam artists... Although individual hedge fund managers may drag their feet, it is actually in the industry's best interest to encourage greater regulation and transparency. Otherwise, a rising tide of failed funds could cause a collapse in investor confidence, putting both the good and the bad wizards out of business."

Top Broker Accused of $50 Billion Fraud (WSJ)

Fees, Even Returns and Auditor All Raised Flags (WSJ)

Fund Fraud Hits Big Names (WSJ)

Hedge Funds Mystify Markets, Regulators: Deeply Powerful, Largely Unchecked (David Cho, Washington Post, 7/4/2007)

Stockbroker Fraud Blog
(Attorneys: Shepherd, Smith & Edwards)

Thursday, December 11, 2008

How do we invest in "real" when it has been "all one big lie'? What to make of Bernard Madoff

Do you remember the story, "The Emperor's New Clothes"? All of the adults in the story were convinced that the Emperor had wonderful clothes, and that the clothes were REAL. The only problem was they didn't seem to realize that the emperor was really NAKED. Just one little boy noticed that it was all fake.

Like the little boy in the story, we are now discovering that the trappings of many Wall Street investment companies are fake, and have been so for a very long time. The emperor is really naked. How could so many of us let ourselves become bamboozled?

Here is an excerpt from today's New York Times:

"Prominent Trader Accused of Defrauding Clients"
Diana B. Henriques and Zachery Kouwe

"Bernard L. Madoff, a legend among Wall Street traders, was arrested on Thursday morning by federal agents and charged with criminal securities fraud stemming from his company’s money management business."

"The arrest and criminal complaint were confirmed just before 6 p.m. Thursday by Lev L. Dassin, the acting U.S. attorney in Manhattan, and Mark Mershon, the assistant director of the Federal Bureau of Investigation."

"According to the complaint, Mr. Madoff advised colleagues at the firm on Wednesday that his investment advisory business was “all just one big lie” that was “basically, a giant Ponzi scheme” that, by his estimate, had lost $50 billion over many years."

"....The senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other, different investors. Mr. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion, according to the regulatory complaint."

"Andrew M. Calamari, an assistant director in the S.E.C.’s regional office in New York, said the case involved “a stunning fraud that appears to be of epic proportions.”"

A visit to the Madoff Securities website provides a quick snapshot of what an investor sees at first glance:

A Global Leader in Trading US Equities

"With more than $700 million in firm capital, Madoff currently ranks among the top 1% of US Securities firms. Our sophisticated proprietary automation and unparalleled client service delivers an enhanced execution that is virtually unmatched in our industry."

An Intricate Interweaving of Advanced Technology and Sophisticated Traders

"Madoff Securities also utilizes its computers to seek out opportunities for hedging its inventory of securities. The firm uses a variety of futures, options, and other instruments to hedge its positions and limit its risks. While these hedging strategies are an important tool in protecting the firm's financial position, ultimately,these highly prudent risk management policies protect the interests of clients as well."

The Owner's Name is on the Door

"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."

The "unblemished" record was fake.... Maybe it is time we invested in something real.


Interactive Map of Bernard L. Madoff Investment Securities

via Muckety "Exploring the paths of power and influence"

Saturday, December 6, 2008

The Rise of the Machines & another look at the role of "quants" in the current financial downturn.

I came across an article on-line from the New York Times, written by Op-Ed Contributor Richard Dooling, "The Rise of the Machines",

Dooling mentions at the beginning of the article that Warren Buffett called derivatives "weapons of mass destruction". I guess time will tell. The article was published on October 11, 2008. Nearly two months later, things continue to combust.

"Somehow the genius quants — the best and brightest geeks Wall Street firms could buy — fed $1 trillion in subprime mortgage debt into their supercomputers, added some derivatives, massaged the arrangements with computer algorithms and — poof! — created $62 trillion in imaginary wealth. It’s not much of a stretch to imagine that all of that imaginary wealth is locked up somewhere inside the computers, and that we humans, led by the silverback males of the financial world, Ben Bernanke and Henry Paulson, are frantically beseeching the monolith for answers. Or maybe we are lost in space, with Dave the astronaut pleading, “Open the bank vault doors, Hal." '

Richard Dooling is the author of "Rapture of the Geeks: When AI Outsmarts IQ"

I've assembled a few related articles that focus on the role of the quant and some additional information that might assist in our understanding of what has been unfolding during the current economic recession:

Quants Gone Wild - The Subprime Crisis (3/27/08; A.W. Bodine and C.J. Nagel)
"The “best & brightest” quantitative analysts on Wall Street became so technologically advanced that many of the principals running investment firms simply didn’t understand the arcane risk models their “quants” developed – and sadly neither did the quants. We recall the comment made during a recent presentation at Concordia College by Don Gogel, President and CEO of Clayton, Dubilier and Rice. He noted that this “toxic cocktail” was something that even the “mixologists themselves didn’t understand” let alone those trading in them. Bryant Urstadt writing in MIT’s Technology Review in December 2007 also notes, “The more quants learn, the farther away a unified theory of finance seems. Human behavior, as manifest in financial markets, simply resists quantification, at least for now.” We should here also do homage to the investing approach of the sage Warren Buffet—that he does not invest in anything he doesn’t understand. Investment houses should note this simple truth."

On Becoming a Quant (pdf) May 2008; Mark Joshi

Hiring the Next Generation of Quants, Finance Tech, 3/31/2006; Ivy Schmerken

""An MBA does not cut it because operating in today's markets requires more quantitative skills than a typical MBA can offer," contends Linda Kreitzman, director of the Masters in Financial Engineering (MFE) program at the Haas School of Business at the University of California at Berkeley. "Trading is getting more complex, especially in structured products," she adds, citing as examples fixed income, mortgage-backed securities and asset-backed securities, as well as credit and equity derivatives and volatility trading. ""

Here is an article, written by Tom Davenport, in the Discussion Leader, Havard Business Publishing, that offers a a few ideas for solutions:

10 Principles of the New Business Intelligence

"I've argued for a while that organizations need to increase their focus on decision-making. In particular, they need to think again about the relationship between information and decision-making."

Saturday, November 22, 2008

Why was so much power given to short sellers?

It has been a while since I last posted. The economic course of events has become so complex, I simply could not keep up! There are so many unanswered questions. Why was so much power given to short sellers? How did so many market manipulators go "unnoticed" for so long? Have we learned from past history?

Here are a few of things that crossed my path tonight:

Manipulation, Short-Selling, Uptics, and Chris Cox:

Stan Yee's post on the Mad Cap Recap (Jim Cramer's Mad Money blog), discusses Cramer's dislike of the US SEC Chairman Chris Cox and his policies that "gave huge power to short-sellers -- power enough to "manipulate stocks down legally through multiple different means."

Yee goes on to say that Cox's worst decision was to eliminate the "uptick rule", a policy put in place during the 1930's to ensure that another great crash would never occur. Accoring to the post, the uptick rule "required short-sellers to wait until a buy could be found to pay an uptick, meaning a higher price, before they could short a stock."

A Brief History of Short Selling

"The first rule of investing: buy low and sell high. If you haven't actually bought anything, get someone to lend it to you first, then sell it high and buy it back once the price has dropped. That's the first rule of short-selling — sell high, buy back low, and pocket the difference — and it's a trick that has been hastening market crashes for at least 400 years." - Claire Suddath, TIME Business and Tech

TIME Covers Wall Street:
A look at some of the magazine's best cover stories on the US economy

Bankers vs. Panic (11/4/1929)
Business in 1954 (1/10/1955)
Wall Street Bull (1958)
One Hectic Week (6/1/1962)
The Great Mogul (Article about John Kenneth Galbraith) (2/16/1968)
The Rising Risk of Recession (Article about Economist Milton Friedman) (12/19/69)
The Showdown Fight Over Inflation (Article about George Shultz and Arthur Burns)(8/16/1971)
Is the US Going Broke? (1972)
Wall Street's Super Streak (9/6/82)
Predator's Fall: The Collapse of Drexel Burnham (1990)
  • "Like the abrupt fall of the Berlin Wall thousands of miles away, the collapse suddenly confirmed what everyone in the financial world could already feel in the wind: a new era had arrived."
Attack of the Data Miners (Derivatives) (4/11/1994)
  • "Wall Street's new products are so complicated and interdependent that only the advanced number crunching of the quants can untangle the risks involved; without it, the market crushes you."
  • "There is an almost prayerful communion with the computer. They're intense and operate to a rhythm. If you ask them a question, they turn and their eyes are glazed, coming out of whatever cyberspace they are in." In this trance, he says, "they're not really in a world of other people. They think they're in a world of pure technical manipulation, like a chemist creating a molecule. It's as though there are no social consequences."
The Three Marketeers (Rubin, Greenspan & Summers) (2/15/1999)

  • "...a hedge fund blessed with two Nobel prizewinners blew up in an afternoon, nearly taking Wall Street with it."
Zap! Looking Beyond the Bear (3/26/2001)
  • "Vaporized stock-market wealth is at $4 trillion and counting. The losses have engendered one of the fastest economic decelerations ever--from an annual growth rate last spring of 6% to near zero today."

Tuesday, November 4, 2008

Unemployment and Presidential Elections 1980-2008, via Visualizing Economics, with link to Bureau of Labor Statistics Interactive Map

Via Visualizing Economics

Bureau of Labor Statistics Interactive Map

Unemployment magnifying glass

Thanks to Catherine Mulbrandon for the screenshot and link!


The U.S. Bureau of Labor Statistics website contains a wealth of information, including interactive graphics. There are "at a glance" tables, databases & tables, maps, calculators related to inflation, location quotient, injury and illness, an area where you can create customized maps, and more.

It even has an interactive
career information section for kids.

Note: Click the above picture to get to the next screen. From there, if you click on the text bubbles, you will be linked directly to additional information and resources about the specific areas of employment.

Saturday, November 1, 2008

Mike Gasior: Long on one, short on the other..hedge funds, credit default swaps, and a discussion about "Rubber Band & Chewing Gum Economics"

As I trolled the web looking for financial and economic tidbits, I came across a series of video clips by Mike Gasior, via American Financial Services. It is interesting to go back a couple years in time and learn a bit about hedge funds, credit default swaps, and so forth.

I don't know Mike Gasior, or how trustworthy his information is, but it is worth taking some time to listen to what he has to say. He certainly is passionate about his topics!

November 2005 Commentary: Futures and Forwards

What are futures and forward contracts? A forward is going long - agreeing for the price of something now, for the delivery of something later. The person who sold it to you, is going short Forward contracts sell over the counter. Futures are exchange traded forward contracts. Watch the video for further clarification...

January 2006: Introduction to Mortgage Backed Securities

"They take the loans and mortgages and securitize them, the act of making these people's mortgages into a mortgage-backed security." Pass-through securities.. references the fact that ... long ago, the mortgage is sold to a pool. The bank services the mortgage... they take the home owner's loan and pass it through.. ultimately the payment lands in the hands of the owner of the mortgage-backed security."

Here is Mike Gasior's video clip about credit default swaps, May 2006:

I'm still a bit confused about this... paying for protection, paying others to take a risk...

Gasior's December 2006 discussion about hedge funds sheds some light on this topic:

Introduction to Hedge Funds

"The name is a misnomer...Hedge funds typically use derivatives for speculation. And now, there is a million different strategies pursued by hedge fund managers...And they are investing some of the wildest things on Earth."

Regarding hedge fund managers: "They will do anything, anything they have to do, to get it into that profitable situation...On an average day now, 30-35% of the trading on the NY Stock Exchange is hedge-fund related... It is an enormous segment of the business."

It is now November 2008. It is interesting to watch Mike Gasior's January 26 2008 Video -- and his "Rubber Band & Chewing Gum Economics", broadcast in May 2008. These video discussions weren't Gasior's usual upbeat illuminations about financial nuts and bolts. It was his commentary about the dynamics related to the financial crisis and the dynamics of the U.S. government's involvement in the process.

January 2008: "Fed Up"

From the January video: "Everything, everything that's being done by the Federal Reserve and the US Government about this crisis is wong, dead wrong. I have been around this stuff, I've been around the markets for the past 26-27 years...nothing makes sense anymore. We have a large problem. And everything being done to take care of the problem is wrong.... In the last 7-10 years, far too many people were lent money. Homeowners, corporations, people who never should have been lent the money. And now we will have to deal with that."

....Of all things, a tax rebate? I could just vomit at the thought of it..... This 150 billion tax rebate is gross stupidity..."

May 2008:

"In a capitalist economy, things go up and down... the cycles of life....All of this debt the US government going into to fund these bailouts, to fund these tax rebates. We run a very dangerous risk of there being a loss of confidence, a loss of faith with the US government, in investing in in the United States..."


Credit Default Swaps: The Next Crisis?
(Janet Morrissey, 3/17/08 Time Business and Tech)
As Bear Stearns careened toward its eventual fire sale to JPMorgan Chase last weekend, the cost of protecting its debt, through an instrument called a credit default swap, began to rise rapidly as investors feared that Bear would not be good for the money it promised on its bonds. Not familiar with credit default swaps? Well, we didn't know much about collateralized debt obligations (CDOs) either — until they began to undermine the economy."

Thursday, October 30, 2008

Hedge Fund Drama: Porsche, currency-derivative markets, VW stock options - via the Economist

No matter how hard I try, I still don't quite understand hedge funds.

According to an article in today's Economist (10/20/08), "hedge funds sold shares in VW that they did not own." From what I can tell, companies such as Morgan Stanley and Goldman Sachs and the likes might have "exposure" to VW. There is no telling, right?!

I guess if things were transparent, the general public might have a better idea of what is going on, and perhaps have a better chance of making better data-driven financial decisions. Right now, people are third-guessing. What a game the world has been playing!

From the article:

"Adam Jonas of Morgan Stanley warned clients on October 8th of the danger of playing “billionaire’s poker” by betting against Porsche."

That sounds about right.

Yes. Billionaire's Poker.

Porche and VW - Squeezy money: How Porsche fleeced hedge funds and roiled the world's financial markets

Tuesday, October 28, 2008

Interactive Economic Graphic from NY Times: Year-over-year change in home prices through August 2008 - data from Standard & Poor's Case-shiller

Thank you Vu Nguyen, Seth Feaster, and Kevin Quealy for the elegant interactive graphic of the change in home prices in 20 cities in the US from January '01 through August '08!

For more information about housing price changes and finance topics, do a search on the Seeking Alpha website. Also check out Seeking Alpha's Breaking News page, for "real time commentary on the market, with links to key sources".

Seeking Alpha is the child of David Jackson, a former tech research analyst for Morgan Stanley. I plan on spending some time exploring the site. The nice thing about this site is that the articles are arranged a tagged so it is easy to find the information you need. The articles often contain lots of links, so you don't have to waste too much time digging deeper into topics of interest.

Below is a sample of some of the graphics related to US home prices via Seeking Alpha, in no particular order:

Sunday, October 26, 2008

Oil-rich Gulf, Kuwait, Bahrain, Oman, Quatar, Dubai, & Saudi markets fall in reaction to current global crisis...

A "hot of the press" article from the Wall Street Journal, written by Margaret Coker and Chip Cummins, gives some insight about the impact of the current global crisis on the mid-east economy, including places such as Dubai. Along with the price of crude oil, equity values have fallen.

Financial Storm Hits Gulf October 27, 2008
Image from the Wall Street Journal
[Tumbling Markets]

A Primer on Credit Default Insurance, and more, from the New York Times

Via Visualizing Economics:

Credit Swaps Insurance Market: 2000-2007

New York Times Graphic: 2/17/08
In the Shadow of an Unregulated Market

New York Times Graphic: 2/17/08
A Primer on Credit Default Insurance
February 17, 2008 (Gretchen Morgenson, NY Times)
Arcane Market is Next to Face Big Credit Test

"The market for these securities is enormous. Since 2000, it has ballooned from $900 billion to more than $45.5 trillion — roughly twice the size of the entire United States stock market."

"No one knows how troubled the credit swaps market is, because, like the now-distressed market for subprime mortgage securities, it is unregulated. But because swaps have proliferated so rapidly, experts say that a hiccup in this market could set off a chain reaction of losses at financial institutions, making it even harder for borrowers to get loans that grease economic activity."

February 27, 2008
Small and Midsize U.S. Banks Beginning to Struggle in Credit Crisis

"..But the breadth and depth of the current troubles have caught bank executives by surprise."

Related NY Times Graphic:


Who's Watching Your Money? (Robert M. Morgenthau, April 30, 2007, NY Times Op Ed)

"...the United States Supreme Court upheld an ill-advised regulation issued by the Office of the Comptroller of the Currency, exempting subsidiaries of national banks from regulation by state banking authorities. This regulation makes the comptroller the exclusive regulator of these banks, even though the office is financed almost entirely by the banks it oversees...."

A Hands-Off Policy on Mortgage Loans (Edmund L. Andrews, NY Times Business, July 14, 2005)

"The reason is that federal banking regulators, from the Federal Reserve to the Office of the Comptroller of the Currency, have been reluctant to back up their words with specific actions. For even as they urge caution, officials here are loath to stand in the way of new methods of extending credit."

""We don't want to stifle financial innovation," said Steve Fritts, associate director for risk management policy at the Federal Deposit Insurance Corporation. "We have the most vibrant housing and housing-finance market in the world, and there is a lot of innovation. Normally, we think that if consumers have a lot of choice, that's a good thing.""

"...Despite their hands-off approach, some regulators are worried that banks and other mortgage lenders may not have properly judged the risks to themselves. They warn that speculative buying has increased, with many people hoping to quickly resell houses and condominiums before the construction is even finished..."

2005 Related NY Times Graphic:

Betting on Rates (NY Times Graphic)

Saturday, October 25, 2008

Massive Declines All Around the World; Wall Street Journal Video - Analysis of World

Is it impossible for experts to model the current state of the world economy?

For a few insights about the current global economic situation, take a look at the video analysis with Andy Jordan and Tom Lauricella from the Wall Street Journal below.

Are there glimmers of hope in this massive decline of global markets? How can we really know?

Market Mush

WSJ Interactive Graphic of 10/24/08 Market Dynamics:
Tough Session: Stock declines started in Asia and quickly spread as markets opened for trading around the world

WSJ Article -10/25/08:
Fresh Tumult as Signs of Recession go Global
(Kelly Evans, Joellen Perry,Yumiko Ono and John Lyons)
"In rich countries and poor countries alike, markets are plunging, companies are scrambling for credit and cutting their growth plans and consumers are keeping cash in their pockets. The U.S. and some governments in Europe and Asia are spending heavily to stanch the problems in markets and Main Streets globally, but the attempts have not halted the damage."

Tuesday, October 21, 2008

Economic Odds and Ends: Stock Market Panorama; Banking and Children;

Here are a few odds and ends regarding the economy:

Ambient information systems - a real-time data panorama of the stock market:

Real-time data panoramas: "Once the stock market opens, our 3D simulation comes to life & people start 'breathing' business information" via "BASHIBA Panorama exploits the visual perceptual capabilities of the human brain. It harnesses untapped brain power."

Children and the current economic crisis:

Video thumbnail. Click to play
Banking and Saving with Your Child
(Video via Knowledge Essentials)

(from Knowledge Essentials on BlipTV) "Tough economic times are everywhere. How do you explain what the economy is to your child and then parlay that into help with your household budget? Check this out to see."

Sunday, October 19, 2008

Economic Sounds and Sights as Interactive Timeline in Dipity

A Channel on the New Dipity"We unlocked “Dipity 2.0″ today with one simple goal: letting you follow updates from the people and topics you care about, and have fun doing it.

The new Dipity organizes updates from sites like YouTube, WordPress, Twitter, and 7500 news sites into “channels” on our interactive timeline.

Dipity is the best place to go to catch up on your online world.

You can create your personal channel to broadcast updates to your friends, and can start a channel about anything from Darfur to Dave Mathews in just a few seconds. Start a channel is super-simple fast new options:

* Web Search: Enter a keyword and we’ll scour the web for the most popular content
* Feeds: Drop in an RSS feed and we’ll take it from there.
* Fresh: Start fresh and update with links, video, images and more."

Interactive economic timelines in Dippity

I'm still searching for examples of interactive timelines related to economics, finance, economic history, and the current economic crisis. I visited the Dipity website, and found a few interesting timelines:

An Interactive Timeline of the Current Economic Crisis, from Dipity
The Financial Crisis:
A shocking series of events that forever changed the financial markets, as reported by Fortune magazine. (Created on Dippity by cwood)

Note: Contents in the Dipity format can be viewed as an interactive timeline, a flipbook, a list, or a map.


Here is a static timeline:

Timeline of Economic Turmoil Virgin Media, September 30, 2008

"The Last God of Central Bank Still Standing": Paul Volcker on Charlie Rose

Ryan Lanham shared the following link, along with his comment, "Fascinating, long form discussion between Charlie Rose and Paul Volcker. Yet another example of using television to elucidate ideas, rather than yelling and bumper sticker foolishness."

Paul Volker on Charlie Rose
, via Big Picture
October 9, 2008

The comments section on the Charlie Rose website is worth reading.

I found this link to the Political Irony blog:

US Electoral Maps before and after Great Depression

Original source: 270toWin:
" is an interactive Electoral College map for 2008 and a history of Presidential elections in the United States. Since electoral votes are generally allocated on an "all or none" basis by state, the election of a U.S President is about winning the popular vote in enough states to achieve 270 electoral votes, a majority of the 538 that are available. It is not about getting the most overall popular votes, as we saw in the 2000 election, when the electoral vote winner (Bush) and the popular vote winner (Gore) were different."

FYI: I'd like to gather more information about hedge funds for an upcoming post. Here is some additional food for thought, via Ryan Lanham:
"I fear the hedge fund unwind is even more dangerous, less transparent, and more immediate of a crisis for the markets than real estate."

Tuesday, October 14, 2008

Ten Songs from Tough Economic Times, Ten Songs about the Economy, Demand, Supply Rap, and Economic Songs for Kids

The market went up on Monday, the U.S. government's latest economic strategies were debated, the market was so-so on Tuesday, and I am still struggling to figure things out. I don't have any profound insights to share at the moment....

In the meantime, here are links to some "Economic Sounds"....

Ten Songs from Tough Economic Times - Ken Oliver's post on the Music Matters blog

"Demand, Supply" Rap, by Rhythm, Rhyme, Results

Top 10 Songs about the Economy - by Wade Tatangelo, of Tampa Calling, Creative Loafing

Economic Songs (For Kids)
The following songs are from the KidsEcon website. The links are to lyrics set to the tune of popular songs, such as "If you are happy and you know it, clap your hands".

I especially liked these songs, in light of our current circumstances, both set to "The Farmer in the Dell":

The Handy Dandy Guide Helps Me Decide!

The Supply and Demand Song

Link from Visualizing Economics: Flashback Economy/Prices

I came across a link on the Visualizing Economics blog to the Flashback website , where you can find information about the economy as it was from the 1960's to the present.

What we really need now is "flash-forward" website!

Monday, October 13, 2008

Wall Street Journal and New York Times Online: Treasure Troves for Economic and Financial Info

The on-line versions of the Wall Street Journal and the New York Times are great resources for information, current and historical, about economics and finance. In addition to what you find in the print, you will find a variety of interactive charts, photos, and video clips.

Here are few interesting links:
(Note: Some videos may contain ads.)

Wall Street Journal
Wall Street Journal's Interactive Graphics (This site contains interactive graphics about business, the economy, finance, politics, and more.)
Kashkari Gives 'Comprehensive Update' on Rescue Plan (full text from Interim Assistant Secretary for Finance)
Tumbling Stocks, Plunging Currencies (Interactive map depicting information about the major stock index and currency of various countries over the past three months.)
Bears That Won't Go Away (Chart)
What History Tells Us About the Market (10/11/08 -Article with photos)
IMF Pledges Support, but Is Short on Details (10/12/08 - Video; Analysis by WSJ Reporter Bob Davis)

New York Times
Podcast: Weekend Business (10/10/08)
Kashkari Details Rescue Plan (10/13/2008) (CNBC Video, linked from NYT online)
Echoes of a Dismal Past (Video)
How This Bear Market Compares (interactive chart, depicts losses and in length, over the past 80 years)
Credit Crisis Indicators ( interactive chart, depicts 3-Month Treasury, Libor, Ted, Paper, & Bonds)

Friday, October 10, 2008

Business Week: "They Warned Us About the Mortgage Crisis"

A recent article in Business Week explains how some state officials were concerned about lending practices, and why their concerns went unheeded several years ago:

"They Warned Us About the Mortgage Crisis"
10/09/2008 by
Robert Berner and Brian Grow

FYI: Business Week's Learning Center provides a good overview of stock market and investing basics, including definition of terms.

NY Times Series "The Reckoning: The Risk in Hindsight"

As a public school employee, my investment knowledge, until the past few weeks, has been limited to my understanding of my low-risk 401K and 403-b funds.

Derivatives? Hedge funds? Credit Derivatives? Short selling? Futures Contracts? Why should I worry about all of that! Like many other people, I was happy in my ignorance.

Here are a few links that I found useful in my fast-track education in finance and economics:

The New York Times Online is full of articles and video clips exploring the causes of the financial crisis:

Video: Examining the Financial Crisis
Video Timeline: Five Weeks of Financial TurmoilVideo: How Fannie Mae's Problems Lead to the Country's Financial Crisis
The Credit Crisis-The Essentials
AIG: Behind Insurer’s Crisis, Blind Eye to a Web of Risk
Taking a Hard New Look at Greenspan Legacy

Growth of a Complex Market
NY Times Multimedia Graphic: Growth of a Complex Market

Interactive Graphic: Credit Crisis Indicators

More to come!