Four days for Tim Harford, leading up to the Flash Crash

Day 20: Change of tack. I am standing outside the London Stock Exchange with an iPhone 4 trying to figure out whether there’s an App to execute the “Flag Repeater” strategy. Why do I keep losing signal?

Day 21: Steve Jobs says I AM HOLDING THE PHONE WRONG? Seriously?

Day 24: The iTunes “Genius” has categorised all my automated trading strategies according to album and year of release and is now suggesting an algorithm that provides the rhythm to a hilarious treadmill routine featuring Lady Gaga. I feel like Steve Jobs is camping out in my brain.

Day 30: I am back with Windows. The Mac was vanity. I’m not in the robo-trading business to look good, but to make money. Nothing can now go wrong.

Hilarious.

Graph of the day: Earnings per educational attainment

Source here.

Quotes of the day

The conspicuous paradox that “The Social Network” plays with is that the world’s most popular social networking Web site was created by a man with excruciatingly, almost pathologically poor, people skills. The benign view of Facebook is that it creates “a community,” a sense of intimacy, which is of course one reason it also creeps out some of its critics.--Manohla Dargis

With apologies to [Jeremy] Bentham, income inequality data is nonsense, and wealth inequality data is nonsense on stilts. It’s all about consumption.--Scott Sumner

Income inequality data is often collected at the household level, implying that a doctor making $250,000 with a stay at home spouse is no better off that a Boston cop making $150,000 (including lots of overtime) married to a nurse making $100,000 (including lots of overtime.) But the two income couple might have to spend money on child care, and have very stressful lives doing household chores on top of their paid jobs. This isn’t a major bias, but many people who naively think of the top quintile as being “rich” would be shocked at how many working class couples in their 40s or 50s who are dual income and live in high cost areas like NYC and Boston actually fall into that category. I’d guess two married people each making $55,000 would make it the top quintile, and I’d guess a couple who each make $75,000 would make the top decile. Those aren’t gaudy incomes around here.--Scott Sumner

Suppose you are the richest guy in the world, owning $100 billion in Microsoft stock. You cash out and decide to live off the interest. To avoid inflation risk, you put it all in 10-year indexed TIPS. You would earn $650,000,000 per year in interest. Unfortunately your tax liability would be more than $650,000,000. The government would report your income as about $2 billion. So the person who might well have the highest reported income in the entire country according to official data, might not have any real income at all. Now obviously most rich people don’t put all their money in TIPS. They take bigger risks and get positive rates of return. But risk implies the possibility of loss. Some do much worse than the hypothetical I gave you. Of course even with no income a person this rich has a fabulous lifestyle, which is what I would argue is exactly the point. Look at consumption inequality, not income inequality.--Scott Sumner

It would seem that, on paper, the MBA remains a solid investment even despite its prohibitive cost. The problem is that jobs currently are in short supply, even while more and more MBA graduates flood the market. If students aren’t working then they aren’t paying down the cost of their investments. And only 40% of full-time two-year MBA Class of 2010 graduates received an offer of employment by graduation. That was down from 50% for the Class of 2009 and 62% for the Class of 2008. Students seeking jobs in manufacturing, health care or energy all had more success than those seeking jobs in finance or consulting -but almost half of the 2010 graduating class hoped to go into finance or consulting, two industries have been hit particularly hard by the downturn in the economy during the last two years. The Bottom Line: The MBA Is A Risky Investment.--Dave Behr

[D.E. Shaw], the second-largest hedge fund by employees, had about $39 billion to look after just two years ago. Today it has about $21 billion, a result of declining markets and the firm’s decision during the crisis to restrict withdrawals by customers. Investors, it seems, do not forget so easily. While not all the money was wedged into hedge funds, assume investors paid an average management fee of 1.5 percent. The firm’s income, before its slice of any profit, would have fallen 46 percent, to some $315 million. That might not be such a problem if investments were thriving and it was pocketing the traditional 20 percent of the upside. But the math illustrates a basic point. Hedge funds are not so different from their Wall Street brethren. Like banks, their cost structures grew, in some cases well beyond their ability to sustain them. The good news for hedge funds, at least for now, is that the cuts amount to only a fraction of the declines in performance. That may not last.--Jeffrey Goldfarb and Rob Cox

I am often asked, especially by my Peking University students, to list what I think is the sequence of steps China will take to address its economic imbalances. Remember that rebalancing, in the Chinese context, has a very specific definition. It means raising the consumption share of GDP. This is just a way of saying that consumption growth must outpace GDP growth, and over the next few years it inevitably will, if the rest of the world is unable to absorb a rising Chinese trade surplus. But there are many ways this can happen. The good way is by a surge in consumption growth that allows GDP growth to remain strong. The bad way is for consumption growth to slow, and for GDP growth to slow much more rapidly. ... Unfortunately the pace of China’s adjustment will in large part depend on the pace of the external adjustment – China needs trade surpluses to absorb excess capacity, but its trade surplus depends on the ability and willingness mainly of the US and trade-deficit Europe to absorb those surpluses. Because China has resisted adjusting for so long, I worry that the rest of the world is neither able (especially in the case of trade-deficit Europe) nor willing to wait long enough to allow China a relatively easy adjustment.--Michael Pettis

When Rome magistrates opened an investigation last week into the Vatican bank over transparency issues, it was not only a bold assertion of state over church, it also pointed to one of the Vatican’s greatest continuing challenges: facing modernity. As in the sexual abuse scandal, in which for years the Vatican appeared to declare itself outside — or above — civil law, this time the issue is the Vatican’s famously opaque finances, which for the first time are being held to tightened European Union anti-money-laundering statutes.--Rachel Donadio

Pittsburgh's Woodland Hills High School tops USA Football's list of high schools with the most NFL players with six, while three schools have five players in the league this year. USA Football based the list on the 1,696 players on opening-week rosters. The New York Jets' Jason Taylor, Arizona's Steve Breaston, New England's Rob Gronkowski, Pittsburgh's Ryan Mundy, Miami's Lousaka Polite and San Francisco's Shawntae Spencer played at Woodland Hills.--Mark Divver

An abbreviated quiz on religion

here.  If you score 8, I think you outperform. 

I got 15 out of 15.  My elders at church would probably give me grief if I missed any of the questions.  From the looks of it, getting 0 or 1 is just as special as getting 15, as a monkey could probably get 3 or 4, given the multiple choice format.

Here's performance by religious affiliation:



UPDATE: Ross Douthat comments on the high scores of atheists and agnostics:

I wonder how the data would have looked if Pew had created a generic “nonbeliever” category and compared that group to Protestants and Catholics. Instead, they created two categories: Self-described atheists/agnostics, and people who described their religion as “nothing in particular.” The first group was 3 percent of the sample; the second group was a much larger 12 percent. And while the atheist/agnostics had the highest religious literacy, the larger “nothing in particular” camp was among the least literate overall.

This makes a great deal of sense. The very act of declaring yourself an “atheist,” after all, suggests a particularly high level of interest in religious detail and debate — higher than many self-described Methodists or cradle Catholics who have a vague belief in God and show up at church on holidays, and also higher than the many nonbelievers who are merely indifferent to religion. Another way of putting it is that self-described atheists are the religious converts of the irreligious world. Like someone who leaps from Lutheranism to Catholicism, or Christianity to Islam, they’ve made an intellectual decision about their faith — or the lack thereof, that is. And so it isn’t surprising that they’d be more knowledgeable about the subject than the much larger populations of part-time churchgoers and “nothing in particular” nonpractitioners alike.

I think atheists are much more highly educated. But hey, so are George Bush, Al Gore and John Kerry ...

Political footnote of the day: Blair Hull

Like life, politics can turn on a moment.

Blair Hull will not be remembered by many; if anything, he will be a footnote in history. In 2004, Hull decided to seek the Democratic nomination for Illinois’s open Senate seat, vacated by Peter Fitzgerald. Hull, who funded himself with $28 million, had a significant lead early on. Then allegations surfaced that he had threatened to kill his wife during an argument, and that he was arrested for battery, although charges were never filed. Nevertheless, the damage to Hull’s campaign was done.

The chief beneficiary of Hull’s meltdown was a little-known state senator from Hyde Park. His name, of course, is Barack Obama.

That's an excerpt from a Matt Barnum piece in 2006.

I was talking to a colleague about Linda McMahon's senate campaign today, and he mentioned interviewing one of Hull's employees, who related this story to him. Had Hull won the primary in 2004, our current president would not be where he is.

Hill made his money in listed options, a business he would later sell to Goldman Sachs.

More bad news

The New York Times reports:

The big hedge fund D.E. Shaw & Company laid off 150 employees on Tuesday, or about 10 percent of its work force, Institutional Investor reports, citing unidentified people familiar with the situation. The cuts affected employees at all levels throughout at the company and included partners and portfolio managers, according to these people. D.E. Shaw’s assets have shrunk sharply as a result of big redemptions the past two years. D.E. Shaw, which is best known for its quantitative-based trading, oversaw about $21 billion as of July 1. That was down nearly half from two years earlier, when the fund, based in New York, had about $39 billion under management.

D.E. Shaw is the original quantitative hedge fund, founded eponymously in 1998 by David Shaw, a professor of computer science.  They've had a great track record over their first two decades--21% average returns from this article, but the last 2 years have been rough for just about everybody.  I was being recruited to work there early in my career, but discovered my GPA was too low for them.  Yet I'm living proof that even mediocre students can generate competitive risk adjusted returns, so their loss!

I'm estimating this is $30-40 million in annual income that has been vaporized from the local economy, and more than $3 million in state and city tax revenues, which is about 20 government jobs that will need to be cut as well (not to mention the even greater impact on the federal budget).  Teachers, policemen, fireman, prison guards, ... where will it come from? (Not that anyone is asking, but how about reducing some school administrators, since they outnumber teachers, and some idling regulators).

What's worse is that the remaining employees at D.E. Shaw are probably staring at pay cuts, which will reduce tax revenues even more 2010 (vs. 2008) than the layoffs.  I suspect their performance this year is in the -2% to +6% range, so an order of magnitude less than they are used to.  Assuming a 2% management fee, their non-performance revenues have been cut from $800 to $400 million per year.  And they could erode further, if redemptions continue and/or fees shrink.

Also, the government is looking to tax such workers more, too, so let's just forget about job creation from that sector.

Census update shows New York City and State households feeling the recession

here.  Some excerpts:

Although New York City has fared better than the country as a whole, recording smaller increases in poverty and smaller declines in household income, more subtle indicators, like the rise in the number of New Yorkers living in homes without kitchens, underscore the struggles confronting many.

The Census Bureau’s 2009 American Community Survey also found that from 2007 to 2009, the income of single people in the city shrank the most among New Yorkers; the poverty rate edged up among people 15 to 64 years old; both parents were in the work force more often; home values dipped; the share of renters increased compared with owners; more renters were paying over 35 percent of their income on housing; and a smaller share said they owned two vehicles.
...
The results confirmed suggestions by sociologists that the sluggish economy had a broader impact on the way people lived. The proportion of women in the city who had never married crossed the 40 percent threshold in 2009 (men hit 46 percent), the number of women 20 to 34 who gave birth during the preceding year declined, and more people were living with roommates or unmarried partners.

While the poverty rate remained largely unchanged in the city, it rose in New York State to 14.2 percent in 2009 from 13.8 percent in 2008 (according to a different census survey released this month, it climbed in the state to 15.8 percent from 14.2 percent) and in New Jersey to 9.4 percent from 8.8 percent (although New Jersey was among only five states in which the rate was below 10 percent).
...
The proportion of residents receiving food stamps in 2009 rose to 17.2 percent from 14.9 percent in 2008 and 13.3 percent in 2007.

The share with no health insurance declined to 4.5 percent from 5.2 percent, the result of government programs’ picking up the slack.

Home values have plunged by double digits since 2006 in the suburbs, but they have dropped less in the city, to an average of $517,900 in 2009 from $537,600 in 2008. In the Bronx, Brooklyn and Manhattan, they barely changed.

Median household income was lower in 2009 than it was in 2007, dipping in the Bronx to $32,893 from $35,341 and on Staten Island to $66,292 from $69,309. But the median income was unchanged in Brooklyn at $43,166, in Manhattan at $68,706 and in Queens at $55,120. The citywide median was $50,033.

Superbowl Futures

Back in the day of Tradesports, I used to publish conditional probabilities of Superbowl and conference championship contracts.

I miss talking about sports in general, and football in particular, with the guys in "The Pit" (Tradesports' chat), so I figured it might be fun to do something during football season, like simulate trading Matchbook Superbowl futures.

Here are the current Matchbook odds (using mid prices):

Green Bay	11%
Indianapolis	10%
New Orleans	9%
Pittsburgh	8%
Baltimore	7%
New York (A)	7%
New England	6%
Dallas	6%
Atlanta	5%

Philadelphia	4%
Chicago	3%
Cincinnati	3%
Minnesota	3%
Miami	3%
Tennessee	3%
Houston	2%

I'm going to buy Pittsburgh (paying 1050), Tennessee (paying 3400), Atlanta (paying 1800), and  Kansas City (paying 4000).

I'm going to sell New Orleans (paying 1150), Baltimore (paying 1500), and my beloved New England (paying 1750).

These will be equal weightings, and I'll rebalance occasionally through the season.

Recession probability for 2010 waning

according to Intrade contract pricing.

DISCLOSURE: I am short this contract.

Quotes of the day

Autocracy is extremely risky: it could result in high growth, but it could just as well result in a growth collapse – for every Lee Kuan Yew, there is a Jean-Bédel Bokassa.--William Easterly

America is very close to a destructive tipping point. We must change how we conduct our politics and economics...or we will inevitably go the way of all once-great nations and suffer an irreversible decline. We as a nation cannot resolve what have become deep and systemic structural imbalances in our economy simply by throwing more money and more and more regulations and more and more taxes at the problem.--Glenn Hubbard and Peter Navarro

Rep. Barney Frank & Co. are getting set for yet another hearing this week on the future of Fannie Mae and Freddie Mac, the government-controlled mortgage lenders. Once again, they're not after the truth -- they're looking to conceal it. The House Financial Services Committee chairman and his brethren on the left want you to believe they're making a good-faith effort to figure out what went wrong with Fannie and Freddie -- what mistakes led to their failure and takeover by the government during the 2008 financial collapse, and how to fix both institutions for the future. In fact, what they'll deliver is more hot air from so-called "housing advocates" obscuring just how much Fannie and Freddie contributed to the housing bubble, the 2008 financial collapse and the Great Recession. It's all meant to give lawmakers an excuse not to do what's necessary and prudent -- namely, kill Fannie and Freddie before they come back to do it all again.--Charlie Gasparino

FBI agents and several supervisors cheated on an exam about new rules for terrorism and criminal investigations and for collecting foreign intelligence, according to a U.S. Justice Department report released on Monday. The report by inspector general Glenn Fine found that some FBI employees improperly consulted with others while taking the exam, and others used or distributed answer sheets or study guides that essentially provided the answers to the test. A few FBI employees, including several supervisors and a legal adviser, exploited a programing flaw to reveal the answers on their computers, according to the investigation into four FBI offices around the country and several individuals. The report found significant abuses and cheating involving at least 22 employees.--Jason Vicini

It’s not enough to murmur that opera is “high culture” or “serious music.” For one thing, opera has a right to be silly, and often is. As it happens, a more effective riposte comes from Wagner himself. Amid his absurd and repulsive pronouncements on all manner of topics, you can find some acute insights into music’s place in society. He did not write for the high and mighty; his music is as much a critique of power as an exercise in it. And at a time when so much cultural expression seems secondhand and retrospective, young artists have much to learn from Wagner’s mad ambition.--Alex Ross

Being an ugly duckling is not a bad thing. Microsoft would have been one, 3 months in, when their product was a Basic interpreter for the Altair. If the equivalent company tried to raise money today, most VCs would reject them because their market seemed too small, though some angels would probably say yes on the grounds that the founders seemed smart and the domain worth exploring.--Paul Graham

The flip sides of gold

Ambrose Evans-Pritchard writes:

Gold has no such limits. It hit $1300 an ounce last week, still well shy of the $2,200-2,400 range reached in the late Medieval era of the 14th and 15th Centuries.

This is not to say that gold has any particular "intrinsic value"’. It is subject to supply and demand like everything else. It crashed after the gold discoveries of Spain’s Conquistadores in the New World, and slid further after finds in Australia and South Africa. It ultimately lost 90pc of its value – hitting rock-bottom a decade ago when central banks succumbed to fiat hubris and began to sell their bullion. Gold hit a millennium-low on the day that Gordon Brown auctioned the first tranche of Britain’s gold. It has risen five-fold since then.

We have a new world order where China and India are buying gold on every dip, where the West faces an aging crisis, and where the sovereign states of the US, Japan, and most of Western Europe have public debt trajectories near or beyond the point of no return.

The managers of all four reserve currencies are playing fast and loose: the Fed is clipping the dollar; the Bank of England is clipping sterling; the European Central Bank is buying the bonds of EMU debtors to stave off insolvency, something it vowed never to do just months ago; and the Bank of Japan has just carried out two trillion yen of “unsterilized” intervention.

Of course, gold can go higher.

DISCLOSURE: I am short some GLD in the personal account. As stated above, gold has no intrinsic value. I am long PALL as a short term hedge (months), and SPY as a longer term inflation-outperformance hedge (years). I sold the GLD around 118, so its underwater, but the PALL and SPY have more than held their own so far.

Quotes of the day

As President Obama put it at the U.N., millions of people “have relied on food assistance for decades. [But] that’s not development, that’s dependence, and it’s a cycle we need to break. Instead of just managing poverty, we have to offer nations and peoples a path out of poverty.” The problem is not with the analysis but rather with the president’s implicit claim that we know how to offer peoples and nations such a path. This, too, is an article of faith in the development world, as will be well know to anyone familiar with the ignorant if well-intended antics of a Bono or a Bob Geldof, or, for that matter of academics like Jeffrey Sachs, whose 2005 book, titled with Sach’s typical modesty, The End of Poverty, makes a negligible contribution to development theory but will be of riveting interest to future scholars of early twenty-first-century utopianism. The stark fact is that only if one fetishizes the idea of civil society as a kind of universal ideological solvent, and believes that, in tandem with scientific innovation, the road to our collective salvation is now open to us, can such optimism be justified.--David Rieff

Well, that’s why [Wall Street: Money Never Sleeps] was an Ivy League liberal’s fantasy. “I’m going to go to Wall Street and solve the world’s energy problems while riding expensive motorcycles and having sex with a semi-attractive woman in my TriBeCa loft.”--Credit Suisse analyst

I used to get really upset when I had a down year. Now that I’ve been doing it this long, I have a much easier time. What matters, ultimately, is the track ­record I have over time.--David Tepper

Tepper admits he can be difficult. “I used to be worse,” he says over the phone. “When I was at Goldman, I’d say things to people like, ‘Do you know what a schmuck is? Go look in the mirror.’ Now I’m kinder and gentler. Aren’t I kinder and gentler?” he asks his employees. In the background there’s silence.--Jessica Pressler

[John Kenneth Galbraith's] "A Theory of Price Control," which was published in 1952 to favorable reviews but infinitesimal sales, was his one and only contribution to the purely professional economics literature. Thereafter this most acerbic critic of free markets prospered by giving the market what it wanted. Now comes the test of whether his popular writings will endure longer than the memory of his celebrity and the pleasure of his prose. "The Great Crash" has a fighting chance, because of its very lack of analytical pretense. "History that reads like a poem," raved Mark Van Doren in his review of the 1929 book. Or, he might have judged, that eats like whipped cream. But the other books in this volume seem destined for only that kind of immortality conferred on amusing period pieces. When, for example, Galbraith complains in "The Affluent Society" that governments can't borrow enough, or that the Federal Reserve is powerless to resist inflation, you wonder what country he was writing about, or even what planet he was living on.--James Grant

[G.K. Chesterton] is not joining some great conversation with Duns Scotus, Aristotle, and Nietszche. Rather he is in a constant scrum with Bertrand Russell, Benjamin Kidd, Cecil Rhodes, H.G. Wells, Sidney Webb, Edward Carpenter, W.T. Stead, etc… Notably, only half those names live on and most are dimmer than Chesterton’s. Judged in that company he is sterling. When was the last time you saw an H.G. Wells insight applied to anything? If Chesterton were alive today a similar list would be something like, Richard Dawkins, Christopher Hitchens, Karen Armstrong … Marty Peretz, Stephen Hawking, and Jonathan Chait. If I were going to produce a polemic against Karen Armstrong’s book The History of God – and I dearly would like to – you might be satisfied with a clever review. You wouldn’t chastise me for failing to produce the Summa Theologica. To criticize Chesterton in this regard seems unfair. Besides The Everlasting Man, his books are mostly recycled newspaper material. Next to a considered book of philosophy, Chesterton seems a little smug. Next to a cartoon and letters to the editor and in response to his actual opponents, he’s not only a genius, but a delightful one.--Michael Brendan Dougherty

In Concord, the Minutemen clashed with the British at the Old North Bridge within sight of a man enslaved in the local minister’s house. The fact that there was slavery in the town that helped birth American liberty doesn’t mean we shouldn’t celebrate the sacrifices made by the Minutemen. But it does mean New England has to catch up with the rest of the country, in much of which residents have already wrestled with their dual legacies of freedom and slavery.--Elise Lemire

High frequency profits capped at 4 basis points of trading volume

That's about $20 billion on an annual $50 trillion of trading.

The real figure is probably somewhere between $5-10 billion. While this suggests a nice revenue pie, assuming there are 1,000 high frequency traders (and I'd bet there are more), not everyone is making money after technology and support personnel costs.

It's basically in line with the television revenues spun off by the NFL, except there could be more jobs created by high frequency trading than from NFL television, plus the established fact that HFT provides liquidity to everyone else who has an interest in the stock market, which is pretty much everyone with a 401(k), a pension, or a job. We could even extend that to the jobless, who receive unemployment benefits courtesy of the employees and corporations that pay taxes.

Via Dennis Berman.

Quotes of the day

As investors grow frustrated with stock picking, they're flocking to mutual funds that specialize in macro investing. This year, through August, investors have pulled $42 billion out of U.S. stock funds and have plowed $13.3 billion into three macro-oriented funds alone: BlackRock Global Allocation Fund, Eaton Vance Global Macro Absolute Return Fund and the Ivy Asset Strategy Fund.--Tom Lauricella and Gregory Zuckerman

There should be more [hedge funds coming to see me].--Bill Clinton

How do you weave together the great American real estate bubble, Bear Stearns, Lehman Brothers, AIG, Goldman Sachs, the TARP, clean energy, the ascendancy of China, the joys of fatherhood and the rehabilitation of Gordon Gekko into an entertaining, emotionally fulfilling two hour Hollywood movie? You don’t. It’s probably impossible. You’ll recall it took a full day of Senate Investigations Subcommittee hearings to discuss Abacus, a single Goldman Sachs CDO that went bad. After hours of that tedium, all we discovered was that Senator Carl Levin had a real potty mouth.--Evan Newmark

CNBC is claiming their interview with David Tepper popped the market up 1%

in pre-open index futures trading.

Personally, I think it was more from the durable goods and capital goods orders data that came out at 830am.

Tepper was extremely bullish on stocks before the announcement, so he may have set the table for it. He more than doubled his fund in 2009, and has averaged nearly 40% annual returns.  Which is pretty awesome.

But there's no free lunch: he takes enormous risk.  His annual volatility is higher than his annual returns, which, for those of us who are influenced by risk-adjusted-return metrics, is not so impressive.  In fact, I can boast that my Sharpe and Information ratios are better over the past 3 years, (although I have not doubled the assets I manage in that time).

Over the past couple of years, Appaloosa's returns correlate fairly closely to the XLF (Financial Select Sector SPDR) assuming that Tepper employed moderate leverage over that time.  I doubt the XLF will double again in the next year.  I see contraction in the financial space.  But given Tepper's track record, I think he'll find some other fast movers to exploit.

The Administration and members of Congress seem to prefer not to face the market risks of mortgage legislation

At least CBO Director Douglas Elmendorf seems to be educating them, and properly accounting for these risks, namely $53 billion in costs to the taxpayers for loan guarantees issued by Fannie Mae and Freddie Mac this year.

He points out that Congress' methods of accounting show a profit to the taxpayers of $44 billion, and the Obama Administration's figures predict an $8 billion profit.

There the government goes again, trying to hide the true costs of its activities.

Partying ain't winning--Cav

It looks like Delaware prefers Mike Castle to fill Joe Biden's seat, but given the parliamentary process of the Republican primary, won by tea party candidate Christine O'Donnell (whose previous experience reminds me Obama's during his campaigns for national office), they will not get their first choice.

Tack to the right, tack to the left, sometimes there's not enough time (or wind).  And sometimes, you hit the Dominican Republic instead of India or China.

Intrade contract here.

Quotes of the day

The number of [the 400 richest Americans] whose wealth declined this year is 85 compared with 314 in 2009, while wealth increased for 217 members. The total worth of the 400 rose by 8 percent to $1.37 trillion, still below the 2008 total of $1.57 trillion.--Margaret Collins and Alexis Leondis

A Gold Coast mansion belonging to J. P. Morgan Chase & Co. CEO Jamie Dimon is under contract, about three weeks after the asking price was slashed to $6.95 million. The 13,500-square-foot property at 25 E. Banks St. has been on the market since April 2007, with an original asking price of $13.5 million. Mr. Dimon has reduced the price several times, most recently in late August, when he dropped it 27% to $6.95 million, from $9.5 million.--Andrew Schroedter

The nice thing is that I couldn’t get hired at Blackstone now. I didn’t get the grades.--Steve Schwarzman, Blackstone CEO

Do you remember from your school days those students who, when confronted with a complex issue, would acquire a look on their faces somewhere between consternation and dread, immediately thrust a waving hand up into the air and blurt out in a worried voice, “Do we have to know this for the test?” I can be fairly sure that none of these people ended up as successful traders. ... As I see it, all traders are ultimately self-taught. There are no required classes, readings, homework assignments or even a syllabus with recommendations. Tests are administered on a daily basis, frequently with multiple tests on the same day. Worst of all, everyone is graded on an unfavorable curve in which there are more Fs than As. Against this backdrop, education counts, but skill and experience count even more. An insatiable curiosity helps, as does a willingness to explore unfamiliar territory. Great trades, insights and strategies present themselves in somewhat random fashion and, as Louis Pasteur observed, “Chance favors the prepared mind.”--Bill Luby

[The apostle] Paul is afraid people will think too much of him (the opposite of our fears), so as a matter of principle he dislikes talking about inaccessible matters. If he must be judged, he wants to be judged by what he does and says, not by claims of visions and revelations that are inaccessible to public scrutiny. ... In this fallen world, it is a mercy that great grace is accompanied by great weakness, as well as the other way around.--Don Carson

The SEC filed civil fraud charges against Goldman in mid-April, the same day it released a watchdog report accusing the agency of mishandling an investigation into Stanford's alleged $7 billion Ponzi scheme. The report by SEC Inspector General David Kotz said the regulator suspected as early as 1997 that Stanford was running a Ponzi scheme but did nothing to stop it until late 2005. The timing "strains credulity," Kotz told a congressional hearing on Wednesday examining the SEC's handling of the Stanford case. Kotz's report went largely unnoticed. Stanford is in a Texas jail awaiting trial on 21 criminal charges related to his alleged Ponzi scheme involving the issuance by his Antiguan bank of certificates of deposit with improbably high interest rates. The SEC filed civil charges related to the matter in February 2009. Some Republican lawmakers accused the SEC of suing Goldman to help Democrats pass the landmark Wall Street reform bill, which was winding its way through Congress in April. Kotz is probing whether the SEC's lawsuit against Goldman was politically motivated, a charge the SEC vehemently denies. He expects to complete his Goldman report by the end of next week. At the Senate Banking Committee hearing, the top Republican, Richard Shelby, said the Stanford case represents a "major failure" by the SEC. He also suggested the timing was suspect and seemed intended to draw lowered scrutiny. The SEC, still recovering from missing Bernard Madoff's $65 billion Ponzi scheme, is under pressure to root out fraud after the U.S. housing collapse and Wall Street's ensuing meltdown.--Joe Rauch and Rachelle Younglai

For too long, we've measured our efforts by the dollars we spent and the food and medicines we delivered. But aid alone is not development.--President Obama

Jack Welch on presidential behavior

These [presidents] don't know how to behave. We haven't had a good president ... Ronald Reagan was good, 'cause he had Tip O'Neill bashing his head in every day. Bill Clinton was good because he had Newt Gingrich being a pain in the neck and his side. That's how it works. When they have their own crowd in, these boys are out of control.--Jack Welch

Image link here.

Will Austan Goolsbee help reduce government spending by 10-20%?

If he is an economist who can do basic math, I think he has to:

President Barack Obama’s chief economist said Wall Street has largely recovered from the 2008 crisis and will be strengthened by the White House-backed regulatory overhaul that Congress passed this year.

“In the long run, the financial sector will be significantly stronger because we did this,” Austan Goolsbee, chairman of the Council of Economic Advisers, said yesterday.

While Wall Street may not return to “the go-go days” when it earned “20, 40 percent of all the profits in the entire nation,” the financial industry will benefit from the new regulations because “setting clear rules of the road is going to allow the credit channels to keep flowing to the wider economy,” Goolsbee said.

So if Wall Street earnings are cut by, let's say 46%, then the entire nation needs to tighten its belt because Wall Street can no longer pay the taxes it used to, either.

As I noted this past Tuesday, Wall Street jobs are being destroyed, not created. That's a loss of top income tax bracket revenue, on top of the reduced taxes coming from Wall Street firms.

Perhaps Goolsbee can take a page from here or here.

Scott Sumner tells the Democrats how to get us to join their party

here:

1. If they dumped Keynesianism and favored using monetary policy to target NGDP

2. If they favored replacing our current tax system with a progressive consumption tax

3. If they favored replacing the public school monopoly with universal vouchers.

4. HSAs through forced saving plus subsidies for the lower incomes

Progressive blogger Matt Yglesias already agrees with me on the first two, and Sweden adopted the third. Singapore combines the 4th with universal health care. So how can any progressive call me a reactionary Chicago-school economist?

I suppose what’s holding back vouchers in America is liberal sensitivity regarding our troubled racial history, and also a fear of religious schools. But that’s for another post.

I'm a registered independent. I vote Republican more than half the time, but give more than half of my campaign donations to Democrats. Hmph. This is beginning to sound like how I trade my P.A. (personal acount) ...

I think I know how to help reduce the projected deficits

Cap Social Security and Medicare payments, and all other entitlements, in nominal 2010 dollars. Gradually, inflation and real GDP growth will fade the enormous weight of these programs on taxpayers. I think this beats dramatically increasing taxes, reducing short term benefits and spending, or indulging in seigniorage (or a combination of these). And given the low-inflation season we find ourselves in, the erosion of the dollar isn't on the forefront of our minds the way it was back in the White House of Jimmy Carter.

It's like Paygo, but Congress basically says: we're limiting total entitlement spending to $1 trillion per year (with the option to reduce in deflationary times).

Nothing will be "taken away" from the elderly and the lower-income population in the short term, while in the long term, these income transfers will fall to more sustainable levels. Politicians looking for re-election in the next 2-6 years can claim that they "SAVED [enter special-interest program name here]!" Folks in their 50s or younger can plan on reduced payments, but we will still get something.

Will it be popular? Of course not. Nobody is happy taking less than they are accustomed to. But this is probably the most stable way to do it. Stability increases the ability to plan and adjust for the long term. I really think this is the most practical way out of the Ponzi scheme our elected officials have trapped us in.

Quotes of the day

Goldman, like other firms, has codified policies on how the sexes should handle conflicts: in the cases of both dating and sexual harassment, incidents and entanglements have to be reported to the boss.--Heidi Moore

... Bretton James [Josh Brolin's character in Wall Street: Money Never Sleeps] is based a bit on Robert Rubin, who’s really enriched himself. I think he’s the richest ex-Secretary of the Treasury ever. There’s also a bit of Jamie Dimon in him. And if Lloyd Blankfein were handsomer, you could say he’s Josh Brolin.--Oliver Stone

For the longest [time], I was trying to understand when I was on the outside looking in. I always knew he was a great player but I never understood why he would always be out there every single game, doing what he’s done. To his credit, he works at it. He really, really works at it. Nobody in the league compares to him. He’s probably the No. 1 unsung hero across the entire NFL. He’s probably one of the most underrated guys. He’s the best at what he does.--Fred Taylor

Kevin will come back from it. He’s come back from everything in his life. Kevin’s a fighter. He’s a warrior. It’s just about hard work, that’s all it is. Kev will do that.--Tom Brady

The optimal policy is a negative inheritance tax. At age 65 both rich guys should be forced to put some amount (let’s say $100,000) into a government fund. When they die, the $200,000 should go to the kid who also inherited the rich guy’s money. I know what you are thinking—why not give the $200,000 to the poor? Because we already assumed the existence of a progressive payroll (or consumption) tax, which is redistributing the optimal amount of money to the poor. This extra tax is just trying to make things a bit more equal among two old rich guys, and one worthless trust fund baby. [Yes, I'm sort of joking here---just trying to rigorously apply the logic of egalitarianism. (For my trust-fund kid readers--I have nothing against you, I am just parroting society's prejudices.) But I am serious about favoring a progressive consumption tax. Indeed I favor it so much that I would prefer it even if it meant I paid more in taxes than I do right now. You will never find me complaining that I can't get by on a family income of over $250,000.] I think people have a huge mental block about these ideas, because they grossly misunderstand the actual incidence of taxes. For instance, most people think consumption is much more equal than income, and hence that consumption taxes are regressive. Actually, consumption taxes are proportional to consumption, which is the only meaningful benchmark. Income is meaningless gobbledygook. And most people think wealth is much less equal than income. But how can both of these perceptions be correct, when wealth is nothing more than the present value of all future consumption for you and your heirs! Actually, inequality of wealth and consumption are exactly equal, when properly measured in present value terms.--Scott Sumner

Would Larry [Summers] have been rehired by Harvard if he resigned and stayed another couple of years in Washington? Unclear. The pro case for rehiring would be that Larry is one of the smartest guys around and has a great deal of fascinating experience to share with students. The con case would be that he has been out of the academic research game for quite a while and that in a time of reduced financial resources, faculty slots should be devoted to younger scholars rather than potentially extinct volcanoes. Ironically, if Larry were on the faculty voting on this matter, the con case is the kind of argument he might have made.--Greg Mankiw

But while Summers emerged from the Asian crisis with a reputation as a crisis fighter, this time around has proven more challenging. As traders say, "In a bull market, everyone's a genius." Summers and Rubin basked in the reflected glory of the tech boom, with full employment and full government coffers. The events of the last two years have tarnished both Summers and Rubin, as it turned out that even their formidable skills could not produce growth out of nothing. No doubt some will say this is unfair--that of course Summers couldn't cope with a crisis handed to him by Bush. But to the extent that you think that the financial crisis was largely a matter of regulatory failures--a position I actually find pretty unconvincing--the regulatory failures were at least as much due to Clinton policy as to the Bush team. In fact, I continue to think that Summers is a brilliant man who probably got undue credit for the charms of the tech boom, and will be criticized unfairly for the strictures of the current crisis. But that's politics; if you're happy to accept the unfair accolades, you have to be willing to endure the unfair brickbats as well.--Megan McArdle

Harry Reid, back from the dead

Source here.

Bad news all around

Kyle Stock reports:

And candidates [interviewing with hedge funds and private equity firms] say the classic "brain-teaser" questions are more brutally intricate than ever. How big is the pizza market in the United States? How many man-hole covers are there in New York City? How many tennis balls would fit in the new Giants stadium?

And then there are the ethically loaded questions that don't lend themselves to a correct, or even an apparent, answer. Should drugs be legalized? Should a person be able to sell their vote?

"At this point I've been asked just about everything," said a former hedge-fund analyst and recent Columbia Business School graduate who asked not to be named. He said Ziff Brothers probed whether he got along with his father, why he didn't get into Harvard Business School and why he didn't have a job already.

"You take your test and then weeks later they're like, 'Yeah, you don't fit,'" the candidate said. "It's unclear whether it's because I'm crazy or just too stupid."

And the space is still contracting. I know lots of folks in the financial industry whose businesses have just about withered away. And this will affect other sectors in New York City. The politicians who want to go after us in the name of "reform" or "deficit reduction" will find that they will have even lower revenues to support their vote-getting schemes.

Chart of the day: Post-bubble CPI comparison between US and Japan

Source here.

Quotes of the day

I'm thinking of hiring someone for a job, but for a $50,000 salary, it will cost me $90,000 after FICA, health care ... and the employee will only see about $30,000.--Anthony Scaramucci, CNBC forum with President Obama

The very fact that Congress and the President are ignoring [filling the 3 open seats on the Federal Open Market Committee], pretty much tells me that they are clueless on monetary policy. On the other hand, both groups do favor more AD, so their “heart” is in the right place. And of course I’m a big believer in democracy. So who do I favor making the decisions; the clueless or the heartless? I’m tempted to say “Whoever agrees with me; first tell me the target Congress would set.” But of course that’s cheating. The honest answer is that I don’t know. But it is becoming increasingly clear that we won’t get good policy until this dilemma is resolved.--Scott Sumner

In the past 10 years, 141,000 women, or 2.6% of female workers in finance, left the industry. The ranks of men grew by 389,000 in that period, or 9.6%, according to a review of data provided by the federal Bureau of Labor Statistics. The shift runs counter to changes in the overall work force. The number of women in the U.S. labor market has grown by 4.1% in the past decade, outpacing a 0.5% increase in male workers. The difference is pronounced at brokerage firms, investment banks and asset-management companies. The figures suggest that women bore the brunt of the layoffs in the recent recession. But other forces are at play. Across the economy, computers have replaced junior, back-office workers, jobs that were largely filled by women.--Kyle Stock

LAST MONTH, the College Board, the ubiquitous arbiter of educational achievement, announced that the United States now ranks twelfth among thirty-six developed nations in its percentage of young adults who have a traditional college degree. According to a 2007 study, only 40 percent of young adults in the United States had obtained even an associate’s degree; by comparison, 56 percent of young adults had done so in Canada, making it the world leader in educational attainment. Statistics like those put out by the College Board are misleading: they promote a foolish sense of tunnel vision, leading students t believe that the only possible way of obtaining even a middle-wage job is through the traditional, four-year college route. Reliance on the standard liberal arts degree as a benchmark for competence belies not only the fact that many jobs simply don’t require such an education, but also that middle-wage jobs are going unfilled due to a lack of applicants with the necessary specialized skills. This fallacy is particularly evident when looking at Labor Department data, which shows that despite all-time highs in unemployment, certain industries—business services, health care, education, and particularly manufacturing—have had record increases in middle-wage job openings, with not nearly enough qualified applicants to fill the positions. These are not jobs that will be filled simply by increasing the output of bachelor’s degree holders nationwide; instead, these jobs require specific types of skilled labor that are, problematically, not taught in any conventional school setting.--Ilana Garon

On balance, recycling programs lower our wealth.--Daniel K. Benjamin

Doubling the size of a city increases wealth and innovation by about 15 percent, but it also increases the amount of crime, pollution, and disease by roughly the same amount.--Geoffrey West

DARPA started life as ARPA (without the "D" for Defense) in response to the Soviet Union's 1957 launch of Sputnik. It was conceived as America's first space agency. But when NASA came online just a few months later, ARPA nearly didn't survive. It survived by branching out into other areas besides space, including information technology. And it survived by becoming a sort of dumping ground for projects that the armed services either didn't want or didn't know what to do with. That was how ARPA got its first computer, a surplus 250-ton, room-filling machine made to analyze radar data for the Air Force, along with the support staff needed to operate it. From there ARPA began its experiments in time sharing, interactive computing, and the ARPANET that was the genesis for today's Internet. ... DARPA's mission has always been to prevent our country's adversaries from gaining technological advantages over us (i.e., to prevent technological surprises like Sputnik), and to help the military generate surprises of its own. The fact that DARPA has become so important to our national R&D infrastructure is a measure of its success in attracting the best minds to work on its programs. That its work has lead to so many generally useful technologies is a wonderful side benefit, and DARPA should be a model for other agencies that follow its lead in the pursuit of non-defense technologies. But it can't be all things to all people.--Michael Belfiore

The Apple has excellent speech, the best software speech I’ve heard. Alex has the most emotion of any synthesizer. He even breathes. I’ve cracked up several times at his intonation while reading funny parts of this text. Apple deserves nothing but praise for their efforts. Learning how to use my Magic Trackpad to navigate the current application’s window just as I would on my iPhone or iPad has me falling in love. This represents the cutting edge of accessible technology for the blind. It cuts! I joyfully look forward to the day when blind people finally catch on and realize that for $700, HALF the cost of JAWS for Windows, the most popular software used or rather pushed on the blind, they can get a fully functional computer that delivers a superior experience and comes with a superior screen reader with superior speech. May the Mac relegate Windows to the recycle bin, where it properly belongs.--Austin Seraphin

So the AFC East is not going to be a runaway, as it turns out, and took only two weeks to prove it. The Patriots beat the Bengals, who beat the Ravens, who beat the Jets, who beat the Patriots. Round and round it goes. What a vicious cycle.--Tony Massarotti

Eureka: No wonder progress on the Millenium Development Goals is so challenging

Source here.

Quotes of the day

By not allowing [Elizabeth] Warren’s nomination to be considered through the regular order of the full Senate confirmation process, the [Obama] administration has circumvented one of the very few checks on a big new agency that already has been given an unprecedented concentration of regulatory powers. This maneuver is an affront to the pledge of transparency and consumer protection that’s purported to be the focus of this new agency.--David Hirschmann

Perhaps [Paul] Krugman believes that by labeling other economists as politically extreme, he can undercut their credibility. In criticizing my argument that politicians pushed easy housing credit in the years leading up to the crisis, he writes, “Although Rajan is careful not to name names and attributes the blame to generic “politicians,” it is clear that Democrats are largely to blame in his worldview.” Yet if he read the book carefully, he would have seen that I do name names, arguing both President Clinton with his “Affordable Housing Mandate” (see Fault Lines, page 35) as well as President Bush with his attempt to foster an “Ownership Society” (see Fault Lines, page 37) pushed very hard to expand housing credit to the less-well-off. Indeed, I do not fault the intent of that policy, only the unintended consequences of its execution. My criticism is bipartisan throughout the book, including on the fiscal policies followed by successive administrations. Errors of this kind by an economist of Krugman’s stature are disappointing.--Raghuram Rajan

Facts are very important in economics and finance, because so many important issues like the equity premium and default rates have such large uncertainty. Most people think facts are easy, and theory is hard, but actually I think it is the reverse. Theory, once you understand it, is trivial, yet important facts are very elusive, often at the bottom of most major disagreements. It appears that default rates were much higher in the 19th century, and this could be very relevant to the 21st, because so many countries, and government entities within countries, have been on an unsustainable Greek-like binge. A subsequent wave of sovereign defaults could seem 'unprecedented', but only if you counted your lifetime as the sample of inference. As Faulbert noted about human folly, 'Our ignorance of history makes us libel our own times. People have always been like this.'--Eric Falkenstein

According to a new survey from Phoenix Marketing International’s Affluent Market Practice, the number of American households with investible assets of $1 million or more rose 8% in the 12 months ended in June. The survey says there now are 5.55 million U.S. households with investible assets of $1 million or more. That follows two years of declines and brings the millionaire count back to 2006 levels. Of course, that is still below the peak of 5.97 million in 2007 and the current growth rate is well below pre-financial crisis levels, when the millionaire population increased as much as 35% a year. Still, the numbers offer further evidence that the wealthy may have decoupled from the rest of the economy. The study’s authors say high salary growth, rather than investments, are the main drivers of the millionaire expansion.--Robert Frank

The ultimate problem with the Human Development Index, though, is lack of ambition. It effectively proclaims an "end of history" where Scandinavia is the pinnacle of human achievement. Admittedly, I've never visited Scandinavia. But when I see it for the first time this August, I'm pretty sure I won't say to myself, "Wow, it can't get any better than this!" At this point, you might ask, "Yes, but will you take the HDI bet, Bryan?" Nope. Scandinavia comes out on top according to the HDI because the HDI is basically a measure of how Scandinavian your country is. While Obama is moving us in that direction, I don't think he's going to be able to take us all the way there.--Bryan Caplan

[John] Hempton found an obscure Chinese travel company which somehow managed to get itself a listing on the NYSE: Universal Travel Group. He tried to book travel through Universal Travel’s website, and failed. And after 5,500 words of explaining exactly why he was doing it, he shorted Universal Travel’s stock. Which turned out to be a great trade: the stock plunged by 20% today, entirely because of Hempton’s blog post.--Felix Salmon

Last week, I was the only one to have Seattle over San Francisco, I was the only one to have Washington over Dallas, I was the only one to have Kansas City over San Diego.--Adam Schefter

If the Feds are the last line of defense in your home against commercialism, sex, and violence, then you really ought to reconsider what constitutes parenting, because it really doesn’t end with conception.--Tony Woodlief

Pricing certain divorce risk with historical data

here:

The results presented in this article replicate findings from previous research: Women who cohabit prior to marriage or who have premarital sex have an increased likelihood of marital disruption. Considering the joint effects of premarital cohabitation and premarital sex, as well as histories of premarital relationships, extends previous research. The most salient finding from this analysis is that women whose intimate premarital relationships are limited to their husbands—either premarital sex alone or premarital cohabitation—do not experience an increased risk of divorce. It is only women who have more than one intimate premarital relationship who have an elevated risk of marital disruption. This effect is strongest for women who have multiple premarital coresidental unions.

Scott Sumner looks at the numbers: it wasn't the banks that were too big to fail

It was the government:

So here are the eventual taxpayer losses we are looking at:

Fannie and Freddie — $165 billion and rising

FDIC — Over $100 billion

FHA — Who knows, even today they’re still encouraging new sub-prime loans.

AIG — $0

The big banks — negative $7 billion

Would it be fair to say that the initial reporting of the crash of 2008 was a bit misleading? The reporting that led most people to form indelible opinions that they will probably never re-visit or re-evaluate?

Some will argue that the Fed policy of buying MBSs indirectly helped the big banks. Maybe so, but if we are talking about indirect effects from government programs, then what about the indirect effects of the Fed letting NGDP fall 8% below trend in 2008-09? That hurt banks far more than any Fed MBS purchases helped them.

Quotes of the day

One key characteristic of civilization is property rights, where people have clearly delimited areas of responsibility.--Eric Falkenstein

In the end, the goal of the rent control laws is thwarted (the low rents are enjoyed by well-paid tenured faculty rather than the needy), the income tax laws are thwarted (a sizable part of compensation is untaxed), and all this is done by a nonprofit institution (the university) whose ostensible purpose is to serve the public interest.--Greg Mankiw

America's financial crisis, deep recession and anemic recovery have largely been driven by economic policies that have deviated from proven fact-based principles. To return to prosperity we must get back to these principles. The most fundamental starting point is that people respond to incentives and disincentives. Tax rates are a great example because the data are so clear and the results so powerful. A wealth of evidence shows that high tax rates reduce work effort, retard investment and lower productivity growth. Raise taxes, and living standards stagnate.--GEORGE P. SHULTZ, MICHAEL J. BOSKIN, JOHN F. COGAN, ALLAN MELTZER AND JOHN B. TAYLOR

The president defended his proposal by saying that, for high-income taxpayers, “the tax rates would just go back to where they were under President Clinton.” The president reminded his listeners that the economy grew at a rapid clip during the Clinton years, adding tens of millions of new jobs. The analogy with the Clinton years is a little questionable. During those years, a Democratic president and Republican Congress worked together to restrain federal spending and balance the budget, a far cry from current policy. In any case, as I explain in the September issue of the American Enterprise Institute’s Tax Policy Outlook, the claim that the president’s plan would only take the top tax rates back to Clinton levels isn’t quite right. Or, rather, it’s right for only the first two years of the president’s plan. Thanks to a little-known provision in the new healthcare law, the president’s plan will push the top tax rates for most types of income above Clinton levels in 2013 and thereafter.--Alan Viard

... almost no one questioned the socialists' idealism. By 1961, however, the descendents of the radical wing of the Social Democratic Party had built the Berlin Wall -- and were shooting anyone who tried to flee their "Workers' Paradise."...Who could have foreseen such a mythic transformation?--Bryan Caplan

What a fool does in the end, the wise do in the beginning.--Spanish proverb

Wharton’s Professor Jeremy Siegel, the author of Stocks for the Long Run, used historical data (a) to demonstrate that there had never been a long period when stocks didn’t outperform cash, bonds and inflation, and thus (b) to argue that most people of average risk tolerance should have roughly 100% of their capital in the stock market. But Siegel, like many laymen, failed to pursue the most critical line of inquiry. The right question to ask in the late 1990s wasn’t, “What has been the normal performance of stocks?” but rather “What has been the normal performance of stocks if purchased when the average p/e ratio is 33?”--Howard Marks

[Randy] Moss re-signed with the Patriots on March 3rd. [Brett] Favre retired from the Packers on March 4th. Coincidence?--Andrew Brandt

Intrade futures predicting a 47-seat swing in the House of Representatives

The mid-price for the 45+ contract is 55 and the 50+ contract is 43.

Photo link here.

Quotes of the day

The majority of major corporations and countries are headed by men. When women are appointed to leadership positions, it tends to be when an organization is in crisis - a phenomenon known as the glass cliff. Recent examples include: the appointment of Lynn Elsenhans as CEO of the oil company Sunoco in 2008, just after their shares had halved in value; and the election of Jóhanna Sigurðardóttir as prime minister of Iceland, just after her country's economy had been crippled by the global recession. Real life examples are supported by lab studies in which male and female participants show a bias for selecting female candidates to take charge of fictitious organizations in crisis. Further investigation has ruled out possible explanations for the glass cliff - it's not due to malicious sexism nor to women favoring such roles. Now a brand new study suggests the phenomenon occurs firstly, because a crisis shifts people's stereotyped view of what makes for an ideal leader, and secondly, because men generally don't fit that stereotype. '...[I]t may not be so important for the glass cliff that women are stereotypically seen as possessing more of the attributes that matter in times of crisis,' the researchers wrote, 'but rather that men are seen as lacking these attributes ...'.--Research Digest

As many as 60 Goldman executives could be stripped of their partnerships this year to make way for new blood, people with firsthand knowledge of the process say. Inside the firm, the process is known as “de-partnering.” Goldman does not disclose who is no longer a partner, and many move on to jobs elsewhere; some stay, telling few of their fate. “I have friends who have been de-partnered who are still there, and most people inside think they are still partners,” said one former Goldman executive, who spoke only on the condition of anonymity. “It is something you just don’t talk about.”--Susanne Craig

Cartoon of the day

Source here.

Quotes of the day

Thank God that China did not take Paul Krugman’s advice in 2009, and sharply revalue the yuan. A weaker Chinese economy would be a disaster for the world economy, just as a weak US economy in 1932 and late 2008 (caused by a strong dollar) was a disaster for the world economy. The income effect is far more powerful than the substitution effect. Krugman has correctly diagnosed the key problem—monetary policymakers who are spinning their wheels because rates are zero, and who are too conservative to take unconventional steps. But what he doesn’t seem to realize is that faster world growth speeds up the day when world real interest rates will be high enough to pull us out of the zero rate trap. As Woodford and others have observed, current [aggregate demand] AD is powerfully affected by changes in future expected AD. World AD and world growth are not a zero sum game. Even at the zero bound. Chinese growth is good for China, and good for the global economy.--Scott Sumner

The judgments about age may be implicit but they are real. Two of my favorite writers, Malcolm Gladwell and Jonah Lehrer, are worried about this – but from different perspectives. Gladwell, a Galenson fan, worries that our obsession with youthful genius will cause us to reject future late bloomers. Lehrer has the opposite concern: that funding goes to scientists past their prime. He says the US’s National Institutes of Health (NIH) has been funding ever-older scientists. Thirty years ago, researchers in their early thirties used to receive 10 per cent of NIH grants; by 2006 the figure had fallen to 1 per cent. Neither problem is easy to solve. Gladwell frets that we may fail to support late-blooming Cézannes, but in their early years who is to distinguish them from talentless daubers? Lehrer wants more funding to be directed to younger scientists, but he may be bumping against a more fundamental force than gerontocratic funding bodies. As the economist Benjamin Jones has discovered, scientists are having to specialize more and study for longer, because the frontiers of knowledge are now much further advanced than they were in Einstein’s day.--Tim Harford

Anyway, the Calvin Johnson call may have been technically right … but the way I saw it, the call was certainly wrong. That is: Johnson caught the ball. It would have been a catch in 1950 and it would have been a catch in 1970 and it would have been a catch in 1990. It would have been a catch during recess, and it would have been a catch in the CFL and it would have been a catch in college football, and it would have been a catch in electric football. It would have been a catch because the eyes tell you that he caught the ball. That, I think, is the human element. And maybe we ARE losing that. Maybe that is a by-product of instant replay. In many ways we don’t look at plays anymore. No, we break plays down into molecules.--Joe Posnanski

Researchers recruited 100 people, contaminated their hands and then instructed them to wash with soap and water. Afterward, they had them run their hands under a warm air dryer for a single 30-second cycle, or use a cloth or paper towel for 15 seconds. In the end, the scientists called it a draw: both methods dried the hands thoroughly and produced equivalent reductions in bacterial counts.--Anahad O’Connor

9/11 reflections

from John Taylor:

That remarkable night time aerial refueling would mark a watershed for me and my responsibilities at Treasury. It was the beginning of a much closer cooperation and coordination with the Defense Department and with the U.S. military. It was also the start of many completely new experiences that I could never have expected when I signed up for a job in Treasury. I suppose I could have gotten a little spooked being in that cockpit but I felt very calm, kind of resigned to a new purpose where I would be forging new teams to handle new tasks, and I would be relying on the expertise and experience of others—people like these pilots—and they would be relying on mine. I slept well that night on the steel deck. Months later when I would fly on other military planes—C-130 transports in Afghanistan, Blackhawk helicopters in Iraq—I would always feel just as calm, even at the times when it looked like I was in harm’s way.

When I got back to Washington, the city was on alert. DC was a logical place for another attack, and the secret service was particularly concerned about security around the White House and the adjacent buildings which included the Treasury. We planned for the worst case scenarios. We made lists of essential jobs that would have to be done if the Treasury was wiped out—running the $30 billion Exchange Stabilization Fund in case we had to intervene in the currency markets was an example. We visited the remote locations that we would live in if the Treasury Building was destroyed, developed plans for continuity of operations and continuity of government, and reviewed the order of succession. We cancelled the annual meetings of the IMF and World Bank, which had been scheduled to be held in Washington on September 29th and 30th. Our intelligence experts expected large groups of protestors and a meeting with thousands of foreign financial officials, bankers, and press would have severely stretched the already overextended Washington security forces. And we had many other things to do.

Quotes of the day

The same forces that have generated greater inequality in writing - the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization - are at work throughout the economy. Thus, if you really want to understand inequality today you must first understand Harry Potter.--Alex Tabarrok

It is all very fine to say that markets provide a means to communicate tacit knowledge, and it is even true of many markets, especially small scale ones with participants who know each other, know the product and so on. But global markets do not rely on tacit knowledge. They rely on standardization – the homogenization of products so that they can be lumped under the appropriate heading within a set of standard codified categories. Far from communicating tacit knowledge, the price system (and the codified standards that underlie it) destroys it systematically.--Henry Farrell

The best empirical work looks at a variety of data, and does not focus on variations within a very narrow approach. There are important issues in the data, like how you measure crimes, or how punishment for crime changed over the period. This latter work isn't as interesting to economists because it's so parochial, and economists want to find eternal, generalizable truths like Newton's laws, because that's what scientists do. This makes them truly academic, uninterested in facts and issues related to messy, real data, because such facts do not play into their comparative advantage, which is the slick econometrics. So, if Harford thinks that Levitt and Donahue's abortion paper is the best example of what economics can do for us, he might as well admit economics is sociology with more math, so it necessarily has smarter practitioners, but they are no closer to the truth when they actually apply to the data.--Eric Falkenstein

Bottom line: diversification is still good, but volatility is not priced risk (and [Milton] Friedman, as usual, was right).--Eric Falkenstein

Despite his goal of global openness, however, [Facebook's Mark] Zuckerberg remains a wary and private person. He doesn’t like to speak to the press, and he does so rarely. He also doesn’t seem to enjoy the public appearances that are increasingly requested of him. Backstage at an event at the Computer History Museum, in Silicon Valley, this summer, one of his interlocutors turned to Zuckerberg, minutes before they were to appear onstage, and said, “You don’t like doing these kinds of events very much, do you?” Zuckerberg replied with a terse “No,” then took a sip from his water bottle and looked off into the distance. This makes the current moment a particularly awkward one. Zuckerberg, or at least Hollywood’s unauthorized version of him, will soon be starring in a film titled “The Social Network,” directed by David Fincher and written by Aaron Sorkin.--Jose Antonio Vargas

Seven Empty Promises

About ObamaCare.

Quotes of the day

I’m not a businessman, I’m a business, man.--Jay-Z

You might want to cut him a break. Because I almost guarantee you that when he's gone, you'll miss him.--Peter Abraham

... if you want to build and sustain moral authority in our culture, you shouldn’t emulate Barack Obama — you should emulate Oprah Winfrey.--Ross Douthat

To be clear, although it would be largely in my self interest, I am not some right-winger bent on ending social security. In my view, the minimum age must be raised. Dr. Krugman rightly points out that this would put a disproportionate burden on low-income workers, which is why I counter that any age hike must be coupled with means testing, which I prefer to higher taxes. Those on the left that argue that means testing would undermine the popularity of the program are absurd partisans. What is the metaphor? That would be like wearing the wrong color shirt to the wrong neighborhood, getting shot and then freaking out that your shirt is ruined, but not going to the hospital. Neither the right nor left would be thrilled with with an age hike / means testing deal, but that’s what makes a good compromise.--Jason Ruspini

It's not a good sign when the government has to intervene to prevent a run on a bank that is already owned by the government ...--Megan McArdle

Ochochinco and the Patriots' cornerback, Part Deux

Unfortunately, starting corner Leigh Bodden is out for the season with an injury. I posted his tweets with Chad Ochocinco earlier in the summer here.

Fortunately, second year defensive back Darius Butler has picked things up. Here is some of the exchange:

@dariusbutler28 are you gonna have safety help the entire game?

@OGOchoCinco my bad i took so long. I was lookin thru this film to see the last time some put a safety over top of 85

@DariusButler28 well you must be watching highschool film because there's a safety on every damn play leaning my way, ...

@OGOchoCinco which game u on? I jus got off the last two games u had last season. I don't even think they had a safety on the field most the game.

Some nice smack talk. As you can see I AM ready for some football.

Photo links here and here.