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Are You Male, With a Job in Finance or Economics, and Want to Get on a "Wilderness Experience" TV Show?

Then today is your lucky day. Here’s a request we received from friends at a TV production company:

We’re casting the first season of Enter the Wild, an inspiring documentary series for a major cable network.  In the show, a diverse group of real people takes an outdoor survival course taught by one of the country’s most acclaimed wilderness experts.

It’s not a competition show. It’s not Survivor. The series will follow participants as they engage in a fully immersive, three-week course.  Our hope is that everyone will walk away not only with life-saving skills, but a new perspective on their lives and their relationship with nature.

We’d love to include a the point of view of a male with a work background in financial markets or economics in this wilderness experience. You can apply or get more information at our website.

A “casting treatment” from the company gives further information about the types of characters they are looking for. If I were a young anthropology researcher, I would be all over this thing — for what it says about the people who make, watch, and appear on modern TV. Here are a few of my favorites:



Auction Theory and LIBOR

An article in The Economist argues that a little auction theory might solve some of the British Bankers’ Association (BBA) current LIBOR problems:

Some of LIBOR’s failures also have echoes in auctions. Traders at involved banks are accused of aligning their LIBOR estimates in an attempt to affect the final rate. They were able to cross-check what others had done, since the BBA makes individual estimates public. These traders had, in effect, formed a “bidding ring,” analogous to a sort of cartel that is familiar to observers of auctions.

Fortunately, a variety of economists have researched how to break bidding rings.  Their findings suggests that, in addition to relying on actual data (instead of estimates) and creating penalties for false bidding, the LIBOR system would benefit from a few changes focused on the weaknesses of bidding rings:

Once banks’ LIBOR bids actually have some commitment value, the system should focus on the weaknesses that auction cartels are known to have. The cartel-enforcement problem would be more acute if the BBA increased the number of submitting banks and kept those bids private. The entry of outsiders should be actively encouraged, by allowing other lenders to banks (money-market funds, say) to submit estimates, too.



Should New Financial Instruments Be Treated Like New Drugs?

My colleague Glen Weyl and Eric Posner at the University of Chicago Law School, argue in a recent white paper, that new financial products should be subject to regulatory approval analogous to that for new drugs by the Food and Drug Administration. Here is the abstract:

The financial crisis of 2008 was caused in part by speculative investment in sophisticated derivatives. In enacting the Dodd-Frank Act, Congress sought to address the problem of speculative investment, but merely transferred that authority to various agencies, which have not yet found a solution. Most discussions center on enhanced disclosure and the use of exchanges and clearinghouses. However, we argue that disclosure rules do not address the real problem, which is that financial firms invest enormous resources to develop financial products that facilitate gambling and regulatory arbitrage, both of which are socially wasteful activities.



What Makes a Rogue Trader Tick? A Q&A with FT Columnist John Gapper

The rogue trader is a recurring character in the story of finance over the last 20 years. This is the guy who makes secret, unauthorized bets with his bank’s money, driven by some seeming combination of inadequacy and a huge appetite for risk, and abetted at times by an amazing lack of internal controls.

The deeper he goes, the harder he has to work to conceal his deception until one day, it inevitably comes crashing down. The bank loses billions, the trader (sometimes) goes to jail. The story is repeated every several years. The latest version broke in September when UBS announced it had lost more than $2 billion as a result of rogue trader Kweku Adoboli.

In his new e-book, How to Be a Rogue Trader, Financial Times columnist John Gapper explains why this story has become so familiar over the years. As he puts it, the rogue trader is a species of sorts within the world of finance, a special breed with certain behaviors and characteristics that are consistent through time. Gapper delves into evolutionary biology and the research of Daniel Kahneman to better understand the nature of men like Nick Leeson, Joe Jett, and Jerome Kerviel.



Goldman Sachs Stumbles: The End of the "Vampire Squid"?

A few years ago, a friend of mine who used to work on Wall Street told me that the only stock anyone needed to own was Goldman Sachs. He was of course half-joking (I sure hope this wasn’t the advice he was giving clients), but his point was clear: whatever price increases were happening out in the world, whatever profits were there for the taking, no matter the market, you could be fairly certain that Goldman was on the scene.

The image of Goldman Sachs as some sort of omnivorous, ever-present beast was perpetuated by Matt Taibbi in his 2010 Rolling Stone article, in which he dubbed the firm “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” And that was just the second sentence.

It would appear that the squid has since had a few of its tentacles lopped off, or at least been shrunken down to size. For only the second time since it went public in 1999, Goldman Sachs has posted a quarterly loss.



The Irony of the S&P Downgrade

At Columbia last year I took a class called “Modern Political Economy” from Ray Horton. One of Horton’s favorite things to say was that sooner or later, if the U.S. didn’t solve its debt issues through the political process, the world’s capitalists would do it for us — as in the debt markets would punish us for our profligate ways, and raise the cost of borrowing.
And yet, here we are: a ratings agency has downgraded our credit for the first time ever. But on the first day of trading, rather than going up, rates on our government debt fell to near record lows as money poured out of riskier assets in a flight for safety. When the markets closed last Friday, and the U.S. still had a AAA rating from S&P, the yield on the 10-year Treasury was 2.55%. It ended Monday down to 2.34%. The same thing happened during the stock market sell-off in the fall of 2008, when the rate on the 10-year Treasury went from around 4% to less than 2.5%. U.S. government debt is still the safest, most liquid market in the world. The S&P downgrade doesn’t change that. In fact, the immediate effect has been to make it safer. How strange.



Odds of a Double Dip: A Sampling of Opinions. Plus, Wolfers on Twitter

So by now you’re hopefully aware that the stock market completely bombed today. As I type, the Dow is down more than 500 points, its worst day since December 2008. (Official day’s tally is -512.76) And just like that it seems, the recovery is over. Well it was fun while it lasted; kind of.
Our resident macro economic guru Justin Wolfers has come up for air from his Twitter experiment (follow him @justinwolfers) and sent over this interesting sample of recent opinions from a handful of economically savvy folks, all giving their odds of the economy entering another recession:
Larry Summers: “at least a 1-in-3 chance.”
Marty Feldstein: “now a 50 percent chance.”
Ryan Avent: “more likely than not.”
Justin Wolfers: “40% chance and peak was 4 months ago” and “The guacamole has spoken.”
Don Kohn, Vincent Reinhart, Brian Madigan: “between 20% and 40%.”
Matt Yglesias: “precisely 31.22%.”
Brad DeLong: “the odds now are 50-50.”
Christy Romer: “The risks have gone up…compared to where we were six months ago.”
Bob Hall: “We certainly are in a more vulnerable situation now.”
Jeff Frankel: “not necessarily enough to push the probability over one half.”
Jay Carney: “we do not believe that there is a threat there of a double-dip recession.”
Justin has had a busy today on Twitter. Clearly, he flipped heads this morning. Here’s a sampling of what he’s been tweeting about:



Flawed Incentives and Dubious Morals: JPMorgan & CDOs That Were "Built to Fail"

It’s been a busy week for JPMorgan Chase. It’s only Wednesday, and already the bank has settled one civil fraud lawsuit, and been slapped with another one. Both shed light on Wall Street’s flawed system of incentives that helped bring on the financial crisis. They also raise questions as to the morals of bankers.
On Tuesday, JPMorgan agreed to pay $153 million to settle civil fraud charges brought by the SEC alleging that it “misled” investors when it sold them junky mortgage bonds. The deal in question was put together by Magnetar Capital. If you’re not familiar with Magnetar, it’s an Illinois-based hedge fund that made a killing shorting synthetic mortgage-backed securities that were essentially built to fail. Here’s how it worked: Magnetar would put down a few million bucks to start a collateralized-debt obligation (CDO), cram it full of the junkiest mortgage bonds it could find, then get a bank like JPMorgan to sell it off to investors as a triple-A, gold-plated piece of the booming housing market; when in reality it was a time bomb filled with toxic waste.



More Depressing News on America's Financial Literacy (or Lack Thereof)

I’ve written on the woeful state of Americans’ financial literacy a few times in the past. There is probably no academic researcher more attuned to the problem than Annamaria Lusardi of Dartmouth. This week’s NBER e-mail blast describing the latest crop of economics working papers includes nine papers; of those, four are written or co-written by Lusardi on this topic.
Among the highlights (or, I should say, lowlights); the bolding is mine:

Americans’ Financial Capability
This paper examines Americans’ financial capability, using data from a new survey. Financial capability is measured in terms of how well people make ends meet, plan ahead, choose and manage financial products, and possess the skills and knowledge to make financial decisions. The findings reported in this work paint a troubling picture of the state of financial capability in the United States.
The majority of Americans do not plan for predictable events such as retirement or children’s college education. Most importantly, people do not make provisions for unexpected events and emergencies, leaving themselves and the economy exposed to shocks.



One of the Top Financial Blogs?

Thanks to Time.com for naming this blog one of the top “financial” blogs — and the nice writeup from the Wall Street Journal’s Robert Frank — but we didn’t know that we’re a financial blog!



Another Financial Prophet Unearthed

In the wake of any financial crisis, a few people are always trotted forth (sometimes they do the trotting themselves) as having seen the particulars of the crisis in advance — but who, despite all their hand-waving and teeth-gnashing, were roundly ignored. In the Wall Street Journal, Jason Zweig profiles Melchior Palyi, an economist who seemingly predicted many of today’s big economic problems. But here’s the twist: he did it some 70 years ago.



Dow 38,820?

Weary investors, take heart. Jeffrey A. Hirsch, editor of the Stock Trader’s Almanac is predicting good times ahead. Bloomberg reports that Hirsch is predicting “[t]he Dow Jones Industrial Average will surge to 38,820 in an eight-year ‘super boom’ beginning in 2017.”



Correcting Krugman

Paul Krugman and Robin Wells caricature my recent book Fault Lines in an article in The New York Review of Books. The article, and their criticism, however, do have a lot to say about Krugman’s policy views (for simplicity, I will say “Krugman” and “he” instead of “Krugman and Wells” and “they”), which I have disagreed with in the past. Rather than focus on the innuendo about my motives and beliefs in the review, let me focus on differences of substance. I will return to why I believe Krugman writes the way he does only at the end.



How to Tell When a CEO Is Lying

In a nifty piece of forensic analysis, two researchers claim to have figured out how to tell when executives are lying. David Larcker and Anastasia Zakolyukina analyzed 30,000 conference calls between 2003 and 2007 to see if certain “tells” during the call were associated with earnings that were later “materially restated.”



Satellite of Profit

A Chicago company called Remote Sensing Metrics LLC has been using satellite images to track the number of cars in Wal-Mart parking lots, as a means of helping forecast earnings at the retail chain.



Why We Should Exit Ultra-Low Rates: A Guest Post by Raghuram Rajan

Raghuram Rajan, a University of Chicago economics professor and former chief economist of the IMF, has been popping up on the blog a lot lately – answering our questions about his new book Fault Lines and weighing in on the financial reform bill. Now he’s back with a guest post, clarifying and expanding his views on the Federal Reserve’s ultra-low interest rate policy.



Debt as a Drug

Planet Money interviews Nassim Taleb for its Deep Read series. Taleb compares the developed world’s dependence on debt to drug addiction.



How Would You Simplify the Financial-Reform Bill? A Freakonomics Quorum

Last month, roughly two years into a global financial maelstrom, the U.S. Congress passed a financial-reform bill. It was more than 2,300 pages long, addressing everything from derivatives to consumer financial products to oversized banks. We asked a few clever people a simple question.



Human/Capuchin Parallels Revisited

What’s the most embarrassing thing about human decision-making? It’s not that we make cognitive mistakes, says Yale cognitive psychologist Laurie Santos, in this recent TED talk. It’s that we seem doomed by our biology to make the same predictable mistakes over and over.



Make-It-Yourself Prediction Widgets

Wolfram Alpha has just launched a free Widget Builder that lets you easily create widgets to calculate all kinds of things – seamlessly integrating data from the Alpha server.



When Congress Is Away, the Market Will Play

Anxious investors can take heart: Congress’s August recess begins at the end of this week, which has historically been a good thing for the markets. Michael Ferguson and Hugh Douglas Witte found that “about 90% of the capital gains over the life of the Dow Jones Industrial Average have come on days when Congress is out of session.”



What Do You Want to Hear from Nassim Nicholas Taleb?

I expect to have a conversation with Nassim Nicholas Taleb, author of Fooled by Randomness and The Black Swan, in the next couple of days. He’s a very smart and talkative fellow, and I suspect he would fit into a Freakonomics Radio podcast very well.