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Posts Tagged ‘Wall Street’

Exploitation-Neutral Consumption

Watching The Wolf of Wall Street was a guilty pleasure for me.  It wasn’t that the movie valorizes Jordan Belfort’s crimes, which defrauded victims of more than a hundred million dollars, but I felt uneasy about being entertained by a work of art indirectly derived from the pain of others – especially since it wasn’t clear that the injured parties were participating in the movie’s profits.

The movie literally and figuratively kept the victims of Belfort’s fraud outside the frame. In only a few scenes do we hear even the disembodied voices of the defrauded investors.  But imagine what it would be like to watch the movie in the presence of one of Belfort’s 1,500 real-life victims, whose ranks included architects, engineers, insurance agents, real estate appraisers, and other middle-class professionals.

The movie repeats Belfort’s claim that his firm only targeted the super-rich. The idea is that we needn’t worry so much about who was hurt by these crimes, because these investors were so wealthy that they wouldn’t be as impacted by the loss of a few dollars. But some of his victims’ families tell a very different story: “My father lost practically a quarter-million dollars,” said one man, whose father, an engineer, was cold-called at home by a Stratton broker. His father suffered a stroke under the stress of his losses. As another investor puts it: “I’m not a rich guy, and I’ve been paying for it ever since.”

What’s a Wall Street Executive's Wins Produced?

LeBron James was recently given his 4th Most Valuable Player award by 120 sportswriters.  Well, at least 119 sportswriters agreed LeBron was MVP.  Gary Washburn – of the Boston Globethought Carmelo Anthony was the league’s MVP in 2012-13.

It doesn’t take much effort to establish that LeBron was more valuable than Melo.  The numbers tell us (numbers taken from that LeBron in 2012-13 was a much more efficient scorer from the field; and a better rebounder, passer, and shot blocker.   LeBron was also better with respect to steals and personal fouls.  Yes, Melo scored more.  But that is just because Melo took many more shots than LeBron.  Unfortunately, people tend to think that players who take many shots have a huge impact on outcomes in basketball (consequently, players have an incentive to take as many shots as their coaches and teammates will allow).

Although no other sportswriter shared Washburn’s view that Melo was MVP, 102 of the 120 voters thought Anthony was one of the five most valuable players in the league.  So Washburn was not alone in his belief that Anthony is a “great” player.  

Wall Street Cheating

A new survey of 500 financial service professionals in the U.S. and the U.K. finds that 26 percent of survey respondents “had observed or had firsthand knowledge of wrongdoing in the workplace” and almost 25 percent “believed that financial services professionals may need to engage in unethical or illegal conduct in order to be successful.”  

Depending on your worldview, you may read that previous paragraph and think, Oh my goodness, that’s outrageous! Or, conversely, you might think Only 26 percent?!

Dear Occupy Wall Street: Are You Sure You're in the Right Place?

I get it – people are angry. Very, very angry. I’m angry too. And Wall Street sure makes a great scapegoat, hence the Occupy Wall Street protest. Wall Street is a symbol of the “greed and corruption” that took over America and caused this whole mess.
But let’s take a minute to examine the facts and see if we can’t find some better scapegoats:
In 1997 Andrew Cuomo, the Secretary of Housing and Urban Development under Bill Clinton, allowed Fannie Mae to reduce the standards by which they would secure loans. This helped create the entire subprime category. Was this a bad thing? Of course not – it allowed more people to leave the ghetto, move to the suburbs, and achieve the American Dream of owning a home. Who knew that “Dream” would turn into a nightmare in a mere decade. Andrew Cuomo is not Nostradamus. We can blame him of course, but he had good intentions despite the negative results.

The Markets are Mad: Is High-Frequency Trading Making Things Worse?

Thursday’s 423-point gain by the Dow marked the first time ever that the industrial average has posted four consecutive days of 400-point moves. Less than two weeks into August, there have already been six trading days that saw triple-digit swings this month. While the recent sell-off has been swift (the Dow is off more than 12% since July 21), it’s also been choppy. Volatility is back in a big way. The VIX Index, also known as the fear index, has shot up recently, nearly doubling over the last week. The VIX tracks the expected price of a range of protective S&P 500 options over the next 30 days.
While your average investor generally hates volatility, there are those who feed off it, namely high-frequency traders. These are the guys who use complex algorithms and super-fast computers to scour the markets for tiny price differentials, often executing trades in microseconds (one millionth of a second). The more volatile the market, the easier it is for them to make money jumping in and out of stocks across exchanges.
Now, it’s not quite fair to lump all high-frequency traders together. They don’t all necessarily do well in volatile markets. While some are killing it, there are certainly others who’ve been getting killed; it all depends on their strategy. But generally, traders need two things: 1) a price, and 2) movement. Recently, they’ve had plenty of both.

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.

How Prevalent Is Insider Trading? And What's to Be Done About It? A Freakonomics Quorum

As I type these words, the biggest insider-trading trial in years, that of Raj Rajaratnam, has just gone to the jury. I haven’t followed the trial too closely, but the gist is evident: the line between “insider trading” and the legitimate, if sharp-elbowed, acquisition of useful trading information is extremely blurry. This is hardly the only insider case at the moment. Preet Bharara, U.S. Attorney for the Southern District of New York, famously said last fall that “illegal insider trading is rampant and may even be on the rise.” So it seemed a good time to put together a Freakonomics Quorum and ask a couple of straightforward questions.

Ten Reasons You Need to Quit Your Job

Contributor James Altucher reflects on a career of disparate jobs in corporate America and Wall Street, and offers 10 signs when you know it’s time to quit that corporate job you loathe.

This Is Your Market on Drugs

Sales of antidepressants remain brisk in spite (or perhaps because) of the recession. Slate reminds us of a decade-old study suggesting that widespread use of mood-lightening drugs could fuel irrational exuberance on Wall Street.

Wall Street's Identity Crisis

Some on Wall Street think of themselves as the fighter jocks of American capitalism. Justin Fox thinks they’re more like bumper car drivers, “spending more time tangling with each other than doing anything useful.” Either way, now that the market has tanked and the public has turned on bankers, many on the Street find themselves switching to Plan B. [%comments]

Wall Street's Brain Drain

Remember when we wondered if stricter regulations and restrictions on executive compensation would spark an exodus of talented bankers from top Wall Street firms? Turns out it’s happening, and it’s probably not a bad thing. [%comments]

Place Your Stock Bets Here

At its heart, Inspectd is a simple game: it shows you a chart of historical data on a random stock, asks you to bet on whether the stock’s price will rise or fall, and then immediately tells you if you won or lost — with another performance chart showing you why. And maybe that instant gratification is what makes this . . .

Your Hedge Fund Questions, Answered

A few days ago, we solicited your questions for hedge fund manager Neil Barsky. As always, your questions were terrific, and so are Barsky’s answers, below. One thing that surprised me, however, is that nobody asked Barsky, a former Wall Street Journal reporter, what he thinks about Rupert Murdoch‘s purchase of the Journal (and the rest of Dow Jones). This . . .

Got Hedge Fund Questions? Bring ‘Em On.

I have a friend named Neil Barsky who used to be a journalist and now runs a hedge fund. This is not a typical progression in the journalism field. But that’s the fact. He did most of his journalism for the Wall Street Journal, principally covering real estate, and then he worked as a research analyst at Morgan Stanley, where . . .

And Today Is…

On July 31, 1914, officials shut down the New York Stock Exchange following news that Germany had declared Kriegsgefahrzustand (defined as an “imminent-danger-of-war situation“) while Austria and Turkey were already mobilizing.

The FREAKest Links: Luck Be A Hot Dog Edition

We’ve written about the power of “lucky 8s” to influence stock decisions. Now, with 7/7/07 approaching, LiveScience takes a look at the many people planning major life events for that signal day. In a dose of bad luck, the Japanese man who holds the world record for hot dog eating has severely injured his jaw during a training session for . . .

The Benefits of a Bubble, Even When Burst

Daniel Gross is a very good and quite prolific writer on the economy, from his “Moneybox” columns in Slate to his “Economic View” columns in the New York Times; soon, he will be taking his skills to Newsweek. His new book, Pop! Why Bubbles are Great for the Economy, tells the story of various American investment bubbles, from frenzied railroad . . .

The FREAKest Links: Paris Cries All The Way To The Bank Edition

In addition to their growing overlap with the laws and regulations of the physical world, virtual worlds are providing psychologists with new data sources and research for theories like Transformed Social Interaction, self-perception theory, and the Proteus Effect. Via TheStreet: In the wake of the Paris Hilton prison fiasco, financial blogger Eddy Elfenbein at Crossing Wall Street tracks the (continually . . .

“Lucky 8s” Extend to Stock Trading in China

Last week, The Wall Street Journal ran a front-page article by James T. Areddy about the influence of numerology on Chinese stock trading. As we’ve blogged about before, belief in lucky numbers is a huge aspect of Chinese culture. The article highlights how the value of a stock can hinge on the presence of “lucky 8s” in numeric ticker symbols . . .

The Truth About the Seven-Percent Rule

The New Yorker’s James Surowiecki recently devoted a column to the notorious “Seven Percent Rule.” For those unfamiliar with the phrase, it refers to the assumption that after a company announces major layoffs, its stock price will rise roughly 7% in an apparent correlation between employee downsizing and Wall Street enthusiasm. Surowiecki notes, however, that the rule’s validity took a . . .

The Price of Clean Water

Taking off on Levitt’s recent blog post about pesticides in the water in Indiana, James Altucher at Stockpickr has assembled a Freakonomics portfolio of clean water stocks. He has also blogged about it in more detail at

James Altucher Strikes Again

A few years ago, I was working on a book about the psychology of money — a book I put aside when Freakonomics began to happen. The first chapter of the book was about a fellow named James Altucher, whom I’ve blogged about before. James’s relationship with money was fascinating and precarious. He grew up in a middle-class family that . . .

Michael Lewis on stock markets in professional athletes

Like everything else Michael Lewis does, his recent article which discusses the move towards tradable securities in pro athletes is beautifully written and very interesting. My friends (and relatives actually) at are right at the heart of this new trend. (hat tip to Chris Thayer)