Category: Big Business

Posted on

Rated C for Cretinous

If Slate‘s business/finance site, The Big Money, is going to run inane articles like this one that calls for TV and movies to receive ratings about product placement, then let’s hope it dies a swift and quiet death:

In contrast with the late ’60s, our period is one of inexhaustible consumption and materialism, and the collapse of personality and aspirations into a culture of brands and logos. We are bankrupt and filling our seas with plastic. Yet we have no method by which to regulate-or even measure-the hidden ads the fill all of our many screens.

And speaking of “if only things were more like the late ’60s” . . .

Update: RR’s policy suggestions are unsafe at any speed.

Posted on

Market timing

Two anecdotes that help me make sense (of humor) out of the Lehman Bros. bankruptcy, the Merrill Lynch buyout, the Fannie/Freddie seizure, Bear Stearns debacle and all else:

1.

Around 1991, I walked into a local-ish comic store, as is my wont. As I was checking out, I noticed that the store had the first issue of Justice League International for sale at $20. It had come out in 1987 and I had a copy at home. A semi-impoverished college student, I figured I could use a few bucks, and asked if they were buying copies of that comic.

The clerk said, “No, man. We’ve got a whole box of that issue back in the storeroom.”

“Then why are you selling it for $20?” I asked.

“Because that’s what [The Guide] says it’s worth,” he told me.

Ah: [The Guide]. I don’t recall which price guide was in vogue back then, but I think that was the beginning of the era when comic magazines were publishing revised price guides on a monthly basis.

“But [The Guide] doesn’t make money selling copies of JLI #1,” I replied. “It makes money selling copies of [The Guide]. You oughtta put ‘HALF-OFF!’ signs up and I bet you could move the whole box pretty quickly.”

“But [The Guide] says they’re worth $20!”

“It’s only worth what you can get for it,” I said. Never let it be said I didn’t learn anything from my dad.

Mark to market. That’s why Lehman Bros. went into bankruptcy while Merrill Lynch managed to get itself bought.

2.

My next-door neighbor took his stockbroker exam in October 1987. This was three days before the Black Monday collapse, in which the Dow tanked 22%. He went on to work as a substitute teacher in our high school for the next several years.

In that spirit, congratulations to Slate, which launched its new business/finance site, The Big Money, yesterday.

Posted on

Long-Term, my ass

I recently read When Genius Failed, Roger Lowenstein’s chronicle of the rise (1994) and collapse (1998) of Long-Term Capital Management, a hedge fund staffed by Harvard and MIT Ph.D.s. The LTCM team developed “risk management” models that would allow them fund to “vaccuum up nickels” in massive (leveraged) quantities. The formula worked for a while, until it didn’t, at which point people started to realize that LTCM was leveraged out the wazoo, and that the value of its derivatives bets was literally incalculable.

Once the bottom fell out, the Fed had to coordinate a bailout of LTCM by the world’s leading banks. Many of these banks were treated as doormats by LTCM during its meteoric rise. Trust me; it’s a really entertaining story that Mr. Lowenstein tells. As David Pflug, Chase’s head of global credit, put it, “You can overintellectualize those Greek letters [in LTCM’s formulae]. One Greek word that ought to be in there is hubris.”

Two major issues — beyond the failures of “risk management” — struck me while I read the book. For one thing, LTCM’s collapse was precipitated by a series of regional financial crises in 1997-98. The final straw came when Russia defaulted on its foreign bonds in order to pay workers at home. This means, “Russia welched on its worldwide obligations because it barely had money to keep its government afloat.” And this occurred only ten years ago. So if oil futures didn’t rise 1000% in the past few years, how brazen would Russia be right now? (and if they drop significantly, where will Russia end up?)

The third issue was that the behavior of LTCM and the major banks sounded remarkably familiar to our current mortgage-driven crisis (right down to Lehmann Bros. suffering rumors about its underfunding and impending collapse). The exotic derivatives, the incalculable, illiquid assets, the “too big to fail” mentality: this could be 1998 writ large! Had these financial genii — and many of the major players involved in the recent Bear Stearns collapse also figure into When Genius Fails — managed to ignore every lesson from LTCM’s failure?

Near the end of the book, Mr. Lowenstein wrote:

Permitting such losses to occur is what deters most people and institutions from taking imprudent risks. Now especially, after a decade of prosperity and buoyant financial markets, a reminder that foolishness carries a price would be no bad thing. Will investors in the next problem-child-to-be, having been lulled by the soft landing engineered for Long-Term, be counting on the Fed, too? On balance, the Fed’s decision to get involved — though understandable given the panicky condition of September 1998 — regrettably squandered a choice opportunity to send the markets a needed dose of discipline.

That’s why I was really gratified to open today’s NYTimes and discover that Mr. Lowenstein has a great essay on exactly that topic, “Long-Term Capital: It’s a Short-Term Memory”! He does a good job of explaining the issues without getting overly technical (one of the complaints others have had about his book).

Give it a read; I bet you’ll dig it. (And get irate, when you start reading about the Fannie Mae / Freddie Mac seizure. . .)

Posted on

Catch a fire

I don’t agree with all of this guy’s points about the future of digital books vis a vis the success of the Kindle. I’m optimistic that the presence of the Kindle and other e-readers will help drag book publishing out of the horrifically dysfunctional returnable bookstore model that it’s currently in.

But I don’t think that book publishing can be directly compared to the recording industry, and I really don’t think it’s advisable to tell publishers, “If you’ll just embrace this DRM-free, digital model, you can get your sales demolished just like the recording industry did. What are you waiting for?”

I also think Steve Jobs was full of crap when he said that Apple wouldn’t develop an e-reader because  “Americans don’t read.” I think he recognized that Amazon was already in position as the store of choice, and that meant Apple wouldn’t be able to create an iTunes store for books. No store, no device.

I’m still enjoying the heck out of my Kindle, but I’m also bummed that the new Pevear/Volokhonsky translation of War & Peace is selling for $20, rather than the $9.99 that they usually price new hardcovers. Grr.

Posted on

Morning Sun

It’s a comparatively slow day at the Official Newspaper of Gil Roth:

  1. a review of the new book by James Wood, How Fiction Works,
  2. a review of an anthology on New Criticism, and
  3. a brief history (with slideshow) of Art Deco.

So I guess I oughtta flip over to the NYObserver, which is more hit-and-miss in its Gilcentric writing:

  1. the decline of newspaper reporters in NJ, and
  2. an interview with Amtrak president/CEO Alex Kummant about transit plans in NY/NJ and the need for new rail capacity?

Looks like I have nothing to complain about.