Tag Archives: finance

Errata: Racist Michigan Rep, Active Shooter Insurance, Academic Heist, Carson’s Still an Idiot

Raw StoryMich. Repub ripped after suggesting that making black students white would ‘fix’ school issues – ‘Footage posted by the American Federation of Teachers (AFT) shows Knollenberg saying during a state Senate committee meeting on Thursday, “You mentioned these school districts failing, and you mention economically disadvantaged and non-white population are contributors to that. I know we can’t fix that. We can’t make an African-American white. That’s just, it is what it is.”’ – also – ‘He denied citing race as a specific factor and pointed out that he has a black employee at his insurance company.’ – Horrifying.

CNBCInterest in active shooter insurance grows – “The insurance policy covers potential liability if an institution is deemed not to have taken the steps needed to prevent gun violence, according to Fortune.” – WELL now that insurers are set to make a profit off mass shootings I think it’s even safer to say legislators are going to do fuck all about the issue. The NRA profiting off putting the country at risk isn’t enough – now the financiers are in on it. I’m waiting for securitization of security-weakening legislation, a new derivatives market that lays bets on the specifics of the next shooting.

ReutersCzech MEP accused of trying to snatch 350 million euros from Swiss bank – “They include Miloslav Ransdorf, 62, an expert on Karl Marx and a former philosophy teacher who speaks about dozen languages and who has served in the European Parliament since the Czech Republic’s entry to the European Union in 2004.” – Can’t wait for the movie version of this.

MSNBCBen Carson to veterans: ‘Deal with the transgender thing somewhere else’ – ‘“If you can’t lift, you know, a 175 pound person on your shoulder and hoist them out of there, I don’t want you as my backup,” he continued.’ – I love that a guy who had the courage to direct an armed robber at someone else and brag about it finds himself fit to judge combat readiness.

NBCPresident Jimmy Carter Says Cancer in Brain Is GoneThe one good bit of news I’ve seen all December. So thankful for this.

Uber as Enron Archetype

Something’s been bugging me about Uber for a while. The more I watch it, the more it feels like Enron.

That’s a hell of an inflammatory statement, I know. And it’s coming from a (theoretically) pro-regulation liberal. No surprise there. But I’m not inherently anti-Uber. It’s made some amazing moves so far and I don’t particularly like traditional taxi services (or the way they treat Uber – or people involved in the debate). My one experience with Uber was passable – good trip to my destination, shady trip back. So I’m not an extremist about the issue.

But – and I recognize the extreme and silly-sounding nature of this next statement – I keep envisioning Uber dissolving suddenly in a wave of accounting improprieties. I’m not accusing Uber of Enronesque fraud here, I’ve no evidence for that. But some of their actions immediately and starkly invoke for me a path so similar to the failed energy giant.

The first thing that struck me in this way is Uber’s strong anti-regulation evangelism embodied in a vocal CEO. In Enron’s case it began with Ken Lay taking as many steps as possible to deregulate the energy market in general and the California energy market in particular. With Uber we see similar passionate advocacy from Travis Kalanick. Kalanick’s views about the free market aren’t a standalone indicator of Enronism but fit into a larger context.

Uber also evokes an image of Enron in their unflinching willingness to operate on the far border or outside the bounds of law and regulation. An early warning in Enron’s history was the Valhalla scandal, in which traders placed huge bets and engaged in crooked accounting as well as skimming profits. Once the bets were discovered and, in a panic, successfully hedged, Enron made its institutional reaction clear in a message to the traders: Please keep making us money. An SEC suit was required for any kind of consequences.

A second example becomes more relevant: unsatisfied with the level of deregulation in California’s market Enron traders and financial engineers conspired to violate both CA law and good corporate citizenship. They increased profits through schemes like exporting energy to another state and imposing an artificial scarcity so the energy could be re-imported at a much higher rate.

That’s not to mention the outright fraud committed by Enron in cleaning debt off its balance sheets through the use of Special Purpose Entities – something they self-justified as legal and defended as a phenomenon of a more optimized, less regulated market. A market that only existed in their heads and on their legal opinions.

Compare such disdain for regulation and legality with Uber’s operations in emerging markets such as India and France. Places where they’re explicitly told they’re operating in violation and continue to do so. In some cases they depend on loophole methodology and in France seem to have simply shrugged and told employees and drivers they would pay the legal fees and fines as a cost of operation, in utter disdain of law and rule.

As a second manifestation of Enron’s tendencies consider Uber’s considerations in going after critics. The latter has an established record of considering dirty tricks to hit back at those who don’t hold it in high esteem, including an executive publically ruminating about using a journalist’s Uber history against them. Enron made it a habit to force reassignment of auditor personnel who weren’t “with the program” as well as threaten to pull or withhold business from critical ratings firms.

For a third parallel consider transparency. Enron was purposely opaque, admitting and revelling in the idea that they employed a “black box” system generating profits in secret. While not as openly dismissive Uber has established a record of defiant opacity. They’ve racked up fines and judgments for refusing to turn over required data in accord with transparency regulations. Enron hid all that largely to keep the momentum of their massive fraud going forward – what’s Uber’s reason?

There are a substantial number of places where Enron and Uber diverge, of course. But Uber’s anti-regulation, market disruption and dominance rhetoric so neatly echoes that of Enron that I end up fearing the former will collapse in just as catastrophic a wave of accounting scandals.

At the time of its downfall, Enron held approximately $60 billion in assets.

Last week Uber received a valuation of $50+ billion.

Kasich: Fiddling While Lehman Burns

GOP presidential candidate John Kasich was busy yesterday touting all he learned about business while working for Lehman Brothers, the financial services firm that failed spectacularly in 2008. (transcript)

You know, I — I — I left Washington and had a great time. You — you know, I was — worked at Lehman Brothers and learned about businesses, and I went to Fox News…

It should be remembered that Lehman Brothers was forced into bankruptcy after basically refusing to find another firm to buy it; Treasury Secretary Hank Paulson straight up told Lehman CEO Dick Fuld to find a buyer. Fuld made a few limp efforts, entirely convinced instead that a government bailout would come.

John Kasich was the Managing Director of a financial firm that failed because it sat idle in acute crisis and expected big government to come save it. Color me skeptical when he refers back to his Lehman-era business expertise.

Sharks, Vultures, Zombies and Spikes in the CDS Spread

Chinese market concerning me perhaps more than it should, lately. Perhaps not enough. With $3 trillion in value wiped off the map and another $1+ trillion frozen at the trading desk it looks pretty bleak. And it has for a while – they’ve been spending four to six dollars for every dollar of growth created, surely a losing formula. Given how intertwined our economy is with China’s maybe it’s worth some heightened consideration.

The other night after a few hours of staring at the issue to see who would blink first (I lost) I dragged my carcass to bed tired and worried. It had been a long day and sleep sounded like a great idea. No sooner did my head hit the pillow than an idea shot into my brain and had me sitting bolt upright. It wouldn’t go away – I had to scrawl out the basics before I could settle down at all.

I found myself thinking about Bear Stearns.

Bear Stearns Companies (also known as BSC) was an investment bank, trading and brokerage firm that folded in the midst of the 2008 crisis for a whole host of reasons. The market in general a horror show, several factors worsened BSC’s position. First, two major hedge funds founded by them had just collapsed under a cloud of fraud. Second, their highest executives seemed oddly disconnected from the company at critical moments. Third, they had precious little good will in their environment after refusing to participate in an earlier industry bailout of another firm. And finally: a number of subfactors combined to create a fairly traditional run on a bank that, like others at the time, relied heavily on overnight “repo”: repurchase agreements that largely funded BSC’s daily business.

One of the contributing factors to the run manifested in a series of calls to other financial institutions from an office inside the Treasury Department, said to be the Office of the Comptroller of the Currency. In these phone calls a federal official asked how much exposure (level of financial risk) the recipient had to BSC – but followed by an entreaty to not share the nature of the phone call with the rest of the firm, especially their trading desk. The expected and inevitable happened – and everyone began pulling out of what they could with BSC and shorting BSC stock. Despite, obviously, the request otherwise.

Compare that with the moves made in China’s even more centralized market lately, which started out with money being pumped into investment firms by the government alongside a request to stop shorting the market. A request that seems to have been honored – perhaps in large part due to the real likelihood of being arrested by the CCP for failing to comply.

The juxtaposition between the two markets is interesting. The mid-crisis developed market in which good will and civic duty end up largely laughable – in which traders move in for the kill – versus the developing market that yields to government requests encouraging stability. Of course, the CCP didn’t stop there – as mentioned above, much trading has been frozen.

The principle here troubles me. The idea that a market stands proudly as more developed when it engages in predation. But while this principle isn’t friendly to our conceptions of democracy and market action, it may not be wrong. Propping up failed companies for the sake of appearance doesn’t serve a market or a country’s citizens that well, especially in the long run. We’ve seen enough evidence of that on our end. Certain “zombie banks” shamble along lonely roads on which no one joins them but for government intervention and usually which banks those are is the worst-kept secret in a financial sector. The hope in saving them from insolvency (and, not coincidentally, preserving a certain share price until stakeholders can get rid of it and leave taxpayers holding the bag) is that it will stabilize a volatile market in which rivers of credit run dry. The ultimate apocalyptic landscape for a free-market democracy.

The problem is laid bare in a blistering sun baking the scarred landscape: there’s no hiding from it, in the sense that once a firm’s liquidity is questionable enough to require intervention that firm’s been infected and well on its way to zombification itself, if it hasn’t turned already. Zombie firms spend each day automatically performing actions they remember from when they were alive, shambling up and down the road searching for someone else to give them credit or engage as a counterparty. Once the sun sets nights turn cold and empty as they try to figure out how to get through the next day without a decaying arm falling off.

My fear here is that for the sake of stability China becomes a dark economy – almost ceaselessly pumping money into market-shamblers under the cover of night. The CCP reasserts massive controls from Beijing, illegalizes most economic journalism and simply paints an acceptable picture for the next 5-10 years while no one inside or outside the system knows what the hell is really going on. It’s the only way for high-level CCP members to preserve their massive wealth and revenue generation, and short of execution they are not going to give that up. And even as a Dark Economy, China’s got so much volume that it would still be too big a pool for external investors to not dive into.

Maybe there’s a better way to put it than predation – though taking weak members of the financial herd is certainly applicable. Maybe instead it’s worth considering this part of democratic capitalism as populated by vultures. Certainly done before but usually without recognizing this: vultures are a mechanism to protect ecosystems from disease. Environments with a lack of vultures often see a catastrophic rise in feral dog populations, which are a huge ticking time bomb for rabies.

Of course our problem isn’t solved by our current market: the vultures like to turn on us as well. Far too often.

Referring to our own economy as a developed capitalism may be premature, then. Unless that predatory behavior is indeed a defining characteristic – in which case our future may lie somewhere else, far away from sharks, vultures and zombies. I can hope.

Briefs: Women in Combat, NYSE, AI and Legal Work, OPM, Rothfuss

NYSE being vague about yesterday’s major trading glitch. I’m not convinced, but I’ve got no evidence to the otherwise.

Two lawyers talking about how artificial intelligence may affect legal work.

The Daily Beast on how OPM’s IT security department had no one with IT security experience.

The parody DPRK News twitter account ended up as a Fox News reference.

Excellent TED talk highlighting American women on the front lines in Afghanistan.

Of special note:

Author and all-around awesome person Patrick Rothfuss has started a new podcast with Max Temkin of Cards Against Humanity fame (or infamy). Really loved their first conversation – check it out here.

News Briefs: Reddit, Wifi, Comey’s Conflating, Combat troops vs. ISIS, more

Surprising news that Reddit nearly decentralized last year. Guessing after last week we’re about to see a reconcentration of authority.

Rob Graham on Google’s ‘Project Fi’ virtual mobile phone.

Motherboard on a fantastic long-range wifi proxy.

Milton Security: Harvard University breached.

Susan Landau at Lawfare with a great post on FBI Director Comey conflating the lone wolf threat and the encryption issue.

Brookings debate on whether to put boots on the ground to fight ISIS. Incredibly important conversation to engage in, and on an intelligent, mutually respecting basis. Need more conversations like these across our society.

Piketty on Germany and Greece. And an amazing project trying to crowdfund Greece’s 1.6B Euro payment.

Slate on Greece’s rejection of austerity through its referendum.

On a similar point, here’s the Guardian on where Greek bailout money went.

And from the FT via Tyler Cowen,

The Shanghai Composite has now fallen 12.1 per cent since Monday, its third consecutive week of double-digit losses since hitting a seven-year high on June 12.

The Shanghai index is firmly in bear market territory, down 28.6 per cent since the June peak, while the tech-heavy Shenzhen Composite has fallen 33.2 per cent.

There were also signs on Friday that the stock market turmoil is beginning to reverberate beyond China. The Australian dollar, often traded as a proxy for China growth, is down 1.2 per cent to a six-year low of US$0.7539.

The 21st Century Business Herald, a Chinese daily newspaper, on Friday quoted multiple futures traders as saying they had received phone calls from the China Financial Futures Exchange instructing them not to short the market.

Readings: Knightmare, Ulbricht Convicted, Franklin on Vaccinations

Doug Seven: Knightmare: A DevOps Cautionary Tale – “This is the story of how a company with nearly $400 million in assets went bankrupt in 45-minutes because of a failed deployment.” – I remember watching Knight explode in real time, had never heard the actual story. This is amazing. A great, and relatively short, post.

Wired: Silk Road Mastermind Ross Ulbricht Convicted of All 7 Charges – “Ulbricht faces a minimum of 30 years in prison; the maximum is life.” – No surprise. Defense was firing on half a cylinder, jury was confused and weakly led. May post about the path they should’ve taken soon.

Vox: Benjamin Franklin had the perfect response to anti-vaxxers back in the 18th century

In 1736 I lost one of my sons, a fine boy of four years old, by the small-pox, taken in the common way. I long regretted bitterly, and still regret that I had not given it to him by inoculation. This I mention for the sake of parents who omit that operation, on the supposition that they should never forgive themselves if the child died under it; my example showing that the regret may be the same either way, and that, therefore, the safer should be chosen.

Readings: Silk Road shenanigans, Great Firewall, Marriott backdown, Bitcoin in Britain, Google bug

Ars Technica: Defense bombshell in Silk Road trial: Mt. Gox owner “set up” Ulbricht – “In just over an hour of staccato cross-examination, Dratel’s strategy became clear: he was going to pursue a line of questioning suggesting that the man who really controlled Silk Road wasn’t his young client, but Mark Karpeles, the wealthy former owner of the Mt. Gox Bitcoin exchange.” – This is some serious tinfoil. I’d love to know the evidence behind it beyond “well, he knows bitcoin.”

Ars Technica: Behind the Great Firewall: using my laptop and phone in China – “I’m doing one of the biggest trips of my life using a four-year-old cell phone and a discontinued laptop that I hate. There’s a technology angle to traveling these days, and going to Shanghai has really complicated that situation.” – Interesting operational suggestions…worth doing in the US now too? Maybe.

Engadget: Marriott no longer wants to block guests’ WiFi devicesGlad to hear it.

Motherboard: The Struggle Between Bitcoin Traders and British Banks – “In each of these cases, the customer identified the buying and selling of Bitcoin as the only change in how they were using their bank accounts.” – Appears to be happening a bit in the US as well: bitcoin traders having their bank accounts abruptly closed. Given that bitcoin isn’t illegal, the question becomes: backdoor government pressure to marginalize bitcoin, or industry decision? Both?

Engadget: Why Google won’t fix a security bug in almost a billion Android phones – “Rafay Baloch, an independent researcher, and Joe Vennix, an engineer at Rapid7 (a security and data analytics firm) found a serious bug in the WebView component of Android 4.3 and below. It’s an older bit of software that lets apps view webpages without launching a separate app, and the bug in question potentially opens up affected phones to malicious hackers. Android 4.4 and 5.0 are unaffected by the bug, but as 60 percent of Android users — that’s close to a billion people — still use Android 4.3 or lower, it still affects a lot of people.” – Troubling.

Read: LA iPad Shenanigans, Digital Citizenship, Bluetooth Credit Card Repository

Quotes in quotation marks, commentary in italics.

boingboing: FBI seizes LA school district’s Ipad purchasing docs – “It’s not clear what they’re investigating, but the DoJ subpoenaed everything related to the $70M program to give Ipads to all 650K kids in the district.” – Almost surely, as noted in the article, improper bid process/maybe kickbacks. Will be interesting to see, though.

Motherboard: Let’s All Become E-Residents of Estonia – “Starting today, people across the world can apply to become an “e-resident” of the Republic of Estonia, the small EU country just west of Russia.” – Odd little mechanism for what looks like a state-based Trusted Identity setup. Worth watching, as Estonia often is.

Verge: My experience with Coin Beta in the real worldBasically, a bluetooth card that stores all your credit/gift cards, similar to Apple Pay. Doesn’t do a great job at explaining what Coin is before jumping into the mechanics, but as long as you can follow, interesting to watch. Sad it’s so prone to malfunction. Want to grab one solely to eke out its weaknesses.

Readings: Utah BLM Troubles, Fairness versus Freedom, Cost of War, Geeks versus Bankers

Quotes in quotation marks, comments by me in italics.

 

FoxUtah Residents become next to confront Bureau of Land Management, in growing debate – Given that the FBI is already enroute to investigate the nitwits at the Bundy Ranch, I’d say people bold enough to, er, ride their ATVs over some preserved ruins, might be on the losing end of this.

 

Storify@leashless’ Reflections on The Deceptive Milieu – “The job the Government should be doing: direct action on climate, nanobio risk, horizon scanning for new risks, *deep* public health. Real.”  “Four issues at the heart of the deceptive milieu: human extinction risk, ongoing colonialism, sexual violence (including children), religion”  “Quietly understanding what is really going on around us, together, is The Truthful Milieu. And we can form that together *anywhere* we like.”  Great series of tweets from Vinay Gupta.

 

Kieran HealyUsing Metadata to find Paul Revere – “Is that not marvelous? I have always thought this operation is somewhat akin to magick, especially as it involves moving one hand down and the other one across in a manner not wholly removed from an incantation.” –

 

FiveThirtyEightFairness vs. Freedom – The venerable statisticians visualize mentions of fairness and equality versus freedom and liberty in Democrat and Republican platforms since 1948.

@JohnnyGellerThe cost of decades of war – (Paghman Gardens in Afghanistan 70s by William Podlich)

@ErikBrynThe Great Restructuring: More demand for computer geeks, less demand for bankers HT: @ChrisGiles_