How information gets into price

In most finance classes we talk about how information gets into the price of securities. Here is a great example. Apple (which SIMM owns) has traded down on rumors that Steve Jobs is sick. Traders have been looking for information to prove or disprove these rumors. how far will they go? How about asking frozen yogurt clerks?Steve Jobs In Great Health -- Frozen Yogurt Clerk (AAPL): "Can't

Financial crisis of '08 among the worst ever

An interesting look at the current economic crisis from a historic perspective. Financial crisis of '08 among the worst ever From SignonSan Diego: "Scott Reynolds Nelson, a history professor at Virginia's College of William and Mary, suggests that 2008 may be much more like 1873 than 1929.In 1873, the crisis started in Europe, where cheap mortgage terms spurred a residential real estate bubble.

An Amazing Document On Madoff Said To Have Been Sent To SEC In 2005

What? There are enough sources on this one to report it. When I first saw it I assumed just an internet urban legend, but it seems legit enough (and yet still unbelievable as well) that I at least want to ention it so we can use it in class discussions. Wow!An Amazing Document On Madoff Said To Have Been Sent To SEC In 2005 :: Business News :: Here Is The City News :: The Latest Business &

Traders Say Madoff's Strategy Was Unworkable - WSJ.com

Traders Say Madoff's Strategy Was Unworkable - WSJ.com: "The other red flag easily available to investors was the shallow volume in the options Mr. Madoff claimed to use as a hedge.About $3.25 billion of stock could have been protected by the total S&P 100 options outstanding at the end of November, according to the Chicago Board Options Exchange. Mr. Madoff was thought to have had as much as $50

And the news gets worse

Now there appears to be a suicide tied to the Madoff case...Bloomberg.com: Worldwide: "Thierry Magon de La Villehuchet, who ran a fund that invested with Bernard Madoff, was found dead at his Madison Avenue office today, a New York City police officer at the scene said. The death appeared to be a suicide, he said."

Bernie Madoff: Ponzi For The Long Run

Clusterstock continues to do an amazingly good job at reporting on the Madoff ponzi scheme.What is most puzzling is how one person could create and maintain such a intricate scheme. Just for instance, wouldn't the auditors (a small firm) have seen what was going on? How about those that invested with him?Or even those people supposedly placing trades etc. It leads many to the conclusion that

Tale of the first $350 billion - Dec. 19, 2008

Have you wondered where the first $350 billion went? Here is how CNN reports it:Tale of the first $350 billion - Dec. 19, 2008: ""..checks totaling $168 billion in varying amounts to 116 banks;...committed another $82 billion to capitalize more banks;... bought $40 billion in preferred shares of American International Group (AIG, Fortune 500) so the troubled insurer could pay off an earlier loan

Chinese Banks' Great Leap Backward - WSJ.com

In the department of what else can we worry about? The WSJ suggests that Chinese banks are being pressured to take some major chances.Chinese Banks' Great Leap Backward - WSJ.com: "...risk-prevention institutions built up over the past decade are now under enormous pressure to forgo prudence in the interest of maintaining economic growth. There have been two triggers for this. First, the global

My Favorite Christmas movie; yes with Finance content

Sure it is a great movie even without the finance content, but when you throw in some subprime lending, a liquidity crisis, a run on a bank, and even some regulatory issues, and you have both a great movie and a financial learning opportunity.Yes, it is A Wonderful Life! Surprisingly, the whole thing is online.

History repeats itself

What a GREAT article. It is by Carole Loomis in Fortune, but comes to us via AllAboutAlpha.comFeatured Post Today's Post » Hedge fund industry enters time-warp in January 1970, pops out virtually unchanged in 2008:A few look-ins:"...the similarities between the hedge fund world of 1970 and that of 2008 and truly amazing - almost eerie in fact. Even the 39 year old Warren Buffett makes a cameo

Is compensation to blame?

History will look for answers to what caused the problems, but somewhere in that mix, compensation has to be a part of the problem. From increasing an already risky environment, to rewarding lending to questionable borrowers, to creating incentives to increase information asymmetries, compensation practices have to be examined.From the NY Times:The Reckoning - On Wall Street, Bonuses, Not

'A university bailout? from WSJ.com

'Shovel-Ready' on Campus - WSJ.com: "With the Big Three seeking a bailout from Washington,...executives of 36 public universities, state university systems and higher-education associations, urging Congress and President-elect Obama to rescue them.Mr. Obama has already promised to expand federal subsidies to higher education by increasing Pell grants and making student-loan terms more permissive.

Dilbert on Finance-seriously.

The Motley Fool reports the following: 9 Things You Should Do Instead of Buying Stocks: "Most know Scott Adams only as the creator of Dilbert. But ....Adams' passion for personal finance is matched only by his utter disdain for [individual] stocks. That's right, this keen observer of business and management trends believes that most people, himself included, cannot beat the market buying

Eliot Spitzer Lost Money With Madoff

Class jokes rarely are funny to those not in the class, but since some former students may still br reading the bog I will include the following from Clusterstock. Eliot Spitzer Lost Money With Madoff: "Add the name Eliot Spitzer to the list of prominent people allegedly ripped off by Wall Street trader Bernard L. Madoff. Yesterday at Slate's holiday party Spitzer, who is writing a column for the

Pyramid Schemes Are as American as Apple Pie - WSJ.com

The Madoff fraud has many looking back at past Ponzi Schemes. The best history that I have seen is frm the WSJ (and John Gordon Steele). It is on US Grant and the pyramid scheme that used his name back in the 1880's.Pyramid Schemes Are as American as Apple Pie - WSJ.com: "Ponzi schemes, where early investors are paid dividends out of the money put in by later investors, usually last only a few

Done correcting and break update

Just a fast update on some non finance things:Grades are in. I wasn't sure if I would get them in by the deadline (and technically missed it but by less than an hour) but it is a relief to have them turned in. It was a very good group this semester. Smaller classes than normal, but the quality was excellent. Have several papers calling my name over break. To my co-authors, sorry. But you

Bernie Madoff's Victims: The List

Clusterstock is reporting that not only the Wilpons but also the Mets' minority owner Saul Katz lost money at the hands of Madoff. (also many any others. See the list:Bernie Madoff's Victims: The List from Clusterstock

Mets owners are among those hurt by Madoff

Ok, now it is too much. Before the Madoff fraud was bad before but then it was just the economy and people's life savings (including many charities), now it is also the NY Mets! Yikes.From The NY Times:"Bob DuPuy, the president and chief operating officer of Major League Baseball, said Saturday that he and Commissioner Bud Selig had spoken with Wilpon on Friday. DuPuy said that all three

Madoff arrested, charged; may be facing $50 bln in losses: FBI - MarketWatch

When it rains it pours! As if investors didn't have enough to worry about, you can now add whether their fiduciaries are not only investing poorly, but whether they are ripping them off completely! Madoff arrested, charged; may be facing $50 bln in losses: FBI - MarketWatch: "Bernard Madoff, former Nasdaq Stock Market chairman and founder of Bernard L. Madoff Investment Securities LLC, was

So much for transparency

Shh. Don't tell them the bad news.I guess we should have expected it. Government agencies are not known for being the most open of groups, but you'd think that in the case of making loans the Fed of all people would be a bit forthcoming. But to date that is not the case, which is a bit disturbing.From Bloomberg.com: Exclusive: Fed Refuses to Disclose Recipients of $2 Trillion in Lending ""The

Stock Picker Bill Miller's Defeat - WSJ.com

We know so much less than we think we know. Just because someone has done well in the past, it does not mean that trend will continue.It is fascinating that the big collapses (he financial debacles that are studied years later as well as the crushing military defeats) often happen after a long period of wins. Why? Because the decision makers fall in love with their ability (over confidence)

U.S. Says It Will Bail Out Christmas - WSJ.com

U.S. Says It Will Bail Out Christmas - WSJ.com: "Government officials are said to be concerned at the risk that the collapse of Santa Claus could pose to the nation's intricately related system of holiday happiness. Though a failure by Santa Claus poses the largest systemic risk, the government is also prepared to step in to bail out Christmas trees, caroling parties and mistletoe producers.....

The Predictive Power of Implied Volatility: Evidence from the Over-the-Counter Stock Index Options Market in Hong Kong and Japan by Wayne Yu, Evans Lui

In preparing for this weekend's derivatives lecture, I found this new paper by Yu and Lui that is consistent with the previous view that Implied Volatility is a better forecaster than either historical (naive) forecasts or GARCH forecasts.One look at their paper from SSRN-The Predictive Power of Implied Volatility: Evidence from the Over-the-Counter Stock Index Options Market in Hong Kong and

When renting a ship to anchor it offshore makes sense (and cents!)

Contango and Backwardation are two terms that confuse many students. But with today's oil markets giving us an historic (and memorable!) example of contango, I trust many more will remember it going forward.First the fast definitions: (want a better definition? see Investorwords.com)Contango: when futures price is higher than spot priceBackwardation: when spot price is higher than futures

Say what? Yep a negative T-bill rate

From Bloomberg.com: Treasury Bills Trade at Negative Rates as Haven Demand Surges :"Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the

Holding CEOs Accountable - WSJ.com

Jonathan Macey has a great piece in the WSJ on the problems with many boards.Holding CEOs Accountable - WSJ.com: "As board tenure lengthens, it becomes increasingly less likely that boards will remain independent of the managers they are charged with monitoring. The capture problem is exacerbated by the incentives of managers to develop close personal ties with directors."Sounds a lot like

Customers as shareholders or shareholders as shareholders

Learning new things should cause us to rethink our positions. The reevaluation is much preferred over stubbornly clinging to what once seemed to be a good idea. That said there must be a happy median between just shifting in the wind and obstinacy.With that in mind, it is time for a fast finance lesson.Within the nexus of contracts that make a firm there are many ways we can link the various

Warren Buffett: then and now

Clusterstock may have outdone themselves with their great look at Warren Buffett's previous articles. One in 1974, one in 1979, one in 1999, and then a recent opinion-editorial in the NY Times.Buffett Calls The Market Again...And He's Never Been Wrong: "...who is Buffett, anyway? How do we know he isn't one of these jokers who is never in doubt and usually wrong?"While all of the articles are

Looking back at Pearl Harbor

In a week that we spent quite a bit of class time talking about impact of "non linear" events (Black Swans etc) and almost 67 years to the day, I wanted to take a look at some Pearl Harbor sites and then got thinking maybe showing what happened to the US stock market would be interesting. So:Disasters and Their Impact On the Stock Market: "...for Pearl Harbor, on the first day after the attack

Money Factory--Great for a Money and Banking class

If you are in a Money and Banking class, you will definitely want to watch this one!Hulu - National Geographic Channel: Money Factory: "Money: everyone wants it, dreams of it and schemes for it. Find out how U.S. currency is made, faked and protected, and meet the mastermind behind one of the biggest counterfeit.."

The Sky is falling!!! but maybe not all the way

With apologies to chicken little, it is bad out there: over half a million jobs lost in one month and almost 2 million so far this year, stock markets down, people fearing for their jobs, and the governments bail outs seemingly being every day events.Not surprising this bad news is forcing investors to become more risk averse and many to become more pessimistic. Indeed, with all this bad news

Treasury Weighs Plan To Cut U.S. Mortgage Rates : NPR

Treasury Weighs Plan To Cut U.S. Mortgage Rates : NPR: "The Treasury Department is considering a plan to dramatically lower mortgage rates for homebuyers to as low as 4.5 percent — more than a full point below currently offered rates, sources say."It seems that this would be done by the government buying up mortgages much like the Fed recently said they were going to do. One problem, as the

ML analyst suggests oil could go to below $25 a barrel!

Bloomberg.com: Worldwide: "Crude oil may dip below $25 a barrel next year if the recession that’s slashing fuel demand around the world spreads to China, Merrill Lynch & Co. said.....Global oil demand has slumped as the U.S., Europe and Japan face simultaneous recessions for the first time since World War II. The number of Americans collecting jobless benefits rose to 4 million in the week to Nov

Freeport-McMoRan Gets Out The Ax - Forbes.com

Great class example.Freeport-McMoRan Gets Out The Ax - Forbes.com: "The Phoenix-based mining company said Tuesday it was suspending its dividend, scaling back production and slashing its 2009 capital expenditures plans...Shares of Freeport tumbled 17.3%, or $3.77, to close Wednesday's trading session at $18.05"A few comments:1. Dividend cuts convey additional information about the future (

For first time in 50 years, stocks yielding more than bonds - MarketWatch

For first time in 50 years, stocks yielding more than bonds - MarketWatch: "As of Tuesday's close, for example, the S&P's dividend yield was 3.3%, while the 10-year T-Note was yielding 2.7% -- a spread of 0.6 percentage points in favor of stocks. To put this in historical context, the spread since 1958 has averaged 3.7 percentage points in favor of bonds."Before 1958 what now seems an inversion

The Bailout So Far - WSJ.com

As Big Three auto manufacturers asks for $34 Billion (up $9 billion in a week) from the government, the government's TARP program comes under attack from the GAO for its loose controls, and AIG plans on asking for a still better deal, the WSJ gives us a look at the Bailout so far. Important background for those who do not know who Doug Flutie is or do not remember the play for which he is most

How Stocks Have Returned 10% Per Year

After Henry Blodget from Clusterstock was on NPR saying that stocks were back to "fair value" (i.e. their long run average), he had a listener email him about how the 10% annual return in stocks is found. His answer is below:How Stocks Have Returned 10% Per Year: "...the 10% number includes dividends, which is the way people normally look at stock market returns. On a pure price basis, returns

Videos explaining aspects of the current financial situation

Wow. The Unknownprofessor over at Financial Rounds really found some great lessons done in video format. AMAZINGLY good and am embarrassed to say I had not seen them before today.My personal favorite uses an Arctic Expedition to show what has happened and what credit default swaps are.The second video is on CDOs. GREAT!Thanks to Financial Rounds!And finally one that I just found when watching

Potentially the biggest (most serious) situation since the American Revolution?

Granted this was a month ago, but bigger than the US Civil War? Bigger than the Depression? WW II? Wow. That was one of the warnings from Nissan Taleb on the PBS news Hour in late October about the current financial situation.Thanks to Mark for pointing this one out to me.

Universities as sellers

Bloomberg.com: Exclusive: "A push by the richest U.S. universities to unload their stakes in private-equity funds is flooding the market, driving down prices for the world’s best- known buyout firms.Investors led by Harvard University, which manages the largest U.S. endowment at $36.9 billion, may increase so-called secondary sales of private-equity funds to more than $100 billion during the next

Dealbook - Putting a Value on a C.E.O. - NYTimes.com

The NY Times has an interesting look at CEO pay and how having the government playing a role may lead to different outcomes. Using Citi as an example, the article asks how pay can be structured to bother create proper incentives and reward managers.Dealbook - Putting a Value on a C.E.O. - NYTimes.com: "...many people argue that Wall Street’s approach to compensation helped get us in this mess to

Fed and tresury officials on why they did what they did

I am a "glass is half full" person who on top of that thinks that we will probably find more water before even that is gone. But I do get a tad concerned when smart people who have informational advanatges get worried. We had two examples of this today.FromTreasury Secretary Henry Paulson as quoted at Bloomberg.com: Worldwide: "Treasury Secretary Henry Paulson said his actions bailing out some

It's official: U.S. in a recession since December 2007 - Dec. 1, 2008

It's official: U.S. in a recession since December 2007 - Dec. 1, 2008: "The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.'The committee views the payroll employment measure, which

Best Explanation in One Sentence - Mises Economics Blog

Whether you agree or not, this line is so awesome I have to include it...Best Explanation in One Sentence - Mises Economics Blog: "'If the money is used to prop up failing companies, that's particularly bad since it is an attempt to override market realities, an attempt that is about as successful as trying to repeal gravity by throwing things up in the air.'"And it does serve as a good reminder

How Scientists Helped Cause Our Financial Crisis

Garbage in, Garbage out. Models are not reality. Models only help explain reality and therefore help our understanding of a reality that is generally too complex to fully grasp. These ideas are taught in every stats, econometrics, and finance class worth its weight. On every test students use (indeed sometimes overuse) "data limitations", "it uses historical data", and "surprises (or black

Schiff continues to believe that the worst is yet ahead.

Peter Schiff 'Opportunity of a Lifetime' in Gold Intl. Assets Not U.S. Stocks: Tech Ticker, Yahoo! Finance: "Schiff believes have another 5 to 10 years of bear market action ahead as America struggles to come out from under a mountain of debt."Clusterstock on the same:"As discussed in the accompanying video, Schiff believes the recent dollar rally and commodity price weakness will prove temporary

A Reporter at Large: Anatomy of a Meltdown: Reporting & Essays: The New Yorker

A Reporter at Large: Anatomy of a Meltdown: Reporting & Essays: The New Yorker: "For more than a year after he was appointed by President George W. Bush to chair the Fed, in February, 2006, he faithfully upheld the policies of his immediate predecessor, the charismatic free-market conservative Alan Greenspan, and he adhered to the central bank’s formal mandates: controlling inflation and

Baltimore Firm Delays IPO to Wait Out Risk - washingtonpost.com

Having just done IPOs in class, this was of special interest.Baltimore Firm Delays IPO to Wait Out Risk - washingtonpost.com: "When Grand Canyon Education of Phoenix went public Thursday, it was the first U.S. company to have an initial stock offering since Aug. 8. On that day, Rackspace Hosting of San Antonio broke the longest IPO dry spell since 1975....Since August, at least 29 companies have

Bell Ringing!

If you get a chance, be sure to catch the NYSE closing bell today. As part of St. Bonaventure's 150th anniversary celebration Mark Larry (the finance club president), Jeff Peterson (my chairman), and Sr. Margaret Carney (University President) will be ringing the closing bell today!here is a video of the bell ringing.

Slippery! Proceed with Caution!

In WNY it has snowed every day for a week so the roads are pretty slick, but that is not what I meant.Bloomberg.com: Economy: "The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It

Airlines and hedging back in the news from AVIATION WEEK

The good people over at Aviation Week seemingly still don't quite get it. Hedging is not supposed to be a money making operation. It is supposed to eliminate (or at least lessen) one form of risk. In this case, those airlines that locked in the price of Jet Fuel need not worry about it. True they are paying more than the spot price, but that always happens. When they made their decision,

July 9th, 2004

Was just looking back over old FinanceProfessor.com newsletters (wish I had time to bring them back), and found this from July 9th, 2004." Fed Governor Edward M. Gramlich gave a great talk on the subprime mortgage market. This market, which is relatively new but has grown sharply, deals with making loans to those that are seen as being high credits risks. On one hand these loans “created new

Kiyoshi Ito, 93, Mathematician Who Described Random Motion, Dies - Obituary (Obit) - NYTimes.com

His name may not mean much to many, but if you ever took a PHD finance class there is little doubt you will ever forget him. Ito's work played a major role in the development of the Black-Scholes option pricing formula.From the NY Times: Kiyoshi Ito, 93, Mathematician Who Described Random Motion, Dies - Obituary (Obit) - NYTimes.com: "Kiyoshi Ito, a mathematician whose innovative models of

Two tests=little posting

No, I did not abandon ship. Just been busy. Had a test to give on Saturday and tonight (Monday) and still working with BonaResponds to build a house in Friendship. It is coming along pretty well!Speaking of BonaResponds, we are starting a small micro-finance program where we will be lending to some of the people we are helping. If you want to give to a great cause (and yes it is a donation,

Citi Field Bailout?

I have long had the view that one sure sign of a firm's pending demise is that they decide to buy stadium rights (uh sorry to anyone marketing this type of thing ;) ). Consider: Adelphia (had both Adelphia Court at St. Bonaventure and the dreaded Adelphia Coliseum in Tennessee), Enron (and the former Enron Field), do we add the new Citi Field to the list?BTW There could be some rationale for

Two Finance Professors in the news

Andrew Lo of MIT went in front of Congress recently. He suggested a team including some from academia to study what went wrong to prevent it from happening again. Of course, that is already happening at thousands of firms and hundreds of universities. (from MoneyScience)"Professor Lo, described his idea that the US Government should set up a small agency, modeled along the lines of the

TIPS Strips, Redux - Seeking Alpha

SeekingAlpha has an interesting "interview" with a Barclay's expert (Mike Pond) on Treasury Inflation Protected securities. It covers many topics (from deflation to why TIPS Strips never caught on. Two things for class perspective that my students should definitely be aware of is the relationship between reinvestment rate risk and duration and the impact of liquidity on returns (and why if you

Market And Economic Records Falling One By One (And Not In Good Way)

Whether these are interesting trivia or important indicators will be left for history to decide, but there are some interesting records..Market And Economic Records Falling One By One (And Not In Good Way): "One of the interesting aspects of this unprecedented housing collapse, credit crisis, economic recession and market crash has been all the new records we keep seeing.....* The S&P 500 hasn’t

With no IPO market, companies seek private investors | Deals | Reuters

With no IPO market, companies seek private investors | Deals | Reuters: "Companies wanting to go public are opting for private placements to tide them over until they are mature enough to launch, DeFrawi, who heads InsideVenture, said in an interview. InsideVenture is a service that will begin matching investors with later-stage pre-IPO companies this winter.On Tuesday, InsideVenture announced it

Quick update on Cuban's insider trading case

Two updates:First Cuban has provided an update on his BlogMaverick page in which is is implied that Cuban never intented to keep anything confidential. From the MarketWatch:"on Tuesday posted an email containing a purported transcript of a conversation between Mamma.com Chief Executive Guy Faure and Cuban's lawyers, in which Faure acknowledges that Cuban didn't explicitly agree to keep the

Three part interview with Ken French

Ok, it is official, Clusterstock is my new favorite blog site. They have a three part interview with Ken French. The first part on why index funds are generally better than active stock picking is available here, the second part was on the folly of market timing. The third part is on the returns of commodities entitled that No, You Shouldn't Own Commodities -- Ken French: ""Ken French,

Peter Schiff: A prophet from the past?

A former student of mine (Charlie) sent this to me. Wow. Talk about getting things right! Peter Schiff was absolutely dead on.Peter, I do not know you, but my hat is off to you. It is also a great reason why I NEVER watch financial talk shows. I wonder if Laffer ever paid his penny.

The Public Payroll Always Rises - WSJ.com

One one hand government spending is in a Keynesian way seen as a means of keeping the economy growinging in an economic slowdown, but given the taxes andThe Public Payroll Always Rises - WSJ.com: "As the recession hits home, all across America businesses and families are having to make hard decisions about what not to buy this year, or whether they can afford a vacation or that plane trip home

Officials charge Mark Cuban with insider trading | Entertainment | Industry | Reuters

Officials charge Mark Cuban with insider trading | Entertainment | Industry | Reuters: "According to the SEC, Quebec-based Mamma.com invited Cuban in June 2004 to participate in a private placement stock offering after he agreed to keep the information confidential.When Cuban found out that the offering would dilute the holdings of existing shareholders and be sold at a discount to the market

Are partnerships coming back?

Mark Wilson who teaches Economics here at SBU has been advocating that a solution to the excessive risk taking and misaligned incentives is to return to partnership arrangements where the management would have more at stake.Last week in Michael Lewis' epic "The End of Wall Street's Boom" piece the same idea was mentioned. Now Clusterstock investigates what Goldman would look like if it did go

To Prevent Bubbles, Restrain the Fed - WSJ.com

In another article bemoaning the Fed, the WSJ reports some amazing statistics:To Prevent Bubbles, Restrain the Fed - WSJ.com:First on the performance of the stock market:"On Nov. 14, 2008, the Dow Jones Industrial Average closed at 8497.31. On Nov. 13, 1998, the adjusted (for dividends and split) close was 8919.59. There has been great volatility, but no net capital accumulation as measured by

Stocks For The Long Run, v. 3

Ouch! Clusterstock mentions that real returns following a market peak have been very different than after a bottom.Stocks For The Long Run, v. 3: "If you invested at the 1929 peak, it took 29 years for the value of your shares to recover in real terms; if you invested at the 1968 peak, it took 24 years.The takeaways are: 1) dividends have provided the lion's share of long-term stock market

Yield Spreads point to bad economic times ahead

In good times even the majority of low rated firms can make their debt payments, but in bad times these low rated firms are the first to get in trouble. Investors know this and the spread between low rated and high rated debt gets larger when the economy slows. Thus, it is more than a little troubling that the risk premium has grown to historic levels. From Barron's:Current Yield - Barrons.com:

Warren Buffett Interview

Clusterstock did it again. They found another really cool article. This is the transcript of Buffett on CNBC:That Awesome Warren Buffett CNBC Interview (courtesy of Clusterstock): "It's a tall order to get up at 5am and speak for three hours and never say anything that isn't wise, charming, or funny....Full three-hour transcript here (with minor deletions), courtesy of CNBC. If you don't have

A look at volatility: Levels, Surprises, and History By Risk Metrics's Chris Finger

Doomed to Repeat it? Over at RiskMetrics, Chris Finger has examined the volatility of the US stock market for over one hundred years. While lacking any grand slam home runs, it is an interesting article for a number of reasons.Short version:It starts by breaking the time period into two periods (1940-1945, 1945 to present) and like other researchers the author shows that the volatility has in

Accounting changes are coming, and I feel fine

With all apologies to REM It's the end of the world as we know it, and I feel fine.A New Vision for accounting: "Some of the major changes under discussion: reconfiguring the balance sheet and the income statement to follow the three categories of the cash-flow statement, requiring companies to report cash flows with the little-used direct method; and introducing a new reconciliation schedule

The End of Wall Street's Boom - National Business News - Portfolio.com

WOW!! Have some time? You may just want to drop whatever your plans were for this. It is that good. By Michael Lewis (he of Liar's Poker and Money Ball fame).The End of Wall Street's Boom - National Business News - Portfolio.com: "The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what

SSRN-Modeling the Economic Effects of Bank Regulation and Supervision by Bilin Neyapti, Gonca Senel

This one sort of surprised me. Short version: banks and economies improve with supervision.SSRN-Modeling the Economic Effects of Bank Regulation and Supervision by Bilin Neyapti, Gonca Senel: "...reveals that the higher the RS [Regulation and Supervision], the higher are per capita output, wages and credit, and the lower are the interest rates. Moreover, simulations reveal that bank

Is Now the Time to Buy Stocks? - WSJ.com

In class just the other day we talked about Efficient Markets and concluded that while markets are exceedingly difficult to beat on a risk adjusted basis, it does appear that as we learn more perfect efficiency in the sense of a random walk, is not really the case. So it is a great coincidence that in the Wall Street Journal there is the following by the University of Chicago's John Cochrane.Is

The Lipstick index from NY Times

Pulse - Frown Fighters - Caption - NYTimes.com: "...the Lipstick Index — that frivolous financial barometer that says cosmetics sales rise in direct relation to free-falling finances — has jumped."From The Business Sheet: "The gist is that women couldn't afford luxuries in the depression but wanted to buy something to treat themselves. Something small, cheap, and with a big impact. Lipstick.

Reversion to the Mean - Capital Markets - CFO.com

Wow. I did not see this one coming. It is from the Economist and reported on CFO.com but is research by Deutsche Bank.For the past 25 year Treasury Bonds have outperformed equities, even BEFORE this recent market collapse.Reversion to the Mean - Capital Markets - CFO.com: "...over the last 25 years. As the graph shows, Treasury bonds have actually outperformed riskier asset classes over the

UVA: Sorry, Alumni, We Gambled Our Endowment And Lost

Few things are more humbling than the stock market (and maybe a speed workout on a quarter mile track). Case in point: many of the big time universities with Billions in their endowments (I always wonder why people give more to those that already have so much, but I digress) have seen much of their wealth evaporate.From Clusterstock: UVA: Sorry, Alumni, We Gambled Our Endowment And Lost: "...

Bailout just keeps getting bigger and bigger

The government bailout continues to grow with seemingly no end in sight. First AIG gets both more money and more lenient terms.A.I.G. Rescue Grows to Billion - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "The Bush administration revised its rescue of the American International Group, raising the total amount to $150 billion, amid signs that the interest on

Steve Horan on mutual fund fees

Steve Horan used to be a colleague at SBU and is still a friend, so when I heard he was on CNBC (even if only via a call-in) I was positive I was going to link to it.So here is the video of his discussion on mutual fund fees from CNBC.com

3 'superbanks' now dominate industry - Economy in Turmoil- msnbc.com

In an article that quotes many financeprofessors, MSNBC looks at some of the controversy of making the strong stronger. A must must read for any money and banking class!3 'superbanks' now dominate industry - Economy in Turmoil- msnbc.com:Some visual bites:“Large institutions are impossible to manage prudently, let alone regulate,” says Amar Bhide, a professor at the Columbia Business School. In

Treacherous Sands For Adelson - Forbes.com

It is rare to find a better example of ratios and bond covenants than in this piece from Forbes.Treacherous Sands For Adelson - Forbes.com: "Las Vegas Sands said in a regulatory filing that it doesn't expect to comply with its maximum leverage ratio covenant in the fourth quarter. That would trigger defaults that might force it to suspend multibillion-dollar development projects in the U.S. and

Black Swans and recent returns

Yahoo video of Nissan Taleb (Black Swan)Yahoo has a copy of the video from CNBC on Taleb's performance of late. It also has a discussion of his holdings and strategy. Short version: it is VERY good!Remember his Black Swan book is recommended reading for all my classes! (here are some other videos of Taleb)

Wall Street’s Pay Is Expected to Plummet - NYTimes.com

A follow-up on last month's bonus discussion.Wall Street’s Pay Is Expected to Plummet - NYTimes.com: "Bonuses, which soared to record heights in recent years, could drop by 20 to 35 percent across the industry, according to a private study to be released on Thursday. Bonuses for top executives could plunge by 70 percent.But to some, those figures, from the consulting firm Johnson Associates,

Naked Short Selling Is Said to Decline - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

To quote Paul Harvey, "Not why nor how.... "Naked Short Selling Is Said to Decline - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "According to data from three exchanges — including publicly available figures from the Nasdaq stock market — the number of stocks on the naked short-selling watch lists has fallen dramatically. The Nasdaq, for example, has just 56

At the Supermarket Checkout, Frugality Trumps Brand Loyalty - WSJ.com

While many of you outside of SBU know I run BonaResponds, not nearly as many know I help out with my family grocery stores as well. In class we have mentioned several times that one way sales will decline as a result of the recession (and hence worsening it as well) is that customers will switch from more expensive items to cheaper store brand products. This trend has been noticeable at our

SSRN-Costly External Equity: Implications for Asset Pricing Anomalies by Dongmei Li, Erica Li, Lu Zhang

In a paper that will definitely be mentioned in my corporate finance classes, Li, Li, and Zhang look at whether capital structure impacts pricing anomalies. They find they do. This at least is consistent with the idea that financial flexibility is important in choosing capital structureSSRN-Costly External Equity: Implications for Asset Pricing Anomalies by Dongmei Li, Erica Li, Lu Zhang: From

Looking for stock information?

In the SIMM class students are constantly making presentations on firms that I often know little about. In addition to the normal Yahoo and Google finance pages, I have been using Tickerpedia. It is really useful and super easy to use. (and no this is not a paid commercial! lol)..

To Treat the Fed as Volcker Did - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

The NY Times points to an interesting BreakingViews article on the fed. Short version: The Fed is trying to do too much and some of the things (example maximum employment and stable prices) are seemingly at odds. A possible solution? Simplify it and have the Fed worry only about stable prices.From the Fed's own website:"...the Federal Reserve's duties fall into four general areas: conducting

Lending rates fall to pre-Lehman levels - Nov. 4, 2008

While the financial markets are getting some traction and the worse may be behind us, there still are issues to deal with. For instance, in last two days we have seen that while rates in the markets are returning to more normal levels, Banks are making it more difficult to get loans. This is probably what we want, but does come with the problem of potentially slowing the economy.From CNN:

Delta-Northwest merger

The Delta-Northwest merger was approved this week. Some of you may remember that the Edward Bastian the president and CFO of the combined airline is an SBU graduate who was the keynote speaker at this spring's graduation. (now if he would only give BonaResponds some discounts!)From BusinessWeek:"In their Oct. 29 statement, DOJ antitrust lawyers offered not just their tacit approval, but they

Accounting Changes Help Deutsche Bank Avoid Loss - NYTimes.com

Continuing the accounting issue from last article, so much for German conservatism. Again from the NY Times: Accounting Changes Help Deutsche Bank Avoid Loss - NYTimes.com: "Deutsche made a pretax profit of 93 million euros ($118.5 million) in the third quarter, a result only possible because of changed accounting rules. These allowed it to cut write-downs by more than 800 million euros to 1.2

A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com

From the NY Times Article A Question for A.I.G. - Where Did the Cash Go? - NYTimes.com: "The American International Group is rapidly running through $123 billion in emergency lending provided by the Federal Reserve, raising questions about how a company claiming to be solvent in September could have developed such a big hole by October.....Mr. Vickrey says he believes A.I.G. must have already

Video of Leo Melamed

Previously we had the text of the Melamed speech, but here is the actual video of the speech from Vanderbilt.

Bentley University Class Creates Local Microfinance Fund - MarketWatch

Congrats to Roy Wiggins and his class. What a great idea and learning experience that will help many. Please keep us posted onto the success. I would love to do the same here. Any donors?Bentley University Class Creates Local Microfinance Fund - MarketWatch: "An honors finance class at Bentley University has paved the way for an innovative financing initiative: a domestic microcredit

Do we have a new Orange County?

Bloomberg.com: Exclusive FBI Proble of JPMorgan Fees focuses on Swaps...: "Nowhere have JPMorgan's derivative deals wreaked more havoc than in Jefferson County, Alabama, home of Birmingham, the state's largest city. A combination of soaring rates on its bonds and interest-rate swaps is threatening the county with the biggest municipal bankruptcy since Orange County, California's default in 1994."

Structured finance, the rise and fall

Bloomberg.com: Exclusive: "Evil Wall Street Exports Boomed With `Fools' Born to Buy Debt" "The bundling of consumer loans and home mortgages into packages of securities -- a process known as securitization -- was the biggest U.S. export business of the 21st century. More than $27 trillion of these securities have been sold since 2001, according to the Securities Industry Financial Markets

-GM/Chrysler seek $10 bln govt aid for merger - sources | Deals | Private Capital | Reuters

UPDATE 2-GM/Chrysler seek $10 bln govt aid for merger - sources | Deals | Private Capital | Reuters: "General Motors Corp (GM.N: Quote, Profile, Research, Stock Buzz) and Cerberus Capital Management have asked the U.S. government for around $10 billion in an unprecedented rescue package to support a merger between GM and Chrysler LLC, two sources with direct knowledge of the talks said on

Shouldn't Bonuses be tied to performance?

Really? I find this very hard to believe. Yes they will get bonuses, but if the bonus is tied at all to performance, you have to expect they will be well down from last year. Moreover, even for political reasons, if I were on the board of any of these firms I would be arguing for lower pay since high bonuses in the midst of a market collapse (which at least in part caused by bankers) will

Citadel Chief Denies Rumors of Trouble - NYTimes.com

In the Journal of Behavorial Finance 2004 Allan Kimmel wrote the following about financial rumors:"In the contemporary financial marketplace, the consequences of speculation and decision making based on unfounded assertions and false rumors can be especially potent and undeniably dangerous."Which is what makes the following NY Times story even more worrisome: the mere fact of the rumors coming

IPO VIEW-History no guide for IPO turnaround timing | Deals | IPOs | Reuters

IPO VIEW-History no guide for IPO turnaround timing | Deals | IPOs | Reuters: "The market for initial public offerings is facing its worst drought in decades, and history gives few clues as to when the market will turn around.The IPO market has typically reopened fairly soon after a slumping stock market begins rising again. But this time there will need to be an acceptance of sharply lower

NY TimesWeekend Business Podcast

Want to learn while you do other things such as laundry, household chores, driving? Listen to the NY Times Weekend Business Podcast. It gives a nice recap of the week, plus some investment advice from John Bogle (the founder of Vanguard).

At least some people know how to hedge!

Great story and had finance and world series ties. Cashing in on hope - MLB - Yahoo! Sports: "Marger, a lifelong St. Petersburg resident and season-ticket holder since the team’s inception in 1998, stands to win $25,000 on a $100 bet he placed at Bally’s last November during a quick swing through Las Vegas.“I figured they are my team, so it was worth $100,” he said. “I thought about it when I got

Deal Heavyweights on the Future of M&A - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Wouldn't you have loved to be there for this one?Deal Heavyweights on the Future of M&A - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "The panelists — Stephen Friedman, the retired chairman of Goldman Sachs and the current Chairman of the Federal Reserve Bank of New York; Martin Lipton, the founding partner of the law firm Wachtell, Lipton, Rosen & Katz; and

Greenspan - Bad data hurt Wall Street computer models - NYTimes.com

Greenspan - Bad data hurt Wall Street computer models - NYTimes.com: "Greenspan told the committee. 'The whole intellectual edifice, however, collapsed in the summer of last year because the data inputted into the risk management models generally covered only the past two decades a period of euphoria.'He added that if the risk models also had been built to include 'historic periods of stress,

Emanuel Derman's Blog: A speech by Leo Melamed, reproduced here with his permission

Emanuel Derman's Blog: A speech by Leo Melamed, reproduced here with his permission: "Financial Innovation Conference Vanderbilt University October 16, 2008 NashvilleThe Law of Selective Gravity By Leo MelamedThe first course:"There is no way to sugar coat it: Current economic conditions have the earmarks not only of a severe U.S. recession but—dare I say it—the potential of a global depression.

Robert Shiller's Financial Markets Course at Yale - Spring 2008 - Video and Audio | Finance Focus | News & Blogs | MoneyScience

WOW! Now and then you get an email that changes your whole day for the better. That was what I just got from Jacob over at MoneyScience.com. WOW. I definitely know what I will be doing! Watching and listening. It does not et much better. The opportunity to listen in on one of the most respected FinanceProfessors in the world!From MoneyScience:Robert Shiller's Financial Markets Course at

Hedge fund withdrawls, leverage, and future job prospects

Citadel Hit Hard as Hedge Fund Withdrawals Continue - Seeking Alpha: "The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses.Even if that prophecy only becomes partially true, that is a massive amount of deleveraging,

Congratulations to Eugene Fama!

While I still think he should have won the Nobel Prize for Economics, at least this will soothe the pain.FT.com / Business education - Chicago professor wins Onassis Prize: "Chicago finance professor Eugene Fama is the inaugural winner of the $250,000 Onassis Prize, which is awarded every two years by Cass Business School in London to acknowledge academic work in finance, shipping and trade"

In Hedging you win some and you lose some.

Southwest's infatuation with fuel hedges backfires - MarketWatch: "Given oil's relentless ascent, investors have been dumbfounded that Southwest's hedging program wasn't universally used by other airlines, who unfailingly blame their weak financial performance in part on rising fuel costs.Then came the crash. Oil is now trading at half the price it fetched just three months ago. Suddenly,

Financial Crisis Provides Fertile Ground for Boom in Lawsuits - NYTimes.com

Gee, who could have seen this coming? ;)Financial Crisis Provides Fertile Ground for Boom in Lawsuits - NYTimes.com: "Accusations of executive excess, accounting fraud and lack of disclosure are far more credible now, since bad bets on real estate and securities linked to home loans have caused some of the biggest and most prestigious financial firms in the country — Lehman Brothers, the American

Car dealers demand more cash for down payments - USATODAY.com

When articles say that banks will quit lending it is really too simple. Banks are in the business of lending and they will not all stop, but what they will do is to cut back and not lend as much. Here is an example of how this is affecting car loans.Car dealers demand more cash for down payments - USATODAY.com: "Tighter credit standards are forcing many car buyers to put down more cash up front

SSRN-Audit Firm Tenure and the Equity Risk Premium by Jeff Boone, Inder Khurana, K. Raman

While accounting based, it had financial ramifications and deals more with governance, so I going to mention this here. I am working on a paper about auditors and in some background reading just stumbled upon this paper by Boone, Khurana, and Raman. Quite interesting. The abstract does a wonderful job catching the essence of the paper:SSRN-Audit Firm Tenure and the Equity Risk Premium by Jeff

General Growth, Mall Owner, May Be Facing a Sale - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Want a case study on how the credit crunch can affect non financial firms? Consider General Growth a REIT that financed its acquisitions with debt but now is in financial difficulty of its own.General Growth, Mall Owner, May Be Facing a Sale - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:"...financing strategy, with debt equal to more than 70 percent of its

Banks’ Bailout Unlikely to Crimp Executive Pay - NYTimes.com

Kevin Murphy is one of my all time favorite professors, so when he gets quoted in the NY Times, it is definitely going to make the blog!Banks’ Bailout Unlikely to Crimp Executive Pay - NYTimes.com: "“The Treasury’s plan seeks to take aim at the eight-figure pay packages given to Wall Street executives that have enraged so many Americans in the wake of the country’s financial collapse.....Congress

Black Swans

Bloomberg.com: Worldwide: "Investors advised by ``Black Swan'' author Nassim Taleb have gained 50 percent or more this year as his strategies for navigating big swings in share prices paid off amid the worst stock market in seven decades."and later:"``I am very sad to be vindicated,'' Taleb said today in an interview in London. ``I don't care about the money. We're proud we protected our

Academic perspective? or incessant rambling?

Trying to step back and answer some of the questions people have been asking over the past few days in particular. They will not be particularly formal and clearly I have no idea of anything in the future, but since I keep getting asked, at least this MAY cut down on that.1. Why should the government do anything? They don't when other companies go out of business.A. Well, maybe the government

No Shelter in This Storm - Floyd Norris Blog - NYTimes.com

Floyd Norris in the NY Times gives some perspective on enormity of this collapse. Amazing. Just a few of the countries (he lists nearly 50 countries):No Shelter in This Storm - Floyd Norris Blog - NYTimes.com: "Singapore, down 45%India, down 58%Indonesia, down 50%Malaysia, down 39%New Zealand, down 46%Philippines, down 50%Pakistan, down 49%Vietnam, down 61%"And in a related piece, the BBC

Iceland suspends stock trading, creates new bank: Financial News - Yahoo! Finance

Iceland suspends stock trading, creates new bank: Financial News - Yahoo! Finance: "Iceland suspended trading on its stock exchange for two days and took control of the country's largest bank -- the third to be placed under its protective umbrella -- on Thursday as it grappled with a banking crisis that is threatening to engulf the entire country"A few days ago a friend emailed and asked about

Presidential Address by Ken French

In spite of the market collapse that is going on, classes can not devote all of our time to it. So here is a video of Ken French's 2008 presidential address to the AFA. Presidential Address: "2008 Presidential Address: The Cost of Active Investingby Kenneth R. French"It is really good. The paper which he talks about was mentioned back in March. Here is the blog article about it from then.

SNL on the Bailout

Thanks to Financial Rounds for some humor.

Coordinated rate cut plus In praise of Bernanke

Of course the Fed Cut rates early this AM. As part of a multi-central bank move to stem the spillover from the liquidity induced meltdown. Most would agree that such a cut was only a matter of time and definitely needed (I would have gone a full point at least), butFirst the News: From NY Times."In an extraordinary move that reflects the gravity of the financial turmoil, the world’s central

Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water' - WSJ.com

Housing Pain Gauge: Nearly 1 in 6 Owners 'Under Water' - WSJ.com: "The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.The result of homeowners being 'under water' is more pressure on an economy that is

How to Unfreeze Bank Lending - WSJ.com

The WSJ proposes a plan whereby bank debt would be guaranteed for a period of time. One of the better ideas out there, but still worry about the moral hazard problem. Is 10% enough? See below.How to Unfreeze Bank Lending - WSJ.com: "...the Federal Reserve should guarantee most of the short-term borrowing of well-capitalized banks for a small fee.....Here's how the guarantee might be structured

Yahoo! Personal Finance

Yahoo! Personal Finance: "With more super-sized banks in business, fewer failures could still dump a big bill on the Federal Deposit Insurance Corp.... The FDIC's potential liability is rising under a provision of the bailout that increases the deposit insurance limit to $250,000 per account, up from $100,000.Using statistics from the S&L crisis as a guide, Mason estimates total deposits in banks

Investing myths laid bare by this bear market

Not sure how much of the whole article is worthwhile, but a few of the so-called myths are interesting:TheStar.com | Business | Investing myths laid bare by this bear market:The article starts off with a section on Cramer talking about his recommending Wachovia just before it collapsed (uh, remember Bear?), but in this case he blamed the CEO who Cramer believed did not have the correct info. It

Salon Radio: Notre Dame finance professor Richard Sheehan - Glenn Greenwald - Salon.com

On my way to do a radio interview on the economy and I did some Google searches to see what other finance professors had been saying. Here is one from a while ago with Richard Sheehan of Notre Dame. Sheehan is a critic (or at least was as of Sept. 23) of the bailout. Salon Radio: Notre Dame finance professor Richard Sheehan - Glenn Greenwald - Salon.com: "The question that I would love to hear

Fed to buy massive amounts of short-term debts: Financial News - Yahoo! Finance

Fed to buy massive amounts of short-term debts: Financial News - Yahoo! Finance: "The Federal Reserve, invoking Depression-era power under 'unusual and exigent circumstances,' will buy 'commercial paper,' a short-term financing mechanism that many companies rely on to finance their day-to-day operations, such as purchasing supplies or making payrolls."

Bloomberg.com: Worldwide

Wow. This is about as interesting as Money and Banking can get! But fortunately this is really interesting! Stealth easing. Nice new term!Bloomberg.com: Worldwide: "The central bank used power granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed

Strategies for a liquidity crisis. | Banking & Finance > Financial Markets & Investing from AllBusiness.com

Wow.....great article. Published 10 months ago, but as relevant now as then.Strategies for a liquidity crisis. | Banking & Finance > Financial Markets & Investing from AllBusiness.com: "The longer-term danger from a liquidity crisis is a prolonged deleveraging or debt-deflation process such as the U.S. experienced in the 1929-1933 Depression, or that Japan experienced for more than a decade from

Is this a repeat of Japan 1989?

We talked about the similarities in class today. Here is an article that looks at the US now and Japan in the late 1980s, early 1990s. It is an eerily similar scenario.TheStar.com | Business | Can U.S. escape zombie economy's clutch?: "Banks were lending money and there was almost this excessive euphoria and panic that if you didn't buy a home you would be priced out of the market forever."

Warren Buffett interview

Charlie Rose interviewed Warren Buffett on his GE purchase, the current "meltdown", and more. Sort of long, but well worth watching! He calls this the "Economic Pearl Harbor".

Buffett to Invest Billion in G.E. - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

GE has been busy strengthening their balance sheet (i.e. delevering). Whether this is just prudent planning for volatile times, or a signal that they fear we have not seen the worst yet, is anyone's guess, but parrots a phrase my finance students heard nearly everywhere we went on our recent NYC trip: "cash is king".In GE's case, they made two sales. The first was a sale of perpetual preferred

Bank Limits Fund Access by Colleges, Inciting Fears - NYTimes.com

Getting closer to home. Just another example of how contagion rears its ugly head and problems can spread quickly through the global economy. Bank Limits Fund Access by Colleges, Inciting Fears - NYTimes.com: "In a move suggesting how the credit crisis could disrupt American higher education, Wachovia Bank has limited the access of nearly 1,000 colleges to $9.3 billion the bank has held for them

FDIC urges temporary hike in insured deposit limit: Financial News - Yahoo! Finance

FDIC urges temporary hike in insured deposit limit: Financial News - Yahoo! Finance: "The agency that protects U.S. bank deposits is asking Congress for temporary authority to boost deposit insurance limits as the government works to contain the financial crisis.Federal Deposit Insurance Corp. Chairwoman Sheila Bair on Tuesday asked for unspecified authority to raise insurance limits on the very

Looking around at the market

Even as most US markets opened higher (was it over reaction or a new push for a bail out?), the news was still dominated by yesterday's news of the House blocking the bail out bill and the resulting market sell off. All of the major news providers covered the stock market drop. For instance from Business Week:Another Black Monday for Wall Street - BusinessWeek: "The ugliness was widespread,

Three Weeks of Financial Turmoil - Interactive Feature - NYTimes.com

In class this afternoon (after the collapse) I said that finance classes will be studying this past month for the next fifty years. So I guess there is no time like the present to begin. Three Weeks of Financial Turmoil - Interactive Feature - NYTimes.com--It is an interactive look at three weeks of news stories, from the Freddie and Fannie to today's sell off. EXCELLENT!!! Videos, news

What do we know about Warren Buffett?

I am continually reminded in class how many college students know next to nothing about arguably the world's most famous investor. So when the WSJ's Wallet blog reported a few items on his personal finances, I jumped at the opportunity to send readers in that direction:The Wallet: "...what are Buffett’s personal finances like? Our esteemed colleagues at Deal Journal have been tirelessly

Congressional leaders say bailout deal is near - CNN.com

Congressional leaders say bailout deal is near - CNN.com: "Under the tentative deal being finalized, the rescue program would be overseen by a board including the treasury secretary, secretary of commerce, head of the Securities and Exchange Commission and chairman of the Federal Reserve, said Sen. Kent Conrad, R-North Dakota, who heads the Senate Budget Committee.According to Conrad, $700

Thomas Friedman "Hot, Flat and Crowded" | Salon

We can argue how much pure finance this is, but Thomas Friedman has a new book out. I have not even seen it, but was profiled in Salon. In it he suggests the industries and fields in which we should be investing. Now I have trouble with anyone telling me where people should be investing (the market will usually get it), but the interview is interesting and I am fairly sure I will be buying the

The end of investment banking as we know it?

Do you remember the old REM song "It's the end of the world as we know it"? Well they could have been singing about this past week in finance (except the feeling fine part maybe...). The latest manifestation is the news of yesterday that Morgan Stanley and Goldman Sachs begun the process to convert to a bank holding company. The move will bring them under the protection, but also the

From SSRN, The Financial Economics Network, and the American Finance Association

Free is too good of price to pass up!In cooperation with the American Finance Association (AFA), the Financial Economics Network (FEN) is pleased to announce the American Finance Association 2009 Meetings Abstracting eJournal. This abstracting eJournal is available to all subscribers at no charge and contains abstracts of the meeting papers with links to the full text within the SSRN

Why no posts...

ok, thanks for the concern folks, I am fine...just been on the road for a finance club trip, then a weekend in NYC (yes I saw a Yankee game), plus busy with BonaResponds local weekends weekends--we are building two homes--and a local wind storm downed trees and gave us some chain saw work. Which is a long way of saying, I am back and ready to begin blogging again. In class today we reviewed

2002's News, Yesterday's Sell-Off - washingtonpost.com

2002's News, Yesterday's Sell-Off - washingtonpost.com: "A six-year-old article mistakenly seen by Bloomberg financial news users ....reported the bankruptcy of United Airlines and triggered a massive sell-off that nearly obliterated the company's stock in a matter of minutes.The light-speed wipeout is a powerful reminder of how quickly bad information can spread via the Internet to a

Why It's Wrong to Hold Too Much of One Stock - WSJ.com

Why It's Wrong to Hold Too Much of One Stock - WSJ.com: "hey think they're reducing risk and optimizing gains by following the adage, 'Invest in what you know.' Yet too much concentration in one stock actually increases risk...David Hirshleifer, a finance professor at the Paul Merage School of Business at the University of California, Irvine, says people have a natural tendency to like things

Mini-case on Cerberus from NY Times

Investments Are Faltering in Chrysler and GMAC - NYTimes.com: "...for Cerberus, named after the mythological three-headed dog who guards the gates of hell, the news keeps getting worse.On Wednesday, Chrysler, which owns the Jeep and Dodge brands, said its sales in the United States fell by a third in August ....The same day, GMAC, in which Cerberus holds a 51 percent stake, said it was trying to

Big commodities hedge fund shuts down - Daily Briefing

Big commodities hedge fund shuts down - Daily Briefing: "Tumbling commodities prices have claimed a big victim. Ospraie Management is shuttering its biggest hedge fund after a 27% plunge last month, The Wall Street Journal reports, following a series of wrong-way bets on oil and natural gas, among others. The fund, run by Julian Robertson disciple Dwight Anderson has been selling off its holdings

Fed Official Says Institutions Must Be Allowed to Fail - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Fed Official Says Institutions Must Be Allowed to Fail - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "The president of the Federal Reserve Bank of Kansas City, Thomas M. Hoenig, said on Monday that for economies to work best, institutions must be allowed to fail.Economies must “find a balance between financial stability and a stable price environment and in

A Cool August for I.P.O.s - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

The number and size of Initial Public Offerings (IPOs) vary a great deal from month to month. Last month was not a good one for IPOs across the globe.A Cool August for I.P.O.s - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "The Wall Street Journal noted that the global I.P.O market saw the lowest number of deals in August since Dealogic began compiling the

U.S. Moves Toward International Accounting Rules - NYTimes.com

It will be interesting to see how fastthis actually happens, but moving towards a single standard is great news as it will eventually result in lower transactions costs.U.S. Moves Toward International Accounting Rules - NYTimes.com: "The Securities and Exchange Commission moved Wednesday to allow some large American companies to begin using international accounting standards as early as next year

Is it rational to give to charity? Yes!

Giving can be its own reward? Yes!Being leader of BonaResponds (coolest volunteer group in the world! Ok, maybe I am slightly biased) has led me into some interesting discussions on charitable giving. Some strict classic economists have argued that charity and other selfless acts do not make economic sense. To that argument I always remind them that people (and I guess monkeys too!)

Does Social Security Increase Poverty?

One of the real dangers of writing a blog is becoming political. I do not want to at all. In fact I have purposely not said anything about Social Security for that reason. It is the proverbial third rail. That said, it came up in class yesterday when we were talking about the importance of compounding on future values, plus it has been a hot issue for years with friends and is covered in

SSRN-A Generalized Rank Test for Testing Cumulative Abnormal Returns In Event Studies by James Kolari, Seppo Pynnonen

This one may not be of wide general interest but it definitely will be for those who do academic financial research. From the abstract:SSRN-A Generalized Rank Test for Testing Cumulative Abnormal Returns In Event Studies by James Kolari, Seppo Pynnonen: "This paper proposes a generalized rank test that can be used both for testing cumulative abnormal returns as well as single abnormal returns.

Finance Crossword Puzzle

Custom Crossword Puzzle---I thought a crossword puzzle would be a unique way to review for class, so I made this one up. Sort of fun. It is probably too easy but really have no experience, so figured easy is preferred to hard.The answers are here.

SSRN-Executive Pay, Talent and Firm Size by Jaeyoung Sung, Peter Swan

Sung and Swan examine the pay, performance, and size relation using panel data and find that firm size matters but maybe not as much as previous authors had suggested.SSRN-Executive Pay, Talent and Firm Size by Jaeyoung Sung, Peter Swan:The authors model a pay relationship and find support for their model. Without getting into the gory details of the modeling, consider two firms (one large, one

Study Examines The Psychology Behind Students Who Don't Cheat

Study Examines The Psychology Behind Students Who Don't Cheat: "People who don’t cheat “have a more positive view of others,” said Sara Staats, co-author of the research and professor of psychology at Ohio State University’s Newark campus.“They don’t see as much difference between themselves and others.”In contrast, those who scored lower on courage, empathy and honesty – and who are more likely

Some interesting stats stemming from Mortgage Meltdown

The topic that dominated last year's classes is still at the center of attention as classes begin here this Monday. The names have changed (last August we were talking about Bear), but the basic underlying story is the same. Moreover, the size of the problem is better known now. Burdened by Mortgages, Lehman’s Options Narrow - NYTimes.com: "In the last 12 months, Freddie’s stock price has

Hedging jet fuel prices at airlines

Airline hedging has been a topic of discussion on the FinanceProfessorblog since its inception. With volatile energy prices, it is now a hot topic within the airlines as well. Here is a look at the discussion from FlightGlobal.Hedge your bets: "A large part of deciding whether or not to hedge comes down to the way in which ­airlines view hedging. Those that see it as an insurance policy which

SEC short selling rule made little impact: studies | Deals | Regulatory News | Reuters

Do you remember in July when regulators imposed short sale restrictions on 19 financial stocks due to fears of the stocks collapsing and thus leading to a market-wide panic? Well the constraints were recently lifted and now Arturo Bris finds that the regulations did little good and even hurt efficiency. SEC short selling rule made little impact: studies | Deals | Regulatory News | Reuters: "study

Damodaran Online: Home Page for Aswath Damodaran

Damodaran Online: Aswath Damodaran Ok so I am biased. I have watched him spreak several times at conference and we are using his VAluation text in Fin 410. That said, his website definitely gets top billing! Take a while and look it over. You will be amazed at what you learn.

Study Tallies Corporations Not Paying Income Tax - NYTimes.com

While it might be more of an accounting piece, it is still sort of interesting for corporate finance classes. And definitely draws into question using stated (as opposed to effective) tax rates for computing cost of capital etc.Study Tallies Corporations Not Paying Income Tax - NYTimes.com: "Two out of every three United States corporations paid no federal income taxes from 1998 through 2005,

SSRN-Do Behavioral Biases Adversely Affect the Macro-Economy? by George Korniotis, Alok Kumar

Talk about ambitious! Korniotis and Kumar apparently have found a link between behavioral finance and economic difference across different US States. SSRN-Do Behavioral Biases Adversely Affect the Macro-Economy? by George Korniotis, Alok Kumar: "This study investigates whether the adverse effects of investors' behavioral biases extend beyond the domain of financial markets to the broad

FMA annual Conference

FMA ConferenceJust a reminder the FMA conference is October 8-11 this year. It is in Grapevine Texas. See you there!

Back to blogging

Vacation is winding down so I will get back to blogging. It has been a great summer with trips to relief trips to Missouri (helping after tornadoes) and Iowa (gutting homes after flooding), as well as a vacation to Barcelona.But I am back and let the blogging begin again!

The capital role of finance in history - Money Matters - livemint.com

Finance and history have been linked for centuries. Here is an interesting look at some long run trends and later in the article what the history says may happen if the US loses its preeminent position.The capital role of finance in history - Money Matters - livemint.com: "Almost a hundred years ago in 1910, Austria-born economist Rudolf Hilferding wrote a book called Finance Capital....In his

Not too big to fail?

Bloomberg.com: Worldwide: "`We need to create a resolution process that ensures the financial system can withstand the failure of a large complex financial firm,'' Paulson said in the speech excerpts distributed by the Treasury to reporters traveling with him in London.The Treasury chief noted while there is a resolution mechanism for commercial banks, there is no such process for securities

Grasso now and then. A look back to 2003.

Bloomberg.com: U.S.: "Richard Grasso, the former New York Stock Exchange chairman who became a poster child for Wall Street excess, won a court ruling that allows him to keep his entire $190 million pay package.A state appeals court in Manhattan today dismissed the remaining claims against him for excessive pay, and Attorney General Andrew Cuomo announced he won't appeal further"And so it is over

Financier Starts Sentence in Prostitution Case - NYTimes.com

It has not been a good year for Jeff Epstein. A billionaire money advisor who owned his own island in the Caribbean as well as a large townhouse in NY, Epstein used to be known for his secrecy, smart friends, dislike of suits and ties, and yoga. That has changed in the past year. In fact, it has changed in a big way! Read on:Financier Starts Sentence in Prostitution Case - NYTimes.com: "On

What Really Killed Bear Stearns? - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Remember a month or so ago when the WSJ had a series of articles on Bear? I thoght they were great. Well this may be better! By Bryan Burrough who helped write "Barbarians at the Gate" (one of my all time favorites).What Really Killed Bear Stearns? - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times:One look in:"According to Mr. Burrough’s account, Bear did not

A Hedge Fund Struggle for CSX Is Left in Limbo - NYTimes.com

Update: A few weeks ago we saw the case of The Childrens' Investment Fund (TCI) vs. CSX. If you remember the hedge fund was in the midst of a proxy battle with CSX. Here is that story.Well the vote was yesterday and while the vote was close, TCI is acting like the victor. A Hedge Fund Struggle for CSX Is Left in Limbo - NYTimes.com: "After the shareholders cast their votes, the funds, which

Dealbook - A ‘Bonfire’ Returns as Heartburn - NYTimes.com

The NY Times has a gloom and doom article on the future of Wall Street one year after Blackstone went public. It is through eyes of Tom Wolfe the author of Bonfire of the Vanities. Dealbook - A ‘Bonfire’ Returns as Heartburn - NYTimes.com: "Blackstone’s stock has gone nowhere but down since it went public, dropping nearly 50 percent from its high the day it started trading. But that’s the least

Bear Stearns managers indicted; emails could be smoking gun - MarketWatch

Obviously many have been watching the recent arrests of former Bear hedge fund managers Matthew Tannin and Ralph Cioffi. My first reaction was that they were being made scape goats so I was somewhat surprised when I saw this article that suggests there may be a case. Bear Stearns managers indicted; emails could be smoking gun - MarketWatch: "'If we believe the [collateralized-debt

Banking: Still a top priority in a fast-changing world

FT.com / In depth - Banking: Still a top priority in a fast-changing world: "Steve Kaplan, professor of entrepreneurship and finance at the University of Chicago Graduate School of Business...uses the snappy acronym CFIMITYM – cashflow is more important than your mother – and points out that the subprime market crashed and burned because investors had bought something that had “less cashflow than

Are you a stock or a bond? - The Wealthy Boomer

Interesting angle on personal finance. Are you a stock or a bond? - The Wealthy Boomer: "...Your human capital is "bond-like" in nature if you're a salaried employee with a Defined Benefit pension plan.... On the other hand, the human capital of an entrepreneur or investment banker is more like a stock.the implications for personal finances are clear. If you're a 'bond' you might want to balance

Strategies - The Perils of Investing Too Close to Home - NYTimes.com

Well we knew of home COUNTRY bias, but home STATE bias? Apparently. That is the latest from Korniotis and Kumar. Strategies - The Perils of Investing Too Close to Home - NYTimes.com: "Americans tend to put a disproportionate share of their money into shares of companies based in their own states, new research has shown, and that bias that can be exploited by sophisticated traders.These insights

Offer Says, ‘This Bud’s for InBev’ - NYTimes.com

‘This Bud’s for InBev’ - NYTimes.com: "Anheuser-Busch, which responded to InBev’s bid by saying it would review the proposal, has been exploring ways to thwart InBev’s $46.4 billion takeover offer. Busch is based in St. Louis. Anheuser-Busch, the maker of Budweiser, owns 50 percent of Grupo Modelo, the brewer of Corona, and might try to make itself too expensive to take over by purchasing the

Sirius-XM: It's about time - Jun. 16, 2008

Might the deal finally get approved? From CNN:Sirius-XM: It's about time - Jun. 16, 2008: "The two companies announced their merger nearly 16 months ago. Shareholders approved it in November. Many customers have been eagerly awaiting the chance to sign up for one package that would give it Sirius and XM programming.....And the Department of Justice gave the deal its blessing almost three months

Dealbook - CSX Grasping at Straws to End Battle - NYTimes.com

Yeah this one will definitely make it to class! Fighting a proxy vote, CSX management has turned it political. How? By making it a matter of national defense. Uh, yeah. And for good reason, you never know when the British (where the hedge funds are located) are going to launch a surprise attack to get the return of Fort Niagara.A few highlights from the NY Times:Dealbook - CSX Grasping at

ETFs dominate Canada Cup -- and a looming threat to Canada's mutual funds - The Wealthy Boomer

ETFs dominate Canada Cup -- and a looming threat to Canada's mutual funds - The Wealthy Boomer: "Seif said ETFs are popular because they're good for investors: 'They provide the ability to get exposure to the market and use them in multiple ways, whether for asset allocation or as a complement to stocks or active managers.'Near the end of the session Seif took a direct shot at traditional mutual

At Bear, an Apology Is Met With Silence - NYTimes.com

At Bear, an Apology Is Met With Silence - NYTimes.com: "The tally in support of the merger was 84 percent, Bear Stearns said....Inside the building, however, the mood was somber, if not tearful...The new entity will be much leaner....bout 7,500 Bear Stearns bankers have lost their jobs, along with as many as 3,500 employees of JPMorgan.and later:"I have no anger, only regret,” Mr. Cayne said...."

Study Casts Doubt on Key Rate - WSJ.com

Interesting...Suppose you have two measures of something. One that is market driven (observable prices) whereas the other is based off reported data. Usually the two move together. However, when they diverge, someone must ask why and which is more correct.That is essentially what the WSJ did in the following article. They look at LIBOR and teh credit spread to gauge the level of uncertainity

How different cultures deal with free loaders

From the WSJ's Science Journal - WSJ.com: "In the most sweeping global study yet of cooperaton, a team of experimental economists tested university students in 15 countries to see how people contribute to joint ventures and what happens to them when they don't. The European research team discovered startling differences in how groups around the world react when punishment is handed out for

Charges of Insider Trading for a Wall Street Luminary - NYTimes.com

Charges of Insider Trading for a Wall Street Luminary - NYTimes.com: "Dr. Marshall, a retired professor at St. John’s University and a fixture on the Wall Street lecture circuit, was accused by the Securities and Exchange Commission in March of passing inside information about a multibillion-dollar corporate takeover to a professor at Pace University. The Pace professor, Alan L. Tucker, made more

Bears Last Day on Earth - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Bears Last Day on Earth - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "Bear Stearns shareholders are all but certain to approve the sale of the securities firm to JPMorgan in a vote Thursday morning. Bear will most likely be immediately merged out of existence as a public company. The Bear Stearns name will all but disappear, according to a report in Crain’s

Fear, Rumors Touched Off Fatal Run on Bear Stearns - WSJ.com

Fear, Rumors Touched Off Fatal Run on Bear Stearns - WSJ.com: "Part One: Missed Opportunities As the firm's fortunes spiraled downward, executives squabbled over raising capital and cutting its inventory of mortgages.Part Two: Run on the Bank Executives believed they were about to turn a corner, but rumors and fear sent clients, trading partners and lenders fleeing.Part Three: Deal or No Deal?

Bloomberg.com: Exclusive

Bloomberg.com: Exclusive: "Credit-default swaps are derivatives, meaning they're financial contracts that don't contain any actual assets. Their value is based on the worth of underlying loans and bonds. Swaps are similar to insurance policies -- with two key differences.Unlike with traditional insurance, no agency monitors the seller of a swap contract to be certain it has the money to cover

Yahoo Nominates Existing Board - NYTimes.com

Although the stakes are lower, this may be more exciting than the presidential election!Yahoo Nominates Existing Board - NYTimes.com: "Yahoo nominated 9 of its 10 existing directors for re-election to the company’s board on Thursday, setting the stage for a showdown with dissident shareholders at its annual shareholder meeting."

Court Upholds Tax Exemptions for Municipal Bonds - New York Times

Court Upholds Tax Exemptions for Municipal Bonds - New York Times: "The Supreme Court on Monday upheld the preferential tax break that nearly all states give their residents who invest in bonds issued by the state and its municipalities. By a vote of 7 to 2, the justices rejected the argument that a state engages in unconstitutional discrimination against interstate commerce by exempting the

Five Basics for Building a Solid Financial Future - New York Times

Five Basics for Building a Solid Financial Future - New York Times: "“In Defense of Food” that provides clarity amid the bounty of choices on supermarket shelves: “Eat food. Not too much. Mostly plants.”Boiling down investing is a similar exercise: Index (mostly). Save a ton. Reallocate infrequently.Good advice.

The rise of Islamic finance | Islamic Finance and Banking

The rise of Islamic finance | Islamic Finance and Banking: "Finance that complies with Shariah, or Islamic law, is still a niche within the ethical investing niche. In all, there are at least $500bn worth of Islamic finance assets worldwide. That's not much in terms of global banking - US banks alone hold about $12.7 trillion in assets.But the industry's growth is eye-catching: Islamic banking

The story continues...Microsoft and Yahoo

From Bloomberg.com: U.S.: "Microsoft Corp., the software maker that scrapped a $47.5 billion bid for Yahoo! Inc. this month, may forge a partnership with the Internet company on search advertising to challenge Google Inc.Microsoft, which abandoned its takeover attempts May 3, said yesterday that it's exploring a transaction with Yahoo and may renew attempts to buy the entire company. The two may

Debating the CBS-CNET Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Debating the CBS-CNET Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times"CBS’s $11.50-per-share deal for CNET seems expensive by at least two measures. Its 45 percent premium is unusually high, and Mr. Bazinet of Citi calculates that the price is 18 times CNET’s projected 2008 Ebitda, above the multiples recently paid for Bankrate (12 times Ebitda) and WebMD (

Text of Icahn’s Letter to Yahoo Board - New York Times

This is good. Yet another case of "this will be used in at least some classes!"Text of Icahn’s Letter to Yahoo Board - New York Times: "It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on

FT Alphaville » Blog Archive » More than you (may) need to know about commodities hedging

This one will definitely be used in class. From the Financial Times. How will it be used in class? For instance, the story starts out saying more are hedging now after prices have risen (like closing the barn door after horses have escaped?). It also talks about how much and what type of hedging is currently being done. FT Alphaville » Blog Archive » More than you (may) need to know about

Foreclosures take an emotional toll on homeowners - USATODAY.com

We often talk about emotions affecting finance, this reminds us that the causation goes both ways. Folks it is just money. Definitely not worth killing yourself over as some in article have done.Foreclosures take an emotional toll on homeowners - USATODAY.com: "One in seven homeowners worry that they won't be able to make their mortgage payments on time over the next six months, according to an

Icahn Is Said to Weigh a Proxy Fight at Yahoo - New York Times

Maybe it is not over? Icahn is reported to own 50 million shares (over $1 Billion worth).Icahn Is Said to Weigh a Proxy Fight at Yahoo - New York Times: "Carl C. Icahn, the billionaire investor and activist shareholder, is considering a proxy fight for seats on the Yahoo board in hopes of pushing the company to restart talks to sell itself to Microsoft, people who have held discussions with him

Real estate market is also pretty tough to beat!

It appears beating the market in a risk adjusted basis may be almost as difficult in Real Estate as it is in the financial markets.Penn State Live - Study: Only select group of property fund managers outperform market: "...'Maintaining consistently high levels of alpha is incredibly difficult for most fund managers to achieve, however, one feature that we did note is that mangers using a value

A look at the housing crisis

NPR's This American Life: : had a very interesting audio look at what caused the problems and how the problems spread to impact investment banks and other Wall Street investors.This American Life: "A special program about the housing crisis. We explain it all to you. What does the housing crisis have to do with the collapse of the investment bank Bear Stearns? Why did banks make half-million

Jeffrey Sachs on the credit crisis, climate change and overpopulation - Telegraph

Jeffrey Sachs on the credit crisis, climate change and overpopulation - Telegraph: "Poverty and a billion starving people in Africa? Whisked away like dust. Overpopulation and water shortages? Waft, waft. Global warming and climate change? A little brush and they're gone.It would all seem rather utopian did Sachs not share that Clinton/Blair-style knack of making almost anything seem completely

Buybacks seem to deter takeovers.

Newswise Business News | Researcher Finds Good Management, Open Market Stock Buy-backs Deter Takeover Attempts: "Firms that buy their stock back on the open market are seen as more efficient and more sensitive to shareholder interests,” said Matt Billett, professor of finance in the Tippie College of Business. “It’s a sign of shareholder-friendly management.”Billett recently studied more than

Is it over? Microsoft pulls bid

From the NY Times:"Microsoft said Saturday that it was abandoning its blockbuster bid toacquire Yahoo after it raised its offer by $5 billion but Yahoo rejected it asstill too low.....“Despite our best efforts, including raising our bid by roughly $5 billion,Yahoo has not moved toward accepting our offer,” Mr. Ballmer said in astatement. “After careful consideration, we believe the economics

Higher Offer by Microsoft Brings Yahoo to Table - New York Times

Higher Offer by Microsoft Brings Yahoo to Table - New York Times: "According to the people involved in the talks, Microsoft suggested it was willing to pay more than $33 a share. Yahoo is still holding out for at least $37 a share, these people said. These people were not authorized to speak publicly because the negotiations were confidential."Will it work? Who knows, but the article does

Junk Bonds, Mortgages and Milken - New York Times

There is almost no chance of me not posting an article on Milken. While far from perfect, the US economy still owes him a large debt for his role in the creation of active public debt markets for low and unrated firms. What it did was to help force management to look out for shareholders, else face the consequences of a possible takeover.Junk Bonds, Mortgages and Milken - New York Times: "

The Midas of Misery

Whether you call them value investors, or contrarians, vultures, or just good opportunists, some people do make money (and lots of it) in down times.The Midas of Misery: "Falcone is a Midas of Misery. With $19 billion—nearly 760 times the grubstake he started out with seven years ago—he is snapping up troubled assets in bankruptcy, shorting distressed bonds, and using huge stock positions to

The Rights Issue - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

Partially as a result of the lack of liquidity and reduced equity sales, firms are turning to rights issues.The Rights Issue - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "Rights issues are all the rage. The Royal Bank of Scotland just announced a nearly $24 billion rights offering to shore up its capital base. And last week, Blockbuster made a $1.35 billion

IPO cancellations

With market volatility high and liquidity low many firms are pulling their equity sales. From the NY Times' Deal Book.A Tale of Two Public Offerings - Mergers, Acquisitions, Venture Capital, Hedge Funds "At $24 billion, the volume of new issuances in the United States actually doubled in the first quarter from a year earlier. But if you exclude the gargantuan stock sale from Visa, the total

One of the more interesting insider trading cases in a while

It may not compare to this one (indeed it is hard to imagine one that would), it is definitely an easier story to tell in class and pretty good!Brother, Can You Spare a Tip? - Law - CFO.com: "According to the complaint....Stummer allegedly sneaked into the brother-in-law's bedroom office and, without permission, accessed his brother-in-law's computer. By correctly guessing the password, Stummer

Feds: Adelphia Fraud Victims Can Ask for Their Money Back - Law - CFO.com

A fast Adelphia updateFeds: Adelphia Fraud Victims Can Ask for Their Money Back - Law - CFO.com: "U.S. attorney for the Southern District of New York, announced that victims of the securities fraud committed at Adelphia Communications can ask the U.S. Attorney General to recover parts of their financial losses that were directly caused by the fraud....The older and younger Rigases were originally

Bank Accounting Standards in Mexico: A Layman's Guide to Changes 10 Years after the 1995 Bank Crisis — HBS Working Knowledge

Bank Accounting Standards in Mexico: A Layman's Guide to Changes 10 Years after the 1995 Bank Crisis — HBS Working Knowledge: "Mexico was the first emerging market compelled to reformulate the financial reporting of its banks as a result of a financial crisis. In the last decade, Mexico has undergone a process of internationalization of its banking industry. Today, more than 80 percent of the

Executive Pay: The Bottom Line for Those at the Top - The New York Times

The NY Times has a very interesting look at CEO pay at 200 large firms.Executive Pay: The Bottom Line for Those at the Top - The New York Times: "Executive Pay: The Bottom Line for Those at the TopCompensation and accumulated wealth of 200 chief executives for large public companies that filed proxies for last year by March 28."Another site on CEO pay that we often use in class is that from the

You don't want to start any blasphemous rumors

Depeche Mode had it right! You really " don't want to start any blasphemous rumors..."S.E.C. Accuses Trader of Spreading Rumors - New York Times: "In what the Securities and Exchange Commission said was its first rumormongering case, a former securities trader settled accusations Thursday that he had spread false rumors to profit from a pending merger.The trader, Paul S. Berliner, then employed

Regulators Back Away From Changes to Commodity Hedging - New York Times

Regulators Back Away From Changes to Commodity Hedging - New York Times: "All the farm industry speakers expressed concern about whether banks, in the midst of a tight credit market, would continue to provide the farm industry with the credit it needs to meet the higher costs of maintaining their hedge positions.The commission was told about a “very solid” grain elevator in Kansas that lined up a

Delta, Northwest Post Losses As Fuel Costs Rise

One of the more popular things we have been doing in class this past year has been to allow each group to pick at least one of their own cases. Thus we will be looking at the Delta-Northwest merger. So in light of this, some required reading for my classes. Delta, Northwest Post Losses As Fuel Costs Rise: "Delta Chief Financial Officer Edward Bastian said that the airline has moved quickly to

Tech Beat Microsoft and Yahoo Russian Roulette - BusinessWeek

Game theory is always one of the more mathematical modeled issues, so when you get a chance to see an easy one, you grap it, here is just such an analysis:Tech Beat Microsoft and Yahoo Russian Roulette - BusinessWeek: "Yahoo and Microsoft have also done their best to increase the others cost and risk of delaying. This month, Microsoft set a three week deadline, set to expire April 26, for Yahoo

Male sex hormone may affect stock trades - Yahoo! News

Male sex hormone may affect stock trades - Yahoo! News: "The hormone that drives male aggression and sexual interest also seems able to boost short term success at finance. But what seems to start out well can turn bad, with elevated testosterone levels over several days possibly leading to irrational risk-taking, according to researchers at the University of Cambridge in England."and from USA

Mergers in the Air? Microsoft/Yahoo and Delta/Northwest - Knowledge@Wharton

Knowledge@Wharton has a nice recap of both major takeover deals in the news right now:Mergers in the Air? Microsoft/Yahoo and Delta/Northwest - Knowledge@Wharton: "The ongoing takeover battle between Microsoft and Yahoo has taken several surprising turns over the past few weeks. After rejecting Microsoft's unsolicited $44.6 billion offer in late February, Yahoo has announced a two-week ad testing

Milton Friedman's Free to Choose 1990

Ok, so this may or may not be really finance, but the line between economics and finance is pretty arbitrary, so I am including this one. It is from PBS's 1990 series Free to Choose.

SSRN-Where Does it Go? Spending by the Financially Constrained by Shawn Allen Cole, John Thompson, Peter Tufano

You know the old saying "Don't judge anyone until you walk a mile in their shoes"? Well, this might be a good example. As it is tax time, there are many commercials for tax advance loans and the like. These are almost always such a bad deal financially I struggle with why anyone would use them. Cole, Thompson, and Tufano may have at least part of the answer: they need the money. SSRN-Where

A conversation with George Soros - Charlie Rose

So are you feeling pretty good about things? Upbeat about it being a short recession? You might want to watch this video from Charlie Rose.A conversation with George Soros - Charlie Rose: "A conversation with George Soros, Chairman, Soros Fund Management." While I am not going to play Eeyore, some of his comments were disturbing enough to merit serious thought. I do not like his view that

Closet Indexing By Mutual Funds: Worse Than We Thought? - Seeking Alpha

Seeking Alpha has an important article on ETFs being held within mutual funds. Closet Indexing By Mutual Funds: Worse Than We Thought? - Seeking Alpha: "...it is extraordinary how many traditional long-only mutual funds hold ETFs, either to equitize their cash or to get the market return and then just layer on fees. You may not see the ETFs held during the reporting periods, but certainly inside

Use of brain-boosting drugs reported in survey - CNN.com

Well, clearly I have never done this!!! Use of brain-boosting drugs reported in survey - CNN.com: "One in five respondents to a new survey in the journal Nature say they've used drugs to boost their brain power."

SSRN-Sell Side School Ties by Andrea Frazzini, Christopher Malloy, Lauren Cohen

Score another one for REG FD. Frazzini, Malloy, and Cohen have a working paper out that looks at whether an analyst with school ties to company gets better information than one with no ties. Their finding? The ties seemed to matter in a pre-FD days, but not since. SSRN-Sell Side School Ties by Andrea Frazzini, Christopher Malloy, Lauren Cohen: "...find evidence that analysts outperform on

SSRN-Investor Inattention and the Underreaction to Stock Recommendations by Roger Loh

Talk about a fascinating article! Short version: event studies for stocks that are forgotten and out of the limelight show that the information content of a stock recommendation takes longer to "get in the price".SSRN-Investor Inattention and the Underreaction to Stock Recommendations by Roger Loh: "recommendation drift of firms with low prior turnover is more than double in magnitude compared

Video killed the radio star

Video Killed the radio star, and maybe the class room star too. With so many online videos to choose, from here are some cool finance videos that will liven the classroom. I would definitely recommend buying the actual video whenever possible. They are all very good!In the 20th year of the movie Wall Street, it only seems fitting to give a short clip from the movie. Here is "The Greed Speech."

At Last, Buffett’s Key to Success - New York Times

Want to start a discussion that will sure to cause trouble? Here we go:At Last, Buffett’s Key to Success - New York Times: "Patience and good decision-making help set women apart here.”As a result, women’s portfolios on average gain 1.4 percent more than men’s, according to a study cited by Ms. DiCosmo. Single women’s portfolios do 2.3 percent better than single men’s. The study, “Boys Will Be

Yahoo Rejects Microsoft Bid Again - New York Times

Yet another Yahoo-Microsoft update.Yahoo Rejects Microsoft Bid Again - New York Times: "The company was responding to a letter from Microsoft that threatened to lower the price of its buyout offer and take it directly to Yahoo shareholders....Our board’s view of your proposal has not changed,” Yahoo said in letter to Mr. Ballmer....“We continue to believe that your proposal is not in the best

Trillion Dollar Bet

I am sure many of you have seen the old NOVA special on Long Term Capital Management called the Trillion Dollar Bet. I have shown it in class before, but it is a tad too long. This abbreviated version is on Google Video.

FRB: Testimony--Bernanke, Developments in the Financial Markets--April 3, 2008

Bernanke and others testified today in front of Congress about the troubles in recent months in the credit markets. a few highlights from the transcript.FRB: Testimony--Bernanke, Developments in the Financial Markets--April 3, 2008: "Well-functioning financial markets are essential for the efficacy of monetary policy and, indeed, for economic growth and stability. Consistent with its role as the

Could an economic lesson from Sweden work in the U.S.? - USATODAY.com

Want something to worry about? try this one on for size:Could an economic lesson from Sweden work in the U.S.? - USATODAY.com:"The Swedish and American crises share many traits....Happily, despite economic conditions that were far worse than in the USA today — and unlike a similar episode in Japan — Sweden quickly recovered. Yet, it did so in a manner that would be highly controversial in the

Great primer on Derivatives!

Of Knock-ins, Knock-outs & KIKOs:"There are a hundred ways in which derivative products can be structured. Ranju Sarkar spoke to experts to bring you a primer on derivatives.One look-in: " Interest rate swaps: In interest rate swaps, you are addressing only the interest rate part of the loan. If a company takes a view that the interest rates are going to be higher and if it has borrowed in

Microsoft Unlikely to Raise Yahoo Offer - WSJ.com

Update on this story (which did happen to be an essay question on the first MBA test ;))Microsoft Unlikely to Raise Yahoo Offer - WSJ.com: "Microsoft Corp. is preparing to lay a long siege.Two months after Microsoft made its $44.6 billion offer to acquire Yahoo Inc., the software maker has no plans to raise its bid, people close to the company say.Such pronouncements are standard in deal

UBS Writes Down Billion; Chairman to Leave - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times

The story continues:UBS Writes Down Billion; Chairman to Leave - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "UBS, the largest Swiss bank, said on Tuesday that it would write down another $19 billion related to “U.S. real estate and related structured credit positions” ...The news came as Deutsche Bank, the biggest German lender, said Tuesday that it expected

New newsletter worth reading!

A friend of mine (Steve Horan) is working on this. Figured it was worth sending out to everyone. Private Wealth - March 2008: "Welcome to the inaugural issue of the Private Wealth Management Newsletter, created to serve the needs of the growing number of our members who are serving private clients."My favorite article in this first issue is : "The Emerging New Model for Wealth Management

Aftershocks at Bear Stearns

Aftershocks at Bear Stearns: "In a week it was all gone: Bear Stearns' (BSC) reputation, culture, identity; the savings of many of its 14,000 employees; and possibly their jobs, too. 'The speed of the collapse was traumatic,' says one banker who has worked at Bear for a decade. 'People aren't jumping out of windows,' he says. 'But we are all kind of anxious.'A year ago Bear Stearns was worth

SSRN-Technical Trading Revisited: Persistence Tests, Transaction Costs, and False Discoveries by Pierre Bajgrowicz, Olivier Scaillet

Does technical analysis work or not? Technical Trading Revisited: Persistence Tests, Transaction Costs, and False Discoveries by Pierre Bajgrowicz, Olivier Scaillet:While the topic has been widely studied (indeed it has many times been tossed aside and scorned by academics), there are just enough papers that finds it works (see Lo, Mamaysky and Wang (2000)) that when coupled with the continual

Justice Dept. Approves XM Merger With Sirius - New York Times

Whatever happened to ____? You know those stories that just seem to drag on and on and on....this may take the cake. The XM Sirius Merger is once again back in the news for the third straight semester!Justice Dept. Approves XM Merger With Sirius - New York Times: ""The Justice Department gave approval...to the merger of two rival radio networks, XM and Sirius, a marriage that would create a de

The Incentive to 'Bet the Farm': CEO Compensation and Major Investments by Gavin Smith, Peter Swan

In prepping for my MBA 610 (Corporate Finance) class where we examine executive pay and how it impacts agency costs, I found this article by Gavin Smith and Peter Swan.SSRN-The Incentive to 'Bet the Farm': CEO Compensation and Major Investments:Swim and Swan look at firms that do major investments and those that do not. They find that the way the CEO is paid does influence the investment

Catching up-Newletter style

Catching up.There is just not enough time in the day to do all I want to do. So given that it is break (we go back tomorrow) I will try to clear a few of the articles I wanted to mention as well as give you some book ideas and some random thoughts that I wanted to put out there as well. * NCAA March Madness is a learning/teaching opportunity to discuss the relative effectiveness of stock

American Stock Exchange and Delta Hedging

If you have ever taken a derivatives class (or even in some upper level corporate or investment classes) you probably are familiar with the "Greeks" and in particular Delta which is the change in value given a small change in the underlying asset price.Interestingly, the American Stock Exchange now wants to allow Delta Hedging to be used more freely in offsetting option risks. Self-Regulatory

JP Morgan and Bear to have a new price???

From the NY Times:"The sweetened offer is intended to win over stockholders who vowed to fight the original fire-sale deal, struck only a week ago at the behest of the Federal Reserve and Treasury Department.Under the terms being discussed, JPMorgan would pay $10 a share in stock for Bear, up from the initial offer of $2...."From CNN/Money:" Under the revised terms, JPMorgan will buy 95 million

Bank of New York's Michael Woolfolk Discusses The Dollar - Features and Interviews - HardAssetsInvestor.com

Bank of New York's Michael Woolfolk Discusses The Dollar - Features and Interviews - HardAssetsInvestor.com: "Michael Woolfolk, senior currency strategist for The Bank of New York Mellon, examines the forces pushing the dollar lower....Woolfolk: I think that it is primarily an interest rate story, but we can’t be that simplistic about it. It’s also a growth rate story....We’re going to be seeing

Wall Street takes advantage of emergency Fed lending program - Mar. 20, 2008

Interesting story from CNN/MoneyWall Street takes advantage of emergency Fed lending program - Mar. 20, 2008: "...Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday....Those large firms averaged $13.4 billion in daily borrowing over the past week from the new lending facility....This

MBAs bearish on Bear job offers - Mar. 21, 2008

I know at least one of my students is a tad concerned ;)MBAs bearish on Bear job offers - Mar. 21, 2008: "Bear Stearns' meltdown and pending sale to JPMorgan Chase has left dozens of aspiring Masters of the Universe in the lurch. The recruiting season for investment banking positions - both full time and internships - ended months ago, back when Bear's stock traded for quite a bit more than the

Can’t Grasp Credit Crisis? Join the Club - New York Times

Can’t Grasp Credit Crisis? Join the Club - New York Times: "It has been going on for seven months now, and many people probably feel as if they should understand it. But they don’t, not really....I’m here to urge you not to feel sheepish. This may not be entirely comforting, but your confusion is shared by many people who are in the middle of the crisis.“We’re exposing parts of the capital

Why is Bear selling for more than the offer price?

Several people have asked why Bear is selling at so much over the JP Morgan offer price. I guess this is the best explanation I have seen.Short version: Creditors want to assure the deal is approved, so they are buying shares in order to vote them.Hedging the Bear Stearns Deal - Mergers, Acquisitions, Venture Capital, Hedge Funds -- DealBook - New York Times: "The creditor buys Bear shares and

SEC's Bear Stearns Probe Zeroes In on 'Put' Trades - WSJ.com

SEC's Bear Stearns Probe Zeroes In on 'Put' Trades - WSJ.com: "The Securities and Exchange Commission is investigating the events leading up to the collapse of Bear Stearns Cos., specifically a surge in options contracts betting that the investment bank's share price would drop precipitously, according to people familiar with the matter.... The unusual trading in Bear's options began as early as

More news on Jim Cramer

I have never been a big fan of him (my thought has always been is that he is really smart and a great marketer), but this probably has gone too far. Does anyone really believe he didn't say "sell" last week because he was afraid to cause a run on the bank? Mmm...maybe...better to 'fess' up and admit your mistake. This is not your finest hour.But anyways, here is his response after Bear had

Visa's IPO

You probably have seen the headlines that Visa went public in largest IPO ever. Here are two interesting looks at itFrom the San Francisco Chronicle--Visa draws high card: "Visa's underwriters got commitments from buyers to take 406 million shares at $44 per share, raising $17.9 billion, by far the largest IPO ever carried out in the United States."The NY Times looks at how much Investment

John Stewart on Bear and Financial Problems

Forget the politics, just enjoy. And no matter what you do, watch the section on Cramer at about 5 minutes in...it is hilarious!! LOL...Video one:Video two (on Bear)

Yahoo pushing for higher price?

Bloomberg.com: Worldwide: "Yahoo! Inc., owner of the most- visited U.S. Web site, said sales will climb at least 19 percent in each of the next two years, justifying its refusal of a $44.6 billion takeover offer from Microsoft Corp.The stock climbed the most since Microsoft's $31-a-share bid on Feb. 1 after Yahoo said sales growth goals for 2009 and 2010 are higher than analysts estimate. That

CME to buy Nymex for $100-share, or $9.3 billion - MarketWatch

From CNN/Money:"CME Group Inc. agreed to buy Nymex Holdings Inc. for about $9.5 billion in cash and stock Monday. The deal is worth just over $100 per Nymex share, and will combine the operators of the Chicago and New York futures exchanges.CME also operates the Chicago Board of Trade"CME to buy Nymex for $100-share, or $9.3 billion - MarketWatch: "Both companies' boards have approved the terms.

Eliot Spitzer and the Price-Placebo Effect - washingtonpost.com

Really, this has finance implications.Shankar Vedantam - Eliot Spitzer and the Price-Placebo Effect - washingtonpost.com: "Spitzer's poor moral, political and legal judgment is beyond question, but on the delicate question of whether Kristen was 'worth it,' a host of unusual studies suggest the governor probably got his money's worth. The question, as it turns out, has little to do with either

JP Morgan Pays $2 a Share for Bear Stearns - New York Times

JP Morgan Pays $2 a Share for Bear Stearns - New York Times: "In a shocking deal reached on Sunday to save Bear Stearns, JPMorgan Chase agreed to pay a mere $2 a share to buy all of Bear — less than one-tenth the firm’s market price on Friday....JPMorgan is buying Bear, which has 14,000 employees, for a third the price at which the smaller firm went public in 1985. Only a year ago, Bear’s shares

More on the historic Fed move

Bloomberg.com: Worldwide: "Federal Reserve Chairman Ben S. Bernanke is being forced to throw out four decades of monetary history by a financial system choking on miscalculated risks and a deepening recession.Bernanke and the four Fed governors voted yesterday to become creditors to Bear Stearns Cos., a securities firm that isn't a bank, by invoking a law that hasn't been used since the 1960s.

Bloomberg.com: Worldwide

Bloomberg.com: Worldwide: "Bear Stearns Co. executives realized late afternoon of March 13 that the firm wouldn't be able to withstand what was effectively a ``run on the bank,'' the Wall Street Journal reported, citing unidentified people familiar with the events.At about 4:30 p.m. local time that day Chief Executive Officer Alan Schwartz became ``convinced'' Bear Stearns was facing a ``

The more things change, the more they stay the same

The news of JP Morgan coming to the rescue of Bear Stearns reminded many of a similar story from back on '07, as in 1907 when the James Pierpont Morgan (yes that JP Morgan) helped organize a bailout of bank during the 1907 Financial Panic.Educate Yourself - J.P. Morgan - Savior -- The Panic of 1907: "This week we continue our discussion of the Panic of 1907 and the man who, single-handedly,

Wow! Look out for the Bear!

Short version: Bear Stearns seems to be in a bunch of trouble. Not only has their liquidity disappeared, but other firms are reluctant to do business with them. This has led the Fed and JP Morgan to at least temporarily bail out the firm.From the NY Times:"The news from Bear Stearns came after the bank had insisted for days that its finances were in adequate shape. But the situation rapidly

Can You Beat the Market? It’s a $100 Billion Question - New York Times

Ken French has done it again! Definitely a superstar! From the NY Times:Can You Beat the Market? It’s a $100 Billion Question - New York Times: "INVESTORS collectively spend around $100 billion a year trying to beat the stock market. That’s the finding of a rigorous effort to measure the total costs of Americans’ efforts to surpass the returns they would have received by simply holding a stock

NYU Stern Finance Professor's New Research Shows Most Actively Managed Currency Funds Fail to Outperform a New Benchmark

NYU Stern Finance Professor's New Research Shows Most Actively Managed Currency Funds Fail to Outperform a New Benchmark: "Do most currency fund managers deserve their high fees? According to a new study by NYU Stern Finance Professor Richard Levich and co-author Momtchil Pojarliev, Head of Currencies at Hermes Investment Management, the answer is no. Their study is the first to challenge

The Buffalo News: Business: Adelphia headquarters building sells for $3.6 million

The Buffalo News: Business: Adelphia headquarters building sells for $3.6 million: "The former Adelphia Communications headquarters building in Coudersport, Pa., has been sold via Internet auction for the second time in five months.The lavishly built, five-year-old building received a high bid of $3.6 million in the online real estate auction. LFC Group of Companies, the California auction firm

Warren Buffett's Derivative Positions

Kirzner Fervor: Warren Buffett's Derivative Positions: "Berkshire Hathaway recently released its chairman's letter to the shareholders. Chairman Warren Buffett, opposed to many of the absurd and overlevered uses of derivatives, has used derivative positions over several years to take large positions. The most recent letter describes their current contracts which are divided among writing credit

Black Scholes Pricing Model - National Business News - Portfolio.com

Black Scholes Pricing Model - National Business News - Portfolio.com: "The model is based on the assumption that a trader can suck all the risk out of the market by taking a short position and increasing that position as the market falls, thus protecting against losses, no matter how steep. Nearly every employee stock-ownership plan uses Black-Scholes as its guiding principle. A pension-fund

MBIA Criticizes Bond-Insurer Plan - WSJ.com

One of the more interesting uses of restucturing (or possible restructuring). We discussed this in class today. Intereting application of different stakeholders having different incentives.A couple of looks:From Reuters:"Bond insurer Ambac Financial Group Inc is in discussions to split itself up in a move aimed at ensuring that municipal bonds backed by the company retain high credit ratings...