Can Talk of a Depression Lead to One? - News Analysis - NYTimes.com

Robert Schiller is a busy person! In the NY Times, he addresses the idea that constantly dwelling on the bad, becomes a self -fulfilling prophecy.Economic View - Can Talk of a Depression Lead to One? - News Analysis - NYTimes.com: "The attention paid to the Depression story may seem a logical consequence of our economic situation. But the retelling, in fact, is a cause of the current situation

Dilbert on Gov't bailouts

Ok, technically it is Dogbert, but...Short version, the top dog gets it all!Thanks to Footnoted for this.

General Motors Lost $85 Million Every Day

For perspective from Clusterstock :"Running General Motors is like lighting a $1000 bill on fire every passing second"General Motors Lost $85 Million Every Day: "GM's total loss for the fourth quarter of 2008 was $9 billion. It's hard to imagine any number that large, so we decided to break it down...Minute: $58,333 In short, with every passing minute GM loses slightly more money than the

Strategies - The Index Funds Win Again - NYTimes.com

Strategies - The Index Funds Win Again - NYTimes.com: "Kritzman... set up his study to accurately measure the long-term impact of all the expenses involved in investing in a mutual fund or hedge fund. Those include transaction costs, taxes and management and performance fees....Then he calculated the average return over a hypothetical 20-year period, net of all expenses, of three hypothetical

7 Courses Finance Students Should Take

We have a mid-term break next week at SBU. Then registration for the fall semester starts. Thus it makes sense to ask: What classes should a finance student take? A current student (Brendan) forwarded me this. It is from Investopedia:7 Courses Finance Students Should Take: "Executives in search of well-rounded finance students look for certain skills, and studies have revealed that these

Business leader David Campbell speaking at SBU

One of the better things about teaching at a University is that you constantly get new ideas and meet great people. This week we had David Campbell on campus. Who is David Campbell? From my announcement:"Mr Campbell has also served as a member of the Board of Directors of Tektronix, M&T Bank, MRO Software, Gibraltar Industries, and PowerSteering software, and Niagara University and

REFLECTIONS ON A CRISIS Daniel Kahneman & Nassim Taleb, Moderated by John Brockman

Fascinating. Take a look at the video.Edge: REFLECTIONS ON A CRISIS Daniel Kahneman & Nassim Taleb, Moderated by John Brockman: "View the complete 1-hour HD streaming video of the Edge event that took place at Hubert Burda Media's Digital Life Design Conference (DLD) in Munich on January 27th as the greatest living psychologist and the foremost scholar of extreme events discuss hindsight biases,

Financial Quote of the day

"...outwardly and according to its balance sheer, the [Knickerbocker] Trust Company was flourishing..." Herbert SatterleeFrom the Panic of 1907: Lessons Learned from the Market's Perfect Storm by Robert F. Bruner (yes from Darden) and Sean Carr (also from Virginia)Interestingly, this was the "panic" that resulted in a Fed. From Wikipedia:"The resulting Panic of 1907 exacerbated an ongoing

Shiller: House Prices Still Way Too High

As people across the globe hope that real estate prices are done falling, Yale's Robert Shiller suggests we may not be real close to the bottom yet.From Clusterstock and from Financial Sense:"The median value of a U.S. home in 2000 was $119,600. It peaked at $221,900 in 2006. Historically, home prices have risen annually in line with CPI. If they had followed the long-term trend, they would have

After Losses, a Move to Reclaim Executive Paychecks - NYTimes.com

This will almost assuredly not happen, but it would the kind of ex-post settlement that we keep mentioning in class.After Losses, a Move to Reclaim Executive Paychecks - NYTimes.com: "...now, with a public backlash against excessive pay and taxpayer lifelines extended to crippled companies, the idea of recouping compensation, known as “clawback,” is gaining traction.Currently there is no legal

Endowment Director Is on Harvard’s Hot Seat - NYTimes.com

What goes up, sometimes goes down too!Endowment Director Is on Harvard’s Hot Seat - NYTimes.com: "....the endowment is on the verge of posting its biggest loss in 40 years. With much of its money tied up for the long term, it is scrambling to meet some obligations.Harvard has frozen salaries for faculty and nonunion staff members, and offered early retirement to 1,600 employee..... [Years ago]

Modified Internal Rate of Return

Spreadsheets at Work: Rating Your Own IRR - Technology - CFO.com: "...might you be vulnerable to the weaknesses long pointed out — if too often ignored — by researchers who have warned that IRR calculations often contain built-in reinvestment assumptions that improperly improve the appearance of bad projects....the MIRR function permits both a finance and reinvestment rate to be associated with

A populist revolution?

A few weeks ago I commented to a friend that everyone seemingly was in a bad mood. We talked about it and figured it was in large part the result of a added stress from the poor economy. We speculated what would happen next and if people were already in a bad mood, how much worse might it get if this dragged on for years. So now about two weeks later and already the stress is showing more and

Will there be any "green" in a Green Economy?

Not sure if this has much finance content. More of an editorial. Sorry, but I dislike when a major variable is left out of the analysis of things.From Clusterstock: Green Economy Not Yet Ready For Primetime... But It Will Be Soon: "The WSJ throws around some scary subsidy numbers, saying the government pays too much for renewable energy, and its still not cheap. The Journal says that if we try to

Wall Street Journal to Convene Financial Leaders for Its Future of Finance Initiative - MSNBC Wire Services - msnbc.com

Wall Street Journal to Convene Financial Leaders for Its Future of Finance Initiative - MSNBC Wire Services - msnbc.com: "The Wall Street Journal today announced it will host the 'Future of Finance Initiative,' a working session that brings together top leaders and thinkers in global finance to identify the basic principles on which a new financial system must be reconstructed. The Journal's

Finance Test Questions

Studying for a test? Want to test yourself on a finance? This hopefully will be a way to do that.It is a wiki-page that will allow anyone to post questions and answers to share with others. This will allow professors to have more test questions for their tests and students the opportunity to study by quizzing themselves. FinanceTestquestions » home: And remember if you are one of my students

Behavioral Personal Finance: Customers' Fixation On Minimum Payments

Anchoring is a term often discussed within the realm of Behavioral Finance. Like its closely related sibling heuristics (or using rules of thumb), Anchoring may lead us to expect that a stock price will go back to a previous high just because we remember it being there. It also can give high priced stocks the appearance of being better than low priced stock. Here is an interesting look at

Warren Buffett speech to MBA Students from a few years ago

In my financial case class (Fin 402) we will be doing a case study on Warren Buffett. In class I mentioned the video presentation of Buffett and Bill Gates when he was at the University of Nebraska. I went looking for it and I found this one. It is very good. It is a talk he gave at the University of Florida. Definitely recommend watching. It is long (over an hour) but well worth it. Have it

FRB: Speech--Bernanke, Federal Reserve Policies to Ease Credit and Their Implications for the Fed's Balance Sheet--February 18, 2009

What a great recap of the Fed's actions over the past year or so. Great read. It is Bernanke at his best.FRB: Speech--Bernanke, Federal Reserve Policies to Ease Credit and Their Implications for the Fed's Balance Sheet--February 18, 2009: "We live in extraordinarily challenging times for the global economy and for economic policymakers, not least for central banks such as the Federal Reserve.

Quote of the day

From Ronald Reagan:"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is

Greenspan: Nationalize The Banks

I am not as high on nationalization as the article appears to be. Still think we need an "exit strategy" but ....Greenspan: Nationalize The Banks: "Alan Greenspan has jumped on the bandwagon.(Okay, Greenspan doesn't have the power to implement this solution, but he used to).Importantly, Greenspan also suggested that bondholders should take a hit--which they should. In typical Greenspan fashion,

Catching up Newsletter style

Several stories I want to point out, but will do all in one postThe mention of the NY Times podcast had some of you thinking about other finance podcasts. Here are two that were sent plus NPR'sKnowledge@Wharton has a great list of past interviews and the like and from San Diego State Dan Siever speaks on the stimulus package. NPR has many many feeds.John Mason writes at SeekingAlpha about the

Lessons From Japan in Stemming a Crisis - NYTimes.com

Lessons From Japan in Stemming a Crisis - NYTimes.com:A reminder from Japan: Don't coddle the banks, act swiftly, and force the banks to write off bad debts. "I thought America had studied Japan’s failures,” said Hirofumi Gomi, a top official at Japan’s Financial Services Agency during the crisis. “Why is it making the same mistakes?”"and later"... Japan’s financial system did not start to

Legacy of a Crisis - A Generation Shy of Risk - NYTimes.com

Your Money - Legacy of a Crisis - A Generation Shy of Risk - NYTimes.com: "You did what you were supposed to do. College. Graduate school, maybe. Bought a home. Invested in mutual funds.And now? You have student loan debt. Your degree has not shielded you from unemployment (or the fear of it). The house is worth 20 percent less than two years ago, and your retirement portfolio is down 40 percent

Quote of the day

On Presidents' Day I chose one who served as president shorter than any other. William Henry Harrison.From Infoplease:"The prudent capitalist will never adventure his capital . . . if there exists a state of uncertainty as to whether the Government will repeal tomorrow what it has enacted today."I did not know he ran on a platform that included the re-establishment of a national bank!

The Case for Nationalizing the Entire Economy - TIME

As a Western New Yorker (where it is both hilly and winter about 10 months a year), I know all about slippery slopes. That is what always comes to mind when nationalization of banks is discussed. The following is from Time. I do not know where the author (Doug McIntyre is from), but it must be both mountainous and cold). That said, he absolutely nails the big problem with nationalization.The

Crude oil is getting cheaper — so why isn't gas?

Basis risk is something that many do not understand at first. That should change with this example!From Yahoo: Crude oil is getting cheaper — so why isn't gas?: ""Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending

How current PE ratios stand up historically - MarketWatch

From MarketWatch:How current PE ratios stand up historically - MarketWatch: "Here's today's investment pop quiz: Where do price/earnings ratios stand today relative to several months ago, as well as to the beginning of this bear market in October 2007?..... Based on earnings on an "as-reported" over the trailing 12-months, the p/e ratio for the S&P 500 index stood at around 20 at

Roubini: Nationalizing Banks Is the Best Way to Go: Tech Ticker, Yahoo! Finance

Roubini : Nationalizing Banks Is the Best Way to Go: Tech Ticker, Yahoo! Finance: "...paradoxically nationalization may be a more market friendly solution of a banking crisis: it creates the biggest hit for common and preferred shareholders of clearly insolvent institutions and...it provides a fair upside to the tax-payer. It can also resolve the problem of avoiding having the government manage

Cows and the financial crisis

.flickr-photo { }.flickr-frame { float: right; text-align: center; margin-left: 15px; margin-bottom: 15px; }.flickr-caption { font-size: 0.8em; margin-top: 0px; } How random is it that I just happened to post some cow pictures to my flickr account this week? and then Clusterstock posts the following description (using cows) to explain the AIG collapse. LOL...From Clusterstock:"You have two

Financial quote of the day

Today is Lincoln's Birthday:"The government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the government and the buying power of consumers. By adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity."As quoted at from Liberty-Tree.caIs he calling

How the Crash Will Reshape America - The Atlantic (March 2009)

The current recession will have lasting impacts. That much is certain. No one knows for sure what that impact will be. We have seen what happens when all scenarios are not considered (remember "Real Estate prices can only go up"?), so the following by Richard Florida from the Atlantic is worth considering.How the Crash Will Reshape America - The Atlantic (March 2009):A bunch of look-ins, not

Financial Quote of the day

"Let Wall Street get a nightmare, and the whole country has to help get them to bed again"Will Rogers (1879-1935) as quoted in Dean LeBaron's Book of Investment Quotations .

Sirius XM shares drop on reports of possible bankruptcy - MarketWatch

Real world example for yesterday's class...(ok so I was a few hours late ;) )Sirius XM shares drop on reports of possible bankruptcy - MarketWatch: "Shares of Sirius XM Satellite Radio Inc. dropped 31% in morning trading Wednesday on reports that the company could be close to filing for bankruptcy protection.The shares were down 3 cents at 8 cents. The stock traded in the $4 range two years

More videos

YouTube - bionicturtledotcom's ChannelSometimes I am torn as to where to put material; should I post it to the main FinanceProfessorblog or to my FinanceClass blog (which is really just aimed at my own students). I had originally intended to use these only for the latter, but a recent comment about using videos being fun cued me to make it available to everyone. So if you are in my class I

UCLA Anderson School of Management | Knowledge Assets | UCLA Anderson Faculty Highlights

WOW! Occasionally I am still blown away by how many amazingly good resources are available online. This is a great case in point. UCLA's Andersen School of Management has made many of their faculty available to us.UCLA Anderson School of Management | Knowledge Assets | UCLA Anderson Faculty HighlightsI really don't know where to start, but here goes. I just watched these and a few others.

Wisdom of Crowds Videos

We are doing market efficiency in class and these are a great way to get exposed to some of the ideas we will be discussing. From PBS:An interview with James Suroweicki:

Ten questions the House Financial Services Committee could use from the NY Times

GREAT stuff here....Andrew Sorkin provides 10 questions that those receiving bail out money should answer. The questions are great, but even more than that, he sets the stage well with his lead in. Indeed, some of them might make the basis for some good essay test questions ;)DealBook Column - Up Next for Big-Shot Bankers - A Public Flogging - NYTimes.com: ""On Wednesday, eight chief executives

What is finance for? - Columns - livemint.com

Sort of in light of the Adam Smith quote, the following article looks at the main roles of finance. It is generally something that we forget or take for granted (often rushed through on the first few days of an introductory finance class) but it serves us all well (myself included) to stop now and then and remember what finance is here for.From Nirvikar Singh is a professor of economics at the

Financial Quote of the day

From Adam Smith whose most famous work, The Wealth of Nations, was published in 1776, but still resonates today. Adam Smith Quotes: "It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country"Quoted is from

Becker and Murphy Say the Short-Term Benefit of the Stimulus Package Will Be Less Than Expected - WSJ.com

The Wall Street Journal has an interesting look at what the impact of the stimulus package might actually be.Becker and Murphy Say the Short-Term Benefit of the Stimulus Package Will Be Less Than Expected - WSJ.com: "...our conclusion is that the net stimulus to short-term GDP will not be zero, and will be positive, but the stimulus is likely to be modest in magnitude. Some economists have

Muslim investors profit by adhering to faith

This past week in my Problems in Finance class we did a fast review of international finance (I miss teaching that class BTW). In it we did not get to speak about many of the differences based on religion, so I was pretty excited to see this article from the San Francisco Chronicle that will provide me an excuse to mention that strict adherence to the Quaran does not allow lending and borrowing.

Cramer's Star Outshines His Stock Picks - Barrons.com

I get more questions every year from students is on Jim Cramer than any other topic (well except "will this be on the test"). Most such questions come in two main flavors: "what do you think of Cramer" or "did you see Cramer talking about ....". My stock answer is that while I think he is a really smart and hard working person, I have my reservations that anyone can consistently outperform

Quote of the day

I did not do any of the weekend so we can get two today:"I contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle." -Winston ChurchillAs quoted by Five Million Dots."It is common sense to take a method and try it.If it fails, admit it frankly and try another.But above all, try something.--FDR"As quoted at

An imperfect hedge: the case of Metallgesellschaft

If you have had me for MBA 610 you know in the "what can go wrong" with derivatives part of the class we usually discuss Metallgesellschaft. It is a classic case of when an imperfect hedge can really hurt you. I just stumbled upon this six minute explanation of what caused their problems that is very good.

SSRN-Costly External Finance, Corporate Investment, and the Subprime Mortgage Credit Crisis by Ran Duchin, Oguzhan Ozbas, Berk Sensoy

Durchin, Ozbas, and Sensoy look at Corporate Investment after the Subprime Mortgage Crisis and find much proof that the liquidity crisis is reducing capital spending. SSRN-Costly External Finance, Corporate Investment, and the Subprime Mortgage Credit Crisis by Ran Duchin, Oguzhan Ozbas, Berk Sensoy: "We study corporate investment in the wake of the sub prime mortgage credit crisis that began in

SSRN-The Equity Premium in 100 Textbooks by Pablo Fernandez

So which is it? In class this week we have been discussing CAPM and the question has some up a few times as to what is the market risk premium. I guess we are not the only ones who have some uncertainty on this issue. Pablo Fernandez shares with us his working paper on the issue.SSRN-The Equity Premium in 100 Textbooks by Pablo Fernandez: "[I review] 100 finance and valuation textbooks

Financial Quote of the day

This one, which was right on, is by Susan Schmidt Bies (Fed Governor) speaking at a risk Management Conference in December of 2004. Seemingly many financial institutions did not get the message.FRB: Speech, Olson—Qualitative aspects of risk management—December 7, 2004: "Although the importance of the quantitative aspects of risk measurement may be quite apparent...the importance of the

More evidence that correlations increase in bad times

In the typical "wow what great timing" yesterday as we were talking about correlations and diversification in class, SeekingAlpha ran the following article:Opportunities in a High Correlation World -- Seeking Alpha: "One of the most striking features of 2008 was the fact that correlations between most asset classes went up substantially: everything declined at the same time. One of the principal

New feature: Financial Quote of the Day

I am sure I won't do one every day, but seems like something fun to do for a while, so here goes:"It is wonderful how preposterously the affairs of the world are managed. We assemble parliaments and councils to have the benefit of collected wisdom, but we necessarily have, at the same time, the inconvenience of their collected passions, prejudices, and private interests: for regulating commerce

U.S. Plans to Curb Executive Pay for Bailout Recipients - NYTimes.com

U.S. Plans to Curb Executive Pay for Bailout Recipients - NYTimes.com: "The Obama administration is expected to impose a cap of $500,000 for top executives at companies that receive large amounts of bailout money, according to people familiar with the plan.Executives would also be prohibited from receiving any bonuses above their base pay, except for normal stock dividends. "Well, this will

The WSJ gives us another history lesson

I love history. I love seeing the similarities across the ages and then seeing them (Need a "for instance"? I am currently ristening to American Creations right now on the US constitutional convention of 1787. In it James Madison (who was 5 ft 4 and seemingly taller than his statue at JMU) argued that the way to solve problems with sectional thought in voting which would lead to excessive

Sweden’s Fix for Banks - Nationalize Them - NYTimes.com

In class last Thursday the idea of temporarily nationalizing banks came up. I promised to show how it could work using Sweden's experience from the 1990s. Then I proceeded to forget to post it. So in a better-late- than-never moment, here is an article from the NY Times. Sweden’s Fix for Banks - Nationalize Them - NYTimes.com:"With Sweden’s banks effectively bankrupt in the early 1990s, a

What caused the Depression? Opinion: Policies Prolonged Depression - WSJ.com

Here is hoping that we learned our lesson since the 1930s.The WSJ ran a good op/ed piece by Harold L. Cole and Lee Ohanian describing how government policies helped create the Great Depression. As we ponder what the role of government should be in helping the economy to recover from the current recession, politicans could do much worse than to read this!Opinion: Policies Prolonged Depression -

The Future of Securities Regulation by Luigi Zingales

Luigi Zingales has been in the news a bunch lately. He has testified to Congress, been on NPR, in Forbes, in The Economist, and the Wall Street Journal to name just a few (and these have all been since September!!!)Which is to say when Luigi Zingales speaks (or writes) on the Future of Securities Regulation it makes sense to take note.(On the paper that follows he only allows two paragraphs

SSRN-The January Effect - A New Piece for an Old Puzzle by Jason Fink, Kristin Fink, Jonathan Godbey

You probably have all heard of the January effect. It is the historical fact that stocks have done better in January than in other months. That much all researchers agree on.Why? That is a very good question. Some seems to be taxes, some size, but now Fink, Fink, and Godbey find that the age of the firm also matters. Specifically young firms out perform old firms in January even after