How to make the world’s easiest $1 billion
STEP 1: Form a bank.
STEP 2: Round up a bunch of unemployed friends to be “bankers.”
STEP 3: Raise $1 billion of equity. (This is the only tricky step. And it’s not that tricky. See below.*)
STEP 4: Borrow $9 billion from the Fed at an annual cost of 0.25%.
STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%
STEP 6: Sit back and watch the cash flow in.
If your children happened to be born since the year 2000 in developed countries, they will most likely live to be 100, and they will be healthier than elderly people in previous generations, according to a recent article in the medical journal The Lancet. (…)
The gain of about 30 years in life expectancy in Western Europe, the U.S., Canada, Australia and New Zealand — and even more in Japan, Spain and Italy — “stands out as one of the most important accomplishments of the 20th century.” Furthermore, most babies born since 2000 in these countries will “celebrate their 100th birthdays if the present yearly growth in life expectancy continues through the 21st century.” The authors expect that it will: “Continued progress in the longest living populations suggests that we are not close to a limit, and [a] further rise in life expectancy seems likely.”
Given that individuals over the coming decade may routinely expect to work well into their 70s and 80s, what kind of environment can they look forward to? “The good news is that the world of work is changing by itself” in ways that will make it more receptive to older employees, says Peter Cappelli, director of Wharton’s Center for Human Resources. “It’s already easier to work at a distance, easier to telecommute…. The physical demands [of many jobs] are falling, commitments are shorter-term, outsourcing of all kinds is on the rise and there is more contract work — all of which makes it simpler for people to come in and out of the workplace, at least in principle….. The question is, to what extent will employers actually embrace older workers and incorporate more flexibility with respect to schedules, less supervision and more empowerment?”
One potential hang-up centers on the fact that older workers, as they stay on the job longer, are likely to be increasingly supervised by younger managers, says Cappelli.
related:
Paul A. Samuelson, the first American Nobel laureate in economics and one of the foremost academic economists of the 20th century, died Sunday at his home in Belmont, Mass. He was 94.
{ NY Times | Continue reading | Read more: Nobelprize.org }
It’s hard to convey the full extent of Samuelson’s greatness. Most economists would love to have written even one seminal paper — a paper that fundamentally changes the way people think about some issue. Samuelson wrote dozens: from international trade to finance to growth theory to speculation to well, just about everything, underlying much of what we know is a key Samuelson paper that set the agenda for generations of scholars.
{ Paul Krugman/NY Times | Continue reading }
Q: “At this stage, how would you rank Keynes?”
A: “I still think he was the greatest economist of the twentieth century and one of the three greatest of all time.”
Q: “Who are number one and number two?”
A: “Adam Smith and Leon Walras.”
Walras was a nineteenth century French economist who taught at the University of Lausanne. He was the first economist to write down the equations for a ‘general equilibrium’ of the entire economy, incorporating the markets of everything from sugar to iPods. He is widely regarded as the founder of mathematical economics. “We all march in his footsteps,” Samuelson said of Walras. (…)
“Like herpes, math is here to stay,” he said.
{ Interview with Paul Samuelson | New Yorker | Continue reading | And more: Falken Blog }
Hotel toilet-paper folding is a common practice performed by hotels worldwide as a way of assuring guests that the bathroom has been cleaned, and sometimes, with more elaborate foldings, to impress or delight guests with the management’s creativity and attention to detail.
The common fold normally involves creating an inverted triangle or V shape out of the first sheet or square on a toilet paper roll. Commonly, the two corners of the final sheet are tucked behind the paper symmetrically, forming a point at the end of the roll. More elaborate folding results in shapes like fans, sailboats, and even flowers.
An automated toilet paper folding machine called “Meruboa” was invented in Japan. With the push of a lever, the device folds the first sheet of toilet paper into a triangle.
I believe there is a lot of fraud in high tech startups, 95 percent of which fail. With only a five percent chance of surviving, startups face a gauntlet of risks as described in this quote from uber-VC John Doerr in my show Nerds 2.01: A Brief History of the Internet:
“There are four categories of risk to look for in every project:
1) “People risk: How the team will work together. Because inevitably one of the founders does not work out and drops out.”
2) “Market risk: This is an incredibly expensive risk to remove. It is about whether the dogs will eat the dog food. Is there a market for this product? You do not want to be wrong about market risk.”
3) “Technical risk: This risk we are quite willing to take on. Whether or not we can make a pen computer that works, be the first to commercialize a web browser, or split the atom if you will. That technical risk is one we are comfortable trying to eliminate or take on.”
4) “Financial risk: If you have all of the preceding three risks right (people, market, and technical), can you then get the capital that you need to grow the business? Typically you can. There is plenty of capital to finance rapidly growing new technologies that are addressing large markets.”
Of course Doerr completely forgot to include fraud risk — that investors would simply have their money stolen.
Tech fraud happens all the time and those who are fooled include the most sophisticated investors (big shot VCs are not at all immune). (…)
Several years ago I lost what was for me a substantial amount of money investing in a financial patent startup. It looked great on paper, the only problem being that the paper was forged, simply made up. Nothing was as it seemed. The company’s books literally didn’t exist. So I sued, spending a lot more money, only to have the founders declare bankruptcy and walk away.
Art’s link with money is not new, though it does continue to generate surprises. On Friday night, Christie’s in London plans to auction another of Damien Hirst’s medicine cabinets: literally a small, sliding-glass medicine cabinet containing a few dozen bottles or tubes of standard pharmaceuticals: nasal spray, penicillin tablets, vitamins and so forth. This work is not as grand as a Hirst shark, floating eerily in a giant vat of formaldehyde, one of which sold for more than $12 million a few years ago. Still, the estimate of up to $239,000 for the medicine cabinet is impressive — rather more impressive than the work itself.
No disputing tastes, of course, if yours lean toward the aesthetic contemplation of an orderly medicine cabinet. Buy it, and you acquire a work of art by the world’s richest and — by that criterion — most successful living artist. Still, neither this piece nor Mr. Hirst’s dissected calves and embalmed horses are quite “by” the artist in a conventional sense. Mr. Hirst’s name rightfully goes on them because they were his conceptions. However, he did not reproduce any of the medicine bottles or boxes in his cabinet (in the way that Warhol actually recreated Brillo boxes), nor did he catch a shark or do the taxidermy.
In this respect, the pricey medicine cabinet belongs to a tradition of conceptual art: works we admire not for skillful hands-on execution by the artist, but for the artist’s creative concept. (…)
Since the endearingly witty Marcel Duchamp invented conceptual art 90 years ago by offering his “ready-mades” — a urinal or a snow shovel, for instance — for gallery shows, the genre has degenerated. Duchamp, an authentic artistic genius, was in 1917 making sport of the art establishment and its stuffy values. By the time we get to 2009, Mr. Hirst and Mr. Koons are the establishment.
Does this mean that conceptual art is here to stay? That is not at all certain, and it is not just auction results that are relevant to the issue. To see why works of conceptual art have an inherent investment risk, we must look back at the whole history of art. (…)
The appreciation of contemporary conceptual art, on the other hand, depends not on immediately recognizable skill, but on how the work is situated in today’s intellectual zeitgeist. That’s why looking through the history of conceptual art after Duchamp reminds me of paging through old New Yorker cartoons. Jokes about Cadillac tailfins and early fax machines were once amusing, and the same can be said of conceptual works like Piero Manzoni’s 1962 declaration that Earth was his art work, Joseph Kosuth’s 1965 “One and Three Chairs” (a chair, a photo of the chair and a definition of “chair”) or Mr. Hirst’s medicine cabinets. Future generations, no longer engaged by our art “concepts” and unable to divine any special skill or emotional expression in the work, may lose interest in it as a medium for financial speculation and relegate it to the realm of historical curiosity.
In this respect, I can’t help regarding medicine cabinets, vacuum cleaners and dead sharks as reckless investments. Somewhere out there in collectorland is the unlucky guy who will be the last one holding the vacuum cleaner, and wondering why.
{ Denis Dutton/NY Times | Continue reading }
The best explanation of the art market may be that it is inexplicable, which is one reason its alchemy continues to fascinate and capture headlines. In no other market do we lavish wealth on such useless and arbitrary things. Advanced systems of trade that are usually the facilitators of market intelligence—international public auctions and historical price indexes—only offer a false sense of comprehension while further distorting art’s valuation.
Yet if such things could be measured in degrees, the art market of today seems more unexplainable than ever. The prices paid for certain types of post-war and contemporary art continues to outpace prices for older work as well as recent art of greater nuance. Tens of millions of dollars may still chase after art of dubious formal qualities—factory-made work by Jeff Koons and Damien Hirst, smears by Francis Bacon and silkscreens by Warhol.
Big money’s relationship to “cheap” contemporary art is a recent phenomenon. It began in the 1960s, as Pop Art commercialized the avant-garde—not just selling the avant-garde, but also involving commercialism in defining the avant-garde. Whereas many Abstract Expressionists died before striking it rich, several of the avant-garde artists who came of age in the 1960s experienced a more profitable fate. (…)
In 2006, Tobias Meyer infamously remarked that “the best art is the most expensive because the market is so smart.” The quote received wide circulation because of its patent absurdity. A market is only as smart as the people who control it, and the art market has proved to be a dull creature when it comes to appreciating a broad range of artistic qualities. But to give Meyer credit, the market can be very smart about the art that speaks to it.
The art market has a unique talent for promoting art about the market. Since exhibition history enhances value, the collectors of what we might call “market art” have a vested interest in seeing their work take up space in traditional public collections. They often have the financial leverage to make it happen. In this way, the hedge-fund collector Steven A. Cohen could place Damien Hirst’s shark tank on temporary loan at the Metropolitan Museum. The oversized trinkets of Jeff Koons start appearing at the same time in the museum’s rooftop gallery.
While we in the US spent our Thursday eating turkey and watching football, the rest of the world’s markets went into a downward spiral as Dubai announced it wanted its lenders to give the country a six-month moratorium on some $80-90 billion in debt. This has the potential to be the largest sovereign debt default since Argentina. (…)
Let’s look at some facts about Dubai. It is one of the Arab Emirates; but unlike its neighbor Abu Dhabi, oil is only about 6% of the economy. While the foundations of the country were built with oil, the country has diversified into finance, real estate, tourism, trading, and manufacturing. It is a small country, with a little under 1.5 million residents, but with less than 20% being natural citizens - the rest are expatriates. The gross domestic product is around US $50 billion.
Dubai has become a byword for thinking large. The world’s tallest building, underwater hotels, the largest manmade islands (plural), indoor snow skiing in the desert… For links to more information try this from Wikipedia: “The large-scale real estate development projects have led to the construction of some of the tallest skyscrapers and largest projects in the world, such as the Emirates Towers, the Burj Dubai, the Palm Islands and the world’s second tallest, and most expensive hotel, the Burj Al Arab.” The list goes on and on.
UBS suggests that the $80-90 billion in debt may not include rather large off-balance-sheet debt (where have we seen that one?). So, a country with a GDP of $50 billion borrows $100 billion. They build massive projects, which are now among the most expensive real estate in the world. The latest manmade island plans for one million people to buy property there. Seriously. Talk about Field of Dreams.
Then came the credit crunch. Property values dropped by as much as 50%. Sales, say the developers in understatements, have slowed. Seems there was a lot of debt used to speculate on real estate, not to mention buying Barney’s, Las Vegas casinos, banks, etc. And while US banks have little exposure, it seems England has about 50% or so of the debt, with the rest of Europe having the lion’s share of the remainder. Admittedly, the estimates seem to confuse the debt of Dubai with that of Abu Dhabi, so it is hard to know a reliable number, other than that European banks are the most exposed.
Now, here’s the deal. Abu Dhabi has the world’s largest sovereign wealth fund, at over $650 billion. Dubai has a “mere” $15 billion. If they cared to, Abu Dhabi could write a small check and make all the problems disappear. It just seems that they are not ready to do that, at least not yet. Abu Dhabi already got the world’s tallest building on past debt problems.
What’s going to happen, economically and politically, over the next few years? Nobody knows, of course. But I have a vision — what I think is the most likely course of events. It’s fairly grim — but not in the approved way. (…)
Start with the short-term economics. What we’re in right now is the aftermath of a giant financial crisis, which typically leads to a prolonged period of economic weakness — and this time isn’t different. A bolder economic policy early this year might have led to a turnaround, but what we actually got were half-measures. As a result, unemployment is likely to stay near its current level for a year or more. (…)
All the wise heads will tell us that 8 or 9 percent unemployment — maybe even 10 percent — is the “new normal”, and that only irresponsible people want to do anything about the situation. So what I see is years of terrible job markets, combined with political paralysis.
Suppose a genie appears and gives you two choices. The first option is that he will [thanks] give you $10 million dollars, but everyone else you know will get $20 million apiece.
Choice two: You get $5 million, but no one else gets anything.
As a bonus, the genie offers to erase your memory of having made the choice, so guilt will never be a factor. You will simply wake up the next day in the new situation.
Which option do you choose to maximize your personal happiness?
illustration { Jessica Hische }
previously/related { Rude up thy bird, tayi, tayi }
{ This is the graph the record industry doesn’t want you to see. It shows the fate of the three main pillars of music industry revenue - recorded music, live music, and PRS revenues (royalties collected on behalf of artists when their music is played in public) over the last 5 years. | Times | Continue reading }
Like the flu, a person’s emotional state can be contagious. Watch someone cry, and you’ll likely feel sad; think about the elderly, and you’ll tend to walk slower. Now a study suggests that we can also catch someone else’s irrational thought processes.
Anyone who’s lost money on a fixer-upper may have succumbed to a classic economic fallacy known as “sunk costs.” You make a bad investment in a home that’s never going to sell for more than you put in to it, yet you want to justify your investment by continuing to throw money into renovations. One way to avoid this hole is to get advice from someone who has no self-interest in the project. But is the outsider still somehow susceptible to your mindset?
To find out, social psychologist Adam Galinsky of Northwestern University in Evanston, Illinois, and colleagues asked college students to take over decision-making for a person they had never met–and who they didn’t know was fictitious. The volunteers were split into two groups: one that felt some connection with the decision-maker and another that didn’t. (…)
The results suggest that companies trying to reverse results of bad decisions should find true outsiders. He points to troubled automaker Ford as an example. Instead of hiring from within–as General Motors (GM) recently did–Ford made Alan Mulally from Boeing, an aerospace company, their chief executive officer. Many experts believe that Ford is now recovering quicker than GM.
illustration { Mike Mitchell }
The busy folks at the Harvard Law School Forum on Corporate Governance and Financial Regulation — the name keeps getting longer — posted a paper Monday with the provocative title: “Do Envious CEOs Cause Merger Waves?” The study, by DePaul finance professor Anand Goel and Washington University in St. Louis finance prof Anjan Thakor, puts forth the theory that CEOs engage in merger activity out of envy of other CEOs who have boosted their company’s size through M&A and thus succeeded in raking in more pay for themselves. Not only that, but that powerful engine of envy is perfectly capable, they argue, of being set off by what they describe as an “idiosyncratic shock,” which seems to be defined as anything that’s not envy-driven, and which then creates a kind of cascade of greedy longing, as one CEO after another engages in a feverish attempt to keep up with the Joneses.
Does the recovery we’ve seen in fits and starts have any legs at all, outside of the major emerging markets? Or is it a mirage?
I don’t think it’s possible to infer from the stock market rally anything resembling a sustained recovery. The third quarter GDP number of 3.5% growth was at least half due to one-off government measures. In any case, the U.S. consumer is constrained by horrible balance sheet problems – excessive leverage and severely reduced real estate values on the assets side. The stock market rally has been largely due to near-zero interest rates and a weaker dollar. In foreign currency terms there’s been no rally. (…)
At some point it is absolutely inevitable that the U.S. will have to ‘default’ on part of its existing liabilities, since the long-run trajectory of government borrowing is clearly unsustainable. With the unfunded liabilities of the Social Security and Medicare systems now around $100-trillion, these look like the most vulnerable budget headings.
{ Niall Ferguson interview | The Globe and Mail | Continue reading }
photo { Brian Ulrich }
For nearly a decade, writer and artist Ken Habarta has been scanning newspapers, FBI alerts, and the internet for information on bank robberies. He’s especially drawn to robberies that involve a note. “The single most popular way of robbing banks,” he says, “is the quieter, gentler act of passing a note.” Gone are the days of pistols in the waist line.
Habarta posts the notes, security camera stills, and other details of bank robberies to his blog.
{ UTUNE | Continue reading | Bank Notes | Ken Habarta’s blog }
Donatella Versace, tiny, sculpted and forever blonde, was standing backstage after her menswear show at the Teatro Versace in Milan in June, receiving polite congratulations from a handful of editors and friends. The scene was positively dead compared with Versace shows a decade ago: no celebrities posing with Donatella for paparazzi, no bodyguards holding back the throngs, and no pals swilling champagne. Donatella’s brother Santo, in his usual charcoal suit with black turtleneck, came back for a few minutes to shake some hands. Her husband, American-born Paul Beck, tall and tan, stood alone in the corner; no one even noticed him. It all felt feeble, pathetic—a sad, soulless charade to promote something that no longer exists.
The nonscene is a reflection of how far the Italian fashion house has fallen since its founder’s death. When Gianni Versace was murdered on the front steps of his Miami mansion in 1997, the company immediately announced that his strong-minded sister, Donatella, would take over as creative director and his brother, Santo, would be CEO. The decision made sense at the time. The luxury fashion business was soaring, thanks to the new wealth of the Internet boom, and Gianni Versace was a favorite of the bling set, with his flashy designs, celebrity friends, and lavish lifestyle. The company was poised to become a luxury megabrand like Gucci, Giorgio Armani, and Louis Vuitton.
Instead, Donatella plunged into profound drug addiction and made erratic business and creative decisions. While competing fashion brands turned into global powers, Versace has watched its sales plummet from $1 billion in 1996 to less than half that today. Major retailers such as Neiman Marcus and Bergdorf Goodman have dropped the line. The company has lost both its prestige and design influence.
Starting in 2003, after what Santo described as “seven years of woes,” the Versace siblings acknowledged they couldn’t run the company by themselves and hired a string of outside managers to straighten out the mess. But the outsiders failed too—in large part, Versace sources say, due to Donatella’s and Santo’s resistance to change.
photo { Jessica Craig-Martin }
How do floors and distance affect purchases?
Consumers who stand on carpeted flooring feel comforted, but they judge products close to them to be less comforting, according to a new study in the Journal of Consumer Research.
You’ve heard of Neuromarketing, which measures the neural activity of consumers (via fMRI or EEG) in response to various products or advertisements. Now, get ready for Genomarketing!
The Neuroethics & Law Blog has alerted us to a recent paper by De Neve and Fowler (2009) reporting that people with a specific low efficiency variant of the gene for monoamine oxidase A are significantly more likely to have credit card debt. (…)
Using data from the National Longitudinal Study of Adolescent Health, the authors found in that sample of 18-26 year olds,
Having one or both MAOA alleles of the low efficiency type raises the average likelihood of having credit card debt by 7.8% and 15.9% respectively. (…)
Is this the foreshadowing of a highly unethical marketing practice? Marketing based on MAO-A genotype, as determined from mailed-in credit card applications and payments? Credit card companies will have in-house labs to extract DNA from stamps and envelope flaps (Sinclair & McKechnie, 2000; Ng et al., 2007). Taking it one step further, entire marketing campaigns will be tailored to specific markers in an individual’s genome.
Not so fast. There are many limitations in the findings of De Neve and Fowler.
neon { Martin Creed | Thanks Daniel! }
In the same way that people do not always leave 15% of their bill as a tip (even though this is the norm) but rather adjust it up or down as a function of other factors (e.g., service quality), one would expect that the price paid for an engagement ring might too be linked to several extraneous variables.
Lee Cronk and Bria Dunham published a paper recently in Human Nature wherein they sought to explore this exact issue. They sent out a short survey to 1,000 married couples and asked several questions including the income and age of each member of the couple, as well as how much was spent on the engagement ring. (…)
They found that both men’s and women’s incomes were positively correlated to the amount spent on an engagement ring. (…). Furthermore, the authors uncovered a negative correlation between the amount spent on a ring and the bride’s age. In other words, the younger the bride, the larger the expenditure.
illustration { Kristian Hammerstad }
