Category: Economics

Capitalism Must Throw The Book At Its Culprits

  
For capitalism to retain public faith we need a system where the rich can get poorer as well as the poor richer. There need to be snakes as well as ladders in the boardroom board game.

Individual accountability for sins is the big omission in too much of contemporary capitalism. To use an analogy that the bosses of VW might understand: we need the corporate equivalent of a sharp spike in the middle of a car’s steering wheel. If the consequences of dangerous driving were greater we might have safer roads. The same is true of corporate stewardship. If there are no downsides in excessive risk-taking, only upsides, then shareholders should not be surprised if CEOs lead their companies to catastrophe.

→ The Times

Société Générale Contre Jérôme Kerviel : Fin du “Game” ?

 
Jean-Philippe Denis :

Et voilà comment la troisième ironie peut finalement être empruntée à… Jean de la Fontaine. Lorsque les animaux sont malades de la peste, on le sait, on devrait souhaiter « selon toute justice, que le plus coupable périsse ». La Fontaine toutefois a prévenu : tel est rarement le cas puisque « selon que vous serez puissant ou misérable, la justice vous rendra blanc ou noir ». Mais, vingt ans après le scandale du Crédit Lyonnais, à avoir ainsi permis dans le cas EADS que ne soient tirées les leçons des singularités et dérives managériales qui se jouent dans les « zones grises » du capitalisme français et de ses « grands corps… malades », le Conseil constitutionnel pourrait bien finir, « à l’insu de son plein gré », par donner tort à Jean La Fontaine.

→ The Conversation

Was Tom Hayes Running The Biggest Financial Conspiracy in History ?

 
It was an audio CD from inside Barclays. Gensler, his coterie, and members of the enforcement division gathered on scuffed-up sofas and chairs in the waiting area outside his office—the only meeting place with a working CD player—to listen. It was a telephone conversation between two Barclays middle managers that had taken place 18 months earlier, during some of the most turbulent days of the crisis. Speaking in a cut-glass English accent, one of the men told a subordinate that he needed to start lowering the bank’s Libors. When the more junior employee started to object, the first man told him the order had come from the most senior levels of the bank, who in turn were acting on instructions from the Bank of England.

Kervielesque :

“Well, that’s sort of ironic that you’re firing me, given that you were involved in it up to your eyeballs,” Hayes later recalled telling McCappin.

→ Bloomberg Businessweek

Black Box Trading : Why They All “Blow-Up”

While in Greenwich Ct. one afternoon I will never forget a conversation I had with a leading quantitative portfolio manager. He said to me that despite its obvious attributes “Black Box” trading was very tricky. The algorithms may work for a while [even a very long while] and then, inexplicably, they’ll just completely “BLOW-UP”. To him the most important component to quantitative trading was not the creation of a good model. To him, amazingly, that was a challenge but not especially difficult. The real challenge, for him, was to “sniff out” the degrading model prior to its inevitable “BLOW-UP”. And I quote his humble, resolute observation “because, you know, eventually they ALL blow-up“…as most did in August 2007.

→ Global Slant

Psyching Out Borrowers

Follow-up on yesterday’s article about personality tests approval to get loans. Payoff adds a touch of algorithms on top of psychology to determine the creditworthness of the borrower.

Galen helped develop the matching algorithms at eHarmony, which are responsible for 4 percent of U.S. marriages. We’re using his expertise to bring psychology to finance. Our science is ultimately about behavior change and helping people make better financial decisions. This process of change begins with self-understanding, and we’re using advanced psychometric assessments to understand people’s mindsets— the goal being to improve how they approach their financial decisions. We’ve taken the hundreds of questions you might answer in a typical psychometric assessment and compressed them into a three-minute “gamified” online assessment that gauges your financial personality.

→ Bloomberg