Friday, July 31, 2009

Geeko is Back... and beating up evil short-sellers

Today I was reading a somewhat old story about the sequel to "Wall Street", which is to be called "Money Never Sleeps" and will be set in London this time. Michael Douglas replays his role as Gordon Geeko, while the villain (shouldn't that be Geeko's part?) is going to be a hedge-fund manager who loves to short companies (side note: apparently Javier Bardem backed out of the sequel to make a movie with Julia Roberts. I would.).

It is funny - or sad, you name it - that the movie is set in London and the villain is a hedge-fund manager. The excesses of the City certainly contributed to this image of London being an over-priced place where traders spend their humongous bonuses over-paying for things. Unfortunately, I don't think that the crisis will improve the city's image. Large bonuses will always be around, on top of London being a magnet for rich people that don't want to go to NY.

More interesting is the bad publicity received by short-sellers during this crisis, which definitely contributed to evil character in the movie using it. Academics (humbly including myself) have shown that short-selling is usually a good thing to markets, even naked short-selling.

However, most investors see it as an unlawful way to make money. People never complain when manipulation drives prices up and short-sellers help to bring them down by bringing information to the markets. Neither they complain about the huge liquidity that short-selles bring to the market (about 30% of total) when they need to sell their holdings. Liquidity that decreased a lot during the SEC ban on short-selling right after Lehman's bankruptcy.

I guess it has to do with the behavioral argument that people hate to talk about negative events... Specially the bad CEOs that blame short-seller for their falling sharing place when it is really ccaused by their own poor management.

Sunday, July 19, 2009

Blaming Liberalization IS NOT Cool

The current crisis has been partially blamed on the deregulation of financial markets over the past 10-15 years. The argument goes that this enabled evil bankers to sell mortgages to people with no chance of paying them back, nasty derivatives that were sold to dumb investors with no idea about what they were buying, etc. etc.

Since my undergrad, I'm a firm believer that governments should intervene as little as possible in private transactions, creating a level playing field for all everyone involved. The current crisis has showed, alas again, that individual excesses can lead to huge systemic risks.

People often mistake deregulation with BAD implementation of deregulation, specially when it is done without proper incentives and institutions to prevent people from gaming the system afterwards. (Note for future-post: Basel II might cause trouble in the future for the same reason).

This reminds me of a similar argument that I often see in the press about the failure of the "neoliberal / Washington Consensus" reforms to improve Latin American countries during the 90s.

You cannot have first-class markets if you do not also develop first-class institutions...

Monday, July 13, 2009

Working vs. Having a Life

Today I was wondering about what would happen if we worked as much as we all know we should. I mean, REALLY work. Not pause every 20-30 mins to (pick your favorite): browse the Internet, answer emails, have a coffee, or just look at window and think how nice it is to have an ocean view at work.
In the other hand, it cannot be good in the long run to work like a robot 24-7.
How inneficient should we be in order to be as efficient as possible?

Saturday, July 11, 2009

Everything that has a beginning...

Today I was reading the FT's Book Review section and remembered that this month we celebrate the 40th anniversary of the Moon Landing, one of the few true world-stopping events of all time.

At one point during his visit to the Moon, Neil Armstrong realized that he could extend his fist and, using only his thumb, blot out the earth. Asked later if this made him feel like a giant, he said, "No, it made me feel really, really small".

Space exploration has always deeply fascinated me. The infiniteness of the Universe, the fact that ours is just a small planet in the corner of a very ordinary galaxy, the tiny chance that there is a multitude of planets full of people, well, so many mind-boggling things spring to mind whenever I think about it.

People need challenges, long-term goals, dreams! Exploring is, and will always be, a part of us. Be it sending people 20,000 light-years away on a flying casket, researching a new medicine or, in my case, finding out more about financial markets, these are just different ways of searching for the truth.

In my first post I say to all those exploring our world through whatever endeavours you chose: "Cheers!"