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Below are the 19 most recent journal entries recorded in
alewbel's LiveJournal:
| Saturday, May 30th, 2009 | | 6:43 pm |
my little town
When people ask me where I grew up, I usually say New York City. The actual part of NY is named Glendale, but most don't know where Glendale NY is. So to people familiar with New York, I usually say something like, "You know when you drive into Queens and see miles of cemeteries? That's where I grew up." I just discovered that Google knows I'm not joking. Type "Glendale, NY" into Google maps, and see where the marker goes: http://maps.google.com/maps?f=q&source=s_q&hl=en&geocode=&q=glendale,+ny&sll=40.699365,-73.880954&sspn=0.007418,0.012767&gl=us&ie=UTF8&ll=40.698443,-73.88013&spn=0.014837,0.025535&t=h&z=15 | | Monday, March 9th, 2009 | | 9:29 pm |
Economics vs Finance
It seems to me that one of the main sources of the current crisis is a fundamental flaw in finance theory, relative to economic theory. In most economic models, prices are derived in terms of underlying fundamentals - cost of production, consumer utility, etc.,. This includes the most basic of all economic models, the intersection of supply and demand curves. In contrast, many (most?) successful and widely used models in finance express the price (value) of financial assets in terms of other financial assets. The CAPM and APT show how to fairly price assets relative to the value of the total market or to aggregate factors. The Black-Scholes formula shows how to price options relative to the price of the underlying assets. Tools like these were applied and generalized to construct and price ever more exotic derivatives, like the now toxic collateralized debt obligations. The problem with these financial models is that they don't identify or rule out massive, systemic bubbles. If a stock is not mispriced according the CAPM (has a zero alpha), and the price of (or more precisely the returns associated with) every stock including that one increases 1,000%, or 10,000% then the CAPM will still say the stock is correctly priced, because the CAPM only judges the return on an asset relative to the returns on a basket of other assets. In exactly this way, the financial models used to construct the infamous mortgage backed securities appeared to work perfectly (until the real world intervened), because no matter how overpriced actual houses became in any real economic sense, the models said the securities were appropriately priced relative to the (insane) housing prices. This suggests to me that what the next generation of financial models require is some economics, that is, a deep way to incorporate economic fundamentals, to avoid (or in the case of wall street, to profit by exploiting) not just relative mispricing, but absolute mispricing of financial assets. | | Friday, March 6th, 2009 | | 10:58 pm |
| | Thursday, December 4th, 2008 | | 10:28 pm |
| | Wednesday, November 5th, 2008 | | 12:55 pm |
brief election thought
I hope the generation will soon be born that can't really understand why yesterday was historic. | | Tuesday, September 30th, 2008 | | 6:30 am |
blame
It has become popular, at least among republicans and libertarians, to blame the subprime mess on government policies and regulations that encouraged homeownership and subprime mortgages. But this argument does not explain the timing of the financial meltdown. Policies to encourage low income mortgages have existed for decades. Fannie Mae (and its implicit moral hazard of gov't backing) was created in 1938. One could argue that regulations encouraging mortgage lending helped create the problem, but it can equally be argued that deregulation (e.g., relaxing the regulatory oversight and debt/equity requirements of investment banks) exacerbated the problem by allowing the bubble to grow much longer and larger before bursting. I'm not an expert in this area, but it appears to me that what was new during the recent bubble years was not government policies or regulations encouraging lending, but rather the securitization of those mortgages. Encouraged by gov't homeownership policy, liar loans could have been written for decades. But they only actually started to be sold in a big way when loans began being resold in security bundles. The real question to be asked is why did the secondary mortgage market (both bond rating agencies and the buyers of mortgage backed bonds) misrate and misprice these mortgage based securities so spectacularly? The problem would appear to be a market failure. | | Tuesday, September 23rd, 2008 | | 9:48 pm |
bailout thoughts
While I do know some economics, I'm not a macro or finance expert, and no one reads this blog anyway, but I still can't resist making a suggestion regarding the mortgage mess bailout: To minimize the ultimate cost to taxpayers, the government should demand equity shares from everyone it helps. In particular I would propose that: 1. Any company that sells its bad debt to the government must also give the gov't stock in the company. This essentially takes money away from the bank's owners and gives it to the taxpayers. The government sells the stock in the future for a profit if/when the bank recovers, thereby recouping at least some of the losses from the bad debt. It has been argued that this would interfere with quality of debt auctions by reducing the number of participants, but this won't matter if, as is currently proposed, debt will be priced based on the quality of the underlying mortgages rather than by bidding. 2. Homeowners who can't pay their mortgage be allowed to appeal to the government to refinance the mortgage at more favorable (fixed) rates, in return for giving the gov't something like a 10% share ownership in the house. When the homeowner sells the house in the future, the government gets 10% of the sale price, again recouping in the future at least some and perhaps all of the costs it incurs by rewriting the terms of the mortgage. The now gov't owned Fannie Mae could administer this program. | | Thursday, September 18th, 2008 | | 8:58 am |
costs in perspective
Are the costs of the current financial crises unprecedented? No. The US gov't has now spent about the same amount of money in bailouts (fannie, freddy, bear sterns, and AIG) as it spent cleaning up the savings and loan mess in the previous era of financial deregulation. It has also been about the same amount as the cost of one year of the Iraq war. | | Wednesday, September 10th, 2008 | | 3:32 pm |
| | Tuesday, September 9th, 2008 | | 8:16 pm |
I've been hacked
I got a very interesting email today from someone I'd never heard of before, saying, "Did you know there's an ad for used cars in the middle of your Science of Juggling article?" Sure enough, I went to the webpage, and stuck in the middle of a sentence were the words "used cars" hyperlinked to a car dealership in Florida (don't bother looking for it, I've already taken it down and put back up a clean copy). The page had been modified over a year ago, and at least one other Boston College professor's webpage was similarly vandalized. Some e-forensics have begun. The car dealership had hired a search engine optimizing company (seomoz.org) to increase their own page rank, and while I know of no evidence other than suspicious timing, it would appear that their method for increasing rank includes hacking into, and illicitly adding links from, other highly google ranked webpages. I'm guessing it was an inside job, maybe some low paid BC student working for IT got slipped a few bucks. I hope BC takes it seriously, since far more malicious damage could have been done with that level of access. I take it as a compliment that my juggling webpages http://www2.bc.edu/~lewbel/acadjug.html are popular enough to attract the attention of high tech hoodlums. | | Monday, September 1st, 2008 | | 10:19 am |
| | Saturday, May 31st, 2008 | | 9:39 pm |
| | Wednesday, May 21st, 2008 | | 2:27 pm |
| | Sunday, April 6th, 2008 | | 10:32 am |
Two surprises in London
I landed at Heathrow London this morning. First surprise was heavy snow - big wet flakes. Second surprise is crowds - chinese with flags, and pro-Tibet protestors, as the olympic torch is carried through town. | | Sunday, March 9th, 2008 | | 3:00 pm |
I'm juggling with the stars
Arthur Lewbel, Jack Kalvan, Vova Galchenko at the Bakalor estate (with a sofa sleeping Jeri Habberstad cameo) | | Wednesday, November 21st, 2007 | | 4:58 pm |
Airport Philosophy
I fly a lot, and have no stress about it at all. My sister blogged (on myspace, probably because she's too cool for livejournal) about her dislike of flying, which suddenly inspired me to write about my philosophy of flying. So on this, the busiest flying day of the year, I'll explain why I relax at airports: 1. There will always be another plane. If you miss your flight, the airline will put you on another one. It may not be as convenient, but you'll get there. 2. The odds of getting seriously injured or killed on a commercial flight are about the same as the odds of winning the lottery. You know you're not going to win the lottery, right? Same thing. 3. You have no control. Many people, like my sister, stress about this, but the right attitude is to surrender to it. You go where they tell you to go, take your shoes off when they tell you to, drink juice when they tell you to - it's just like being a kid again. No control means no responsibilities, and for most adults, that is the definition of a vacation. All you can do is kick back and relax. Think of the airport and plane as the bad hotel you stay at before you get to the good hotel. It's a vacation either way, even if it's a business trip once you arrive. 4. Foreign money and foreign languages and foreign food are cool. passport stamps are cool. Exploring a new city is cool. P.S. Bose noise canceling headphones are worth it. So is bringing a good book. | | Monday, October 8th, 2007 | | 10:16 pm |
| | Wednesday, July 4th, 2007 | | 3:34 pm |
London Security
I was just in London. Security after the attempted bombings is very tight.  | | Saturday, August 6th, 2005 | | 4:58 pm |
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