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The WSJ put out a three part video series on the source and events of the financial crisis.  It's about 25 minutes in length.  Good follow-ups to my previous posts - The Weekend that Wall Street Died and The End of Wall Street and Misaligned Incentives . Chapter 1: What Happened Chapter 2: Why it Happened Chapter 3: What Happens Next

Just to add to the gloom-and-doom in the financial markets, Forbes came out with a very critical review of the venture capital industry ( "Venture Capital's Coming Collapse" ) and why the industry will likely undergo a major restructuring in the coming years as funding dries up.  Here's a good excerpt from the article: The venture capital industry is staring at the most vicious shakeout in its history. Returns are pathetic for most funds, the public offering pipeline on which venture depends for its exit strategy is clamped shut , and with the shares of many big publicly traded tech companies swooning, those firms are less likely to buy up promising upstarts . To get an idea of how lackluster the returns overall have been: Joshua Lerner, a professor at Harvard Business School, recently analyzed returns, net of fees, for 1,252 U.S. venture funds going back to 1976. The median return for top-quartile firms was 28%. That included the huge profits of the tech boom, whic...

I just read an interview with Richard Foster on the McKinsey Quarterly.  In his book , Foster argues "that to endure, companies must embrace what economist Joseph Schumpeter called 'creative destruction' and change at the pace and scale of the capital markets, without losing control over current operations".  Foster talks in the interview about how the market in general outperforms individual companies because most companies can't evolve as fast while still being able to focus on their operations.  The cycle Foster talks about is one where entrepreneurs innovate outside the bounds of regulations (driving unusually high equity premiums), how those equity premiums draw additional people in to create a crash, and then how the government steps in after a crash to create new regulations and institutions.  And then the cycle happens again.  Entrepreneurs innovate outside those new regulations, etc. etc. Here's an excerpt about the equity premium cycle: The granddad...

I just read an article in the WSJ titled " The Weekend that Wall Street Died " about the weekend of September 13 - 14, 2008 where Lehman was forced to file for bankruptcy and Merrill sold itself to Bank of America.  It's a pretty fascinating play-by-play of the weekend and how the heads of the top remaining banks (Richard Fuld at Lehman, Lloyd Blankfein at Goldman, John Mack at Morgan Stanley, and John Thain at Merrill Lynch) met with the Fed and SEC, met with each other, and met with representatives from Barclays and Bank of America, a series of interactions that resulted in changing the face of Wall Street forever.  It's amazing it all happened in a single weekend. The basic series of events was as follows: Leading up to Friday Sept 12 : Confidence in Lehman had plunged during the week.  Lehman's clearing bank, JP Morgan, was asking for additional collateral and if Lehman couldn't raise more capital they would be downgraded forcing them to put up even more c...

Former IBM CEO Lou Gerstner was interviewed by the WSJ.  The interview included an excerpt about the auto industry.  I thought his comments on turnarounds was pretty interesting.  He mentioned that when you're trying to turnaround a company you have to move quickly.  You can't take a decade to slowly turn an organization around - you have to move with speed.  He also comments on how important it is to deal with the culture change necessary to make that turnaround strategy really work (which is probably the most difficult thing to change in a company).  The easy part is coming up with the strategy and knowing what to do.  Getting it done and changing behavior is the hard part.

My finance professor handed out a fantastic article called " The End " written by Michael Lewis, the writer of Liar's Poker , about the mortgage melt-down and some reasons for what fueled the bubble on Wall Street.  The main take-away from the entire article for me is that incentives on Wall Street are totally mis-aligned - as I'll talk about shortly. In the article, Lewis tells the story of Steve Eisman.  Eisman started his career as a corporate attorny, then turned to become an equity research analyst at Oppenheimer, and finally moved on to a hedge fund (Front Point Partners).  At Front Point, Eisman built up short positions across the entire subprime mortgage lifecycle - mortgage originators, homebuilders, mortgage bonds, CDO's, etc.  The article describes in colorful detail Eisman's journey in uncovering the roots of the industry and at every turn how shocked Eisman himself is. Eisman repeatedly questions how it was even possible (or legal for that matter)...

This presentation from Sequoia was mentioned several times in the media, so I finally got around to Google'ing it and found it off of VentureBeat.  Good times.  Oh, I mean RIP good times.  It's actually a really nice macro-economic summary (albeit incredibly depressing).  I love the "let's get drinks" slide at the end. Sequoia Capital on startups and the economic downturn View SlideShare presentation or Upload your own. (tags: depression recession )

I read an article about 4 months back in the WSJ (" Study Refutes Niche Theory Spawned by Web ") regarding a debate between traditional marketing theory where businesses focus on producing and distributing blockbuster products (that have significant marketshare) vs. a new paradigm where businesses shift production and distribution to a vast array of products tailored specifically to the individual tastes and needs of consumers.   The latter theory is generally referred to as the "Long Tail", but a recent study by a Harvard Business School professor seems to refute that theory.  Adding to the discussion, I just watched a fascinating interview with Eric Schmidt , the CEO of Google, in The McKinsey Quarterly where he talks about why businesses should not focus their strategy on the long tail. First, what is the "long tail"? We can summarize the long tail as follows (here we draw on a few sources including HBR - The Long Tail Theory in Short , WSJ - see link a...

I watched this 7 min video from the McKinsey Quarterly and thought it was pretty good. It focuses on the urbanization that China will undergo over the next decade as hundreds of millions of people flock to urban centers. It also deals with how China should build those urban centers - lots of mega-cities of 10 million+ vs. some mega-cities surrounded by mid-size cities in a hub-and-spoke model vs. proliferation of small townships. Here's the video: The accompanying article on the topic covers the same material in a little more analytic detail.  Beyond the exact format the urbanization will take, what I think is more interesting is the implications that any mass urbanization will have on the economy there.  Here are some areas of concern: Land - with urbanization and development comes urban sprawl and the loss of arable land - which means heightened concerns over food security Energy - the demand for energy and energy resources will more than double (from 60 quadrillion Brit...

I saw this on BigThink. Soros talks about how consumer spending has been America's engine of growth over the past decade. The current financial crisis has basically shut that engine off. So, what's the next engine that's going to take us out of the recession/depression we're heading into? Soros thinks it's energy - alternative energy and energy savings technology. video platform video management video solutions free video player

It's been a few months since I've posted anything up here (chalk it up to b-school). But I figure I should try to keep in the habit of posting things I come across. With the election only 8 days away, I thought this one was appropriate. I read a post in Mankiw's blog called " My Personal Work Incentives ". He takes a look at each of the candidates tax plans, specifically the high-end of where their tax plans would place people and companies, and then considers where an additional dollar earned today would be 35 years from now. Basically, if he earned an additional dollar today and saved it for 35 years with interest at 10%, what could he expect to hand over to his kids in 35 years (taking into account personal income taxes, capital gains taxes, corporate taxes, and estate taxes)? So, it turns out that $1 would yield $28 to his kids without taxes, $4.81 with McCain's tax plan, and $1.85 with Obama's tax plan. I thought this was a funny closing line: The bot...

"Across the United States, if someone is injured in an auto accident, the chances are about one in seven that the at-fault driver is uninsured" - so says a 2006 article in the Insurance Journal. Why should you care? Because you could be involved in one of those accidents. I learned that the hard way today. I got hit by someone yesterday in a parking lot. At the scene they claimed to have auto-insurance and I jotted down their insurance and license info, but when I called their insurance company today to file a claim I discovered there policy had lapsed. Lucky for me the damage was minor. As it turns out, though, I shouldn't have been surprised that the driver was uninsured. In California, the rate of uninsured motorists is even more outrageous - one in four ! That's the second worst uninsured rate in the United States. That's sad. (And the lesson here - always always always call the police to file a report!) So how could the problem be this bad? I suppose this ...

I read an article in the WSJ (Merger, Indian Style: Buy a Brand, Leave it Alone) a while back about how Tata Motors was going to buy Jaguar and Land Rover from Ford. The main focus of the story was how Tata was looking to learn from the US companies: Rather than seeking to wring profits out of two luxury automotive brands that frequently have lost money, Tata is looking to learn from them to help launch its own global expansion in autos, using the brands' own management team and a full roster of employees. I thought that was an interesting trend. I later came across an opinion piece by Matthew Slaughter, an associate dean and professor at Tuck, about what the Tata deal tells us about the benefits of foreign direct investment. He pointed out how these multinationals undertake their "insourcing" deals: It is well known that new FDI can come via "greenfield" investments that build new businesses from scratch. Think photo opportunities of business executives and...

I was skimming through Mankiw's blog and came across a post on McCain and Obama's positions on carbon auctions . I mentioned the importance of the carbon auctions in my previous post as a lesson that the US is learning from the mistakes in the EU - i.e. giving away carbon credits in many cases actually serves as a subsidy. Mankiw's point is that you have to go with a full auction system because it most closely resembles a Pigovian Tax, which apparently is the optimal policy response to externalities. A Pigovian Tax is basically just a tax levied to counter negative externalities in a market. If you give away carbon credits for free, there's no price and no incentive to improve. Instead, you have to put a price on the externality and make people pay for it. And then theoretically the revenue that's generated from the tax could be used on research or projects to mitigate the impact of the externalities. I also read an article recently about what's called a ...

I read a few articles about the proposed cap-and-trade system in the U.S. and thought it'd be a good opportunity to read up on the Kyoto Protocol. According to a press release from the United Nations Environment Programme (from Wikipedia): The Kyoto Protocol is an agreement under which industrialized countries will reduce their collective emissions of greenhouse gases by 5.2% compared to the year 1990 (but note that, compared to the emissions levels that would be expected by 2010 without the Protocol, this limitation represents a 29% cut). The goal is to lower overall emissions of six greenhouse gases - carbon dioxide , methane , nitrous oxide , sulfur hexafluoride , hydrofluorocarbons , and perfluorocarbons - averaged over the period of 2008-2012. National limitations range from 8% reductions for the European Union and some others to 7% for the US, 6% for Japan, 0% for Russia, and permitted increases of 8% for Australia and 10% for Iceland. An additional summary from Wikipedia o...

Ok. I think I've beaten the corporate tax horse to death lately, but I like Greg Mankiw so I wanted to post this one. He wrote an opinion piece in the NY Times a few weeks ago about reducing corporate taxes. A couple good excerpts: A cut in the corporate tax as Mr. McCain proposes would initially give a boost to after-tax profits and stock prices, but the results would not end there. A stronger stock market would lead to more capital investment. More investment would lead to greater productivity. Greater productivity would lead to higher wages for workers and lower prices for customers. Populist critics deride this train of logic as “trickle-down economics.” But it is more accurate to call it textbook economics. Students in introductory economics courses learn that the burden of a tax does not necessarily stay where the Congress chooses to put it. That lesson is especially relevant when thinking about the corporate tax. He continues further to discuss why to focus on corporate ...

I read an interview with Robert Mundell in the opinion section of the WSJ this morning. Robert Mundell is regarded as the father of supply-side economics and the euro. He won a Nobel Prize for Economics in 1999 (the same year the euro was introduced). In the interview, Mundell offers some interesting commentary on the current state of the economy, including issues like the current marginal tax rate, the corporate tax rate, and the weak dollar. I figured it would also be an opportunity to explore supply-side economics a little further. An aside - why focus on the " marginal " tax rate? The marginal tax rate is looking at the rate at which the next dollar that someone earns gets taxed. So basically, to what extent does someone have an incentive to make that next dollar? The distinction becomes important when you have a graduated or progressive tax system like you do in the U.S. (and many other countries for that matter). Here's a quick view of the progressivity o...

While I was over in Italy there was quite a bit of coverage of the EU referendum in Ireland. On the flight back I read an interesting article in the Financial Times. Ireland had not yet voted on the measure at the time of the article and they subsequently voted No. There was a tremendous amount of campaigning and advertising around both the Yes and No sides. But what I found particularly interesting about the situation is that it was actually the left-wing (unions, etc.) that were pushing for the No vote. And one of the primary reasons they were pushing the No vote was because they claimed that Ireland must lose control of their ability to continue to have low corporate taxes. Unions pushing for lower corporate taxes! Amazing, right? Ireland has corporate taxes hovering around 12.5% and their economy has benefited significantly as a result. Here's a quick excerpt from the article: Ireland's corporate tax take was €6.4bn last year, representing a little less than half t...

I've read some articles lately about medical tourism and came across one today from BusinessWeek called " Outsourcing the Patients ". It talks about a really interesting trend of health insurers sending their policyholders overseas to get health care because the costs are so much cheaper. And we're not talking about some obscure insurers, the article refers to Blue Cross Blue Shield of South Carolina for its example. These insurers are really concerned about rising health care costs in the U.S. It's what sent WellPoint's stock tumbling almost 30% this past week - an amazing loss in market value - because they had to make "revisions to our prior earnings guidance due to higher than expected medical costs". One of the biggest Blue affiliates with over 250 actuaries underestimating costs definitely spooks the market and speaks to how high costs really are. To put how high costs are in perspective, here's a summary from the BusinessWeek article co...

I'm not really a Michael Moore fan, but I do have to say that I enjoyed watching his movie SiCKO a few weeks ago. It's sensationalized, melodramatic, and uses his usually hyperbole. You laugh, sometimes you want to cry, your jaw drops repeatedly because of ridiculous juxtapositions, but it gets the basic point across - we have a problem here. And the movie does offer some really good background on the health-care industry and how it differs from those in other countries, particularly those in Europe. The basic question it raises is the following: in a developed economy, should health care be an entitlement? It's a pretty interesting policy question. The ultimate goal as a nation, as I'm sure no one would disagree, is to generate the best overal health for the citizens of a country as efficiently as possible with the least amount of cost. Sounds simple. But how do you do that? Do you rely on the free markets? Do you socialize health care? What system generates the best...