Summary of business news and analysis

UCLA researchers have found that leading up to the Financial Crisis, subprime lenders employed a novel method of influencing the political process. In addition to campaign contributions to key politicians, they gave special treatment to borrowers represented by key congressional leaders.

AEI: A study in crony capitalism: Subprime lenders offered better deals to borrowers in districts of congressional big shots, May 6, 2013

read more on AEIdeas

Keywords: Subprime, Crony Capitalism,

Forbes: 5 Reasons the Government Fails at Venture Capital, 2013

Keywords: Government, Venture Capital, Government as Venture Capitalist

constantly updated tech news to flip through:

Intel Free Press

Tech Crunch

Mercury News - Venture Capital

Keywords: Corporate Profits, GDP, Growth

Forbes: The Cyprus Bank 'Bail-In' Is Another Crony Bankster Scam, May 3, 2013

..."I have been an advocate of restructuring insolvent banks according to these basic capitalistic principles, which requires no public funds.

The difference with the “bail-in” is that the order of creditor seniority is changed. In the end, it amounts to the cronies (other banks and government) and non-cronies. The cronies get 100% or more; the non-cronies, including non-interest-bearing depositors who should be super-senior, get a kick in the guts instead.

Here’s what it looked like in Cyprus:"

read more in Forbes

Keywords: Cyprus, Bail Outs

...."The notion that these challenges are new -- that there was some golden era when Americans were prepared to kick up their feet and enjoy retirement in financial security -- is a myth. By some measures, retirees are in a better position today than at any other time in modern history"...

read more on The Motley Fool:

The Motley Fool: The Biggest Retirement Myth Ever Told, May 2,2013

Keywords: Retirement, Pension Funds

You find below selected feeds of think tanks, institutes and institutions which support the idea of liberty and free markets.

You find here comprehensive lists of libertarian think tanks around the globe:

List of libertarian think tanks (global list)

Stockholm Network (European)

Videos (on Youtube) of the Cato Institute (United States)

Podcast feed of the Cato Institute (United States)

The American Enterprise Institute (United States)

Mercatus Center (George Mason University, United States)

The Circle Bastiat(Mises, United States)

Videos (on Youtube) of The Adam Smith Institute (United Kingdom)

Institute of Economic Affairs IEA (United Kingdom)

Fondation pour L'Innovation Politique (France)

Keywords: Innovation, Future of Work

Keywords: Long Term View, Focus, Value Investing

US public debt is skyrocketing. Future reduction due to economic improvement wishful thinking?

Keywords: US Employment, US Oil and Gas Extraction, Fracking

Great comparison of budget proposals:

Mercatus Center: FY2014 Budget Proposals In Perspective, April 11, 2013

With the recent release of President Obama’s FY 2014 budget, it is important to put the budget numbers from the various proposals into proper perspective. These charts compare the patterns of future spending projections from the Senate Democratic budget by Chairman Patty Murray, House Republican budget by Chairman Paul Ryan, Senator Rand Paul’s budget, and the president’s budget. read more on the homepage of Mercatus Center

Keywords: US 2014 Budget, US Deficit, US Spending

Once political uncertainty is not as big anymore, strong IPO activity can be expected. Big data and online processing are big themes:

CNN Money: Stop sweating the tech IPO 'drought', March 22, 2013

.....
Lise Buyer of Class V Group, for example, says that many issuers postponed Q4 2012 or Q1 2013 offerings due to concerns over how the public markets would react to both the presidential election and fiscal cliff negotiations -- worries reflected in a late December volatility index spike. The fiscal cliff situation was revolved in early January, but it takes several months for company's to restart their IPO processes. "Most of those companies still plan to go out," Buyer says. "So there's an awful lot in the pipeline." .... read more on CNN Money

Keywords: IPO, IPO activity, Tech, Venture Capital, Big Data, Online Processing

Keywords: Steve Jobs, Visionary Thinking, Entrepreneurship

no surprise that specific situations have an impact on the valuation of portfolio companies during the holding period. What matters at the end is net cash in after the liquidation of a fund. In this respect, the cash returns of the top players are attractive, at least in the buy out segment.

Jenkinson, Tim, Sousa, Miguel and Stucke, Rüdiger, How Fair are the Valuations of Private Equity Funds? (February 27, 2013). Available at SSRN: http://ssrn.com/abstract=2229547

Abstract:

"The ultimate performance of private equity funds is only known once all investments have been sold, and the cash returned to investors. This typically takes over a decade. In the meantime, the reported performance depends on the valuation of the remaining portfolio companies. Private equity houses market their next fund on the basis of these interim valuations of their current fund. In this paper we analyze whether these valuations are fair, whether the extent of conservative or aggressive valuations differ during the life of the fund, and at what stage interim performance measures predict ultimate performance. This paper is the first to use the quarterly valuations and cash flows for the entire history of 761 fund investments made by Calpers – the largest U.S. investor in private equity. Our main findings are as follows. First, over the entire life of the fund we find evidence that fund valuations are conservative, and tend to be smoothed (relative to movements in public markets): valuations understate subsequent distributions by around 35% on average. We find a significant jump in valuations in the fourth-quarter, when funds are normally audited. Second, the exception to this general conservatism is the period when follow-on funds are being raised. We find that valuations, and reported returns, are inflated during fundraising, with a gradual reversal once the follow-on fund has been closed. Third, we find that the performance figures reported by funds during fund-raising have little power to predict ultimate returns. This is especially true when performance is measured by IRR. Using public market equivalent measures increases predictability significantly. Our results show that investors should be extremely wary of basing investment decisions on the returns - especially IRRs – of the current fund."

Keywords: Private Equity, Private Equity Funds,Valuation

Agnew, Lauryn, Impact Investing for Small, Place-Based Fiduciaries: The Research Study Initiated by the United Way of the Bay Area (December 30, 2012). Federal Reserve Bank of San Francisco Working Paper No. 2012-05 . Available at SSRN: http://ssrn.com/abstract=2222862

Abstract:

"This research discusses the process used to develop model equity and fixed income portfolios that could, if adopted by an organization, align 100% of the assets in its endowment fund with a mission to reduce poverty in the San Francisco Bay Area. Given that endowments funds must follow fiduciary standards of maximizing risk-adjusted performance, the model portfolios in the study were analyzed and tested against traditional, institutional non-impact benchmarks and portfolios and were found to provide similar risk and return expectations.

Keywords: Impact Investing, Micro Finance

Keywords: Entrepreneurs, Entrepreneurship

Keywords: Private Equity, Value Creation

Kimbro, Marinilka Barros and Xu, Danielle, Should Shareholders Have a Say on Executive Compensation? Evidence from Say-on-Pay in the United States (February 2013). Available at SSRN: http://ssrn.com/abstract=2209936 or http://dx.doi.org/10.2139/ssrn.2209936

Abstract:

"This paper examines the SEC 2011 regulation requiring an advisory (non-binding) shareholder vote on the compensation of the top five highest paid executives – “say-on-pay” (SOP). Using a unique dataset of the first two years of SOP votes from the Russell 3000, we find approval (reject) votes are associated with firms that have: better (lower) financial performance, higher (lower) market returns, lower (higher) returns volatility, lower (higher) total compensation, lower (higher) abnormal CEO compensation and lower (higher) abnormal accruals. We also find evidence to suggest that firms that receive a high level of SOP rejection votes subsequently reduce the growth of executive compensation levels. This study contributes to the literature in two ways. First, it is the first to empirically examine the first two years of SOP votes in the United States. Second, our analysis provides evidence of shareholder efficiency in identifying excessive CEO compensation and poor financial performance, thus suggesting that shareholder voting rights are an effective mechanism of corporate governance that addresses the problem of incomplete contracts and management rent extraction. The first two years of SOP votes in the US votes show a great degree of shareholder sophistication in recognizing the monitoring and reward tools that need to coexist between the owners and firm managers."

Keywords: Say on Pay, Corporate Governance, Executive Compensation, Voting Rights

Keywords: Reason, Rationality,Freedom, Libery

We like the description that an entrepreneur is somebody who believes in "a yet-to-be-made future".

Sarasvathy, Saras D., What Makes Entrepreneurs Entrepreneurial?. , Vol. , pp. 1-9, . Available at SSRN: http://ssrn.com/abstract=909038

Abstract:

"What are the characteristics, habits, and behaviors of the species entrepreneur? Is there such a thing as "entrepreneurial thinking"? Is there a learnable and teachable "core" to entrepreneurship? This case examines the problem-solving process of 30 entrepreneurs from a variety of industries whose companies range in value from $200 million to $6.5 billion. Careful analysis reveals a distinct thought process: "effectual reasoning." Using U-Haul as an example, the case delineates the way in which entrepreneurs factor in affordable loss, strategic partnerships, and leveraging contingencies. Thinking entrepreneurially, as opposed to managerially or strategically, means believing in a yet-to-be-made future that can be shaped by human action and realizing that, to the extent that such action can control the future, one need not expend energy trying to predict it. It is much more useful to understand and work with the people who are engaged in the decisions and actions that bring it into existence."

Keywords: Entrepreneur, Entrepreneurship