McCahery, Joseph A. and Vermeulen, Erik P. M., Recasting Private Equity Funds after the Financial Crisis: The End of 'Two and Twenty' and the Emergence of Co-Investment and Separate Account Arrangements (November 8, 2013). Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-2. Available at SSRN: http://ssrn.com/abstract=2351816
"This article examines the post-financial crisis trends in the private equity industry. Although most research has followed the pre-crisis trends, we show that investors are demanding the inclusion of more investor-favorable compensation terms in limited partnership agreements. Our findings suggest that these new terms not only provide the investors with more favorable management fee and profit distribution arrangements, but also give them more control over the fund’s investment decisions. Importantly, the new pattern also reveals the inclusion of more straightforward co-investment rights. Besides the contractual ‘improvements’, we observe that investors want to see more skin in the game from the managers/general partners."
Keywords: AIFMD, Carried Interest, Co-Investment Rights, Private Equity Fees
This article reviews the mechanics of the Bitcoin currency and offers some thoughts on its characteristics. read the article on the Chicago Fed homepage
Excerpt from the authors conclusion:
..."Some of bitcoin’s features make it less convenient than existing currencies and payment systems, particularly for those who have no strong desire to avoid them in the first place. Nor does it truly embody what Hayek and others in the “Austrian School of Economics” proposed. Should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable. That said, it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves."
Keywords: Bitcoin, Private Currency, Alternative to Money Monopoly of Government
A lot of serious stuff explained in a convincing, funny way. Some explanations could certainly be questioned.
Keywords: Europe, European Crisis, ECB Monetary Policy
Keywords: Wealth, Middle Class, Liberalization
Admati, Anat R. and DeMarzo, Peter M. and Hellwig, Martin F. and Pfleiderer, Paul C., Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Socially Expensive (October 22, 2013). Rock Center for Corporate Governance at Stanford University Working Paper No. 161. Available at SSRN: http://ssrn.com/abstract=2349739
"We examine the pervasive view that "equity is expensive," which leads to claims that high capital requirements are costly for society and would affect credit markets adversely. We find that arguments made to support this view are fallacious, irrelevant to the policy debate by confusing private and social costs, or very weak. For example, the return on equity contains a risk premium that must go down if banks have more equity. It is thus incorrect to assume that the required return on equity remains fixed as capital requirements increase. It is also incorrect to translate higher taxes paid by banks to a social cost. Policies that subsidize debt and indirectly penalize equity through taxes and implicit guarantees are distortive. And while debt’s informational insensitivity may provide valuable liquidity, increased capital (and reduced leverage) can enhance this benefit. Finally, suggestions that high leverage serves a necessary disciplining role are based on inadequate theory lacking empirical support.
We conclude that bank equity is not socially expensive, and that high leverage at the levels allowed, for example, by the Basel III agreement is not necessary for banks to perform all their socially valuable functions and likely makes banking inefficient. Better capitalized banks suffer fewer distortions in lending decisions and would perform better. The fact that banks choose high leverage does not imply that this is socially optimal. Except for government subsidies and viewed from an ex ante perspective, high leverage may not even be privately optimal for banks.
Setting equity requirements significantly higher than the levels currently proposed would entail large social benefits and minimal, if any, social costs. Approaches based on equity dominate alternatives, including contingent capital. To achieve better capitalization quickly and efficiently and prevent disruption to lending, regulators must actively control equity payouts and issuance. If remaining challenges are addressed, capital regulation can be a powerful tool for enhancing the role of banks in the economy."
Keywords: Financial Institutions, Capital Structure, "Too Big To Fail"
Nobel Laureate Edmund Phelps, author of the book "Mass Flourishing - How Grassroots Innovation Created Jobs, Challenge, and Change"
Keywords: Wealth, Growth, Mass Flourishing
Keywords: Economy, Economic Basics
"We disaggregate the self-employed into incorporated and unincorporated to distinguish between “entrepreneurs” and other business owners. The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. Besides coming from higher-income families with better-educated mothers, the incorporated—as teenagers—scored higher on learning aptitude tests, had greater self-esteem, and engaged in more aggressive, illicit, risk-taking activities. The combination of “smarts” and “aggressive/illicit/risk-taking” tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs. In contrast to a large literature, we also find that entrepreneurs earn much more per hour than their salaried counterparts."
Keywords: Self-Employed, Entrepreneurs, Earnings
More realistic CBO assumptions show that it is very difficult to get out of the debt trap:
....A very striking feature of the latest CBO report is how much worse it is than last year's. A year ago, the CBO's extended baseline series for the federal debt in public hands projected a figure of 52% of GDP by 2038. That figure has very nearly doubled to 100%. A year ago the debt was supposed to glide down to zero by the 2070s. This year's long-run projection for 2076 is above 200%. In this devastating reassessment, a crucial role is played here by the more realistic growth assumptions used this year.....
Most CBO scenarios do not show how debt can be reduced:
...Only in three of 13 scenarios?two of which imagine politically highly unlikely spending cuts or tax hikes?does the debt shrink from its current level of 73% of GDP...
Keywords: US Government Shut Down, US Debt
..."Study the roots of our new tech economy, and you’ll find that it differs in important ways from the Internet bubble of the ’90s. That blip was fed by the promise of future billions that we were certain to realize from the web economy. Today’s tech industry, on the other hand, feeds off of three megatrends that are already minting billions by revolutionizing every sector of the global economy, including healthcare, manufacturing, energy, media, and advertising. The first of these trends is the transition from hulking desktop PCs to ubiquitous mobile devices that allow tech firms—most notably Bay Area behemoths Apple, Google, and Facebook—to address their customers’ desires at a proximity never before achievable. The second is the rising urge to incorporate software into every corner of our lives: from booking restaurants (OpenTable), to hailing cabs (Uber), to searching for jobs (LinkedIn), to adjusting our home heating and cooling systems (Nest), to paying for everything (Square, PayPal), to finding a room anywhere in the world (Airbnb). Third is our full-throated embrace of personalized services—from algorithmically determined TV programming (YouTube, Netflix) to geographically targeted advertising (Google, Facebook, Twitter)—that are fueled by ever-larger storehouses of data collected through our mobile gadgets. And all of these forces amplify one another. More mobile devices make for more personal data, which allow for better personalized software that we use more often, which in turn makes mobile devices more attractive—and on and on in a gilded upward spiral." Source: San Francisco Magazine
Keywords: Technology, Innovation, Tech Boom
It’s time to gore another collectivist sacred cow. This time it’s the popular idea that the successful are obliged to “give back to the community.” That oft-heard claim assumes that the wealth of high-earners is taken away from “the community.” And beneath that lies the perverted Marxist notion that wealth is accumulated by “exploiting” people, not by creating value–as if Henry Ford was not necessary for Fords to roll off the (non-existent) assembly lines and Steve Jobs was not necessary for iPhones and iPads to spring into existence. read the whole article in Forbes
Keywords: Income, Wealth, Contribution to Society
“‘Your No. 1 client is the government,’ John J. Mack, Morgan Stanley MS +0.75%‘s chairman and chief executive from 2005 to 2009, told current CEO James Gorman in a recent phone call. Mr. Gorman, who was visiting Washington that day, agreed.” – Wall Street Journal, September 10, 2013.
The five year anniversary of the ‘financial crisis’ has predictably generated all manner of commentary about its presumed causes. What’s most unfortunate five years later is that ‘financial’ and ‘crisis’ are still used together. It’s unfortunate simply because despite what you read, the crisis was decidedly not financial, nor was it caused by a crackup in the housing market, nor was it caused by the failure of Lehman Brothers. read more in Forbes
Keywords: Financial Crisis, Great Depression, Government, Banking Sector, Government and Market Distortions
"Germany's agressive and reckless expansion of wind and solar power has come with a hefty pricetag for consumers, and the costs often fall disproportionately on the poor. Government advisors are calling for a completely new start."
....."For society as a whole, the costs have reached levels comparable only to the euro-zone bailouts. This year, German consumers will be forced to pay €20 billion ($26 billion) for electricity from solar, wind and biogas plants -- electricity with a market price of just over €3 billion. Even the figure of €20 billion is disputable if you include all the unintended costs and collateral damage associated with the project. Solar panels and wind turbines at times generate huge amounts of electricity, and sometimes none at all. Depending on the weather and the time of day, the country can face absurd states of energy surplus or deficit.
If there is too much power coming from the grid, wind turbines have to be shut down. Nevertheless, consumers are still paying for the "phantom electricity" the turbines are theoretically generating. Occasionally, Germany has to pay fees to dump already subsidized green energy, creating what experts refer to as "negative electricity prices."
On the other hand, when the wind suddenly stops blowing, and in particular during the cold season, supply becomes scarce. That's when heavy oil and coal power plants have to be fired up to close the gap, which is why Germany's energy producers in 2012 actually released more climate-damaging carbon dioxide into the atmosphere than in 2011." Source: Spiegel
Keywords: Energy Policy, Energiewende, Solar Power, Wind Power, Nuclear Power
as an Apple user I hoped them to come up with a smartwatch first. Advantages of such watches are obvious. They are the future.
Keywords: Smartwatch, Galaxy Gear
The beauty of owning energy transmission infrastructure are big barries to entry once the lines are established. Investment is tremendous. Only big players and governments so far play an important role:
..."Simply put, the world is going to need more transmission capabilities. The Energy Information Administration estimates that electricity demand will grow 93 percent over the next 27 years, rising from 20.2 trillion kilowatt hours in 2010 to 39 trillion kilowatt hours by 2040. Most of the growth will occur in emerging nations, where transmission and distribution networks are often inadequate, rickety and subject to failure.
While decentralized power delivered through microgrids and energy storage will likely play a fundamental role in meeting the demand for electricity in these countries, it’s a good bet that centralized power plants linking to long-distance transmission lines will be there too..
...The latest technology, meanwhile, provides distinct advantages. An HVDC transmission line carrying thousands of megawatts might lose 6 to 8 percent of its power over 1,000 miles. A similar AC line can lose 12 to 25 percent. DC lines can also better manage the variable output from renewable power plants. South Korea, China, Japan and the Scandinavian nations were early adopters of HVDC: the U.S. has projects underway as well"...
Keywords: Smart Grid, Energy Transmission
"Rule No. 1: Never lose money; rule No. 2: Don't forget rule No. 1."
"Someone's sitting in the shade today because someone planted a tree a long time ago."
"No matter how great the talent or efforts, some things just take time. You can't produce a baby in one month by getting nine women pregnant."
Keywords: Wisdom, Value Investment
Six months ago, I wrote that long-term interest rates in the United States would rise, causing bond prices to fall by so much that an investor who owned ten-year Treasury bonds would lose more from the decline in the value of the bond than he would gain from the difference between the bonds’ interest rate and the interest rates on short-term money funds or bank deposits. read more on Project Syndicate
Keywords: Interest Rate, Discount Rate
Running With The Crowd
Focusing On Recent History
Missing The Forest For The Trees
Extrapolating From Popular Success Stories
Keywords: Asset Allocation, Behavioral Finance, Bias
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