Thursday, February 26, 2015

Retirement Funds

Matt Levine writes of the White House proposal to rein in fees in retirement accounts:
The world view underlying this report seems to be that a lot of what the financial industry does is extract unproductive fees for itself from ignorant consumers, and that you can crack down on the fees -- and save consumers money -- without reducing the incentives for any socially productive activity. This, it goes without saying, is a hugely popular theory. I feel like it is generically wrong, but there may be many, many places where it is specifically correct.

It's the same world view FLG has been concerned with since at least 2009:
For most banks the real profits now come from late fees, balloon payments, default interest rates, and a host of other tricks and traps. In other words, making a profit has become an exercise in misdirection and misinformation. Sneaky has become the norm. 

Should most people just invest in low cost, passively managed index funds?  Absolutely.   Are there perverse incentives in financial advising?   Absolutely.   Do we need to make brokers and financial planners fiduciaries?   Absolutely not. 

A Little Bit Of Haberdashing

FLG is really torn on whether to buy this blazer.  While solid navy in color, it's got a fascinating texture to the weave.  Reminds him of the navy grenadine tie he loves.  Obviously, he wouldn't wear them at the same time.

Wednesday, February 25, 2015

Volcker Rule

FLG has long argued that the Volcker Rule sounds good in theory, don't let the banks take on risk subsidized by the tax payer by limiting their ability to trade on their own accounts, but that it would be difficult if not impossible to actually implement such a rule because in any particular trade it is near impossible to be certain whether the bank is taking on or laying off risk.  For example, let's say a bank engages in an interest rate swap to transform some of their fixed rate assets into variable rate assets.  Does that mean they are taking on risk?   They are going from certain cash flow to uncertain cash flow, so you could say, yes, more risk.  What if the bank had 90% fixed rate assets and the bank was concerned interest rates were going to rise?    Then the swap seems like a prudent move to hedge risk.  Anyway, after years, the regulators are actually trying to implement it.

From the FT:
Five years later it is crunch time. The regulators have to start implementing the rule. But it might not be enforceable.

Matt Levine at Bloomberg put together this handy chart that illustrates the silliness:
That chart is nonsense, which is partly my fault -- don't go trade on it or anything -- but mostly the fault of the Volcker Rule.

The whole endeavor was silly from the beginning.   FLG was always in favor of increasing capital requirements and decreasing leverage, but leaving the what they were levering up on and what risks they were taking to the banks.    FLG is even okay with putting a cap on bank size.  Heck, he's even in favor of limiting interstate banking as a way to contain banks.  (Although, he is still extremely skeptical about attempts to reimpose Glass-Steagall.)    Dodd-Frank is such a mess.

Sunday, February 22, 2015

A Couple of Things

First, on the Blacklist, Red Reddington used the phrase "wealth of Croesus."    FLG was unfamiliar with the name and thought, perhaps, it was a mispronunciation of Crassus, who was asstonishingly rich.   But alas, no, it was Croesus.  In fact, on the Wikipedia page of wealthiest historical figures, in the ancient section, Croesus directly above Crassus.

Second, FLG doesn't think this is entirely fair to Chris Hayes, but he laughed nonetheless:
Give Holden Caulfield a television show and you’ve got Chris Hayes.


Tuesday, February 17, 2015

Understanding The Mind Of The Enemy

FLG read this article about ISIS with much interest.   He was particularly struck by this passage:

There is a temptation to rehearse this observation—that jihadists are modern secular people, with modern political concerns, wearing medieval religious disguise—and make it fit the Islamic State. In fact, much of what the group does looks nonsensical except in light of a sincere, carefully considered commitment to returning civilization to a seventh-century legal environment, and ultimately to bringing about the apocalypse.

One of the best courses FLG took at Georgetown focused on understanding politics through the eyes of Muslim believers.   Too often individuals, peoples, and countries, assume that others, at their core, are like them.  Or maybe it's that they want to believe others are ultimately like them.   It's comforting to think that maybe the conflict is over some economic or political dispute that can be negotiated away.

Theological and ideological disagreements are different.   We must understand the self-conception of ISIS is we are to defeat them.  For FLG, this means that " well-intentioned but dishonest campaign to deny the Islamic State’s medieval religious nature" by the Left is deeply troubling.   Similarly, the rush to simply call ISIS evil on the Right is also problematic.  FLG thinks they are evil.   It's the idea that evil is somehow undifferentiated in its forms and that all evil must simply be destroyed.   Understanding the the exact nature of this particular form of evil will allow us to defeat it more successfully.   That understanding will allow us to predict their actions and responses to our actions, but more importantly allow us to find a way to destroy, over time, the ideas they are putting forth.

Friday, February 13, 2015

Continental Illinois National Bank and Trust

FLG first learned of Continental Illinois National Bank and Trust from The Ancient years ago.  FLG enjoyed this recent post at Motley Fool about "Too Big To Fail" lessons from Continental Illinois:
1. Today's darlings are tomorrow's pariahs
2. Rapid growth is a red flag
3. High profits often precede a fall
4. The perils of relying on "hot money"
5. Rumors alone can bring down even the biggest of banks

It's funny because FLG came away with most of these same lessons from the Northern Rock failure over two decades later.   Guess it's one of those cases of being doomed to repeat history.

Thursday, February 5, 2015

Time Horizons

Victor Davis Hanson:
stronger democratic nations feel that they can continue to enjoy short-term calm and peace of mind -- and let others worry about any long-term likelihood of aggression. 

Still all about time horizons for FLG. 

Tuesday, February 3, 2015

Time Horizons

Sure, FLG doesn't blog much anymore, but he would be so remiss if he didn't post this link he might as well just shut the blog down.

Maybe Washington is starting to get over its narrow-minded, irresponsible obsession with long-run problems and will finally take on the hard issue of short-run gratification instead.

Sunday, February 1, 2015

Quote of the day

George Will:
Take the day off, better angels of our nature, because nothing says America like football played indoors in air conditioning on grass in the desert.
 
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