The sooner we shed our illusion that people end up financially where they deserve to, the faster we’ll fix the economy.
Yes, it should have been obvious before, but now that a seemingly endless parade of bankers have made fortunes while gutting their institutions and sinking the economy, we’re finally having our eureka moment.
Wealth in America increasingly comes not as the proverbial reward of the “free market,” but from rigged compensation systems that reward mediocrity or outright failure. This is causing a brain burp among many professionals — a group I call the Lower Upper Class – because it’s an affront to an idea they’ve cherished since they first started bringing home A’s from school and acing their SATs. [continued…]
U.S. clears path to bank takeovers
The Obama administration yesterday revamped the terms of its emergency aid to troubled financial firms, setting a course that could culminate with the government nationalizing some of the country’s largest banks by taking a controlling ownership stake.
Administration officials said the change, which allows banks to repay the government with common stock rather than cash, is intended to give banks more capital to withstand a continued deterioration of the economy, and not to nationalize the banking system.
But in seeking to bolster investor confidence in troubled companies such as Citigroup, the government said it is willing to acquire large chunks of their shares. [continued…]
Recipe for disaster: the formula that killed Wall Street
A year ago, it was hardly unthinkable that a math wizard like David X. Li might someday earn a Nobel Prize. After all, financial economists—even Wall Street quants—have received the Nobel in economics before, and Li’s work on measuring risk has had more impact, more quickly, than previous Nobel Prize-winning contributions to the field. Today, though, as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut—determining correlation, or how seemingly disparate events are related—and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide. Continue reading
