Category Archives: Personal

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2015 Maine Winter Hackathon and Adventure Club

This post is available here: https://medium.com/@danvk/2015-maine-winter-hackathon-and-adventure-club-2192a2699d39#.vr4wwlpuu

The Hidden Cost of Credit Ratings

justice

The NY Times’ “The Hidden Cost of Trading Stocks” paints a concise and damning picture of yet another malpractice in financial services.  This has been a recurring theme.   

Another storm may be brewing – this time for the credit ratings industry.  

It is standard practice for issuers to hire ratings agencies to rate their securities.  This practice has lead to incentives to give higher ratings when trying to get business from securities issuers, putting the ratings agencies in the position of representing the issuers when they are given special status to serve and protect investors.  They are not even required to disclose the conflict of interest.  The closest we get to protection is a lawsuit when they explicitly advertise objectivity.

It now looks like 16 states will each get their chance to sue individually.  This may be the beginning of a big and positive change.  If conflicts of interest did influence credit ratings, it would shift capital and damage economic efficiency even when it is not misdirecting pension money into a mortgage bubble.  I wonder if we will see a social media movement to influence reform like we are seeing with network neutrality and “common carrier” status.  I hope so.

 

Gallery

Boston has grown on me

This gallery contains 11 photos.

Longstanding commitment to learning and teaching Museum of Science delivery, 1984 . . . World class institutions of learning MIT Media Lab, 2013 . . . Curious and brilliant people New England AI . . . Fresh, clear thinking A … Continue reading

Crisis of Confidence

I, through my firm, was a customer of PFG, the latest registered broker dealer to steal from its clients’ accounts – first reports indicate $200 million may have been taken.  This pattern is becoming too frequent. Innocent victims have lost money yet again.  How did it come to this?

Broken Markets

Self-regulation by an oligopoly… I don’t think there is any economist or politician who wanted this outcome, but special interests and lobbying have led to this.  This is how the futures industry works today.

Capitalism is broken without fair rule of law and regulation, and today top firms organize and self-regulate with practices that add cost but lack teeth. This discourages competition from smaller companies, but it also gives the largest companies free reign to raid their clients’ accounts and hide their crimes for years. So far it seems there is little or no accountability when they are discovered.

If market participants cannot expect basic protections, then they will leave, prices will fall, volume will shrink, and markets will whither.  Companies will have less access to capital and be exposed to more risk, and the economy and workers will suffer.  We’re already a long way down this path.

The economic ideal and the allure of free markets is only possible when regulation protects innocent market participants, minimizes fraud and cheating, and does not deter innovation. That means expanded domain of the SIPC, the SEC should have unlimited authority to monitor accounts and communication (opt-in would be fine), and companies should only minimally participate in their own oversight. With this structure, investors would be protected, transparency would reduce fraud, and free markets could flourish with competition and innovation.

Sounds obvious, but don’t hold your breath.

Corporate Corruption

There are a lot of types of corporate corruption, but they all start from an imbalance in power and oversight.  There is one tiny change could have a huge impact on this problem: allow shareholders to nominate people for elections of the Board of Directors of public companies.  It’s a small, seemingly obvious shareholder right, but it would have a big impact.

Management should not have the exclusive right to nominate their bosses. In fact, because the Board of Directors is supposed to represent the owners’ interest, it seems crazy that owners can not nominate. When the owners of a company are empowered to nominate Board members, management comes back under control, compensation comes back to reality, performance is scrutinized better, and the interests of investors are better served.

In private equity and smaller firms of every kind, this is always how it has worked.  Major shareholders often join Boards of private companies and nominate other Board members.  How public companies ever achieved the ability to control the Board nominations without rights for shareholders, I’ll never understand.

Too much

There are so many other ways that markets are broken and corruption is bringing us down.  Is it too much to fix?  Are we destined to watch for the rest of our lives as the emerging markets grow right past us and Americans fight amongst ourselves? Is our political and influence machinery too dogmatic or corrupt to embrace new good ideas together?

I’m not confident.

Black Holes and the Big Bang

I’ve been watching Science Channel shows about black holes lately. I know nobody knows the physics beyond the event horizon, including time and space… but doesn’t it seem like an elegant possibility would be that inside a black hole, everything collapses and explodes in a big bang that is entirely contained within the black hole. New time and space, and all the mass and energy in the black hole continue within the sphere of the event horizon. An explosion of the singularity at the center would look from the inside like a big bang, and the curvature of space time might even have edge effects that draw matter back toward the event horizon, causing the accelerating expansion we see in red shift.

It feels like the more we learn about the universe, the more we discover that we have yet to understand.

The scope of physics is so awesome.

Tsunami dream

I finally got some sleep last night. A week of stress and conflict, topped off with a terrible earthquake and tsunami in Japan. In my dream I was in a meeting, talking to friends in a very tall glass tower. I was standing by the wall of windows and looking out over the seacoast skyline. In the distance a big wave forms like a lump in the sea. It is moving toward us. The shore recedes, rolling back into the ocean. My breath stops. My hands on the glass. The wave comes in fast and high. It climbs up, out the of sea and starts to form a crest. I feel like we’re hundreds of feet in the air, but the wave is breaking just beneath us. I don’t feel a thing. The building doesn’t move at all. I watch other buildings wiped away. A mess of lumber and cars and buildings and people floats along as the water continues to push through the city. Small fires ignite and send up little tufts of smoke that must be hundreds of feet across when you get close. I was still. The building was still. Nobody said anything. I woke up. Maybe if I go back to sleep it will be different.