That’s true. But the history of Wall Street is a series of booms and busts. After each blowup, the firms that survive temporarily shy away from risky ventures and cut back on leverage. Over time, the markets recover their losses, memories fade, spirits revive, and the action starts up again, until, eventually, it goes too far. The mere fact that Wall Street poses less of an immediate threat to the rest of us doesn’t mean it has permanently mended its ways.
Perhaps the most shocking thing about recent events was not how rapidly the big Wall Street firms got into trouble but how quickly they returned to profitability and lavished big rewards on themselves. Last year, Goldman Sachs paid more than sixteen billion dollars in compensation, and Morgan Stanley paid out more than fourteen billion dollars. Neither came up with any spectacular new investments or produced anything of tangible value, which leads to the question: When it comes to pay, is there something unique about the financial industry?
Thomas Philippon, an economist at N.Y.U.’s Stern School of Business, thinks there is. After studying the large pay differential between financial-sector employees and people in other industries with similar levels of education and experience, he and a colleague, Ariell Reshef of the University of Virginia, concluded that some of it could be explained by growing demand for financial services from technology companies and baby boomers. But Philippon and Reshef determined that up to half of the pay premium was due to something much simpler: people in the financial sector are overpaid. “In most industries, when people are paid too much their firms go bankrupt, and they are no longer paid too much,” he told me. “The exception is when people are paid too much and their firms don’t go broke. That is the finance industry.”
On Wall Street dealing desks, profits and losses are evaluated every afternoon when trading ends, and the firms’ positions are “marked to market”—valued on the basis of the closing prices. A trader can borrow money and place a leveraged bet on a certain market. As long as the market goes up, he will appear to be making a steady profit. But if the market eventually turns against him his capital may be wiped out. “You can create a trading strategy that overnight makes lots of money, and it can take months or years to find out whether it is real money or luck or excessive risk-taking,” Philippon explained. “Sometimes, even then it is hard.” Since traders (and their managers) get evaluated on a quarterly basis, they can be paid handsomely for placing bets that ultimately bankrupt their companies. “In most industries, a good idea is rewarded because the company generates profits and real cash flows,” Philippon said. “In finance, it is often just a trading gain. The closer you get to financial markets the easier it is to book funny profits.”
The next few years in the mobile industry are going to be interesting not only because Google and Apple are competing with each other at making the most advanced mobile operating system, or because Nokia, for the first time in their 145 year old corporate history, have a non-Finnish citizen running the ship, but because the fundamental way we interact with each other and the world around us is going to change thanks to near field communication.
Man used to carry cash until roughly 50 years ago when the first credit card with a magnetic stripe was released. It brought about a huge change in people’s spending habits, not only because they could actually borrow money and pay it back at a later point in time, but because the visual artifact of slips of paper and coins was removed from our understanding of how money really works and how much it’s actually worth. Now, with the recent announcement of Isis, a collaboration between Verizon, AT&T and T-Mobile aimed at making your mobile phone the only thing you need to take with you when leaving you home, the world is set to change yet again.
How does that make Visa, one of the ancestors of plastic cash, feel about their role in the future of the daily transactions that make our world economy go round and round? I’m not going to copy and paste the entire article, which I recommend you read, but here is the main argument:
“It might be easy to build an iPhone app that lets you enter in the phone number of a co-worker you want to pay back for lunch, a common promise in the new mobile-payments world. But then someone has to do the intricate behind-the-scenes data processing that makes sure the card isn’t stolen, the people involved aren’t scammers, the payer’s account has the necessary funds and the actual money transfer happens quickly and without a glitch.”
They’re on the defensive, citing their experience with handling mobile payments, but just like Visa killed cashed half a century ago, maybe the little NFC chip inside your next smartphone will the beginning of something new and exciting?
[Via: NFC World]
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Clarissa's Blog: Fox <b>News</b> in Canada
"It will aim to challenge conventional wisdom and offer Canadians a new choice and a new voice on TV," Quebecor Media CEO Pierre Karl Peladeau said as the conservative news channel faces stiff competition from existing cable news ...
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"It will aim to challenge conventional wisdom and offer Canadians a new choice and a new voice on TV," Quebecor Media CEO Pierre Karl Peladeau said as the conservative news channel faces stiff competition from existing cable news ...
Balloon Juice » Blog Archive » Open Thread: Onion <b>News</b> Network!
Angry Black Lady, in her recent post, pointed out how many of Fox's readers (not to mention employees) are humor-impaired. In response, commentor Trollhattan alerts us to the upcoming Onion News Network: ...
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In the upper reaches of Wall Street, talk of another financial crisis is dismissed as alarmism. Last fall, John Mack, to his credit, was one of the first Wall Street C.E.O.s to say publicly that his industry needed stricter regulation. Now that Morgan Stanley and Goldman Sachs, the last two remaining big independent Wall Street firms, have converted to bank holding companies, a legal switch that placed them under the regulatory authority of the Federal Reserve, Mack insists that proper supervision is in place. Fed regulators “have more expertise, and they challenge us,” Mack told me. Since the middle of 2007, Morgan Stanley has raised about twenty billion dollars in new capital and cut in half its leverage ratio—the total value of its assets divided by its capital. In addition, it now holds much more of its assets in forms that can be readily converted to cash. Other firms, including Goldman Sachs, have taken similar measures. “It’s a much safer system now,” Mack insisted. “There’s no question.”
That’s true. But the history of Wall Street is a series of booms and busts. After each blowup, the firms that survive temporarily shy away from risky ventures and cut back on leverage. Over time, the markets recover their losses, memories fade, spirits revive, and the action starts up again, until, eventually, it goes too far. The mere fact that Wall Street poses less of an immediate threat to the rest of us doesn’t mean it has permanently mended its ways.
Perhaps the most shocking thing about recent events was not how rapidly the big Wall Street firms got into trouble but how quickly they returned to profitability and lavished big rewards on themselves. Last year, Goldman Sachs paid more than sixteen billion dollars in compensation, and Morgan Stanley paid out more than fourteen billion dollars. Neither came up with any spectacular new investments or produced anything of tangible value, which leads to the question: When it comes to pay, is there something unique about the financial industry?
Thomas Philippon, an economist at N.Y.U.’s Stern School of Business, thinks there is. After studying the large pay differential between financial-sector employees and people in other industries with similar levels of education and experience, he and a colleague, Ariell Reshef of the University of Virginia, concluded that some of it could be explained by growing demand for financial services from technology companies and baby boomers. But Philippon and Reshef determined that up to half of the pay premium was due to something much simpler: people in the financial sector are overpaid. “In most industries, when people are paid too much their firms go bankrupt, and they are no longer paid too much,” he told me. “The exception is when people are paid too much and their firms don’t go broke. That is the finance industry.”
On Wall Street dealing desks, profits and losses are evaluated every afternoon when trading ends, and the firms’ positions are “marked to market”—valued on the basis of the closing prices. A trader can borrow money and place a leveraged bet on a certain market. As long as the market goes up, he will appear to be making a steady profit. But if the market eventually turns against him his capital may be wiped out. “You can create a trading strategy that overnight makes lots of money, and it can take months or years to find out whether it is real money or luck or excessive risk-taking,” Philippon explained. “Sometimes, even then it is hard.” Since traders (and their managers) get evaluated on a quarterly basis, they can be paid handsomely for placing bets that ultimately bankrupt their companies. “In most industries, a good idea is rewarded because the company generates profits and real cash flows,” Philippon said. “In finance, it is often just a trading gain. The closer you get to financial markets the easier it is to book funny profits.”
The next few years in the mobile industry are going to be interesting not only because Google and Apple are competing with each other at making the most advanced mobile operating system, or because Nokia, for the first time in their 145 year old corporate history, have a non-Finnish citizen running the ship, but because the fundamental way we interact with each other and the world around us is going to change thanks to near field communication.
Man used to carry cash until roughly 50 years ago when the first credit card with a magnetic stripe was released. It brought about a huge change in people’s spending habits, not only because they could actually borrow money and pay it back at a later point in time, but because the visual artifact of slips of paper and coins was removed from our understanding of how money really works and how much it’s actually worth. Now, with the recent announcement of Isis, a collaboration between Verizon, AT&T and T-Mobile aimed at making your mobile phone the only thing you need to take with you when leaving you home, the world is set to change yet again.
How does that make Visa, one of the ancestors of plastic cash, feel about their role in the future of the daily transactions that make our world economy go round and round? I’m not going to copy and paste the entire article, which I recommend you read, but here is the main argument:
“It might be easy to build an iPhone app that lets you enter in the phone number of a co-worker you want to pay back for lunch, a common promise in the new mobile-payments world. But then someone has to do the intricate behind-the-scenes data processing that makes sure the card isn’t stolen, the people involved aren’t scammers, the payer’s account has the necessary funds and the actual money transfer happens quickly and without a glitch.”
They’re on the defensive, citing their experience with handling mobile payments, but just like Visa killed cashed half a century ago, maybe the little NFC chip inside your next smartphone will the beginning of something new and exciting?
[Via: NFC World]
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Minecraft dev explains sales transparency PC <b>News</b> - Page 1 <b>...</b>
Read our PC news of Minecraft dev explains sales transparency.
Clarissa's Blog: Fox <b>News</b> in Canada
"It will aim to challenge conventional wisdom and offer Canadians a new choice and a new voice on TV," Quebecor Media CEO Pierre Karl Peladeau said as the conservative news channel faces stiff competition from existing cable news ...
Balloon Juice » Blog Archive » Open Thread: Onion <b>News</b> Network!
Angry Black Lady, in her recent post, pointed out how many of Fox's readers (not to mention employees) are humor-impaired. In response, commentor Trollhattan alerts us to the upcoming Onion News Network: ...
bench craft company finances
Minecraft dev explains sales transparency PC <b>News</b> - Page 1 <b>...</b>
Read our PC news of Minecraft dev explains sales transparency.
Clarissa's Blog: Fox <b>News</b> in Canada
"It will aim to challenge conventional wisdom and offer Canadians a new choice and a new voice on TV," Quebecor Media CEO Pierre Karl Peladeau said as the conservative news channel faces stiff competition from existing cable news ...
Balloon Juice » Blog Archive » Open Thread: Onion <b>News</b> Network!
Angry Black Lady, in her recent post, pointed out how many of Fox's readers (not to mention employees) are humor-impaired. In response, commentor Trollhattan alerts us to the upcoming Onion News Network: ...
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Minecraft dev explains sales transparency PC <b>News</b> - Page 1 <b>...</b>
Read our PC news of Minecraft dev explains sales transparency.
Clarissa's Blog: Fox <b>News</b> in Canada
"It will aim to challenge conventional wisdom and offer Canadians a new choice and a new voice on TV," Quebecor Media CEO Pierre Karl Peladeau said as the conservative news channel faces stiff competition from existing cable news ...
Balloon Juice » Blog Archive » Open Thread: Onion <b>News</b> Network!
Angry Black Lady, in her recent post, pointed out how many of Fox's readers (not to mention employees) are humor-impaired. In response, commentor Trollhattan alerts us to the upcoming Onion News Network: ...
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