Archive for the ‘finance’ Category

Mara Faccio & David Parsley: Quantifying cost of influence

June 15, 2009

Many firms voluntarily incur the costs of attempting to influence politicians. However, estimates of the value of political connections have been made in only a few extreme cases. We propose a new approach to valuing political ties that builds on these previous studies. We consider connected to a politician all companies headquartered in the politician’s home town, and use an event study approach to value these ties at their unexpected termination. Analysis of a large number of sudden deaths from around the world since 1973 reveals a market adjusted 1.7% decline in the value of geographically connected companies. The decline in value is followed by a drop in the rate of growth in sales and access to credit. Our results additionally show a larger effect for family firms, firms with high growth prospects, firms operating in industries over which the politician has jurisdiction, and firms headquartered in highly corrupt countries.

Here’s the original paper from SocialScienceResearchNetwork:

Bloomber & WSJ picked up this:
“To the extent that politicians favor inefficient (family) firms by allocating resources to them, long-term economic growth will also be reduced,” according to the paper.  In addition, the authors found that politically connected firms “suffer a statistically significant decline in sales growth” and access to credit between the year prior to the sudden death and the year after. 

Health Care Initiative :  “Stock prices should be unpredictable; nobody can predict them,” Parsley said. “Yet we have a model that can predict stock returns.”

… It is possible, based on the results of the study, to stay on top of the obituaries, short some politically connected companies and walk away with a profit.

Why America is a bank-owned state

June 10, 2009

In 2006, the top one per cent of American households’ share of all disposable income amounted to almost a quarter of all households’ disposable income, according to Robert Hunter Wade, professor of political economy at the London School of Economics.

In crude terms, one per cent of the population have a quarter of all the wealth.

Moreover, Wade found the average income of the bottom 90 per cent of the population remained almost stagnant after 1980, although consumption kept rising thanks to the build-up of private debt.

This means that 90 per cent of the American economy were financing their American dream on debt.
Where were the signs that things were going to end disastrously and, worse still, that the most vulnerable might end up paying the heftiest and most disproportionate price than anyone else?

I believe the status quo was allowed to go unquestioned because banks were benefiting obscenely from the interest on our debt, and governments were in cahoots with these banks.

Let’s not forget that governments conveniently moved away from the provision of affordable healthcare, free university education and affordable housing while the banks entered our lives, aggressively, to fill that void.

In addition, I think that this warped and unjust way of operating was not questioned because the electorate was kept in the dark in the most subtle way possible.

The whole issue was made invisible. It was kept off the radar screens of electoral politics.

The American electorate were made accomplice to this because they were convinced that what was good for Wall Street, was good for America as a whole.

It was a political sleight of hand of the highest order. And this explains the bipartisan agreement to the ill-designed deregulation of the finance sector that we have seen over the years.

America has become a bank-owned state.
— Samah El-Shahat, Al Jazeera’s resident economist

Further Samah points to Roubini’s article that this is a Crisis of Solvency not of Liquidity

More Robert Pollin: Where are the green jobs going to be?

December 7, 2008

A state-by-state picture of jobs growth from green investments:

State-by-State prediction

interactive map of investments/jobs

Green Jobs State-by-State and Wage earned per hour breakdown, Report

Method (how did they do it)

“We used the 2005 Bureau of Economic Analysis (BEA) annual input-output accounts ( to determine how employment in each industry involved in a particular strategy would be affected assuming a $1 million increase in investment. Specifically, we used BEA input-output tables at the 65-industry level of detail to determine how output across these industries would change given an increase in investment in a particular clean-energy strategy. We then used BEA Gross-Domestic-Product-by-Industry Accounts data ( to derive employment multipliers for each industry, i.e., the factor by which an industry’s employment would change given a change in output. We used the employment multipliers to determine the total change in employment across the 65 industries given a $1 million increase in investment in a particular clean-energy strategy, as well as what each industry’s share of this total employment increase would be. We then identified which industries would experience the largest shares of the overall employment increase required to meet the needs of the increased investment in a particular clean-energy strategy. This list of “most affected” industries guided our selection of occupations. ”

PERI: Green is $Green

December 7, 2008

The PERI report, by Robert Pollin seems to be influential in the “how-to end the recession plan” from President-elect Barack Obama,

Robert Pollin is a professor of economics and founding co-director of the
Political Economy Research Institute at the University of Massachusetts.

“To further all these goals we need a green public- investment stimulus. It would defend state-level health and education projects against budget cuts; finance long-delayed upgrades for our roads, bridges, railroads and water management systems; and underwrite investments in energy efficiency—including building retrofits and public transportation—as well as new wind, solar, geothermal and biomass technologies. This kind of stimulus would generate many more jobs.”

Compares current situation with Reagan’s 1983 spend situation:

Exihibit A: Reagonomics:

One way to approach the question is to consider the last
time the economy faced a recession of similar severity, which
was in 1980–82, during Ronald Reagan’s first term as presi-
dent. In 1982 gross domestic product contracted by 1.9 per-
cent, the most severe one-year drop in GDP since World War
II. Unemployment rose to 9.7 percent that year, which was,
again, the highest figure since the ’30s.
The Reagan administration responded with a massive
stimu lus program, even though its alleged free-market devo-
tees never acknowledged as much. They preferred calling
their program of military expansion and tax cuts for the rich
“supply-side economics.” Whatever the label, this combination generated an increase in the federal deficit of about two percentage points relative to the size of the economy at that time. In 1983 GDP rose sharply by 4.5 percent. In 1984 GDP growth accelerated to 7.2 percent, with Reagan declaring the return to “morning in America.” Unemployment fell back to 7.5 percent.

“Let’s return to the Reagan experience for perspective. In
1983 the Reagan deficits peaked at 6 percent of the economy’s
GDP. With GDP now around $14.4 trillion, a $1 trillion deficit would represent about 7 percent of GDP, one percentage point higher than the 1983 figure. Of course, the global financial system has undergone dramatic changes since the 1980s, so direct comparisons with the Reagan deficits are not entirely valid. One change is that gov-
ernment debt is increasingly owned by foreign governments and private investors. This means that interest payments on that debt flow increasingly from the coffers of the Treasury to foreign owners of Treasury bonds. ”

PERI UMass Report

Treasuries, the new bubble?

December 6, 2008,C,HPQ,CAT,ED,PST,UDN

Treasuries: The New New Bubble?

Posted Dec 03, 2008 01:20pm EST by Aaron Task in Investing, Recession

Are Treasuries the next bubble? A lot of traders seem to think so after a sharp rally in Treasury prices sent yields down to their lowest levels in decades.

“There’s more risk in things people think are inherently safe, [including] cash and Treasuries, vs. the things people perceive as risky,” Jim Grant of Grant’s Interest Rate Observer said on CNBC this morning.

Before rising modestly Wednesday, the 30-year yield was at 3.197%, its lowest level since 1973 while the 10-year’s yield was below 2.7%. Even after rising a bit today, yields from 3-month to 2-year Treasuries are below 1%.

Paulson’s List

December 3, 2008

Participants in Government Investment Plan

In unveiling its bank-share purchase program, the Treasury Department required nine of the nation’s largest financial-services companies to sell a total of $125 billion in preferred stock to the government, and said an additional $125 billion in stock could be bought from other firms on a voluntary basis. Below, see a list of participating companies.
List of Banks in the Paulson’s TARP so far

S&P PE vs 10-yr treasury note

December 2, 2008
s&p pe vs 10-yr treasury

s&p pe vs 10-yr treasury

From the good guys at

GOOG – Last minute of trading on 9/30

December 1, 2008

GOOG on 9/30, last One minute of trading

“..We are only able to highlight one minute of trading, but in the last three minutes of the trading day GOOG ticked as low as $0.01 and as high as $500. The chart above represents about 1500 trades or about 1.6mln shares, all of which were busted. The NASDAQ issued a press release saying that any GOOG shares traded below $400.52 and above $425.29 between 3:57 and 4:02 would be broken (GOOG traded as high as $404 at 4:00pm).”
ticker sense on google on 9/30

Graham P/E ratio of S&P: Shiller (wsj)

October 11, 2008

What History Tells Us About the Market


Robert Shiller, professor of finance at Yale University and chief economist for MacroMarkets LLC, tracks what he calls the “Graham P/E,” a measure of market valuation he adapted from an observation Graham made many years ago. The Graham P/E divides the price of major U.S. stocks by their net earnings averaged over the past 10 years, adjusted for inflation. After this week’s bloodbath, the Standard & Poor’s 500-stock index is priced at 15 times earnings by the Graham-Shiller measure. That is a 25% decline since Sept. 30 alone.

The Graham P/E has not been this low since January 1989; the long-term average in Prof. Shiller’s database, which goes back to 1881, is 16.3 times earnings.

But when the stock market moves away from historical norms, it tends to overshoot. The modern low on the Graham P/E was 6.6 in July and August of 1982, and it has sunk below 10 for several long stretches since World War II — most recently, from 1977 through 1984. It would take a bottom of about 600 on the S&P 500 to take the current Graham P/E down to 10. That’s roughly a 30% drop from last week’s levels; an equivalent drop would take the Dow below 6000.

more mutual fund info hubs – wanna know how funds behave as a group?

September 24, 2008

MFFAIS – Mutual Fund Facts About Individual Stocks