Category Archives: Finance Capital

What’s next in Egypt: first Mubarak, then the military?

Slate ran this piece in December deftly anticipating recent events in Egypt. As it makes clear, the removal of Mubarak is meaningless unless the democratic revolution underway in Egypt dismantles the military industrial complex atop of which Mubarak sat.

Yet, all signs point to the US backing that military in a transition to the post-Mubarak era. We are setting ourselves up here for a confrontation with the people in Egypt when they move beyond Mubarak and confront the true power structure of their country. Of course, the US government has no choice – the military and Mubarak have been key to overseeing the neo-liberal reforms of the last 20 years. In Egypt as elsewhere authoritarianism is the face of the globalization process in much of the world, from China to the mideast.

It is time for the United States to rethink its global policy – if the price of our place in the world is to get in bed with the brutal Egyptian military we are paying too high a price.

A WikiLeaks cable shows how Egypt’s regime has bought off the military – Slate Magazine.

Democracy in Egypt under US backed Mubarak regime – No voters needed

Barnard College Professor Mona El-Ghobashy describes the tape linked below:

“The defining image from 2010 [elections in Egypt] was a surreptitiously shot four-minute video of a voter-free polling station in the Bilbays district of the Delta province of Sharqiyya. Two poll workers calmly filled out ballot after ballot, stacks of which were then carried off by other civil servants to be stuffed in boxes off camera.”

YouTube – فضيحة انتخابات فى بلبيس 28 11 2010.

Who really owns Hewlett-Packard?

Therese Poletti interviewed me recently on the board changes at HP. The new CEO and Chairman have now pushed four directors out and added five more. As the article makes clear, I am not impressed.

But the change underway at the company leaves me with an even more unsettling feeling: who really owns HP? In theory, the shareholders own the company – they have voting power to hold the board and management accountable.

But nothing has been heard from any shareholder of significance since the Mark Hurd scandal broke. Two tiny investors have sued, claiming the company wasted corporate resources in paying Hurd to go away. Good luck with that.

Larger shareholders who have the sophistication to weigh in on the listing ship that is HP, like Cal/PERS, have been silent. Well, not exactly silent. Cal/PERS recently did attack a prominent Valley company for inadequate corporate governance, but HP was not the target. It was, believe it or not, Apple!

With the constantly shifting leadership at HP, I am reminded of a tale about the 1960s. A hippy was hitch hiking down Highway 1. A van painted with flowers and wild colors stopped to pick him up. After a while the driver asked if the hippy would take over the wheel. The driver said he wanted to get in back with some other folks and, well, you know, indulge. He told the hippy to feel free to do the same if another hitch hiker came along. One did and the first hippy in turn climbed in back and turned the van over to the new occupant. He, too, indulged with a few other people in back including the first driver.

The day wound onward and eventually the first hippy realized the van had reached his destination. He asked the newest driver to stop and he got out of the back and started walking home.

And then it it hit him…not a single person in the van when he got out had been in the van when he got in, and none of the people in the van when he got in were still there when he got out.

Who knows, maybe that van is still making its way up and down the California coast line.

HP seems kind of like that van. No one really owns it, they’re just using it. It’s one thing to let a flower power van function like that, but our country’s largest IT company? Really?

Motley H-P board isn’t what Apotheker needs Therese Poletti’s Tech Tales – MarketWatch.

Fragile Pakistan a sacrifice to IMF?

The Financial Times published my letter today pointing out the absurdity that the IMF is pressing Pakistan to repay a loan to the point of cracking open the fragile governing coalition there. The result has been price hikes for gas and the assassination last week of a key governor.

At at time when the US and other countries are sending young men and women to die in the region why are we making it more difficult for the first liberal Pakistan government in many years to help?

My blogging colleague Pundita has been following Pakistan closely for many years and for those who wish more background are recommended to click on the link to her site.

FT.com / Comment / Letters – Fragile Pakistan a sacrifice to IMF?.

Is Facebook already a public company?

Hot startup companies face a dilemna: how to generate liquidity for early stage investors and employees without conducting an IPO, or “initial public offering.”

An IPO requires the preparation of a prospectus in a process that is overseen by investment bankers, lawyers, accountants, the stock exchange and, not least, the SEC. Not until the SEC declares a registration statement (which includes the prospectus) prepared by the company and its legal and financial advisors “effective” can a company actually sell its shares to the investing public.

But when that prospectus is filed, even if in early draft form, it becomes public and is available on the SEC’s EDGAR database. And that means the core business model of the company is available for competitors to review.

Some years ago Google ran into a version of this problem. It had handed out more than $80 million of options to buy stock to employees and consultants. At a certain point the company crossed the threshold of 500 investors set by the SEC and, as well, it ran afoul of a ceiling on securities allowed to be issued to employees and consultants by the SEC without disclosure to them.  Google was therefore obligated to file an annual report roughly equivalent to a prospectus or provide recipients of the stock options with details about the company’s business. They did not do so and that led to an SEC investigation and in turn the SEC slapped their wrist, extracting a promise not to do it again.

Of course, by then Google had gotten away with what they had wanted to do: time their IPO without giving up the ability to hand out shares prior to filing their prospectus.

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“The Big Fail” – a legal black hole in the economy

Adam Levitin explains why the legal problems at the heart of the real estate crisis may end up making the last three years look like a speed bump.

The problem is that our banks turned themselves into designers of loans that they then were supposed to have sold off in packages to outside investors. Now that that homeowners are failing to pay their mortgages it turns out the banks may not have ever really transferred the mortgages as they promised.

So who is going to have to cover the losses now?

Here is one tantalizing clip:

The banks are in serious trouble if there are widespread securitization fails. If the loans weren’t transferred to the securitization trusts, then they are on bank balance sheets, which means that (1) the losses on the loans are the banks (to be sorted out with the investors), and (2) the banks need to be holding capital against the loans that haven’t gone into foreclosure.  Depending on the scale of the problem, the banks might not have enough capital to cover the securitization fails….

The Big Fail – Credit Slips

“Putting the Brakes on the GM IPO Fervor”

One of the most celebrated IPO’s in recent business history will likely be completed tomorrow. Underwriters bought all the shares on offer from GM today and will resell them to individual and institutional investors over the next few days.

But the Wall Street Journal notes some serious risks at the new company and my recent Research Note on the GM/UAW VEBA points out the continuing ties between GM and autoworker retirees.

Writing on the Wall: Putting the Brakes on the GM IPO Fervor – WSJ.com.

Benoit Mandelbrot, Polymath, Dies at 85

mandelbrotFor me this is very sad and personal news. Benoit and I had become friends over the last several years, having numerous long conversations about the very wrong turn that economics had taken. He was a brilliant and unusual man whose unorthodox career path nonetheless resulted in fundamental contributions to science and social science that will last for many years. Thus, I have edited the title to the Times obituary from “mathematician” to “polymath.”

Our friendship began when he called me out of the blue one day in response to an email I had sent him about the strange approach the U.S. Supreme Court took to the theory of market efficiency. He was amazed to hear that law professors at his own institution, Yale, actually seemed to believe and teach that markets were efficient.

While Benoit is best known to the wider world for his work on fractals (an example, the “Mandelbrot set” is pictured above), it was actually his earlier foundational work on how prices behaved on the world’s cotton markets that I was interested in. In fact, that work helped lay the basis for his discovery of fractals.

He found in his analysis of price behavior that in fact markets could behave in wild and very difficult to predict fashion. Any idea of smooth and continuous markets, the basis of the theory of efficient markets, was foreign to him. He began a lifelong interest in “roughness” that eventually led to fractals. This work alone should have earned Mandelbrot the Nobel Prize in Economics. You can listen to him explain his views here and here.

My current research project on the behavior of stock exchanges was inspired by Mandelbrot’s ideas. In particular, he noted in response to the recent financial crisis that there is an absence of “inertia” at work in the markets and thus the kinds of large price moves we have seen in recent years, up and down, are to be expected.

My co-author Jenny Kuan at the Stanford Institute for Economic Policy Research and I have been trying to determine if, in fact, good institutional design of capital markets can create a kind of “synthetic inertia” that indeed could help establish more reliable exchanges. If so, then we could have a lower cost of capital and perhaps a healthier economy.

We had hoped, of course, to engage Benoit in a discussion of our results. Sadly, that will not happen.

Benoit Mandelbrot, Mathematician, Dies at 85 – NYTimes.com.

Pot, Kettle, Black: Has HP Bought the Wall Street Journal?

Everyone knows that Hewlett Packard is on a buying spree these days, but I had not realized they had set their eyes on the Wall Street Journal.

The other day the Journal’s All Things Digital website slammed fellow business journalist Joe Nocera of The New York Times for an appearance of a conflict related to his columns on the HP CEO fiasco.

But it turns out the Journal’s reporter on the story, Kara Swisher, has her own conflict that she failed to tell readers about. And the Journal now appears to be engaged in a rewriting of the history books to erase any effort to explain this to its readers.

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