Hope you're having a great day.
If you want to cook a Thanksgiving turkey dinner, but don't want to spend the day in the kitchen, here's an alternative from the Top Gear test kitchen:
Scott Peppet has an interesting post on how opting out of Google Street View has had unforseen consequences:
Apparently the vandals left notes saying “Google is cool.” So maybe this is just a “how dare you question anything Google?” protest.
But more likely it is something more. Jeff Jarvis on Buzz Machine recently labeled opting out of Street View the equivalent of “digital desecration,” saying that such “embarassing” “assaults” on the public “saddened and angered” him. It seems plausible that these vandals agree; “their” information has been taken from them by others asserting privacy interests, and they’re penalizing those who opt out for denying them what they view as theirs.
As Kashmir Hill put it on Forbes, “[i]t’s ironic that those who wanted more privacy through blurring their homes wound up getting less of it.” Ironic, maybe. Surprising, not really. I’ve been making the argument here all month that opting out is not a privacy solution in many circumstances, because the act of opting out is itself visible to (and itself conveys information to) others. This is based on my forthcoming paper Unraveling Privacy; I’ve given examples from Mexico’s experiment with biometric retina recognition and from the quantified self / sensor movement. Egging is just a more crude version; in this example, it’s not that those who opted out are the “worst” members of a given pool (as in true unraveling scenarios) and are therefore discriminated against, but simply that others are pushing back against the right to opt out itself because it impedes unfettered access to all the information they want.
Hen then asks "what's next?" and speculates on some possibilities. It occurs to me, of course, that National Opt Out day "is itself visible to (and itself conveys information to) others." Opting out in some settings thus may be less about ensuring privacy and more about publicly protesting the loss thereof.
Over on Twitter, I see a claim that ""there is lots of research now that shows that well governed companies outperform poorly governed ones." Well, yes, but.
In theory, good corporate governance practices should make firms more profitable and productive, in turn contributing to the overall health of the economy. Curiously, however, the evidence for a causal relationship between corporate governance and either firm performance or stock returns is sketchy and conflicting. As Brian Cheffins recently wrote: "Corporate governance is not the primary determinant of share prices, as reflected by the fact that academic testing of the hypothesis that good corporate governance improves corporate financial performance has yielded inconclusive results."
The absence of conclusive evidence for a causal relationship between governance practices and stock returns does not disprove the claim that good governance leads to good performance, of course. Public companies provide substantial—and ever increasing—disclosures with regard to their governance practices. As a result, assuming the capital markets are efficient, those practices should be fully impounded by stock market prices. Only a change in a firm’s governance practices—for good or ill—should result in the cumulative abnormal returns that stock prices studies would identify.
Yet, the absence of conclusive evidence is compounded by findings from the financial crisis that best governance practices were actually associated with poorer performance during the crisis. A study by 3 USC business school professors of 296 financial institutions in 30 countries found that board independence and high institutional investor ownership, which are usually assumed to be good practices, were associated with poor stock performance during the crisis. David Erkens et al., Corporate Governance in the 2007-2008 Financial Crisis: Evidence from Financial Institutions Worldwide (Sept. 2010). They further found that financial institutions with more independent boards were more likely to raise equity capital during the crisis, which ultimately resulted in a wealth transfer from shareholders to creditors. As for institutional ownership, higher levels thereof were associated with greater risk taking, which ultimately resulted in greater losses.
The financial crisis also taught us that what constitutes good corporate governance depends on which constituency’s interests one is seeking to advance. Governance regimes that advantaged shareholders harmed taxpayers.
A bank borrows short term by taking in deposits and then lends long term. This system of fractional reserves, pursuant to which banks retain only a modest fraction of their deposits as liquid assets, makes banks vulnerable to runs. Deposit insurance was developed to help prevent runs by assuring depositors that they would be able to get their money back even if the bank failed, but it created a moral hazard. The presence of deposit insurance reduces the incentives of depositors to monitor the riskiness of the decisions bankers make. If the bank takes on risky trading for its own account, the depositors won't care, because the taxpayer will step in via the FDIC and make them whole (up to a very generous cap). Shareholders won't care because they are protected by the corporate law rule of limited liability. If the deal is profitable, they reap the benefits; if the deal fails, the taxpayer steps in to clean up the mess. The trouble, of course, is that when decision makers face only the consequences of a risk paying off and not those of the risk going south, they take on socially undesirable amounts of risk.
Even financial institutions not part of the deposit insurance regulatory scheme often had artificially low costs of capital that allowed them to take risks that were socially unacceptable. Fannie Mae and Freddie Mac infamously benefited from an implicit guarantee. Although they were nominally private entities, investors and creditors believed that the government would not let them fail. The same was true of truly private financial institutions that had become “too big to fail.” Their creditors and investors believed that the government would bail out the financial system. Hence, they were willing to accept discounted investment returns because they believed the government would make them whole regardless of whether the bank's risks paid off or not.
At the same time we were creating incentives financial institutions to take risks, we were compounding the problem creating mechanisms for shareholders to pressure managers to do so. Performance-based compensation schemes, increased venues for shareholder activism, and the like were all regarded as good practice. But they further encouraged managers to take socially undesirable risks.
In sum, the governance/performance story is more complicated than it might seem.
|An Old Debate Reprised: Should Insider Trading Be a Federal Crime?
Wall Street Journal
... who writes regularly at Truth on the Market, and UCLA's Stephen Bainbridge, who maintains his own blog at ProfessorBainbridge.com. ...
|The Government's Insane War Against Insider Trading
The only sensible argument I've found by someone claiming that insider trading has a victim is made by Stephen Bainbridge, who says that some insider ...
In the comments to a recent post, Adam asked:
Why do you dislike Mitt Romney?
I could mention his flip flopping on the issues, especially abortion. I could mention RomneyCare. I could remind you of the time he said his sons were serving their country by working for his campaign. Or his draft dodging. I could agree with something John Cole said: "He is so completely phony, so calculated and poll-tested and focus-grouped and rehearsed and plastic and totally full of shit. There is no emotion in his words, it is like an automaton spitting out the right ‘crafted’ response. Sometimes he uses the wrong words- “loss” instead of “lose,” and it sounds like a robot that was programmed incorrectly, or someone using English as a second language. Not someone just making a verbal gaffe."
I could mention a lot of other things, but let's just leave it at this:
I think one difference between being ruled and being governed is that rulers exempt themselves from the rules that apply to their subjects. With that in mind:
Cabinet secretaries, top congressional leaders and an exclusive group of senior U.S. officials are exempt from toughened new airport screening procedures when they fly commercially with government-approved federal security details.
Aviation security officials would not name those who can skip the controversial screening, but other officials said those VIPs range from top officials like Treasury Secretary Timothy Geithner and FBI Director Robert Mueller to congressional leaders like incoming House Speaker John Boehner, R-Ohio, who avoided security before a recent flight from Washington's Reagan National Airport.
It's not that I think Boehner is a security risk (<LAME ATTEMPT AT HUMOR>Of course, Pelosi's a different matter</LAME ATTEMPT AT HUMOR>). It's just the frakking principle of the thing.
That information wasn’t publicly available to anyone who does not have a Bloomberg terminal. It wasn’t posted on Janus’s website. In fact, it took several minutes before it appeared in any place the general public has access to.
So is Bloomberg aiding insider trading? Of course not. It’s a journalistic enterprise whose right to report information is protected by the First Amendment. That’s true even if the information is ‘non-public’ and has obviously been leaked by an insider. And, although it’s less clearly spelled out in the constitution, the right to gate the information so that it is only available to subscribers is probably protected as well.
Bloomberg probably didn't commit insider trading because it breached no fiduciary duties in disseminating the information and, I assume, neither did their tipster. Although the SEC would like to change that rule, it remains the law of the land.
What John overlooks, in any case, is the <SARCASM>little known SEC exemption to the First Amendment</SARCASM>. The SEC has repeatedly run roughshod over speech protections. It has tried to get prior restraints against people who put out investment newsletters without registering under the 40 Act. It has argued that newspaper ads are proxy solicitations. It compels speech by mandating disclosures. The shareholder proxy rule compels the company to let some self-appointed yahoo put a proposal and supporting statement in the company's proxy statement. The proxy access rule compels speech by requiring the company to include shareholder board nominees in the proxy statement. The SEC has argued that newspapers owe fiduciary duties to the readers in connection with insider trading cases.
As far as the SEC is concerned, there is a tiny footnote to the First Amendment that says "The SEC is exempt herefrom." Unfortunately, it's been all too rare for courts to spank them.
|The hazy line between legal market analysis and insider trading
Tess Vigeland talks to UCLA law professor Stephen Bainbridge. ... But we've called Stephen Bainbridge, he teaches law at the University of California, ...
|This Week in Small Business: Flying Pigs and Lame Ducks
New York Times
Stephen Bainbridge makes his attempt to fix things. James Pethokoukis, of Reuters, tells us that the deficit problem is a spending problem and is happy the ...
|Preet Bharara's Arms Race Theory of Insider Trading
... that we punish other forms of theft of property,” writes Stephen Bainbridge, UCLA law professor and author of “The Law and Economics of Insider Trading. ...
|Why Insider Trading is Here to Stay
As corporate law professor Stephen Bainbridge notes, insider trading amounts to theft, usually of information. And while there's debate over to what extent ...
Kevin Drum has posted what he calls an anti-rant about TSA. I have a lot of respect for Kevin. He's far to my left, but he's thoughtful and usually has to say besides just scoring political points. But not this time.
Kevin opens with:
I hate the TSA screening process. Everyone hates the TSA screening process. You'd be crazy not to. It's intrusive, annoying, and time-wasting. It treats us all like common criminals even though most of us are just ordinary schlubs trying to get on a plane and go somewhere.
But guess what? The fact that you personally are annoyed — you! an educated white-collar professional! — doesn't mean that the process is idiotic. I've heard it called "security theater" so many times I'd be rich if I had a nickel for each time it popped up in my browser, but although the anti-TSA rants are often cathartic and amusing, they've never made much sense to me. All the crap that TSA goes through actually seems pretty clearly directed at improving the security of air travel.
He then proceeds with a Q&A. For example:
Q: Why do we have to take our shoes off?
A: To prevent terrorists from packing explosives into their shoes and bringing down an airplane.
Q: Why do we have to go through those new body scanners?
A: To prevent terrorists from packing explosives around their bodies and bringing down an airplane. ...
Q: But other countries don't do all this stuff.
A: That's because Islamic terrorists mostly target American planes. It's fine for Switzerland to be a little less cautious, not so fine for us.
As Doug Mataconis observed, however:
Abdulmutallab boarded his flight to Detroit in Amsterdam, so these enhanced screening procedures would have done nothing to stop him from getting to the United States, and that remains true for vast numbers of foreign terrorists who could theoretically carry out an attack on an American airliner without ever stepping foot on American soil. Richard Reid boarded his flight to the United States in Paris, for example, and the attack on Pan Am Flight 103 took place without a single terrorist entering the United States. In that case, the explosives that brought the plane down over Lockerbie, Scotland were put on the plane in Germany. Neither the attempted attacks by Richard Reid or Adbulmultallab, nor the successful attack on the Pan Am airliner, would have been prevented by screening procedures in the United States. So, forcing American travelers to undergo invasive security procedures doesn’t necessarily accomplish anything.
Then Kevin opines that:
Q: The Israelis don't do all this stuff either. Why not adopt their methods?
A: Because even experts don't think we could scale up the Israeli system for use in the United States. What's more, the Israeli system is only convenient for Israeli Jews. It's a huge pain in the ass for everyone else.
Crapdoodle. Everybody knows El Al security includes racial and ethnic profiling. So we can't use it in the USA because profiling would violate the civil liberties of those who get profiled. And that's how it should be, for both prudential and moral reasons. But instead we have a system that violates everybody's civil liberties. Excuse me for preferring a system in which nobody's civil liberties get violated.
Then Kevin decides to play politics:
For seven years, Republicans insisted that every security procedure ever conceived was absolutely essential to keeping the American public safe, and anyone who disagreed was practically rooting for an al-Qaeda victory. Now a Democrat is in office and suddenly they're outraged over some new scanners.
Just for the record, this Republican was blogging about how bad the TSA sucks as long ago as 2006. I'm guessing I'm not alone.
In sum, I expect better of Kevin. I'd have hoped that he would agree with those of us who believe that those who give up liberty to get a little safety deserve and ultimately will not get either. And I'd have hoped that he would have seen this as an opportunity for people on all sides of the political debate to stand up and say "I'm mad as hell and I'm not going to take it anymore." It's a chance to recover some liberty and basic human dignity in a modern world that constantly chips away at them.
Sadly, I find myself disappointed on both scores.