In light of the spike in gold prices, I offer my old post: "Civilized People Don't Buy Gold"https://t.co/rX468BMCcG
— Steve Bainbridge (@PrawfBainbridge) November 17, 2021
In light of the spike in gold prices, I offer my old post: "Civilized People Don't Buy Gold"https://t.co/rX468BMCcG
— Steve Bainbridge (@PrawfBainbridge) November 17, 2021
Posted at 04:47 PM in The Economy | Permalink | Comments (0)
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Samuel Gregg in Public Discourse:
Over the past six years, there has been an eruption of disputes on the American right about the place of markets in modern conservative thought and policy. ...
These discussions have underscored to me two things. The first is that these conservatives are asking legitimate questions which merit considered responses. Second, however sympathetic I am to their worries, these conservatives’ critiques of markets and their proposed remedies are insufficiently cognizant of some important realities.
Actually, the history of conservative discontents with capitalism long antedates the last six years. I addressed this rich history in my essay Conservative Critiques of Capitalism. I concluded that:
Postwar conservatism in the United States was a somewhat rocky marriage of traditionalists, libertarians, and, later, neoconservatives, united mainly by a shared opposition to communism. Given a seemingly binary and existential choice between Western capitalism and Soviet Communism, American conservatives opted for the former. Yet, despite Frank S. Meyer’s famous fusionism project, the preexisting fault lines persisted. With Communism off the table as an existential threat, the rupture of such a contingent unity along those fault lines may have been inevitable. The task ... is to revive what is best in those traditions and to turn them to the task of reforming capitalism into a practical but humane way of organizing the economy.
Since I jumped ship from The Republican Party to The American Solidarity Party, I've been increasingly exploring Distributism as an alternative. G.K. Chesterton is a good place to start.
Posted at 04:27 PM in Politics, Religion, The Economy | Permalink | Comments (0)
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Very interesting post at Oxford Business Law Blog:
France’s financial market regulator, the Autorité des Marchés Financiers (‘AMF’), banned short selling in 92 specified equities for a one-day period, beginning on March 16, 2020 and ending on March 17, 2020. So did the Commissione Nazionale per le Società e la Borsa (‘CONSOB’), the governmental authority of the Italian stock market, by introducing a temporary ban on taking or increasing net short positions in respect of 85 companies’ shares admitted for trading on the Mercato Telematico Azionario (‘MTA’), the Italian regulated stock market. Similar actions were taken by the relevant authorities in Spain, Belgium, Greece, and Austria. In these countries, short-selling bans have been viewed as a possible tool to curb the adverse consequences on stock market liquidity and investors’ confidence. However, although subject to a similar economic scenario, other European countries, such as Germany and the United Kingdom, did not ban short-selling. All bans expired or were lifted on May 18, 2020. The purpose of our study is to examine whether the temporary short-selling bans in the EU during the COVID-19 crisis have achieved the market supervisors’ goals and, more generally, if similar bans are effective and desirable. Our conclusion is that they have are not.
Go read the whole thing, but the bottom line is that countries that banned short selling didn't do their economies or their investors much good.
Posted at 06:03 AM in Securities Regulation, The Economy | Permalink | Comments (0)
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Gallemore, John and Hollander, Stephan and Jacob, Martin, Who CARES? Evidence on the Corporate Tax Provisions of the Coronavirus Aid, Relief, and Economic Security Act from SEC Filings (June 19, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-81, Available at SSRN: https://ssrn.com/abstract=3631384 or http://dx.doi.org/10.2139/ssrn.3631384
Abstract. We use U.S. Securities and Exchange Commission (SEC) filings to provide initial large-sample evidence regarding utilization of corporate tax provisions by U.S. firms under the Coronavirus Aid, Relief, and Economic Security Act (CARES). These tax provisions were intended to provide firms immediate liquidity to prevent widespread bankruptcies and layoffs in response to the COVID-19 pandemic. However, critics have argued that the provisions were poorly targeted and amounted to “giveaways” for shareholders of large corporations. We find that 38 percent of firms discuss at least one of the CARES tax provisions in their SEC filings, a result primarily attributable to the net operating loss (NOL) carryback provision. Firms experiencing lower stock returns during the COVID-19 outbreak are more likely to discuss CARES tax provisions, but not firms in states or industry sectors exhibiting large increases in unemployment. Further, we find a higher likelihood of tax provision discussions for firms with pre-pandemic losses and higher financial leverage. Finally, we document some evidence that firms facing potential reputational or political costs from discussing these tax provisions may have avoided doing so. Our analyses suggest that tax provisions under CARES were not material for most publicly-traded U.S. firms, were not likelier to benefit firms in greater need of liquidity during the pandemic, and that some firms perceived that disclosing benefits would be costly. These findings are important for policymakers as they consider additional economic relief for U.S. corporations while the coronavirus pandemic lingers.
Posted at 05:47 AM in Current Events, The Economy | Permalink | Comments (0)
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From Twitter:
The trending hashtag #BailOutPeopleNotCorporations is founded on a basic error; namely, reification. While it may be necessary to reify the corporation for semantic convenience, it can mislead.
Conceptually, the corporation is not a thing, but rather simply a set of contracts between various persons pursuant to which services are provided and rights with respect to a set of assets are allocated.
When we "bail out" a corporation, what we're really doing is redirected wealth from taxpayers as a whole to the subset of individuals who collectively make up the corporation. We thus have to make a decision: In a period of economic triage, is this group of people worth saving? Are the jobs of these employees worth preserving. Are the savings of these shareholders worth preserving?
Concomitantly, we need to consider the problem of agency costs. Corporations are not democracies. They are run by managers and executives. Hence, once we decide that a particular group of people is worth saving (in an economic sense), we need to ensure that managers and directors cannot divert the "bail out" funds from the desired goals. This is a non-trivial design problem. The TARP bail out in the financial crisis was not well designed. We need to do better this time.
Posted at 02:52 PM in Business, The Economy, Wall Street Reform | Permalink | Comments (0)
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Posted at 01:50 PM in The Economy, The Stock Market, Wall Street Reform | Permalink
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Bitcoin and other cryptocurrencies solve the problem of making payments in an environment where trust is broken -- but it's unclear whether that's a dilemma that needs to be solved, Federal Reserve of New York economists wrote in a blog post.
Here's the post they referenced.
Posted at 04:49 PM in The Economy | Permalink
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Bloomberg reports that:
A Federal Reserve-sponsored group that has been working on an alternative is slated Aug. 1 to discuss the timing of the release of the measure. The new rate, which the New York Fed plans to begin publishing daily sometime in the first half of 2018 in cooperation with the Treasury Department's Office of Financial Research, eventually could be the benchmark for pricing some $350 trillion of U.S. derivatives, student loans, home mortgages and many other types of credit.
The meeting of the Alternative Reference Rates Committee follows comments recently by the U.K. Financial Conduct Authority that it intends to stop compelling banks to submit London interbank offered rates by the end of 2021, igniting concerns global regulators may have to speed up their implementation timelines for new alternative benchmarks. According to an interim report, ARRC said it considered and rejected plans that call for a “quicker and more disruptive transition” and recognized that its proposed recommendations “could take several years to accomplish.”
I discussed ideal characteristics of a benchmark in my article Reforming LIBOR: Wheatley versus the Alternatives (January 31, 2013), NYU Journal of Law & Business, Vol. 9, No. 2, 2013, available at SSRN: https://ssrn.com/abstract=2209970.
Some key points:
Posted at 11:04 AM in The Economy, Wall Street Reform | Permalink
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Bloomberg reports that:
Saron, Sonia, Tonar and Eonia. Behind the Tolkienesque names are the potential candidates to replace Libor, the global borrowing benchmark that underpins more than $350 trillion of financial products, which as of July 27 is being phased out by 2021.
Attaching a time frame to Libor's demise has shifted into sharp focus efforts by financial authorities from Japan to Switzerland to replace the London interbank offered rate. Aside from being mired in fixing scandals, the benchmark has proven increasingly obsolete because of the lack of data behind the daily morning calculation that has established the level set up by the British Bankers Association in 1986.
Count me as dubious.
In my article Reforming LIBOR: Wheatley versus the Alternatives (January 31, 2013), NYU Journal of Law & Business, Vol. 9, No. 2, 2013, available at SSRN: https://ssrn.com/abstract=2209970, I argued that:
Although some commentators proposed replacing LIBOR with a new benchmark, and some banks went so far as to test alternatives, that option never gained significant traction. Huge costs would have resulted from overturning long-settled reliance expectations in multiple markets, because numerous types of financial instruments and contracts with a total value in excess of $300 trillion referenced LIBOR. Accordingly, Wheatley opined, “that a transition to a new benchmark or benchmarks would pose an unacceptably high risk of significant financial instability, and risk large-scale litigation between parties holding contracts that reference LIBOR.” In addition, Wheatley concluded that there was “no immediately obvious alternative” to LIBOR. As a result, attention focused on developing what Wheatley called “a comprehensive and far-reaching program of reform” of the existing benchmark.
As far as I can tell, that analysis remains sound.
Posted at 10:51 AM in Business, The Economy | Permalink
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From UCLA Anderson Forecast:
With $500 billion in tax cuts arriving in the third quarter of 2017, the forecast calls for GDP growth to accelerate from its recent 2 percent growth path to 3 percent for about four consecutive quarters and then slide back to 2 percent. Growth will be hampered by the difficulties of stimulating an economy operating at near full employment and the bite of higher interest rates. Employment will continue to grow on the order of 140,000 jobs per month in 2017 and 120,000 per month in 2018.
Of course it's couched in all sorts of anti-Trump caveats, but still.
Interestingly, as California evolves ever more into the Peoples Republic of California, we are likely to disproportionately benefit from Trump's defense and infrastructure spending plans:
“The increase in defense spending will be disproportionately directed to California, as sophisticated airplanes, weaponry, missiles and ships require the technology that is produced here,” he writes. “Moreover, there are few places to build the proposed 150 new warships, and San Diego is one of them. Regionally we expect a positive impact in the Bay Area and in coastal Southern California.”
It's odd that GOP programs are going to reward and benefit the most looney left state in the country.
Posted at 03:02 PM in The Economy | Permalink
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First Things has a succinct review of the basic errors of liberation theology.
Posted at 12:38 PM in Religion, The Economy | Permalink | Comments (0)
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John Coffee reports that:
[A] recent study suggests that there may be real, but long-term, costs from hedge fund activism for the economy as a whole. These researchers took the stocks included in the Wall Street Journal’s and FactSet’s Activism Scorecard and trimmed this sample down to just those campaigns launched by activist hedge funds. Then, they followed those firms that successfully avoided a takeover. They found that these firms, even though they survived the activists’ engagement intact, were forced to curtail their investments in research and development by more than half over the next four years. Specifically, R&D expenses in this sample fell from 18% of sales to 8.12% of sales over that period.[16] Nor was this a general secular trend, because in a random sample of firms not engaged by activists, they found that research and development expenditures rose modestly as a percentage of sales over the same period.[17]
Although still a preliminary study, this finding should not surprise, because it confirms what activists say they are doing. Trian Fund made clear that it wanted to reduce DuPont’s expenditures on R&D. Similarly, when Pershing Square Capital and Valeant Pharmaceuticals made a bid for Allergan last year, Valeant announced that, if successful, it would cut R&D at the combined firm by 69%.[18] Although most pharmaceutical companies typically spend about 20% of their revenues on R&D, Valeant spent only 2.7% of its revenues on R&D.[19] Its business model was to milk acquired companies like cash cows for their cash flow.
This pattern of cutting R&D expenditures (even at companies like DuPont that have historically profited from R&D) may make sense for investors who will be long gone within a year or so.
[16] See Allaire and Dauphin, supra note 1, (finding an average decline in R&D expenditures as a percentage of sales from 17.34% in 2009 to 8.12% of sales in 2013). [Full cite: Yvon Allaire and Francois Dauphin, “Hedge Fund Activism: Preliminary Results and Some New Empirical Evidence” (Institute for governance of public and private corporations, April 1, 2015).]
[17] Id (finding a modest increase in R&D expenditures from 6.54% of sales in 2009 to 7.65% of sales in 2013).
[18] See Joseph Walker and Liz Hoffman, “Allergan’s Defense: Be Like Valeant,” The Wall Street Journal, July 22, 2014 at B-1.
[19] See Joseph Walker, “Botox Itself Aims Not to Age,” The Wall Street Journal, May 19, 2014 at B-1.
But it sucks for the rest of us.
I await a reply from the activists' academic apologists.
Posted at 07:03 AM in Shareholder Activism, The Economy | Permalink | Comments (0)
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In my essay Corporate Governance and U.S. Capital Market Competitiveness (October 22, 2010), available at SSRN: http://ssrn.com/abstract=1696303, I explained that:
During the first half of the last decade, evidence accumulated that the U.S. capital markets were becoming less competitive relative to their major competitors. The evidence reviewed herein confirms that it was not corporate governance as such that was the problem, but rather corporate governance regulation. In particular, attention focused on such issues as the massive growth in corporate and securities litigation risk and the increasing complexity and cost of the U.S. regulatory scheme.
Tentative efforts towards deregulation largely fell by the wayside in the wake of the financial crisis of 2007-2008. Instead, massive new regulations came into being, especially in the Dodd Frank Act. The competitive position of U.S. capital markets, however, continues to decline.
This essay argues that litigation and regulatory reform remain essential if U.S. capital markets are to retain their leadership position. Unfortunately, the article concludes that federal corporate governance regulation follows a ratchet effect, in which the regulatory scheme becomes more complex with each financial crisis. If so, significant reform may be difficult to achieve.
If you believed the Obama administration and the Democrats' hyoe, the JOBS Act was going to solve the problem. They were wrong, according to a new study by some economists (which I'm more inclined to accept that ones done by law professors masquerading as quants):
We examine the effects of Title I of the Jumpstart Our Business Startups Act (JOBS) for a sample of 213 EGC IPOs issued between April 5, 2012 and April 30, 2014. We show no reduction in the direct costs of issuance, accounting, legal, or underwriting fees, for EGC IPOs. Further, the indirect cost of issuance, underpricing, is significantly higher for EGCs than other IPOs. More importantly, greater underpricing is present only for larger firms that were not previously eligible for scaled disclosure under Regulation S-K. EGCs that are more definitive about their intentions to use the provisions of the Act have lower underpricing than those that are ambiguous. Finally, we find no increase in IPO volume after the Act. Overall, we find little evidence that the Act has initially been effective in achieving its main objectives and conclude that there are significant consequences to extending scaled disclosure to larger issuers.
Interestingly, one of the authors - Kathleen Weiss Hanley - was until very recently an economist at the SEC,
Posted at 10:02 AM in The Economy, The Stock Market, Wall Street Reform | Permalink | Comments (1)
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SEC Commissioner Daniel Gallagher has given an excellent speech on the titular question. The whole thing is a must read, but this passage jumps out at me:
... sadly, we at the SEC are not doing nearly enough to ensure that small businesses have the access to capital that they need to grow. We layer on rule after rule until it becomes prohibitively expensive to access the public capital markets. Only rarely do we remove any of our rules, even after they have long since ceased to serve their purpose or have become obsolete or worse. And although we have made significant progress in expanding our economic analysis of new rules and rule amendments, we almost never consider how heavily the weight of the entire corpus of rules bears down on registrants.
Posted at 11:40 AM in Securities Regulation, The Economy | Permalink | Comments (0)
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@securitiesattny says "in past 5 yrs only 10% of venture backed companies exited w/ IPO" Here's why:ssrn.com/abstract=16963…
— Stephen Bainbridge (@ProfBainbridge) May 1, 2013
Posted at 10:10 AM in The Economy, Wall Street Reform | Permalink | Comments (0)
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