adverse selection :: Spero Consulting

September 2010
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The Silliness of Demonizing Goldman Sachs

Andy Spero | April 28, 2010 | 0 Comment(s) |

What is the world coming to when we feel sorry for managers, traders, and structurers at Goldman Sachs?

We haven’t written extensively about financial matters lately, because frankly, when considering whether to write about such topics, we feel like the weatherman, Phil Connors, in “Ground Hog Day.” It’s the same old, same old. (Now, if you folks want to pay for it, we’ll be quite happy to write more, and it would seem new and fresh and exciting. Let us know.)

However, the travesty of the SEC’s fraud case,… Read the rest

Good (Late) News from the SEC

Andy Spero | January 25, 2010 | 0 Comment(s) |

We Missed It a Few Months Ago

On the front page of the The ‘Money & Investing’ section of today’s edition of The Wall Street Journal, there is an article entitled, At SEC a Scholar Who Saw It Coming.

The article is about Henry Hu, who manages the newly-formed Risk, Strategy and Financial Innovation division at the SEC.

Though he sounds like a good guy, we don’t know much about Mr. Hu, but that’s not why we’re writing. It also mentions that in November, Mr. Wu hired Richard Bookstaber… Read the rest

Business Schools, Incentives, Uncertainty, and the Financial Crisis

Andy Spero | April 30, 2009 | 0 Comment(s) |

What Should It Mean to Earn a Master’s Degree?

We don’t answer that question here, but shouldn’t one be required to master something?

It Was a Matter of Time

Since early October, we’ve wondered when we’d see the first editorial criticizing MBAs and business schools for their role in the ongoing financial crisis.¹ In our mind, much of the blame should be shared between business types, i.e., MBAs, and so-called “quants,” with the majority of the blame placed on senior managers who permitted lax controls and misaligned incentives to… Read the rest

Good Luck with that: Getting Bank Examiners to Act

Andy Spero | November 28, 2008 | 0 Comment(s) |

This post greatly expands upon a comment we made about regulation in Even A Perfect Bailout Will Fail and possibly elsewhere.

Regulators as wise monkeys.

Today’s The Wall Street Journal has an article entitled, Bank Examiners Are Told to Step Up Sanctions on Lenders.

The first sentence of the article says it all: “The U.S. government’s armies of bank examiners have been ordered to be more aggressive in applying formal sanctions to financial institutions when problems are found.”

Unfortunately, ordering does not make it so, and we doubt that it will… Read the rest

The Mortgage Crisis: Why Not Incentivize the Private Sector?

Andy Spero | November 26, 2008 | 0 Comment(s) |

In today’s (November 26) edition of The Wall Street Journal, there is a Deal Journal article entitled, “Paulson Plan: ‘Truly Idiotic.’”

Although we’ve not gone that far in describing TARP et al, we’ve been harshly critical of Mr. Paulson. In fact, we’ve mentioned that his series of actions don’t seem to constitute an actual plan, because the word “plan” implies a certain degree of, well, planning or foresight and forethought, and those prerequisites seemed absent in his Panic of ’08.

The quoted accuser in the Deal Journal article is Charles Calomiris, a… Read the rest

Should Citi Be Nationalized as a Warning to Others?

Andy Spero | November 21, 2008 | 0 Comment(s) |

Note: We’ll likely expand and edit this post in the morning, but wanted to circulate the idea before bedtime.

We’re rather diligent–but not obsessed– about keeping up with financial new.¹ We’ve heard many financial firms announce lay-offs and have read how at a few, like Goldman, senior managers have decided to forgo bonuses.

As we recall, most banks have announced withdrawals from subprime mortgage origination and loans, which seems like a wise move, but given the magnitude of their errors and mistakes, we’re very surprised that we haven’t read… Read the rest

Even A Perfect Bailout Will Fail

Andy Spero | October 7, 2008 | 0 Comment(s) |

What Hope of Success with Typical Bureaucratic Efficiency?

We have criticized the “$700 billion” federal bailout of banks for the past two weeks and have done so for a variety of reasons. (We used the scare quotes to denote the unreliability of the estimate, which seems to have been grasped from thin air.) We won’t cite all of the reasons for its likely failure, because in this post, we’ll suppose that the “bailout” is perfectly executed.

Would such perfectly executed plan return us to the pre-crisis, halcyon days of early 2007? No! To anything close… Read the rest

Moral Hazard and Another Problem with Illiquid Assets

Andy Spero | September 26, 2008 | 0 Comment(s) |

in a Mark-to-Market Accounting Regime.

Here’s a couple of related issues that we can discuss in the context of today’s The Wall Street Journal article, Bailout Proposal Gets Hung Up Over Central Issue: Will It Work?

We’re deeply concerned about the moral hazard implications of any government bailout, and we doubt that we are the only observer to harbor such dark thoughts. However, we also think that those implications could be realized immediately rather than, say, during the “next” downturn in some far distant time. Thus… Read the rest

The Uncertain Value of Mortgage Securities

Andy Spero | September 25, 2008 | 0 Comment(s) |

A few days ago we read an article–it was likely in The Wall Street Journal–where a trader from Chicago complained about a question that Ohio Senator Sherrod Brown asked of either Mr. Paulson or Mr. Bernanke; we don’t recall to whom it was directed.

Senator Brown had asked something to the effect of: at what price will these securities sell, i.e., be purchased by the Treasury? The trader complained that it was a stupid question because Senator Brown should know that no one knows the price. We chuckled. … Read the rest

Uses of Internal Prediction Markets and Similar Mechanisms

Andy Spero | September 20, 2008 | 0 Comment(s) |

We’re a few days late, but we think that five days without electricity is a worthy excuse to cover our tardiness.

There was a nice article in Tuesday’s (9/16) WSJ about Best Buy’s use of internal prediction markets: Best Buy Taps ‘Prediction Market.’

The goal behind the program is to elicit employees’ private information about the probabilities (and estimated magnitudes) of successes (or failures) of various corporate initiatives.

We heartily applaud Best Buy’s program as both a way to (1) accomplish that goal of eliciting that private information and personal beliefs without fear… Read the rest

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