Author Archives: kevin

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The 3 Rules You Need for a Meeting

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From Ben Casnocha from a friend:
You should say something in a group meeting only when (a) you are pretty sure you are right, (b) you have something to say that is different than what everyone else is saying (that doesn't mean you necessarily disagree - it could be additive), (c) what you have to say is important to the discussion.
Not terribly insightful but worth repeating. Unfortunately you can't assign property rights to silence. Although it would be interesting to give everyone in the class a chess timer and set the total amount of time to equal the length of the class period. I would add that in roundtable discussion you should have to summarize the views of the person before you before you can speak. Discussions don't work if the speakers aren't addressing each other.

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Richard Posner on the Bailout

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Richard Posner has sage words about the bailout. He says that banks are suffering both from lack of capital and illiquidity. If they suffered only from lack of capital and the government bought the assets at market value, nothing would change, the supply of loans would not increase. If they suffered only from illiquidity the government could buy the assets at market value and hold them, the banks could make loans (you can't loan someone a collateralized debt obligation, but you can loan them cash) and the government would make its money back later. He says that the government should demand shares in banks it loans money to, because the alternative is a cash transfer from taxpayers to the bank's shareholders. While government ownership of private equity generally leads to political mismanagement and waste (a great example is Alitalia, as Becker points out), if it holds the shares briefly and sells them at the next opportunity there shouldn't be too much of a problem. He then goes on to outline what he thinks were the causes of the bailout, which are more private than any lack of government regulation. "There is a difference between creating and merely exacerbating a crisis," he writes. "Moreover, it is a paradox to exonerate the market on the ground that the government did not do enough to regulate it!" It's a complicated problem. But if our government is spending $2,333 per man, woman, and child on the problem, it deserves your attention. Uninformed analysis makes me think we can use $700 billion for much more noble purposes than grease the wheels of our banks. I'm also wondering why there's a market failure that requires government intervention. Usually if there is a shortage of lending, real interest rates will rise until people want to save money/lend it to others.

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Warren Buffett Interview on Freddie Mac and OFHEO

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"After it all came out, OFHEO wrote a 350--340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn't have a word in there about themselves, and they're the ones that 200 people were going to work every day with just two companies to think about."

Read the excerpt.

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Nassim Nicholas Taleb Called It

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Nassim Nicholas Taleb saw the market downturn coming 4 years ago, and was prepared to profit from it. He is a font of pessimism about banks and the market, and one of the most fascinating men alive.

Taleb's argument is that statistics and probability can only do so much to quantify and manage risk. Statistics and probability are great for games like craps, where the events are well-defined and you can calculate the probability and the expectation of every bet. Hedge-fund types can apply these statistics to make small gains in everyday market trading. The problem is that the small gains are overwhelmed by sweeping disasters, bubbles or failures in the market (or in craps, the likelihood that robbers shoot up the casino and steal everyone's money). The statistical tools being used today are just not good enough to evaluate the probability of those sweeping negative events, like the subprime crisis. Consequently everyone will over-estimate the chance of the market going up and up. Taleb bets against all of Wall Street by buying cheap options with extremely small odds. when markets operate normally, he loses small amounts on these options; when the markets lose a lot of money, he calls in the options and makes a fortune.

If you want to learn more about the theory read The Black Swan interesting the whole way through. Read more in this June profile of Taleb in the UK Times, or check out his website.

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Public Dryer Problem

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A number of my fellow students are annoyed that their clothes are hardly ever dry after one cycle in the dryer. The problem though relates more to their expectations than the dryer's ability. The minimum dryer cycle is not long enough to dry most loads. The dryer's minimum time should be set longer, or at the very least there should be a suggestion of the best amount of time to dry your laundry.

The lint screen is almost always full. Empty your lint screen for better results. Or design the dryer so the lint screen pops out when you open the door.

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