Wednesday, July 25, 2012

Zynga misses big on earnings

Zynga, maker of games such as Farmville, is down BIG after reporting a $22 million loss. How could this widely successful social gaming company possibly lose money? These games are huge cash cows, they don't require massive servers, complex development etc. In fact the company had nearly $1.2 billion in revenues last year. So what happened? One trip to their Wikipedia page is very telling:

At the company's headquarters in SoMa:
employees enjoy perks such as free gourmet meals, access to an in-house nutritionist, personal training, and insurance coverage for pets. Zynga headquarters features a coffee shop, gaming arcade, gym, basketball court, and wellness center
...the building is only 7 stories tall - are there actually any offices in there??

Tuesday, July 24, 2012

Kelo strikes again?

Article in rolling stone about a plan to use eminent domain to seize foreclosed houses and write down mortgages en masse. San Bernadino County is at the forefront of this plan and its pissing off a lot of bankers. I think this plan is brilliant and has the potential to reshape the housing market for the better... that said I should probably drop my position in BAC.

Monday, July 23, 2012

Now this is civil disobedience!

Judge ruled that stripping to protest the TSA's full body scans is protected by the 1st Amendment! This also serves as a warning to anyone who has to fly with me anytime soon :)

Wednesday, July 18, 2012

By the 1% for the 1%

After the 2010 ruling in Citizens United v. Federal Election Commission enabled super-PACs the campaign finance game has gotten worse than ever. According to this article in the Atlantic a mere 196 donors have provided 80% of the super-PAC money in the presidential election so far. The numbers are quite large, pro-Romney's super-PACs took in $20 million last month and that total is sure to grow as the election nears. When are candidates are so beholden to corporate interests can we really trust them to rule for the best of the people?

So what can we do to end this ridiculous system? Jon Soros (son of billionaire George Soros) has started his own super-PAC with the primary goal of ending super-PACs. Basically he's going to use this money to campaign only for candidates who support campaign finance reform. I'm still trying to figure out how I can donate to this. Although I'm reminded of a classic Nietzsche quote "Be careful when you fight monsters, lest you become one."


Fascinating post from Marginal Revolution about what firefighters actually spend most of their time doing (hint: the answer isn't fighting fires)

Classic problem with government spending, we see this in the military all the time. If you give an agency more money they will find ways to spend it, whether or not it actually benefits the public.

Trial about no potential for jail-time

Banker from Citi is being charged by the SEC with negligence for some CDO deals. But if criminal bankers only have to give up a portion of their ill-gotten gains it won't serve as much of a deterrent. Start throwing them in jail and people will think twice about lying to investors, defrauding clients and manipulating markets.

Monday, July 16, 2012

21st Century American Life

Great article about a study of 32 families in LA.

Some pretty depressing observations:
American families are overwhelmed by clutter, too busy to go in their own backyards, rarely eat dinner together even though they claim family meals as a goal, and can’t park their cars in the garage because they’re crammed with non-vehicular stuff.
And in particular:
50 of the 64 parents in our study never stepped outside in the course of about a week 
And this sounds like my mom:
Her children, ages 9, 13, and 17, have largely outgrown the toys, but she can’t bring herself to give them away. “I’m saving them for my grandchildren.” can I be sure to avoid this?

Thursday, July 12, 2012

Higher Taxes and More Regulation

At heart I'm a libertarian, I believe the government should interfere with my life as little as possible. But today I am advocating higher taxes and more regulation. Why? Because at some point more freedom actually results in less freedom. The richest people in this country have a significant capacity to endure higher taxes, especially on capital gains and dividends. Its ludicrous how income derived from labor is treated differently than income derived from capital. On the whole jobs are created by new, small companies not large existing ones. What large and established companies are good at is generating lots of profits and to some extent innovation. Neither of these functions will be hurt by higher taxes.

With regards to regulation, it has become clear that the only thing that the only institution that can protect us from reckless and fraudulent corporations is government. Many American corporations are so large that they control more assets than entire sovereign states! That's far too much power going unchecked. We have the military to protect us from foreign invaders, comparatively how little do we invest in protecting ourselves from domestic enemies?

To maximize our freedom and to keep markets fair we need government - or more accurately, we need a functioning government. Big banks, big pharma have advocated deregulation for years and while that has meant more freedom for them it has resulted in less freedom for us. By freedom I mean the freedom from exploitation. We have learned the hard way that we cannot trust these companies to be honest. Perhaps through no fault of their own - there will always be bad apples. I trust the vast majority of the people employed at these companies are honest. But because of their size and their impact we need to make sure they're not in a position to exploit the public.

Wednesday, July 11, 2012


After subprime mortgages, shadow banking and robo-signing I shouldn't be surprised by another fraud that the banks have gotten themselves into. There's a good article in the economist describing what exactly Barclay's (and inevitably others) are guilty of:

LIBOR (london inter-bank offered rate) is everywhere, anyone who borrows or saves money is touched by it. The fact that these banks were brazen enough to manipulate this rate for their own profit is appalling. As the scandal spreads so will the outrage. In previous scandals the banks were generally ripping off "sophisticated investors" i.e. greedy people who should have known better. But scandal takes their fraud to a whole new level. Litigators must be thrilled about this - shit's about to get real.

The Next Shoe to Drop

Ever since the subprime debacle lots of folks in the industry have been worried about commercial real estate mortgages (i.e. multi-million dollar mortgages for office buildings, apartments, malls etc). But the commercial crash never really materialized despite lots of vacancies. This author attributes that to bias at the banks, but I don't think that's the primary reason:

The biggest reason in my mind is leverage. During the go-go years you could buy a house with 5% down or less! This causes two problems. First if you're only putting a few thousand dollars down instead of tens of thousands have you really thought this decision through? And second if you only put 5% down then a 20% drop in house prices puts you hella underwater - unable to move, unable to refinance. Worse still, after the crash in house prices banks face an incentive compatibility problem. Financially its in their best interest to reduce your principal and get as much as they can from you. But if they do this for one person then tons more people will stop paying their mortgages trying to get their principal reduced and the banks would be screwed.

But we don't have this problem with commercial mortgages. In the commercial world 40% down payment is the standard and almost no one is allowed to put less than 25% down. So even if commercial property prices drop 40% (as they have) the property securing the mortgage is still valuable enough to cover the mortgage! I feel this is the key difference, if borrowers stop paying the bank can seize the property and not lose any money. Consequently there is no need to reduce principal, no incentive compatibility problems. Instead the banks can work out extensions, lower rates etc and everyone is happy. What happened with residential mortgages is that people took out too much debt and consequently were too leveraged. No doubt a good portion of this was reckless speculation and runaway consumption, but soaring health care and education costs also played a big role. These consistently rank as two of the top uses for home equity withdrawals. The more I think about this the more I feel our economic issues are all interconnected.

Saturday, July 7, 2012

On Condos

Interesting blog post on the history of condos in the US and around the world, titled "Why do condos even exist?"

The author's big problem with condos is that once a condo building is developed and sold it becomes nearly impossible to tear down and redevelop. He gives a few explanation for the popularity of condos but overall I share his skepticism. If you live in a condo in downtown Chicago you're paying at least $1000 per month for assessments and taxes. At that point do you really "own" the condo? Plus you have to give up a lot of rights and freedoms for living in the building. To me this really seems like a version of long-term renting, you have to pay a lot of money up front then deal with the hassle of selling it down the line.

No posts in 10 days

There's a big backlog of posts that I haven't had time to write, I'm hoping to catch up a bit this weekend. Between 4 days in new york, apartment searching and clients who actually want me to do work time has been at a premium of late. This month is certainly going to be a transition in many ways. I'm coming up on 5 years at my job - from what I hear it's an important one. Hopefully this will be a transition to higher level role, i.e. creating work for other people and higher level advisory work. Personally there will be a lot of transitions as well, much of my social circle over the past few years is moving away. Although all the going away parties are a lot fun they leave a void that lasts longer than the hangover. August will certainly be a rebuilding month, but I do look forward to making new friendships and expanding existing ones. I find it remarkable both how easy and how difficult it is to form new friendships. With the right person it is very easy and very natural, the difficult part is finding those right people. I imagine by winter my day-to-day life will be quite different than it is now - not necessarily better or worse but different. For the most part I think I've become pretty good at accepting uncertainty without worrying too much about it. Its not easy since people are hard-wired to hate uncertainty but there is some comfort in not knowing what the future holds - without surprises life would get pretty boring.