46: His dad is basically America

By DONUTS DONUTS

By DONUTS    2 weeks ago

By the time you read this post, the Fed will probably have already raised rates.

By most accounts, this is probably one of the easier decisions for Janet Yellen and co. to make. They’ve done a good job of telegraphing the decision. There’s wide consensus in terms of expectations and the cherry on top was last week’s solid jobs number.

You also sort of expect this to be the way forward, more or less. Barring any crazy, unforeseen circumstances, the Fed will probably raise rates a couple more times this year as the economy seems to be entering a phase of stability and growth.

Which is something to be positive about as we drift further and further away from the financial crisis and back towards some semblance of normalcy.

Of course, looking around, things are far from normal. The Dutch have their election today and like many European elections during these tense times, there are worries about the rise of the radical right.

All of which brings us back to the Fed, itself only a century old institution. As the NYTimes reports, populist forces endanger its continued existence:

Given the ferocious discontent with the “establishment” stoked by Mr. Trump among his angry electoral base, the threat against the Fed this time seems of a higher order. As Adam S. Posen, an American economist who has served on the Bank of England’s rate-setting Monetary Policy Committee, told me, “The sense that the Fed’s independence could be taken away by a simple act of Congress is very real.”

The pressure is already on. Mr. Posen, who now heads the Peterson Institute for International Economics, points out that the Fed already lost powers it deployed to counter the recession spawned by the financial crisis a decade ago: The Dodd-Frank financial reform legislation stripped it of its authority to lend freely to nonbanks, which it used to keep money market funds, insurance companies and others that had bet on the wrong side of the housing bubble from imploding and taking the economy with them.

That may be a bridge too far for the Trump administration, at least those who prefer stable institutions would hope.

But at the very least, Donald will have the chance to appoint his own chairman next year. We’ve seen from his Supreme Court nominee that he can be very pragmatic. But we’ve also seen that anything can happen.

And so the future of the Fed remains uncertain.

Forcing people to be ethical isn’t easy

Despite uncertainty, the Fed remains and one of the things on its agenda has been to address banking culture, apparently. Because we want banks to be more ethical. But there’s a problem with that, explains Dealbook:

It is a strange regulatory tool. The Environmental Protection Agency does not spend a lot of time worrying about the ethics of oil refiners or power utilities. It just regulates their emissions. Nor are the country’s workplace safety rules structured around requirements for employers or co-workers to act ethically.

Banks, after all, do not provide merely services and advice to their clients. They also sell them a product: money, in various bundles, at a price. As salesmen as well as advisers, bankers make uneasy candidates for the sort of ethics rules of the professions. It is pointless to insist on a uniform ethic of client service when bankers sometimes occupy roles as trusted advisers, but at other times act as middlemen who operate between buyers and sellers of products — especially when bankers, like anyone else, are governed by the strictures against fraud and in favor of good faith.

Steve Bannon’s dad is 95% of America

One dude that will likely have a big say on the future of the Fed is a guy named Steve Bannon, the guy behind the guy, who the WSJ has a new profile on.

Steve talks a bunch about his dad, Marty:

Steve Bannon idealizes the bygone corporate era that gave his father the kind of stability that he himself never pursued. Marty Bannon, who voted for Mr. Trump, sought a life of security, while the thrice-divorced Steve Bannon craves chaos and drama. He has served in the Navy, dabbled in penny stocks and was briefly in charge of Biosphere 2, a domed terrarium in Arizona.

“He’s the backbone of the country, the everyman who plays by the rules, the hardworking dad that delays his own gratification for the family,” Steve Bannon says. “The world is probably 95% Marty Bannons, and 5% Steve Bannons. And that’s probably the right metric for a stable society.”

How Bill Ackman got Valeant backwards

Matt Levine explains:

There is also a sort of strange story about activist investing. When Ackman arrived at Valeant, it was a perfect masterpiece of hedge-fund activism: run by a former McKinsey consultant, supported by activist fund ValueAct Capital Management, with a rigorously performance-based incentive compensation scheme that was a model for other companies, a leveraged capital structure, and a lean, aggressive, efficient approach to acquisitions and pricing. What was Ackman going to do, except stand back and admire the company? Ackman and Pershing Square “think highly of the Issuer’s management team, strategy, and track record,” said their sunny first filing about Valeant, two years ago. They weren’t buying Valeant to do activism on it; they were buying Valeant to enjoy the fruits of perfected activism.

And then everything went bad — in most tellings, precisely because Valeant was so purely a creature of modern shareholder capitalism. The focus on ruthless efficiency led to pricing decisions that were political and public-relations disasters. The compensation scheme seems to have incentivized shenanigans. The leverage didn’t help. Rather than finding an undervalued company with a good business but a shoddy management team and pushing it to extract value from its business more efficiently, Pershing Square found a hyper-efficient value extractor and watched the wheels fall off. That’s not the ideal approach.

The good, the bad, and the ugly

The thing about the frontier is that it’s ruled by a primal sort of existence. Before the veneer of civilization is constructed, anything goes, often by way of gun. That’s why they called it the Wild West.

Some people got very rich very quick in search of gold. Some people did bad, heinous things to good people. Some people simply survived. Some people saw the chance for a new life.

But as we settled the frontier, it would eventually start to look like everything else.

That’s basically what’s happening with the Internet and we are only just coming to terms with a lot of its ugliness. For a while, we ignored it for ideological reasons. You know, we’re not promoting people to take creepy photographs of underage girls, we’re promoting democracy and the First Amendment!

Twitter, for the longest time, had a similarly hands off approach.

But now the Internet has been super mainstream for a while. And the Internet matters now. It affects our culture, our politics.

So rather than allow the Internet to shape our beliefs and policies, we are working harder to make sure that the Internet reflects who we want to be.

Of course, the easiest people to make responsible for these changes are the tech companies most directly serving us our Internet experience.

As an example, Germany now promises to levy hefty fines on Facebook and Twitter if they don’t deal with the issue of “hate speech.”

We should only expect this trend to continue.

Stuff

Steve Cohen continues his quest to replace man with machine. (This is a popular quest in hedge fund land, apparently.)

There are a lot of analogs between sports betting and Wall Street so it would only make sense that as the sports betting world matures, it starts to look more like the world of finance.

Chicago could become the financial trading hub for… Chinese stocks.

Spiders eat twice as much meat as humans.

You can hack cars and phones with sound waves.

Of course, the Singularity will be sexy. (Isn’t that the whole point?)

You think American bed bugs are bad? Well, Asian bed bugs are even worse.

The most hip hop thing today: Obama has his own bottle of Hennessy.

They proved the third law of thermodynamics by cooling stuff.

The only way to know you are actually human is to solve this puzzle.

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DONUTS

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