Sunday, December 28, 2008

Music as a jingle

While people still love music enough to track it down, collect it, argue over it and judge their Facebook friends by it, many see no reason to pay for it. The emerging practical solution is to let music sell something else: a concert, a T-shirt, Web-site pop-up ads or a brand. ...

The question is: What happens to the music itself when the way to build a career shifts from recording songs that ordinary listeners want to buy to making music that marketers can use? That creates pressure, subtle but genuine, for music to recede: to embrace the element of vacancy that makes a good soundtrack so unobtrusive, to edit a lyric to be less specific or private, to leave blanks for the image or message the music now serves. Perhaps the song will still make that essential, head-turning first impression, but it won’t be as memorable or independent. ...

The old, often legitimate accusation against labels was that they sold entire albums with only one good song or two. Now there’s an incentive for a song to have only 30 seconds of good stuff. It’s already happening: Chris Brown’s hit “Forever” is wrapped around a jingle for chewing gum.
--Jon Pareles, NYT, on music and incentives

Saturday, December 27, 2008

College advice

One last thing: Don't go to Princeton. I'm still waiting to meet my first Princeton grad that I might like. I am like 0-for-79. Princeton grads carry themselves like bad guys in a sports movie. Remember the scene in "Pretty In Pink" when James Spader ordered his two henchmen to beat up Andrew McCarthy because he didn't approve of McCarthy's poor girlfriend? There's no question that Spader's character went on to Princeton, just like there's no doubt Johnny Lawrence went to Duke. Neither hypothetical situation is up for debate.
--Bill Simmons,, on Princeton grads

Thursday, December 25, 2008

Harold Pinter and revealed preference

The playwright Tom Stoppard said that before Mr. Pinter: “One thing plays had in common: you were supposed to believe what people said up there. If somebody comes in and says, ‘Tea or coffee?’ and the answer is ‘Tea,’ you are entitled to assume that somebody is offered a choice of two drinks, and the second person has stated a preference.” With Mr. Pinter there are alternatives, “such as the man preferred coffee but the other person wished him to have tea,” Mr. Stoppard said, “or that he preferred the stuff you make from coffee beans under the impression that it was called tea.”
--Mel Gussow and Ben Brantley, NYT, on preferences elliptically revealed

Wednesday, December 24, 2008

Maybe it's even worse than they said

Harvard University's admission that it lost $8 billion from its $36 billion endowment fund, as staggering as it sounds, may grossly underestimate the true magnitude of the loss between from July 1 through Oct. 31 2008. According to a source close the Harvard Management Corporation (HMC), which runs the fund for Harvard, the loss is closer to $18 billion if the losses on the fund's illiquid investment are realistically appraised.
--Edward Jay Epstein, Huffington Post, on why Harvard's FAS is "panicking" (in the words of one Harvard professor I spoke to)

Tuesday, December 23, 2008

Innovation is for suckers

Now I will talk about copying. I think copying is very important. Everyone always talks about how innovation is important. But you need to invest a lot of time to innovate and the risk is high. Why not take things that have already been proven to work in other places? That is copying.
--Bestselling Chinese self-help guru Ding Yuanzhi on a proven path

The importance of overhead

A portion of any general-purpose donation to a nonprofit, whether it be to a church, health clinic or a battered women’s shelter, goes to administration of some kind. And that’s not a bad thing. Sure, giving to defray “administrative costs” sounds unglamorous, largely because the blanket term “administrative costs” is sometimes used as a synonym for “wastefulness” or “inefficiency.” While some administrative expenses might be wasteful, they are not by definition wasteful. They are just costs that enable a mission, like a social service, to be carried out. ...

While there is something to be said for charities that know how to keep their administrative costs under control, lower costs are not always better. For example, many nonprofits seem to cut corners on backroom tasks like bookkeeping and record-keeping because these expenses aren’t viewed as critical to the “mission.” But spending less money on such administrative costs can actually make a charity less effective because it invites embezzlement, a crime that perpetually afflicts nonprofit organizations.
--Catherine Rampell, NYT, on why low administrative expenses aren't always a good thing

Thursday, December 18, 2008

The long hand of the Ponzi scheme

Bayou was a fund that blew up and was revealed in 2005 to be a fraud with some $450 million in investor losses. Bayou is memorable for two reasons. One is founder Samuel Israel III's staged suicide. (He eventually rose from the dead and turned himself in after prosecutors went after the girlfriend who helped him disappear.) The other is a legal precedent set in the Bayou case that should scare the heck out of anyone who once invested with Madoff but who managed to get out safely in the last few years: Any investors who managed to take out profits from a fund like Bayou before the fraud was revealed had to give the money back. ...

There's no time limit on the gains they'd have to give back, so any fund that outed Madoff could be on the hook for any profits it had gained from its Madoff investments for years back. So, as my fund-manager friend puts it, “The question people have to ask is not, 'Do I have money in a fund that has exposure to Madoff now?' but, 'Do I have money in a fund that that has ever invested with Madoff?' ” ...

The Bayou precedent means that the discovery of a huge fraud leads to a whole chain of liabilities that stretches back for years and may hit investors who hadn't dealt with Madoff in a decade. ...

The consequence of this is that any longtime Madoff investors who'd gotten suspicious could very well have seen that publicizing their suspicions and outing Madoff's scam would not have saved their money but actually exposed them to greater losses. As the law stands, post-Bayou, a major fund company that finds itself entangled in a scam like Madoff's has every incentive not to out the fraud but, rather, to keep its fingers crossed and maybe hope that the whole thing can be written off as just another multibillion-dollar stock market blowup.
--Mark Gimein, Big Money, on "just when I thought I was out... they pull me back in"

Wednesday, December 17, 2008

Finnish jokes -- who knew they existed?

There's an old joke that runs something like this: "What's the difference between a Finnish introvert and a Finnish extrovert? A Finnish introvert looks at his feet when he's talking to you. A Finnish extrovert looks at yours!" If you think gags like these are just peddling stereotypes, you're probably right. But most stereotypes develop for a reason and many people would argue that there's more than a grain of truth in this one. Others would say it's patently untrue; why would a Finn be talking to you at all?

Perhaps the finest precis is the (true) tale of a foreign girl who married a Finn. Bemoaning her husband's cool and incommunicative nature, she pined for more affection. "I have already said I love you," said the husband. "If I change my mind, I shall tell you so."
--Nigel Wallis, Helsinki: A Bradt City Guide

Monday, December 15, 2008

Don't feel bad for every Bernie Madoff investor

Specifically, we're hearing that the smart money KNEW Bernie had to be cheating, because the returns he was generating were impossibly good. Many Wall Streeters suspected the wrong rigged game, though: They thought it was insider trading, not a Ponzi scheme. And here's the best part: That's why they invested with him.
--Henry Blodget, ClusterStock, on some just deserts

Wednesday, December 10, 2008

Let the man smoke!

Let me offer a somewhat hyperbolic hypothetical. It's the winter of 2009, and a crisis has erupted between the United States and the former Soviet Union. Putin (surprise!) is acting arrogantly and aggressively, trying to push the new American president around. Do you want Barack Obama, the guy who has his finger on our nuclear trigger, notorious nicotine addict, to be dying for a smoke? All irritable, his nerves and famously smooth temper on edge? ... Do you want to die because President Obama is dying for a smoke?
--Ron Rosenbaum, Slate, on why secondhand smoke risk sounds pretty good in the Obama White House

Fear and trembling

In the market equivalent of shoveling cash under the mattress, hordes of buyers were so eager on Tuesday to park money in the world’s safest investment, United States government debt, that they agreed to accept a zero percent rate of return. ...

Investors accepted the zero percent rate in the government’s auction Tuesday of $30 billion worth of short-term securities that mature in four weeks. Demand was so great even for no return that the government could have sold four times as much.

In addition, for a brief moment, investors were willing to take a small loss for holding another ultra-safe security, the already-issued three-month Treasury bill.
--Vikas Bajaj and Michael M. Grynbaum, NYT, on another sign of the troubled economic times


From my e-mails:

It’s definitely starting to feel very painful. I met up with a friend in the venture business tonight, and he was complaining (very mildly) that it’s just not fun anymore. I responded that most jobs aren’t fun these days, and it’s not because our jobs changed.
--Venture capitalist

My job is the opposite of fun.
--Citigroup employee

My job is where fun goes to die.
--Medical resident

My job actively seeks out and exterminates fun.
--Citigroup employee

Tuesday, December 9, 2008

It's a bull market and you didn't know it

With the Dow closing at at its highest level in a month on Monday, the rally off the Nov. 20 lows has now exceeded 20%, which is the technical definition of a bull market.
--Aaron Task, Yahoo Finance, on the stealth bull market

Correlation (not causation) of happiness

If those riding intellectual fads are sometimes guilty of sloppy reasoning, imagine what happens when two fads collide.

That’s what happened when the British Medical Journal elected to publish a study analyzing 1) happiness in 2) social networks. The study, by James Fowler and Nicholas Christakis, concludes that happiness is contagious within social networks. ... Indeed, according to Fowler, “if your friend’s friend’s friend becomes happy, that has a bigger impact on you being happy than putting an extra $5,000 in your pocket.”

Unfortunately, it’s probably not true. Here’s the crux of the research: the authors show that your happiness is positively related to the happiness of your friends, and that this holds even after accounting for a number of other variables, including how happy you and your friends were a few years back. That’s correlation; what about causation?

There are (at least) three reasons why happiness is correlated within social networks. ... The third reason is perhaps the most likely: if you and I are friends, we are often subject to similar influences. If a buddy of ours dies, we’ll both be less happy. Or, less dramatically, if our favorite football team wins, we’ll both be happier. But this isn’t contagious happiness — it is simply a natural outcome of the shared experiences of people in the same social circles.

Interestingly, the same issue of the BMJ contained a very careful article by Ethan Cohen-Cole and Jason Fletcher making precisely this point. They employ a pretty cheeky research strategy: if you want to show that a research design is silly, show that it leads to silly conclusions.

They use Fowler and Christakis’s approach on another dataset, and show that it leads to the unlikely conclusion that height, headaches, and acne are also contagious. The more likely explanation, of course, is that all are subject to similar environmental influences.
--Justin Wolfers, Freakonomics blog, on why it's not true that your spouse's happiness matters less for your own happiness than a complete stranger's

Monday, December 8, 2008

The price of genius

[Beethoven's] father had pulled him out of school after a few years so he could concentrate on music. (Beethoven learned to add and subtract but never learned to multiply. If he had to multiply 65 by 59, he wrote 65 in a column 59 times and added it up.)
--Jan Swafford, Slate, on making do with what you have

Facts about common cold transmission

If there's any good news about the common cold, it might be this: You don't have to stop kissing your sniffling loved one's lips just to avoid catching their colds. But you probably will want to stop holding hands. ...

Rhinoviruses infect the lining of the nose. But surprisingly, these viruses don't live in saliva, says Dr. J. Owen Hendley, a leading rhinovirus specialist and professor of pediatrics at the University of Virginia School of Medicine. The lining of the nose "is a different form of epithelial tissue from the lining of the mouth and throat," he says. And the cold virus, having come from the nose, does not fare as well in the dissimilar environment of the mouth.

Colds typically spread when virus-laden mucus from a sick person's nose gets onto the fingertips of a well person who then rubs his own nose or eyes. In short, says Hendley, that means that "kissing is okay, but hand holding is not." ...

As for those increasingly popular alcohol-based sanitizing gels, sorry, but they may not measure up to plain soap and water. "Rhinoviruses like alcohol. They think it's tasty," says Hendley. For whatever reason, adds Zachary of MGH, "cold viruses are not as susceptible to alcohol-based hand disinfectants as other viruses and bacteria."
--Judy Foreman, Boston Globe, on good news for kisses

Sunday, December 7, 2008

The unknown unknowns

Visit the Fulda Gap in Germany, for example, about an hour east of Frankfurt. That was the location of the all-time No. 1 pawn-to-king-four scenario of the start of the end.

In that scenario, the endless tanks of endless Soviet divisions would come racing through this valley -- which looks not unlike the Shenandoah Valley in Virginia -- headed for Western Europe. The American 11th Armored "Blackhorse" Cavalry was there on hair-trigger alert to complicate their lives as thoroughly as they could. ...

While the fast and technologically superior 11th Cavalry tanks were supposedly killing Soviet tanks at a 7 to 1 ratio, so the theory went, the 747s from the States were disgorging troops, who would run to their prepositioned main battle tanks to really bring it on. When the 747s turned around to get more American troops, so the scenario went, they would not return empty. They would be full not only of American military kids, briefers told reporters, but also their pets, in cages stockpiled for exactly this scenario. Yes. They had figured it out to that level of minutiae.

The 11th Cavalry dads, meanwhile, knew exactly where they would stop their tanks to get warm pastries and hot coffee on the way to Armageddon. They knew which German bakeries would sell them stuff out their window at 4 a.m. because they'd responded to surprise practice alerts a zillion times.

Oddly enough, that level of guaranteed certainty produced one of the least likely futures in history. It is the one we have today, in which we have survived as a species and even thrived sufficiently to create credit default swaps that possibly will do what the Soviet nuclear targeters failed to do: bring us to our knees.
--Joel Garreau, Washington Post, on foreseen versus unforeseen disasters

Saturday, December 6, 2008

A Wall Street holiday party

Holy crap. My department’s holiday party is BYO, in a conference room. I’m not kidding.
Sent: Tuesday, December 02, 2008 5:02 PM
To: *Citi Finance Controllers 909; *Citi Finance CBS 909; *CFA All Staff
Subject: Join Us For Some Holiday Sweets

You are invited to bring some of your favorite and/ or traditional holiday cookies (treats) and exchange them with our Finance colleagues as we gather to sample these tempting treats and a holiday moment.

If you are interested in participating, bring your treats to Conference Room C by Noon on Wednesday the 17th.

When: Wednesday December 17, 2008

Time: Beginning 2:30 p.m.
--A Citigroup employee on what Citi learned from the AIG resort trip debacle

Find your underrepresented minorities in Spain

When I was on the faculty search committee, I had a meeting with the vice provost about diversity. She showed me some graphs, and of course our numbers were really bad. But there was a blip up on one of the graphs.

"Who's that?" I asked.

"That's you," she said.
--A professor at a top U.S. university on how Spaniards now count as "Hispanics" for affirmative action counting purposes

Wednesday, December 3, 2008

The world's most annoying economic crisis

Welcome to the world's strangest economic crisis. Argentina in general—and Buenos Aires in particular—is presently in the grip of a moneda, or coin, shortage. Everywhere you look, there are signs reading, "NO HAY MONEDAS." As a result, vendors here are more likely to decline to sell you something than to cough up any of their increasingly precious coins in change. ...

No one can say what's causing this absurd situation. The government accuses Argentines of hoarding coins, which is true, at least to some extent. When even the most insignificant purchase requires the same order of planning and precision as a long-range missile strike, you can hardly blame people for keeping a jar of monedas safe at home. The people, in turn, fault the government for not minting enough coins. In fact, the nation's central bank has produced a record number of monedas this year, and the problem has gotten even worse. Everyone blames the bus companies, whose buses accept only monedas. These companies, exploiting a loophole in the law, run side businesses that will exchange clients' bills for monedas for a 3 percent service fee. This is legal, but the business community also routinely complains of being forced into the clutches of a thriving moneda black market—run by the local mob, or the bus companies, or both—in which coins sell for a premium of between 5 percent and 10 percent. The bus companies steadfastly deny any involvement in this racket, but their claims were undercut by the discovery of a hoard of 13 million coins, amounting to 5 million pesos, in one company's warehouse this October.
--Joe Keohane, Slate, on a curious lack of coins