High Impact Noise

Very Funny.

Below are two awesome graphics that show how badly the government is doing at managing TARP. They are not even close to free market deals for OUR money. I know that returns may not be their number 1 objective, but they could do a little better.

This is why I would never be an LP in the U.S. govt. PE firm.

Great article written by Joe Nocera in today’s NYTimes Magazine that discusses Wall Street risk management practices. In particular, he discusses a risk measure call value at risk. Nocera does a good job looking at both sides, but I lean more to Nassim Nicholas Taleb’s side of the argument. Here is my favorite passage of the article.

After the lecture, the professor who invited Taleb to Columbia took a handful of people out for a late lunch at a nearby diner. Somewhat surprisingly, given Taleb’s well-known scorn for risk managers, the professor had also invited several risk managers who worked at two big investment banks. We had barely been seated before they tried to engage Taleb in a debate over the value of VaR. But Taleb is impossible to argue with on this subject; every time they raised an objection to his argument, he curtly dismissed them out of hand. “VaR can be useful,” said one of the risk managers. “It depends on how you use it. It can be useful in identifying trends.”

“This argument is addressed in ‘The Black Swan,’ ” Taleb retorted. “Not a single person has offered me an argument I haven’t heard.”

“I think VaR is great,” said another risk manager. “I think it is a fantastic tool. It’s like an altimeter in aircraft. It has some margin for error, but if you’re a pilot, you know how to deal with it. But very few pilots give up using it.”

Taleb replied: “Altimeters have errors that are Gaussian. You can compensate. In the real world, the magnitude of errors is much less known.”

In theory V@R seems like a good tool, but because you don’t know the distribution of the errors, it has very little practical use. If one does use it, It must be with extreme caution.

First off, Happy Holidays to anybody who wanders on this post.

Lately I have been relying more and more on the internet for my video content. Hulu has given me a chance to watch shows I would normally miss out. I am loving it. Unlike my sister, I enjoy full episodes non of this 3 minute clip crap that drives youtube traffic. I like quality, full length programming. Hulu satisfies this itch.

A couple holiday recommendations for your Hulu watching pleasure.

• ReGenesis – Like House but with more science.
• FireFly – Fun Sci Fi drama created by Joss Whedon, creator of Buffy the Vampire Slayer and Angel.
• John Doe – Quirky really smart guy, but is alien smart mystery

I have been catching up on my reading lately, finishing books I started 1-3 years ago.

Why Most Things Fail by Paul Ormerod is on my desk today.

I found this quote to by very relevant to today’s economic landscape.

“The question, as Schumpeter saw it, was not ‘how capitalism administers existing structures… [but] how it creates and destroys them.’ This creative destruction, he believed, caused continuous progress and improved standards of living for everyone.”

Hopefully the fall, and the subsequent reshaping of the banking industry is capitalism driving improvement.

Bailout Sleuth is a new website funded by Mark Cuban that is keeping an eye on the bailout. For this bailout to work, all transactions need be transparent to the hard working tax payers. The lack of transparency has largely gone unreported, but bailoutsleuth.com is trying to change that.

The site has already report on:

• Executive and legal compensation redacted on contracts
• The bailout going to fund deferred executive compensation
• High dividends being paid by the banks

I MEAN IT, GO RIGHT NOW.

Quote paraphrased from Jason Calacanis on TWIT.

“The best thing to do during an economic downturn is to invest in yourself.”

There has been a debate in the blogosphere about whether Venture Capital companies are being irresponsible for only now telling their portfolio companies to scale back their spending.

Fred Wilson wrote about this previously saying

”...we have a responsibility as investors, board members, fiduciaries, and advisors to our companies to tell them what we’ve seen before, that acting now decisively will make it easier to survive tough times.”

Now Michael Arrington has added his two sense dispelling to rediculous myths that has come out during this debate.

• VC’s made this happen. (Just Silly)
• VC’s should always be stressing to their portfolio companies to conserve cash.

Arrington does a particularly good job refuting this second myth. Both are worthwhile reads.

In the end the economy is in the dumper. If you think stressing to your portfolio companies the necessity of conserving cash is irresponsible, then I pray my money is not being managed by you.

I really interesting slide deck by Sequoia Capital and how the current financial crisis impacts their portfolio companies.

SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

First read at The Big Picture

Paul Kedrosky of Infectious Greed tipped me off to this quote.

What is truly disgraceful is that investment banks could only manage returns on equity of 15-25% with a balance sheet that was often leveraged to the sky.

—Niels Jensen and Jan Wilhelmsen, of Absolute Return Partners