Friday Perspectives

1. Response to So About That International Banking Conspiracy
This post should be actually be title "Why engineers should not do economics" or "Stock Market 101". Originally this looked like a very interesting piece. Some engineers in Europe were using an advanced network modeling algorithm on stock ownership ties: a statistical method I have considered using myself, and an area of research quite in line with my own. The implications of the study have such import as well. The world's corporations are controlled by the likes of Morgan Stanley, Citigroup, Franklin Templeton...


...wait, Franklin Templeton? Investment banks controlling the world in a seedy web of lies makes sense... but an investment manager? The guys that hold retail brokerage accounts and issue mutual funds? I smell fish...


The problem is thus - They are looking where the shares of all the world's publicly held corporations sit, an interesting prospect. The problem with the Orbis Database they use is the problem with any public stock registry, you really just see where the stock is sitting. That can often be very different from who owns it. All these investment banks and managers show up because they have something in common - they have brokerages.  And brokerages hold stock for other people. This is called holding stock in "street name".  The physical stock certificate sits in vault at the brokerage - say UBS - and they mark in the books that Mr. Soros has 100,000 shares of Exxon mobile.  It will show up that UBS holds the shares, but they don't own them or vote them.  In the end, its a nifty statistical analysis that produces a pretty cool graphic, but if you wanted to know which financial institutions house most of the worlds shares, any broker or trader could have told you that. Good use of university resources.


2. Response to Life after Debt
If you view countries as corporations (which is typically a really bad analogy to make, but bear with me) this article actually makes a lot of sense. The US probably shouldn't be completely unleveraged - debt does in fact have its advantages. One of the primary advantages of debt to a company is that it commits excess cash to a purpose (paying off bondholders) and so managers are less likely to waste that money and endanger the company.  The problem with the US, or any country, is that there is very little accountability for the public "managers" that decide how money gets spent. If money gets wasted - Oh well, not my money. This limits the disciplinary power of debt. Debt also provides cash which can be used in value added projects - again a problem for governments, because they tend not to add value.  But some things they undertake do, such as infrastructure improvements.  This means that governments, like corporations, have an "optimal" level of debt they should strive for. Ultimately, I think it would be very responsible if a political candidate actually addresses this. If someone came out and said, "We don't need to pay down the US debt, we just need to pay down any of it that isn't being invested in to fixed infrastructure" they will very much have impressed me.