Deciphering the Latest Business Research
In this video interview, Davide Accomazzo, MBA, Adjunct Professor of Finance at the Graziadio School of Business and Management, discusses the dangers of high frequency trading. This interview is a follow-up to Professor Accomazzo’s essay for the GBR blog on the same topic. Continue reading ‘The Danger with High Frequency Trading’
As a professional trader, you are confronted daily with all kinds of dynamics and situations that require a flexible and adaptive mind. You are faced with multiple variables constantly interacting with each other and your task is to process ever-changing information quickly and profitably. Valuations arbitrage, reflexive supply-and-demand dynamics, and structural changes are recurrent landmines in the typical day of traders and money managers.
We accept this “dangerous” line of work for only two reasons: monetary compensation and pride in being part of capital markets, that transmission mechanism without which innovation and creativity would be prisoners of their own ethereal state.
As a society, we are ready to strike compromises in return for a system that will allow the ethereal state of our creativity to turn into reality. We allow market insiders like market makers, broker-dealers, and others to have small advantages over us mortal investors in order to have them create the positive externalities that help us build a more sophisticated economic system. We give market makers and specialists a privileged look at the order flow (the supply and demand of stocks) in exchange for their commitment to maintaining orderly markets whenever an imbalance occurs. We give systemic firms like JP Morgan and Goldman Sachs privileged access to liquidity via the Federal Reserve so that the banking system and capital markets can continue to serve us in our quest to invent, produce, and distribute new products.
But sometimes things turn out more like a bad inland casino rather than a better market…
We may still be reeling from the systemic economic collapse of last year, but new structural changes with potential negative externalities are already at our door.
For months I have witnessed strange dynamics in the way markets behaved: liquidity issues, intra-day volatility, and a constant disconnection between technical, sentiment and fundamental inputs. Markets often go through periods of irrationality, but this time it felt different.
As a professional trader and an educator on markets, my sensitivity level is higher than normal and I immediately began conducting research to make sense of my discomfort. This process pointed consistently to one element: high frequency trading or as I like to call it “the rise of the machines.” Continue reading ‘High Frequency Trading: The Rise of the Machines’
In this video interview, Larry Cox, PhD, Associate Professor of Entrepreneurship and director of the new entrepreneurship program at the Graziadio School of Business and Management, discusses how smart entrepreneurs take advantage of low opportunity and material costs during a recession and why creativity and idea generation are the most important factors to entrepreneurial success.
Continue reading ‘Why Entrepreneurship Thrives During a Recession’
In this video interview, David M. Smith, PhD, Associate Dean of Academic Affairs and Associate Professor of Economics at the Graziadio School of Business and Management discusses the impact the proposed Employee Free Choice Act (EFCA) would have on employers, unions, and the workforce. Continue reading ‘The Employee Free Choice Act: Playing the Union Card’
The financial turmoil of the last eighteen months has brought to everyone’s attention the problems and dichotomy of our present monetary and financial systems. While we are now dealing with the consequences of too much credit, it is also important to note that a system without credit (and—much to the delight of the populists—without bankers) would be a much poorer and less innovative social system.
So far, the attempted solutions suggested have varied from more leveraged credit to the substitution of the fiat currency system and the central bank with a gold-linked scheme.
The problem with most of these suggestions is a massive confusion about how the U.S. system really works, how it should work, and how we would like it to work (and here it gets really problematic as every individual interest invariably jockeys for a better position).
The issue with a fiat currency system is that it is backed by the credibility of the government and the central bank, which should be acting independently as a guardian of the currency. Governments have inherent conflicts of interest and may feel pressured to regularly weaken the currency as a means of veiled taxation; other sectors of the population will also look favorably on consistent inflation to reduce the burden of borrowing. The central bank is supposed to act independently to counterbalance these inherent social and political dynamics. Unfortunately, in the case of the U.S. and many other countries, the central bank, is hardly independent or focused on one true objective of financial stability. In reality, a central bank’s independence is very limited; true independence would require practically no accountability and a large degree of secrecy, which comes, of course, with its own problems.
The fine balance between a government’s and a society’s pull toward credit excesses and the countervailing force of the central bank is the key to successful economies. Continue reading ‘The Future of US Capitalism’
Since the early part of the last decade, I have uncomfortably witnessed the unstoppable force of mass consumerism and economic leverage take over every aspect of our system in complete disregard for the social aspects. However, it was not until this recent “quantity over quality” takeover engulfed the cultural fabric of our society that I started to really question the future viability of Mass Capitalism. It seems to me what we need in its place is a new, more qualitative capitalism.
In the first post, I explored two of four areas of intervention for restructuring the imbalances of today’s capitalism: monetary policy and globalization management. In this post, I discuss the latter two: education and regulatory transparency.
Continue reading ‘A New Qualitative Capitalism Part II’
Joetta Forsyth, PhD
Our financial crisis came about because of flawed thinking about how to help the poor.
Financially sophisticated parents would never tell their children to borrow to the ceiling to buy a house or anything else. And yet, lawmakers thought that the way to help the poor was to encourage them to borrow heavily. The mass inducement to the poor to borrow beyond their means was nothing short of an act of incredible cruelty. So how can we help the poor and get out of the mess we’re in?
There has been talk about bailing out homeowners so that they can make their mortgage payments. But this is just more of the same flawed thinking. Imagine the misery of just being able to make payments year after year. Dinner consists of macaroni and cheese, entertainment is renting a movie once a month, life revolves around hovering on the brink of disaster. These mortgage bailouts aren’t “relief,” they’re an act of cruelty designed to extract the maximum possible. And in-trouble homeowners throw good money after bad, hanging on in the hope of a bailout…
We need to let borrowers who got in over their head default.
The transition back to an apartment will hurt, but then life can begin again. Cash will be freed up for consumer purchases and saving for a comfortable retirement—possibly replacing the car that should be scrapped anyway. Instead of an economy full of people who don’t have a spare dime due to their mortgage payments, we will have an economy of people who can spend again. This will stop the layoffs. The more people who have jobs, the more of a base we will have to tax, which, ultimately, will help us pay off the massive debt being incurred. Jobs are everything; they are the key.
Yes, this will cause real estate prices to fall more. But propping up prices is worse.
Continue reading ‘It’s Time to Hit the Reset Button’
Linnea Bernard McCord, JD, MBA Peter Drucker, the famous management consultant, who is credited with creating the professional field of management, died a few years ago at age 95. He was the quintessential non-emotional thinker—a voracious reader who observed dispassionately what was going on around him without bias or preconception. He invented the word “knowledge worker” decades before it became a reality.
When asked how he could “see the future,” Drucker is reported to have said that he didn’t see the future; he simply saw what already existed today that others could not and would not see.
While attending university in Germany, Peter Drucker worked as a journalist. Adolf Hitler had already clearly outlined his vision of the world he wanted to create in his book, Mein Kampf, and Drucker had read every word.
As soon as Hitler took office as Chancellor of Germany in 1933, Drucker left Germany because he “saw the future.”
Instead of wishing and hoping that Hitler would not be as bad as his book indicated he would be, Drucker dispassionately evaluated the situation as it was. By acting unemotionally on the facts at hand, not what he hoped the facts would be, Drucker escaped the fate of 12 million people who later died in German concentration camps.
Continue reading ‘What You Need to Know About the Future’
Joetta Forsyth, PhD
Listeners from across the country submitted questions to Graziadio School faculty during the conference call on America’s Financial Crisis this Tuesday.
With over 200 participants on the call, there were too many questions for the panel to answer in the short time.
Below are responses from panelist, Dr. Joetta Forsyth, Assistant Professor of Finance, to just some of these questions. (Read why she believed a bailout was necessary)
Now that Congress has passed the bailout plan, we are working on answering more of these questions and posting the responses shortly.
1. The Bush Tax Cuts mixed with a boom economy and lack of fiscal leadership led to the largest deficit of our time and the current economic condition. What would you do as the incoming President to improve our situation?
I have a different interpretation of what happened. There are a number of factors that lead to this crisis, and the list is staggering:
Continue reading ‘Questions on the Financial Meltdown Answered (1)’
John Paglia, PhD
The recently approved bailout is yet another attempt to prop up the markets with an election around that corner that will only delay and worsen the inevitable pain ahead…
There is definitely a lack of trust and confidence in the markets, but it is due to the blatant lies and unethical representations. How many times have we heard an NAR (National Association of Realtors) economist call the bottom in housing? How many times have we heard the reporters on CNBC call a bottom in the equity markets? How many times have we heard phrases like “subprime is contained,” “we’re comfortable with our capital position,” “we have adequate liquidity,” and “the economy is fundamentally sound?”
The benefits of this package are being oversold to Main Street. And many don’t realize that a large part of this funding will be channeled to foreign banks through our domestic institutions. Furthermore, distribution of funds will not be exclusively through reverse auction; therefore preferential distribution—both in funds provided and responsibilities assigned to select agents—is a negative consequence. It is a disaster in the making and we will be left with a really bad hangover in a few months once we realize what happened.
Continue reading ‘Why I’m Against the Bailout’
