The Mother of All Bailouts

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Financial markets around the world remain extremely anxious as the US Congress ponders the Troubled Asset Relief Program (“TARP”) proposal, aka the Mother of All Bailouts (“MOAB”). Under this proposal, the US Government will spend up to US$700 billion to buy “troubled” mortgage-backed securities in the hope that this will lubricate the markets that have well and truly seized, encouraging banks to start lending once more to each other, corporates and individuals.

There has been criticism of the plan both from some Democrats who want to see curbs on executive salaries and from some Republicans who are decrying the plan as financial socialism. Nevertheless, most observers expect the plan to be passed by the end of the month particularly since Paulson seems to be conceding ground on the subject of executive compensation.

One interesting perspective on the chances of success comes from the prediction market intrade which allows bets to be placed as to whether or not the plan will be passed. At the time of writing, this market puts the chances at 77%. (The chart originally published here is no longer available).
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“Eat My Shorts” – Short Selling in Australia

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Earlier this week, Australia joined the US, the UK, France, Germany, Canada and other countries in clamping down on the practice of “short selling” shares. According to the regulator, the Australian Securities and Investments Commision (ASIC), the new restrictions were aimed at reducing “unwarranted price fluctuations”. For the moment, the restrictions are in place for a period of 30 days, at which point ASIC will decide whether to extend or lift the restrictions.

For many outside the financial markets, the practice of short selling is a mysterious one and, for some, rather worse than that. The following letter to the editor in the Sydney Morning Herald is a case in point:

Short selling can be carried out only if the buyer is misled into believing that the seller owns the stock (“ASIC in total ban on short selling“, September 22). Can short selling ever be morally justified? Surely the only beneficiaries of such activity are those with sufficient funds to manipulate the sharemarket. After all, we cannot legally “short sell” anything else we do not own, such as a neighbour’s house, business or car.

Laurie Mangan Tamworth (September 23)

So what is short selling? Contrary to Laurie’s view, there is no misleading involved but it does involve selling shares that, essentially, you do not own. There are two types of short selling: naked (which really sounds naughty) and covered (which sounds a bit better). To explain what each of these involves, I’ll first go into some of the mechanics of share trading.

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AIG: Too Big to Fail

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The phrase “too big to fail” (TBTF) has been used a lot throughout the credit crunch of the last twelve months or so. Now it seems that American International Group (AIG) was too big to fail as it was bailed out by the US Federal Reserve (the “Fed”), while Lehman Brothers was not and was allowed to collapse in ignominy. For those outside the financial markets, it probably doesn’t make a lot of sense (not that it makes much more sense for those on the inside), so what is going on here?

There is an old saying that if you owe the bank $1,000 that’s your problem, but if you owe the bank $1 million that’s their problem. Something similar is at work at the moment in the financial markets.

In theory, companies in a capitalist economy are free to stand or fall on the results of their own business decisions. If they do fall, investors who chose to buy shares or bonds will lose out, but that risk is supposed to keep everyone focused on making better decisions. Banks have always been a little bit different, for two reasons. First because they take deposits from “mums and dads” (or, as the banks call them, retail depositors) and it is in the interests of the smooth-running of the whole system that this money is put into banks rather than under the mattress. Hard experience over the years of bank runs has led to various forms of depositor protection around the world, such as Government guarantees in the US through the Federal Deposit Insurance Corporation (FDIC). Of course, banks make a decent, albeit shrinking, profit from all these protected deposits.

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Income Inequality in Australia and the US

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A topic that the New York Times visits from time to time is that of income inequality. In the United States, the gap between the highest and lowest earners has been increasing over the last 80 years or so. A recent article returns to this theme and provides further insight into the trend. It cites research from the new book “Unequal Democracy” by Larry M. Bartels, which indicates that income inequality has increased far more under Republican presidents than under Democrats.

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Paralympics Medal Tallies by Population and GDP

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The 2008 Paralympic Games are now well underway in Beijing. Since my Olympic medal charts on Swivel proved popular, I have now created a data set for the Paralympics as well, which I will be updating regularly (source: Beijing 2008 Paralympics website). One of the topics I touched on during the Olympics was the influence of the size of a country’s population and economy on their performance at the Games. This topic did prove controversial with at least one reader and the links may be more tenuous for the Paralympics. Neverthless, I will risk revisiting the subject here.

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Weak Dollar and Australian Petrol Prices

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The world’s financial markets have shifted their focus from oil supply problems to the demand side of the equation. They appear to have decided that the US and European economies look so dire that oil consumption will collapse. As a result, oil prices have been in free-fall, barely staying above US$100 per barrel. If the recent hostilities in Georgia had taken place a couple of months earlier, oil prices would almost certainly have shot up. But with the shift in focus, they scarcely reacted to the conflict.

Unfortunately for Australian motorists, a weak Australian dollar is preventing the full effect of lower oil prices coming though to the price of petrol at the pump. Oil is not the only commodity to see price declines, not good news for the currency of a commodity producing country. More significantly, the Reserve Bank has started cutting interest rates and the dollar is moving down alongside rates. Since the end of July, the dollar has fallen almost as much as oil. The result, evident in the graphs below, is that oil prices have not fallen nearly as much in Australian dollar terms as they have in US dollar terms.

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Monetising Microblogs with Music?

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In my recent post on the future of Microblogging, I expressed concerns about the viability of twitter given that they are yet to find a business model. But perhaps I just wasn’t thinking laterally enough: earlier this week I stumbled across a novel approach to monetising microblogging. The new site Blip.fm brings music to microblogging in a way that initially had me scratching my head, but it is gradually starting to make more sense. Based on a recent post on the Microblogger’s blog, 140char, others are responding in much the same way.

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An Online Communication Primer

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In a recent post on his Sprechblase (“Speech Bubble”) blog, Cem Basman examines a number of different forms of communication that have evolved on the web: chat, forums, wikis, blogs and microblogs. Although the boundaries can be blurred, Cem’s summary of the key features of each of these forms is a useful one.

The original post is in German and, with the help of Google translate and my own rusty German, I have adapted it to produce an English version. I am publishing it here with Cem’s blessing. Cem couches his discussion in terms of his notion of “die Sphäre” (the “Sphere”), by which he means the totality of communication in all its forms on the web.
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Australian Grocery Prices on the Rise?

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Last month, the Australian Government launched the GroceryChoice initiative, with the goal of helping consumers find the cheapest place to shop for their groceries. As I wrote at the time, the GroceryChoice website allows users to compare prices in a given area, but comparisons across areas are not made easy. Undeterred, I simply scraped all the data from the web-site for easier analysis. Today GroceryChoice released prices for the month of September, making it possible to start analysing prices over time as well as by region and retailer.

The website provides prices for a number of specific grocery “baskets” (Fruit & Vegetables, Meat & Seafood, etc.) as well as for a more general “Basic Staples” basket. A crude average of prices of this Basic Staples basket around the country would suggest that prices are on the rise, having increased from $75.41 for August to $75.97 for September. However, this figure should be taken with caution. Quite apart from the fact that this analysis does not take into account the differing population sizes in each region, there is also significant variation across the different retailers, as is evident in the chart below.


“Basic Staples” Prices by Retailer (A$)

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Last Word on Personality Tests

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While my recent post on personality testing attracted some unexpected attention (from an organiser of the course), it did also generate some interesting discussion. Some I have spoken to have found more value in personality tests like Myers-Briggs and HBDI than I have, while others shared my irritation.

The reason I am posting again on this subject is because an old friend of mine, who is a practising psychiatrist had emailed me with his thoughts on the topic, but preferred to remain anonymous and not post on the forum himself. He was, however, happy for me to share them, so here they are:
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