byrneseyeview

As another reply points out, he didn't manage that much money. Goldman had clients who managed that much money, and he apparently handled equity derivatives for those clients.

I once worked at a company that worked on an internal web app for one of the largest advertisers in the world, but that doesn't mean I "ran advertising for clients with a multi-billion dollar marketing spend."

To be clear, I can sympathize with someone who used to be in the business of working as an agent for his clients, and who is now in the business of executing the same transactions but taking the opposite side and then hedging his risk. I just don't think moral outrage is the right response to a change in the macro situation. One could argue that while financial markets got more sophisticated, Goldman Sachs coincidentally got evil, but I think it's more likely that markets evolved, Goldman evolved with them, he didn't evolve with Goldman, and he took it personally.

Do you know anyone who pays people for saying stuff like this on random message boards? I tend to say this kind of thing because I think it's true, and because I'm unimpressed with the quality of opposing arguments and would like someone to refute me. But if I can get paid while I'm at it, that's even better! I don't think the economics really work out, though.

http://online.wsj.com/article/SB1000142405270230469280457728...

When Goldman doled out annual bonuses earlier this year, Mr. Smith's small payment became a point of friction, according to people familiar with the matter. Mr. Smith hadn't previously voiced his concerns about Goldman to his managers, according to people familiar with the matter.

Occam's Razor says that the NYT was masterfully trolled.

The people I know at Goldman are generally bright and hard-working. The ones who perform agency work seem to serve the interests of their clients; the ones who are closer to proprietary traders tend to advance the interests of Goldman. There are some products for which it's very hard to have a pure agency relationship, though; the best way to keep them liquid is to trade with someone who is taking the other side of your trade.

I'd keep that kind of thing in mind when reading a story like this. It's asymmetric warfare: he has nothing to lose by talking about how bad Goldman is, but if Goldman talks back, they're a) dignifying a silly story, and b) creating an opportunity for irresponsible folk like Taibbi to willfully misinterpret them.

This article is the table tennis bronze medal of moral outrage.

How many pointless arguments take this form? He should articulate why he considers the situations comparable, so the Pando people have something to disagree with.

And that's not hard to believe. If someone had just a 10% chance of running Exxon 1% more profitably, their market value would be $40 million per year.

People are unequal, and in a business context, that means some people are worth less than others. You can grade them on a curve, but that just means we'll all learn that a "B" means you're a failure, and that really good companies are only recruiting among As and A+s. Differences in ability can't be fixed through semantics.

So, what false assertion did I make?

It's interesting to read the first Forbes 400 list; there's a lot of old money there. Not so much lately.

1. There's an efficient market, and CEO pay reflects the extra value they create. In other words, a $100 million CEO is worth $50 million more than a $50 million CEO, so your economic outcome is the same regardless of which one you hire--except that larger companies will extract more value out of a given level of managerial talent, since they can amortize it over more underlings/revenue/whatever.

or

2. CEO pay and company performance are totally random. But for that to be the case, you'd have to deny that there's any such thing as being able to identify and pay for a talented CEO. Maybe! But every time I've interacted with large company CEOs, I've noticed that they tend to be very bright, and they work extremely hard. People who are in the 10th percentile of public company CEOs--the kinds of people who bankrupt companies--still seem to be in about the 90th percentile of smarts and energy.

I don't know of another theory that could explain the data as presented. Either the process is random, or it selects for people with certain valuable skills. If the system tends to promote skilled people, you'd expect the companies they run to have a higher return. Unless, of course, they capture that value for themselves.

But they have an important indirect impact: wealth correlates with power; if you're richer, you can control more businesses, and run them the way you'd like. Thus, high marginal income taxes keep the old guard in power longer, and mean that ambitious people with new ideas take longer to take control.

High income taxes and capital gains taxes will mean that proportionately more of the world's companies will be owned and run by Rockefellers and du Ponts rather than Zuckerbergs.

If they're underpaid, there should be a positive correlation between CEO pay and corporate performance (i.e. the companies that pay the most can hire the best people). If they're overpaid, there should be an inverse correlation (i.e. the companies that pay the most are likely to overpay the most, and thus waste the most money). So the exact middle ground implies--the exact middle ground. I didn't realize the market was so efficient.

The other possibility is that CEO pay or market performance are totally random. But all you need to do is identify a few very effective and very well-paid CEOs to argue that this is false. Just look at e.g. JCP's new CEO (they nabbed him from Apple thanks to, in part, a generous options package).

This might be clearer in another context: it wouldn't surprise me to find out that your average hunger in a given day has no correlation to your daily caloric intake. That wouldn't imply that calories don't satiate hunger; it would imply that most of us eat something close to our daily calorie requirement.

I also don't buy the idea that college is a way to teach people how to live in the real world, given that going to college is an alternative to working in the real world. That just sounds like the sort of thing college administrators would say in order to defend the status quo.

The bull case on Facebook doesn't rely on a linear increase in the number of users; it's about an increase in the amount of revenue per user. (That's the case with Google, too; searches per year are going up at ~10% per year in the US; Google is making money by directing more of the end clicks to stuff that monetizes.)

So the people who are bullish on Facebook largely agree with you; they're just bullish based on stuff you haven't mentioned.

In finance, it's not enough to know that you disagree with the market. It's important to articulate what other people think, and why they're wrong. You can't truly say that you'd be willing to bet against the consensus unless you can explain what that consensus is.

It's a little bit like religious debates; someone like Dawkins or Dennett doesn't just have a theory of existence--they have a meta-theory explaining why other people would believe in a different explanation, and why such beliefs are compatible with their general worldview.

Since Google went public, investors have learned a lot more about how these business models work, and how quickly they can build durable competitive advantages.

If "Can it go up 5X" were the threshold for going public, investors would price this in, so the actual threshold would drop.

The bull case for Facebook is basically that it's by far the cheapest platform for spreading memes--whether those memes are shared infographics, political slogans, or, say, the existence of Gap's latest sale. Plus, FB owns identity in a way few other sites can match--even Google only owns identity around the ages (they know what you want but don't yet have; Facebook knows more about who you are). Through credits, FB essentially owns a piece of any successful business built on its platform; if it were a country, $100bn would not be an excessive valuation to put on the net present value of its future taxes collected, less collection costs.

ZNGA: 6.5X sales

LNKD: 16.2X sales

P: 8.7X sales

S&P 500: 1.3X sales.

It appears that valuations are very high right now. The stocks are down from their peaks—-in other words, investors are not at a record level of optimism about these companies. But a fair assessment is that they've gone from "Wildly optimistic" to "Optimistic."

"The magazine I also work for, is rebuilding our website in WordPress."

I couldn't find anything valuable in the first few paragraphs. Can anyone post a quick summary of any specific facts from the article that were surprising, or are going to affect the reader's behavior in the future?

That's not very productive. Anyone on the pro-SOPA side can say exactly the same thing about e.g. Google. One of Google's major divisions, Youtube, was built in part on piracy. And Google itself does help people find pirated content; that's not something immoral, and they do make it difficult, but Google benefits from some copyright infringement in the sense that it means they're a better default search engine, since some fraction of queries are for copyright-violating content.

And the WSJ article does make a similar point:

Wikipedia has never blacked itself out before on any other political issue, nor have websites like Mozilla or the social news aggregator Reddit... They've taken no comparable action against, say, Chinese repression.

This is not the first thing so awful that websites choose to take such action--it's the first awful thing that threatens them so much.

The WSJ also points out that the most egregious part of SOPA--DNS-level censorship--was removed in the latest draft. They don't make an exceptional argument, but they do make a superficially reasonable case; someone unfamiliar with the way the Internet works would likely find it pretty convincing.

SOPA/PIPA is an awful, awful idea. But if the WSJ claims that it's a good idea, and you claim that the WSJ only says so because corrupt, then you lose by default. The WSJ can have a good argument that defends their economic interests, or that is hypocritical in light of what they've been caught doing in the past. SOPA opponents are in a very similar situation.

Plus, the buckets of money thing is a canard; Goldman has to earn a percentage on their capital, just like anyone else. If they have 10X as much equity as Starbucks, they need to earn 10X as much net profit to get the same return. And ceteris paribus, that means taking 10X as much risk.

Another way to illustrate this is to note that the cost part of the equation is the same regardless of what happened to coffee prices in the last year: assuming they hedged, they'd probably raise prices by the same amount had coffee been up or flat for the year, too.

Another important flaw is that costs do not determine prices in this way. See this legendary Quora thread for details: http://www.quora.com/Why-is-iced-coffee-more-expensive-than-...

Yet another problem is that even if costs did determine their pricing, Starbucks' big costs are real estate and labor. The markup on beans and hot water alone is staggeringly high.

The economics of this only work out well if you have high marketshare (if you're 5% of the market, and you blow up a competitor, 95% of the benefit accrues to the other 95% of the market). So I think this threat is overblown.

Every time it comes up, I've asked for examples--if you hear of any after the fact, I would greatly appreciate it if you'd get in touch. Email's in the profile.

Last time I got a job offer, the first thing I did was call up two people who'd sold their companies to that employer, one guy who worked there, one guy who'd quit, and one who'd been offered another job and turned it down. Next time I'll try the "scale of ten" trick, too.

All management positions are to some extent sales positions, and part of a good sales technique is to shape the truth so the good parts are obvious and the bad parts aren't. The more someone's naturally talented at this, the easier it is for them to fudge the truth.

This is much easier to accept if you consider it in the other direction. Would you really think it unethical to do this kind of due diligence on a prospective employer? Would your boss find it creepy? I was open about it.

Disparate Impact is just "God of the Gaps" for discrimination.

1. Adam Sandler will pay a fractionally higher interest rate. 2. The heuristic will route around this situation. 3. Banks that blindly apply this heuristic will lose money on Sandler because they make a comparatively unattractive offer; the bank that lends to him will get higher market share by being less cautious or more careful in this instance.

Keep in mind that we're talking about an edge case among edge cases. Authors are a tiny minority of social networking users. And authors whose fandom is a contrarian indicator of their creditworthiness are even rarer. Actually, it would more likely work in the other direction: I bet poets published in the New Yorker have very creditworthy friends and still have trouble paying the rent.

The actual effect will be more nuanced. This would be better at differentiating between, e.g. "People who can afford to regularly drink Johnny Walker Blue Label" (good credits), and "People who actually do" (less responsible).

Overall, it seems better to create rules that efficiently allocate resources, and then correct for inequality after the fact. That's better than creating defective resource-allocation rules as a way to keep things equal.

And please note that if you're right, you're arguing that right now, the rich subsidize the poor in this way. (I know, I know, that sounds extreme. But "Poor people only get these interest rates because it's hard to tell that they're deadbeats given current information" has to be true for your statement to work, here. You pretty much have to pick one: either this is factually wrong, and the banks that do this will lose money; or it's morally wrong, but actually does work, and we should prevent people from acting on useful information in order to let poorer people gently defraud them. This is analogous to plenty of previously or presently disastrous situations, in e.g. mortgage lending, health insurance, and student loans.)

Your bank is in the business of figuring out how likely you are to repay loans. They'll probably ask you these questions, since answering them makes you a better customer. But refusing to answer puts you in a low credit-rating bucket.

Banks already use your transactions to figure out how creditworthy you are. If you want to avoid that, you can do all your business in cash, but you will pay for it if you ever want a mortgage. All they're doing is offering you the option: if your privacy is worth, say, 2% per year on a $100K mortgage, then go ahead. But for lots of people, privacy has value, but not an infinitely high value.

You can argue that it's unfair for your desire for privacy to imply that you have something to hide. But if you do, better blame the people who do have something to hide and claim that they just believe in privacy: if such people didn't exist, you would be able to maintain your privacy at a much lower cost.

Maybe you could use a real-world example. Let's say you're hiring an employee, and your employee casually mentions that he changed his name last year. "What was your original name?" "Not telling." "Did you do anything that would give you a good reason to change your name?" "Not telling." "Can you tell me who you used to work for under your previous name, and why you're no longer there?" "Ugh. Stop trying to violate my privacy. Just assume that I have good reasons not to tell you information that you would use to make a reasonable decision; it's totally unfair to lump me in with people who would do that to cover up something terrible they've done, or some unsavory associations they have. I'm not one of those people. Trust me."

Although I would be willing to bet that a) your fans will have above-average credit scores adjusted for age, and that b) authors whose fans have crappy credit are themselves more likely to have crappy credit.

In the extreme case, if you're a law professor and your FB friends are all attorneys who loved your book, you're probably a good credit. If you wrote a guide to how to fool your parole officer and your FB friends were all fans of your book, your odds of default might be pretty good.