13 October
Short squeezes explained
This is an excellent piece on why short squeezes happen. Basically, it’s that when a stock has been battered down, shorting it has limited upside and unlimited downside. Ultimately, this is due to the optionality embedded in a share price. When you buy a stock, you get a call option on the assets of the company, with a strike price which is the amount of debt it has. That’s why companies which are insolvent (assets worth less that liabilities) still have value.
Anyway, read it as it’s not only theoretically interesting but practically useful if you ever think about shorting something, especially via an outright ‘naked’ short sale.
What causes the gender pay gap?
It turns out that it’s not discrimination. No, seriously. It’s about greedy work, and substitutability of employees. Basically, women work in jobs where they can get cover if they a family emergency that needs them to take time off work. Men work in jobs where this is absent. Sometimes the same job changes along this dimension over time. Pharmacists are an example over the last fifty years. The result is that women are more represented among pharmacists, but their pay (or profits, from owning the shop) is less.
It’s always interesting to know what makes some jobs well paid vs others. I think this is something which is overlooked. It explains more than just the gender pay gap. Hedge fund managers are not substitutable, nor are Private Equity bosses. And they generally have enough influence over their firms that they are going to keep it that way. That’s why doctors retained their right to practice independently, and didn’t want to be swallowed up into the corporate maw, as engineers had been a few decades earlier. Corporations love substitutability.
I’ve heard the theory that it’s some sort of shared experience that means that new graduates entering major law firms and investment banks get paid eye-popping salaries. DJ Sol, CEO of Goldman Sachs, started his career doing the job of a junior analyst (I am guessing), whereas Jeff Bezos never worked picking items off a conveyor belt and packing them into boxes. OK, maybe he did a bit, but he didn’t start his career that way. I can see the argument, but I think that clients want consistency of team members, even juniors, when it comes to doing deals. Also, in the middle of a deal, even a relative junior might have some key knowledge that makes him valuable, and anyway, the recruitment process in these firms is a major undertaking: rather less so for Amazon warehouse cannon fodder.
What causes increasing inequality?
Three things, the declining bargaining position of labour, the collapse of anti-trust enforcement, and the escalating political power of capital, according to Robert Reich. Arguably, the three are interlinked: big business has hobbled anti-trust, and have made unions fight with one hand tied behind their back (no wonder they have lost membership).
This is subtly different to gender discrimination, but it’s related. A more democratic society would limit the power of CEOs to hijack remuneration committees. Just a thought.
What happens when the bank in Monopoly runs out of printed money?
Well, it prints some more, on any old bits of paper you have lying around. Alex M gives a more detailed explanation both of this aspect of the game, the need for the banker to keep his assets separate from that of the bank, and the origins of the game, which was in Great Depression era Germantown PA. Chance cards represent a decision of a player to go to Atlantic City to gamble what liquid resources he had left in the casino. Community Chest was a welfare organization in the city.
Monopoly itself (the game, not the economic principle) was derived from another game, The Landlord’s Game, which was written to educate people about Georgism.
Image of the day
Wrap
J Pow announces that tapering should start this year. The markets were unfazed. Equities didn’t move much, neither did bonds. Commodities were strong for the oil complex, and precious metals. The others were down, mainly. Written before the market closed.
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