August 2011
18 posts
Meta-Pizza, The Ultimate Pizza Made Using Flavored... →
The Situation →
So there’s that…
Abercrombie & Fitch Co : ABERCROMBIE & FITCH PROPOSES A WIN-WIN SITUATION 2011-08-16 22:13:45.464 GMT New Albany, Ohio, August 12, 2011: Abercrombie & Fitch Co. (NYSE: ANF) today reported that it has offered compensation to Michael ‘The Situation’ Sorrentino, a character in MTV’s TV show The Jersey Shore to cease wearing...
2 tags
Spanish Prime Minister José Luis Rodríguez... →
Totally awesome.
July 2011
12 posts
Apply Today For An Internship At Wu-Tang... →
Holy shit! I’ll fucking sew your asshole closed, and keep feedin you and feedin you, and feedin you, and feedin you…
DNA is now DIY: OpenPCR ships →
I’m not exactly sure what I would do with this, but it seeems cool.
Chewing Gum Makes You Smarter →
When I did investment banking, I was once chastised for chewing gum in the midst of a 110 hour week including 2 all-nighters on Saturday & Monday night (see here: http://dealbook.nytimes.com/2009/07/20/more-details-on-the-cit-rescue-financing/). Laaame.
Shale Natty Gas →
This is some of the most in depth reporting I have ever seen the times do (aside from hacking into The Fabulous’ GS account.. see here: http://blogs.reuters.com/felix-salmon/2011/06/01/did-the-nyt-hack-fabrice-tourres-email/)
Although I have little experience in the space my quick take on the situation is as follows:
(1) Capital markets are rife with fraud. Whenever there is a...
Rent extraction/moral hazard in the labor market
The following is a conversation btw James Partridge & I about rent extraction/moral hazard in the labor market. Comments appreciated...
James: Mike
how are you brother?
...
James: Since, for the sake of argument, we all work about 40 or so hours per week, do you think that it is completely fair for an employer to take home more than his employees?
1: 04 PM when some of that revenue isn't coming from the expertise of the employer, or from the physical capital, but straight from the labors of the employee
me: Yes but only if the employer's compensation can be clawed back in the event of failure
James: just a little subject shift, sorry, haha
me: for example my boss makes many multiples of my compensation but 80% of his net worth is invested in the fund so if we fail... he loses almost everything
James: but your boss, he makes money from the fact that you are working there, right?
me: sure
James: and of course, your labors are much more valuable since you have his management expertise
me: absolutely
1: 07 PM and if I make an investment in the portfolio and it turns out to be a disaster, I dont really lose anything
perhaps my job
but he loses considerably more
James: ok, but i'm talking about the fact that you, yourself, make a certain sum of money for the company
me: sure
1: 09 PM but my boss takes the counterfactual risk
and in fact many companies dont have that
James: the quantity of which is greater than what it would be if you were just alone, without the boss putting in his time and energy into supervising you
me: most dont... ceo's get paid on the way up and dont lose anything on the way down
1: 10 PM yes
James: ok, i see
me: so if theres proper risk sharing I advocate for a difference in compensation
1: 11 PM although its a slippery slope in many instances
because theres continued divergence
corporate boards advocating for higher and higher disparity
even though theyre supposed to be independent
James: is it the case that the compensation that you receive is lesser than the value of your labor in and of itself, that is, when controlling for the added value that your boss contributes to your labor
?
and if so, do you believe that that is fair?
1: 14 PM (this question could be posed to any person working for an employer)
(in a profit-making enterprise)
me: I think that is perhaps the case, but I think it is fair given that (1) without my boss' efforts my job wouldnt exist, (2) the risk/reward dynamic I mentioned earlier & (3) the added value you mention is not just limited to the labor ive historically contributed, it's made me permanently a better suited person for the job I want to do
1: 16 PM Now these are all reasons why i very much enjoy my job
and feel good about the dynamics of the company
and my guess is that those dynamics (especially #2 & increasingly #3) dont exist in most companies
James: of course
me: but I would point to the risk reward (no-claw back) relationship & the poor oversight of independent boards for the excessive and unfair disparity in compensation
which limits social mobility and increases inequality
which are generally both negative
1: 19 PM and i would add
there are a few diamonds in the rough
ceos who are huge value creators who work 100+ hrs/week
1: 20 PM really having massive impact
but there usually is little differentiation btw the way theyre paid and the mediocre ceo
James: right -- they increase the value of their employees' labor by a large magnitue
me: which is unfortunate
James: aside from the time and skill that bosses put into the job, they supply the physical plant
1: 23 PM and obviously the revenue that comes from that, the bosses deserve
me: welll thats not exactly true... the owners of the business do
James: well, that's who i'm referring to, the employer
me: okay
this is a totally different topic
1: 24 PM but one of the problems with excessive pay is that ceo's/boards arent the owners of the business
or I should say one of the problems that lead to excessive pay
James: ok
let me ask you
1: 26 PM why does the existence of your job and the training you receive have to be contingent upon your boss taking some of the value per se of your labor?
1: 27 PM isn't it incentive enough for him to get paid for the massive amount of value that he directly creates, both himself, and by means of making your labor more valuable?
me: well arguably you can say that I am capturing some value by gaining skills that I can take with me
and its some exchange for that value
James: what about people who work in jobs where no such value exists, like manual laborers?
me: thats probably true then
1: 30 PM although I would bet that a lot of manual laborers do in fact gain skills that make them economically marketable for other jobs
but then again
in the case of manual laborers
I would look more towards the agency issue
1: 31 PM of why the pay is disproportionate
James: ok, the labor of a person who can plan and do strategy and whatnot -- that is more valuable than the ability to dig ditches
me: I would say only bc there are a lot more people who can dig ditches effectively
1: 34 PM now the problem is
planning and executing corporate strategy effectively
can only be evaluated over a multi-year multi-cycle period
1: 35 PM and so there exists a lot of room for abuse in that regard
which is why there should be compensation clawback
James: ok, that's fine
we do not know what the value of a CEO's work is until a few years down the line
1: 41 PM but as for the ditch-digger -- do you think that just because the labor market is full of ditch diggers that people who employ ditch diggers should get to take home revenue that exists solely because of the labor of that ditch digger, even when controlling for the increased value from the agency of the employer?
me: Only in the case that theyre baring some sort of risk of enterprise/ownership
if not than I cant say so
James: so it's all about risk
the employer's risk is commensurate with his right to reduce the pay of his laborers
me: yes
but most often the reduction is unwarranted
bc the employer is paying himself for risk that hes not actually taking
James: which is akin to wage-theft
me: rent capture
yes
James: as for interest on a loan, i suppose the same rationale
but what about taking rent from one's tenant?
when one's time and investment has already been recouped?
what the fuck is the justification for that?
me: well interest on a loan is different in practice
James: how is that not theft?
1: 48 PM but the bank deserves to be compensated for the risk it takes
me: but the cost of debt capital fluctuates so drastically in market cycles
that making high risk adjusted loans or investments is very possible
or doing the inverse
1: 49 PM but theoretically its the same dynamic
often it comes down to prudence
and what do you mean?
taking rent from one's tenant
1: 50 PM youre giving up space
James: so profiting from an employee and receiving interest is the fair compensation for a risk borne
me: if the rent is too high people move out
James: but i take cash, buy a building, and charge people to stay there
1: 51 PM once i have recouped my initial investment, why do i get to keep charging people?
what am i getting paid to do?
1: 52 PM there's no risk, is there? or not the same magnitude as, say, giving a loan
me: well you bought the building to make a return beyond the period of recoupment
and you took risk to buy the building in the first place
and you should be doing maintenance on the building
and making sure its a fit place to live
1: 53 PM the risk and reward periods arent lockstep time-wise
or not neccessarily
and im not saying this relationship should not be regulated
the apartment market in germany is a good example
1: 54 PM very heavily regulated
in terms of maintenance and standards of living that have to be upheld
and limitation on raising rent excessively but because of this vacancy rates are very low (even through the financial crisis)
1: 55 PM and most owners can enjoy good returns on investment
not great but its less risky
James: so risk is essentially what justifies profit, interest, and rent
ok
thanks
me: but I would just add that all risk is not the same
James: i've been wondering why i have to pay somebody more money than they paid me
lent*
1: 57 PM more money than they paid for the house i'm in
me: yes
volatility is a common measure of risk
James: and why i don't get paid exactly what the value of the work i do
me: but more important in my opinion is the risk of permanent impairment of capital
1: 58 PM but thats another topic
Detroit wants hipsters/yuppies... →
http://iamyoungdetroit.com/
February 2009
1 post
January 2009
14 posts
Oh my. →
It's the economy, girlfriend →
It's the economy, girlfriend →
Porn Industry Seeks Federal Bailout →
I quote:
Flynt and Francis concede the industry itself is in no financial danger — DVD sales have slipped over the past year, but Web traffic has continued to grow.
But the industry leaders said the issue is a nation in need. “People are too depressed to be sexually active,” Flynt said in the statement. “This is very unhealthy as a nation. Americans can do without cars and such...
sharingtime:
The most embarrassing thing just happened to me. My roommate just walked in on me picking my nose, masturbating and reading one of the Twilight books all at once.
Ugh. Now he thinks I have horrible taste in literature.
That’s very funny
Recessionista Style →
Care for an Absinthe? Ptooey! →
Home, Sweet, Elusive Home →
See: Milk →
Frank Bruni's Best of '08 →
London Hotel Bar Where I Want To Drink I →
London Art I Want to See III-- The Tate Is Open at... →
London Art I want to see II →
London Art I want to see I →
December 2008
8 posts
Sunday TImes Flurry III- Leon Black and downturn... →
Yields on corporate debt imply a 24% corporate default rate. This data point only accounts for publicly traded/quoted bonds. Entering a down-cycle I would imagine the default rate would be significantly higher for private equity investments. I cant believe all of these supposedly very smart people would leverage up companies with such naive assumptions about liquidity in the debt markets. Shit...
Sunday Times Flurry II- Momofuku →
Sunday Times Flurry I- CUBA →