goat7A few weeks ago, the hedge fund manager Mark Spitznagel was walking through a wooded area on his 200-acre farm in Northport, Michigan, shouting at goats. “A droite! A droite!” he called, urging the animals to return to a path from which they had strayed in order to nibble on the surrounding brush. When Spitznagel was first launching his goat cheese farm, called Idyll Farms, around 2012, he hired consultants from France– but of course– to come to Michigan and help train him and his staff, and the goats have grown used to hearing commands in French. “A droite! A droite!” Spitznagel shouts, tapping on the ground with a long, hooked walking stick he sometimes uses to gently prod the animals….They seem intelligent, I said to Spitznagel. “They’re herd animals,” he responded. “They’re as smart as any investment manager out there.” [Worth]

  • 03 Jan 2012 at 6:33 PM

Countrywide Might Have Been Better Off Herding Goats

While we were out some people who keep to a less rigorous vacation schedule than we do wrote some stuff about complexity in finance. Lisa Pollack at FT Alphaville started the ball rolling by attributing increasing complexity in finance to increasing smartness in the financial industry. This is a delightful theory if you are or were in the financial industry, particularly if you were tasked with developing financial instruments, so we’ll go ahead and endorse it.

Others, however, disagree. Here is a very nice thing at Interfluidity that various financial pundit types found life-changing:

Like so many good con-men, bankers make themselves believed by persuading each and every investor individually that, although someone might lose if stuff happens, it will be someone else. You’re in on the con. If something goes wrong, each and every investor is assured, there will be a bagholder, but it won’t be you. …

If the trail of tears were truly clear, if it were as obvious as it is in textbooks who takes what losses, banking systems would simply fail in their core task of attracting risk-averse investment to deploy in risky projects. Almost everyone who invests in a major bank believes themselves to be investing in a safe enterprise. Even the shareholders who are formally first-in-line for a loss view themselves as considerably protected. The government would never let it happen, right? Banks innovate and interconnect, swap and reinsure, guarantee and hedge, precisely so that it is not clear where losses will fall, so that each and every stakeholder of each and every entity can hold an image in their minds of some guarantor or affiliate or patsy who will take a hit before they do….

This is the business of banking. Opacity is not something that can be reformed away, because it is essential to banks’ economic function of mobilizing the risk-bearing capacity of people who, if fully informed, wouldn’t bear the risk. Societies that lack opaque, faintly fraudulent, financial systems fail to develop and prosper. Insufficient economic risks are taken to sustain growth and development. You can have opacity and an industrial economy, or you can have transparency and herd goats.

This is delightful too, and features goats; my guess is that it’s mostly wrong but I don’t count that against it. One objection to it – though not a decisive one – is that it is wrong about the psychology of the people creating the financial complexity. People who design swaps and reinsurance and guarantees and capital structures actually want to know, really really clearly, what happens when things go bad. Part of the proliferation of complexity – not opacity, complexity – is the desire to have that definition. That’s what a CDO is. It’s slicing the world into possible future states and clearly defining who gets what payouts in those future states. Simple banking is “I will put equity into a bank, you will put a deposit in, I’ll loan out the money and whatever we get back goes first to you then to me.” Complicated banking is “that, but also if we don’t get the money back because of reason X, insurer A pays; and if we don’t get it back because of reason Y, noteholder B pays; etc.” Complexity is a move toward greater definition, greater clarity about where losses will fall, not less.
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“This year, my personal challenge is around being thankful for the food I have to eat. I think many people forget that a living being has to die for you to eat meat, so my goal revolves around not letting myself forget that and being thankful for what I have. This year I’ve basically become a vegetarian since the only meat I’m eating is from animals I’ve killed myself…[my] first kill was a lobster, which I boiled alive. The most interesting thing was how special it felt to eat it after having not eaten any seafood or meat in a while…on May 4…I killed a pig and a goat [by] cutting the throat of the goat with a knife, which is the most kind way to do it.”

Was it: Read more »

“A friend of mine is actually the largest owner of agricultural land in Uruguay,” said the hedge fund manager. “He’s a year older than I am. [My fund] is somewhere [around] the 15th-largest farmers in America right now.”…When asked if this is an end-of-the-world situation, the hedge fund manager replied: “It really is. I tell my fiancée this from time to time, and I’ve stopped telling her this, because it’s not the most pleasant thought.” He pauses for a moment. “We just can’t keep living the way we’re living. It’ll end within our lifetime. We’re just going to run out of certain things. We’ll just have to learn how to adjust.” [NYO]

As recently as the beginning of last week, Tara Bryson worked in the investor relations department of Connecticut-based hedge fund New Stream Capital. A couple days later, the firm, which is owned by her brother, suspended Bryson pending an investigation into the matter of her being arrested for growing weed in her backyard (the narcotics task force referred to the set up as “a complex marijuana cultivation operation capable of producing a marijuana crop year round”). Bryson was charged with possession of marijuana, cultivation of marijuana and conspiracy to cultivate marijuana, while her live-in boyfriend got seven felonies, including “possession of a silencer for firearms and operating a drug factory.” But, you know, that’s just like the cops’ opinion. Hearl clearly being the brains of this operation says he and the GF are innocent and that the charges are “bogus.” And he can prove it with a couple of exceptional excuses. Read more »

  • 07 Apr 2010 at 10:45 AM

You Wanna Know What Gets Jamie Dimon’s Goat?

If you said Washington you’re not wrong but that’s not the answer we were looking for. Yes, James is incredibly frustrated with the people in DC. Previously he’s tried to hold his tongue but no longer. He’s openly expressed concern about the various reform proposals and he recently told the President that the “administration’s anti-bank rhetoric ‘isn’t helpful,’ because it demoralizes businesses and employees.” But Washington, eh, whatever. It’s a source of annoyance but it’s not the thing that gets Jamie’s blood really boiling. Same goes for Syracuse University. He’s pissed at them, but they’re low on the list of things that make him go ape shit. What chaps James Dimon’s hide no other is when his name appears alongside certain people with whom he has essentially nothing in common. Read more »