Two economists say their study shows that investors assign higher share values to companies run by attractive chief executives, that these chiefs are paid more than less-appealing counterparts and that the better looking the C.E.O.’s, the better they are at undertaking financially successful deals. The conclusion of the unusual academic study — a sort of corporate version of “Hot or Not” — is that shareholders are as easily swayed by the glint in the eye of a chief executive as they are by a company’s actual numbers, at least in the short term. [Dealbook]
There is an inverse relationship between penis size and hedge fund performance, one study of a nine-month period shows. Read more »
A useful though debatable proposition is that much complexity in the financial world is due to the fact that the people running that world like complexity. It’s good for business. If raising money or doing mergers is super complicated, you need to hire expert advisors to do it. If structured products are opaque, you end up paying your dealer more than they’re worth. Good times.
But this sort of sucks for the people working for the people running the financial world. I mean, sort of sucks: they get to be employed! They get to be paid lots of money for, like, connecting boxes and arrows in CDOs and drafting environmental reps in underwriting agreements.1 But then they have to do that. It’s often unpleasant. And it leads to the cognitive dissonance of analysts updating comp sets in M&A board books at 4am while bitching that the board wants to sell and no one will ever look at the appendix full of comps. Those analysts are wasting precious hours of their young lives doing a pointless thing, and are naturally furious. But the alternative is just not having anyone do that pointless thing, and then what will the analysts do? Get a real job?
Also: M&A lawyers. I was an M&A lawyer once, briefly, and it was awesome and exciting and you get on calls and yell “how can you ask us to schedule these exceptions to our representation about ERISA plans, I’ll show you where you can put your ERISA plans!,” and then you sit at your desk and re-draft reps and warranties until 4am and you’re like, VALUE ADDED.2 Or not: Read more »
So let’s say you’re a bank and, redundantly, you are in trouble with the SEC. And you want to hire a new lawyer to get you out of that trouble, because your old lawyers got you into it. You decide, sensibly, to hire a lawyer directly from the SEC, both because those lawyers have valuable experience and contacts and because they lawyers are paid so much less than your other lawyers that they’re a bargain. Who would you rather hire:
(1) An SEC lawyer who has always been nice to you, settled cases easily, not pushed too hard on investigations, and waived collateral consequences of your repeated securities fraud, or
(2) A lawyer who has always been a huge dick to you, litigated everything to the death, made your life difficult, and taken unreasonable positions?
If you chose option (1), you probably don’t work at a bank.
This study of the SEC revolving door is actually pretty neat, though suspect for reasons Yves Smith points out.* The most important conclusion is that the prospect of leaving the SEC to go represent companies doesn’t make SEC lawyers nicer to the companies: in fact, SEC lawyers who later leave to represent clients before the SEC seem to litigate more aggressively than those who don’t. But that’s actually pretty obvious, isn’t it?
For one thing, aggressiveness correlates with ability and intelligence and hard work and the general facepunching ethos required to succeed in private industry. The SEC lawyer who goes home at five o’clock after a relaxing day of ignoring financial fraud probably won’t fit in at a bank with a fast-paced culture of committing financial fraud. Read more »
This paper from David O. Lucca and Emanuel Moench at the New York Fed, concluding that 80% of excess returns to U.S. equities come in the 24 hours before Fed monetary policy announcements, is pretty amazing. Here is the money chart; what does this tell you about the effect of the Fed’s actions on stock prices?
I guess one answer is:
(1) Fed actions push stocks up.
But I submit to you that this answer, by itself, is self-evidently wrong, since the stocks go up before the Fed actions. Two better possibilities are:
(2) The Fed’s actions travel back through time to push stocks up, or
(3) The Fed’s actions are irrelevant to stock prices, but the warm fuzzy feeling people have when they remember that the Fed exists and takes actions pushes stocks up. Read more »
This is a great business model because banks just cannot resist doing bad things and courts just cannot resist taking piles of money from shareholders of those banks and divvying it up among other shareholders of those banks and the lawyers who facilitated the transfer. For those same reasons, though, it’s a highly competitive business model and there’s every reason to branch into other related fields. So they did:
Labaton Sucharow was the first firm in the country to establish a practice exclusively focused on protecting and advocating for SEC Whistleblowers. Led by Jordan A. Thomas, a former Assistant Director and Assistance Chief Litigation Counsel in the Enforcement Division who played a leadership role in the development of the SEC Whistleblower Program, our practice leverages unparalleled securities litigation expertise and significant in-house resources to protect and advocate for courageous individuals who report possible securities violations.
This is clever as that is also a lucrative business model but a safer one: unlike securities class actions, where the decision about which lawyers get paid and how much are left to courts and can seem arbitrary to those lawyers, in whistleblower suits you actually find a client and convince him to pay you your fees out of any money he can get. And that money can also be serious money.
The problem though is that you cannot typically get these cases just by keeping a casual eye on the newspaper: banks cannot resist doing bad things, true, but once those bad things are in the newspaper the expected value of whistleblowing is low. The whole point of a whistleblower is that he voluntarily goes to regulators with information that isn’t yet widely known, so your job, as a whistleblowing broker, is to find people who have not yet come forward with their valuable crime information and make them come forward to you. And that is hard. It’s not like you can just contact a bunch of people in senior roles in the UK and US financial industries and say “hey, would you like to talk to us about possible misconduct in your industry?” Right? Read more »