4 ms·

Changing How I Think About Finance

28 points by kevin_morrill 14y ago

SeanDav 14y ago
As a veteran of the finance industry, I can safely say that the industry does make a real contribution to society, however there is a "but" here. It is also full of ruthless, greedy, narcissistic, over-paid and dangerously short-sighted individuals.
- phaemon 14y ago
  Or, perhaps, as a veteran of the finance industry, you're a ruthless, greedy, narcissistic, over-paid and dangerously short-sighted individual who would like us to believe the industry makes a real contribution to society. Or maybe not. How should we tell?
  - SkyMarshal 14y ago
    It's not that hard. Most of finance is about the efficient allocation of capital, and to this point in history our model has worked better than any other. It's not without its problems, namely the boom/bust cycle and propensity for fraud and periodic crises, but there are known solutions to those, if difficult to implement sometimes, especially when governments and regulators are captured to some degree or another. But to say that finance makes a contribution to society is not false.
martin_bech 14y ago
Just regarding the note on Apple cash.. Its 137.1 billion usd in cash.. Not 10 billion. Source: http://m.techcrunch.com/2013/01/23/apple-now-has-many-billions-in-cash-more-than-hps-annual-revenue-and-vietnams-gdp/ http://m.techcrunch.com/2013/01/23/apple-now-has-many-billio...
- kevin_morrill 14y ago
  I must be misinterpreting http://finance.yahoo.com/q/bs?s=AAPL+Balance+Sheet&annual http://finance.yahoo.com/q/bs?s=AAPL+Balance+Sheet&annua... Would love it if someone can chime in with the right way to read that kind of statement to arrive at the number the way TechCrunch is reporting it. Presumably, I am misquoting the number for Exxon too (http://finance.yahoo.com/q/bs?s=XOM+Balance+Sheet&annual http://finance.yahoo.com/q/bs?s=XOM+Balance+Sheet&annual). I fixed the Apple figure in my post.
  - rjtavares 14y ago
    You are not counting Apple's short and long term investments. If you read the Notes to the Financial Statements[1] (the most important piece in accounting), you can see the breakdown of all the cash and securities owned by Apple, including 20M Treasury and 47M Corporate bonds. [1] http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=8888271-212228-307222&type=sect&dcn=0001193125-12-444068 http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?F...
    - kevin_morrill 14y ago
      Okay, now I am thinking I was counting it correctly for the context of my post. The $10B in cash is sitting idle. If it's in short and long term investments, that it's being put to some kind of use.
jmduke 14y ago
I think it's somewhat disingenuous to say that Milken's great insight was discovering that junk bonds weren't risky: rather, his insight was that there was a profitable inefficiency in the gap between the risk-offset price in junk bonds and the yield of such bonds.
svmegatron 14y ago
This is an incredible use of the referly platform - interesting idea with a cool article, and then several affiliate links to books on the same subject. +1 great execution of this business model
- dmor 14y ago
  Thank you for being so supportive, I've been in massive redesign mode for the past 6 weeks with all the content creation tools and layout and this made my day. Blog post about the shift in our thinking is on the way
the_watcher 14y ago
Michael Lewis was an investment banker, but was based out of London, not Wall Street. He only did training in New York, per Liar's Poker.
rayiner 14y ago
I love the idea of suggesting books to get people familiar with an industry they probably don't know a lot about. I think people jump to conclusions about Wall Street being useless based on not really understanding what Wall Street does. Think about it: if Wall Street were useless, would anyone care whether it was working properly or not? It is precisely because it is useful that we care about it running well and correctly.
tptacek 14y ago
It seems like there's been a concerted effort to "rehabilitate" Milken, or even build a narrative that he was set up as a fall guy in the '80s. But _Predator's Ball_ and _Den Of Thieves_ tell a pretty detailed story about what was happening in the leveraged financing practices at the time.
- tedunangst 14y ago
  I think it's more that, with the passage of time, people can step back and take a more balanced look. Good ideas are still good ideas, even when bad people have them. Babies and bathwater and all that.
  - wglb 14y ago
    He certainly did have some good ideas. However, it is not clear how the insider trading part of what he did is going to stick in the bath with the baby.
johnrgrace 14y ago
The biggest insight Milken was that you could create junk bonds. Lookign back this seems trivial, but no one else had thought of doing this. Junk bonds used to be the so called "fallen angel", bonds issued by highly rated credit companie sthat later were downgraded. All of the bonds trading in the market were bonds that lost their rating. The big idea was that companies with poor credit could issue bonds, which no one had realized yet. This opened up a lot of capital to firm, some of which were startup in nature, that previously couldn't get capital. This drove real economic growth that built real things.
kkwok 14y ago
Any reading list on Milken should include Den of Thieves.

28 points by kevin_morrill 14y ago

As a veteran of the finance industry, I can safely say that the industry does make a real contribution to society, however there is a "but" here. It is also full of ruthless, greedy, narcissistic, over-paid and dangerously short-sighted individuals.

phaemon 14y ago
Or, perhaps, as a veteran of the finance industry, you're a ruthless, greedy, narcissistic, over-paid and dangerously short-sighted individual who would like us to believe the industry makes a real contribution to society. Or maybe not. How should we tell?
- SkyMarshal 14y ago
  It's not that hard. Most of finance is about the efficient allocation of capital, and to this point in history our model has worked better than any other. It's not without its problems, namely the boom/bust cycle and propensity for fraud and periodic crises, but there are known solutions to those, if difficult to implement sometimes, especially when governments and regulators are captured to some degree or another. But to say that finance makes a contribution to society is not false.

martin_bech 14y ago

Just regarding the note on Apple cash.. Its 137.1 billion usd in cash.. Not 10 billion. Source: http://m.techcrunch.com/2013/01/23/apple-now-has-many-billions-in-cash-more-than-hps-annual-revenue-and-vietnams-gdp/ http://m.techcrunch.com/2013/01/23/apple-now-has-many-billio...

kevin_morrill 14y ago
I must be misinterpreting http://finance.yahoo.com/q/bs?s=AAPL+Balance+Sheet&annual http://finance.yahoo.com/q/bs?s=AAPL+Balance+Sheet&annua... Would love it if someone can chime in with the right way to read that kind of statement to arrive at the number the way TechCrunch is reporting it. Presumably, I am misquoting the number for Exxon too (http://finance.yahoo.com/q/bs?s=XOM+Balance+Sheet&annual http://finance.yahoo.com/q/bs?s=XOM+Balance+Sheet&annual). I fixed the Apple figure in my post.
- rjtavares 14y ago
  You are not counting Apple's short and long term investments. If you read the Notes to the Financial Statements[1] (the most important piece in accounting), you can see the breakdown of all the cash and securities owned by Apple, including 20M Treasury and 47M Corporate bonds. [1] http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=8888271-212228-307222&type=sect&dcn=0001193125-12-444068 http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?F...
  - kevin_morrill 14y ago
    Okay, now I am thinking I was counting it correctly for the context of my post. The $10B in cash is sitting idle. If it's in short and long term investments, that it's being put to some kind of use.

jmduke 14y ago

I think it's somewhat disingenuous to say that Milken's great insight was discovering that junk bonds weren't risky: rather, his insight was that there was a profitable inefficiency in the gap between the risk-offset price in junk bonds and the yield of such bonds.

svmegatron 14y ago

This is an incredible use of the referly platform - interesting idea with a cool article, and then several affiliate links to books on the same subject. +1 great execution of this business model

dmor 14y ago
Thank you for being so supportive, I've been in massive redesign mode for the past 6 weeks with all the content creation tools and layout and this made my day. Blog post about the shift in our thinking is on the way

the_watcher 14y ago

Michael Lewis was an investment banker, but was based out of London, not Wall Street. He only did training in New York, per Liar's Poker.

rayiner 14y ago

I love the idea of suggesting books to get people familiar with an industry they probably don't know a lot about. I think people jump to conclusions about Wall Street being useless based on not really understanding what Wall Street does. Think about it: if Wall Street were useless, would anyone care whether it was working properly or not? It is precisely because it is useful that we care about it running well and correctly.

tptacek 14y ago

It seems like there's been a concerted effort to "rehabilitate" Milken, or even build a narrative that he was set up as a fall guy in the '80s. But _Predator's Ball_ and _Den Of Thieves_ tell a pretty detailed story about what was happening in the leveraged financing practices at the time.

tedunangst 14y ago
I think it's more that, with the passage of time, people can step back and take a more balanced look. Good ideas are still good ideas, even when bad people have them. Babies and bathwater and all that.
- wglb 14y ago
  He certainly did have some good ideas. However, it is not clear how the insider trading part of what he did is going to stick in the bath with the baby.

johnrgrace 14y ago

The biggest insight Milken was that you could create junk bonds. Lookign back this seems trivial, but no one else had thought of doing this. Junk bonds used to be the so called "fallen angel", bonds issued by highly rated credit companie sthat later were downgraded. All of the bonds trading in the market were bonds that lost their rating. The big idea was that companies with poor credit could issue bonds, which no one had realized yet. This opened up a lot of capital to firm, some of which were startup in nature, that previously couldn't get capital. This drove real economic growth that built real things.

kkwok 14y ago

Any reading list on Milken should include Den of Thieves.