Archives For Wall Street

Cringely makes a compelling argument that stock market decimilization (allowing shares to be traded to the penny) is the primary cause of the sustained IPO crash in the US since 2000. His article is based on a presentation by David Weild. What’s compelling about this argument is that it gives a more tangible result to the suspected evils of computer generated rapid trading, enabled by this decimilization move. It’s not just that Wall Street has been leaching money from the system (acting as a small friction force), the effect of this regulatory change has (potentially) been to impair the development and creation of new companies.

Wealth creation is just as important as job creation in our economy but too many experts get it wrong when they think wealth creation and wealth preservation are the same things, because they aren’t.

via Ticked off: How stock market decimalization killed IPOs and ruined our economy ~ I, Cringely.


18 million jobs may been created without the move to market decimalization in trading – David Weild

Update: See also the nice article in Wired last month about the lengths Wall Street firms will go to to get a microsecond edge (for the purpose of rapid trading). I’m trying to think of other examples of massive industries that have limitless capital investment capability yet serve no real use to society…

Update 2: So Cringely’s solution is have more IPOs in Hong Kong? That reminds me of the “let’s just let people get drugs from Canada” idea. It doesn’t solve our country’s problem. Pretty disappointing after a good analysis.


Greed and Debt: The True Story of Mitt Romney and Bain Capital | Rolling Stone

Taibbi on Romney – you know this is going to be a fun read.

And this is where we get to the hypocrisy at the heart of Mitt Romney. Everyone knows that he is fantastically rich, having scored great success, the legend goes, as a “turnaround specialist,” a shrewd financial operator who revived moribund companies as a high-priced consultant for a storied Wall Street private equity firm. But what most voters don’t know is the way Mitt Romney actually made his fortune: by borrowing vast sums of money that other people were forced to pay back.

How Microsoft Lost Its Mojo: Steve Ballmer and Corporate America’s Most Spectacular Decline

The Vanity Fair article on microsoft finally makes it online:

Amid a dynamic and ever changing marketplace, Microsoft—which declined to comment for this article—became a high-tech equivalent of a Detroit car-maker, bringing flashier models of the same old thing off of the assembly line even as its competitors upended the world. Most of its innovations have been financial debacles or of little consequence to the bottom line. And the performance showed on Wall Street; despite booming sales and profits from its flagship products, in the last decade Microsoft’s stock barely budged from around $30, while Apple’s stock is worth more than 20 times what it was 10 years ago. In December 2000, Microsoft had a market capitalization of $510 billion, making it the world’s most valuable company. As of June it is No. 3, with a market cap of $249 billion. In December 2000, Apple had a market cap of $4.8 billion and didn’t even make the list. As of this June it is No. 1 in the world, with a market cap of $541 billion.

Sixteen days later, Bill Gates handed off the C.E.O. reins to Ballmer. “I was stunned when Bill announced that he was stepping aside to become ‘chief software architect’ in January 2000, with Steve Ballmer succeeding him as C.E.O.,” recalled Paul Allen. “While Steve had long served as Bill’s top lieutenant, you got the sense through the nineties that he wasn’t necessarily being groomed for Microsoft’s top spot. I’d say that Bill viewed him as a very smart executive with less affinity for technology than for the business side—that Steve just wasn’t a ‘product guy.’ ”

Balmer is smart. But smart isn’t enough in a technology company. You need to have a technical vision as well. That Microsoft did nothing with PocketPC for ten years is inexcusable.

“If you don’t play the politics, it’s management by character assassination,” said Turkel.

At the center of the cultural problems was a management system called “stack ranking.” Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees. The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

Supposing Microsoft had managed to hire technology’s top players into a single unit before they made their names elsewhere—Steve Jobs of Apple, Mark Zuckerberg of Facebook, Larry Page of Google, Larry Ellison of Oracle, and Jeff Bezos of Amazon—regardless of performance, under one of the iterations of stack ranking, two of them would have to be rated as below average, with one deemed disastrous.

This stack ranking thing sounds bad, but it sounds too bad to be all true. There are quite a lot of superstars at Microsoft; it can do great things.

Pigs flying

I wish I had seen the interview on CNBC – the looks on the hosts faces. This is big:

On Wednesday morning, the 79-year-old Weill, one of the 20th century’s most acquisitive bankers, stepped up to the mic to endorse … breaking up the banks. “What we should probably do is go split up investment banking from banking, have banks be deposit-takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” he remarked on CNBC.

Obviously, Wall Street is shocked. How could it be bad for them to be completely free to do whatever they want? People are talking about Weills as wanting to repent, fix his legacy, etc.

Here’s a different take:

Weills is on the out. He will never be made CEO again of one of these huge consolidated, too-big-to-fail, WMD banks, or probably of any bank given how much he helped cause this mess. But if there is massive financial structure upheval due to regulatory reform — led by him — he may just find himself in charge of one of these split-off divisions. Chaos makes opportunity for people on the outside. I’m all for it.

The biggest mistake of Obama’s presidency was not restructuring Wall Street immediately, when they were vulnerable.