Best deal for a Master’s degree in Economics?

This has got to be one of the best deals around. I got this mail from the highly ranked Toulouse School of Economics,

Tuition fees for [the English language] Master’s degree amount around 300 Euros for one academic year. Social security (compulsory health insurance) for students amounts 200 Euros per academic year. For living expenses in Toulouse, you should count at least 500 Euros per month (survival) and more probably 700 to 800 Euros all included.

Best regards
Aude Schloesing

Toulouse School of Economics
Université Toulouse 1
Manufacture des Tabacs
31042 Toulouse Cedex (France)
tel: + 33 (0)5 61 12 87 65
fax: + 33 (0)5 61 12 86 37
tse@univ-tlse1.fr

From the Department of Self Promotion…

Here is an article on The Katoomba Group’s Ecosystem Marketplace, The Innovator: Can Lars Christian Smith Take Protected Areas to Market?

Hedge fund replication

Nice article in The New Yorker  on Harry Kat and hedge fund replication. Why pay high management fees if software can replicate what hedge fund managers do?

Not so long ago, Kat recalled, one hedge-fund manager, a “global macro” investor who specializes in betting on currencies and stock markets around the world, approached him with an offer. “He said, ‘Harry, I want to buy your thing so I can replicate myself. Then I’ll be able to enjoy life a bit more and keep sending my clients bills for two plus twenty. It’ll take them years to figure it out, if they ever do.’ ”

The Nature Conservancy buys wilderness land

The Nature Conservancy buys a chunk of the Adirondacs in New York State, 161,000 acres to be more precise, with a loan from the Open Space Conservancy.

Story in New Your Times here. It is an impressive deal, and so is the speed with which it was done. The option of selling the land was first raised only six weeks ago.

Falkenstein on Taleb

Who looks well-fed, sports a beard, and has an exaggerated idea of his own contribution to intellectual life? No, I am not thinking about Salman Rushdie, the author of The Satanic Verses, but Nassim Taleb (The Black Swan).

Tyler Cowen wrote a generally positive review of The Black Swan. He did say,

Taleb is a talented writer, and often offers up a brilliant sentence or a clever, darting aphorism; he has a harder time developing a systematic message that is not only true but also original.

Taleb (over)reacted with a Brief Discussion of Empirical and Logical Mistakes in Tyler Cowen’s Review of The Black Swan in Slate (pdf).

Now on Mahalanobis, Eric Falkenstein sets out to demolish Taleb. As hatchet jobs go, it is pretty good.

Microfinance: doing well by doing good?

Felix Salmon writes,

Outsize Returns From Investing in Microfinance

In April, Mexico’s Banco Compartamos went public, raising $450 million. By the end of the first day’s trading, the bank was worth more than $1.8 billion, and the people who had invested money in the bank during its early days found themselves sitting on enormous profits. It was a glorious day for Mexcian capitalism – except for one small problem: Banco Compartamos is a microfinance institution, devoted to improving the lives of the poor. What was it doing, then, improving the lives of already-rich private shareholders instead?

Development group CGAP was one of the early supporters of Compartamos, although it gave grants rather than equity capital, so it made no profit on the IPO. The group has now released a comprehensive report by Richard Rosenberg about what happened, and whether the outsize IPO profits came at the expense of the poor people Compartamos was founded to serve. In a word, it seems, the answer is yes.

The Compartamos numbers are stunning. It has a return on equity of more than 50% – something more or less unheard-of in the banking world. The interest rates that it charges borrowers are more than 100% per annum…

Story here.

Vulture Funds

As I was driving to work this morning I heard a harangue on the radio about vulture funds. An unprincipled opportunist/astute businessman had bought $44 million worth of Zambian debt at a deep discount, for less that $4 million, had sued Zambia, and was awarded 15 million in court. The person on the radio was outraged.

It seems totally legitimate to me, except under the following conditions.

1. The debt is odious, e.g. because a country was ruled by a dictator who used the money for private benefits. In this case the debt should be considered personal. In an ideal world, if a poor country didn’t have the means to pursue members of a former dictatorial regime, it could sell the debt to a vulture fund, which would then perform a valuable social service in going after funds stashed away in various places.

2. The debt is illegitimate because the lender failed in its fiduciary responsibilities. There has been a lot of reckless and incompetent lending by the World Bank and other aid organizations. In these cases, debts should be canceled. That is not “debt forgiveness”. There is nothing to forgive.

The very existence of an aid organization implies that expertise is supposed to flow from the aid organization to the poor country. Aid organizations must therefore bear most of the responsibility for failed aid projects.

Maybe vulture funds could play a useful role here as well. A country could sell its claim on a bank or aid organization for cancellation of debt and reimbursement of payments  towards an illegitimate loan (with interest and damages), and the vulture fund would try to collect from the organization. Now here is a business opportunity. Go, Vultures!

Update: Here is a really useful post on felixsalmon.com.

The World Bank adrift

In the World Bank, the bank’s permanent staff won the power struggle and defeated Paul Wolfowitz. This is neither a case of the good guys defeating the bad, nor of the bad defeating the good.

Paul Wolfowitz was by all accounts an incompetent manager, with a track record of being an incompetent manager. By training and personality he was a back-office weapon systems analyst. That is not an obvious qualification for a management position.

The World Bank lifers operate a racket, lending money to middle income countries, making money on these loans, and using the money to sustain World Bank operations, i.e. themselves. It boggles the mind that the Bank lends money to China and Mexico.

You get absurd statements such as this,

Developing Nations Lured to Private Lenders

IPS, 30 May 2007 - Developing nations, their corporations and banks are turning en masse to volatile but enticing commercial debt markets to replace official loans and stalling foreign aid, the World Bank said Tuesday.

“Lured”? What we have here are functioning capital markets. The World Bank was set up after World War 2 in a situation where countries could not obtain commercial loans. Now most countries can.

The incoming Word Bank president, Bob Zoellick said about the World Bank that it was “one of the cornerstones of the architecture designed by the founders of the international marketplace and system of security after world war two” and remained “just as important today as it was then”.

Well, no. The Bank is, fortunately, a lot less important now that it was then. In terms of investments in poor countries, since about 1990 private capital flows have greatly outpaced public loans and aid. That is progress. Since 1990 millions of people, mainly in China and India, have been lifted out of poverty. Foreign aid had very little to do with it.

There probably is and should be a role for the World Bank, e.g. in delivering grants to the poorest of the poor countries.

It is absurd that the U.S. can appoint its president without looking worldwide for the most qualified person, and that the Europeans can appoint the president of the IMF. But the World Bank urgently needs a complete overhaul, going way beyond this narrow governance issue.

History of Finance

Streaming videos of interviews with Harry Markowitz, William Sharpe, Paul Samuelson and Robert Merton from the American Finance Association.

Design of markets

Useful links on markets in general and prediction markets in particular:

On CASTrader Blog, 3 interesting posts on market structures by Alan Jewell. Part I, Part II (on Midas Oracle), Part III.

On Mercury’s Blog, Jed Christiansen informs us that he has set up a page on Squidoo on prediction market resources. Looks very useful.

On Midas Oracle, Chris Masse points to the Chris Hippert Explainers.

Buy ‘em, Trade ‘em, Protect ‘em

From the Dep’t of Self-Promotion: here is an article in Conservation Magazine about cap-and-trade for protected area visitor permits.

Protected areas can suffer from too much love. In the Galapagos Islands, tourism has brought invasive species and overuse. But it has also boosted the local economy. So the question is, how can we protect biodiversity without shutting down local tourism industries?

A new proposal based on the cap-and-trade concept now used to curb pollution emissions could help solve the problem. It would treat protected-area visitor permits as tradable commodities, limiting their number while raising capital through the sale of quotas.

The Black Swan

The review on Mahalanobis of Nassim Taleb’s The Black Swan: The Impact of the Highly Improbable is not really a book review. It is more about Nassim Taleb than about the book.

Weekend reading: salaries in banking

“To the extent that the superrich are pulling away from the rest of us…the most parsimonious explanation seems to be the massive increase in the efficiency, and size, of American capital markets.”

Discussion here. Tyler Cowen, Jane Galt, Steve Sailer, James Surowiecki et al.

U.S. cracks down on microcredit

This week’s Economist (subscription necessary) reports that the federal government and 11 states have adopted restrictions on payday loans, a form of microcredit.

In one of the last acts of the Republical Congress, payday lenders were restricted to interest rates of 36% on loans to military personnel and their spouses. [...]

One state, North Carolina, recently kicked out payday lenders by allowing the law that allowed money store to operate to expire. In New Mexico Governor Bill Richardson has supported a bill tightening up the relevant laws. On March 27 the Georgia House rejected for the second time a law that would have allowed payday lenders back into the state…

So it is OK to charge poor people in poor countries e.g. 45% interest for their microcredit loans, but it is not OK in the U.S.?

Is geothermal energy the next big thing?

After wind energy, solar cells, and biofuels, will geothermal energy take off?

It could be the New, New Thing.

It is not without problems; individual sites can become depleted if used excessively.

But all renewable energy sources have their drawbacks. Wind generators, for example, use lots of cement, steel, and space, have lots of moving parts, are noisy, kill birds, and only work when the wind is blowing. But they are still seen as benign.

On Iceland, an investment fund, Geysir Green Energy, was recently established with an initial $100 million investment for the purposes of investing in geothermal energy. Given Iceland’s experience in this field, this can been seen as an initial step towards commercializing Icelandic experience and technology worldwide, e.g. that of the company Enex.

Other companies in this field,

Calpine Corporation

Ormat Technologies

Update: A comment on Muck and Mystery,

It isn’t clear if the technologies will be adopted with enthusiasm since money often flows to projects that are subsidized whether they make any sense or not without subsidies. Geothermal makes sense, but may not capture political minds and hearts. I think it will eventually come into its own, but perhaps not soon.

See Heat Mining for some discussion of recent work on enhanced geothermal systems (EGS).

How to manipulate markets and boost short-selling

Fairly outrageous video, suitable for use in business ethics classes,

http://www.youtube.com/watch?v=ZTt7IQB9rc0

More here.

New marine reserves

The (London) Telegraph reports (via Tim Worstall),

Eight large marine reserves where fishermen would be liable for damage to protected species are being proposed by the Government today in a new Marine Bill…

Ben Bradshaw, the environment minister, will announce a network of eight marine reserves, including different types of marine habitat from the sandbanks of the Dogger Bank and off North Norfolk to the Darwin Mounds, an area of deep-water coral 1,000 metres deep off north-west Scotland…

…fishing would be banned altogether in some of the reserves - so-called no-take zones - with public consultation being used to determine which…

Jean-Luc Solandt of the Marine Conservation Society said: “I don’t think the number of reserves the Government is proposing is big enough to comply with their international obligations. That would need 20-30 per cent of each habitat covered. It is all about the exchange of larvae between areas so species are resilient.”

What would a similar scheme cost worldwide? In the 2004 paper by Andrew Balmford et al. The worldwide costs of marine protected areas, the authors estimated that conserving 20-30% of the world’s seas would cost $5 to $19 billion per year, and would probably create around one million jobs.

Harmful subsidies leading to overfishing were estimated at $15 to $30 billion per year, with the annual global marine fish catch being worth $70-80 billion per year.

Environmental “Control Frauds”

From the comments, William K. Black on this post:

“Control fraud” has specific implications useful to the study of conservation finance. Both public control frauds (”kleptocracies”) and some private control frauds pose special dangers to the environment. Kleptocrats loot “their” nation. The direct effects of kleptocracy on the environment are severe. The head of state (and often his cronies) will approve developments that enrich him regardless of the harm to the environment. The government he controls will help the cronies evade any domestic or international laws designed to protect the environment, e.g., by issuing false certificates of the origin/nature of products. Kleptocrats are also autocrats, so the leader will use the state to suppress environmental protests.

The indirect effects of kleptocracy also harm the environment. Kleptocrats’ policies lead to widespread poverty, endemic corruption among lower-level government officials and reduced social trust and cohesion. Indeed, kleptocrats often follow the old colonial practice of “divide and conquer” — favoring one ethnicity or region over others. This can produce chronic armed conflicts that harm the environment. Even if there is no armed conflict the indirect effects mean that there is no effective environmental protection and increased pressure by poor citizens to exploit resources even when doing so overwhelms resources that could have been renewable.

Private control frauds often target the environment. Whenever a company can gain a competitive advantage by acting in an unlawful manner, e.g., by disposing of toxic wastes in a river instead of in the appropriate (but far more expensive) toxic waste disposal center a “Gresham’s law” style dynamic arises. (Gresham’s law: “bad money drives good money out of circulation” during hyperinflation. Note: George Akerlof used this metaphor appropriately in his seminal explanation of “lemon’s markets.” Note that examples he gives in that article are all variants of another type of control fraud — those that target the consumer.) Thus, environmental control frauds have two victims — the public and honest competitors. Unless the government effectively detects and punishes environmental control frauds the dynamic can ultimately lead to environmental control fraud becoming endemic. In the case of international disposal of toxic wastes, companies search for nations with weak regulation or kleptocrats). National and international regulatory/enforcement efforts are essential to reduce this perverse economic incentive to engage in environmental control fraud.

William K. Black
Executive Director, Institute for Fraud Prevention
Associate Professor of Economics and Law, UMKC

Prediction markets in everything

The are now prediction markets in everything from economic derivatives to films and film stars on the Hollywood Stock Exhange.

Here is an explanation of prediction markets on YouTube, using the U.S. presidential election as an example (via Midas Oracle).

Midas Oracle has a list of markets here (scroll down). New prediction markets include Financial Next and PharmaDAQ, a “Fantasy Pharma Prediction Market”.

More here.

Update: Chris Masse says, The full listing of prediction exchanges is here: http://www.chrisfmasse.com/3/3/exchanges/

Operation Spamalot

The U.S. Securities and Exchange Commission suspends trading in 35 companies touted in spam e-mail campaigns.

The trading suspensions are part of a stepped-up SEC effort - code named “Operation Spamalot” - to protect investors from potentially fraudulent spam email hyping small company stocks with phrases like, “Ready to Explode,” “Ride the Bull,” and “Fast Money.” It’s estimated that 100 million of these spam messages are sent every week, triggering dramatic spikes in share price and trading volume before the spamming stops and investors lose their money…

Recent trading clearly demonstrates how spam campaigns can affect stock prices and trading volume. For example:

A spam campaign in Healtheuniverse, Inc. (HLUN) stock began on Sept. 4, 2006, with emails incorporating a Healtheuniverse press release proclaiming that HLUN was “focused on being the first to commercialize stem cell applications in the $15 billion worldwide plastic surgery and cosmetic surgery market.” On Sept. 7, 2006, HLUN closed at $.12 per share on trading volume of 3,000 shares. The spam campaign accelerated, and HLUN shares spiked to $.22 per share on Sept. 11, 2006, with over 2.2 million shares trading hands. By Sept. 22, 2006, the closing price had dropped back down to $.11.

The amazing fact is that these spam marketing campaigns actually work. Who on earth are the people who buy these penny stocks after getting spam e-mails? Maybe close relatives of the people who send “advance fees” to Africa after falling for Nigerian 419 frauds.