Thursday, May 27, 2021

Thursday Night Links

  • Unlike central bank fiat currencies, stablecoins do not have legal tender status. Depending on underlying arrangements, some may expose consumers and businesses to risk. If widely adopted, stablecoins could serve as the basis of an alternative payments system oriented around new private forms of money. Given the network externalities associated with achieving scale in payments, there is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses. A predominance of private monies may introduce consumer protection and financial stability risks because of their potential volatility and the risk of run-like behavior. Indeed, the period in the nineteenth century when there was active competition among issuers of private paper banknotes in the United States is now notorious for inefficiency, fraud, and instability in the payments system. It led to the need for a uniform form of money backed by the national government. [Brainerd]
  • The solutions floated after the Colonial hack—improved cybersecurity in the private sector and public-private collaboration to protect critical infrastructure—are pro forma and inadequate. There is a simpler and more effective way to stop the ransomware pandemic: Ban cryptocurrency. Ransomware can’t succeed without cryptocurrency. The pseudonymity that crypto provides has made it the exclusive method of payment for hackers. It makes their job relatively safe and easy. There is even a new business model in which developers sell or lease ransomware, empowering malicious actors who aren’t tech-savvy themselves to receive payment quickly and securely. Before cryptocurrency, attackers had to set up shell companies to receive credit-card payments or request ransom payment in prepaid cash cards, leaving a trail in either case. It is no coincidence that ransomware attacks exploded with the emergence of cryptocurrency. Banning anything runs counter to the American ethos, but as our experience with social media should teach us, the innovative isn’t always an unalloyed good. A sober assessment of cryptocurrency must conclude that the damage wrought by crypto-fueled ransomware vastly outweighs any benefits from cryptocurrency. It isn’t obvious that cryptocurrency provides any benefit at all beyond the chance to make a quick buck. I have been studying the crypto market since its inception, and I have yet to identify a single task or process that crypto makes easier, better, cheaper or faster. Don’t take my word for it. Ask any friend why he owns cryptocurrency, and the answer will invariably be “to make money.” In other words, speculation. [WSJ]
  • Straight ahead from the main entrance is the elevator bank, gold and silver leaf ceiling overhead, and brass doors polished to a blinding finish. An octagonal hall just past the elevators is clad is St. Genevieve golden vein marble. All around is metalwork featuring stylized tobacco leaves and diamond patterns. [Wiki]
  • Large money managers, like BlackRock, are also under pressure to exert influence on their portfolio companies to do more about climate change. BlackRock, State Street and Vanguard‌ collectively‌ own‌ more‌ than 20% of Exxon’s shares and could tip the scale on Wednesday’s vote. All three have signed a pledge supporting goals to reach net zero carbon emissions by 2050 or sooner. The International Energy Agency said investment in new fossil-fuel projects must stop immediately if the world was going to achieve that. [WSJ]
  • Shell, which said it expects to appeal the ruling, has pledged to reduce its greenhouse gas emissions by 20% within a decade, and to net-zero before 2050. That’s not enough, a court in The Hague ruled Wednesday afternoon, ordering the oil producer to slash emissions by 45% compared to 2019 levels. [Bloomberg]
  • The few data available suggest that a substantial portion of all unsecured creditors do not consent to their status in any meaningful sense. They become creditors only by the wrongful acts of their debtors. For example, Professors Teresa Sullivan, Elizabeth Warren, and Jay Westbrook found that twenty-three percent of the unsecured debt of persons filing bankruptcy under Chapters 7 and 13 of the Bankruptcy Code was owed to what the researchers called "reluctant creditors." By that they meant that those creditors were not in the business of extending credit and did not seek credit relationships. In the cases studied by Sullivan, Warren, and Westbrook, the debtors were principally consumers and their reluctant creditors were (1) tort victims, (2) former spouses and children with unpaid support orders, (3) government agencies, (4) educational lending agencies, (5) health care providers, (6) tax authorities, (7) landlords, and (8) utilities. Corresponding data with regard to business debtors do not exist. But on the basis of the data that are available, I would speculate that money owed to reluctant creditors constitutes an even larger portion of the debt of financially distressed companies. In the business cases, the categories of reluctant creditors include (1) product liability claimants; (2) victims of business torts, ranging from negligence to intentional interference with contractual relations; (3) victims of antitrust violations, unfair competition, and patent, trademark and copyright infringement; (4) environmental agencies that perform clean-ups; (5) taxing authorities; (6) creditors who became such through the debtor's fraud, including securities fraud; (7) government agencies, such as the Pension Benefit Guarantee Corporation; and (8) utility companies. Regardless of where one draws the line among these creditors, involuntary unsecured credit clearly exists in substantial amounts. The ability to victimize involuntary creditors may in significant part explain "why secured credit is such a widespread phenomenon." Simply by entering into a security agreement, the debtor and a favored creditor can expropriate for themselves value that, absent the agreement, would go to involuntary creditors. [The Unsecured Creditor's Bargain]
  • Select a mode of exercise that feels comfortable throughout the range of motion. There is very little evidence to support the superiority of free weights or machines for increasing muscular strength, hypertrophy, power, or endurance. Choose a repetition duration that will ensure the maintenance of consistent form throughout the set. One study showed a greater strength benefit from a shorter duration (2s/4s) and one study showed better strength gains as a result of a longer duration (10s/4s), but no study using conventional exercise equipment reports any significant difference in muscular hypertrophy, power, or endurance as a result of manipulating repetition duration. Choose a range of repetitions between three and 15 (e.g., 3-5, 6-8, 8-10, etc.). There is very little evidence to suggest that a specific range of repetitions (e.g., 3-5 versus 8-10) or time-under-load (e.g., 30s versus 90s) significantly impacts the increase in muscular strength, hypertrophy, power, or endurance. Perform one set of each exercise. The preponderance of resistance-training studies shows no difference in the gains in muscular strength, hypertrophy, power, or endurance as a result of performing a greater number of sets. After performing a combination of concentric and eccentric muscle actions, terminate each exercise at the point where the concentric phase of the exercise is becoming difficult, if not impossible, while maintaining good form. There is very little evidence to suggest that going beyond this level of intensity (e.g., supramaximal or accentuated eccentric muscle actions) will further enhance muscular strength, hypertrophy, power, or endurance. Allow enough time between exercises to perform the next exercise in proper form. There is very little evidence to suggest that different rest periods between sets or exercises will significantly affect the gains in muscular strength, hypertrophy, power, or endurance. Depending on individual recovery and response, choose a frequency of 2-3 times/week to stimulate each targeted muscle group. One session a week has been shown to be just as effective as 2-3 times/week for some muscle groups. There is very little evidence to suggest that training a muscle more than 2-3 times/week or that split routines will produce greater gains in muscular strength, hypertrophy, power, or endurance. [Journal of Exercise Physiology Online]
  • Joe Biden is a classic corrupt politician. He has used his decades in public office to enrich himself and his family in a manner that we usually associate with graft-seeking politicians of the 19th Century. The Burisma story, from which the Democratic Party press studiously averted its eyes, is a perfect example. Joe’s son Hunter was given a place on Burisma’s board of directors and paid a salary of $1 million per year, making him by far the highest-paid person associated with Burisma. No Burisma employee, and no one else on Burisma’s board, made anywhere near that much money. This despite the fact that Hunter did not speak Ukrainian, knew nothing about the natural gas industry, and was a drug-addled, barely employable neer-do-well. The money obviously was intended as a bribe for the benefit of then-Vice President Joe Biden, who was in charge of Ukraine policy for the Obama administration. No one is dumb enough to write a check to a politician so as to document a bribe. Rather, the check is written to a bag man. That was the role that Hunter played here. [Power Line]
  • What would you do if you were invited to play a game where you were given $25 and allowed to place bets for 30 minutes on a coin that you were told was biased to come up heads 60% of the time? This is exactly what we did, gathering 61 young, quantitatively trained men and women to play this game. The results, in a nutshell, were that the majority of these 61 players didn’t place their bets very well, displaying a broad panoply of behaviorial and cognitive biases. About 30% of the subjects actually went bust, losing their full $25 stake. We also discuss optimal betting strategies, valuation of the opportunity to play the game and its similarities to investing in the stock market. The main implication of our study is that people need to be better educated and trained in how to approach decision making under uncertainty. If these quantitatively trained players, playing the simplest game we can think of involving uncertainty and favourable odds, didn’t play well, what hope is there for the rest of us when it comes to playing the biggest and most important game of all: investing our savings? [Victor Haghani]
  • The shortcomings of passive investing have been widely documented. Critics question the wisdom of blindly holding a portfolio with weights determined by market values in the face of recurring bubbles and panics. They point out that in 1989, when the Japanese stock market was
    trading at close to 100 times earnings, a passive index portfolio of global equities would have had roughly 40% allocated to Japanese equities. A large body of research has been put forth attempting to reconcile these two seemingly incompatible views of the market: on one hand, markets are very efficient and thus difficult to beat; but on the other hand, they tend to exhibit periods in which valuations move far away from intrinsic values. [Victor Haghani]

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