Lock stocks, bonds, mutual funds, and two smoking barrels

Every once in awhile you’ll peruse the news and come across a headline resembling the following:

“X Stock plummets y%” or

“Tech index makes massive gains”

The stock market is typically cited by economists as an indicator of an economy’s health, like gauging the pulse of a patient’s heartbeat.  Additionally the health of an individual firm can be gauged in realtime by assessing its price.  If the price of a firm’s stock changes, this usually represents a change in confidence in the perception of the firm’s value by its owners or shareholders.  Great, the theory sounds fine and dandy, but who controls the stock market?  In other words, who influences the pulse of the patient’s heartbeat?

A friend of mine with an interest in finance and poker in college at the time opened my eyes  My only knowledge on investments was based on a course on financial economics and having read a few pages out of this landmark finance book.  So I asked him what his take was on the whole thing, and this was the gist of his response as I can recall:

Investing in the stock market is just a game, dominated by a few big players.  Everyone else is on the sidelines really, and like a game of poker, when the ‘average’ Joe joins the game, all they’re really doing is sweating the big guys.  We’re not actually playing in the game as much as we’d like to think we are.

As much as I could have shrugged his words off, I respected and still continue to respect  his knowledge for a few reasons.  First, he was the only guy in high school I knew that professed that everyone read Rich Dad Poor Dad while everyone was worrying about paying for going to the movies, buying a used car, and the cost of prom.  Second, he’d taught me how to become a winning poker player, ingraining me with the ability to distinguish short-run noise from long-run trends, what hands were playable under which situations, and proved his chops later on by buying a car with his online poker winnings.  Third, he was the first guy I’d met that played a computer game in high school purely to buy and sell in-game items actively, and regularly on its market.  (Though he did not turn it into something professional like this guy).  I’d come to his house after work and he and his brother would be shouting across the hallway about good trades with the game’s marketplace currency.  Lastly, he wound up in a career as an energy trader.

So every time I come across a headline about why everyone hates Apple right now, or why Yelp’s good stock day may be bad, his words echo in my head.  Who is everyone?  Who is the average shareholder of these companies?  Are these companies owned by millions of people, all with similarly-sized slices of the pie?  Or are they dominated by the Phil Iveys or Randy Lews of the game?

I did some digging.  It started off with the exemplary data visualization in this YouTube video, though I was a little skeptical at first because of the amount of emotion they injected with the facts reeked of spin.  The top 1% own half the country’s stock, bonds and mutual funds, according to the video.  That led to a paper by an economic think tank, which cites an unpublished analysis based on this data published by the Federal Reserve Board.  (At some point, me being the nerd I am I’ll probably roll around in this data just to try to satisfy curiosity.)  Within the think tank paper, it looks like the top 1% own roughly 40% of total stock market wealth, and the top 10% own roughly 80% of the stock market wealth.  Simply put, one guy in a room of 10 owns more than 3/4 of the entire pizza.  Also, the bottom 50% (salary < $50k/yr) own half of one percent of stock market wealth.  Perhaps they are part of the group furiously selling off Apple.  Now I realize these don’t cite the number of shares nor do they speak to actual shareholder composition  but it certainly reinforces my friend’s point from years ago.   It is possible  that Apple and Yelp are owned by the average Joe, and each owner has an equally thin slice.  It is mind-boggling how one person can wield so much power.  [There’s an article I’d read before about how one just guy influenced the market of a particular industry, sending it tanking because he’d accidentally sold shares while asleep at the helm.  Will link to it if I ever find it.]

What does it mean to be part of the top 1%, or the top 10% exactly, and where am I?  You can compare yourself right here.

Perhaps when we read those headlines about the stock market, the intended audience is 1 guy in a room of 10.  The rest of us are just sweating his hand.

The Raddest Installation Experience in 1995

I was 11 years old, and this game launched an era of PC gaming-filled youth.

Normally when installing software, you just mash on the next button until you get to the dialog box with “Finish” or “Agree” on it. Way back when, you had to manually select the sound and video cards compatible with your game. So this really blew me away the first time I experienced installation of Command and Conquer. (It got old after a few uninstalls– hard drive space was scarce that year at half a gigabyte capacity).

It is pretty neat how the developers took the time to create this to make a boring installation process entertaining.

Was Justice Served?

The Aaron Swartz incident racked my brain when it first came out.  I have to admit its jarred me a little bit so I thought I’d explicitly share my thoughts.  I did not know who he was until word of his death proliferated the internet and news, but the more I read about the events leading up to his suicide, the more upset I became.  If I had to describe him in only a sentence, based on what I’d read it would be this: he was a person who utilized his talents to try to fulfill a goal of making information more accessible to benefit the world.

Some may ask, “Why would you want to make information more accessible, what good does that do?” in addition to “Aren’t there instances where secrecy is essential, especially when lives are at stake?”  I think those are very valid questions.  In school we were often beaten over the head with the notion knowledge is power, and that by being receptive to data and by demonstrating a willingness to learn from it, we can empower not just ourselves but those around us.  This is why history and science are part of our primary school curriculum.  (With the recent emphasis on STEM, maybe less so on the former, but hopefully not.)  Early in college, economics and political science professors introduced me to the concept of information (a)symmetry, which blew my mind upon first exposure.  Markets become more competitive the more firms know and understand each other, and the result can translate into an incentive to create better products and services for consumers.  Perhaps this is all an oversimplification, but how many times have you ever wondered “Gosh I wish I’d know that x and y worked that way, otherwise I could’ve avoided z.”

Generally I look up to the causes he fought for along with his decision to utilize his talents in ways that benefit those around him more than just himself.  Today an aptitude for programming is widely desired, and companies really go out of their way to pluck the most talented people with lucrative salaries and benefits.  I have no doubt Aaron considered the opportunity cost of working in one specific industry over another, and I’d imagine anyone who could claim to contribute to RSS in high school and co-found THE ultimate internet forum would be highly prized by firms with deep pockets.  I had the same thought about this man, whom the public often derided as ‘in it for the money’ and incentivized by supposed connections to investment banks while acting with a mission for pure personal gain.  (I’m convinced his decisions were driven by a desire to benefit the public wholly, but I’m open to seeing evidence otherwise.)  But rather than applying his skills and dedicating his resources for these firms, Aaron chose to spend his time fighting for causes he believed in.  He chose  to maximize utility, not income, with respect to time.  This is something that really resonated with me.

Very recently I stumbled upon his blog.  He wrote analytically and purposefully, with incredible insight and a penchant for optimistic change.  Arguments were well supported by evidence and his perspective through the political activist lens is obvious; he was unafraid to use a nomenclature shared by political scientists, economists, sociologists and psychologists to complement his background in software development.  In other words, he proved to be one of those rare T-shaped people.  His series on self-improvement and fostering change struck a chord, particularly his post about two non-profits with differing operational philosophies.  (Ask me in person if you’re curious about this.)  In fact, based on raw nerve you wouldn’t pin him as one to consider suicide.  Frankly I found a great deal of comfort in these posts, easily empathizing with his point of view.  This is because I’ve spent quite a bit of time too with the same curiosity, reading books on behavioral economics and cognitive psychology.  In another post, he described his exposure to a video on Chomsky’s Manufacturing Consensus, shattering past assumptions about the role of media and democracy.  And I found myself relating to this experience as well.  The economics profession often espouses the role of government and markets, biased away from intervention and proclaiming the invisible hand is the force that provides the best results in the end.  Laissez-faire.  All of that was turned upside down after I saw the Inside Job, which demonstrated a failure in many institutions we so easily assumed were working in their stakeholder’s best interests.  (One major standout was the defense so-called independent credit agencies put up in giving garbage securities–I mean sub-prime loans packaged into CDOs– high ratings: that these were mere opinions.  Well not only are these “opinions” used to inform consumers about the quality of investments, they’re even touted by entire countries in order to justify their credit worthiness to bond traders.  And if markets paid heed to their original defense, consumers should be discounting their value today. But I don’t think consumers have any other choice save for the guys that gave excellent ratings to crappy financial vehicles of faith.  I digress.)  Now I wouldn’t go so far as to say I could absolutely identify with Aaron Swartz– he’s accomplished so much and executed over and over again in a remarkably short span.  I look up to how he devoted his time.

His last post deconstructed the Dark Knight, revealing layers of philosophy and game theory, and concluded on a pretty somber note, potentially foreshadowing death.  When news broke I shared my frustrations about Aaron’s suicide with the same friend who first introduced me to Reddit. I often joke with that friend calling him the King of the Internet because of his uncanny ability to find just about anything online (probably thanks to Reddit).  My friend tried to convince me what’s done is done, and that we’ll never truly know the exact reason he killed himself.  His family claims the US Attorney’s office shared contribution, along with MIT.

I’m not content with the explanations provided so far, and am still somewhat frustrated.  What doesn’t compute is the inconsistent application of justice.  The one victim of the crime, JSTOR wound up settling.  Yet, DoJ relentlessly pursued and later attempted to soften its stance explaining it would have recommended six months in a low security setting.

Only a month prior a major bank was fined for money laundering, doing business with drug lords and terrorist states.

The same Department found no one worthy of that crime to send to jail.

I understand how bureaucracy works, and I’m not basing that on what I’ve seen on the Wire, or The Thick of It, or read in Confidence Men.  (Ask me in person, if you’re genuinely curious.)  I also understand there are a range of potential political motivations at stake.  Some hypothesize Swartz was facing eager retaliation for a past run-in with the law.  I suppose this strengthens the case for those absolved in HSBC’s crime, perhaps none of them had records to begin with.  But if I had to guess I would attribute reputation to be the most likely culprit– that is establishing some sort of precedent and being recognized by your bosses for this achievement, would incentivize one to benefit their reputation.  My hypothesis is the desire to care for one’s own reputation clouded the quest for reasonable justice and fair application of the law.  After this debacle, I don’t know if anyone on the org chart between Eric Holder and Carmen Ortiz is going to exert influence to modify the incentive structure.  I don’t know how much influence a White House petition crossing the 25,000 threshold for response is going to have.  And I don’t know if Congress is going to commit to legislative action to reduce ambiguity in the law, along with its respective penalties.

And I don’t know if he intended to become a martyr.  If his act meant to serve as a wake up call to the public, he’s at least convinced me to write about it and share my thoughts with others.  There is a part of me though that believes there were alternatives, and that he could have used democracy and swayed enough political will to rally the public behind him.  Much like his role in convincing the public, and in turn Congress, to change its mind on SOPA.

If, and when legislation to patch the Computer Abuse and Fraud Act is ready, I’ll be writing letters to my local congressmen and congresswomen to advocate a cause that avoids this mishap in the future.