Technology & Finance

Monday, March 01, 2010

Time to Outlaw Naked Credit Default Swaps -- FT

Wolfgang Münchau doesn’t mince his words…

“I generally do not like to propose bans. But I cannot understand why we are still allowing the trade in credit default swaps without ownership of the underlying securities. Especially in the eurozone, currently subject to a series of speculative attacks, a generalised ban on so-called naked CDSs should be a no-brainer....

“A naked CDS purchase means that you take out insurance on bonds without actually owning them. It is a purely speculative gamble. There is not one social or economic benefit. Even hardened speculators agree on this point. Especially because naked CDSs constitute a large part of all CDS transactions, the case for banning them is about as a strong as that for banning bank robberies.”

The political response has been lame, even from the Germans who have described private euqity as locusts.,

“Where is the political response? The Germans want to bring it to the Group of 20, but they hesitate to do anything unilaterally. Christine Lagarde, the French finance minister, was recently quoted as saying: “What we are going to take away from this crisis is certainly a second look at the validity, solidity of sovereign [credit default swaps].”

“A second look? I wonder what they saw when they looked the first time.”

Paul Krugman in The Times today has been scathing about the regulatory/legislative response to the financial crisis. And he is pretty scathing on the reason.

“I suspect that even Republicans, in their hearts, understand the need for real reform. But their strategy of opposing anything the Obama administration proposes, coupled with the lure of financial-industry dollars — back in December top Republican leaders huddled with bank lobbyists to coordinate their campaigns against reform — has trumped all other considerations.”

Are we really getting the governments we deserve?

Madoff Hero -- SEC Still Bound to Fail

Harry Markopolos, who tried for years to get the SEC to investigate Madoff, told the NY Times in a magazine interview that the agency doesn’t look likely to do any better in the future.

One big problem—it hired lawyers rather than finance specialists who understand markets, and math.

“The five commissioners of the S.E.C. are securities lawyers. Securities lawyers never understand finance. They don’t have the math background. If you can’t do math and if you can’t take apart the investment products of the 21st century backward and forward and put them together in your sleep, you’ll never find the frauds on Wall Street.”

Doesn’t sound as if investors should rely on the SEC in the years ahead.

Thursday, February 25, 2010

Getting to Know Paul Krugman -- Economist, Columnist and only Recently, Political

What good had Wall Street ever done for America, asks Larissa MacFarquhar’s profile of Paul Krugman in The New Yorker.

Krugman is skeptical about the financial services industry.

“That’s everybody’s challenge: come up with a clearly beneficial example of financial innovation without mention A.T.M.s, and no one can do it. If there are arbitrage opportunities and you’re able to spot them a few seconds before anybody else, you can make a lot of money, but there’s no actual social gain from doing that.”

Good profile, and amazing to see how late he was to become interested in politics – he was mostly interested in problem-solving in economics and worked in Reagan’s Council of Economic
Advisers. He is pretty critical of some people in politics. Don Regan, Reagan’s Secretary of Treasury “was not that bright.” And he can’t stand Robert Reich or Lester Thurow (known among economists as Less than Thorough) for glib assertions and inadequate thought.

The profile shows the distance between economics and finance, and corporate governance, for that matter and he was critical of Obama, his last choice among the Democratic candidates, for all his sentimental feel-good stuff.

And he is a science fiction fan.

“If you read other genres of fiction you can learn about the way people are and the way society is, but you don’t get very much thinking about why things are the way they are, or what might make them different. What would happen if.”

Economics, he learned at Yale, was a way of making sense of the world.

If you read Krugman, whether you love him or hate him, you should find this interesting.

Also see the transcript of the author’s live chat with Krugman.

From the interview

“Government isn’t nearly as bad—or the private sector nearly as good—as it’s often portrayed. I know I lot of very good, very hard-working government employees; and while I don’t work for a large corporation, I do read Dilbert.”

Read more:

Tuesday, February 23, 2010

InfoWeek Has Some Surprises in Top Ten Strategic IT Vendor List

From Bob Preston at InformationWeek comes this intriguing list of the top ten strategic vendors.

1. IBM —kind of a no brainer

2. SAP since customers run their business on it, although InformationWeek has warned SAP the game is theirs to lose.

3 Microsoft
Evans: Some will say this No. 3 ranking is too low; others, too high. But for all the talk about alternatives to Windows and Office and Exchange and Internet Explorer, it’s mostly just talk. And as my colleague Art Wittmann says, when Microsoft gets something right, “it really revolutionizes business.” Think SharePoint, at the heart of many companies’ efforts to spark Facebook-like collaborative energy inside their walls, or how fast Microsoft has executed on its “software plus services” strategy. What makes Microsoft highly strategic, “if not always all that innovative,” Art says, is the answer to this question: What if there was no Microsoft? “The landscape of IT would change enormously.” Good point.

4. Oracle

5. Cisco – this is interesting, ranking above HP. And HP has recently announced it will stop reselling Cisco routers, even though that’s a billion dollar business for HP. Cisco’s integration of servers and networks appears to be coming on strong, although John Chambers certainly faced plenty of skeptics when he took the company in that direction.

6. HP

7. Teradata—the smallest vendor to make the list. “This former NCR unit is nonetheless among the most strategic. Marquee customers like Wal-Mart, Coca-Cola Enterprises, eBay, and Overstock.com attribute much of their success to the competitive intelligence they mine through their “partnership” (and that’s the word they use most often) with this leading data warehouse and analytics software vendor. Overstock CEO Patrick Byrne, for one, says Teradata ‘is unbelievably good and has been a big help to us.’ “

8. VMWare—Since EMC lists it separately, InfoWeek does too, although that gives the storage giant two spots in the top ten.

9. EMC

10. Outsourcers—Accenture to Wipro. They can be strategic partners, but only if the CIO makes that relationship.
Didn’t make the cut – Dell – too much a commodity hardware provider

IBM Is Back on Top in Tech for Financial Services

I’ve been steadily impressed with what IBM is doing in financial services. Everyone talks solutions, and has done for years, but IBM seems to offer the combination of hardware, software and services to make it actually happen.

Plus the company has some pretty good advertising, especially when you compare it to Microsoft – has anyone NOT seen the Windows 7 Launch Party commercial?

Now compare it to IBM’s snarky response to Larry Ellison’s claims that Oracle with Sun is ready to mop the floor with IBM. Big Blue hit hack with an electoral campaign-style spoof you can find on YouTube.

IBM hits back with YouTube electoral campaign-style spoof, Servers for Truth.

As Forbes’ Andy Greenberg put it

Oracle and IBM’s knife-fight over high-end enterprise hardware is about to begin--and IBM intends to bring a cannon.
Bob Evans, writing for InformationWeek’s Global CIO, looks at what IBM has done and how it has tuned systems for high performance in risk management and insurance.

--IBM has begun compiling lists and qualifications of its “workload-optimized systems” and offered some insights into its optimized-systems strategy from VP of next Generation Computing Systems Bijan Davari.

“We’re the only company in the world that designs the chips, fabs the chips, installs them in the systems, writes the hypervisor, writes the database, etc., etc., so that we, quite literally, have many tens of thousands of people focused on actually doing this.”

As an example, Davari talked about the risk-management side of the financial-services industry where “shaving off a few milliseconds can mean billions of dollars.” Achieving that type of breakthrough, he said, “requires optimization at every single point, in every single piece of the system, with every component, and every interaction.”

And while not talking about billions of dollars, IBM customer Insurance.com said IBM’s optimized CognosNow operational-performance system “has shown us that IBM has really differentiated themselves from anyone else in the market,” said director of IT services Scott Noerr. “We looked at a lot of alternatives before we went with CognosNow, and we didn’t see anything else in the market that can do what it can.”

The IBM product—one of about a dozen workload-optimized systems that IBM offers—was originally used to help Insurance.com optimize the performance of its call-center agents, who take calls and sell policies from several hundred different providers. The system helped Insurance.com identify the optimal pacing of calls per employee by pairing efficiencies with top closing rates, Noerr said.

As a result, Noerr plans to expand the CognosNow deployment across the company into a handful of other functions, including the rapidly growing paid-search business, the monitoring of Insurance.com’s proprietary quoting solution, evaluating performance of third-party vendors

Pretty impressive and a challenge for Oracle.

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