Startup Iceland

Taleb talks about “Talent on Wall Street”…

I like Rep. Alan Grayson, he is asking the right questions and he grills Mr.Bernanke on loans to foreign central banks…

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Steve Randy Waldman makes a case for eliminating the tax incentive for corporate and individuals to borrow. I think it is a fair argument but I would not eliminate it but reduce it to a point where the marginal cost of bankruptcy is greater than the marginal benefit to borrow. Of course determining the point of inflection is hard as it is difficult to gauge the ability to quantify the above cost-benefit structure by managers of businesses. Here is a excerpt from his post, which I thought outlined the theory of his argument:

According to canonical financial theory a firm’s debt/equity split, or “capital structure“, should have no effect on overall firm value. It’s just different ways of slicing up the same money pie, in a common metaphor. But if you introduce tax deductions for debt payments, the equation changes. Then the theory predicts that a rational firm should load up on debt financing, in order to capture the benefit of the “interest tax shelter“. If bankruptcy were not an issue, rational firms would move to ~100% debt financing in order to extract the largest possible subsidy. With bankruptcy a possibility, a rational firm loads up on debt until the marginal increase in bankruptcy risk outweighs the marginal benefit of the subsidy. But if imperfect managers underestimate bankruptcy risk during periods of stability, they may unwittingly (or purposefully, if there are agency problems) bring firms close to the brink, provoking traumatic failures when the gales of an untamed business cycle blow strong and hard. By covering a large fraction of corporate interest payments, the government effectively subsidizes financial risk-taking that serves no operational purpose but generates real social costs.

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Nicholas Nassim Taleb discussing the Financial Crisis causes and solutions with the US Congress. His advice is quite simple:

1. De-leverage the system
2. Stop transferring debt from private sector to public sector through bailouts
3. Do not do deficit spending i.e. Stop printing money
4. Reduce the size of banks, have many banks and remove the Too Big To Fail syndrome
5. Do not pass laws thinking you understand or stop Risks to the system, because we don’t understand Risk as we live in a Complex world. Putting rules to stop bad behavior in this complex world is naive thinking.

I agree with Mr.Taleb…

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So it is official now! I have been accepted into the PhD program in Economics in University of Iceland. My advisor is Dr.Helgi Tomasson. I need to ask him to update his profile in English. Anyway, we have been working on a paper to analyze the Icelandic Krona. I have written about it in my previous posts. We are simulating a Diffusion Process to model the white noise and map that to the empirical data of the ISK-USD exchange rate. This would be our first stab at this approach… as part of my thesis I will be using more sophisticated methods and generalize the conclusions to influence policy choices in Iceland.

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Ok with that said, yes, mistakes are made by Pharma companies of course it is exasperated because of the sector they are part of. I don’t believe the Government can solve anything, it all comes down to the people. Government should GOVERN, not OWN, MANAGE or CONTROL businesses. I would say set parameters for the Insurance companies and pharmaceutical companies to work under. You don´t have to do that by launching a Governmental Insurance Company! If the issue is Insurance companies need to cover people with pre-existing conditions make that  a law, let the market decide what should be the price for such a service. Artificially subsidizing all the case through a pseudo government insurance plan makes the quality of health care go down.

I want to see the entire plan proposed by the White house because I see a lot of chatter and not much facts. Will post my finding after I read the proposal.