Friday, December 5, 2008

Wal-Mart vs. FEMA

I read this not-very-interesting research paper today that compared Wal-Mart's response and FEMA's response to Hurricane Katrina.  The reason why this paper isn't particularly interesting is because, as we all know by now, FEMA's response was just awful.  In fact awful is probably an understatement.  It might even a little generous.  Actually, if all Wal-Mart did was ship half a carton of Ramen noodles to New Orleans, they would still have beaten FEMA's response by a mile (FEMA's head, Michael Brown, apparently didn't realize that many of us would consider waterboarding of displaced 9th Ward residents an "ineffective response").
All kidding aside, you can read the report if you want but I'm sure you won't find it enlightening. What you may find dis-enlightening, however, is the report's conclusion... that the government is incapable of responding to disasters and therefore FEMA should be replaced by Wal-Mart. Ummm... what?  
I've written about this type of cynical assumption before - that conservatives in power purposefully wreck the government then turn around and point at the wreckage as proof the government doesn't work. Horwitz's paper does exactly that.  It celebrates the Wal-Mart response as proof the private sector should be allowed to run everything and that the government should step aside.  
It's typical that Dr. Horwitz, a conservative professor who has previously blamed the entire financial crisis on Fannie/Freddie and the Community Reinvestment Act (both of which are debunked Republican talking points), would leave no room in his conclusion for managing FEMA properly. He doesn't care that governments in other countries work just fine or that the government's response to 9/11 worked well. As a free market champion Dr. Horwitz's response to any governmental failure is proof the government doesn't work rather than proof this government doesn't work.  So his concluding proposal is for future administrations to seriously consider more outsourcing to private companies rather than for future administrations to fix the wreckage Bush created.  
Strangely, what's missing from Horwitz's report is the examination of the millions the Bush administration doled out to private companies like Bechtel, Halliburton and Gulf Stream Coach, all tasked with rebuilding New Orleans. Where, I wonder, is the report on the private sector's efficiency regarding the rebuilding effort?  Well, perhaps Horwitz is happy to see free market efficiency at it's finest -- after all, what's more profitable or efficient than for Bechtel to take piles of money without actually y'know doing anything with it? That's the absolute pinnacle of profitability. That's a free lunch. Money for nothing. Arbitrage. All hail the efficiency of the private sector... the meantime, please just look the other way on accountability, since none of these private companies will be held accountable for not actually doing anything with taxpayer money. 

Thursday, December 4, 2008

Truly Useless Information

Free Exchange has an interesting post today about Insidious MBAs.  It adds to the general sentiment in the comments from my last post on the subject -- namely that MBA students arrive at B-School with no morals (or an amoral world view). 
Shortly after the Enron debacle [my professor] asked me how business schools could better teach ethics to help reduce such behaviour in the future. I told him you cannot teach ethics to MBAs. By the time you're an MBA student (typically mid to late 20s) you're either an ethical person or you're not. No business school class can make you realise embezzling money is wrong if that's your inclination.
I agree with that sentiment but will add that MBA professors are definitely trying their hardest to turn out highly moral individuals. Nearly all our professors dispense lessons and teach with an almost heavy-handed approach to morals.  The types of books we're given to read (especially in the more qualitative classes like HR, Management, Leadership) when not conveying direct strategic lessons often extol the benefits of highly virtuous management.  Gentle, magnimous management styles are encouraged and case studies back up the benefits of leading in such a way.  The benefits of corporate social responsibility and the stupidity of trying to defraud customers or shareholders is a constant, constant, constant drumbeat. 
Professors should be applauded for their work in this regard, but what if examining bad moral decisions isn't enough? Mark Thoma points to the problems with financial engineering and says MBAs and Financial Engineers may not be learning enough (or enough of the right stuff) as it is. As his post notes, and as Nassim Taleb has famously decried in his book The Black Swan, our Financial Engineering program teaches Black-Scholes up the yin-yang but little else, but Black-Scholes is a formula that doesn't translate beyond academic mathematics -- it simply doesn't work in the real world.
So the FE students and the brave few MBAs who took this class have spent four months studying their brains out for nothing. This, despite the fact that our derivatives professor admitted to the class yesterday that, as a former engineer, he's quite familiar with Nyquist Sampling, Brownian Motion and Mandelbrot's fractals and could probably teach them. 
Why he hasn't adjusted the program until now is probably because there has been no demand on Wall Street for quants with knowledge of these theorems. I recall an old Jack Welch speech from a few years ago to a bunch of students about how the market shapes what kind of MBA students the b-schools churn out.  If the market wants quants who only know Black-Scholes, then that's what the b-schools will deliver. Why would academia bother to teach them something different when Wall Street only wants Black-Scholes disciples?  Students won't get hired, paid a ridiculous salary and be able to give a portion of their piles of money back to the school if their skill sets don't match what Wall Street wants.
I suppose I might be one of the last MBA students to learn Black-Scholes. It would seem the financial world is changing and with it, B-School curriculums will change as well.  This is obviously disheartening to me for more than a few reasons, but it's mostly frustrating because I could have completely skipped derivatives (which has, by far, been the most difficult and challenging class I've had) and still earned an MBA in Finance. Derivatives is an elective course for us MBAs, and only a required course for the FE students.
So I could have easily graduated without putting myself through learning a difficult skill set I'm never going to use not just because it's out-of-vogue but because it's also completely useless.
Awesome.  None of this is helping me study for the derivatives final I have in two weeks.  

Tuesday, December 2, 2008

Highbrow Blogging

So I saw this blog readability site the other day (hat tip: JES) and at first I was happy about the props it was giving my writing skillz, but then I became concerned. I started wondering what kind of rating system it's using and what my rating should mean to me. 
JES and others haven't been happy with their ratings and, to be honest, at first I was hoping for a Double Doctoral Degree Rocket Scientist rating. So I conducted thorough analysis of the software (and by 'thorough analysis' I mean 'drank beers while watching tv') and concluded that the readability test works perfectly well. The system rates blogs based purely on readability and doesn't rate content at all (which should have been obvious to me since it's called a blog readability test).
Anyway, after realizing this, my rating concerned me because it could be a sign that my posts are not as clear and concise as they should be. To test my hypothesis I ran the blogs of Brad Setser and Felix Salmon (smarty pants, finance bloggers I follow) through the rating system to find out whether or not I was right. 
Nearly all of Setser's post require a Master's in finance or economics to properly comprehend, and a healthy portion of Salmon's require the same. But their blogs were rated as High School and Junior High respectively. To me, these ratings undoubtedly proved the system was rating writing style and not blog content.  
What does this mean for me?  Well, Setser and Salmon boil down exceedingly complex financial arcana into readable articles that high schoolers can understand. I turn fart jokes into scholarly dissertations. Setser and Salmon write about derivatives, leveraged financial intermediaries, fixed income arbitrage and illiquid securities while, most of the time, I'm just trying to find excuses to write the name Dick Butkus. 
I suppose I could find my blog's rating flattering. On one hand, it shows I'm in rarified Joycean air -- Finnegans Wake, after all, was nothing more than a 650-page fart joke gone horribly wrong.  But on the other hand, how many freakin' people have actually ever read Joyce? Sure we all like to lie and say we have, but we haven't. Nobody has. And the few who have are usually insufferable. Anyone who's read Finnegans Wake cover-to-cover is so bitter at having lost numberless hours to reading and trying to decipher Joyce's fart-joke prank that they have to act like it's scripture afterwards to save themselves from psychosis.  
Is this the future of my blog? Are these the type of readers I have? Am I reading way too much into this readability test?  Who knows... but on a more serious note, what do you think Dick Butkus's blog looks like?