Commensuration, the making comparable of qualitative differences via a common third metric, is valuable for its theoretical contributions to cultural economic sociology. It is a process that makes some things visible and hides others, resulting in an extremely impressive if underrated shaping of the social world. Qualitative distinctions across individual student applicants to college, for instance, are wiped out, replaced by test scores, GPA’s, and comparable lists of extracurricular activities. These social realities can be re-made visible (ie a system whereby individuals are judged as individuals with a whole portfolio), but then easy comparisons are made more difficult.

It is also central to the making of commodities, as I’ve argued before. But if you are deciding how to make real-world investments, it is worth understanding the criteria by which the commodities you are interested in are judged. This is not a direct ‘buy company x’, ’sell company y’ kind of argument, just a way to help understand where experts are coming from. It is also where experts are most likely to be wrong in their misapplication of measures to the values they are measuring. That’s the Moneyball argument, that the ways that players were being commensurated were at best inaccurate.

In any case, I thought I’d post a table of what I have in mind, and see if it leads anyplace interesting. This is what blogs are for, right?

In these cases, the idea is that a simple quantified measure is not sufficient; you need to know enough content to understand the criteria used to make the transformative assessments of qualities through quantities. And though VaR has beautiful problems, it is in fact the ways that assessments across different kinds of financial instruments are made; likewise centrality, price per square foot, etc.

Incidentally, this conception I think bridges some of the more highfalutin discussions of performativity and social studies of finance to the more mundane world of organizations and work. But that’s not my point right here and now.

There’s been some more discussion around giving a good presentation. I find myself disagree with some points. First, of course, there are a series of guidelines that make presentations better: more practice, more confidence, attentiveness to one’s audience, etc. But second, individual mileage will vary considerably. For some people, 5-7 words per slide works great. For others, disaster. Likewise having fun, being ‘into’ your presentation, and things like that. I think some folks have been hooked by Tufte’s elegance, Atkinson’s storyboarding, and Hans Rosling’s enthusiasm. It’s the 2.0 aesthetic, to be sure.

But I kind of like literature reviews. Not in the sense that I like a litany of work that’s gone before. But to situate what you are going to talk about. For example, in a recent talk, I used the following slide:

This slide is meant to capture two different approaches in economic sociology. I can talk about this slide for 20 minutes, or for 5, giving specific examples and research to add meat if I have the time or at least flavor if not. But there are more than 6 words, and I still find it useful. Especially when followed by a slide that uses the same form, but adds substance from the current talk:

So now, you have the same slide, but progressively (there were interim discussion and slides) more content built onto the generic form. I guess I don’t see what the problem is here, or why I need to dumb down my slides to make my work more bite-sized. The audience was cultural sociologists, not economic sociologists, so it’s not as if this was a crowd who benefited greatly from shorthand. And yet.

For my talk at the UCSD Culture conference, I spoke about market crises, commensuration, and market linkages. The slides are a .pdf of my keynote presentation, available here (the keynote presentation for those who can manage it, is a zip file available here). And this post goes along generally though not perfectly with the slides: (more…)

Back from a lovely weekend in San Diego, where I was a participant in their 4th annual Culture Conference: Crisis, Emergency, Global Processes. Aside from being a sort of former Northwestern love-fest (Amy Binder and David Pellow are from there, Ann was visiting there when I met her), it was a good mix of synthetic thinking about emergency and humanitarianism (Calhoun), genocide and institutional processes (Hironaka), market crisis (me), social movements and environmental justice responses (Pellow), and a kicker about how some solutions become viable while others fall off the table (Swidler).

The department itself, and its environs, I would highly recommend. The department hits kind of the sweet spot of being central/high-productivity enough that people are within the main circles of sociology without being too caught up in the ‘never-ending quest for becoming elite’ as to sacrifice comity for status. Being dependent on the state of California kind of stinks, per budgets and other craziness; but I think people underestimate how frickin’ wonderful that SD weather is.

I plan to post some thoughts on my own presentation, with maybe some slides, soon. In the meantime, Ann Swidler and her colleagues make a lot of sense.

Reading Maureen Dowd’s column today, which I do sometimes but not terribly frequently nowadays (NYT opinion page = yawn), I don’t even get it. There are so many mixed metaphors - Blanche DuBois, Tara, hippies, matter/anti-matter, butterflies, scorpions, prom queen. It’s like she’s somehow channeling the aliens from Mars Attacks!: ack! ack ack! ack! Nonsensical rambling, I would be embarrassed if I wrote that way - leaving aside the point of the column even.

Wow.

Two cases, separated by 150 years, about technology, missionaries, and institutional change:

The first:

In 1818 the directors of the London Missionary Society sent a mechanical clock to grace the church at its first station among the Tswana in South Africa. No ordinary clock - its hours were struck by strutting British soldiers carved of wood - it became the measure of a historical process in the making. Clearly meant to proclaim the value of time in Christian, civilized communities, the contraption had an altogether unexpected impact. For the Africans insisted that the “carved ones” were emissaries of a distant king who, with missionary connivance, would place them in a “house of bondage.” A disconsolate evangelist had eventually to “take down the fairy-looking strangers, and cut a piece off their painted bodies, to convince the affrighted natives that the objects of their alarm were only bits of coloured wood” (Moffat 1842: 339). The churchman knew, however, that the timepiece had made visible a fundamental truth. The Tswana had not been reassured by his gesture; indeed, they seem to have concluded that “the motives of the missionary were anything but disinterested.” And they were correct, of course. In the face of the clock they had caught their first glimpse of a future time, a time when their colonized world would march to quite different rhythms.

- Jean and John Comaroff, Of Revelation and Revolution, Volume 1, p. xi

And the second:

The first step toward implementing the system was a pilot study, involving one specialist and two or three stocks, to determine whether a specialist could physically monitor an automatically executing trading system while simultaneously performing other activities. Because of the narrow physical dimensions of specialists’ posts, Loss enlisted the Exchange’s carpenters to mount a wooden platform on a pedestal-pipe two feet above the pilot specialist’s post, where the ATS computer screen would stand and display its prices for all to see. A brochure explaining the new system was distributed to member brokers. The Friday before the pilot study was to begin, Loss left his office for what he described as his first relaxing weekend in months. The following Monday morning, all was in readiness for the start of the pilot program. Except…

As soon as Loss walked into his twenty-third-floor office he received a phone call from the Exchange’s floor manager. “You’ve gotta come down and see this,” said the manager.

“What am I going to see?” Loss remembers asking.

“Just come down.”

Minutes later, Loss saw for himself: In a pile of sawdust on the floor near the designated specialist’s post lay his Automated Trading System equipment. Someone had used an ax or a saw to cut a semicircle through the wooden platform and disconnect it from the post.

The jagged teeth marks on the wood, Loss recalled years later, “Looked like Jaws had just been through.”

- Marshall Blume, Jeremy Siegel and Dan Rottenberg, Revolution on Wall Street, pp. 195-196

A blurb-y article from Thompson Financial (in Forbes online) cites a common feeling among the financial movers and shakers about the current and most recent credit crunch:

The international financial system was close to the brink in March when joint action by the U.S. Federal Reserve and JP Morgan Chase & Co. avoided the collapse of investment bank Bear Stearns, Credit Suisse Group’s ex-CEO Oswald Gruebel said.

The breakdown of the comparatively small investment bank would have triggered a global run on other financial institutions around the world and the situation would have spiraled out of control, he said in an interview with Swiss Sunday newspaper SonntagsBlick.

Gruebel, chief executive of Switzerland’s second largest bank from 2004 to 2007, said that central banks fortunately realized that they had to de facto take over the interbanking market.

‘We’ve narrowly escaped a system collapse. This has never happened before,’ Gruebel said.

I wonder about this last bit, and what a ’system collapse’ means in the current financial system vernacular. Craig Calhoun has been writing about ‘emergency’ and the ways that emergency has taken a rarified place in international relations, providing a moral justification for action that cuts across traditional notions of nation-state and interests, while also solidifying those very categories. Emergency implies anomaly, and particularly for things like humanitarian emergencies it provides a counterpoint to something like, say, ‘national interest’ as a way to mobilize international resources and attention.

I don’t want to push his point too much. But I think there is something similar going on in financial markets. Here we should substitute ‘crisis’ for ‘emergency’. But there are strikingly similar elements: a market crisis implies an anomaly in an otherwise working institution. That is, a market crisis suggests a global system of allocating risk and resources that works with glitches. An alternative would be a permanently failing system, one where market crises are the rule rather than the exception, and where the fixes to the system - governmental interventions on behalf of a small group of investors, while purporting to be acting in the best interests of the rest of us - don’t actually fix anything.

So let me sketch this out. A system collapse would mean the failure of trillions of dollars worth of notional value. This is not the same thing as saying the loss of trillions of dollars worth of wheat or US dollars or houses, but rather the value of the contractual obligations on which derivatives are built. If the wheat futures markets closed tomorrow, there would still be farmers growing wheat, selling it on the spot market to wholesalers, who would still make it into tasty Hostess Cupcakes. The futures markets for a number of hard commodities disappeared during WWII, replaced by price controls in the spot market, and well, people still ate.

In the currency markets, we would still have trade. In fixed income, banks would still issue loans, the US government would still auction treasury bills. You would still be able to buy AT&T stock.

What would disappear is two things: 1) an absolutely enormous amount of value for a small number of investment banks and related institutions - on the order of hundreds of billions if not trillions of dollars; and 2) a system for distributing risk, and its attendant costs/benefits.

For the former, that would indeed be a crisis. Well, for some people. It would have real effects, and dramatic ones for places like NYC which is built not just on the finance industry but on all the consumption patterns of high-income people.

For the latter, it would mean that risk would be managed more locally, and probably much, much, much, much, much, much more conservatively than it is now. It would be reasonable for a bank to give out a loan, but without the ability to lay off their risks in a global market they would do more due diligence. Ditto housing lenders, grain wholesalers, etc. The effect would be a massive tightening of credit and much more volatile prices for commodities (both physical and financial).

And that’s it. The argument that we need global finance is simply a status quo argument, not necessarily a substantive one. And while there was (and is) economic justification for the global structures of financial markets - making the distribution of resources more efficient - these justifications have not always held sway, even in finance. Their seeming solidity is a mid-20th century invention at best. A collapse would be a massive change. But it would not be Armageddon.

there’s going to be some ugliness as I work out the kinks in this new template of mine, but it’s pretty much designed as a combination of existing pastiche and original sentiment, so be nice.

Workin on some sociological goodness and a site redesign. In the meantime, I give you the always wonderful xkcd:

…and if you think kids are still dancing line dances to Electric Slide, Celebration, or even the Cha Cha Slide, you’d be wrong wrong wrong.

It’s all about Soulja Boy.

Luckily, 13-year-old girls still look a lot like 13-year-old girls. And 13-year-old boys? Jeez, don’t really know even what to say.

Josh Guetzkow, who has outed himself as that person who is reading my blog, is a professor at Arizona and works on income inequality and mass imprisonment (though he masquerades as a sociologist of sociology). He passes along an interesting article on bubbles and the new new real estate downturn. This is appreciated, and I think it’s his trying to make sense of his own decision to buy property at the top of the market my earlier half-assed attempt to explain housing CMOs.

As for the article, I have a sneaky suspicion that the author is full of it. His contention is that bubbles are preceded by legislation (this is similar to Neil Fligstein’s contention that legislative activity precedes merger waves), and:

That the Internet and housing hyperinflations transpired within a period of ten years, each creating trillions of dollars in fake wealth, is, I believe, only the beginning. There will and must be many more such booms, for without them the economy of the United States can no longer function. The bubble cycle has replaced the business cycle.

The rest is an analysis of the dot-bomb and the new housing troubles.

I think it’s worth disentangling the housing bubble, which may well be what we are facing here, and the new global financialization, which is less well-understood. Greta Kripner is doing some work on this, with an emphasis on the US economy. For those ambitious graduate students out there, I would say that global financialization may be one of the most important master-narratives since modernity and the industrial revolution at the end of the 19th century (I’ve had this conversation with Ryon Lancaster as well, we may well be on the same page I think). And there were, you know, a couple of good books written about that earlier transformation.

Lisa DePaulo, writing in the GQ blog (ht political wire) demonstrates how to do bad work. I realize this is not the NYT, but I don’t care. You interview politicians, you are doing politics. From an interview with Karl Rove:

I get the sense you respect Hillary more than you respect Obama.
Off the record?

Please don’t go off the record.
Off the record… [Yeah, it's good. Sorry.]

Damn! Now say that on the record.
No. Nope. Nope. Nope.

Let’s try again, then: on the record. I get the sense you respect her more than him.
Uh, I know her better than I know him. And I just, uh—she has been around public life a lot longer and has demonstrated, you know, more involvement than he has.

This is different from confidentiality in social sciences, which affords us no protections under the law and is not, you know, an important institution of a free society. What a good, non-hack journalist would say is, if you can’t tell me on the record, don’t tell me. Otherwise, stick it back in your pocket. Again, I don’t care if it’s a style magazine, in some ways it is even worse since it has the style of journalism without any of the standards.

More generally, and this is not limited to DePaula, is the insider nature of the press compared with the outsiders they consider their readers - i.e., us. What makes these kinds of things so galling is that people in the press either fail to see how they are being used (which makes them idiots), or else know they are being used and use that to advance their careers without actually doing their jobs (which makes them craven - lacking even the rudiments of courage).

An article by Richard Florida notes large disparities between the numbers of single men and single women in urban locations across the US. Let the conforming to already-existing gendered assumptions begin!

As you can see, if you are looking for a single man, he’s on the West Coast - if you are looking for single women, they’re on the East Coast. Of course, this says nothing about who they are, sexual orientation, and the like. Now, sure, I can go into the sociological implications of life course decision-making, job opportunities, gender differences and similarities. But really, I just want to say that if you are a straight woman in New York looking for a straight man, you’re kind of S.O.L. If you’re that same woman looking for a straight man in LA (though many more men in LA are gay than comparables elsewhere) or Dallas or Denver or Seattle, it must be you. If you are a straight man looking for a straight woman in NYC and not succeeding, you aren’t working hard enough.

I’ve kind of been in a funk about posting, though the shennanegins of investment banks are interesting. But the massive multi-billion dollar write-downs is depressing me, and I just don’t know what to say about them. Plus, I’ve been and will be out of town for weddings and other family stuff. Will return with verve soon.

There are really good sociological analyses of luxury around, including my current favorite, Rachel Sherman’s Class Acts. One of the more interesting things to think about is how luxury becomes singular in a sea of reproducibility. Kevin Kelly’s post Better than Free catches this trend well, and I’m sure everyone will talk-about-without-reading-in-a-Malcolm-Gladwell-way Chris Anderson’s next book, “Free“.

The flip side is the irreproducible, and here I like the example noted in the NYT today, about Tomas Maier:

…the muted logo-free look that is the brand’s signature is widely regarded as the standard-bearer for a new kind of luxury: subtle, long-lasting and recession-proof. In such a climate, Mr. Maier himself has emerged as a hero, albeit a reluctant one — and, to his admirers, even something of a prophet…

…While competitors were churning out look-alike handbags made of coated canvas, bearing hefty hardware and equally hefty price tags, Mr. Maier perfected his specialty: the Intrecciato series of hand-woven bags, some that take two days of labor to make (compared with about 80 minutes for a standard-issue designer bag). Signature products, devoid of initials, they typically sell for $1,200 to as much as $4,500.

While other designers were producing dart-free baby-doll dresses as if they were so many Fords, he concentrated on deceptively simple, painstakingly constructed styles priced from about $1,200 to $6,000 for an evening dress. The dressmaker touches — ruching, serpentine seaming, hand-beading and elaborate pleats — are recognizable to a small but informed clientele.

It’s cat and girl all over again, that elite means not just displaying wealth for everyone to see, but displaying wealth in such a way that it appears to most people that you are not displaying wealth, but it appears to the right people that you are displaying wealth and taste. The mint on the pillow and the carefully folded toilet paper roll, unobtrusively placed with no presence of an actual serving staff (per Sherman). Thomas Keller rolls this out at the French Laundry, according to Anthony Bourdain’s Cook’s Tour: “More often than not, he’s taking something refined and giving an ordinary - even cliched - name (the best examples being his famous ‘coffee and doughnuts’ dessert, the ‘Caesar salad,’)…” The former being cinnamon-sugared doughnuts with a cappuccino semi-freddo, the latter being Parmigiano-Reggiano custards with Romaine lettuce, anchovy dressing, and parmesan crisps. Huge labor, small sign - if you need to ask, you can’t afford. But better if you don’t even know it’s there.

It’s time to revisit conspicuous consumption and class.

I want to re-tell a story from Frank Partnoy’s F.I.A.S.C.O., but a bit of background on Collatoralized Mortgage Obligations is first in order. CMOs, and their generalized cousin Collatoralized Debt Obligations (CDOs) are the current culprits in the sub-prime meltdown, so this is probably useful to know practically as it is to know theoretically. Also, I’m participating in a conference on Crisis, Emergency, and Global Processes, and I’m thinking about incorporating some of this thinking into that. This is a long post, and kind of technical, but probably not too much. There is a nice visual at Portfolio Magazine, so if this whole primer doesn’t help, perhaps that will. (more…)

In Central Park, not far from where I live, I shot this photo - if it looks familiar, it’s because it’s been shot about a gazillion times by people looking over the West Side from the West 70s:

I ran across a lovely tutorial, which allowed me to transform that photo into this:

I’m proud of it, it’s possibly the coolest photo I’ve taken myself. That’s right - sociological, socially awkward, and on the rarest of occasions, artistic (but no whimpster, thank you very much).

Photo credits? Me. Me. Me.

Funny story: about a two and half years back, my mother-in-law’s financial advisor suggested to her that she could edge up a point or two of interest income by investing some of her money in Puerto Rican municipal bonds. This was the late spring of 2006. In May of 2006, Puerto Rico went bankrupt, and its bonds were downgraded to Baa3 - effectively, one step above junk bonds. Interestingly, a look at Moody’s ratings suggests that PR bonds had been consistently downgraded in spring 2006. So it was not a shock that the slightly higher premium paid to PR bonds were due to risk of default. He just didn’t disclose that to my mother-in-law. She took a pass on the opportunity, by the way.

I didn’t say anything at the time, and I still don’t make a big deal out of it, because to do so would throw into question whether my mother-in-law can trust her financial advisor. But this person - who, incidentally, wins prizes for being one of the best financial advisors in the state of Hawaii - is a bad man. And his advice was, and is, morally reprehensible. Or rather, it’s not the man, it’s the structural position of being a financial advisor for a large financial services firm. Because I can guess what really happened back in 2006. His firm - Merril Lynch - owned a bunch of Puerto Rican municipal bonds, and a call went out to salespeople to offload these losers to their customers. PR munis have high tax-exempt status, which gives them a great selling point, especially when you can obfuscate the rest.

Why do I relate this story? Let me be as clear as possible: the interests of Wall Street are not your interests. Let me say it again: the interests of Wall Street are not your interests. The main interest of Wall Street is to use your bank account to enlarge their own. There are, quite simply, no exceptions to this rule, no nice guys who are different and have your interests at heart. Puerto Rican munis. Puerto-Rican-frickin-munis.

So what’s a person to do? Here’s what I think:

1) You can’t beat the market. Theoretical discussions of the Efficient Markets Hypothesis aside, you don’t have the technology, time, and tools to beat the market. Your cognitive biases and lack of experience make you likely to trade too much, to herd, to fail to take gains, and to fail to minimize losses. Believe this in your heart. You can beat the market like you can win at poker. Someone can win at poker, but it ain’t you.

1a) They have access that you don’t. The reason why investment banks and hedge funds can beat the market is less due to their brilliance - though they are sometimes brilliant - and more due to the availability of opportunities they have that you don’t. You’ve heard of private equity. Notice that this is not public equity. Private equity is the purchase, sale, investment in, privately held firms. My brother runs a legal loan sharking business. Investment in his business will yield you 15-20% returns. But you can’t get it. Investment banks have a better shot at getting stuff like this. It’s not the same as saying that they are better stock traders than you are.**

2) Fees kill. Buy a passively managed fund, because active funds = more involvement by a fund manager = more opportunity for you to get hosed by a moron with an MBA (or a PhD!). But even relatively passively managed funds have variation. These are two mutual funds, vanilla investment vehicles, both directed towards mimicking the broadest market:

JP Morgan’s Institutional US Equity Fund (JMUEX) has fees of .64% (1-year expenses of $56.65 on $10,000). And over the course of 10 years, for a minimum of $3M and $225,000 in fees. Their performance over 10 years was 3.42% compared with 3.06% for the S&P as a whole.

The Vanguard Total Stock Index fund (VTSMX) has fees of .19% (1-year expenses of $16.74 on $10,000). Over the course of 10 years, with a $3M investment - though their minimum is $3000 - you pay $70,000 in fees. Their performance over 10 years was 3.92% compared with 3.06% for the S&P as a whole.

And these are both passively managed index funds. A hedge fund can have fees of 2 and 20 - 2% of assets and 20% of gross profits (performance fee). Woot! When someone tells you ‘2 and 20 is standard’, point and laugh at them. Or write them a check. Or better yet, write me a check! When they offer to show you track records, ask that management fees and performance fees be included in a bar graph. Besides, none of their derivatives obligations are on the books, so you likely won’t really know how to interpret their track record anyhow.

2a) Transaction fees are fees. Your financial advisor wants to move money, since they make money when money moves. Repeat this over and over. Your financial advisor is not your friend. S/he is your adversary. S/he wants your money.

3) Stocks, bonds, cash. 40% bonds, 40% total US stock market, 20% international stock market. When stocks go down, bonds go up, and vice versa. By ‘bonds’ I mean ‘total bond market’ or ‘treasuries’ - not crazy-ass multi-tiered mortgage swaps. Think the dollar sucks? Berkshire Hathaway has been betting against the dollar for years, go ahead and buy a share of Class B - it’s like buying a slightly riskier mutual fund with high fees, run by Buffett (though he won’t live forever). Or buy a materials (i.e. gold) fund. Again, higher fees, more volatility. If you are more risk averse, 80% bonds, 15% stock market, 5% international. The point is, invest in lazy funds.

4) Stuff I don’t know but I know. It’s better to forgo 1-2% investment income and reduce spending by 1-2%. Less risky by a lot.

It is often good to own a house - we don’t but we live in NYC. I have no idea if this suggestion holds up under current housing market conditions.

Volatility means that randomness can be ascribed to real market movement, but that movement can also just be randomness. That is, check your portfolio once every month or two or six, not every day. If the volatility is making you crazy, move most of your money to cash or treasury bills. And get some sleep, I hear that it is more important that we think.

5) People versus positions. I know a number of people in financial services, and I’ve studied them as well. Wicked smart, not necessarily nice but certainly not moral reprobates. The problem is, the rules are tilted. It’s not about whether Steve, or Jenny, or Chet is trying to steal from you. But it is a system that benefits you and benefits financial firms more. There was a time in history when I would defend high finance; I might still. But it seems ripe for a New Deal-type re-visioning.

**When my uncle went to college, my grandmother sent him an allowance for food, clothing, books, spending money. She arrived at a figure by asking his roommate’s mother if she sent an allowance, and if so, how much. She matched that figure. Of course, the roommate’s mother sent the allowance, and also paid for food, clothing, books. Even with a job, my uncle went through school relatively poor, and with my grandma’s unshakable belief that since he never had enough cash, he must have been spending it all on drugs. Investment banks are like the roommate - they may look like you, but they have resources behind the scenes that you don’t have.

From Making Light:

Act now! Act without thinking! WORK LIKE YOU WERE LIVING IN THE EARLY DAYS OF A BETTER NATION.

This is good advice.