A Miscellany

First, something fun that caught my eye, so typical of Japan. You undoubtedly have heard of their high-speed rail service over there. Sleek, aerodynamic trains rocket down the tracks at upwards of 200 miles per hour. At the tip of each train is a sculpted aerodynamic nose made of thin aluminum plate. The odd thing is that it is literally sculpted. Elderly Japanese craftsmen hand hammer each nose cone individually. A 73-year-old metalworker named Kiyoto Yamashita hammered out the first one as a rush job for the train serving the 1964 Tokyo Olympics. Now his company makes them for all of Japan’s high speed trains. Nobody has come up with a cheaper or better method. As a former professional blacksmith I find it satisfying to know that my craft still surpasses high tech solutions somewhere in the modern world.

Continuing on the old vs. new theme, I’d like to recommend the Park-McCullough House in Bennington, Vermont, as an interesting place to visit. A lawyer and southern Vermont native, Trenor Park, made his fortune as a lawyer and land speculator in California during the gold rush. He returned home a millionaire and in 1865 he built a 42 room summer home in the grand French style. The Parks and McCulloughs lived there for the next 100 years. After the last family resident died it was turned into a museum. Trenor Park was deeply involved in the design, and his daughter renovated it for a presidential visit in 1891. The result is grand, yet human scaled, with rich detailing. Every room has custom carved woodwork and a marble fireplace. Apparently the occupants never threw anything away, because the place is stocked with furniture, paintings, carpets, clothing, and housewares, all beautiful. It’s a time capsule of Gilded Age life in the upper class. It has a carriage house that I’d be happy to live in, pleasant grounds, and even a children’s playhouse that is an exact miniature replica of the main house, complete with cupola and slate mansard roof.

On a more topical note, I have an idea for compensation for the BP/Deepwater Horizon spill. It’s called, “You blow it, we own it.” If an offshore well blows out and spills oil for more than a day, the U.S. government takes possession of the well and contracts its operation to another oil services company. In the case of the Deepwater Horizon we could be looking at a gross of about $500 million a year (at 10,000 barrels a day), with the development costs left on BP’s tab. That would tighten up deep water operations and oil executive sphincters.

There’s a trend on National Public Radio that is annoying me. Part of it is those Story Corps segments where family members interview each other. Part of it is disaster and tragedy coverage where they interview the family member about the victim. They refer to this kind of stuff as “driveway moments.” Supposedly we are listening to these stories on the drive home and, unable to tear ourselves away, we sit in the car listening after we are in our respective driveways. I call it lachrymography, the exploitation of tears.

I have to give them credit for knowing their medium. Radio is intimate. Scott Simon’s soft voice is right there in your ear as he sympathetically probes the wounds of some surviving spouse. I also credit them for being good at it. My breakfast has stuck in my throat more than once as some poor soul has shared a loss with millions of strangers. Afterwards, I feel manipulated. NPR is playing me for my dopamine and my donations. There is some kind of relationship between NPR and its faithful listeners that suspends cynicism, gets far enough into the listener’s ear that these exercises in controlled pathos strike home. I’m not saying that there is some evil genius at NPR headquarters cackling, “That should have them sobbing on their steering wheels!” It is something that has evolved, survived, and become more sophisticated, as editors drift towards stories that contain that donation-laden, quavering voice.

Here’s a note from the flash collapse and rebound of the New York Stock Exchange on May 6. As you may remember, the Dow Jones Average lost and regained a thousand points in the space of an hour and a half. There is an international consulting firm called Accenture that was trading for about $44 a share just before the plunge. It briefly reached a low of 4 cents before rebounding to $41. If someone had been able to jump in at the right moment and buy $5,000 worth of Accenture at the bottom, they would have walked away with $5 million an hour later. Of course, only some major firm with computer programs in place could have pulled off anything like this. These big traders with computerized high speed trading are generally considered the culprits behind the plunge. This thousand to one opportunity is another piece of evidence that the stock market has transformed from a place for investment to the world’s most complex casino.

Some startup drug company is selling for $12 a share. I buy a thousand shares. The next day they announce a successful trial of their new (insert name of common affliction) drug. Their stock jumps to $20. I sell, and pocket $8,000. A week later someone questions their study and the stock drops to $10. The people who bought at $20 grieve. What has been accomplished here? What net social benefit has come out of these transactions? I’m trying to see a substantive difference between this and pari-mutuel gambling on horse races. Yes, the drug company needs investors, but what benefit is there from this volatility?

I’m in favor of what is sometimes called a Tobin tax. It is a tenth of one percent levy on all stock exchange transactions. The NYSE, AMEX, and NASDAQ together are churning about $90 billion a day. A 0.1% Tobin tax would put $90 million per trading day into our coffers, or roughly $22 billion a year. It would also discourage high speed trading, reducing market volatility. There would be howls of outrage on Wall Street, but that is soft and gentle music to my ears.



Comments

[robby]

Your drug company stock speculation example is hardly the problem. Really it is just a market at work, albeit in a short term kind of way. Imagine instead Government Sachs trading millions of shares a day at a fraction of a cent difference in price and doing this trading based on proprietary computer programs that can accurately guess other traders moves. And its all completely legal.

In your example someone believes that they are allocating their capital to a useful company and then the information about the usefulness changes and with it the share price. Efficient allocation of capital is the purpose of the capital markets. People will inevitably make bad and hasty choices because people are people and ,information is imperfect but at least in your drug example those choices were based on the belief that the drug company would produce something of some value.

[Minor Heretic]

Point taken on the drug company example, but then again, in my parable I am not so much investing in the future of a company as churning my money from day to day in pursuit of speedy gain. Perhaps a better example would be if I had read the news of the trial and jumped in on the way up, then dumped on the way down. Perfectly legal and not unethical, but do we want to encourage the allocation of capital according to the daily news/disinformation? Governments make the rules that make up markets, and it is our right and our responsibility to make judgments about the desired outcomes.

The Tobin tax would take care of the high speed trading instantly. The bigger the fraction of a percent, the slower the trading.