James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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Grasping Reality with Both Hands The Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, RealityBased, and Even-Handed Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu.
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson They are all good. Selections:: More on the Wealthy Poor and a "Fair" Society James Fallows - National - The Atlantic: The report I'm about to mention has been actively discussed in other parts of the online world, so by my normal triage rules I shouldn't say anything about it. But I hadn't heard about it until yesterday, and on the chance that's true for others, I'll point it out. The context is the previous discussion, here and here, about the capacity for feeling short-changed and illtreated, even among some of the most materially-fortunate people ever to live on Earth. No doubt it's a primal human trait, but for various reasons (as explained here) the ever-polarizing distribution of wealth and income in America has allowed more people to feel bad about their own situation by looking at the handful who are stratospherically better off. To some extent this is an "information" problem: people don't know where they really stand... Mauve Gloves & Madmen, 2010 Version: Self-pity is the great vice. Or entitlement, to give it another name. It's socially un-useful, in making people grasping and uncharitable. And it's personally bad too, in focusing attention on what's not there rather than what is. One of many things I enjoy about modern China is that the
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average self-pity level there is pretty low. The occasion for this homily is a modern counterpart to Mauve Gloves & Madmen. Thirty-plus years after I first read it, I vividly remember that short story of Tom Wolfe's. Its set-up was a stylish and popular and liberal-chic writer going through his checkbook and revealing his life through the deposits and the canceled checks. After the jump, a sample passage. Mauve Gloves was in the tradition of great realist or naturalistic fiction that presents character through material circumstances. And now we have an unintentional modern counterpart, a law professor at the University of Chicago who has (unwisely) taken to the internet to explain why, on a household income that must be substantially above $300,000, he is feeling put-upon and strapped... The Self-Pity of the Harvard 'Poor': Context is the ongoing discussion provoked by 21st Century America's Marie Antoinette, the University of Chicago law professor who worried how his family would survive if taxes on income above $250,000 went up. Original entry here and main update here. A graduate of Harvard College and Harvard Law who has chosen a comfortable-but-non-big-bucks career path writes in to say: "Seems to me that one of the chief reasons that Whiny Law Professor has such a skewed view of his appropriate peer group has to do with a post-Carnegie* meritocratic brand of ethics, with intelligence substituted for business savvy, that is distressingly common. So it was interesting, and consistent, to see that the wealthier groups were OK with more inequality..." Now, More Criticism of the Self-Pitying Wealthy Poor: Yesterday I posted some comments in defense of the "Whiny Law Professor" -- and similar families at the top of the US income distribution who find it hard to make ends meet. Now, for the other side of the story, a few of the (many) dissents. A reader writes: "Why does every defense end up showing how out of touch these people are? The sympathy list they always go through are the costs of private schools, elite private universities, large mortgages, and large loans for graduate schools (I note the lack of large loans for undergraduate). This just isn't even a concern for 97% of Americans. And to say life is difficult if you send your kids to a nice public school in a nice suburb, go to a non-Ivy school, live in 10-20% less of a house or live without a graduate degree, is quite simply crazy and just goes to prove all the stats about how happiness doesn't increase with income..." Self-Pitying Wealthy Poor: The International Perspective!: From another reader: "In the mid-'80s, a couple years out of college, my girlfriend and I spent 7 months in Mexico and Central America (including 3 months in one city, teaching English part-time) and hardly a day goes by when I don't think back to that time. But of course one of the things that struck me was how well off we 'poor' ex-students (no longer in school, but mentally and emotionally students) were relative to 99% of the people we saw. So here's what I would propose: send the whiny rich to a less prosperous country where they can a) feel fabulously wealthy, and/or b) gain a little broader perspective on their own (and their own country's) place in the world. It's a win-win: they get to live like royalty, and we don't have to put up with their incessant whining." I am still struck by--and marvel at--nine things about University of Chicago Law Professor Todd Henderson: 1. Henderson's eagerness to engage in class war against those richer than he is: his anger at the "super rich [who] don’t pay taxes... hide in the Cayman Islands or use fancy investment vehicles to shelter their income..." who include his own more
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senior colleagues at the University of Chicago Law and Business Schools. 2. Henderson's eagerness to engage in culture war against Barack Obama: "I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning.... [L]ike many Americans, we are just getting by despite seeming to be rich. We aren’t.... [T]he president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay..." 3. Henderson's ignorance about American government policy. He talks about "the vast expansion of government [Barack Obama] is planning..." But if you look at the laws that Barack Obama has lobbied for and gotten Congress to pass, in the long run they don't expand but shrink the government relative to what it would otherwise be. Quantitatively, the biggest legislative initiative by Obama so far has been very large long-run cuts in Medicare spending. Henderson is either so ignorant that he does not know this, or so mendacious that he doesn't want his readers to know this. I bet on ignorance. 4. Henderson's lack of standing to complain about the fact that taxes are going up. He was a big supporter of George W. Bush, whose two major initiatives were to expand federal spending via his wars of choice and the unfunded Medicare Part D. As the late Milton Friedman liked to say, to spend is to tax: once you spend you must then tax, and you can tax smart or you can tax stupid, but tax you must. Once again, I don't know whether Henderson knows that to spend is to tax and is simply mendacious in trying to keep his readers from thinking about the consequences of the Bush policies he supported, or whether he is so ignorant that he doesn't know that to spend in the past. Here I bet on mendacity. 5. Henderson as an unreliable narrator. On the one hand, he says that his income exceeds the $250K/year threshold "but not by that much"; on the other hand, he says that his taxes will go up "significantly" and that his current annual tax bill is "nearly $100K". Those are grossly inconsistent. If his household income is near $250K/year, his taxes are not now $100K/year and they will not go up significantly. If his taxes are now $100K a year and will go up significantly if the about-to-expire lower top marginal rate is not reenacted, then his income is way more than $250K/year. 6. Henderson's insistence that the things he spends money on--a 4700 sq ft house in Hyde Park with a lawn big enough to need a gardener, private schools, house cleaners, etc.--aren't things that only rich people buy. 7. Henderson's insistence that he is "just getting by" with a household income that I compute (if his claims about the taxes he pays are accurate) at about nine times American median household income. 8. Henderson's insistence that he "can't afford" to pay higher taxes--even though he has no problem with raising taxes on those richer than him, and had no problem supporting a president (Bush) whose policies created the necessity for general tax increases because, after all, to spend is to tax. 9. I genuinely do not understand why Henderson has his job. Let me explain that last at greater length. J.W. Verret wrote: http://delong.typepad.com/sdj/2010/10/james-fallows-on-the-whinging-ri…exemplified-by-university-of-chicago-law-professor-todd-henderson.html
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Todd Henderson will be missed: I am saddened that our co-blogger Todd Henderson is putting up his blogging hat. He leaves us with an academic reputation that is unsurpassed, unfortunately I can’t say that the reputation of everyone involved has held up very well in light of the very personal nature of attacks.... I do think, however, that this is a good opportunity to focus the world on the wide range of scholarly work from Professor Henderson.... Here are a few papers of his on ssrn worth reading (this certainly won’t be the last time we link to his work at TOTM): In "Insider Trading and CEO Pay," Prof. Henderson examines the effectiveness of insider trading as a compensation device using a study of 10b5-1 trading plans. His findings are in line with Henry Manne’s original thesis from nearly 40 years ago that insider trading didn’t diminish firm market value on net and may serve a useful purpose as an executive compensation device to motivate managers to maximize the value of the firm... To which my first reaction is simply: Huh?! And my second reaction is: No! No! No! Ten-thousand times no! That is simply wrong. Giving firm managers the freedom to use information they privately have as a result of their jobs to decide when to buy and sell shares of stock does not motivate managers to manage the firm in the interest of shareholders. If managers free to engage in insider trading know that the next piece of news to be released will cause the stock price to rise, they will buy. If they know that the next piece of news to be released will cause the stock price to fall, they will sell and then buy back later. They don't care whether the news is good or bad--either way they will profit, and either way they will profit equally. What the ability to engage in insider trading does is that it gives managers an incentive to make the price of the stock vary--they don't care which way. Thus it cannot "serve a useful purpose as an executive compensation device" and cannot "motivate managers to maximize the value of the firm" to shareholders. Insider trading makes executives' portfolios' long not the company but long the volatility of the company. And shareholders don't want executives making decisions that make the value of companies they own more volatile: stock market investments are risky enough as it is without giving executives reasons to boost the volatility pot. This claim that freedom to engage in insider trading aligns executives' interests with those of shareholders is so basically wrong, so obviously erroneous, so simply stupid that--well, words fail me. Brad DeLong on October 01, 2010 at 09:50 AM in Economics, Economics: Inequality, Moral Responsibility, Philosophy: Moral, Political Economy, Utter Stupidity | Permalink Favorite
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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Comments Brian J said... If (1) is a really big issue for Henderson, I'm curious to know exactly what he did when the issue of carried interest elimination came before the congress. I can't think of a defense other than, "They just shouldn't have to pay," that justifies letting high finance types pay less on higher amounts of money than others pay on smaller amounts of money. If he can't get motivated to do something about this, when what's the point of even trying to take his concerns seriously? In a more general sense, I'm curious why making fewer private consumption choices is always regarded as a bad thing. Yes, it's nice to spend your own money, but the government needs revenue to run, and if Henderson thinks those other than him should pay, he's required to say why, especially if those people, whom make up the majority of tax payers, earn significantly less than he does. Reply October 01, 2010 at 10:14 AM the idler said... Empathy, my friends, for a brother down on his luck. Professor Henderson, you can save a few centimes by baking your own brioche. The internet abounds with recipes. Reply October 01, 2010 at 10:24 AM Rob said... Thing is Henderson himself admitted he's neck deep in tax shelters-mortgage interest, student loan interest, maxing out his 401K. Reply October 01, 2010 at 10:33 AM SD said... #6 - Henderson's insistence that the things he spends money on--a 4700 sq ft house in Hyde Park with a lawn big enough to need a gardener, private schools, house cleaners, etc.--aren't things that only rich people buy. This is worth a comment. (to me rich means in the top 5%, so in my view of course Henderson is rich) But a lot of people have big houses that cost close to $1M. A lot of people have gardeners and house cleaners. A lot of people send their kids to private school. There are too many big houses and servant and private school places for these things to be restricted to the top 1%. Who are these people. If Henderson makes $250K + why isn't he in the club. He rightly thinks "I've won the lottery. My financial situation is what many people dream of. I'm not asking for a Ferrari, I just want a Lexus. I'm not asking for a mansion, I just want a typical house in a very nice neighborhood. So many other people have these things, I cant believe they all make that much more than I do, so why cant I have them too. Reply October 01, 2010 at 10:42 AM Robert Waldmann said... I claim that one can get any result one wants out of a an economic model (in which everyone has rational expectations so outcomes must be Nash equilibria). This is a http://delong.typepad.com/sdj/2010/10/james-fallows-on-the-whinging-ri‌exemplified-by-university-of-chicago-law-professor-todd-henderson.html
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challenge. However, If economic theory tells us nothing (as I assert) it doesn't even tell us that Henderson is wrong. OK here goes. Shareholders shouldn't care about idiosyncratic risk as they can diversify, so in the model they don't. Managers fear being fired, so they fear idiosyncratic risk (actually they especially fear firm specific risk). Therefore compensating them a bit for volatility as well as average returns aligns their incentives with shareholders. So far, this can be achieved with payments convex in returns (say options). But if a CEO is most likely to be fired in response to striking and surprising losses, and if they reduce beta adjusted returns out of fears of such possible losses, then allowing them to trade is just what you want to do. See it's easy. It's usually easy. I have not argued that Henderson should have a job. I am saying he can't be wrong, because the whole effort must lead nowhere. I am arguing that I shouldn't have a job either (at least to the extent that I am a theorist). Reply October 01, 2010 at 11:23 AM Chris Murphy said... I'm suprised at your suprise re Henderson's position on the alignment of executive insider trading and shareholders' interest. Unfortunately this is a relatively common position among corporate law practitioners and even more common among legal academics (the fact that it is more common among academics then practicing lawyers may be instructive). Talk to some of your colleagues at Boalt Hall about this issue and when you see how disconnected from the real world they are on this matter you may come to understand how John Yoo keeps his job. Reply October 01, 2010 at 11:30 AM Russell L. Carter said... Richard Cownie, if you had been paying attention you would have known by now that the poor Professor has managed his money disastrously. In addition, it is absolutely NOT required to take on as much student loan debt. If you want to do it, that's fine. But I think it's stupid, mainly because the ROI is so bad, and if you end up whining about it well that's just swell. Suck it up, buddy, you chose your fate. This idea that taking on mountains of discretionary debt is "exactly what we tell people to do" is at the root of the financial crisis. Oh, should I mention that he's underwater on that enormous, heavily remodeled urban house? Another completely discretionary debt load. Overpaid nonsensical whiners. I really can't stand them. Reply October 01, 2010 at 01:46 PM B said... I thought 'whinge' was a verb that only DFW -- among Americans -- used. Reply October 01, 2010 at 01:50 PM dsquared said... good lord. I've occasionally said in the past that one of the great things about America is that it's a country where a person can make a six figure income while still not understanding the concept of a marginal tax rate. But I really do think that the social function of writing working papers in empirical finance probably ought to be left to those who do. Reply October 01, 2010 at 02:08 PM Gene O'Grady said... My nominee for number 10, which has sort of flown under the radar, would be
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Henderson's insistence that his Ayn Rand oriented charitable contributions are more valuable than the "club charity" of organized religious groups. I'll bet. Reply October 01, 2010 at 02:37 PM RICHARD said in reply to Chris Murphy... You know, I think this is an issue that really should be debated out in the open more: How did all these conservative corporate law profs ever get tenure based on their pathetic understanding of economics despite their worship of The Markets? In economics, your research has to at least fit reality to some extent (a least before tenure; Cochrane's made a fool of himself after tenure by showing his ignorance in areas he doesn't much understand, but at least he's done decent research elsewhere). How screwed up is a system where law profs can get tenure despite their disconnect from reality? Reply October 01, 2010 at 03:44 PM RICHARD said in reply to Robert Waldmann... However, as all executives presumably are rational, all public companies would experience excessive volatility if insider trading was legal, so it wouldn't be idiosyncratic risk any more. Reply October 01, 2010 at 03:46 PM save_the_rustbelt said... Putting my financial planner hat back on and coming out of retirement long enough to write a comment.... It probably would be sensible to pay off or down the student loans before buying the 4700 square foot house. Yes, the Mrs/Dr, with children and a medical practice, should be spared a long commute if possible, but they probably do not need a house the size of a small hotel. Just saying. Hat off now. Reply October 01, 2010 at 04:19 PM save_the_rustbelt said... Flitting around the blogosphere and through the dreary world of legal papers you will find a significant body of work on why insider trading is acceptable, why backdating stock options is acceptable AND beneficial, why shareholders should stop bitching, why board should not be responsible for much of anything and why corporate governance in general should be more slack. In fact, check out the TOTM blog, former blogging home of Prof. Henderson. Some lawyers think Jeff Skilling was a victim of persecution and should be on the streets. Reply October 01, 2010 at 04:24 PM jdm said... Out of curiosity, how do you know that Henderson was a big Bush supporter? Reply October 01, 2010 at 04:29 PM postescript said... It's shameless. It isn't bad enough that many of these managers come from privileged backgrounds, they need to cheat (with insiders - i.e. friends) to boost performance. It reminds me of the final scene in Gladiator. Yeah, it looks fair except one man has been stabbed in the lung and the other is concealing a dagger. Reply October 01, 2010 at 04:37 PM http://delong.typepad.com/sdj/2010/10/james-fallows-on-the-whinging-ri‌exemplified-by-university-of-chicago-law-professor-todd-henderson.html
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William B. jensen said... Two things strike me about Henderson. First, he lives above his means. Quit blaming marginal tax rates for your cash flow problems, assuming you really have them, and take a look at a mirro. Second, I can't help but think his debts and income have been positively impacted by the government that he doesnt' want to pay for. Interest on at least part of his family's $500,000.00 in school loans was subsidized and/or guaranteed by government programs. He's a professor. Who pays the tuition that pays his salary? Admittedly, he works at a private institution, but even then a good portion of the college is funded by federal and state loans and grants. Without the funding his salary would go down. And his wife? She works for a hospital on the southside of Chicago that takes care of chldren. I'm guessing good portion of their income comes from government funded programs. What happens to her income if the government programs just stopped? My guess is her income goes down markedly. Now I don't besmirh this family from making a good buck, good for them, but it seems to me he's whining about a system that has done him well. You'd think the selfish jerk would be happy to pay so others could have the chances he has had. You know, like those of us who have paid to help him get where he is. What a selfish, narrow minded windbag. One would expect better analysis from a lawyer, particularly one from the Univeristy of Chicago...well maybe not. Reply October 01, 2010 at 04:39 PM howard said... richard cownie, i can't speak for others, but the offensive part of the tale here is not that henderson thought that once his household earned a sum in the upper couple percent of household income that they could have it all and is aggrieved that they don't; it isn't whether he has or has not lived above his means (but for the record, i work a busy consulting practice with a home office and have 1 child, and even if i throw in my wife's separate 1200-square-foot art studio, we still only have 3200 square feet, and i doubt sincerely that the second child requires 1500 more); it's his offensive presumption that his taxes will be going up at some point because of barack obama's desire to expand the government and spend his money foolishly. a man who has benefited as much as he has - as others have noted - from government programs should have the simple decency to keep such ayn rand-isms for the privacy of his own home if he isn't smart enough to realize how stupid they are. that's what's unforgivable about this feller. Reply October 01, 2010 at 05:13 PM Min said... "This claim that freedom to engage in insider trading aligns executives' interests with those of shareholders is so basically wrong, so obviously erroneous, so simply stupid that--well, words fail me." But remember, he's a **law** professor. ;) Reply October 01, 2010 at 05:47 PM Russell L. Carter said... Richard Cownie: Sorry, I'm just not seeing the case for sympathy for the man. He's not entitled to my pity. And he doesn't deserve better than he has achieved: "His big misfortune is that he spent the 1990s boom years in college and law school and a low-paid clerkship, then tried to make money in the much less prosperous Bush years."
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Boo hoo hoo. This is a completely ridiculous causality sequence. We should blame his parents! There's a whole lot more people living in poverty after the "less prosperous Bush years". I think I'll worry about them first, before weeping over the idiot's (and he truly is a home finance idiot) 4700sf house mortgage. The idea that success is only achievable by taking out truly gargantuan levels of debt (and then whining about the debt service making you feel poor) is evidence of a quite broken value system. Reply October 01, 2010 at 05:53 PM dd said... Have you read the paper? It may be consciously designed as an "heretical" work, i.e., Henderson's not unaware that received morality stands opposed to any form of insider trading. Also, how do you know he doesn't understand a marginal tax rate? Reply October 01, 2010 at 06:05 PM Some Guy said... He probably shoulda bought (or built) a nice house in Matteson, IL and taken the Metra to work. Sure, the commute'd probably be 35-45 minutes or so, but he probably could own several homes outright by now. I know he could do it because I work with hundreds of people who live in the south suburbs and take the train to the bus for an hour and a half to and from the Loop every day. And they're doing this to bring home an income just a shade above the median! Some of them do this despite fancy graduate degrees! If the commute's a problem, there's actually some really cheap housing within walking / biking distance of the University of Chicago. Not all of it has great curb appeal, but, you know, some people actually live in those places because they can't afford much more... Reply October 01, 2010 at 06:30 PM postescript said... And it's especially insulting given the events of the past two years. All those banks that went under that had their shareholders' interests at heart. Banks, money managers, not much difference there. I mean how short does he think our memory is.... Apparently, he just thinks we're dumb. Reply October 01, 2010 at 06:45 PM Janus Daniels said in reply to Robert Waldmann... "However, If economic theory tells us nothing (as I assert) it doesn't even tell us that Henderson is wrong." Yet, economic theory does tell us that Henderson is wrong. Only McMeganomics could justify Henderson. Reply October 01, 2010 at 07:54 PM W. Kiernan said... Richard Cownie said: ...It's not as though they're driving Lamborghinis and buying a vacation condo in the Caribbean. That's one thing that did strike me about his finances. He's shoveling money into his 401K like he expects to live to be a hundred and fifty years old, but he only spends $10,000 a year on cars for two drivers. Maybe I'm just a car nut but for a guy pulling down over a quarter-million bucks a year, that's really not a very big car budget. http://delong.typepad.com/sdj/2010/10/james-fallows-on-the-whinging-ri‌exemplified-by-university-of-chicago-law-professor-todd-henderson.html
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Counting insurance and gas and all, that will barely keep you in two late-model Corollas. I love Corollas but they seem kind of modest for a guy in the far-off top percentile. Reply October 01, 2010 at 08:30 PM jeff hoffman said... A subset of the elite, having been nurtured in wealthy households, have every expectation that their lot in life is to be at least as outwardly successful as their parents, having jumped through all the requisite hoops academically. But their buying power isn't equivalent, what with the higher cost of education and other stuff, and rather than accept that their station in life is subordinate to their parents', they live larger than appropriate and externalize their anger at the choices they've made. It's unthinkable that they made some wrong choices. They might have different perspectives if they had grown up in the middle class, but then the storybook academic career might not have taken place. Reply October 01, 2010 at 09:20 PM Russell L. Carter said... "Parents - especially high-income parents who've climbed the ladder themselves aren't stupid. They spend a large fortune on this stuff because they know it gives their kids a huge advantage in this screwed-up system. Don't blame Prof Henderson for playing and winning; blame the stupid rules of the game." I'm a not-wealthy parent (but we have *plenty* of money!) with a stellar HS Sr. The above is truly the stupidest thing I have ever read. Well today at least. I've already explained my reasoning in the comments on other posts. Henderson didn't "win" BTW. He's "poor", remember? What are you thinking? Do you really believe you can gin up sympathy for people this? What's the point? This is a household finance idiot that doesn't know which debt to pay down first, doesn't understand the value of an accountant, has no idea how marginal tax rates work, and you're saying to me that I should counsel my stellar child to take on ridiculous amounts of debt so they can emulate this "success story"? I think not. Oh I guess if I was "rich", I'd understand poor Todd Henderson's motivations and current position, so sad that it is, as he describes it. I'm going to bring it back up again: there's a lot more people living below the poverty level than there used to be. What about them? Reply October 01, 2010 at 09:52 PM Will said... "I genuinely do not understand why Henderson has his job." It's simple. You think that economists are paid to discover and report the truth about the economy. That's a noble idea. But it's not true. In reality, economists are paid to write things that wealthy people want to hear, and to promote the belief that wealthy people should keep as much of their wealth as possible. I've no doubt Henderson does a good job of doing that, and that's what he's paid to do. The bigger question is why there are any economists who endeavor to understand and promote the truth (like you! like Krugman! like Henry George!) who have jobs. Reply October 01, 2010 at 10:10 PM wcw said... > Insider trading makes executives' portfolios' long not the company but long the volatility of the company. http://delong.typepad.com/sdj/2010/10/james-fallows-on-the-whinging-r‌xemplified-by-university-of-chicago-law-professor-todd-henderson.html
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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So do options grants. I once tried to explain the gamma implications of options grants to my wife's company's CEO, a professor at a well-known school who is on his second or third company. He is a very smart, very driven man. He absolutely, positively did not get it. Neither did his MIT-educated CTO. If I were a cheerleader for capitalism, this sort of thing would make me despair. Reply October 01, 2010 at 11:49 PM Jason said in reply to Richard Cownie... See, the thing is, that happened to a lot of people. Buying at the top of the market. Investments that went south. Being in college in the '90s. suck it the fuck up. If you're having problems paying your bills, then sell the damn house. If it won't sell, then work with the bank and sell it in a short sale. Or stop contributing to your tax-free retirement account so that you can pay the bills. Or stop paying for your children's education and make them pay their own way. MILLIONS of people have done one or more of these steps. Why should he be any different? He bought a very large house in a very expensive neighborhood...and now he has to pay the mortgage? Boo FUCKING hoo. If he had bought a smaller house in a less expensive neighborhood and had a mortgage that cost less than $60,000 a year he would have some breathing room. If he put only the allowed $16,500 a year into his tax-deferred retirement account (HOW is he putting in 100k?) then he would have a lot of breathing room. He made his choices. Now he has to live with them. Or give them back to the bank. Reply October 02, 2010 at 06:19 AM Rick Massimo said... "He leaves us with an academic reputation that is unsurpassed, unfortunately I can’t say that the reputation of everyone involved has held up very well in light of the very personal nature of attacks ..." Gee, no one could have predicted that using your personal situation to make a political point might lead to people weighing in on your personal situation. Morons. Reply October 02, 2010 at 08:26 AM Kanga said... Good Lord! Cownie! Maaaate! What a distortion of numbers. The Prof and his Doc wife both work predominantly outside their home, Howard and his wife both work completely at home. Subtract his wife’s studio (1200 sf), his home office ~100 sf, and they are left with 1900 sf of living space for 3 people. Sounds like ~630 sf/person. Compared with the yuppie Prof, at 1175 sf/person. I know doing maths is boring, and keeping it simple is so much more fun when it supports your bias, but, I also know that 1175 sf / person is more space than many apartments (and even homes) for whole families. I’m not jealous of the Prof and his brood. I think he deserves everything he has, and certainly deserves everything he owes. He has made his bed, and now lays in it, a little http://delong.typepad.com/sdj/2010/10/james-fallows-on-the-whinging-r…xemplified-by-university-of-chicago-law-professor-todd-henderson.html
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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tenured crybaby. I’m a Prof too, in a major Australian university. I live in a modest house in a modest suburb and commute. I put my kids through a private high school, and it hurt, heaps. But I own my house now, and am debt-free, and have been topping up my retirement fund for years, so I will not burden the likes of the crybaby Prof. with funding me in my dotage (here in the Land of Oz, social security is means-tested: I will get none and I want none). I did it the old-fashioned way. I’m a biologist, but understood that too much debt was stupid (apparently UC law professors don’t understand the concept of interest on debtsounds like grounds for tenure-denial; but too late, it seems). I didn’t need a housing crash to work that out, and I never invested in stocks, since I never understood them (onya, Mr. Buffett). For decades we lived frugally, and golly gosh, it worked just as it is supposed to if you create a budget and stick to it. We are richer for having been poorer- and I’m not talking dollars and cents, just sense. Who in their right mind needs a 4700 sf house? Oh, just answered my own question. Hooroo. Reply October 02, 2010 at 07:10 PM Measure for Measure said... GTI have not read JW Verrit. I have however read the abstract of Henderson’s article at SSRN, and I disagree with Ribstein’s characterization of it as quoted by Adler. From Henderson’s working paper: “At least with respect to classic insider trading (that is, a manager of a firm trading on the basis of information about the firm where she works), if boards are taking potential trading profits into consideration when setting pay, it is difficult to locate potential victims of this trading.” That’s a normative claim. Here’s the characterization: “If DeLong had bothered to look even at the abstract of Todd’s article, perhaps he would have noticed that the article’s not about alignment of incentives, but about whether boards bargain with insiders over their gains. Todd finds evidence consistent with the hypothesis that “boards pay executives in a way that reflects the profits they are expected to earn from informed trades.” . . .” Um, my quote indicates that Henderson’s paper indeed was about alignment of incentives. And it seems (on the basis of the abstract) that Henderson looks at first moments (profit taking by inside traders is offset by boards who deduct pay accordingly) but not second moments (the insider trading contract serves to enhance stock volatility). I have not looked at the paper so I can’t judge how complete the board offset is. But if Henderson ignores the effects of insider trading permissiveness on stock volatility, he seems to have missed something pretty fundamental. I am puzzled by Alder’s remarks at Volokh. Reply October 06, 2010 at 01:34 AM Tom Maguire said... Re: http://delong.typepad.com/sdj/2010/10/james-fallows-on-the-whinging-r…xemplified-by-university-of-chicago-law-professor-todd-henderson.html
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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"Insider trading makes executives' portfolios' long not the company but long the volatility of the company. And shareholders don't want executives making decisions that make the value of companies they own more volatile: stock market investments are risky enough as it is without giving executives reasons to boost the volatility pot. This claim that freedom to engage in insider trading aligns executives' interests with those of shareholders is so basically wrong, so obviously erroneous, so simply stupid that--well, words fail me." 1. In a levered firm with long term debt, unexpectedly increasing the volatility of the firm's assets transfers wealth from bondholders to shareholders. Some indentures took to including protection against event risk for that reason. 2. As noted above, a firm's management may not be able to diversify their personal portfolios and financial situation (perhaps they own a lot of company shares or are reliant on their paycheck and fear job loss). In that case, firm shareholders may benefit by encouraging a bit of risk-taking by the management team. I am sure that is not always the case, but to imagine that it could never be the case seems unrealistic. So whether Henderson made the argument or not, it is a reasonable one. Reply October 06, 2010 at 09:52 AM Comment below or sign in with TypePad
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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10/21/10 10:49 AM
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First, Kill all the Pensions
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The Atlantic (blog) - Oct 19, 2010 She may or may not have been the first major economics blogger, depending on whether we are allowed to throw outlying variables such as Brad Delong out of ... Related Articles » « Previous Next »
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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James Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands
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