Category Archives: Banking

Updates from Ciena

The Future of the Internet Is Fiber Deep
By Elias Cagiannos – Netflix is the poster child for over-the-top (OTT) content and has no doubt played a large role in shifting the status quo when it comes to our entertainment and viewing habits. The company can be credited with reimagining content distribution — investing in homegrown content and a content delivery network to feed our binge-viewing habits.

However, these habits are primarily supported on MSO networks, which have one of the best internet service products on the market. These companies are focused on the future, making investments in the people, processes and infrastructure necessary to help them match their capabilities to a new generation of users.

Consumer demand for improved viewing options has created an environment where MSOs can’t tolerate service disruptions or quality issues. However, aging coaxial plants, analog repeaters and limited spectrum make meeting customer demand for fast and reliable service a challenge. MSOs recognize this and are already moving in the right direction, but they will advance even faster with fiber deep — the concept by which operators push fiber closer to the end user, which helps improve service. more>

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Is Silicon Valley’s giant foundation just hoarding money?

By Ben Paynter – In late July, the Institute for Policy Studies warned that one of the fastest growing ways of giving to charity could be manipulated to benefit super-rich donors instead of those most in need.

The charitable vehicle in question is called a donor-advised fund (DAF), which allows donors to give money and non-cash assets, including public stock, to charity to receive an immediate tax benefit, but then wait to distribute the money. It’s a clever incentive that’s particularly en vogue among the 1%, in part because it allows for contributions of non-cash assets, such as stock, private company shares, and real estate, to avoid capital gains tax.

The issue is that there isn’t any formal timetable for that money to flow back out again, or necessary guidance on how particularly large sums might effectively be spent. Both issues appear to affect the Silicon Valley Community Foundation, a $13.5 billion cause fund that has received donations from Mark Zuckerberg, among other tech elite.

Among the 80% of charities that have tried to expand in recent years, half have exceeded their sustainable budgets, a precarious position for any organization that relies on (hard to access) grant money to remain afloat. Per Open Impact’s report, the region’s tech elite may be giving billions to philanthropy annually, but community groups have historically received next to nothing. more>

Updates from Chicago Booth

By Michael Maiello – Yale University’s Bryan T. Kelly, Chicago Booth’s Dacheng Xiu, and Booth PhD candidate Shihao Gu investigated 30,000 individual stocks that traded between 1957 and 2016, examining hundreds of possibly predictive signals using several techniques of machine learning, a form of artificial intelligence.

They conclude that ML had significant advantages over conventional analysis in this challenging task.

ML uses statistical techniques to give computers abilities that mimic and sometimes exceed human learning. The idea is that computers will be able to build on solutions to previous problems to eventually tackle issues they weren’t explicitly programmed to take on.

“At the broadest level, we find that machine learning offers an improved description of asset price behavior relative to traditional methods,” the researchers write, suggesting that ML could become the engine of effective portfolio management, able to predict asset-price movements better than human managers.

Of almost 100 characteristics the researchers investigated, the most successful predictors were price trends, liquidity, and volatility. more>

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Are Stock Buybacks Starving the Economy?

By Annie Lowrey – Stock buybacks are eating the world. The once illegal practice of companies purchasing their own shares is pulling money away from employee compensation, research and development, and other corporate priorities—with potentially sweeping effects on business dynamism, income and wealth inequality, working-class economic stagnation, and the country’s growth rate. Evidence for that conclusion comes from a new report by Irene Tung of the National Employment Law Project (NELP) and Katy Milani of the Roosevelt Institute, who looked at share buybacks in the restaurant, retail, and food industries from 2015 to 2017.

Buybacks occur when a company takes profits, cash reserves, or borrowed money to purchase its own shares on the public markets, a practice barred until the Ronald Reagan administration.

The regulatory argument against allowing the practice is that it is a way for companies to manipulate the markets; the regulatory argument for it is that companies should be able to spend money how they see fit.

In recent years, with corporate profits high, American firms have bought their own stocks with extraordinary zeal.

Federal Reserve data show that buybacks are now equivalent to 4 percent of annual economic output, up from zero percent in the 1990s. Companies spent roughly $7 trillion on their own shares from 2004 to 2014, and have spent hundreds of billions of dollars on buybacks in the past six months alone. more>

The Globalization Backlash: It’s Both Culture and the Economy, Stupid

BOOK REVIEW

Euroscepticism and the Future of European Integration, Author: Catherine De Vries.
Globalization represents a “trilemma” for societies, Author: Dani Rodrik.

By Catherine De Vries – While many thought the process of greater cross-border cooperation to be irreversible, in part because it was expected to lead to a universal acceptance of liberal and capitalist values, isolationism, nationalism and protectionism are back on the political scene with a vengeance.

While Donald Trump’s slogan to “Make America Great Again” is at the heart of his campaign and current administration, Nigel Farage’s mantra of taking back control (“we will win this war and take our country back”) dominated the Brexit campaign.

A fierce debate has developed about the origins of these developments. Are they the result of economic grievances of those who feel threatened by globalization (a term for increasing international cooperation and increasing interdependence), or do current developments represent a cultural backlash based on immigration fears and prejudice.

Opposition to globalization is gaining such a foothold in the political and public domain in advanced industrial democracies, precisely because processes of economic interdependence have coincided with increasing migration flows.

Although current societal and academic debates are mostly framed in either economic or cultural terms, it is important to realize that these types of explanations are not mutually exclusive. We should focus more of our efforts on trying to understand how cultural and economic fears interact and fuel the recent popular backlash against globalization. more>

The Overlapping Crises Of Democracy, Globalization And Global Governance

BOOK REVIEW

Gridlock: Why Global Cooperation is Failing when We Need It Most, Authors: Thomas Hale, David Held, Kevin Young.

By David Held – The crisis of contemporary democracy has become a major subject of political commentary. But the symptoms of this crisis, the vote for Brexit and Trump, among other things, were not foreseen. Nor were the underlying causes of this new constellation of politics.

The virtuous circle between deepening interdependence and expanding global governance could not last because it set in motion trends that ultimately undermined its effectiveness.

Why?

There are four reasons for this or four pathways to gridlock: rising multipolarity, harder problems, institutional inertia, and institutional fragmentation. Each pathway can be thought of as a growing trend that embodies a specific mix of causal mechanisms.

To manage the global economy, reign in global finance, or confront other global challenges, we must cooperate. But many of our tools for global policy making are breaking down or prove inadequate – chiefly, state-to-state negotiations over treaties and international institutions – at a time when our fates are acutely interwoven.

The result is a dangerous drift in global politics punctuated by surges of violence and the desperate movement of peoples looking for stability and security. more>

American power at stake in great innovation race


By Peter Engelke – Americans like to think of themselves as the most innovative people in the world. At least since 1945, they have had good reason to believe so. During the Cold War, the United States built the most formidable technology-producing innovation system the world has ever seen.

Coordinated action by the U.S. government, the private sector and academia, combined with America’s unique postwar culture, crafted this system.

But the American system has seen better days. America’s leaders, at federal and state levels, have failed to maintain this system much less upgrade it.

As a result, America’s long list of difficulties includes falling public investment in research and development (R&D, a critical and under-appreciated factor in national innovativeness), an under-skilled workforce, flagging support for public higher education, decaying infrastructure and much more.

The global tech-innovation economy therefore is more than a just crowded place. It is also crowded where it counts: at the very top, where it no longer can be said that the U.S. stands alone. Several of the countries listed here, plus others, routinely score higher than the United States in global innovation rankings.

The U.S. will not long remain the global leader in innovation unless it takes decisive action across several fronts. more>

Updates from Chicago Booth

Behavioral economics from nuts to ‘nudges’
By Richard H. Thaler – In the beginning there were stories.

People think in stories, or at least I do. My research in the field now known as behavioral economics started from real-life stories I observed while I was a graduate student at the University of Rochester. Economists often sneer at anecdotal data, and I had less than that—a collection of anecdotes without a hint of data. Yet each story captured something about human behavior that seemed inconsistent with the economic theory I was struggling to master in graduate school.

But I had no idea what to do with these stories. A collection of anecdotes was not enough to produce a publishable paper, much less a research paradigm. And, certainly, no one could have expected these stories to someday lead to a Nobel Prize.

Behavioral economics has come a long way from my initial set of stories. Behavioral economists of the current generation are using all the modern tools of economics, from theory to big data to structural models to neuroscience, and they are applying those tools to most of the domains in which economists practice their craft. This is crucial to making descriptive economics more accurate.

Although not every application of behavioral economics will make the world a better place, I believe that giving economics a more human dimension and creating theories that apply to humans, not just econs, will make our discipline stronger, more useful, and undoubtedly more accurate. more>

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An Inside Look at Smart Cities

Bank of America Merrill Lynch – Countless people and technologies keep our cities safe, clean, and efficient; some we interact with in plain sight, and others operate beneath the surface, improving our lives in ways we don’t fully realize.

But for all the richness of cities, urban living can be filled with challenges, from traffic jams to taxed energy systems to overcrowded sidewalks and transit. Many of these difficulties are rooted in dated infrastructure – so as the number of people living in cities continues to rise, investing in and modernizing city infrastructure becomes critical.

The ultimate goal? Creating a “smart city” – one that leverages technology to improve quality of life for its residents, and creates better systems and structures to support it. One that looks ahead to future generations and starts the work now to meet those needs. Investing in the “smartness” of a city not only modernizes it, but creates a stronger, more sustainable place to live and work.

The good news is that the challenge of creating a smart city presents great opportunities. In fact, the smart city market could grow from an estimated US$1 trillion in 20174 to US$3.5 trillion by the mid-2020s. This means opportunities for companies, investors and, of course, the residents themselves. How do you uncover those opportunities?

Step one is imagining what it might be like to live in a “smart city”. more>

Why The Only Answer Is To Break Up The Biggest Wall Street Banks

By Robert Reich – Glass-Steagall’s key principle was to keep risky assets away from insured deposits. It worked well for more than half century. Then Wall Street saw opportunities to make lots of money by betting on stocks, bonds, and derivatives (bets on bets) – and in 1999 persuaded Bill Clinton and a Republican congress to repeal it.

Nine years later, Wall Street had to be bailed out, and millions of Americans lost their savings, their jobs, and their homes.

Why didn’t America simply reinstate Glass-Steagall after the last financial crisis? Because too much money was at stake. Wall Street was intent on keeping the door open to making bets with commercial deposits. So instead of Glass-Steagall, we got the Volcker Rule – almost 300 pages of regulatory mumbo-jumbo, riddled with exemptions and loopholes.

Now those loopholes and exemptions are about to get even bigger, until they swallow up the Volcker Rule altogether. If the latest proposal goes through, we’ll be nearly back to where we were before the crash of 2008. more>