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Tortoise
"Prepare Your Coffin"
Playing at: Le Poisson Rouge
(158 Bleecker St., Greenwich Village)
Get: Tickets | Directions

Tortoise first made their mark in 1994 when they dropped their self-titled debut and hipped the world to their inimitable brand of post-rock, and over a decade and a half later the Chicago band is still causing a stir. On this track from last year's release Beacons of Ancestorship, their first proper full-length in five years, the quintet plow through a prog-coated tune that's equal parts grace, power, and electricity. Tonight Tortoise headline a show also featuring Aethereal Bace and DJ Nick Hook presented by the Carefusion Jazz Festival.


Download Tortoise's Beacons of Ancestorship at Other Music

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    Jacqueline Novogratz — A Different Kind of Capitalism

    The devastation of the Haiti earthquakes and the lack of infrastructure for responding to the disaster have deepened an ongoing debate over foreign aid, international development, and helping the poorest of the world's poor. Jacqueline Novogratz, whose Acumen Fund is reinventing that landscape with what it calls "patient capitalism," is charting a third way between investment for profit and aid for free.


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    Lucy Kellaway says that a CEO ought to be able to explain what he does in a way a child can grasp Lucy Kellaway says that a CEO ought to be able to explain what he does in a way a child can grasp

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    This week the French government announced a multi-billion euro programme of investment, designed to boost the economy and President Hollande's flagging poll ratings. In this podcast, Gideon Rachman is joined by Hugh Carnegy, Paris bureau chief and Ben Hall, former Paris correspondent, to discuss a turbulent few weeks in which Mr Hollande has had to fire a cabinet member for dissent, the French government has clashed repeatedly with the European Commission in Brussels and Nicolas Sarkozy has made a flamboyant re-entry into French politics. This week the French government announced a multi-billion euro programme of investment, designed to boost the economy and President Hollande's flagging poll ratings. In this podcast, Gideon Rachman is joined by Hugh Carnegy, Paris bureau chief and Ben Hall, former Paris correspondent, to discuss a turbulent few weeks in which Mr Hollande has had to fire a cabinet member for dissent, the French government has clashed repeatedly with the European Commission in Brussels and Nicolas Sarkozy has made a flamboyant re-entry into French politics.

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    Lucy Kellaway says there is a need for a new investment bank that would sell itself on low pay Lucy Kellaway says there is a need for a new investment bank that would sell itself on low pay

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    This week, testimony by former FBI Director James Comey dominated the headlines.

    For President Trump, however, it was Infrastructure Week. He spent several days promoting his plan to rebuild the nation's roads and highways. And the key to making it happen is getting billions of dollars in private investments.

    But how exactly would that work?

    This week on Money Talking, Host Charlie Herman talks with WNYC's Andrea Bernstein and Richard Beales with Reuters Breakingviews about the President's plans and whether or not it's likely to happen.


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    Photo

    “It stands before you like a beacon. This is Jersey City like you’ve never seen it before. This is Trump Bay Street.”

    Well, the view from Trump Bay State (to correct the building’s website slightly), not the building itself. But proximity to Manhattan is the trump card, if you will for the residential tower: a model of luxury, and also a model of a loophole U.S. developers use in a controversial citizenship-for-cash program. They use the loophole to obtain foreign financing for projects like this one, developed by Donald Trump’s son-in-law, Jared Kushner. Let’s let the website continue:

    “The amenity spaces feature furnishings by the luxury brand RH. From the pool to the chef’s table to the observation deck on the 52nd floor, all areas have been curated to elevate the residential experience.”

    What the 52-story residential tower also features is the secret of how American real estate developers can (and do) get inexpensive financing for luxury projects in prime locations by selling U.S. visas to foreign investors at half price.

    Google maps

    The red dot is the site of Trump Bay Street. The blue tower just across the water is the World Trade Center. Seventeen minutes by subway.

    Google maps

    It was Kushner Companies, the real estate firm of Donald Trump’s son-in-law, Jared Kushner, that put up Trump Bay Street. (His father-in-law licensed his name to the development.) The tower obviously cost a bundle to build. What we explain on tonight’s PBS NewsHour in our weekly Thursday Making Sen$e story is the loophole in the EB-5 visa program used by the developer.

    As we’ve reported several times over the past two years, any American firm can apply for EB-5 visas for foreign investors, from luxury projects in Manhattan and Brooklyn, as we reported in 2015, to a ski-resort-plus-biotech-center in the most remote reaches of northern Vermont, which we covered several times over the course of a year, as the magnitude of the fraud there — the largest in EB-5 history — became apparent.

    But in all EB-5 projects, most of them legit, the investors get a green card assuring permanent U.S. residency (on the way to formal citizenship) for themselves and all family members under age 21 in exchange for a $1 million dollar investment, so long as the money creates 10 U.S. jobs. There’s an added sweetener for areas that badly need jobs. If the jobs are created in a rural area, or in a U.S. city “targeted employment area” with an unemployment rate 1.5 times the national unemployment average, then the visa price is cut in half: just $500,000 to create 10 jobs gets you a ticket to U.S. citizenship. (By the way, the investors are also promised a return on their investment by the managers of it, but that’s like any investment: maybe it pays off financially; maybe it doesn’t.)

    Now take a look at this map of Jersey city.

    Map of Jersey City

    The red-outlined boxes are Jersey City’s neighborhoods — its “census tracts.” And that blue jigsaw puzzle piece covering 16 of them is what’s called the “targeted employment area” created by Kushner Companies to get the discounted foreign financing for Trump Bay Street, the red dot closest to the water.

    Why such a tortuous new area? Because Trump Bay Street was built in a booming neighborhood. Its home census tract was clearly not a “targeted employment area.” In fact, when the developer applied for permission to solicit foreign EB-5 investors, the unemployment rate in this census tract was a mere 3.1 percent, more than 1.5 times below the national unemployment rate, not 1.5 times above it. So Kushner Companies drew up a “targeted employment area” of 15 additional neighborhoods — “census tracts” that extended south into the very poorest and most dangerous parts of Jersey City.

    photo

    The tip of the blue puzzle piece at the lower left marks the end of the gerrymandered TEA: the “targeted employment area.” It’s past Ellis Island and even the Statue of Liberty, miles from Trump Bay Street, from which lower Manhattan is one subway stop away. But all the poor census tracts in between, along Grand Street and Garfield Avenue, had to be added in order to hike reach a high enough unemployment rate. And indeed, the area wound up with a TEA in which the average unemployment rate was fully 9.8 percent.

    The question is: How many jobs has Trump Bay Street created in those job-starved neighborhoods? We try to provide something of an answer on tonight’s PBS NewsHour, as well as the story of the latest Kushner project in Jersey City.

    The post How Jared Kushner and others gerrymander to sell visas to foreigners — at a steep discount appeared first on PBS NewsHour.


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    Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 4, 2017. REUTERS/Brendan McDermid - RC18123EF150

    Traders work on the floor of the New York Stock Exchange (NYSE) in New York on October 4, 2017. Photo by REUTERS/Brendan McDermid

    History might not repeat itself, but it does rhyme. Robert Z. Aliber, an emeritus professor of international economics at the University of Chicago and expert on financial crises, has noted that an innovation is at the root of every financial crash. In 1987 it was portfolio insurance; for the Great Recession in 2008 it was securitization. The obvious candidate for the next crisis is Exchange-traded funds, or ETFs.

    What is an ETF? It is a pool of securities whose shares are traded in real-time on stock exchanges. Buying a share of an ETF is like buying a share of a company. Like mutual funds, ETFs are diversified within an asset class — such as an ETF that mimics the S&P 500 index. Unlike a mutual fund that mimics an index, however, these shares trade during trading hours, while a mutual fund is effectively traded at the close of business each trading day at a price that equals the net asset value (NAV) of the fund. Thus, an investor inclined to time the market will be attracted to an ETF, because waiting until a price at the end of the day might result in a missed opportunity.

    Now let’s get into the weeds a bit (more). ETF sponsors do not trade directly with investors. Investors buy and sell only with market makers or authorized participants. Each ETF might have some 30 authorized participants who together create a secondary market for the shares of the ETF, which investors buy on an exchange.

    The ease of buying or selling shares of an ETF creates some risks. If orders to buy or sell greatly exceed what the market will bear, the price of the ETF might diverge from the net asset value of the underlying assets. In such cases the authorized participants, in their role as market makers, arbitrage the difference. These efforts could lead to a sudden rise in market orders, which are information-less: they do not result from any specific knowledge of the securities being sold. Extreme situations could result in fire sales.

    Two aspects make innovations like ETFs ripe vehicles for mischief that can lead to financial crises. First, they have force: while dumb ideas are quickly discarded, good innovations provide purchase for the imagination, which is fueled by seeing others making money. Second, an innovation is new and untried, so the imagination is unconstrained by adverse experience. Leading up to 1987, for example, portfolio insurance was promoted as the vehicle to protect against stock market losses. It became popular among large investment operations.

    But what might work for a single operation might very well become a disaster when many investors act at the same time. In the late 1980s, the idea was that you would sell futures to hedge a declining market. But when everyone tried to do this at once, the market seizes and crashes as it did on Oct. 19, 1987.

    While dumb ideas are quickly discarded, good innovations provide purchase for the imagination.

    Two decades later, the Great Recession was fueled in large part by the widely accepted assumption that the securitization of mortgages made ownership of mortgages less risky. The securities were diversified by including many mortgages within a pool, and diversified geographically. And the rating agents stamped their approval. Congress, likely impressed by this innovation, also put pressure on Fannie Mae and Freddie Mac to increase home ownership by issuing questionable mortgages — which were entered on their books as “sub-prime.” At the root of it all was an untested innovation.

    Leading up to 2008, investors and policymakers alike lulled themselves into believing that house prices only rise. Mortgage-backed securities were being bought and sold with little attention to the underlying mortgages and no one cared while house prices kept rising. But eventually, house prices not only stopped rising, they declined to the point that the value of a mortgage security depended on the ability of the homeowner to repay. Many couldn’t and the collateral no longer covered the mortgage.

    Both the 1987 and 2008 crises exhibited the marks of an experiment many of us did in grade school. Remember mixing a slurry of cornstarch and water? It was easily done, if done slowly. But what happened when you tried to stir too fast? It locked up solid. The stock market is a cornstarch-in-a-water slurry. If trading is moderate the market clears, but if everyone rushes at once for the exit, the market freezes or goes into a freefall search of buyers.

    So why might ETFs be the next innovation to go awry? For starters, the concept of an ETF is a sound idea: they offer real-time trading and broad diversification. But it is untested, in the sense that ETFs have yet to be exposed to a real-life stress test. Investors are operating with the belief that they’re liquid and tradable in real-time, and they are well diversified within their asset class. But how liquid are they really?

    The billionaire investor Howard Marks has made a persuasive case that an ETF is only as liquid as the underlying assets. What if those underlying assets can’t be readily sold? What happens if investors suddenly find cause to press the sell button on their smartphone? Can those orders be refused? At some point, the authorized participants (market makers) will be forced to liquidate a portion of the underlying assets in informationless trades. In other words: Sell, period. The result is a fire sale.

    One might think that an S&P 500 ETF would be less susceptible to sudden illiquidity. But think of October 1987. And then consider that the volume of the S&P ETFs, reportedly, far exceeds the volume one might expect if S&P ETF investors were mainly patient, buy-and-hold, long-term investors. It appears that many institutional investors use these ETFs to hedge positions. What would happen if this trading suddenly dried up or, worse, if these ETF positions were suddenly liquidated forcing the authorized participants to sell heavily the underlying shares? And let’s remember that investors buy ETFs to avoid the need to study many businesses.

    We know what happens when investors know little or nothing about the underlying assets. Remember securitized mortgages?

    My gosh, The Efficient Market Hypothesis has taught us that studying 500 companies is a waste of time; the market knows everything already, so just buy the ETF! But this puts the average investor way outside his or her sphere of competence. We know what happens when investors know little or nothing about the underlying assets. Remember securitized mortgages? How reliable are your decisions when you know little about a matter? We lull ourselves into thinking that diversification gets us off the hook. But can we be sure that the slurry won’t freeze up again under extreme, not-yet-tested conditions? As Mark Twain wrote in his novel “Pudd’nhead Wilson,” “Behold, the fool saith, ‘Put not thine eggs in the one basket’—which is a manner of saying, ‘Scatter your money and your attention’; but the wise man saith, ‘Put all your eggs in the one basket and—WATCH THAT BASKET.’”

    Pudd’nhead Wilson is wise. Modern finance and human nature have lead us to confuse volatility with risk of permanent loss. We prize diversification because it reduces volatility, but does that reduce permanent loss, particularly when we know little about the underlying assets? Perhaps we should think of it a little bit more as a marriage: make one good decision, and then LEARN TO HANDLE THE VOLATILITY that arises along the way.

    Warren Buffett observed long ago that one should only own a stock if one is prepared to have the price decline 50 percent, because sooner or later it will. Otherwise one risks the urge to sell at the worst time. My guess is that the majority of ETF investors are not prepared for prices to decline 50 percent, or less. The ETF has deluded investors into thinking they are safe— and they can get out by pressing the sell button.

    I began by arguing that an innovation is at the root of a financial crash. But remember, innovations aren’t the cause of a crash, they exacerbate them. The economist Robert Aliber notes that crises are often caused by a shift in foreign capital flows into the United States. Aliber thinks that shift has again happened, drying up the capital inflows buoying stock prices, and a significant decline is imminent. Innovation put off the day of reckoning and, in doing so, exacerbate the reversion to the mean.

    Recently, billions of dollars have been flowing into all manner of ETFs. Yet there hasn’t been enough attention paid to the potential systemic risk of ETFs. Charlie Munger, the vice chairman of Berkshire Hathaway, was right when he said that if you haven’t overturned a long-held view in the past 12 months, you haven’t been thinking. It’s time to start thinking. That doesn’t mean we should rush to throw out good ideas; it means we should take the time to examine them properly. A clearer-headed view of the risks of ETFs is a good place to start.

    The post This innovation could lead to the next financial crisis appeared first on PBS NewsHour.


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    Bernard Madoff may be a fading memory from the past, but for reporter Steve Fishman, the fallen financier’s story holds lessons for today. Madoff masterminded one of the biggest Ponzi schemes in history, duping thousands of investors out of tens of billions of dollars. His scam rocked Wall Street for years. In this episode, we … Continue reading How Bernie Made Off: Are we safe from the next Ponzi scheme?

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