Jamesian Philosophy Refreshed

Donald Trump can't even run a profitable casino. The itch to gamble may be the most powerful known addiction, and in cities where casinos are allowed, there is no such thing as the free entry of potential competitors: the established players have their safe niche. An inability to make a profit in this circumstances should be, well ... suspicious as to one's chief-executive cred. Yet Trump's Atlantic City casinos filed for bankruptcy protection twice. A very perceptive observer of the financial scene, Gary Weiss, has explained some of the background: He sold junk bonds to finance his casinos and, by 1991, was so overleveraged that he was seeing his empire stripped by the banks. "Already more than $3.8 billion in the hole and sliding perilously close to a mammoth personal bankruptcy, the brash New York developer had no choice but to accept the dismantling of his vast holdings," Time magazine reported. Leave it to Trump to fail in a business that became a m...

Halliburton v. Erica P. John Fund --  discontented stockholders allege that at the turn of the century (from June 1999 to December 2001) Halliburton misrepresented significant facts about the company's financial health. Significantly, the execs undervalued an asbestos liability claim. The Erica P. John Fund is an investment fund created to support the Archdiocese of Milwaukee. It bought stock in Halliburton during the period of the alleged deception.  In September 2007, EPJ moved to certify as a class all investors who bought the common stock of Halliburton during the period of the alleged deception,  a period that came to a screeching end with a stunning write-off of $4 billion. In support of this motion EPJ invoked the notion of a "fraud on the market," and presented an expert report by Jane Nettesheim of the Stanford Consulting Group. Netteshein contended that the market in Halliburton stock is efficient, and accordingly th...

In our last post devoted to the mathematics of finance, we mentioned that the standard deviation of a bell curve showing the range of possible returns from an asset can be employed as a surrogate for its risk. I'd like to pursue that point a bit. It is the chanciest corporations,  the ones that do have significant risk, that have to bribe you into buying their bonds with a higher return than their safer brethren need offer: thus, a trade-off. One way of looking at the trade-off is this: suppose I come into your neighborhood and offer to play a simple game. You will roll a pair of dice I provide and I will give you $1,000 times the number shown on the dice when they come to rest. I require only that you pay me $1,000 before we begin. The lowest possible score is 2, so the lowest possible pay-out is twice what you’ll pay me up front. This, then, (if I am honest and actually have the money I’m offering to pay) is a can’t-lose proposition for you. The worst outcome is ...