10/21/10 10:49 AMJames 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 HandsThe Semi-Daily Journal of Economist J. Bradford DeLong: Fair, Balanced, Reality-Based, and Even-HandedDepartment of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 7080467; delong@econ.berkeley.edu.

Economics 210aWeblog ArchivesDeLong Hot on GoogleDeLong Hot on Google BlogsearchOctober 01, 2010

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: Thereport I'm about to mention has been activelydiscussed in other parts of the online world, soby my normal triage rules I shouldn't sayanything about it. But I hadn't heard about ituntil yesterday, and on the chance that's true forothers, I'll point it out. The context is theprevious discussion, here and here, about thecapacity for feeling short-changed and ill-treated, even among some of the mostmaterially-fortunate people ever to live onEarth. No doubt it's a primal human trait, butfor various reasons (as explained here) the ever-polarizing distribution of wealthand income in America has allowed more people to feel bad about their ownsituation by looking at the handful who are stratospherically better off. To someextent this is an "information" problem: people don't know where they reallystand...

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 anduncharitable. And it's personally bad too, in focusing attention on what's not thererather 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 moderncounterpart to Mauve Gloves & Madmen. Thirty-plus years after I first read it, Ivividly remember that short story of Tom Wolfe's. Its set-up was a stylish andpopular and liberal-chic writer going through his checkbook and revealing his lifethrough the deposits and the canceled checks. After the jump, a sample passage.Mauve Gloves was in the tradition of great realist or naturalistic fiction thatpresents character through material circumstances. And now we have anunintentional modern counterpart, a law professor at the University of Chicagowho has (unwisely) taken to the internet to explain why, on a household incomethat 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 by21st Century America's Marie Antoinette, the University of Chicago law professorwho worried how his family would survive if taxes on income above $250,000went up. Original entry here and main update here. A graduate of Harvard Collegeand Harvard Law who has chosen a comfortable-but-non-big-bucks career pathwrites in to say: "Seems to me that one of the chief reasons that Whiny LawProfessor has such a skewed view of his appropriate peer group has to do with apost-Carnegie* meritocratic brand of ethics, with intelligence substituted forbusiness 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 somecomments in defense of the "Whiny Law Professor" -- and similar families at thetop of the US income distribution who find it hard to make ends meet. Now, forthe other side of the story, a few of the (many) dissents. A reader writes: "Whydoes every defense end up showing how out of touch these people are? Thesympathy list they always go through are the costs of private schools, elite privateuniversities, large mortgages, and large loans for graduate schools (I note the lackof large loans for undergraduate). This just isn't even a concern for 97% ofAmericans. And to say life is difficult if you send your kids to a nice public schoolin a nice suburb, go to a non-Ivy school, live in 10-20% less of a house or livewithout a graduate degree, is quite simply crazy and just goes to prove all the statsabout 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 monthsin Mexico and Central America (including 3 months in one city, teaching Englishpart-time) and hardly a day goes by when I don't think back to that time. But ofcourse one of the things that struck me was how well off we 'poor' ex-students (nolonger in school, but mentally and emotionally students) were relative to 99% ofthe people we saw. So here's what I would propose: send the whiny rich to a lessprosperous country where they can a) feel fabulously wealthy, and/or b) gain alittle broader perspective on their own (and their own country's) place in theworld. It's a win-win: they get to live like royalty, and we don't have to put up withtheir incessant whining."

I am still struck by--and marvel at--nine things about University of Chicago LawProfessor Todd Henderson:

1. Henderson's eagerness to engage in class war against those richer than he is: hisanger at the "super rich [who] don’t pay taxes... hide in the Cayman Islands or usefancy 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 thepresident’s neighbor in Chicago, but we’ve never met. I wish we could, because Iwould introduce him to my family and our lifestyle, one he believes is capable offinancing the vast expansion of government he is planning.... [L]ike manyAmericans, we are just getting by despite seeming to be rich. We aren’t.... [T]hepresident plans on raising my taxes. After all, we can afford it, and the world weare now living in has that familiar Marxian tone of those who need take and thosewho can afford it pay..."

3. Henderson's ignorance about American government policy. He talks about "thevast expansion of government [Barack Obama] is planning..." But if you look at thelaws that Barack Obama has lobbied for and gotten Congress to pass, in the longrun they don't expand but shrink the government relative to what it wouldotherwise be. Quantitatively, the biggest legislative initiative by Obama so far hasbeen very large long-run cuts in Medicare spending. Henderson is either soignorant that he does not know this, or so mendacious that he doesn't want hisreaders 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 toexpand 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 youmust 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 issimply mendacious in trying to keep his readers from thinking about theconsequences of the Bush policies he supported, or whether he is so ignorant thathe 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 incomeexceeds the $250K/year threshold "but not by that much"; on the other hand, hesays 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 upsignificantly. If his taxes are now $100K a year and will go up significantly if theabout-to-expire lower top marginal rate is not reenacted, then his income is waymore than $250K/year.

6. Henderson's insistence that the things he spends money on--a 4700 sq ft house inHyde Park with a lawn big enough to need a gardener, private schools, housecleaners, etc.--aren't things that only rich people buy.

7. Henderson's insistence that he is "just getting by" with a household income that Icompute (if his claims about the taxes he pays are accurate) at about nine timesAmerican median household income.

8. Henderson's insistence that he "can't afford" to pay higher taxes--even though hehas no problem with raising taxes on those richer than him, and had no problemsupporting a president (Bush) whose policies created the necessity for general taxincreases 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:

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Todd Henderson will be missed: I am saddened that our co-blogger ToddHenderson is putting up his blogging hat. He leaves us with an academicreputation that is unsurpassed, unfortunately I can’t say that the reputation ofeveryone involved has held up very well in light of the very personal nature ofattacks.... I do think, however, that this is a good opportunity to focus the worldon the wide range of scholarly work from Professor Henderson.... Here are a fewpapers of his on ssrn worth reading (this certainly won’t be the last time we link tohis work at TOTM):

In "Insider Trading and CEO Pay," Prof. Henderson examines the effectiveness ofinsider 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 yearsago that insider trading didn’t diminish firm market value on net and may serve auseful purpose as an executive compensation device to motivate managers tomaximize 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 oftheir jobs to decide when to buy and sell shares of stock does not motivate managers tomanage the firm in the interest of shareholders.

If managers free to engage in insider trading know that the next piece of news to bereleased will cause the stock price to rise, they will buy. If they know that the nextpiece of news to be released will cause the stock price to fall, they will sell and then buyback later. They don't care whether the news is good or bad--either way they willprofit, and either way they will profit equally.

What the ability to engage in insider trading does is that it gives managers an incentiveto make the price of the stock vary--they don't care which way. Thus it cannot "serve auseful purpose as an executive compensation device" and cannot "motivate managersto maximize the value of the firm" to shareholders.

Insider trading makes executives' portfolios' long not the company but long thevolatility of the company. And shareholders don't want executives making decisionsthat make the value of companies they own more volatile: stock market investmentsare 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 withthose of shareholders is so basically wrong, so obviously erroneous, so simply stupidthat--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

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Brian J said...If (1) is a really big issue for Henderson, I'm curious to know exactly what he did whenthe issue of carried interest elimination came before the congress. I can't think of adefense other than, "They just shouldn't have to pay," that justifies letting high financetypes pay less on higher amounts of money than others pay on smaller amounts ofmoney. If he can't get motivated to do something about this, when what's the point ofeven trying to take his concerns seriously?

In a more general sense, I'm curious why making fewer private consumption choices isalways regarded as a bad thing. Yes, it's nice to spend your own money, but thegovernment needs revenue to run, and if Henderson thinks those other than himshould pay, he's required to say why, especially if those people, whom make up themajority of tax payers, earn significantly less than he does.

Reply October 01, 2010 at 10:14 AMthe idler said...Empathy, my friends, for a brother down on his luck. Professor Henderson, you cansave a few centimes by baking your own brioche. The internet abounds with recipes.

Reply October 01, 2010 at 10:24 AMRob 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 AMSD said...#6 - Henderson's insistence that the things he spends money on--a 4700 sq ft house inHyde 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 courseHenderson is rich) But a lot of people have big houses that cost close to $1M. A lot ofpeople have gardeners and house cleaners. A lot of people send their kids to privateschool. There are too many big houses and servant and private school places for thesethings 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 situationis what many people dream of. I'm not asking for a Ferrari, I just want a Lexus. I'mnot asking for a mansion, I just want a typical house in a very nice neighborhood. Somany other people have these things, I cant believe they all make that much more thanI do, so why cant I have them too.

Reply October 01, 2010 at 10:42 AMRobert Waldmann said...I claim that one can get any result one wants out of a an economic model (in whicheveryone has rational expectations so outcomes must be Nash equilibria). This is a

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challenge. However, If economic theory tells us nothing (as I assert) it doesn't even tellus that Henderson is wrong.

OK here goes. Shareholders shouldn't care about idiosyncratic risk as they candiversify, so in the model they don't. Managers fear being fired, so they fearidiosyncratic risk (actually they especially fear firm specific risk). Thereforecompensating them a bit for volatility as well as average returns aligns their incentiveswith shareholders. So far, this can be achieved with payments convex in returns (sayoptions). But if a CEO is most likely to be fired in response to striking and surprisinglosses, 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. Iam saying he can't be wrong, because the whole effort must lead nowhere. I amarguing 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 AMChris Murphy said...I'm suprised at your suprise re Henderson's position on the alignment of executiveinsider trading and shareholders' interest. Unfortunately this is a relatively commonposition among corporate law practitioners and even more common among legalacademics (the fact that it is more common among academics then practicing lawyersmay be instructive). Talk to some of your colleagues at Boalt Hall about this issue andwhen you see how disconnected from the real world they are on this matter you maycome to understand how John Yoo keeps his job.

Reply October 01, 2010 at 11:30 AMRussell L. Carter said...Richard Cownie, if you had been paying attention you would have known by now thatthe poor Professor has managed his money disastrously. In addition, it is absolutelyNOT 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 whiningabout it well that's just swell. Suck it up, buddy, you chose your fate. This idea thattaking on mountains of discretionary debt is "exactly what we tell people to do" is atthe root of the financial crisis. Oh, should I mention that he's underwater on thatenormous, heavily remodeled urban house? Another completely discretionary debtload.

Overpaid nonsensical whiners. I really can't stand them.

Reply October 01, 2010 at 01:46 PMB said...I thought 'whinge' was a verb that only DFW -- among Americans -- used.

Reply October 01, 2010 at 01:50 PMdsquared said...good lord. I've occasionally said in the past that one of the great things about Americais that it's a country where a person can make a six figure income while still notunderstanding the concept of a marginal tax rate. But I really do think that the socialfunction of writing working papers in empirical finance probably ought to be left tothose who do.

Reply October 01, 2010 at 02:08 PMGene 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 morevaluable than the "club charity" of organized religious groups. I'll bet.

Reply October 01, 2010 at 02:37 PMRICHARD 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 theirpathetic understanding of economics despite their worship of The Markets?

In economics, your research has to at least fit reality to some extent (a least beforetenure; Cochrane's made a fool of himself after tenure by showing his ignorance inareas 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 disconnectfrom reality?

Reply October 01, 2010 at 03:44 PMRICHARD said in reply to Robert Waldmann...However, as all executives presumably are rational, all public companies wouldexperience excessive volatility if insider trading was legal, so it wouldn't beidiosyncratic risk any more.

Reply October 01, 2010 at 03:46 PMsave_the_rustbelt said...Putting my financial planner hat back on and coming out of retirement long enough towrite a comment....

It probably would be sensible to pay off or down the student loans before buying the4700 square foot house. Yes, the Mrs/Dr, with children and a medical practice, shouldbe spared a long commute if possible, but they probably do not need a house the sizeof a small hotel.

Just saying. Hat off now.

Reply October 01, 2010 at 04:19 PMsave_the_rustbelt said...Flitting around the blogosphere and through the dreary world of legal papers you willfind a significant body of work on why insider trading is acceptable, why backdatingstock options is acceptable AND beneficial, why shareholders should stop bitching, whyboard should not be responsible for much of anything and why corporate governancein 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 thestreets.

Reply October 01, 2010 at 04:24 PMjdm said...Out of curiosity, how do you know that Henderson was a big Bush supporter?

Reply October 01, 2010 at 04:29 PMpostescript said...It's shameless. It isn't bad enough that many of these managers come from privilegedbackgrounds, they need to cheat (with insiders - i.e. friends) to boost performance. Itreminds me of the final scene in Gladiator. Yeah, it looks fair except one man has beenstabbed in the lung and the other is concealing a dagger.

Reply October 01, 2010 at 04:37 PM

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William B. jensen said...Two things strike me about Henderson. First, he lives above his means. Quit blamingmarginal tax rates for your cash flow problems, assuming you really have them, andtake a look at a mirro. Second, I can't help but think his debts and income have beenpositively impacted by the government that he doesnt' want to pay for. Interest on atleast part of his family's $500,000.00 in school loans was subsidized and/orguaranteed by government programs. He's a professor. Who pays the tuition that payshis salary? Admittedly, he works at a private institution, but even then a good portionof the college is funded by federal and state loans and grants. Without the funding hissalary would go down. And his wife? She works for a hospital on the southside ofChicago that takes care of chldren. I'm guessing good portion of their income comesfrom government funded programs. What happens to her income if the governmentprograms 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 seemsto me he's whining about a system that has done him well. You'd think the selfish jerkwould be happy to pay so others could have the chances he has had. You know, likethose of us who have paid to help him get where he is. What a selfish, narrow mindedwindbag. One would expect better analysis from a lawyer, particularly one from theUniveristy of Chicago...well maybe not.

Reply October 01, 2010 at 04:39 PMhoward said...richard cownie, i can't speak for others, but the offensive part of the tale here is notthat henderson thought that once his household earned a sum in the upper couplepercent of household income that they could have it all and is aggrieved that theydon't; it isn't whether he has or has not lived above his means (but for the record, iwork a busy consulting practice with a home office and have 1 child, and even if ithrow in my wife's separate 1200-square-foot art studio, we still only have 3200square feet, and i doubt sincerely that the second child requires 1500 more); it's hisoffensive presumption that his taxes will be going up at some point because of barackobama'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 governmentprograms should have the simple decency to keep such ayn rand-isms for the privacyof 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 PMMin said..."This claim that freedom to engage in insider trading aligns executives' interests withthose of shareholders is so basically wrong, so obviously erroneous, so simply stupidthat--well, words fail me."

But remember, he's a **law** professor. ;)

Reply October 01, 2010 at 05:47 PMRussell L. Carter said...Richard Cownie: Sorry, I'm just not seeing the case for sympathy for the man. He's notentitled 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 schooland a low-paid clerkship, then tried to make money in the much less prosperous Bushyears."

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Boo hoo hoo. This is a completely ridiculous causality sequence. We should blame hisparents! There's a whole lot more people living in poverty after the "less prosperousBush years". I think I'll worry about them first, before weeping over the idiot's (and hetruly 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 quitebroken value system.

Reply October 01, 2010 at 05:53 PMdd 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 insidertrading.

Also, how do you know he doesn't understand a marginal tax rate?

Reply October 01, 2010 at 06:05 PMSome Guy said...He probably shoulda bought (or built) a nice house in Matteson, IL and taken theMetra to work. Sure, the commute'd probably be 35-45 minutes or so, but he probablycould own several homes outright by now. I know he could do it because I work withhundreds of people who live in the south suburbs and take the train to the bus for anhour and a half to and from the Loop every day. And they're doing this to bring homean income just a shade above the median! Some of them do this despite fancy graduatedegrees!

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 muchmore...

Reply October 01, 2010 at 06:30 PMpostescript said...And it's especially insulting given the events of the past two years. All those banks thatwent 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 PMJanus Daniels said in reply to Robert Waldmann..."However, If economic theory tells us nothing (as I assert) it doesn't even tell us thatHenderson is wrong."Yet, economic theory does tell us that Henderson is wrong.Only McMeganomics could justify Henderson.

Reply October 01, 2010 at 07:54 PMW. Kiernan said...Richard Cownie said:

...It's not as though they're driving Lamborghinisand buying a vacation condo in the Caribbean.

That's one thing that did strike me about his finances. He's shoveling money into his401K 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 pullingdown over a quarter-million bucks a year, that's really not a very big car budget.

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Counting insurance and gas and all, that will barely keep you in two late-modelCorollas. I love Corollas but they seem kind of modest for a guy in the far-off toppercentile.

Reply October 01, 2010 at 08:30 PMjeff hoffman said...A subset of the elite, having been nurtured in wealthy households, have everyexpectation that their lot in life is to be at least as outwardly successful as theirparents, having jumped through all the requisite hoops academically. But their buyingpower isn't equivalent, what with the higher cost of education and other stuff, andrather than accept that their station in life is subordinate to their parents', they livelarger than appropriate and externalize their anger at the choices they've made. It'sunthinkable that they made some wrong choices. They might have differentperspectives if they had grown up in the middle class, but then the storybook academiccareer might not have taken place.

Reply October 01, 2010 at 09:20 PMRussell 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 theirkids a huge advantage in this screwed-up system. Don't blame Prof Henderson forplaying 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. Theabove is truly the stupidest thing I have ever read. Well today at least. I've alreadyexplained 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 topay down first, doesn't understand the value of an accountant, has no idea howmarginal tax rates work, and you're saying to me that I should counsel my stellar childto 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'smotivations and current position, so sad that it is, as he describes it. I'm going to bringit back up again: there's a lot more people living below the poverty level than thereused to be. What about them?

Reply October 01, 2010 at 09:52 PMWill 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 aboutthe economy. That's a noble idea. But it's not true. In reality, economists are paid towrite things that wealthy people want to hear, and to promote the belief that wealthypeople should keep as much of their wealth as possible. I've no doubt Henderson doesa good job of doing that, and that's what he's paid to do. The bigger question is whythere 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 PMwcw said...> Insider trading makes executives' portfolios' long not the company but long thevolatility of the company.

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So do options grants. I once tried to explain the gamma implications of options grantsto my wife's company's CEO, a professor at a well-known school who is on his secondor 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 PMJason 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 anydifferent? He bought a very large house in a very expensive neighborhood...and now hehas to pay the mortgage? Boo FUCKING hoo.

If he had bought a smaller house in a less expensive neighborhood and had a mortgagethat cost less than $60,000 a year he would have some breathing room. If he put onlythe allowed $16,500 a year into his tax-deferred retirement account (HOW is heputting 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 AMRick Massimo said..."He leaves us with an academic reputation that is unsurpassed, unfortunately I can’tsay that the reputation of everyone involved has held up very well in light of the verypersonal nature of attacks ..."

Gee, no one could have predicted that using your personal situation to make a politicalpoint might lead to people weighing in on your personal situation.

Morons.

Reply October 02, 2010 at 08:26 AMKanga said...Good Lord! Cownie! Maaaate! What a distortion of numbers. The Prof and his Doc wifeboth work predominantly outside their home, Howard and his wife both workcompletely at home. Subtract his wife’s studio (1200 sf), his home office ~100 sf, andthey 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 itsupports your bias, but, I also know that 1175 sf / person is more space than manyapartments (and even homes) for whole families.

I’m not jealous of the Prof and his brood. I think he deserves everything he has, andcertainly deserves everything he owes. He has made his bed, and now lays in it, a little

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tenured crybaby.

I’m a Prof too, in a major Australian university. I live in a modest house in a modestsuburb 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 retirementfund for years, so I will not burden the likes of the crybaby Prof. with funding me inmy dotage (here in the Land of Oz, social security is means-tested: I will get none andI want none).

I did it the old-fashioned way. I’m a biologist, but understood that too much debt wasstupid (apparently UC law professors don’t understand the concept of interest on debt-sounds like grounds for tenure-denial; but too late, it seems). I didn’t need a housingcrash 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 issupposed to if you create a budget and stick to it. We are richer for having beenpoorer- 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 PMMeasure for Measure said...GT-I have not read JW Verrit. I have however read the abstract of Henderson’s article atSSRN, 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 onthe basis of information about the firm where she works), if boards are taking potentialtrading profits into consideration when setting pay, it is difficult to locate potentialvictims 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 hewould have noticed that the article’s not about alignment of incentives, but aboutwhether boards bargain with insiders over their gains. Todd finds evidence consistentwith the hypothesis that “boards pay executives in a way that reflects the profits theyare expected to earn from informed trades.” . . .”

Um, my quote indicates that Henderson’s paper indeed was about alignment ofincentives. And it seems (on the basis of the abstract) that Henderson looks at firstmoments (profit taking by inside traders is offset by boards who deduct payaccordingly) but not second moments (the insider trading contract serves to enhancestock volatility).

I have not looked at the paper so I can’t judge how complete the board offset is. But ifHenderson ignores the effects of insider trading permissiveness on stock volatility, heseems to have missed something pretty fundamental. I am puzzled by Alder’s remarksat Volokh.

Reply October 06, 2010 at 01:34 AMTom Maguire said...Re:

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"Insider trading makes executives' portfolios' long not the company but long thevolatility of the company. And shareholders don't want executives making decisionsthat make the value of companies they own more volatile: stock market investmentsare 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 withthose of shareholders is so basically wrong, so obviously erroneous, so simply stupidthat--well, words fail me."

1. In a levered firm with long term debt, unexpectedly increasing the volatility of thefirm's assets transfers wealth from bondholders to shareholders. Some indentures tookto including protection against event risk for that reason.

2. As noted above, a firm's management may not be able to diversify their personalportfolios and financial situation (perhaps they own a lot of company shares or arereliant on their paycheck and fear job loss). In that case, firm shareholders may benefitby 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 caseseems unrealistic. So whether Henderson made the argument or not, it is a reasonableone.

Reply October 06, 2010 at 09:52 AMComment below or sign in with TypePad Facebook Twitter and more...

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Me: Economists:

PaulKrugmanMark ThomaCowen andTabarrokChinn andHamiltonBrad Setser

Juicebox

Mafia:

Ezra KleinMatthewYglesiasSpencerAckermanDanaGoldsteinDanFroomkin

Moral

Philosophers:

Hilzoy andFriendsCrookedTimber ofHumanityMarkKleiman andFriendsEricRauchwayand FriendsJohn Holboand Friends

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10/21/10 10:49 AMJames 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 AMJames Fallows on the Whinging Rich, as Exemplified by University of Chicago Law Professor Todd Henderson - Grasping Reality with Both Hands

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