Every once in a while you come across a seemingly insignificant coincidence that gives a different perspective on a question you thought you understood the answer to. I had one of those moments the other day when, for the second time in the course of a few weeks, a popular economics Twitter account dismissed my suggestion that he open a high-interest checking by saying "That … [Read more...] about The real reason arbitrage opportunities last so long
Archives for November 2017
The title of this post may sound like a rhetorical question, but I assure you I don't mean it that way. It's a question I've been pondering for a while as I come across weird datapoints from the history of home financing around the world. A 30-year fixed-rate mortgage is maybe best defined by what it is not: it's not a one-year floating-rate mortgage. What would a one-year … [Read more...] about What is a 30-year fixed-rate mortgage?
Senator Ron Johnson of Wisconsin announced last week that he couldn’t support the Senate tax reform bill because it failed to align the treatment of corporate income (which is taxed once when it’s recorded as profit and again when distributed to shareholders) with “passthrough” income, which is taxed only when it is reported on an individual taxpayer’s return. Rather than … [Read more...] about How Ron Johnson’s weird idea for corporate tax reform might work
I have the view, which I consider fairly obvious but not always clearly articulated, that virtually all low-enough-cost, adequately-diversified investments will yield positive nominal returns over the appropriate investment time horizon. If you own yen-denominated Japanese bonds, you should expect to receive a positive yen-denominated return over the term structure of the … [Read more...] about What’s the optimal amount of home-country (currency) bias?
To call the finance industry a "mixed bag" would be a gross understatement. There are a few functions essential to industrial capitalism that banks, bill brokers, and financiers mastered centuries ago, like moving funds from savers to borrowers, a process described marvelously by Walter Bagehot in 1873. Then there's the constant stream of financial "innovations," as bankers … [Read more...] about Indexed annuities are bad