But is it Practical...

One of the most common complaints about basic finance is that it is not practical. You do need to know something of the theory before being able to apply it to concrete situations. Typically, teachers don’t get too much time to explore these practical applications. As an antidote to the overly theoretical, have at look at Vijay Singal. Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing. Oxford: Oxford University Press, Hardcover 2004, Softcover 2006. Professor Singal reviews a number of financial theories (market efficiency, the January effect, home bias, etc.) and then discusses their practical application in finance.

Our Current Crisis

I assume a financial blog is supposed to have insightful comments about the subprime crisis. Instead, I will just direct you to a humorous and irreverent cartoon explanation (sent to me by a student).

If You Like Econ Blogs...

There is an article on economics blogs in the Federal Reserve Bank of Richmond’s Regional Focus and over 200 are rated at 26econ.com.

Rap Economics

I use Mankiw, Principles of Economics when I teach economics. The ten basic principles taught there are now available in animated and rap renditions.

Credit Crunch Humor

At least the credit crunch has spawned some humor. Here are some items collected from numerous web sites (Note the crunch has hit Icelandic banking especially hard–the krona has dropped more than 20 percent against the euro, the rate of inflation has skyrocketed to almost 9 percent, and the OMX Icelandic stock index has lost a quarter of its value):

I went to the ATM this morning and it said "insufficient funds" I'm wondering is it them or me?

With the current market turmoil, what's the easiest way to make a small fortune? Start off with a large one.

How do you define optimism? A banker who irons five shirts on a Sunday

What's the difference between an investment banker and a large pizza? A large pizza can still feed a family of four.

George Bush was asked today "what did he think of the Credit Crunch?" He replied: "It was his favorite Candy Bar."

What's the capital of Iceland? About $20.00

Why have estate agents stopped looking out the window in the morning? Because otherwise they'd have nothing to do in the afternoon.

Bumper sticker on Wall Street: My other Porsche is for sale.

In these busy market times, how can you get the attention of your broker? Say, “Hey, waiter!”

Record unemployment levels have been announced today as the Credit Crunch tightens it’s grip. Worst hit sectors are the construction trade and Icelandic bank robbers.

The credit crunch is getting bad isn’t it? I mean, I let my brother borrow $10 a couple of weeks back, it turns out I’m now America’s third biggest lender.

What’s the difference between investment bankers and pigeons? The pigeons are still capable of making deposits on new BMW’s.

Why are all MBAs going back to school? To ask for their money back.

Money talks. Trouble is, mine only knows one word – goodbye

What’s the difference between a guy who just lost everything in Vegas and an investment banker? A tie.

P.S. My favorite is the pigeon. Also, I have not included some of the more ‘colorful’ one. Google ‘credit crunch humor’ if you are interested.

The Black Swan

One of the most interesting and controversial scholars in finance is Nassim Nicholas Taleb, author of The Black Swan: The Impact of the Highly Improbable. Taleb’s main contention is that the world (financial and otherwise) has far more uncertainty than most acknowledge. Modern financial techniques of reducing risk, e.g., risk management, hedging, etc., are not effective and are even detrimental by lulling us into a false sense of security. At the root of the problem are atypical (but extreme) events (the so-called ‘Black Swans’) that, because of their rarity, are not captured in the historical data used in financial analysis. If Taleb is correct, then, judging by our current Black Swam–the Sub-Prime Mortgage Crisis, the way we approach financial decision-making may need to alter dramatically.

For an introduction to Taleb’s ideas, listen to his short interview with the Guardian newspaper or a longer discussion at EconTalk (Note that EconTalk has a wide range of excellent podcasts covering both financial and economic issues). A discussion of Taleb’s current work, The Fourth Quadrant: A Map of the Limits of Statistics, can be found at Edge.com. For his full view, read The Black Swan: The Impact of the Highly Improbable.

Welcome to the FinanceBasics Blog

Welcome to the FinanceBasics Blog. This blog is designed to introduce students of corporate finance to interesting issues in the field well beyond those included in the typical textbook presentation, but without an overly technical or mathematical presentation. It will include independent comments as well as links to and discussion of other web-based material. Since everyone has enough to read, I will always try to find interviews or lectures that can be downloaded and listened to on the way to class or work.