Marketplace of Ideas
- SAC Capital Advisors this week wrapped up the last piece of a $1.8 billion settlement for criminal and civil insider trading charges—the largest such deal in history. What’s next for Steven Cohen, the guy who ran the hedge fund? It’s not jail time. Cohen has morphed SAC into Point72, a so-called family office that will exclusively mange his personal fortune of about $12 billion. As CNBC has reported, many hedge funds are converting into family offices. Why? Perhaps it’s because family offices fall into a regulatory loophole that exempts them from certain disclosure requirements under Dodd-Frank. That’s not an accident: The benignly named Private Investor Coalition lobbied Congress for the loophole, claiming that because family offices don’t take money from outside investors, their oversight should be less stringent. If you’re a multi-billionaire looking to start your own family office, the CFA Institute has a helpful FAQ for how to comply with the SEC’s definition of what constitutes one. Getting straight to the point, it includes this all-important question: “How likely is it that I’m going to get caught?” According to family office attorney David Guin, “I don’t think the SEC has a ton of resources to run about and try and identify noncompliant family offices.” So you can probably breathe a sigh of relief. But look out—that might change now that the notorious Cohen is in the game.
- NPR’s All Things Considered is running a special series this week on paying for college. Not surprisingly, the focus is on student debt, which in the U.S. tops out at $1 trillion, surpassing credit card obligations. One segment of the series features an interview with three “millennials” saddled with $60,000-to-$100,000 in student loans. The most striking aspect of the interview is perhaps not the magnitude of the individuals’ debt, but rather the fact that all three are a bit foggy on the exact size of their loans. When asked about the principal remaining on her debt, one woman responded, “About $92,000. I guess I didn’t really think too much about how fast it was adding up at the time… I’m not sure what the actual start number was, but it was like 116.” What’s going on here? Are these borrowers too young? Oblivious? Inured to debt? Lacking financial literacy? In a separate segment of the series, William Elliott, of the University of Kansas’s Assets and Education Initiative, explains: “While you’re in college, you don’t have to pay back the loans… You don’t feel them right away, you don’t understand their magnitude.” Also, most students pick up a series of smaller loans, which might make it more challenging to sum up the overall price tag. But it’s not just young students who have trouble remembering how much they borrowed: Research conducted in Ireland revealed that people tend to have poor memories when it comes to how much they paid for their houses, significantly underestimating the purchase price—possibly a symptom of buyer’s remorse in the wake of the housing bubble.
- The Spring Meetings of the IMF and World Bank are underway in Washington. It’s a chance for researchers, policymakers, government officials, and journalists to get together and hash out the big issues facing the global economy. The IMF is tasked with monitoring the economic and financial conditions of its 188 members, and providing financial assistance to those that have trouble paying their debts abroad. But those loans come at a price, and the IMF has a reputation for the tough fiscal pain it imposes on borrowers through its structural adjustment programs. An article in the New York Times suggests the IMF might now be trying to soften its image by focusing on pro-growth policies that reduce income inequality. But Managing Director Christine Lagarde says this is not a departure for the IMF: “Our mandate is financial stability. Anything that is likely to rock the boat financially and macroeconomically is within our mandate.” Lagarde pointed to a host of IMF research suggesting that income inequality has the potential to make the global economy less stable, and to hold back growth. As the Globe and Mail points out, recent geo-political crises have been concentrated in places were the economy has stalled and income inequality is wide.