Monday, 25 March 2013

Student Loans Are Diving Underwater

The student loan market has a lot of factors that seem to say "Stay the heck away!": they're relatively easy to qualify for, college costs have increased far more rapidly than general consumer prices, we now seem to feel that EVERYONE SHOULD HAVE A COLLEGE EDUCATION. ELEVENTY!!!, and most importantly, the job outlook for many (most?) college grads is to put it mildly, pathetic.  

This graph from the Washington Post piece points out some evidence that we might be seeing the beginning of the next "bubble pop".  Although they're a fairly small part of the overall consumer loan market, student loans are more likely to be 90+ days past due than any other loan class.  And the percentage is growing pretty rapidly. 

Luckily, the Unknown Daughter gets free tuition at Unknown University.   We still have a half-dozen years until we have to shell out for college, but it'll take a lot to justify her going somewhere other than to my (fairly low-cost) school. 

Friday, 22 March 2013

But I'm Not Dead

It's been almost a year since I last posted.  And a lot has happened at Unknown University since then.   I'm waiting to hear from the University P&T Committee and the Provost on my tenure case (I've made it past all the other hurdles - department, college peers, college P&T committee, and dean).  So I've been keeping a low profile since then regarding the blogosphere and trying to get stuff done.

Since the last post, the Unknown Baby Boy (a.k.a. KnuckleHead) has turned 4.  He is a lunatic, and a great deal of fun (despite the occasional head butt to the package).   The Unknown Daughter (a.k.a. Future Ruler of the Universe) is finishing up 6th grade.  She's planning on going to a 1-week computer camp to learn HTML this summer, so the blog might actually end up looking good.  On the down side, she just let slip that she's sweet on a young man, so it starts.  Looks like I'll have to buy a large knife to sharpen with e demented grin when he comes a-callin.
Oh, and I had a minor heart attack just before Christmas - no damage to the heart muscle, and I've been back riding since about 2 weeks after.
I'll resume regular posting once the tenure stuff is resolved.  Lots of stuff to catch up on. 

I the meanwhile, here's something completely unrelated to academia (I just found it funny).  It's John Cleese's remarks at Graham Chapman's funeral.  Now THAT is a eulogy.

Tuesday, 19 March 2013


In my previous blog entry, I responded to a student from Florida who wrote in about the potentially devastating results of a bad first test.   As often happens with me, I have spent a lot of time since then thinking about how I could better prevent my own students from being trapped by the results of that first test.   I do not want my students to come to accept that they are just C or D students and have no possible way to improve.   I too often hear “well, I made a low C on that first test; I guess I’m destined to do poorly in this class.”   That’s nonsense.   I want them to fight back.   One test grade is just one test grade.   But, we are all human and much of our self-image is based on what happens to us right now.  A lot of success in life comes from having confidence and a bad first test grade can kill anyone’s confidence.   How do you avoid ruining a student’s confidence as a result of a bad first test?

I am giving my second test next week so I sent out the email below to my students today.   I am hoping that it will encourage some of them to show me a better side to their abilities.    As you can see here, I want to show them that failure is not pre-ordained.   Success is not impossible.   I am trying to get it into their very young heads that they do have control.   They have the ability to do better.   We’ll see what adjustments I get.

To:   My Students

I was pleased by how you came back from Spring Break. Often students walk back in after a week off and seem to have forgotten 2 months’ worth of material (especially if they have sun tans). On Monday, though, virtually everyone was prepared (pretty well) and ready to go. I was pleased.

Consequently, I head into these last few weeks of the semester quite optimistic. As I have said before, I don’t have many students who seem obsessed over making an A (maybe less than usual) but I have more students than usual who seem very capable of making an A. I like that – my job is to push you to get there.

You have two examinations, two papers, and a comprehensive final exam left in this course. That is about 75 percent of the grade. How you do in this course very much depends on how you do from here out. There are no guarantees in life but if you give me an all-out good amount of energy, you should be happy with the results.

Last weekend, I was visiting relatives. Probably as a consequence, I wound up spending a lot of time watching basketball. Nothing much is accomplished by watching other people being active but it allowed me to kill time.

During those games, I heard two things that I found interesting. The first came from a coach and the second from a player.

The coach has been in a hard-fought game and his team had rallied and won. He was clearly excited and thrilled. The television announcer asked him how his team had managed to do so well at the end of the game. His response was something like this: “We called our players over and told them that if they were going to win, they quickly had to become the best players on the court.”

If you seriously want an A, at some point, you have to be one of the very best students in the room. Being an average student in the room is fine and dandy but that will just get you a C. You cannot earn an excellent grade by being mediocre. If you are serious about being ambitious, then at some point (tomorrow, for example), you have to step up and be one of the best students in the room. And, that takes a serious level of preparation. You cannot become one of the best students in the room by making changes after you get there. The changes have to be made before you get there.

In the other game, one team had been behind by something like 7 points at halftime but came back to win by about 10. After the game, the announcer was talking to one of the winning players who commented: “We came out in the second half ready to make the adjustments that were necessary in order to play better. The first half showed us what we had to do differently and, in the second half, that is what we did.”

I don’t care what grade you made on the first test. I want to see you make a real improvement on the second test. But, to do that, you have to start being one of the top students in the room. You cannot sit there and let other people shine. There has to be a fire in your belly (not during the test but rather during the daily class experience) that pushes you to be great. That greatness will carry over to the test.

And, you have to make adjustments. If you made 74 on the first test and continue to prepare and study in the same manner, I would expect you to make about 74 on the second test. In many ways, the first test has one purpose:  to help you figure out what you need to do differently. What did you learn from that first test?

We have our second test next Monday. I’ll leave you with a story from about 4-5 years ago. I had a woman in class who was never prepared. I could ask her virtually any question in class and get a blank stare. Not surprisingly, she made a D on the first test. I figured she would catch on but, sure enough, her preparation remained abysmal. She was clearly doing no work to get ready for the learning experience of class. On the second test, she made another D. I could see where her grade was heading.

She then came to my office in near hysteria. She had a job offer and absolutely could not make a D or F in my class. I mentioned (as kindly as I could) that she was never prepared for class. Her response was typical of a lot of students: “There’s no need for me to prepare because I pay close attention in class and write down everything you say so that I can learn it later.”

She seriously thought that writing down the answers was the same as learning to figure things out.

I challenged her to do an experiment for just one week. I wanted her to spend as many hours as it took (a gazillion maybe) but for that one week I wanted her to be the best prepared student in class. “Humor me,” I remember saying, “I’m an old person.” My only advice was: Be the best prepared person in class each and every day.

When she walked out of my office, I mumbled to myself “I suspect that’s going to happen when pigs fly.”

At the next class, I purposely asked her the very first question and I made it really complex. And, much to my surprise, she gave me a legitimate and thought out answer. I waited a few minutes and asked her a second question and got an equally good answer. For the rest of the semester, she was the best prepared person in the room, every day. She made a solid A on the third test and one of the highest grades in the room on the final exam. She did not get a D for the semester. She wound up with a very strong B. She did not get the A only because she waited too late to make the needed adjustments.

She has gone on to have a very solid career in public accounting. She made the adjustments needed to become the best prepared student in class and that made all the difference.

If you were happy with your grade on the first test, please ignore that story. It is not important. However, if you were upset over your first grade, read that story a second time. That was her but it can also be you.

Saturday, 16 March 2013

The JP Morgan ‘hedging’ fiasco

Ina Drew - Senate Hearing (Source: CNNMoney)

“The strategy was flawed, complex, poorly executed, and poorly monitored.” – Jamie Dimon on the scheme that cost the firm over $6.2 billion last year.

Right before a series of hearings related to the failed hedging portfolio, the Senate released a 300-page report two days ago that revisited significant missteps in the risk-management process at JP Morgan that led to catastrophic losses in the first half of last year, as well as casting a dark shadow over former Chief Investment Officer Ina Drew. The heavy losses sustained by JP Morgan where from a complex derivatives portfolio that was build to hedge against credit risk in the Firm’s Chief Investment Office (CIO) and “in its capacity as a lender.”[1] The Senate report claims that JP Morgan failed miserably in heeding repeated warnings from its internal risk controls (more than 330 of them throughout the first four months of 2012), misled investors in a conference call in April 13 of that year, and withheld information from regulators. It also criticized authorities at the Comptroller of the Currency, which were tasked with guarding against such excessive risk-taking, for not pursuing the incoming red flags.[2] In January of this year, JP Morgan also released a document that highlighted some of the mistakes that were mentioned in the Senate report and widely acknowledged that senior management should have done better at handling the complexity, size, and riskiness of the portfolio.[3]The firm’s report directly placed the blame for the debacle on the traders that executed the flawed strategy, the “London whale” among them, while harshly admonishing their superiors for allowing the trades to ever materialize.

However, it remains unclear whether management actively sought to mislead investors, or was simply unaware of the true nature of the losses. Democratic Senator Carl Levin, who led the Senate probe into the trades, is convinced that the former is in fact the case. After the report was released, he stated that the bank’s communications and securities filings “misinformed investors, regulators, and the public.” Yet by the time Jamie Dimon characterized the losses as a “tempest in a teapot”, the portfolio had reportedly lost $719 million[4], a fraction of the final amount. Given the difficulty of estimating losses in such a complex derivatives portfolio, it seems exaggerated to assume that both Douglas Braunstein, the CFO at the time, and Dimon were knowingly issuing false statements and thus breaking the law. Furthermore, on May 10, 2012, the bank’s Controller completed a special assessment that concluded that the CIO had “accurately reported the value of its derivative holdings” in line with best industry practices, while conceding that the firm had aggressively priced the derivatives in the portfolio to minimize their regulatory capital.[5]

It is also surprising that the Senate subcommittee decided to try and galvanize public opinion by characterizing the losses as a clear violation of the Volcker Rule, contradicting a previous statement by the CIO[6], and by dismissing the scheme as a “make believe voodoo magic ‘composite hedge’”[7], even when such a rule has not been finalized and does not represent law under which the Securities and Exchange Commission currently operates.

Though the media will focus on the obvious errors that occurred throughout this episode, and the particularly egregious decision to tweak the firm’s value-at-risk (VaR) metric to allow for the trades[8], it is only responsible to properly take into account the specific circumstances surrounding the bank’s errors and disclosures. It must also be said that JP Morgan, despite the trades and tarnished image, reported record profits and higher revenues for the year.[9] Still, the Senate findings will ensure that the pressure remains on Dimon to never let similar mistakes happen again. Expect the authorities to speed up the implementation of the Volcker rule, and to continue to paint the financial sector as a ‘runaway train’ that needs stiff regulations to function, let alone thrive – regardless of the validity of such claims.

-- Andrés Muñoz

[1] JP Morgan Chase & Co. Management Task Force, Regarding 2012 CIO Losses, CIO Reports,, p. 2
[2] Permanent Subcommittee on Investigations, JP Morgan Whale Trades: A Case History of Derivatives Risk and Abuses, United States Senate, March 15, 2013, p. 3
[3] Regarding 2012 CIO Losses, p. 8-9
[4] JP Morgan Whale Trades, p. 4
[5] JP Morgan Whale Trades, p. 6
[6] JP Morgan Whale Trades, p. 236
[7] JP Morgan Whale Trades, p. 36
[8] Jessica Silver Greenberg, JP Morgan Faulted on Controls and Disclosure in Trading Loss, Dealbook,
[9] JP Morgan, Form 8-K, CIO Reports,

Thursday, 14 March 2013


Today, Samsung unveiled its newest smartphone, the Galaxy S 4, right here in New York’s Radio City Music Hall. The Samsung S 4 is the latest smartphone to be previewed and has yet to come out into retail, with a release date set sometime in late April. The phone is the work of new technology, new logistics and a sleeker design. The S 4 has a 5 inch screen and is .31 inches thin. It runs on a faster chip and has a 13-megapixel camera that allows rear and front cameras to take simultaneous photos and videos. The phone will connect to next-generation LTE networks and has capability to connect to higher speed Wi-Fi networks. New software features includes a function that lets users control the smartphone screen with their eyes. Users can also wave their hands to scroll up and down a Web page or accept a call, or hover their fingers to preview the content of any media without having to open it. The phone also includes temperature and humidity sensors, as well as one designed to automatically monitor one's health. Perhaps the most apparent change is the introduction of the Samsung Hub, the Samsung version of iTunes, where users will be able to purchase and download music, books and other media.

The introduction of this new phone puts Samsung back on top in the leader of innovation of smartphones. They have raised the bar once again. This is great for Samsung, especially after the poor iPhone 5 earnings. The new technology will help boost Samsung’s initiative to increase its market share in the United States. The WSJ reports that Samsung ended last year with a leading 30.3% share of the world-wide smartphone market, up from 19% at the end of 2011. Apple's market share was essentially flat, as the company held on to the No. 2 spot with 19.1%, up from 18.8% in 2011. The increase in market share from the S 3 was heavily indicative of Samsung’s new technological advances. I believe that Samsung will not have the iPhone 5 moment, where the hype exceeded the earnings, because they have incorporated new, innovative and never-before-seen technology into this smartphone. Great earnings are in store ahead for Samsung. And even if Samsung doesn’t do too well, they will still have me as a customer!

Wednesday, 13 March 2013

New Pope for a New World

Today, the Catholic Church made the decision to modernize and recognize the changing realities of the world. By electing Jorge Bergoglio, now Pope Francis I, as head of the church, the cardinals have shown that they understand the prevalence of the developing world and the need for changes in the papal order. In addition, the support for Pope Francis was magnified by the swiftness of the decision, coming after only 2 days in the fifth round of voting in what was thought to be one of the most wide open papal races in recent memory. The selection of Pope Francis is a crucial one for the church as it moves forward because it gives new hope to members worldwide by thinking outside the box and selecting not only the first Jesuit pope, but also the first from Latin America.

Through his name selection alone, Pope Francis showed that changes would be coming to the Church. By taking the name of St. Francis of Assisi, a man who gave up his wealth and worldly lifestyle in service of the church, Pope Francis shows that he understands that he must continue his goals to improve the developing world in order to restore the honor and stature of the Catholic Church. In a world now defined by a global marketplace and the exchange of goods and ideas across all borders instead of a few solitary superpowers, the Catholic Church has realized that drastic changes were needed in order to stay relevant. The selection of Pope Francis recognizes the growing importance of Latin America, both economically and socially, while symbolizing an upheaval of the status quo.

-Varun Sawhney

Tuesday, 12 March 2013

American Auto Sales Rise

            The sale of automobiles has been one of the most consistently reassuring economic indicators during the past few years, as automobile sales in the United States has steadily increased from their 2009 bottom. Although car purchases rose by 3.7% in February, they did move at a slower pace relative to last year. This fact reflects the notion that the possibility of job cuts and tax hikes amid budget debates in Washington have somewhat slowed consumer confidence regarding their job security, and, in turn, their disposable income. However, Ford’s U.S. sales chief came out and stated that the strength of this industry, determined by low interest rates and pent-up demand, have the potential to weather any storm that may arise from the sequester recently implemented. Many buyers have, therefore, been gradually returning to the market in order to purchase new vehicles.

Most American auto manufacturers saw sales surge, whereas many foreign car companies saw their sales in the U.S. decline. For instance, General Motors and Ford reported increases by 7.2% and 9.3% respectively, while Honda and Nissan witnessed their sales decline by 2% and 6.6% respectively. Performances this past month definitely make a statement for American car companies that, just a few years ago, needed government bail-outs. Additionally, it serves as a testament to the fact that American manufacturing is not completely over. Not only are these corporations producing valuable cars, but also their products are selling more than imports. Ultimately, the news regarding automobile sales in the United States finalizes a great week for the American economy, with a new record for the Dow, great reports about the services sector, and a positive direction for American car manufacturers.

-Matheus Silva

Tuesday, 5 March 2013


I think college education would improve rather quickly if students would start asking more questions about the process. For most of them, it is their one and only shot at a college education. What they learn and then know for the rest of their lives is dependent on how well that process works. It is not something that they should take lightly. The efficiency of the process might be important to the teacher but it is essential to the lives of the students.

Personally, I believe transparency is a good idea. Plus, what a teacher does should be able to withstand a little scrutiny from the students that are involved. If I cannot explain why I am doing something, I probably need to rethink it.

However, we tend to train our young people to be very obedient – to do what their elders tell them to do without asking any questions. I have often speculated that I could walk into a college class and start giving nonsense assignments about Martians and the North Pole and most students would fall right in line and do exactly as they were told. Obedience is nice but I’d prefer for my thinking students to start asking questions.

Of course, some faculty members treat student inquiries as rude behavior much like W. C. Fields’ famous retort: “Go away kid, ya bother me.” That type of response will train any student to sit and be quiet.

I was pleased, therefore, to get a question recently from a college student about the educational process. Here is the question that was sent to me and below that I will give my response. However, before you read my response, stop reading and determine how you would have answered this question? I’ve got my answer but what is your answer?

From the student:

Dear Professor Hoyle, I am a 3rd year accounting major at University of Florida. I love reading your blog and even though I am not a teacher, your writings have tremendously helped me improve, both as a person, and as an accounting major.

I remember a story I read a long time ago and it gave me an idea which I want to share with you. “The story goes that Milo, a famous wrestler in ancient Greece, gained his immense strength by lifting a newborn calf one day when he was a boy, and then lifting it every day as it grew. In a few years, he was able to lift the grown cow. The calf grew into a cow at about the rate that Milo grew into a man. A rather freakish man apparently, since grown cows can weigh over 1000 lb. The point is, the calf grew old along with the boy.”

At UF, most of our accounting courses have 3 exams; 2 midterms and 1 final, thus each exam covers around 4-5 chapters. I understand that our accounting professors want to improve our critical thinking abilities during the course of the semester but I feel that bombing the first exam puts many students at a disadvantage and they have to end up dropping the course (even though they still might be able to bring their grades up eventually).

Wouldn't it be better if there were more exams and each exam was incremental? Hypothetically, the first exam covers only 1 chapter, the second covers 2 chapters, third covers 3 chapters and so on. Do you think this approach would still be useful in developing the critical thinking ability of students? Or is it going to defeat the purpose of “uncertainty” and just train the students on how to get better at taking the exam?

Okay, that is a very legitimate question. I think every teacher has had students who bombed the first test and then either dropped the class or just gave up. However, there are many reasons why a student might do poorly on a first test. They might have had one or two other tests on the same day. They might have been sick or a personal matter could have come up as a distraction. Most importantly, maybe they just needed that first test to gain an understanding of what the teacher wanted from them.

Given the importance of grades, how much emphasis should we put on the outcome of that first test?

Stop and think about it – this student clearly seems troubled by the approach that most of us use.

Here’s my answer to this question. When I initially got the email, I responded with a slightly different version but I’ve thought about it since that time and have done some editing. In truth, though, I’m actually much more interested in your response.

To the student from Joe Hoyle:

Thanks for the very insightful question -- and I really love the story of Milo. It is amazing how well a story like that can make a person's point so clearly.

You are obviously right -- a student can be devastated by a first test grade and either drop the class or stay in the class but just give up. Neither reaction is what a teacher really wants.

From a practical side, the problem is that the student and teacher often have different views of a test. For a student, it is extremely stressful and the grade is tremendously important -- potentially impacting careers and jobs and the like. One bad test grade can literally change a person's life. That is not an overstatement.

For a teacher, a test is a pain in the neck. They can be difficult to write and they are time consuming. Grading can be excruciating and coming up with a precise grade is hard to do (unless a teacher just has infinite confidence in their testing and grading abilities). Plus, every day that you give a test takes a day away from the learning process.

And, after the teacher gives the grade, he or she may have to endure student after student arguing about the validity of the grade.

Any time you have an event that is essentially important to one side but painful to the other, you have the potential for a problem. My bet is that most teachers would prefer to give no tests at all. Even if your suggestion is better for the students, it puts more work on the teacher -- time the teacher probably doesn't have because of other class work, research, and committee assignments. (If you are a student who has bombed the first test in an important course, that justification probably does not seem very satisfying.)

Isn't this a strange world where the good of one side is often a problem to the other?

I have friends who give periodic quizzes for just the reasons you mention and that seems like a reasonable approach. However, again, how much class time do you want to allocate to testing? And, how much time does the teacher want to allocate to writing and grading and discussing tests?

I don’t know if you know what a test bank is but test banks have become popular because they allow the teacher to outsource the testing process to someone who knows little or nothing about your class. The test is just as important to the student but requires less thought and work by the teacher.

Here's what I do. I teach 50 minute classes three times per week. Although this schedule has become much less popular over the years, I think having more repetition makes for better learning. In addition, having more classes makes it is easier to set aside additional days for testing.

I give three tests during the semester and a comprehensive final exam. In my Intermediate Accounting II class, I also require three short papers. With this system, each of the hourly exams counts 20 percent of the student's final grade.

When we come to the first test and the students are beginning to panic (some seem ready to have a nervous breakdown), I try to reassure them – “Whether you do great or whether you do awful on this first test, it is only 20 percent of your grade. This is just a first step in showing you what I want you to learn. If you have a problem, you've got plenty of time to make adjustments and get the grade up.”

I want to give my students a chance to see how I test. The grade on that first test is still important -- it is 20 percent of the overall grade -- but I don't want to crush their spirit if they have a bad day. I want them to focus on a longer term goal. I want each student to be great by the last class. I have no other objective. I think having a first test that counts 20 percent is a good way to push my students toward that goal.

But it is important for them to realize that if they do not do well on that first test, then they must make adjustments. If a student makes a 59 or 67, that better be a wakeup call that changes are necessary.

Every semester I will have students who bomb the first test but still make an A in the course because they wake up and say “this old guy is not kidding, he really does expect me to think about this material and learn it.” And, they immediately become better students and save their grades.

Those are often my favorite students because they didn’t quit or give up. That made adjustments and learned what I wanted them to learn.   They had time to do that and they made good use of that opportunity.  I wish I had more students like that.

Monday, 4 March 2013

Swiss Shareholders Gain Control of Executive Pay

On Sunday, 68% voted in favor of giving binding control over executive pay to Swiss shareholders. This would allow shareholders to vote on the compensation given to board members and corporate executives for any company listed in Switzerland. The initiative would also pose limitations to signing bonuses, severance packages, side contracts, and rewards for buying or selling companies.
Discontent over exorbitant executive salaries has been growing. Last month, public outcry prevented pharmaceutical company Novartis from giving its chairman $76 million for an exit package. Outrage over UBS’ hefty losses in 2008 along with its large bonuses also contributed to the plan, which was spearheaded by Thomas Minder, the head of a Swiss company Schaffhausen. Minder’s stated that his goal was not to reduce salaries, but wanted shareholders to take responsibility for remuneration. It is unclear when the plan will actually be implemented.
Although this would close the tremendous compensation gap between top executives and average workers, there could be drawbacks as well. Many doubt the effectiveness of the policy and believe that companies will just find creative ways of compensating executives, rather than reduce their salaries. This initiative could potentially prevent international talent from taking executive positions in Swiss companies. Opponents also argue that it could damage the country’s competitiveness and that Switzerland may no longer be as an attractive region to locate companies.

Will this initiative prevent large companies, such as UBS, from taking huge risks? Executives may possibly implements more risk control measurements to prevent trading losses in an effort to save their own salaries.
-Diana Hong