Ilya Beylin
@ibeylin.bsky.social
Business law prof (Seton Hall); interested in derivatives and much else.
Here I go fantasizing, but perhaps the US can lead in AGI and then sell it to the rest of the world and get a nice UBI for Amrcns via some pareto achieving tax machinations 🤩 (and also not get militarily dominated). It is remarkable what we have seen in protein folding models, weather prdction, etc
December 6, 2024 at 1:45 AM
Here I go fantasizing, but perhaps the US can lead in AGI and then sell it to the rest of the world and get a nice UBI for Amrcns via some pareto achieving tax machinations 🤩 (and also not get militarily dominated). It is remarkable what we have seen in protein folding models, weather prdction, etc
I don't want to be too naive about the capacities of Congress to engineer a pareto improvement and allow broader society to internalize the efficiency gains. How we protect labor from innovation is quite a thicket.
However, currently, Wall Street is saying that those AI engineers are hyping.
However, currently, Wall Street is saying that those AI engineers are hyping.
December 6, 2024 at 12:56 AM
I don't want to be too naive about the capacities of Congress to engineer a pareto improvement and allow broader society to internalize the efficiency gains. How we protect labor from innovation is quite a thicket.
However, currently, Wall Street is saying that those AI engineers are hyping.
However, currently, Wall Street is saying that those AI engineers are hyping.
I think this is a problem worth thinking about even thought at present AGI seems far from where we are. I agree that the shift may be great, and may come to some of the upper strata unlike prior shifts. Econ suggests that tax on the owners of AGI may be sufficient. But . . .
December 6, 2024 at 12:55 AM
I think this is a problem worth thinking about even thought at present AGI seems far from where we are. I agree that the shift may be great, and may come to some of the upper strata unlike prior shifts. Econ suggests that tax on the owners of AGI may be sufficient. But . . .
So this becomes about speed of execution rather than an L-S portfolio based on fundamental insights.
(2) Mkt expectations as to effect of DE may evolve, so how would the L-S portfolio be retuned?
I may be misunderstanding.
(2) Mkt expectations as to effect of DE may evolve, so how would the L-S portfolio be retuned?
I may be misunderstanding.
December 4, 2024 at 8:05 PM
So this becomes about speed of execution rather than an L-S portfolio based on fundamental insights.
(2) Mkt expectations as to effect of DE may evolve, so how would the L-S portfolio be retuned?
I may be misunderstanding.
(2) Mkt expectations as to effect of DE may evolve, so how would the L-S portfolio be retuned?
I may be misunderstanding.
Actually, as I think through this, there are some add'l issues with the strategy:
(1) the L-S portfolio is based on market expectations re dependent event (DE). This works b/c mkt is pricing in expectations re prob and effect of DE. But in that case, the L-S strategy is racing with mkt.
(1) the L-S portfolio is based on market expectations re dependent event (DE). This works b/c mkt is pricing in expectations re prob and effect of DE. But in that case, the L-S strategy is racing with mkt.
December 4, 2024 at 8:01 PM
Actually, as I think through this, there are some add'l issues with the strategy:
(1) the L-S portfolio is based on market expectations re dependent event (DE). This works b/c mkt is pricing in expectations re prob and effect of DE. But in that case, the L-S strategy is racing with mkt.
(1) the L-S portfolio is based on market expectations re dependent event (DE). This works b/c mkt is pricing in expectations re prob and effect of DE. But in that case, the L-S strategy is racing with mkt.
One thing that complicates how I think about these exercises is this year, VIX peaked pre-election on Oct 31. By Nov 5, it was significantly lower. I believe this differs from 2016. Unsure re 2020. But the mkt does not appear to have seen a resolution of great uncertainty with the election.
December 4, 2024 at 7:20 PM
One thing that complicates how I think about these exercises is this year, VIX peaked pre-election on Oct 31. By Nov 5, it was significantly lower. I believe this differs from 2016. Unsure re 2020. But the mkt does not appear to have seen a resolution of great uncertainty with the election.
Then construct a L-S portfolio that benefits if the event occurs. Buy/sell that portfolio as the prediction mkt likelihood of the event changes. The complication here is all the noise in constructing the L-S portfolio, because a lot more happens around the predictive event, there's drift, etc
December 4, 2024 at 7:16 PM
Then construct a L-S portfolio that benefits if the event occurs. Buy/sell that portfolio as the prediction mkt likelihood of the event changes. The complication here is all the noise in constructing the L-S portfolio, because a lot more happens around the predictive event, there's drift, etc
This is fascinating - I much appreciate the link. The approach makes conceptual sense. Identify a predictive event (eg Biden-Trump debate) for a dependent event (eg Trump's electoral chances). See how asset prices reacted to the predictive event.
December 4, 2024 at 7:15 PM
This is fascinating - I much appreciate the link. The approach makes conceptual sense. Identify a predictive event (eg Biden-Trump debate) for a dependent event (eg Trump's electoral chances). See how asset prices reacted to the predictive event.
Yeah, I think this struck a chord because (fortunately) assassinations of business execs are so rare in the U.S.
December 4, 2024 at 6:25 PM
Yeah, I think this struck a chord because (fortunately) assassinations of business execs are so rare in the U.S.
It is less clear that a decision by Congress or Treasury would necessarily be poorly predicted by a market -- these are bigger groups and deliberations are less private. Interesting questions...
December 4, 2024 at 6:21 PM
It is less clear that a decision by Congress or Treasury would necessarily be poorly predicted by a market -- these are bigger groups and deliberations are less private. Interesting questions...
As for policy changes and event contracts, there is a good literature on where prediction markets don't work well. Decisions by relatively small groups of people (e.g., pres pardons, Supreme Court decisions) deliberating in private should not be well predicted.
December 4, 2024 at 6:20 PM
As for policy changes and event contracts, there is a good literature on where prediction markets don't work well. Decisions by relatively small groups of people (e.g., pres pardons, Supreme Court decisions) deliberating in private should not be well predicted.
How does 1 create a long-short strategy on these event contracts? My understanding is that a L-S strategy is about expressing a relative performance view, e.g., I can be short the magnificent 7 and long the S&P if I believe in a coming correction to AI hype. What would e.g. the Taiwan analog be?
December 4, 2024 at 6:17 PM
How does 1 create a long-short strategy on these event contracts? My understanding is that a L-S strategy is about expressing a relative performance view, e.g., I can be short the magnificent 7 and long the S&P if I believe in a coming correction to AI hype. What would e.g. the Taiwan analog be?
There are many shades between greed and desperation, but ultimately, humans compromise morality under those various demands when placed in positions of power. We have known this for 1000s of years. PE is special in some ways. But there is a lot of misconduct and under-enforcement in our society.
December 3, 2024 at 2:44 PM
There are many shades between greed and desperation, but ultimately, humans compromise morality under those various demands when placed in positions of power. We have known this for 1000s of years. PE is special in some ways. But there is a lot of misconduct and under-enforcement in our society.
During COVID, Congress lambasted banks for mis-deploying PPP funds, but it turns out that there was rampant fraud on the part of the small borrowers.
In normal times, I believe there is rampant tax under-reporting on the part of small businesses and other hanky panky.
In normal times, I believe there is rampant tax under-reporting on the part of small businesses and other hanky panky.
December 3, 2024 at 2:42 PM
During COVID, Congress lambasted banks for mis-deploying PPP funds, but it turns out that there was rampant fraud on the part of the small borrowers.
In normal times, I believe there is rampant tax under-reporting on the part of small businesses and other hanky panky.
In normal times, I believe there is rampant tax under-reporting on the part of small businesses and other hanky panky.
More broadly, we scrutinized banks after 2008 and they certainly had a part in originating loans with fraudulent representations. But the individual borrowers were making those representations.
December 3, 2024 at 2:41 PM
More broadly, we scrutinized banks after 2008 and they certainly had a part in originating loans with fraudulent representations. But the individual borrowers were making those representations.
I also agree that relative to the public company space, there is heightened focus on financial return. But what concerns me is something different. Here I go riding my horse :)
In the small business space, there is also a great deal of focus on financial return and little transparency.
In the small business space, there is also a great deal of focus on financial return and little transparency.
December 3, 2024 at 2:40 PM
I also agree that relative to the public company space, there is heightened focus on financial return. But what concerns me is something different. Here I go riding my horse :)
In the small business space, there is also a great deal of focus on financial return and little transparency.
In the small business space, there is also a great deal of focus on financial return and little transparency.
Higher leverage -> risk-taking incentives makes sense. And there does tend to be a good amount of leverage in many PE investments. Moreover, transparency and leverage change when PE firms take public companies private. But I think of public companies as tending to be particularly well behaved.
December 3, 2024 at 2:37 PM
Higher leverage -> risk-taking incentives makes sense. And there does tend to be a good amount of leverage in many PE investments. Moreover, transparency and leverage change when PE firms take public companies private. But I think of public companies as tending to be particularly well behaved.
As for the short ownership horizons, they can cut the other direction. It is hard to plan, implement & profit from illegal conduct when dealing with employees prior mgmt hired and subsequent mgmt will oversee. It may be easier to organize and get away with misconduct in longer term settings.
December 2, 2024 at 9:53 PM
As for the short ownership horizons, they can cut the other direction. It is hard to plan, implement & profit from illegal conduct when dealing with employees prior mgmt hired and subsequent mgmt will oversee. It may be easier to organize and get away with misconduct in longer term settings.
I regret that the character limit discourages my expression of appreciation and concurrence. It is easy to respect your views, and I agree with much of what you've written in the past. And I agree that financial sophistication & incentives can be toxic in the PE context, especially around exit.
December 2, 2024 at 9:48 PM
I regret that the character limit discourages my expression of appreciation and concurrence. It is easy to respect your views, and I agree with much of what you've written in the past. And I agree that financial sophistication & incentives can be toxic in the PE context, especially around exit.
Similar concerns exist with most US firms, which tend to be individually or family owned and organized in limited liability form. I doubt that politics doesn't help explain why so much attention is paid to PE rather than other contexts prone to producing pathologies.
November 30, 2024 at 5:08 PM
Similar concerns exist with most US firms, which tend to be individually or family owned and organized in limited liability form. I doubt that politics doesn't help explain why so much attention is paid to PE rather than other contexts prone to producing pathologies.
Thank you for this valuable complication. My understanding is that federal legislation often comes from federal agencies too, at least in areas of financial regulation. Legislative priorities are set by the executive, and equally importantly, federal agencies draft and advise on legislation.
November 27, 2024 at 6:26 PM
Thank you for this valuable complication. My understanding is that federal legislation often comes from federal agencies too, at least in areas of financial regulation. Legislative priorities are set by the executive, and equally importantly, federal agencies draft and advise on legislation.
I don't know that I am understanding the question correctly, but there are a number of laws in the fin reg space that place boundaries on what can be done through contract (e.g., derivatives, securities, banking). Perhaps in these areas, courts defer some in light of regulation?
November 23, 2024 at 9:34 PM
I don't know that I am understanding the question correctly, but there are a number of laws in the fin reg space that place boundaries on what can be done through contract (e.g., derivatives, securities, banking). Perhaps in these areas, courts defer some in light of regulation?