Recently we have witnessed the unfortunate sequence of legitimate and responsible protest actions being hijacked by those who use the crowd effect of many marchers as a cover for their criminal activities of looting and burning. This same juxtaposition occurred 50 years ago this summer in Chicago and there are some lessons to be learned — so history does not need to repeat itself.
It was clear that Chicago was in for a long hot summer when on May 22, 1965 the board of education reappointed superintendent of schools, Benjamin Willis — and in so doing, violated assurances that leaders of the civil rights movement had received that Willis would retire. Nightly marches from Buckingham fountain to city hall and the board of education soon followed — in some cases marchers were arrested for blocking traffic. During the third weekend in July, Martin Luther King arrived in Chicago and led a march of more than one thousand participants.
By far the most noteworthy marches were those led each evening by the comedian, Dick Gregory. On August 1 and 2 his group decided to march to the home neighborhood of Mayor Daley. A crowd of over one thousand neighbors gathered and the police, in order to avoid a major confrontation, ordered the 50 marchers to leave or be arrested. Gregory and most of his followers were arrested.
Soon thereafter on August 12 riots broke out on the west side when an undermanned fire truck killed a black women. At the height of the riot a police car was sent to the headquarters of the Coordinating Council of Community Organizations to bring the convener and civil rights activist, Al Raby to the troubled streets.
While any riot is lamentable, by comparison to the turmoil that occurred in the Watts section of Los Angles at the same time, matters in Chicago were quickly brought under control, largely due to the actions of the police and the leaders of the civil rights movement.
The dramatic speed of financial transactions can be matched only by the intensity of the controversy surrounding it, especially when it comes to high-frequency trading.
In markets for stocks, futures and foreign exchange, transactions take place in milliseconds to microseconds (or even nanoseconds). Markets for fixed-income securities including corporate bonds and over-the-counter derivatives such as interest-rate swaps are also catching up quickly by adopting electronic trading.
To many, the “Flash Crash” of May 2010 was a wake-up call for reevaluating market structure. A series of technology glitches proved to be highly costly for some brokers, proprietary firms and marketplaces in terms of both profits and reputation. The SEC launched investigations into HFT firms and their strategies. French regulators introduced a financial transaction tax. Author Michael Lewis wrote “Flash Boys.” The list goes on.
With this fallout comes important economic questions: What are the costs and benefits to investors for speeding up trading? Is there an “optimal” trading frequency at which the financial market should operate? And does a faster market affect one group of investors more than another?
It’s the Age of Social Media, and most companies are all in. They vie for likes on Facebook; they post pictures of products on Instagram; and they collect followers on Twitter and Weibo — China’s popular microblogging site — and regularly post about new services.
And yet, even as companies continue to spend time and money on social media, many are dubious about whether all that posting, tweeting, and retweeting has any effect on the bottom line.
My collaborators from Tsinghua University’s School of Economics and Management and I have just completed a large-scale field experiment on the Chinese microblogging service Weibo with a large global media company that produces documentary TV shows. We found that when the company posted about its shows, viewership rose 77 percent. Reposts by influential users, meanwhile, increased viewership by another third. The upshot: Social media platforms, like Twitter and Weibo, can have a significant impact on sales.
Late last month, President Barack Obama took a step around the longstanding congressional gridlock over labor and employment policies by announcing a plan to boost the salary threshold governing overtime from US$23,600 to $50,440 and to index it to inflation.
Essentially, that means white collar workers in that salary range, currently exempt from being paid overtime, would get 1.5 times their hourly wages for anything over 40 hours.
The administration estimates this action will extend coverage to an additional five million workers who will either receive overtime pay or work fewer hours at the same salary, with some of their extra work shifted to part- or full-time hourly workers. Either way, the workforce and the economy will record a small win in efforts to raise wages and reduce income inequality.
I’ve been immersed in this issue for decades, including as a member of the Clinton administration’s Commission on the Future of Worker Management Relations in the early ‘90s and as codirector of the MIT Sloan Institute for Work and Employment Research.
Financial shadows are dangerous. Even more dangerous are interactions between poorly understood shadows and essential financial intermediation activities. And most dangerous is when officials and private sector executives encourage a class of transactions that supposedly provide modest risk mitigation, while really building a disguised form of systemic risk on a grand scale.
It was not mounting losses at Countrywide, the failure of Lehman Brothers or the imminent collapse of AIG that spelt disaster in September 2008. It was the connections between those lightly regulated businesses and Citigroup, Bank of America, Goldman Sachs, Société Générale, Barclays, UBS and Deutsche Bank.
Where is the next generation of systemic risk hiding in plain sight? Look carefully at central clearing counterparties, or clearing houses, which are expanding due to the post-crisis requirement that standardised swaps – derivative transactions, including credit default swaps, that have standard terms along important dimensions – be cleared centrally.