Finance Career: Q&A for Physics PhD Seeking Advice | TwoFishQuant

[Moppy]

Agreeing with Statguy2000.

Singapore's wealth in the main, came from a) the location of its seaport, b) banking, c) a benevolent dictatorship that was able to implement long term plans. Sings in general don't want to be scientists. They want to be lawyers, doctors and bankers. "Why you want to be scientist? No money lah". These days it's a retail trade hub too, but that's more a side effect of the first 3.

Saving rates are generally higher in Asian cultures than western. In the case of Singapore, being left with nothing is almost taboo. The government doesn't admit that truly homeless people exist - their official line is "homeless are that way by choice". The HDB system (public housing) doesn't cover everyone. There's 2 population figures. One includes migrant workers of which they have a gigantic amount all living in camps (and probably homeless, I don't know). The other doesn't.

China isn't really communist in the traditional sense of the word.

What concerns American businesses (financially as opposed to ideologically) is not Chinese communism, but Chinese capitalism and the value of their currency.

In the third world, Chinese are using a start-up type model, similar to how Silicon Valley works: small companies of about 3 guys, iterate your product, build as you go. It's much more agile than the traditional method of entering with a megacorp, paying your R&D upfront, and starting with a complete product. As a result, this agility means China is much more able to sieze opportunties in the developing world, such as Africa and Brazil, and this helps to explain their growing influence. Having a sort of command economy also helps as it can focus on long term issues; it's quite hard to get people to vote for a 25 year plan run by a 5 year government.

IOO China has too much saved up and "should" really spend some of that on social programs. I can't remember what they have. it's something like USD 3 trillion in reserves? They will spend it but I'm not sure they have decided how best to go about it. That's not really something I know much about. (*)

As you say, China's got a huge problem with population age. Recently passed/thinking of passing a law that requries children to care for their parents, after the parent reaches a certain age. Don't know if that came to pass or not.

(*) What they will do with the money.

 

[atyy]

First of all, Singapore has high savings rates because the vast majority Singaporeans do not own any property (given the lack of land in an island-state like Singapore, that shouldn't be all that surprising).

This website claims that the fraction of households in Singapore that own their homes is 88.6% http://www.singstat.gov.sg/stats/keyind.html .

 

[Locrian]

That statistic is not incompatible with StatGuy2000's statement. Just need more people per household (which they do have).

 

[boomtrain]

How can Singapore be more of a "free market" when a majority of its population lives in (really good) government housing?

The Singaporean government manages to get by spending only 17% of GDP. http://www.heritage.org/index/country/singapore#limited-government

it's possible to have both a relatively free market and a functioning government

 

[boomtrain]

The trouble is that when there is a high unemployment rate, the knives come out. If there are N job openings and 1.1 N job seekers then increasing training is just going to make the problem worse.

One problem with increasing training is that you end up with the Ph.D. problem. If we train 100,000 air conditioning repair men then you will likely end up with 90,000 unemployed air conditioning repair men who are worse off because they have debt.

I'm not sure this is accurate: http://www.nytimes.com/2010/07/02/business/economy/02manufacturing.html?_r=1

If we train people to have useful skills, businesses will use them. particularly businesses facing a skills shortage.

 

[atyy]

The Singaporean government manages to get by spending only 17% of GDP. http://www.heritage.org/index/country/singapore#limited-government

it's possible to have both a relatively free market and a functioning government

Yes, of course, I was questioning the point that it's "more of a free market". I think it shows that one can have both free market and socialist elements, such as good government housing, side by side. The underlying conception may be that free-market versus socialism is not always a useful "degree of freedom".

 

[boomtrain]

Yes, of course, I was questioning the point that it's "more of a free market". I think it shows that one can have both free market and socialist elements, such as good government housing, side by side. The underlying conception may be that free-market versus socialism is not always a useful "degree of freedom".

Isn't it generally more of a free market though? Its economic freedom rank is 2nd in the world, according to the Heritage Foundation:
http://www.heritage.org/index/country/singapore

 

[atyy]

Isn't it generally more of a free market though? Its economic freedom rank is 2nd in the world, according to the Heritage Foundation:
http://www.heritage.org/index/country/singapore

That is a very interesting number indeed. I guess I was simply making the point that the Heritage Foundation itself makes: "State ownership and involvement in key sectors remains substantial. A government statutory entity, the Central Provident Fund, administers public housing, health care, and various other programs, and public debt is over 90 percent of GDP."

 

[mdxyz]

Yes, of course, I was questioning the point that it's "more of a free market". I think it shows that one can have both free market and socialist elements, such as good government housing, side by side. The underlying conception may be that free-market versus socialism is not always a useful "degree of freedom".

Every country has elements of both, but it's a matter of degree, and the more free market less socialistic countries generally do better.

I gather than in the US, socialism is a very bad and extreme word that even its supporters don't like attached to them. This is not the case in Britain, so apologies if what I say seems overly polemical to you.Twofish - that is an awful lot of replies, so I can't promise I'll reply to all of it. I will try to reply to what I think are the most important points. edit: ok so I did end up replying to most of it; also I'd like to join the people from earlier thanking you for making interesting posts.

With enough time, you can make large institutional changes. For a developed economy, 3% is outstanding. The question for a developed economy is whether you want 0% without technology or 3% with technology.

I don't think that that is the choice or anything like it. If you disagree, do you have any empirical reason, or is it just a feeling?

My argument has been that basic research is not excludable, ie. everyone gets it, and soon everyone benefits. For instance, the man who developed the world wide web was British, and working in Switzerland. Did this mean that the WWW was localised in either of those places for some time, with no one else getting the benefit? Countries adopted internet largely in line with how open their institutions in general were to investors coming along and building new infrastructure to make a profit, and where people were already wealthy enough to take advantage of it.

So I think the choice is more like, if the world as a whole invests a lot in basic research, the world as a whole might get 2% growth. If not, 1.5% growth.

Does it really matter?

The trouble with getting into arguments over what is "best" is that it's an excuse to do nothing.

It does matter, because if due to inefficient allocation the return on investment is 2% less than it should be maybe that really will wipe out GDP growth.

BTW, I've read Von Mises, and know about the socialist calculation problem. I actually agree with a lot of stuff that he says, but I think he gets some things critically wrong.

Mises is historically interesting and more right than most at that time, but the more modern economics is good too. Look up neoclassical growth models and 'conditional convergence'. Also public choice theory, if you are interested in governments and how they allocate resources.

No, they move people from "unemployed" to "working." It may be acceptable for the private sector to have lots of people doing nothing, but in China having lots of unemployed people means mass protests, and so it's unacceptable. One reason that the US has higher unemployment than China is that US political system can tolerate 8% unemployment indefinitely without a revolution. China can't.

The empirical evidence for this effect is weak.

(I'm actually amazed Obama made falsifiable predictions, as he is usually a competent politician. Probably some adviser got fired for this.)

---

Now in principle, you could have things work with a "no bailout" policy. The trouble with that is that you can set up a situation in which "no bailout=the world blows up". At that point the state is forced to do a bailout. The trouble is that if people know that the state is going to to a bailout you get back to the previous situation. You *say* that you aren't going to bail me out, but I don't believe you.

To play devil's advocate, maybe it is good if the world blows up. Recently everyone has decided that more regulation is needed because banks are too reckless. Well if everyone's savings and pensions were wiped out, I'd bet that banks would get a whole lot less reckless very quickly. I wouldn't be surprised if a lot of people started holding a substantial fraction of their savings in gold bars in a safe deposit box. So this sort of thing is a result, not exactly of socialism, but of government interventionism certainly. I agree that politically this is infeasible, but politics is not part of the free market.

Not so clear. The Soviet economy seemed to work very, very well in the 1950's. It fell apart around 1970. Now *why* it fell apart is an interesting question. I would argue for Vladimir Popov's model in which the Soviet Union stopped infrastructure investment in the 1950's.

Essentially, the trouble was that because Soviet planning was based on production quotas rather than profit, there was strong disincentive to replacing aging machinery. You lost your quota, and there was no way of calculating the economic benefit of the new machines. This didn't matter in 1950, because the Soviets had to repair everything because of WWII, but it started to kill the economy in the 1970's. If that's the explanation, then it's going to be pretty bad for the US (however, unlike the Soviet Union, the US has a strong enough political system to prevent total collapse).

I think this is plausible, because nationalisation killed a lot of British industry in the same way. But that's the whole problem: nationalised industries respond to political pressures and if there's no internal market it's more or less impossible to make any comparison in value beyond the very most basic ("10,000t of steel is better than 5,000t of steel" - at least until people start messing with the definition of steel). If you favour a nationalised investment fund that just investments money in the market like anyone else, then that's a lot less damaging.

Note that places like Singapore having big sovereign wealth funds is often a symptom of them being more free market than places like the US. This is because it means they fund their state pensions and unemployment insurance schemes via investing the contributions. In the US and Europe, these things are still controlled by the state but the contributions are spent immediately and the benefits are paid for using inter-generational transfers and debt.

I used to wonder why people clung to Soviet models after it seemed obvious that they wouldn't work. Then I see people cling to neo-liberal economic ideas after it is pretty clear at least to me that there is something seriously wrong with them, and it makes more sense. One issue is that you can't replay history, so when the Soviet model fails, you can try to argue that there wasn't enough "real communism", and I've seen similar arguments that things fell apart because we don't have "real markets." You can get into large arguments over this, but the counterargument that I find convincing is a political one. If you can't realistically have "perfect communism" then it's pointless to argue about whether it is a good thing. Similarly if you can't have "perfect capitalism" then it's pointless to argue that it's a good thing.

We can at least say that, while both are flawed, the fake-markets have worked a lot better than the fake-communism. I'm open to the possibility there is some better system than markets, but it's not any of the ones I've heard of, and most of the improvements I can think of involve moving more toward markets.

---

So how did Russia win? One reason people in China were attracted to the Soviet model in the 1950's was watching the Russians just annihilate the Japanese army. Gee. Wish we could do that...

What do you think the US would have done to it? Or even the Germans, another command economy, who were inflicting 3:1 casualty ratio on the USSR even as they were retreating everywhere throughout 1944. The Japanese army in Manchuria would have been squashed by any of the great powers, because it had hardly any tanks or aircraft. Production had been diverted to the navy and airforce long before.

Don't think so. Aircraft was invented in 1903, and you just can't copy an aircraft carrier or build aircraft factories. It's actually both sad and enlightening to see the problems China has now trying to build civil aircraft and aircraft carriers. It's pretty clear that Chinese civil aircraft manufacturers and military shipyards are pretty clueless. But if you don't try to build a rotten airplane, you'll never build a good one.

There's also the little matter of whether other countries will let you copy their stuff. I'm sure that China would love to have the latest designs for American aircraft carriers. One big reason China is working on high-speed rail rather than aircraft is that most countries are much less annoyed when you copy their railroad designs than if you copy aircraft designs, because there are fewer military applications.

I agree it couldn't have happened 1936-1937, but 1911-1937 is a long time. The misleading thing is to think like an engineer. To an engineer, what matters is if you have the plans to build an aircraft carrier, and then if you have enough steel, and then skilled people who can make steel. But this is more of a management question. If you've got good institutions that are getting everyone to do profit-maximising jobs, soon you're going to be rich and can just pay people to learn those things or buy engineers from abroad who know how to build aircraft carriers. Most of the Japanese ships that defeated the Russians in 1905 were built in, then designed in, then just partially equipped by Britain, and orders were given in English. But Japan still ended up owning Port Arthur, not Britain.

In 1911, no one could build an aircraft carrier because no one knew what an aircraft carrier was.

Because of Russia. Also, if you are in a life and death struggle for national survival, you can make the argument that command economies are good. Militaries are not run on market principles, and one way of thinking of China in 1940 was to imagine the entire population being one big army. This also happened in the United States. Once you are on a war footing, then you have price controls and rationing.

Maybe, but it still matters how rich you are when you start this. If you take US economy of 1941 and convert everything for war, you can make a lot more war materiel than if you take the Japanese economy of 1941 and convert everything for war. The advantage for a centralised society if you can convert for war in, say, 1931, and then you can win against a stronger opponent for the first 12 months, until they can sort themselves out.

Now you can argue that people in 1950 were mistaken, because once Russia got to 1970, things fell apart. But one wonders if the same thing is happening to the "capitalist model". I can imagine someone in 2020 looking at the "neo-liberalism" the same way that people in 1995 looks at communism.

Problem is that it's mroe like people were more delusional in 1950. Here are two graphs from Maddison:

http://phobos.ramapo.edu/~theed/Cold_War/f_Conclusion/media/GDP Rate_b.jpg
http://phobos.ramapo.edu/~theed/Cold_War/f_Conclusion/media/GDP Graph_US_USSR_b.jpg

Two interesting things:

1. USSR never gets close to the USA
2. USSR's temporary improvement comes because of slower than usual US growth, not faster than usual USSR growth

 

[atyy]

Every country has elements of both, but it's a matter of degree, and the more free market less socialistic countries generally do better.

I gather than in the US, socialism is a very bad and extreme word that even its supporters don't like attached to them. This is not the case in Britain, so apologies if what I say seems overly polemical to you.

I'm not one of those who considers socialism bad. I was actually trying to say that Singapore's success is partially due to socialist elements.

 

[chill_factor]

Astrophysical simulations use a lot more compute power than most engineering simulations. Also most engineering simulations can be done with "canned programs". Essentially the equations are the same from situation to situation whereas the boundary conditions are different.

In oil/gas and finance it's the opposite. The boundary conditions are trivial whereas the dynamics changes.

Thank you. I remember you saying before that in astrophysics that the dynamics change frequently, and the boundary conditions are trivial, whereas in say, engine design or pollution modeling, the dynamics stay roughly the same and complicated boundary conditions are the problem. Can you give examples of the equations *changing*?

 

[twofish-quant]

Can you give examples of the equations *changing*?

Sure.

Contract A: I lend you X dollars, tomorrow you pay me back Y0 dollars, then next day I lend you X1 dollars. The next day you let me back Y1 dollars. We do this for six months and at the end up pay me Y dollars. Let's suppose with interest the intermediate cash flows are zero.

Contract B: Now let's suppose I lend you X dollars and you lend me back Y dollars in six months.

OK, since the intermediate cash flows are zero A and B are mathematically identical, and worth exactly the same. That is... Until 2008.

The rules changed. The thing is that if I lend you money for one day, and you look like you are going to go broke, I stop lending you money in contract A. Since you have my money in contract B, I can't stop lending money. So what you end up with is that since 2008, Contracts A and B have different values, so one thing that physics Ph.D.'s try to do is to come up with equations that describe the new relationships between A and B.

Another example:

I have a contract with you, that says that I loan you X dollars in exchange you deposit Y dollars as collateral. If certain events happen (i.e. SP500 goes below value Z), you will be required to put up more collateral. Now I have two contracts. Contract A says that you have to put up the new money in dollars. Contract B says that you have to put up the new money in either dollars or euros. Now before 2008, the difference in value between contract A and B was negligible, because people didn't think much about what happens when companies go broke. They aren't now, and contracts A and B are worth very different amounts

(Quick question on an interview: which contracts are worth more?)

Now I don't want to imply that *only* astrophysicists study these things. If some ocean physicists says "hey, we study that too" I would be tickled pink. I'm not an ocean physicist, but I'm sure that they study something that would be useful to me.

 

[twofish-quant]

My argument has been that basic research is not excludable, ie. everyone gets it, and soon everyone benefits.

And I disagree. Even to *copy* technology requires a non-trivial amount of science and technology skill. People in China benefit a lot more from the WWW than people in say Haiti, because China has institutions that can take advantage of that, and Haiti doesn't. One reason China is spending money on railroads rather than airplanes is that trains are easier to copy than airplanes, and China doesn't have the skill to copy civil aircraft.

The other point is that for basic research to be useful you need a good entrepreneurial economy. If basic research *alone* could create prosperity, then the Soviet Union would never have fell. Russia had excellent basic research, it also had no mechanism for converting that research into economic growth.

For instance, the man who developed the world wide web was British, and working in Switzerland. Did this mean that the WWW was localised in either of those places for some time, with no one else getting the benefit? Countries adopted internet largely in line with how open their institutions in general were to investors coming along and building new infrastructure to make a profit, and where people were already wealthy enough to take advantage of it.

In looking out how places do and don't benefit from technology, it's better to look at regions rather than countries. Cuprertino, California and Austin, Texas benefited from the web a lot more than Detroit, Michigan or Jackson, Mississippi. Also a lot of the financial networks are regional. For example, if you have a great idea in Cuppertino, you rather easily find people to fund it. This isn't true in Detroit.

One reason for looking at regions is that you can better see the processes. I don't think that you say that Detroit is less "free market" than Cuppertino. You can point to some specific aspects. Such as non-compete clauses.

So I think the choice is more like, if the world as a whole invests a lot in basic research, the world as a whole might get 2% growth. If not, 1.5% growth.

And that's ***HUGE****!

It's the difference between 3.4x growth over 100 years and 6.24x growth.

This also explains why people were so ga-ga over the Soviets. During the industry revolution, the typical growth rate was 3%. The Soviets in the 1950's were able to get 6%, that is totally un-freaking-precedented historically. Now the US was able to do a lot better and the Soviets hit a wall. But if you look at typical growth rates from 1870 to 1950 then it's not surprising that people thought that the Soviets had found salvation.

Look up neoclassical growth models and 'conditional convergence'. Also public choice theory, if you are interested in governments and how they allocate resources.

Yup. I know about the Solow growth model. The thing about technology is that it changes both the returns on capital and the amount of technology depreciation. The thing about public choice theory is that who governments allocate resources depends on the institutional context. In the case of China for example, you have state-owned enterprises, but the heads of the SOE's are rewarded based on the profit that they make, which leads to a different set of behaviors if you have a different set of institutional incentives.

The way that I view things is

institutional framework -> human incentives -> mathematical model that describes those incentives.

To play devil's advocate, maybe it is good if the world blows up.

1) The problem is that if the world blows up, then there are no incentives for "good" behavior. You have two banks, one in which the people are "with clue" and do good risk management. One in which people are idiots and then have horrible risk management. Bank B blows up the world. This puts people in Bank A out of a job. Now if you know that this is going to happen, then the rational thing to do is to just get as much money as you can and go nuts. What's the point in being "good" if you are dead whatever you do?

2) The government just will not let the world blow up, and if they say that they will, no one will believe them. You saw this with Freddie and Fannie. Everyone know that they would get bailed out, so their securities would be priced as if they were government backed.

Well if everyone's savings and pensions were wiped out, I'd bet that banks would get a whole lot less reckless very quickly.

If *everyone's* savings were wiped out, then people would get a lot *more* reckless. Again, what's the point in being "good" if you are going to suffer for it? What's the point in saving anything if you know it's going to get wiped out. I mean, if there are no consequences, then the rational thing to do is to take every cent I have and blow it on hookers and cocaine.

Also putting it into gold in safety deposit boxes doesn't work. If things get really bad, they you won't be able to trust the people holding the boxes, and if you try to keep the gold yourself, you'll end up being prey to thieves.

We actually saw this in Russia and Latin America. Also "trust" explains a lot of things about the Chinese economy. One reason that people buy real estate is that it's tough to steal a house. It's not hard to steal things *in* a house, but it's hard to steal a house. Whereas with a stock all you have is a piece of paper.

I wouldn't be surprised if a lot of people started holding a substantial fraction of their savings in gold bars in a safe deposit box.

Yup. You see this where people start holding dollars. The trouble is that this makes economic transfers much. much more inefficient, and if things get bad enough, even that's not going to work. If things break down enough, who is going to protect your gold? The police? HA... They'll be first in line to steal it.

At which point you are stuck. You don't have the institutions for saving, which means no economic growth which means no institutions for saving.

Note that places like Singapore having big sovereign wealth funds is often a symptom of them being more free market than places like the US. This is because it means they fund their state pensions and unemployment insurance schemes via investing the contributions. In the US and Europe, these things are still controlled by the state but the contributions are spent immediately and the benefits are paid for using inter-generational transfers and debt.

I don't think it's useful to classify things into more free market or less free market. For example, in China, you argue that non-state pension funds are better because they are more socialist.

The other thing is that the US Federal government has a huge amount of money in the Social Security Trust fund, and theoretically it could invest that money in the stock market. The reason that it doesn't has to do with the fact that people in the United States don't think that the government should own industries, whereas people in France or China are less resistant to that idea.

We can at least say that, while both are flawed, the fake-markets have worked a lot better than the fake-communism. I'm open to the possibility there is some better system than markets, but it's not any of the ones I've heard of, and most of the improvements I can think of involve moving more toward markets.

The central role of markets is something that is not under serious question. The question involves how do you structure and regulate markets. Most of the changes that I've seen have been to fix the obvious "bad incentives" that you find in markets.

But this is more of a management question. If you've got good institutions that are getting everyone to do profit-maximising jobs, soon you're going to be rich and can just pay people to learn those things or buy engineers from abroad who know how to build aircraft carriers.

You can have rich people, but a government that is starved for money. If the government doesn't have money, you don't have an army, and once you don't have an army, other people come with their armies and take your wealth. You can be lucky like the United States and not worry about that, but China had less lucky geography.

I agree that good institutions are important, but then we get tauntological. Good institutions produce wealth. Producing wealth is the definition of good institutions. That doesn't tell me anything useful.

Two interesting things:
1. USSR never gets close to the USA
2. USSR's temporary improvement comes because of slower than usual US growth, not faster than usual USSR growth

Cut the graph off in 1960, and the USSR looks very impressive. One could argue that the growth in the 1960's and 1990's was due to investments in science and technology and that if the US didn't respond to Sputnik that there would have been less GDP growth. Or maybe not.

The other thing is where you start the graph. If you go back to 1925 and start it with the Great Depression, then the USSR looks outstanding.

One fun game to play is "stop the clock". You stop the clock at a point in time and then see how the world looks. If you "stop the clock" in 1965, then you see Soviet growth rates starting to trend down and US growth rates starting to trend up, but in 1965 you have no way of knowing if this was a "blip" or a permanent trend.

Now it wasn't until the mid-1970's, when people realized that this *wasn't* a blip, and then you give it another ten years for the bureaucracies to start responding, at which point you are with Gorbachev.

The reason that "stop the clock" is a fun and scary game is that you realize that people in 1965 who saw Soviet style planning as the wave of the future weren't idiots. Based on the data that they had, that was a reasonable conclusion. Now it looks idiotic from the point of view of 1990. But one reason I'm not to harsh on people in the past, is that I'm sure there will be something that people in 2030 think that I'm idiotic about.

 

[twofish-quant]

The Singaporean government manages to get by spending only 17% of GDP. http://www.heritage.org/index/country/singapore#limited-government

it's possible to have both a relatively free market and a functioning government

I don't know about Singapore, but I do know that in HK these numbers are extremely misleading.

For example, public transit is usually a loss making government function. However, in HK public transit makes a profit because the government gives them land around subway stations, where they build malls, and the MTR corporation makes money from those malls. This only works because the government owns all land in HK. Similarly, when the government subsidizes housing, this doesn't show up as a budget item because the government owns a lot of apartments, and it rents them out at below market. It can do that because it owns the flats, so all that shows up on the official expenditure is the cost of maintenance which is near zero.

Also, HK doesn't pay for defense. It gets a PLA garrison for free (half smiley).

Because there are so many things that are "off-book" I think using HK as an example of "small government" is *very* misleading. I don't know the details of Singapore, but I suspect that there are similar things going on.

 

[twofish-quant]

Every country has elements of both, but it's a matter of degree, and the more free market less socialistic countries generally do better.

One problem here is that I don't think that you can come up with non-tauntological definition of "amount of free market."

What you can do is to just show people an economy and say "does this look like a free market to you?" which is what the various indices do. The trouble with that is that things get "tauntological." You start *defining* "free-market" as "economies that work" and *defining* "socialism" as "economies that don't." That's good marketing. Trouble with that is that it tells you nothing about the policies that you want to follow. Since Singapore "works" you can point to the parts of it that are "free market." Suppose Singapore turned out to be a basket case. Then you say "socialist!"

One reason I bring up Singapore is that there are some papers from the Heritage Foundation circa 1990 that claimed Singapore was doomed because it was too socialist. But since it worked I guess it's a free market.

I gather than in the US, socialism is a very bad and extreme word that even its supporters don't like attached to them. This is not the case in Britain, so apologies if what I say seems overly polemical to you.

It's the opposite in China, socialism is good, therefore you try to attach socialism to everything. For example, in China, you don't talk about privatization. That's a dirty word. You talk about "spreading ownership to the people" or "people managed enterprises". There is widespread admiration for the Hong Kong economy in China, so when I talk about Hong Kong as "central planning done right" that's how a lot of the political leadership in China sees it.

One other point which is extremely relevant for physics Ph.D.'s, is that the "free market" as most people imagine it, no longer exists in banking. Everything now is extremely regulated. One reason salaries have been trending down is that now the government has to approve bonus and compensation policy in most banks, and that puts downward pressure on compensation (although it still is very good).

 

[Moppy]

This website claims that the fraction of households in Singapore that own their homes is 88.6% http://www.singstat.gov.sg/stats/keyind.html .

The website is correct but that's not what "ownership" means. Those are still government provided houses and sold at a subsidy. To buy *privately* needs a lot more money.

 

[twofish-quant]

The website is correct but that's not what "ownership" means. Those are still government provided houses and sold at a subsidy. To buy *privately* needs a lot more money.

The official home ownership rate in Beijing is around 70%

http://www.kth.se/polopoly_fs/1.122089!/Menu/general/column-content/attachment/86.pdf

As with all statistics, this is with some caveats. It likely includes only official residents in Beijing. Also, the reason most urban Chinese own their homes is because the government in the mid-1990's, just gave title to worker apartments to the people occupying them.

One reason Chinese savings rates are high is that there are large numbers of people who don't have to pay rent.

 

[Moppy]

1) The problem is that if the world blows up, then there are no incentives for "good" behavior.

This is the first or second thing you've said that I agree with. I asked my financial advisor what he thought about the "euro crisis" when it all started. He said that they didn't care about the political, social or emotional issues. The purpose of a bank is to make money, not prop up the state and "you wouldn't want it any other way, or you'd have moved to China". I thought about it for about 5 seconds, then I realized he was right.

Edit: For those that don't grok, the state in his words refers to all those unimportant things like 'the job market'.

 

[Moppy]

The official home ownership rate in Beijing is around 70%

http://www.kth.se/polopoly_fs/1.122089!/Menu/general/column-content/attachment/86.pdf

As with all statistics, this is with some caveats. It likely includes only official residents in Beijing. Also, the reason most urban Chinese own their homes is because the government in the mid-1990's, just gave title to worker apartments to the people occupying them.

One reason Chinese savings rates are high is that there are large numbers of people who don't have to pay rent.

And that's the third thing :-)

Many people here (not you) not understanding the concept of "ownership" of state sponored items.

Edit: 3rd thing you have said that I agree with.

 

[StatGuy2000]

The official home ownership rate in Beijing is around 70%

http://www.kth.se/polopoly_fs/1.122089!/Menu/general/column-content/attachment/86.pdf

As with all statistics, this is with some caveats. It likely includes only official residents in Beijing. Also, the reason most urban Chinese own their homes is because the government in the mid-1990's, just gave title to worker apartments to the people occupying them.

One reason Chinese savings rates are high is that there are large numbers of people who don't have to pay rent.

As you stated earlier, the statistics above will likely only include official residents, and hence would not take into account the large numbers of "migrant workers" i.e. those who originally come from rural areas but who migrate to urban areas for employment. Given the hukou system of residency classification, these people are unable to obtain title to real estate in the urban areas and are often denied many social services such as education, etc.

http://en.wikipedia.org/wiki/Hukou_system#Effect_on_rural_workers

Furthermore, I would be interested in knowing what the home or land ownership rates for those living in rural China. I ask this due to reports about land seizures in rural areas to make way for industrial development, and violent protests that result from this.

 

[chill_factor]

As you stated earlier, the statistics above will likely only include official residents, and hence would not take into account the large numbers of "migrant workers" i.e. those who originally come from rural areas but who migrate to urban areas for employment. Given the hukou system of residency classification, these people are unable to obtain title to real estate in the urban areas and are often denied many social services such as education, etc.

http://en.wikipedia.org/wiki/Hukou_system#Effect_on_rural_workers

You can buy real estate anywhere you want, nothing to do with the Hukou system.

 

[intelwanderer]

You can buy real estate anywhere you want, nothing to do with the Hukou system.

For a rural peasant in Guizhou province who wants to move to the city, what good would that do? You could never afford the real estate, and even if you could, you would still need the Hukou in order to get the services that you might be moving to the city for(education for your kids)?

This is getting off track. Beware the mods, people.

 

[twofish-quant]

He said that they didn't care about the political, social or emotional issues.

Different places on Wall Street have different cultures. The place that I work at cares a lot about political, social, emotional, and ethical issues.

The purpose of a bank is to make money, not prop up the state and "you wouldn't want it any other way, or you'd have moved to China". I thought about it for about 5 seconds, then I realized he was right.

Ummmm... Make money from whom?

This is pretty important because when I give my money to a bank, I sort of would like to get it back, and the easiest way for the person I'm giving it to to make money is to stuff that money in his pocket and disappear.

As far as "moving to China"... Well...

 

[twofish-quant]

Given the hukou system of residency classification, these people are unable to obtain title to real estate in the urban areas and are often denied many social services such as education, etc.

The first part is false, a migrant worker buy whatever land or real estate that they want, and if you have the money to buy real estate, you probably go through the bureaucracy to get your residency formally changed.

The second part is a big problem having to do with economic reality. If you could wave a magic wand and give rural residents access to free education, pensions, and health care, people would. The trouble is that there is this matter of paying for this, and a lot of tension between different groups. For example, the central government is trying to enforce a rule that says that migrants can get free education. The trouble is that then you have to figure out how to pay teachers, and so you end up with school hinting that they would like gifts.

Finally, there are situations in which someone do *not* want to change residency even if they wanted to. If you have rural residency, then you are legally entitled to farm land. So if you lose your job in the city, you can theoretical return and farm some land. The trouble with this is that increasing number of migrants have actually never farmed anything, so this is theoretical for a lot of people.

It's a tough problem, and I think the government is handling it as well as can be expected. The difficulty is not rights but services. Rural migrants have to pay "market rates" for health care and education whereas people with residency cards get those services from the government for "free".

This is why the government wants scientists. No economic growth = hard decisions. Economic growth from science and technology = you can provide free services to everyone.

Furthermore, I would be interested in knowing what the home or land ownership rates for those living in rural China.

In rural China, you are legally entitled to housing but the house is owned by the state. Rural residents don't have title to their homes (i.e. they can't sell the house), but they don't pay rent either.

Farmland is also collectively owned, but you have the legal right to a piece of farmland that you can farm and anything you make out of the farmland assigned to you is yours.

The problem comes in when the village government tries to sell a piece of land to make something like apartments. Personally, I think that the ownership system is *good* because if plots were individually owned then what would happen is that the village government would force an individual farmer to sell. Because the land is owned by the entire village, when the government tries to sell the land and pocket the money, then everyone gets mad. However, there is a another side to the picture. If the government doesn't profit from land sales then how does it pay for the schools? (If fact, the central government has taken over school funding so increasingly protests are over environmental issues.)

One other thing is that the farmers with hukou issues are a different set of farmers than the ones that protest over land sales. The people that migrate to the big cities are from places where it's pointless to protest over the money from land sales, because the land is worthless. Places where farmers protest over land sales are places where people aren't moving to the cities. Also, a poor farmer gets to the city, they generally live in a places provides by "apartment farmers." What happens is that you are a farmer in suburban Beijing and you have an allocation right to farm some land. At some point you realize that you can make more money by building some shacks, and you do it even though legally you are suppposed to use the land for farming.

I ask this due to reports about land seizures in rural areas to make way for industrial development, and violent protests that result from this.

Yup. It's an issue but people are dealing with it as rationally as they can. People have suggested some solutions and things are progressing, but it's a moderately hard problem, and a lot of the easy, obvious solutions have problems.

Also, none of this is likely to cause the government to be overthrown. Most of these protests are about money, and if you overthrow the government then everyone loses.

 

[chill_factor]

Different places on Wall Street have different cultures. The place that I work at cares a lot about political, social, emotional, and ethical issues.

What is the difference between a hedge fund and an investment bank? What type of entity do you work for?

 

[Moppy]

What type of entity do you work for?

You're not the first person to ask him that.

 

[twofish-quant]

I'm more open about who I work for over private e-mail. One thing I find extremely annoying about the financial industry is that there are a lot of policies and in some cases laws that keep people from being too open. One thing about banking culture is that it's very "why do you need to know this?" After all, would you really trust your money to someone that gives your checking account number to anyone who asks?

What is the difference between a hedge fund and an investment bank? What type of entity do you work for?

The cultural differences are that I was talking about is not so much between hedge funds and investment banks, but rather between different groups and different people. It's a good thing to have a diversity of opinions.

Also hedge fund takes money from rich investors and invests them. The thing about rich investors is that they are allowed to invest in things that "ordinary people" aren't allowed to. However, the reason for this is that rich investors have the "license to be stupid with their money." If you have someone ordinary loses $100,000 in an investment, then this will be a bad thing, and if you have millions of people lose $100,000, they will demand that the government do something about it.

So the government has put in a lot of rules that "protect people from themselves" and banks and mutual funds that take money from ordinary people have to operate under strict rules. From the point of Ph.D. hiring "strict rules=boring math." Hedge funds can take money from rich people and do whatever they wanted with it as long as it isn't fraudulent. The catch is that if a rich millionaire loses $100,000 then we can just laugh at him.

You can think of an investment bank as a "wholesale financial shopping mall". Your typical investment offers a lot of services. If you want to sell real estate, you go to a real estate agent. If you want to sell a company, you go to a investment bank where they have people who are "company sales agents." Also, if you want to sell $10,000 in stocks you go to a retail broker or a mutual fund. However, if the retail broker or mutual fund wants to sell $1 million in stock, then they go to the investment bank.

 

[Moppy]

I'm more open about who I work for over private e-mail. One thing I find extremely annoying about the financial industry is that there are a lot of policies and in some cases laws that keep people from being too open. One thing about banking culture is that it's very "why do you need to know this?" After all, would you really trust your money to someone that gives your checking account number to anyone who asks?

No one is asking you for trade secrets like your position on a stock or your strategy in case Greece exits the Euro. They're asking what you do. I don't understand how client details even come into this, unless you're a wealth manager or something.

My personal opinion is that you are engaged in financial research of some kind in a think tank (private or government) and not directly involved in the business of the market. I think this because you are too much into philisophy and morality to be a let loose as a consultant on businesses and individuals who make enough money to make ethical discussions non-trivial. This is not to say they have none, but it would not be your job to fuss about it. You don't have the belief in your own invincibility that traders have. Every trader I know who is not married has little savings and sees regulation as a barrier to be circumvented. You have some gaps in your knowledge of how the markets work e.g. not knowing what the Fed does etc.

So a researcher. This is not a criticism. This is analysis. I am open to being corrected.

 

[twofish-quant]

No one is asking you for trade secrets like your position on a stock or your strategy in case Greece exits the Euro. They're asking what you do. I don't understand how client details even come into this, unless you're a wealth manager or something.

Well then you haven't taken legal and compliance training... One reason that people in finance are tight lipped is that by finding out what people do, you can figure out some things that not supposed to leak out. For example, if you know that financial institution X hired Y people to calculate Z, then you can probably figure out a lot about that strategy.

My personal opinion is that you are engaged in financial research of some kind in a think tank (private or government) and not directly involved in the business of the market.

Well you are wrong.

I think this because you are too much into philisophy and morality to be a let loose as a consultant on businesses and individuals who make enough money to make ethical discussions non-trivial.

Different places have different standards. I prefer to work somewhere with high moral and ethical standards. Now ethics is very non-trivial. It's sometimes very difficult to figure out what the *right* thing to do is, but that means that you should think about these things more rather than less.

You don't have the belief in your own invincibility that traders have. Every trader I know who is not married has little savings and sees regulation as a barrier to be circumvented.

And any trader that thinks themselves to be invinciable will get very quickly fired where I work. Good thing too.

You have some gaps in your knowledge of how the markets work e.g. not knowing what the Fed does etc.

One of the major functions of the Fed is to serve as the chief regulator for US-based financial holding companies under the Graham-Leach-Billey Act. This is actually an interesting trick question. Who is the major regulator for US investment banks? Most people would incorrectly guess the SEC.

So a researcher. This is not a criticism. This is analysis. I am open to being corrected.

Well consider yourself corrected.

Also, if you really wanted to know what I do, you could try asking? I may or may not tell you, but it's worth a shot.

 

[Moppy]

I checked and you're right, the Fed does regulate. I had no idea they did. The guys I deal with are always complaining about two US regulators (US OCC and New York State's one, is it the DFS?) and the FSA (UK) being in the UK. I don't know why the Fed doesn't cover them, or perhaps it does in an way that they don't care about. The big talk right now is the New York State one because the OCC does less than nothing ([STRIKE]i.e. it's bent and you can pay it to look the other way[/STRIKE] they know people aren't in compliance, but do nothing).

No-one is asking you for trade secrets. You could say "I am working on automated trading systems" without giving anything away.

I'm really having trouble matching your experience of traders with mine. I know the US says British regulation is "lapse" but they're still bankers.

Edit: I don't for one minute believe saying you can talk about in private email and not publically makes a difference. Nothing in email is private.

 

[twofish-quant]

I checked and you're right, the Fed does regulate. I had no idea they did. The guys I deal with are always complaining about two US regulators (US OCC and New York State's one, is it the DFS?) and the FSA (UK) being in the UK. I don't know why the Fed doesn't cover them, or perhaps it does in an way that they don't care about.

DFS was recently created by New York state. In the case of a federally chartered bank, federal laws preempt state ones, so the state regulators have almost no role. OCC is important for commercial banking operations but they don't have much of a role in investment banking.

If they are a UK bank which is not a US primary broker-dealer, then it's likely that the Fed doesn't take an active role in regulation and relies on the FSA to do oversight. Also, state regulators can't really regulate Federally chartered banks, but non-US banks need state permission to operate so state regulators do regulate non-US banks.

The big talk right now is the New York State one because the OCC does less than nothing ([STRIKE]i.e. it's bent and you can pay it to look the other way[/STRIKE] they know people aren't in compliance, but do nothing).

Whereas in NY you have a governor that wants a lot of good press.

One reason the Fed has a lot more teeth than OCC has to do with funding. OCC is funded from banking fees which means that it doesn't have either the money or the interest to enforce regulations, and if it tries, it is looking at a long and expensive court fight. The Fed on the other hand can just stop loaning you money if it doesn't like what what are doing, and if you are a primary dealer, that will kill you.

No-one is asking you for trade secrets. You could say "I am working on automated trading systems" without giving anything away.

Ummm... I know of someone that got into trouble by saying something they thought was innocent. I'm going to err on the side of saying nothing publicly.

In fact, the *only* reason that I post anything at all on this is because when I went through the pain and agony of getting work, I was frustrated by the lack of good information, and I made myself the promise that if I got in, that I'd make life easier for other people.

I'm really having trouble matching your experience of traders with mine. I know the US says British regulation is "lapse" but they're still bankers.

We just know different people then. One good thing about Wall Street is that there are so many different firms with different cultures, and to a large extent that is a good thing, as long as no one blows up the world.

Edit: I don't for one minute believe saying you can talk about in private email and not publically makes a difference. Nothing in email is private.

Something that the compliance people tell you is that everything that say over a corporate e-mail address is recorded and monitored by the regulators, and if they really want to, it's not hard to subpoena stuff over your personal e-mail.

But that's not the point. The point is that if I say something over private e-mail, I can keep track of and control who I talk to, whereas I can't do that over a public forum. I can make reasonably sure that the person I talk to won't abuse any information that I give them, and if they do I know who did it.

 

[Mr.Watson]

How hard is it actually to break into finance after theoretical physics phd? I am still undergrad and I'm hoping to get into academia after phd (and postdocs off course), but I know that there is huge competition for faculty openings and I am sometimes pretty worried that I won't find any job where I can use my education. Lately I have being reasonably interested about career and finance as a second choude.

Offcourse things change, and everything might be different when I will get my phd, but just out of curiosity: How hard is it right now to break into finance as a physics phd? And is there regional differences, like is it easier in NYC than London as a physicist? And is it easier to break into finance with physics or mathematics background?

And yeah, I know that things might be entirely different when I have gone trough grad school, but just out of curiosity I would like to know how things are right now or how they have been in previous couple of years. I remember that twofish-quant once wrote that He doesn't know any physicist who wouldn't be able to get some job from finance. Is the job outlook really so good?

 

[Vampyr]

How hard is it actually to break into finance after theoretical physics phd? I am still undergrad and I'm hoping to get into academia after phd (and postdocs off course), but I know that there is huge competition for faculty openings and I am sometimes pretty worried that I won't find any job where I can use my education. Lately I have being reasonably interested about career and finance as a second choude.

Offcourse things change, and everything might be different when I will get my phd, but just out of curiosity: How hard is it right now to break into finance as a physics phd? And is there regional differences, like is it easier in NYC than London as a physicist? And is it easier to break into finance with physics or mathematics background?

And yeah, I know that things might be entirely different when I have gone trough grad school, but just out of curiosity I would like to know how things are right now or how they have been in previous couple of years. I remember that twofish-quant once wrote that He doesn't know any physicist who wouldn't be able to get some job from finance. Is the job outlook really so good?

What do you mean by "finance", because that describes a lot of different careers. Most finance careers do not involve highly mathematical/programming type of work. Anyone with demonstrable analytical skills (eg physicist) will be able to get a job somewhere in finance, but this is not necessarily the same as quantitative finance.

 

[Mr.Watson]

What do you mean by "finance", because that describes a lot of different careers. Most finance careers do not involve highly mathematical/programming type of work. Anyone with demonstrable analytical skills (eg physicist) will be able to get a job somewhere in finance, but this is not necessarily the same as quantitative finance.

What I meant was a career that at least somehow involves skills that physicist have. So my question was basicly how hard is it to break into quantitative finance with physics degree.

 

[SolomonX]

I am probably being naive but I don't understand why students studying physics (or any science for that matter) would choose a field as socially useless as finance. I once had a "superior" tell me he laid off an entire factory (500+) of people to save a few percentage points on a balance sheet for the owner. The man was worked in corporate finance so I believe that is different from the kind of work two-fish quant does, i.e. high finance, the kind many on this forum seem to aspire to.

Instead of channeling your prodigious mental capabilities towards financial work, why not try and develop something useful for the economy and for society? A sure road to wealth is to create productive goods and services that people desire. I know this is easier said than done and indeed, you may fail. However, failure is a risk in any enterprise. I'd rather fail at establishing a business or shooting for tenure than failing at being some financial whiz. This is the way I felt after earning my bachelor's degree in economics.

I commend two-fish's suggestion that the OP learn the humanities. Too often, people forget that their decision have a real impact on others (e.g., shutting down factories). Reading a bit of philosophy, literature and history helps to gain a broader perspective on our world and our role in it.