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2. Ready for social impact investment funds?

One of the most exciting areas of innovation in recent years has been in indexes, a movement powered of course by the phenomenal success of ETFs.

Now that innovation has come to the VIX, perhaps the most widely used gauge of fear and volatility in the stock market. Futures linked to the VIX remains big business for the CBOE, but the index has been criticized as of late for underplaying volatility in the market.

The measure "works" by looking at options on the S&P 500. The less these options cost, the less volatility the markets are said to be. But "with the Vix trading persistently low, some critics have proclaimed Wall Street's 'fear gauge' to be seriously outdated," notes the Financial Times.

We're likely to see more alternatives crop up. NationsShares, for example, a small index provider in Chicago, "is about to launch what it says is a newer and better way to measure volatility in the market. In doing so, it will take on one of the most entrenched indices on Wall Street – and the CBOE itself." The company's VolDex measure "uses options on the SPDR S&P 500, an exchange traded fund (ETF) that seeks to replicate the performance of the overall S&P 500. Options on the 'SPY', as the ETF is known, are the 'most liquid options in the world', according to NationsShares."

Ultimately, the market will pronounce the winners and losers in this market. You do get the idea that the buy-side is looking for alternatives, a notion that the CBOE seems to get. It too will launch some new products in this area.

For more:
- here's the article

Read more about: ETFs, Vix
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By Jim Kim

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3. Goldman Sachs CEO recounts the financial crisis

We've heard a lot recently about social impact bonds, which the issuer must pay off if it hits certain savings goals.

The idea seems to be catching on. But there are other ways to finance projects with ambitious social goals. For example, JPMorgan Chase has joined forces with the Bill and Melinda Gates Foundation and others to create a fund that will finance technologies to stave off disease in third world countries. Should we call it a social impact fund?

The Global Health Investment Fund will tackle the likes of malaria, tuberculosis and HIV, as well as maternal and infant mortality, as noted by Bloomberg.

This is not necessarily an area with an easy payoff, and as with the case of some social impact bonds, some non-profits have stepped in to secure the deal by assuming some of the risk.

The Gates Foundation and the Swedish International Development Cooperation Agency have agreed to "partially offset potential losses in the fund," which no doubt factored into the decision of many investors, which include the Canadian and German governments, various drug companies and other foundations.

We can only hope that the fund identifies and develops some promising technologies. If the investors make money, that's all the better.

For more:
- here's the article

Read more about: Social Impact Bonds
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By Jim Kim

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4. TBTF: The debate lives on and on

The conventional wisdom when it comes to Goldman Sachs and the financial crisis is that the bank has weathered the storm. It has put the bad news and ill effects behind it, which has allowed its top executive to adopt a more statesman-like persona as he basks in the glow of a fully recovered, rehabilitated bank.

But CEO Lloyd Blankfein was nevertheless asked to relive the crisis recently at the Clinton Global Initiative meeting, when the moderator had him to respond to the two-year anniversary of the Occupy Wall Street protest movement.

One of his responses concerned the controversial bonus payments the firm made in the wake of the crisis. "If we hadn't paid our people we wouldn't have had a stable population at the firm," he was quoted by CNBC. "I work at the company. I don't own it. I'm not entitled to blow it up" by not paying bonuses.

Blankfein also suggested that the country deserved praise for accepting "a higher unemployment rate" over the past few years, even as the government bailed out the banks. "The United States is in a position where the banks are recapitalized and companies are more efficient, not because they kept people on but because they let them go. It was a social decision we made," Blankfein was quoted.

That may seem harsh, but I can't think of an executive who would disagree. All in all, this touches on a broader issue---one that we can't delve into here---about how corporate morals have shifted over the years, in ways that have elevated shareholders over other constituencies, such as employees and communities. A very interesting issue.

For more:
- here's the article

Read more about: Goldman Sachs, Lloyd Blankfein
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By Jim Kim

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5. JPMorgan discusses possible $11 billion settlement

"There is rare agreement among many Democrats and Republicans in Washington that a number of banks are still too big to fail, leaving the nation's economy even more at risk." So says the LATimes in an essay-ish look at perhaps the biggest issue on the table 5 years after the implosion of Lehman Brothers: TBTF.

Are banks still too big to fail?

Well, the debate rages. It's undeniable that the top consumer banks are even bigger now. "Just before the financial crisis hit, Wells Fargo & Co. had $609 billion in assets. Now it has $1.4 trillion. Bank of America Corp. had $1.7 trillion in assets. That's up to $2.1 trillion. And the assets of JPMorgan Chase & Co., the nation's biggest bank, have ballooned to $2.4 trillion from $1.8 trillion." Of course, some of that was driven by the crisis-related acquisitions of Countrywide, Bear Stearns and Washington Mutual.

Bigger doesn't necessarily mean less safe, the banks would argue.

When you get past all the politicking over Dodd Frank, the reality is that no one can answer the question. All we can do is assign probabilities. Right now, given new capital requirements, the relative strength of the economy, the progress made on asset quality, the effect of legislation and more, banks are in no immediate danger. It's tempting to split the difference in this raging debate and conclude that big banks are safer if still too big to fail.

But a decade from now, when we're at the top of the business cycle, who knows? It's quite possible a mania could develop all over again. At that point, if a bank falters, hopefully, there will be an apparatus in place to deal with it without public funds, but there is no way of knowing that now.

For more:
- here's the article

Read more about: too big to fail
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By Jim Kim

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