¿Ana María Khan, where are you?

Happy to give an interview, but got this unenthusiastic response from the Mailer-Daemon:

This is the mail system at host mf21.mfg.siteprotect.com.

I'm sorry to have to inform you that your message could not be delivered to one or more recipients. It's attached below. For further assistance, please send mail to postmaster. If you do so, please include this problem report. You can delete your own text from the attached returned message.

The mail system

akhan@complotmagazine.com: host 192.168.31.228[192.168.31.228] said: 550 User quota exceeded (in reply to RCPT TO command)

pmaal@complotmagazine.com (expanded from akhan@complotmagazine.com): host
192.168.31.228[192.168.31.228] said: 550 User quota exceeded (in reply to RCPT TO command)

If you have spare User Quota on another e-mail address, let me know...

moral hazard revisited

Alex Tabarrok draws attention to a paper by Richard Squire in the Harvard Law Review:

If liability on a firm’s contingent debt is especially likely to be triggered when the firm is insolvent, the contract that creates the debt transfers wealth from the firm’s creditors to its shareholders. A firm therefore has incentive to engage in correlation-seeking — that is, to incur contingent debts that correlate, or that through asset purchases can be made to correlate, with the firm’s insolvency risk. The consequence is an overuse of contingent debt that destroys social wealth through overinvestment, higher borrowing costs, financial distress, and potential systemic risk. Correlation-seeking is especially pernicious because, unlike other forms of shareholder opportunism such as asset substitution, it can reduce risk to shareholders even as it increases shareholder returns.

AT: It's long been known that a firm close to bankruptcy has an incentive to gamble because if the gamble pays off the shareholders prosper and if the gamble fails then the shareholders are no worse off (since the firm was already close to bankruptcy). But gambles like this add to shareholder value primarily by transferring wealth from the creditors who bear the downside risk without any hope of upside gain.

Squire shows how this idea is magnified when we add contingent debt and correlated asset returns. A contingent debt is one that must be paid only in certain states. If the shareholders take on contingent debt and at the same time buy assets with low or negative payoffs in the same set of states then the shareholders can focus the downside risk into the states in which they are bankrupt anyway - thus focusing the downside risk onto unsecured creditors. (the rest here)

[a commenter adds: As firms get closer to insolvency, managers and directors become exponentially more sensitive to risk of personal liability and thus much more conservative. Further, creditors' monitoring increases exponentially as said risk rises (gambles always need a counterparty and they disappear in insolvency situations). The gambles by large firms occur more during times of complacency. -- MR, as so often, indispensable for supposedly unfun things]

Q&A of David Lipsky discussing his five-day interview of David Foster Wallace, Mark Athitakis' American Fiction Notes.

Another great Q&A on the Howling Fantods.

And an amused...a kind of amused attempt to separate what's good, what of the fuss has to do with the book, and what of the fuss has to do with the sort of enormous engine, um, started by Little, Brown. But which now clearly seems to be humming in and of itself. Y'know, when somebody asked somebody in New York, had they read Martin Amis's The Information, the person said, "Well, not personally."

David Foster Wallace in David Lipsky's Although Of Course You End Up Becoming Yourself, to be released 13 April.

You say Brief Encounter, I say WTF

From Kevin Brownlow's David Lean: A Biography:

Howard (to Lean): David, will you please explain this to me. This is a fucking awful scene.

Lean: What's fucking awful about it?

Howard: Well, they know jolly well this chap's borrowed a flat, they know exactly why she's coming back to him - why doesn't he fuck her? All this talk about the wood being damp and that sort of stuff.

Lean: Look, Trevor. Have you ever been out with a girl ... and you know that you're going to make love, whether it's her place or your place ... And then when you get there and the door is shut and you're alone, everything's changed and there's a kind of embarrassment that you hadn't got when you were surrounded by people?

Howard: Oh God, you are a funny chap.

Lean: Funny chap or not, that's the way we're doing the scene. Now come on.

second violinist glut explained

There's a theme I take from this. I don't know if you use this term in the book, but I think of it to myself as avoiding fungibility, fungibility being, for a listener who might not know, the economic term for stuff that's as good as other stuff of the same kind. One scoop of this stuff is as good as another scoop. I think of this as avoiding being a scoop of humanity that can be replaced just as easily with another. I believe in the book you use the example of classical musicians, who are all trained well, but one can do the same thing as another and that's why they're paid somewhat low?

Exactly. Here's a good question you might ask yourself: do you deserve to get paid more than the cheapest person I can find to do this? If so, why? What happens if you train to be a classical musician is, you are trained to comply with the conductor and the score. Your job is not to make any mistakes, and for the first ten years you're doing it, that's what you're pushed to do. This leads to a huge surplus of second violinists, a huge surplus in every city in America. You can go on Craigslist and put together an orchestra in two days for a few thousand bucks.

Seth Godin offers a fresh perspective on the economics of classical music at 3 Quarks Daily

first there was the Shield of Achilles...

This week, Core77 is co-publishing a series of Significant Objects stories written about items curated by Paola Antonelli. Bid on this Significant Object, with a story by Helen DeWitt, here. Proceeds from this auction go to Girls Write Now.