The Declaration of Independence

Most Americans have never read the Declaration of Independence (at least, not since high school, and none of us remember that). So, in honor of this holiday weekend, here it is:

The Declaration of Independence:

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature's God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. --That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. --Such has been the patient sufferance of these Colonies; and such is now the necessity which constrains them to alter their former Systems of Government. The history of the present King of Great Britain is a history of repeated injuries and usurpations, all having in direct object the establishment of an absolute Tyranny over these States. To prove this, let Facts be submitted to a candid world.

He has refuted his Assent to Laws, the most wholesome and necessary for the public good.

He has forbidden his Governors to pass Laws of immediate and pressing importance, unless suspended in their operation till his Assent should be obtained; and when so suspended, he has utterly neglected to attend to them.

He has refused to pass other Laws for the accommodation of large districts of people, unless those people would relinquish the right of Representation in the Legislature, a right inestimable to them and formidable to tyrants only.

He has called together legislative bodies at places unusual, uncomfortable, and distant from the depository of their Public Records, for the sole purpose of fatiguing them into compliance with his measures.

He has dissolved Representative Houses repeatedly, for opposing with manly firmness his invasions on the rights of the people.

He has refused for a long time, after such dissolutions, to cause others to be elected, whereby the Legislative Powers, incapable of Annihilation, have returned to the People at large for their exercise; the State remaining in the mean time exposed to all the dangers of invasion from without, and convulsions within.

He has endeavoured to prevent the population of these States; for that purpose obstructing the Laws for Naturalization of Foreigners; refusing to pass others to encourage their migrations hither, and raising the conditions of new Appropriations of Lands.

He has obstructed the Administration of Justice by refusing his Assent to Laws for establishing Judiciary Powers.

He has made Judges dependent on his Will alone for the tenure of their offices, and the amount and payment of their salaries.

He has erected a multitude of New Offices, and sent hither swarms of Officers to harass our people and eat out their substance.

He has kept among us, in times of peace, Standing Armies without the Consent of our legislatures.

He has affected to render the Military independent of and superior to the Civil Power.

He has combined with others to subject us to a jurisdiction foreign to our constitution, and unacknowledged by our laws; giving his Assent to their Acts of pretended Legislation:

For quartering large bodies of armed troops among us:

For protecting them, by a mock Trial from punishment for any Murders which they should commit on the Inhabitants of these States:

For cutting off our Trade with all parts of the world:

For imposing Taxes on us without our Consent:

For depriving us in many cases, of the benefit of Trial by Jury:

For transporting us beyond Seas to be tried for pretended offences:

For abolishing the free System of English Laws in a neighbouring Province, establishing therein an Arbitrary government, and enlarging its Boundaries so as to render it at once an example and fit instrument for introducing the same absolute rule into these Colonies

For taking away our Charters, abolishing our most valuable Laws and altering fundamentally the Forms of our Governments:

For suspending our own Legislatures, and declaring themselves invested with power to legislate for us in all cases whatsoever.

He has abdicated Government here, by declaring us out of his Protection and waging War against us.

He has plundered our seas, ravaged our Coasts burnt our towns, and destroyed the lives of our people.

He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation, and tyranny, already begun with circumstances of Cruelty & Perfidy scarcely paralleled in the most barbarous ages, and totally unworthy the Head of a civilized nation.

He has constrained our fellow Citizens taken Captive on the high Seas to bear Arms against their Country, to become the executioners of their friends and Brethren, or to fall themselves by their Hands.

He has excited domestic insurrections amongst us, and has endeavoured to bring on the inhabitants of our frontiers, the merciless Indian Savages whose known rule of warfare, is an undistinguished destruction of all ages, sexes and conditions.

In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury. A Prince, whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people.

Nor have We been wanting in attentions to our British brethren. We have warned them from time to time of attempts by their legislature to extend an unwarrantable jurisdiction over us. We have reminded them of the circumstances of our emigration and settlement here. We have appealed to their native justice and magnanimity, and we have conjured them by the ties of our common kindred. to disavow these usurpations, which would inevitably interrupt our connections and correspondence. They too have been deaf to the voice of justice and of consanguinity. We must, therefore, acquiesce in the necessity, which denounces our Separation, and hold them, as we hold the rest of mankind, Enemies in War, in Peace Friends.

We, therefore, the Representatives of the United States of America, in General Congress, Assembled, appealing to the Supreme Judge of the world for the rectitude of our intentions, do, in the Name, and by Authority of the good People of these Colonies, solemnly publish and declare, That these United Colonies are, and of Right ought to be Free and Independent States, that they are Absolved from all Allegiance to the British Crown, and that all political connection between them and the State of Great Britain, is and ought to be totally dissolved; and that as Free and Independent States, they have full Power to levy War, conclude Peace contract Alliances, establish Commerce, and to do all other Acts and Things which Independent States may of right do. --And for the support of this Declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

An amazing document.

Two More Down: Clearing My Plate Before the Move

Ah! I finished and shipped the book chapter yesterday and the overdue referee report today. I want to move without too much "near finished" business hanging over my head. So, in the next three weeks I have to:

1. Finish another referee report (it's for a different journal than the previous one, and it is one that's a likely outlet for some of my work)
   
2. Complete final edits on an empirical piece that I've been working on for about a year with a former student. The data crunching is done, and all that's left is final polishing. I should be able to finish it with about 2 days of solid work.
   
3. Finish a theoretical piece that I'm working on with a colleague at my current school.
   
4. Get two Ph.D. students at my current school squared away on the projects we're working on. Both are joint projects with the colleague mentioned in #3, so she'll continue to ride herd on them after I leave. However, I'm taking the lead on both projects, so the further we can move them along the better. In addition, one of the two students needs a LOT of handholding, so it could get pretty painful doing things long distance.
   

I'd like to clear my plate as much as possible before I move because I know that I'll be fairly unproductive for about a month thereafter. Deadlines are good, and I know I can relax a bit after the move -- our new place is about 7 miles from the beach.

Annual Reports of Poorly Performing Firms Are Harder To Read

This is somewhat of a "dog bites man" story. Feng Li, an assistant professor of accounting at the University of Michigan did a comprehensive study (55,000 firm-year observations) on the relationship between the readability of annual reports and the level and volatility of earnings.

He found that the annual reports of companies with poorer performance and/or more volatile earnings were much less readable. He also found that good performance was more persistent for firms with more readable reports.

One obvious interpretation is that firms try to bury bad performance with abtruse writing. Another is that poor writing and poor performance are both caused by a lack of ability. A third is that poor performance is more difficult to explain than good performance.

Either way, it's an interesting study. There's a PDF version on SSRN here.

I wonder if there's a similar pattern in the annual reports of firms whose top executives are eventualy prosecuted for fraud?

HT: Marginal Revolution

Bogle and Malkiel Discuss Fundamental Indexing

Today's Wall Street Journal has a great op-ed piece by John Bogle (former head of Vanguard funds) and Burton Malkiel (Princeton finance Professor and author of "A Random Walk Down Wall Street"). In it, they do a pretty thorough job of discussing some of the potential problems with "fundamental indexing."

For those unaware with the term, here's a little background: Indexes (and index funds) can be weighted many ways - by market capitalization (i.e. a stock with twice the market cap would have twice the weight in the portfolio), equally (all stocks have equal weight) or by some other factor. The S&P 500, for instance, is a market-cap weighted index.

Proponents of "fundamental indexing" contend that portfolios that are indexed by some fundamental factor could significantly outperform traditional cap-weighted index. For example, Eugene Fama and Kenneth French contends that portfolios of small-cap and high price-book firms would be superior, Robert Arnott proposes indexing on factors such as sales or book values, and Jeremy Siegel suggests portfolio weighting on the basis of dividends.

Bogle and Malkiel provide several good reasons why fundamental indexing is unlikely to outperform cap-weighted indexing:

• Higher annual operating expenses
  
• Higher management fees
• Higher portfolio turnover
• Higher tax burden tax
  

Read the whole thing here (note: online subscription required)

Updated 6/29: To place things in a better context (and give the other side's arguments in their own words), I thought I'd link to the op-ed piece that Jeremy Siegel wrote in the WJS on 6/14, titled "The Noisy Market Hypothesis". You can read it here (as before, online subscription required):

My Son Would Love This

The Unknown Son has a serious Superhero fixation, and Spider Man is his favorite. So he'll love this when he wakes up (he just went to bed).

Your results:
You are Spider-Man

Spider-Man 70% The Flash 70% Green Lantern 60% Catwoman 60% Iron Man 55% Hulk 55% Superman 55% Supergirl 50% Robin 35% Wonder Woman 30% Batman 25%

You are intelligent, witty, a bit geeky and have great power and responsibility.

Click here to take the Superhero Personality Test

HT: ProfessorBainbridge

Rain: Heavy, and Blogging:Light

I doubt I'll be blogging much today (at least until late tonight, if at all). But since I've already been working since 7 today, I needed a break, and you're it..

We've had rain since Saturday, and it continues today. Normally I'd be frustrated since it keeps me from biking, but this time it worked out well because I've got a number of deadlines fast upon me.

I spent 7-8 hours yesterday on a referee report that's WAAAAAY overdue. At this point, I have all my thoughts down, but still have to finish organizing them into something coherent. I'm recommending that the paper be rejected because while the paper might potentially make a contribution, it's way too poorly done to tell- there are errors in the framing of the piece, the empirical analysis, and the "micro writing" (i.e. spelling and grammar.

In addition, there a number of years where their sample overlaps the samples of earlier pieces, and their numbers are extremely different. They don't provide any indication as to why this might be, so this makes me doubt all their results. So, as a note to any budding academics out there, make sure you compare your work to earlier similar work and explain any discreptancies.

These cases are always hard for me to review - on the one hand, I'm rejecting the paper; On the other, I hopefully can provide some comments & suggestions that will help the authors improve the paper for the next place they send it. In any event, I should have it done tonight.

In addition, I'll be working all day today with coauthors. As I mentioned previously, it's a piece from the dissertation of a former student of mine and my coauthor'. It'll go into a book of readings, and is due at the end of the week. Unfortunately, it's an invited piece (my colleague knows the editor), so it won't count as a refereed publication. But it will give our student something to show on her vita in her first semester at her new job.

Ah well, coauthor just showed up, so back to work.

Dealing With Identity Theft

The number of cases of identity theft has increased dramatically in the last few years. If you ask around, you probably know one or two people who've been victims (as an example, both the Unknown Brother-In-Law and the Unknown Son's Oncologist have been victims).

If you talk to someone who's been a victim, they'll tell you that repairing the damage can be frustrating and time consuming. The Consumerist has a good guide to what to do if you're a victim. Here's some of their points (except for the last one, which is my addition):

1. First off, read everything on the FTC's identity theft website at www.consumer.gov/idtheft/ -- they've got a lot of great information there.
   
2. Get your credit reports (all three) and read them carefully (line by line).
   
3. Others will invariably have advice for you and some judgemental comments (i.e. "this is what happens when you bank online"). Expect them, and don't let them get to you.
   
4. Be disciplined-- spend some time each day working on it until it's cleaned up (expect to spend about 100 hours in all)
5. Fill out a police report, and keep copies to send to credit bureaus, collection agencies, etc...
6. Be organized. Keep a separate file for each creditor.
7. Write down time, date, phone #, contact information, and a synopsis of EVERY conversation you have with someone.
8. Contact each credit reporting agency and dispute each and every charge. Put a statement of identity theft on each credit report.
9. Follow through relentlessly.
10. NEVER throw away your files. These things can come back to bite your butt years later.
    
11. Given all the paperwork you'll have to do (and all the records you'll need, you might want to invest in a small photocopier.
    

Read the whole thing here.

HT: Sound Money Tips

This Week's Carnival of The Capitalists

This week's COTC is up and running at Financial Methods. It's a big one - 60 entries this time. So, I have a few more "picks of the week" than usual. Here they are:

Moneywise of The Real Returns talks about (appropriately enough, given the name) Breakeven Point Before Real Returns.

Joshua Sharf at View From a Height has a good post on Moriningstar's style boxes in The Morningstar Empire Strikes Back.

Leon Gettler at Sox First discusses the trend of increasing numbers of shareholder resolutions in The shareholders are revolting.

Jonathan at MyMoneyBlog talks about a little known fact of 0% Financing At Retail Stores

We've all heard this before, but FMF at Free Money Finance reviews some of he evidence on the payback form going to college in College is Worth the Expense

Most of us could stand some improvement in our negotiatingskills. Peter Kua at RadicalHop.com by Peter Kua: Light Speed Personal Development offers some advice to help in 19 Steps to Power Negotiations - Part 2 and 19 Steps to Power Negotiations - Part 3.

Steve Rubel at Micro Persuasion presents UMass Study Identifies the Traits of Successful Bloggers.

As always, look around. There's always lots of good stuff at the Carnival.

Social Isolation

This is a bit off topic compared compared to my usual blogging, but Dr. Helen (a.k.a. The Instawife) has an interesting piece on Social Isolation.

I also wonder how much this differs by gender.

Hedge Funds And Takeovers

Hedge funds are increasingly becoming the swing voters in takeover battles. Iain Dey of the Daily Telegraph has a good report on this phenomenon:

With company takeovers running at record levels, hedge funds have emerged as the behind-the-scenes power brokers who hold the key to the independence of many of the UK's largest companies.

Within minutes of takeover talks being announced - and sometimes even before any public statement has been made - hedge funds snap up big stakes in the corporate combatants and often end up controlling about 30 per cent of the target company's shares, enough to decide the outcome of the battle for control.

Read the whole thing here.

In the Telegraph piece, Dey mentions research by Bernard Black and Henry Hu of the University of Texas. Here's the abstract for the piece referenced in the Telegraph piece, titled "Hedge Funds, Insiders, and Empty Voting: Decoupling of Economic and Voting Ownership in Public Companies":

Most U.S. public companies have a single class of voting common shares: voting power is proportional to economic ownership. Linking votes to shares gives shareholders an incentive to exercise voting power well, makes possible the market for corporate control, and legitimates managerial authority over property the managers do not own. Theory and evidence generally support linking votes to economic interest, although some models suggest that vote buying can sometimes be efficient. However, certain equity derivatives and other capital market developments now allow shareholders to readily decouple voting rights from economic ownership of shares. This decoupling (the new vote buying) is largely undisclosed and unregulated. Hedge funds are prominent users of decoupling. Sometimes they hold more votes than economic ownership (empty voting). Sometimes they hold undisclosed economic ownership (hidden ownership), often with the de facto ability to acquire the votes if needed (morphable voting rights). Insiders can also engage in empty voting. Over the past few years, new vote buying has affected shareholder votes and takeover battles on four continents.

This Article analyzes the new vote buying. We offer a framework for unpacking its functional elements. We propose a disclosure-based regulatory response which would integrate and simplify five existing, inconsistent share ownership disclosure regimes. We also develop a menu of longer-term substantive responses. Two companion legal articles (Hu and Black, 2006a, 2006b) discuss in greater detail the disclosure rules and other legal rules that affect new vote buying.

In a companion paper, directed at practicing lawyers, regulators, and judges, we provide additional details on current disclosure rules, our disclosure proposal, and other possible reforms. See Hu & Black, Empty Voting and Hidden Ownership: Taxonomy, Implications, and Reforms, http://ssrn.com/abstract=887183

You can find the full article on SSRN here.

HT: Abnormal Returns