Tuesday, November 21, 2006

Enron's seeds in Houston, big Texas nation, and urban vs. suburban social lives

A few minor items of interest tonight. The first is a Wall Street Journal article (nonsubscriber copy) on a new life for former Enron traders among various hedge funds and commodities trading groups. The interesting part is that they seem to be forming in Houston, obviously because many of them started here, but also, evidently, because many of the traders evidently liked it here and long to return.

Five years after the Texas energy-trading giant collapsed, the traders behind some of Enron Corp.'s brashest efforts to carve out new markets are pushing further into those frontiers.

Enron alumni have joined hedge funds and trading operations capitalizing on fast-growing commodity markets that the company once dominated or helped develop, from its stronghold of natural-gas and power trading to experimental futures markets in pollution-emission credits and weather contracts. A few Enron refugees have even joined industrial or consumer-goods firms, where they negotiate contracts to reduce the risks of volatile energy, food and raw-materials prices.

The growth of commodity markets popularized by Enron, and the ability of its veterans to raise money in budding areas, is to some a validation of at least part of the company's model: trading commodities of all kinds.


Citigroup snapped up Stuart Staley, a successful coal trader at Enron. Mr. Staley, 40 years old, now runs the gas- and power-trading operations of Citigroup from Houston, where traders he sought to hire already resided or wanted to return. Lehman Brothers Holdings Inc. and Bear Stearns Cos. are building energy-trading operations in Houston, among other cities, with former Enron traders.

It would be a big win for Houston if these seeds developed into a robust financial industry cluster here, something I discussed earlier in this blog. Many top world cities are built at least in part around a financial industry cluster (London, Tokyo, NYC, Chicago commodities), so it would be a great one for Houston to cultivate.

The next item is a random excerpt from an investing newsletter I read, with a fascinating set of comparative stats.
He makes a solid case in the speech for needing to incorporate more global data into the Fed models, as the global economy is influencing the US economy to an ever greater degree.

What if Texas issued its own currency and had its own central bank? Texas as a nation would not be a small player. In dollar terms, it is larger than Korea or Brazil or Mexico and 25% larger than India. But even given that, a Texas central bank could not discern proper and prudent monetary policy by just looking at Texas data. They would clearly have to take into account the data from the US and the rest of the world in order to maintain price stability and full employment.

All very reasonable and thoughtful, and an explanation why the Dallas Fed is beefing up its economic staff in search or more and better data.
I would not have guessed we would have a larger economy than those countries with only 22 million or so people here. Finally, and excerpt from a recent report on urban vs. suburban social lives.

A new study says that people who live in sprawling suburban areas have more friends, better community involvement and more frequent contact with their neighbours than urbanites who are wedged in side-by-side. The results challenge the accepted idea that suburban life is socially alienating a notion that's inspired everything from the Academy Award-winning American Beauty to Harvard professor Robert Putnam's book Bowling Alone.

The study, released by the University of California at Irvine, found that for every 10 per cent decrease in population density, the chances of people talking to their neighbours weekly increases by 10 per cent, and the likelihood they belong to hobby-based clubs jumps by 15 per cent.

"We found that interaction goes down as population density goes up. So, turning it around, it says that interaction is higher where densities are lower," says Jan Brueckner, an economics professor at UC Irvine who led the study. "What that means is suburban living promotes more interaction than living in the central city."

Quite counter-intuitive, eh?

Have a great Thanksgiving. I may or may not be able to post Thursday night.


At 7:18 PM, November 21, 2006, Anonymous Anonymous said...

I think the interesting thing is measuring the closeness of friends in the burbs v. the city. In planned suburbs there are often planned community organizations in the attempt to facilitate interaction in areas where otherwise people might not. This may facilitate many “friendships,” but are they close relationships?

In the city, I interacted with people all the time, but my friends were a smaller group of very close friends. Being single, they were my “family.” As a comparison my parents, who have always lived in the suburbs, have a large net of disparate friends. And as they have been married for years, so the closeness to these friends is much less.

At 1:25 AM, November 22, 2006, Anonymous Anonymous said...

I agree, it is not necessarily counterintuitive if you dig deeper. In the burbs you dont live cheek by jowl and arent as likely to get pissed off by your neighbor. In the burbs you might voluntarily interact with more of your neighbors, like saying hi and chatting about the weather while on your way to the mailbox. That doesn't mean you have more friends. At school in the dorms a lot of people hated a lot of people because there was no exit. I knew roommates and suitemates who would go most of the school year without saying a word to each other.

Also the demographics might different. Are people with kids more likely to be more sociable and more likely to live in the burbs. Are young up and comers in the city more likely to spend more time at work and less time league bowling. Are people who live in the burbs more likely to want more "friends" but not so many deep relationships.

People make too quick generalizations so often in the Social Sciences. There are so many variables that you may overlook.

At 1:52 AM, November 22, 2006, Anonymous Anonymous said...

I'm of two minds on the suburb/friends story. I both believe it and disbelieve it at the same time.

I have a sneaking suspicion that all the variables weren't equalized. (I'm totally speaking from non-experience here so if my assumptions are wrong I'm sure I'll be corrected.) There are probably a much greater percentage of two-parent homes in the suburbs meaning someone is always available to watch the kids. I'm positive that a much, much greater percentage of mothers in the suburbs are able to stay home and raise their children compared to city-dwellers (the city would seem to have many more single moms and couples where both parents are working - just to pay the rent). People in the suburbs seem to have kids involved in lots more activities and so they interact with other parents at soccer practice, karate, etc. Not that these things don't go on in the city, but there are many more single and childless residents than in a place like Kingwood, for example.

If we really could pair up a sample of a two-parent household with the same employment status, same number of kids, same level of kids involvement in activities, same relative income to housing cost, etc. I wonder if the outcome would be the same.


At 4:19 AM, November 22, 2006, Anonymous Anonymous said...

I think the state really needs to get on doing something to make sure that Houston becomes the Energy capital of the world. We have so much potential here, and it will help as the age of oil ends. I read a report (smacking myself because now I cant remember where) about how Texas is turning into a major place for alternative energy; wind, wave and tidal. Houston already has so much background in Energy thanks to oil it is a natural evolution. While I was a student at UH, I got a chance to talk to the Dean of Engineering once, and he was very excited about trying to open a new campus in Fort Bend that would be the center for energy studies, or something like that. I thought that was a great idea, we could get the Business school and traders involved in that too. Would the State Higher education board even let something like that fly.

Sometimes I get so irritated at the way the Universities are run in Texas. Tech and UH should be getting enough support from the state to enter teir one status. Dallas should have a teir one school too, although I don't know which one up there would be the best candidate.

At 9:01 AM, November 22, 2006, Blogger Tory Gattis said...

I think that energy studies campus does exist in Sugar Land, although I can't think of the name of it off the top of my head.

I agree on UH deserving Tier 1 funding. Both the UT and A&M *systems* get the extra state funding, so, for instance, UT could build up the Arlington or Dallas or San Antonio campuses if they wanted to (and I think they are, to some extent, but they will always be second fiddle to Austin).

At 9:22 AM, November 22, 2006, Anonymous Anonymous said...

"I think that energy studies campus does exist in Sugar Land".

You're thinking of the Texas Energy Center; which is, unfortunately, just a boondoggle, with ties to Tom DeLay.

At 12:16 PM, November 22, 2006, Anonymous Anonymous said...

Tom wrote:
"Not that these things don't go on in the city, but there are many more single and childless residents than in a place like Kingwood, for example."

I don't agree with that. I live in the Kingwood area and you'd be surprised how many tens of thousands of single and childless residents there are out this way. Look at the number of apartment complexes and mix in a divorce rate of about 45 percent. I think Kingwood alone has ten times as many single and childless folks.

At 2:15 PM, November 22, 2006, Anonymous Anonymous said...

Texas just became the leading producer of wind energy this year, passing California (see map here: http://www.awea.org/projects/).

Also, this article (http://www.boston.com/news/nation/articles/2006/09/25/texas_is_more_hospitable_than_mass_to_wind_farms/) contrasts the "we love wind power, but just not here" NIMBY attitude in MA with the attitude in TX.

In the Houston-Galveston area, there's a new biodiesel plant that will be located near Galveston (http://www.galvestonbiodiesel.com/) and will be the largest of its kind.

I think we (Texas) are well on our way to becoming a, if not the, alternative energy capital of the U.S.

At 12:36 PM, November 27, 2006, Anonymous Anonymous said...

I agree with Tom's "sneaking suspicion that all the variables weren't equalized."

Brueckner & Largey's actual paper is posted here. From my cursory read, their methodology of economic analysis does not lend itself to the conclusions people are drawing, especially here in Houston.

The authors use an extremely "simple model" (their words) in which they correlate average density -- not at the neighborhood level, but aggregated across census tracts at the much larger multi-county Metropolitan Statistical Area (MSA) level, with measures of social capital.

They say that they do this because otherwise, it would be extremely complicated to have to deal with density as a confounding "choice variable of the survey respondent." They recognize that in practice, "people may self-select across tracts" based on desired levels of density." But for their analysis, they ignore this possibility.

For ease of statistical analysis, they get a "simpler spatial structure" which "comes from assuming that individual land
parcels are arbitrarily clustered together in space without the attractive force of a central
business district."

Further, they say "For simplicity, the level of social interaction is also assumed to be uniform, and it depends on the city’s average
population density, which equals n/A. While under a more realistic approach, Ii might depend only on the average densities of the lots near i’s, this change would only introduce inessential complications in the model."

That seems to sum up the many limitations of their approach. While it is interesting as an academic economics exercise, their conclusions from this modeling hardly seem useful for analyzing density and social interaction effects within the heterogeneous variety of Houston-area meighborhoods.

At 11:27 PM, November 27, 2006, Anonymous Anonymous said...

The energy trading sector could be our ticket to Houston being a financial center, probably second to NY. This is the same way Chicago became a financial center through commodities trading.


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