Quotulatiousness

January 10, 2012

What a difference a decade makes

Filed under: Economics, History, USA — Tags: , , , — Nicholas @ 10:53

Megan McArdle reports from her business school’s ten-year reunion on the fates of her fellow MBA students:

It was my 10-year reunion at the University of Chicago Booth School of Business. Obviously I wanted to see if people had gotten fatter, balder, and wrinklier. (Surprisingly, not really.) But I also wanted to know what had become of us, and our careers.

Ten years ago, we graduated into a country where the Twin Towers were still standing, Webvan was a going concern, and the unemployment rate was 4.5 percent. Many of us headed to New York or other cities to become what Tom Wolfe, in The Bonfire of the Vanities, called “the Masters of the Universe” — the financiers who can earn lottery-size sums on a single deal. Others went to Silicon Valley start-ups, or became the consultants who worked with them. I couldn’t find anyone at the reunion who admitted to trading dodgy residential mortgage-backed securities, but we participated in all the other madness of two decades of financial froth—and got smashed in two crashes.

We weren’t the people who inflated the bubbles; we were the ones hired, and then fired, by those people. We were the ones who happened to be standing next to the guy who was pushing the buttons when everything went to hell.

[. . .]

I have a theory about what happened to us, and our nation: when too much money is piled together in one place, it starts to decay, and as it does, it emits some sort of unidentified chemical that short-circuits the parts of your brain controlling common sense. When my class matriculated in 1999, ads for a firm called Discover Brokerage featured a tow-truck driver whose passenger notices in the cab a picture of the home — an island — that the driver has purchased with his fabulous online-trading profits. The passenger looks taken aback while the driver muses, “Technically, it’s a country.”

What’s even more amazing than the fact that this ad was ever made is that this sort of triple-distilled balderdash could intoxicate a large group of very smart people at one of the nation’s top finance schools.

Oh, don’t get me wrong: none of us was simpleminded enough to take those ads literally. Oh, ho-ho, no, not us! No, we made only the most erudite and sophisticated sorts of mistakes, like gang-rushing banking internships, and telling ourselves we were “consumption smoothing” as we used student loans to finance vacations. Believe it or not, many of us talked frequently about the echoes of 1929 — but we still didn’t necessarily act on that insight, as the markets cratered in the early 2000s.

For my summer 2000 internship at Merrill Lynch, I chose the technology-banking group despite having watched the March 2000 NASDAQ crash from the lobby of Merrill’s auditorium, where we were supposed to be undergoing orientation. Ignoring the helpless, angry flapping of the HR staff, a bunch of us spent the afternoon telling nervous jokes and watching the eerie flicker that billions of dollars give off when they evaporate on live TV.

December 31, 2011

A billion here, a trillion there, pretty soon you’re talking about imaginary money

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 11:35

Mark Steyn on the crossing of the psychological Rubicon:

At the end of 2011, America, like much of the rest of the Western world, has dug deeper into a cocoon of denial. Tens of millions of Americans remain unaware that this nation is broke – broker than any nation has ever been. A few days before Christmas, we sailed across the psychological Rubicon and joined the club of nations whose government debt now exceeds their total GDP. It barely raised a murmur — and those who took the trouble to address the issue noted complacently that our 100 percent debt-to-GDP ratio is a mere two-thirds of Greece’s. That’s true, but at a certain point per capita comparisons are less relevant than the sheer hard dollar sums: Greece owes a few rinky-dink billions; America owes more money than anyone has ever owed anybody ever.

Public debt has increased by 67 percent over the past three years, and too many Americans refuse even to see it as a problem. For most of us, “$16.4 trillion” has no real meaning, any more than “$17.9 trillion” or “$28.3 trillion” or “$147.8 bazillion.” It doesn’t even have much meaning for the guys spending the dough: Look into the eyes of Barack Obama or Harry Reid or Barney Frank, and you realize that, even as they’re borrowing all this money, they have no serious intention of paying any of it back. That’s to say, there is no politically plausible scenario under which the 16.4 trillion is reduced to 13.7 trillion, and then 7.9 trillion and, eventually, 173 dollars and 48 cents. At the deepest levels within our governing structures, we are committed to living beyond our means on a scale no civilization has ever done.

December 23, 2011

Choosing the right historical figures to appear on Canadian banknotes

Filed under: Cancon, Media, Randomness — Tags: , , — Nicholas @ 12:36

Colby Cosh has some thoughts on who we should be celebrating by including their images on our currency:

Hilarity! Both of the metropolitan broadsheets in Alberta are throwing a tantrum about the Mint’s plans to dump the Famous Five feminists of the 1920s from the $50 bill and replace them with a picture of an icebreaker. Like most pundits who take a thwack at the occasional issue of personages and emblems on our currency, the authors of these editorials act like they have never been east of Flin Flon.

I ask you to sincerely disregard the epic loathsomeness of the Famous Five — that quintet of unsmiling prohibitionists, pacifists, and white supremacists, at least three of whom bear direct personal responsibility for a four-decade regime of sexual sterilization of the “unfit” in Alberta. Leave aside, too, the fact that women would obviously have been admitted to the Senate soon enough if there had never been a Persons Case. No, I ask you merely to look at the people other countries put on their paper currency. With the exception of Australia, which shares our fetish for early female politicians utterly unknown elsewhere, you’ll find they mostly like to put world-historical figures on there. Japan honours Noguchi, who discovered the syphilis spirochete. England honours Darwin and Adam Smith. Sweden remembers Linnaeus and Jenny Lind. New Zealand commemorates Edmund Hillary and Ernest Rutherford.

He invites the readership to provide their choices for banknotization. I thought the obvious suggestion was to include Geddy Lee, Alex Lifeson, and Neil Peart — our Holy Trinity — on the banknotes.

December 13, 2011

The Zero Sum Fallacy

Filed under: Economics, Humour — Tags: , , , , — Nicholas @ 09:02

P.J. O’Rourke on the big economic issue that the Occupy folks always get wrong:

The “Occupy This, That and the Other Place” people are right about the sins of the financial system and right about the evil of government supporting and subsidizing this malfeasance. It’s not fair that 1 percent of Americans are rolling in dough while the rest of us are scrimping to pay for our Internet connection so we can go on Groupon.

But the Occupiers are wrong about something much more important. They believe in the Zero Sum Fallacy — the idea that there is a fixed amount of the good things in life. Anything I get, I’m taking from you. If I have too many slices of pizza, you have to eat the Dominos box. The Zero Sum Fallacy is a bad idea — dangerous to economics, politics, and world peace. It means any time we want good things we have to fight with each other to get them. We don’t. We can make more good things. We can make more pizza — or more tofu, windmills and solar panels, if you like.

The Zero Sum Fallacy is just that, a fallacy. Economic history since the Industrial Revolution proves — be the rich however stinking rich — we ordinary people can make more of the good things in life. But we have to make them ourselves, with our knowledge, skills and hard work. Government can’t give us good things. Government doesn’t make things, it just redistributes them. This brings us back to fighting with each other.

December 8, 2011

The Law of Misguided Subsidies

Filed under: Economics, Government, Media, Politics — Tags: , , , , , — Nicholas @ 09:44

T.J. Rogers explains the latest corollary to the well-known Law of Unintended Consequences (for examples of that law in operation, see your local, regional, or national government):

Wall Street understands how to make money, up-market or down. “Margin Call” may fuel Occupy movement ire, but in creating mortgage-backed securities, Wall Street did nothing other than facilitate home-financing access to the next tier of less-qualified home buyers, as demanded by every president since Bill Clinton. After that, the bankers did exactly what their shareholders wanted: bundle those risky loans into securities, sell them to lock in the profits, and dump the risk right back onto the federal government — where it belonged.

My purpose is not to debate the morality of mortgage-backed securities but to update the Law of Unintended Consequences with the corollary Law of Misguided Subsidies: Whenever Washington disrupts a market by dumping subsidies into it, Wall Street will find a way to pocket a majority of the money while the intended subsidy beneficiaries are harmed by the resulting market turmoil.

Rogers also explains why so many “special Limited Liability Corporations (LLCs)” are getting into the solar power business — not the manufacturing side, but the retail side. The profit margins are obscene. If the government hadn’t set up the market to work this way with their subsidies, the profit margins would be much lower.

December 1, 2011

Economists no longer bring out the “big guns”: now they reach for the “bazooka”

Filed under: Economics — Tags: , , — Nicholas @ 12:58

Terence Corcoran has lots of examples in his latest Financial Post column:

For months now Europe has been searching for the big bazooka of economic policy to get it out of its fiscal mess. Exactly when bazookas became a core principle of economic policy isn’t clear, but it is today everywhere in use. Google “euro and bazooka” and you’ll see what I mean.

In the high precincts of economic analysis, there is general agreement that Wednesday’s move by central banks, including the Bank of Canada, the Federal Reserve and the Bank of England, to make cheap dollar loans available to European banks, while a major bailout event, falls short of reaching the level of intervention required by the high priests of bazookanomics. “It’s not the bazooka the market was seeking,” said a Wall Street Journal report.

One of the early users of the word was Hank Paulson. As U.S. treasury secretary in 2008, he famously said, “If you have a bazooka in your pocket and people know it, you probably won’t have to use it.” At the time, his theory was that the U.S. government would not have to take over control of Fannie Mae and Freddie Mac because just having the power to take them over was good enough stop a bond market run on the two bankrupt mortgage backers at the heart of the U.S. housing crash.

November 29, 2011

Megan McArdle: Barney Frank will be missed

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 09:29

Yeah, read that title again. She’s not kidding at all:

Guess which Democrat now becomes the ranking member on the financial services committee? That’s right, none other than our favorite batty aunt, Maxine Waters. The woman who, during a major hearing with the cameras on her, asked the heads of Goldman Sachs and State Street bizarre questions about how they set the limits on their consumer credit cards*. She asked Ken Lewis, the head of Bank of America, a question about “offshore loss mitigation caps” (a term of which I — and also, clearly, Ken Lewis — had never heard) that was so bizarre — and garbled — that he was flummoxed into silence; he sat there squirming like a third grader being picked on by the teacher.

When he finally got the courage to ask what she meant, it became clear that Maxine Waters had no idea what she meant; I assume she’d either taken hasty and incomplete notes when her staffers briefed her about what to ask, or had flubbed reading the question, and couldn’t bring herself to admit on C-SPAN that she hadn’t really bothered preparing for the hearing to the extent, of, say, familiarizing herself with the institutions whose heads she was grilling, or actually bothering to understand the questions she was going to ask. It was kind of hilarious, until you realized that this was her job, and that she voted on critical financial regulatory questions.

Nor is this an isolated pattern; every time I see Maxine Waters at a hearing I know that the questions are going to be bizarre, and that Congresswoman Waters will make them even stranger with garbled readings and off-topic follow-ups.

* If I actually have to tell you this, these financial institutions do not really deal with consumers, much less their credit cards. I’m not picking on you — you have an excuse. You’re not a member of the financial services committee.

November 26, 2011

Daniel Hannan on how the “Occupy” movement misunderstands the right

Filed under: Britain, Economics, Liberty, Media, Politics — Tags: , , , , , — Nicholas @ 09:57

In his latest column in the Telegraph, Daniel Hannan lists ten mistaken beliefs that the “Occupy” folks seem to have about conservatives:

1. Free-marketeers resent the bank bailouts. This might seem obvious: we are, after all, opposed to state subsidies and nationalisations. Yet it often surprises commentators, who mistake our support for open competition and free trade for a belief in plutocracy. There is a world of difference between being pro-market and being pro-business. Sometimes, the two positions happen to coincide; often they don’t.

2. What has happened since 2008 is not capitalism. In a capitalist system, bad banks would have been allowed to fail, their profitable operations bought by more efficient competitors. Shareholders, bondholders and some depositors would have lost money, but taxpayers would not have contributed a penny.

[. . .]

6. Nor, by the way, does state intervention seem to be an effective way to promote equality. On the most elemental indicators — height, calorie intake, infant mortality, literacy, longevity — Britain has been becoming a steadily more equal society since the calamity of 1066. It’s true that, around half a century ago, this approximation halted and, on some measures, went into reverse. There are competing theories as to why, but one thing is undeniable: the recent widening of the wealth gap has taken place at a time when the state controls a far greater share of national wealth than ever before.

7. Let’s tackle the idea that being on the Left means being on the side of ordinary people, while being on the Right means defending privileged elites. It’s hard to think of a single tax, or a single regulation, that doesn’t end up privileging some vested interest at the expense of the general population. The reason governments keep growing is because of what economists call ‘dispersed costs and concentrated gains’: people are generally more aware the benefits they receive than of the taxes they pay.

November 23, 2011

Tim Harford on credit rating agencies

Filed under: Economics, Government — Tags: — Nicholas @ 08:52

I think it’s safe to say that he’s not over-impressed with the organizations involved in doing credit risk assessments:

What are rating agencies again?

They are private companies that express opinions about the likelihood that, for example, Italy will pay the money it owes bondholders. Sometimes they express opinions about how much money people will get back if Italy defaults on its loans. One way or another they’re providing opinions about the risks that creditors face.

That’s it? Just a bunch of opinions?

Basically, yes. And there are plenty of other opinions out there from journalists and particularly from people who put cash on the line and buy and sell these bonds. But the rating agency opinions have real-world significance in a way that a bloke in the pub doesn’t. Many investment funds promise their investors that they will only hold assets with ratings above a certain level. If a rating is downgraded, those funds have to sell, even if they think the asset is a bargain. Ratings are also hard-wired into regulatory rules, with similar effect. And another thing: unlike most opinions, they’re quantified.

Quantified on a scale of 1-10?

No, quantified on a scale of D through CC+ and BBB- all the way to AAA. Or alternatively, au choix, from C through Caa2 and Ba1 to Aaa. Depending on which agency you’re looking at.

Why?

For ABSOLUTELY NO GOOD REASON.

November 22, 2011

Acronym watch: “In the euro zone farmyard, it’s time to forget about the PIGS and start counting the broken EEGs”

Filed under: Economics, Europe, Germany, Humour — Tags: , , — Nicholas @ 09:36

The journalists will appreciate this new acronym:

The euro zone needs a new acronym. For the past three years, PIGS has served as a catchall for the cash-strapped states on the single currency’s periphery. But now that the crisis has moved to the core, a change is overdue.

PIGS has proved surprisingly durable. When it was first coined, citizens of Portugal, Ireland, Greece and Spain were understandably upset at being lumped together in such a derogatory way. Yet as Ireland and Portugal followed Greece in seeking bailouts, their similarities outweighed historical differences.

Some felt the acronym was self-fulfilling, giving attention-deprived speculators a handy shortlist from which to select their next sovereign victim. However, its survival was also an accident. When Italy got into trouble earlier this year, it slotted smoothly into the slot previously reserved for bailed-out Ireland. Politically sensitive bodies avoided the zoomorphic insult by reshuffling the letters to create the GIPS.

[. . .]

A better idea might be to start with the one remaining euro zone member that isn’t under attack from the bond markets. Andrew Balls, head of European portfolio management at PIMCO, now describes the euro zone states being shunned by investors as EEGs: Everyone Except Germany.

November 3, 2011

The “Euro-elites now see democracy not so much as a distraction, more as a disaster or even a death-threat”

Filed under: Europe, Greece, Politics — Tags: , , — Nicholas @ 12:12

With the agonized screaming coming from the various offices of the European Union, you’d think Greek Prime Minister George Papandreou’s announcement of a referendum was the next-best thing to the emergence of the Antichrist. Mick Hume explains that the reason the Eurocrats took it so badly is that, from their point of view, democracy is Kryptonite:

‘If voting changed anything, they would make it illegal.’ So goes the famous old slogan, attributed to the anarchist Emma Goldman, expressing radical cynicism about the capitalist elites’ traditionally contemptuous attitude to political democracy.

In the current Euro-crisis, however, it appears that matters have gone further still. Europe’s political, media and economic elites are now so insecure, isolated and fearful of any hint of popular opposition that even the suggestion of giving Greeks a vote seemed to change everything for them — and some of them would clearly like to make such referendums illegal if they could.

No sooner had Greek premier George Papandreou announced his plan for a referendum on the latest Euro bailout and austerity package than, in two shakes of an imaginary ballot paper, all that the elites hold dear had apparently been destroyed: the ‘historic’ deal to save Europe agreed days earlier was now reportedly ‘in ruins’, the financial markets were sinking like stones, there were warnings that the Euro itself was now in mortal danger and even that the world was heading for a global depression. All this panic and chaos, apparently, because somebody suggested the outrageous idea of giving the Greek people a say on their future? No wonder that many in authority talk as if they really would like to ban voting today.

[. . .]

Papandreou’s announcement of a referendum, described even by the sober BBC as a ‘nightmare’ for Europe, could hardly have caused more shock, anger and revulsion in high places if somebody had placed a bomb under this week’s G20 summit in Cannes. The mood of Europe’s rulers was captured by President Sarkozy’s French regime, which described the Greek prime minister’s dalliance with democratic politics as ‘irrational and dangerous’. Trying to square this disdain for public opinion with his own need to seek re-election by the French people, Sarkozy himself has generously conceded that ‘giving people a voice is always legitimate’ before adding the obligatory ‘but…’: ‘the solidarity of all Eurozone countries is not possible unless each one agrees to measures deemed necessary’. In other words, whatever the Greek or any other electorate wants, their government will have to adopt those ‘measures deemed necessary’ by the Euro-elite, primarily the Germans and the French, if they want to remain members of the club.

October 15, 2011

It’s not as stirring a rallying cry to say that the 99% earn 80% of the income

Filed under: Economics, Government, Politics — Tags: , , , , — Nicholas @ 12:32

Lorne Gunter can, if he holds his mouth right, kind of agree with the “Occupy Wall Street” protesters, but he says they do themselves no favours by mixing in fake “facts”:

The protesters’ main point also is obscured by all the lefty, social justice, union-financed trash they have heaped on it. The Occupy movement has proclaimed itself in favour of animal rights, a guaranteed living wage, free health care and education, and an end to the “poisoning” of the food supply.

Nor can the protesters help repeating a lot of class-warfare myths, such the “fact” that 1% of the population controls almost all of the wealth. According to Internal Revenue Service statistics in the United States, the “99 per centers” — as OWS types like to call themselves — earn about 80% of all income and control over two-thirds of the personal wealth (both percentages are slightly higher in Canada), while the “one per centers” earn about 20% of income and control about 32% of wealth.

It’s true that the top 1% of earners are taking a greater share of the pie than at any time since the 1950s, when reliable family income figures first became available. But it is also true that even the bottom 20% of earners are better off than they were then — not as much better off than the top 1%, but better off than they were in the mid-20th century.

[. . .]

But the biggest problem with the OWS movement is what they want to do about the problems they see. Because they view most corporate activity as bad and most government programs as good, the Occupiers have convinced themselves the only way to a fairer society lies through bigger government, more public spending and much higher taxes, all of which would only make our economic problems worse, while alleviating none of the disparity protesters believe is so corrosive to democracy.

Conrad Black on “Occupy Wall Street” and its targets

Filed under: Economics, Government, Media, USA — Tags: , , , , — Nicholas @ 11:50

Conrad Black looks at the “Occupy Wall Street” movement:

The Wall Street protesters denounce government bail-outs, the political and economic short-shrifting of students and young workers, the high cost of post-secondary education, various forms of discrimination, U.S. foreign policy, union-busting, outsourcing, the oil industry, media misinformation and (more generally) capitalism and globalization.

Of course, this is a pretty hackneyed scatter-gun indictment by people who haven’t really thought it through, but their anger and frustration are largely justified nonetheless: In the past decade, many prominent financial houses joined in the process of issuing consolidated debt obligations (CDOs), consisting of unfathomable patchworks of mortgages on packages of residential real estate, unsupported by any real base of invested equity in the underlying assets by their ostensible owners, and covered by diaphanous fig-leaves of default insurance. These instruments were made deceptively presentable by certifications from the main rating agencies that they were investment-grade, as if issued by serous entities and secured by unquestionable assets.

[. . .]

As for the Wall Street protesters, their largely justified complaints can’t be addressed by the wild methods they suggest. (A proposed list of demands posted at OccupyWallSt.org includes “free college education,” “bring the fossil fuel economy to an end” and “Immediate across the board debt forgiveness for all.”) The prestige of the U.S. financial leadership, the country’s political class and its economic academics and financial media have all collapsed at once and together, like a soufflé. Except for the military and the pure sciences, the country’s elites have been utterly discredited, and no one believes anything they say. Even if they wanted to, they could not impose on Americans the sort of radical anti-capitalist reforms the protestors urge.

September 26, 2011

Why are gold and silver down in this market?

Filed under: Economics — Tags: , — Nicholas @ 12:15

It’s a question I’ve been asking too (my miniscule portfolio is taking a beating in both equities and in precious metals). Mike “Mish” Shedlock offers some likely answers:

1. Fed Did Far Less than Expected
The Fed did not do what everyone thought, which is to say something far more than “Operation Twist”. [. . .] In short, the Fed did not print, or even threaten to print. Moreover the Fed committed to a strategy not through the end of this year, but all the way through June of 2012. Perhaps the Fed does more in the interim, perhaps not. [. . .]

2. Mutual Fund Redemptions
Mutual fund cash levels are at or near record lows. In general, mutual funds were not prepared for the market selloff and sell orders came in. Rather than sell garbage like Bank of America at $6, mutual funds unloaded stuff like gold, taking profits.

3. Margin Calls at Hedge Funds
Hedge funds unloaded gold and silver for the same reasons as mutual funds, but also because they mistimed the play and what Bernanke would do. Leverage works both ways.

4. China Growth Story Fading
Commodities in general have been clobbered along with currencies of commodity producing countries because the global economy is slowing rapidly.

September 22, 2011

Telegraph: The great euro swindle

Filed under: Britain, Economics, Europe, Media — Tags: , , , , , — Nicholas @ 09:34

This is an interesting summary of the path to the Euro, and how some predicted the current situation at the very start of the project:

The field is theirs. They were not merely right about the single currency, the greatest economic issue of our age — they were right for the right reasons. They foresaw with lucid, prophetic accuracy exactly how and why the euro would bring with it financial devastation and social collapse.

Meanwhile, the pro-Europeans find themselves in the same situation as appeasers in 1940, or communists after the fall of the Berlin Wall. They are utterly busted. [. . .]

The central historical error of the modern Financial Times concerns the euro. The FT flung itself headlong into the pro-euro camp, embracing the cause with an almost religious passion. Doubts were dismissed. Here is the paper’s Lex column on January 8, 2001, on the subject of Greek entry to the eurozone: “With Greece now trading in euros,” reflected Lex, “few will mourn the death of the drachma. Membership of the eurozone offers the prospect of long-term economic stability.” The FT offered a similarly warm welcome to Ireland.

The paper waged a vendetta against those who warned that the euro would not work. Its chief political columnist, Philip Stephens, consistently mocked the Eurosceptics. “Immaturity is the kind explanation,” sneered Stephens as Tory leader William Hague came out against the single currency.

[. . .]

Now let’s turn to the BBC. In our Centre for Policy Studies pamphlet, Guilty Men, we expose in detail how the BBC betrayed its charter commitment and became a partisan player in a great national debate — all the more insidious because of its pretence at neutrality.

For example, in the nine weeks leading to July 21, 2000, when the argument over the euro was at its height, the Today programme featured 121 speakers on the topic. Some 87 were pro-euro compared with 34 who were anti. BBC broadcasters tended to present the pro-euro position itself as centre ground, thus defining even moderately Eurosceptic voices as extreme.

H/T to Tim Harford for the link.

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