tag:blogger.com,1999:blog-36990202024-03-10T20:22:39.071-07:00Economics and similar, for the sleep-deprivedthat's d-squared with a hyphen, dammit.
<p>
Like Brad Delong's site, but with more liberal use of the F-word and less about the New York Times.</p>The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.comBlogger881125tag:blogger.com,1999:blog-3699020.post-58577021946001773152023-03-13T06:03:00.001-07:002023-03-13T06:06:24.695-07:00<p><b> Call it what it is</b></p><p></p><p class="MsoNormal">It is understandable that the <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312a.htm">Federal
Reserve</a> and <a href="https://www.fdic.gov/news/press-releases/2023/pr23017.html">FDIC</a> are
reluctant to use the “b-word” to describe the operations announced at the
weekend to respond to the crises at <a href="https://www.fdic.gov/news/press-releases/2023/pr23019.html">Silicon
Valley Bank</a> and <a href="https://www.fdic.gov/news/press-releases/2023/pr23018.html">Signature
Bank of New York</a>.<span style="mso-spacerun: yes;"> </span>As bailouts go,
they don’t look particularly expensive.<span style="mso-spacerun: yes;">
</span>The FDIC has extended its guarantee to cover uninsured deposits at these
two banks (which won’t cost anything if the assets are good).<span style="mso-spacerun: yes;"> </span>And the Fed will use the Treasury’s Exchange
Stabilisation Fund to backstop a funding program to allow any other banks with
similar problems to trade out of their unrealised securities losses in a
reasonably graceful way.<o:p></o:p></p>
<p class="MsoNormal">Neither of these programs will cost taxpayers’ money, as the
press releases identify.<span style="mso-spacerun: yes;"> </span>As long as we
pretend that FDIC premiums aren’t taxes, that the ESF is costless unless it
takes a loss and that credit from the Fed doesn’t count, then the economy is
getting all the benefit of stabilising the system, for free.<span style="mso-spacerun: yes;"> </span>It’s good policy.<o:p></o:p></p>
<p class="MsoNormal">But a bailout is what it is, and what it ought to be
called.<span style="mso-spacerun: yes;"> </span>The credit lines represent a
subsidy to bad treasury management on the part of banks who should never have
allowed themselves to get so badly overextended in terms borrowing short and
lending long.<span style="mso-spacerun: yes;"> </span>(They also, perhaps
conveniently, avoid anyone having to ask impertinent questions about why the
bank supervisors allowed these positions to develop in the first place).<o:p></o:p></p>
<p class="MsoNormal">The extension of the FDIC guarantee, though, is not just a
bailout – it’s specifically a bailout for billionaires.<span style="mso-spacerun: yes;"> </span>It undermines the whole point of limiting
deposit insurance, and exposes the fund to risk.<span style="mso-spacerun: yes;"> </span>And the benefit of this risk assumption mainly
goes to the venture capital investment industry.<o:p></o:p></p>
<p class="MsoNormal">That industry has, frankly, done the exact opposite of
having covered itself in glory over the last week.<span style="mso-spacerun: yes;"> </span>We have discovered that major VCs put
pressure on their portfolio companies to deposit at Silicon Valley Bank.<span style="mso-spacerun: yes;"> </span>Then they encouraged those same companies to
run on the bank.<span style="mso-spacerun: yes;"> </span>And then some of them
spent the weekend attempting to raise panic about the rest of the financial
system, in order to put pressure on the government for a bailout.<span style="mso-spacerun: yes;"> </span>All after having spent the previous decade
talking about “moral hazard” with respect to student loan forgiveness, and
praising themselves for “disrupting” the old fashioned financial system with
cryptocurrency.<o:p></o:p></p>
<p class="MsoNormal">If there had been no bailout – if the FDIC had operated
normally and not extended insurance to people who hadn’t paid the premium –
then the bill would have arrived at the VCs’ door.<span style="mso-spacerun: yes;"> </span>They are the owners of the tech startup
companies, and they would have been the ones responsible for ensuring that
those companies could make payroll if they had lost money in a bank failure
through no fault of their own.<span style="mso-spacerun: yes;"> </span>It might
not have been <i>pleasant</i> for the VCs to put up more funding, or to admit
that their contribution of management expertise and financial acumen had been
so spectacularly negative, but they would still have done it. To let a good
investment go bad in this way would, as <a href="https://johnhcochrane.blogspot.com/2023/03/silicon-valley-bank-blinders.html">Professor John Cochrane</a> points out, a
clear example of the sunk cost fallacy.<span style="mso-spacerun: yes;">
</span>The venture funds were the source of the cash that was at risk in the
SVB failure; it’s their loss that has been socialised.<o:p></o:p></p>
<p class="MsoNormal">And the fact that the VCs were able to use their portfolio
companies as human shields in this way – a natural extension of the pretence
that venture capitalists are in the tech industry rather than the financial
industry – shows us what the real long-term cost of our current system of
bailouts is, in terms of policy.<span style="mso-spacerun: yes;"> </span>Because
the Fed and FDIC will always find a way to stabilise the system, populist
yahoos and libertarians can rail against “bailouts” and pass legislation to
“protect the taxpayers”, all on the understanding that it is purely playtime;
that when things get serious, someone will find a way to bail them out.<o:p></o:p></p>
<p class="MsoNormal">This is no way to run a financial system, particularly since
there is the constant risk that one day the anti-bailout loudmouths will
accidentally succeed. The Fed needs to say, loud and clear, that “Yes, this is
a bailout, and that is good.<span style="mso-spacerun: yes;"> </span>A bailout
is often the best and cheapest way to prevent a catastrophe.<span style="mso-spacerun: yes;"> </span>The people benefiting from it may be quite
comically unattractive and undeserving, but finance is not a morality
play.<span style="mso-spacerun: yes;"> </span>Take your bailout and try to be
less silly next time”.<o:p></o:p></p><b></b><p></p>The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com4tag:blogger.com,1999:blog-3699020.post-57181283369164809272015-10-05T08:03:00.001-07:002015-10-05T08:03:34.250-07:00<b>Simply because it's the right thing to do</b>
<br />
<b><br /></b>I find myself pondering the vast contorted pile of twisted knickers that have been piled up all over my media consumption over the last two days about the <a href="http://flyingrodent.blogspot.co.uk/2015/10/me-government-are-very-sensible.html">behaviour</a> of protestors outside the Conservative conference. And I find myself with one overpowering thought:<br />
<br />
<i>Someone is going to get killed if this sort of thing carries on</i><br />
<br />
I've never been a fan of demonstrations at all - sensitive feet, low boredom threshold. But one of the things that makes me even less of a fan, is that you tend to meet the kind of person who thinks that shouting loud aggressive slogans at passers-by is a cool thing to do. And of course it isn't. It's belligerent macho bullshit, of exactly the sort that people like me like to pretend doesn't happen on the political left[1]. It's also, pretty clearly, a more or less direct consequence of the way that every single disagreement over benefit policy these days gets blown up into "THE TORIES ARE QUITE LITERALLY MURDERING BABIES". Owen Jones was, on the Twitter, apparently surprised to have been cussed as "Tory scum" because he was walking into the conference with his press credentials, but really, what might he have expected - if you spend five years telling people that a political party is intentionally hounding the disabled to death, then wouldn't it be surprising if a few people<i> didn't </i>think that this justified violent behaviour?<br />
<br />
On the other hand, the British political media, one of whom got gobbed on apparently (which is why we're having this moral panic), might also use the rather nasty and overheated atmosphere currently prevailing in Manchester as an occasion to ponder their own behaviour, and whether they themselves have been as grown-up as they could be. One of the nastiest bullying games in any school playground is that of picking on the weird kid, winding him up with progressively nastier and nastier insults, then finally getting him to freak out and hit somebody then shouting "LOOK WHAT HE DID!". And that's pretty much been the response of the commenteriat to the Corbyn boom.<br />
<br />
Yeah, Corbyn supporters, it was very clear from as long ago as July, tend to have a large element in them which is young, not overly blessed with common sense, and very passionate and aggressive in defending their beliefs. Not all that clever an idea to wind them up then was it? After a pretty solid 90 days of amazingly aggressive, amazingly bad faith insults, the press can hardly claim that what has been happening to them in Manchester has fallen out of a clear blue sky.<br />
<br />
What! Can he really be saying that? Is that bastard Davies <i>blaming the victim</i>? I bet he doesn't even own a "Je Suis Charlie" t-shirt [2]! How dare he! Finally We See The Left In Its True Fascist Colours , etc etc.<br />
<br />
I don't understand why people have such a hard time understanding this point. Surely professional, literate people who are willing to take enough time and trouble to write a blog post themselves, are also able to stretch their minds around two independent concepts simultaneously.<br />
<br />
1. It is not OK to spit at or harass people, still less to harm them. <i>This is still not OK even if they wind you up.</i><br />
<i><br /></i>
2. It is not OK to fill your news coverage with bad faith bullshit. <i>This is not retrospectively justified if some supporters of the person you're insulting behave badly.</i><br />
<i><br /></i>
That might be a little too compressed. Let me expand and provide a few corollaries:<br />
<br />
If the Corbyn fan club were to calm down, turn down the emotional temperature and self-police the idiots in their midst better, would this mean that they got better press coverage? Maybe, but probably not. The British political media establishment know one thing about Corbyn - they know that they didn't see him coming, they don't understand him and he appears to have made the last twenty years' investment in intellectual and social capital with New Labour obsolete. So their attitude to him is always going to be that of a Nottinghamshire weaver to them new steam looms. There is basically no hope of getting a fair shake, and behaving better won't help. <b><i>Nonetheless, it is the right thing to do.</i></b><br />
<b><i><br /></i></b>
If the press were to start covering the Labour Party in a remotely fair or objective way, and to stop proliferating stupid gotchas, does this mean that they would get less gobbing and insults from protestors? Again, probably not. It only takes a few morons, and morons are extremely resistant to self-policing. In any case, as with the Cybernats, the Corbynites have a large element who are entirely new to politics, very passionate, very paranoid and (as with anyone who takes up a political cause for the first time), outraged that what appears obvious to them is not also obvious to anyone else. The British political media have chosen their side - technocratic centrism - and they are not likely to be able to get rid of the enemies that this choice has made for them. Changing the style and slant of their journalism probably won't help. <b><i>Nonetheless, it is the right thing to do.</i></b><br />
<b><i><br /></i></b>
As I say, if stuff keeps going in this direction, somebody is probably going to get killed, either in a protestor riot or a police riot, and it will not be much consolation to anyone that the person who gets killed will be at least partly the author of his or her own misfortunes. I am now officially old enough to say "grow the fuck up" as my main tool of political argument, and since I am suffering the aches and pains of middle age along with the psychic torment of knowing I will never play for Wales, I'm damned if I'm going to give up on the few compensations. GTFU, the lot of you.<br />
<br />
<br />
[1] By the way, plenty of the "I am a man of the left, oh yes I am, despite having spent the last ten years writing in praise of the Conservative Party" tendency have been trying to claim that Conservatives are much more friendly and less inclined to this kind of behaviour. Nuh uh. If you think that Tories don't spit on their political opponents and call them "scum", ask your mum about what used to happen when CND was a thing. Or try wearing a white poppy.<br />
<br />
[2] I doThe Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com7tag:blogger.com,1999:blog-3699020.post-54896250755281813322014-08-23T12:56:00.003-07:002014-08-23T12:56:47.976-07:00<b>One door closes, another one slams in your face</b><br />
<div>
<b><br /></b></div>
<div>
Welcome new readers, also welcome old readers. Up until now this has mainly been a politics and economics blog. From now on in, it will also be a travel blog. There may even be pictures! But perhaps not. In the meantime, the fact that I am no longer conflicted out because of my day job means I can do a few more things about newsworthy issues of the day and specific things to do with banking.</div>
<div>
<br /></div>
<div>
For example, <a href="http://www.ft.com/intl/cms/s/0/9411fdde-27c5-11e4-ae44-00144feabdc0.html?siteedition=intl#axzz3B3DUdsI8">our Felix's</a> latest article on Silicon Valley deals and how they prove that banks are redundant and so on and so on. On the one hand, I agree with a lot of it, because I've always thought that M&A advisory was a really hinky part of the industry (occasional reader - not you! you were great mate! those other guys!). But on the other hand, I would read from the welter of Silicon Valley deals that have been consummated without Wall Street help, a simpler underlying truth - that there are a lot of very good companies which <i>simply have no business being part of the public quoted capital market</i> and that for the first time in about twenty years, a lot of these companies are not being part of the public quoted capital market. This seems like the system working, for anyone whose career started earlier than about 1997; it would be better if Wall Street had explicitly said that WhatsApp at $10bn was not a suitable investment for anyone's retirement savings, but if they Just Don't Get It and therefore Miss The Deal, then that works too. In my view, a decent next step would be to recognise that companies like Facebook (and even possibly Google) probably shouldn't be troubling the stock market either.<br />
<br />
This isn't a slam on tech, far from it. There are lots of really great industries that should never be quoted companies and should not have investment banking advisors talking them into and out of deals. For example, investment banks.</div>
The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com6tag:blogger.com,1999:blog-3699020.post-75899876170611124752014-04-21T22:50:00.001-07:002014-04-21T22:50:13.377-07:00<b>Secular stagnation and such ...</b><br />
<br />
I put this in the comments on <a href="http://delong.typepad.com/sdj/2014/03/is-there-any-sense-in-which-quantitative-easing-might-increase-financial-instability-the-honest-broker-for-the-week-of-marc.html">Brad's</a> site<br />
<b> </b><br />
<div class="comment-content">
<span id="comment-6a00e551f08003883401a3fce45b94970b-content"> <i>I
think the problem here is more of this gross substitutability stuff and
marginal thinking that I am always going on about. The idea that
people seem to be stuck with is that an increased weighting to equities
and high-yield debt in some portfolios is an "increase in risk" and that
this in some way increases the danger of another financial crisis. But
a) the extent to which it's actually happened is hardly measurable, and
b) it isn't, any more than a budgerigar might grow up into a
tyrannosaurus rex. They're different things.</i><br />
<br />
<i>
</i><i>The credit bubble and house price crash weren't random outcomes
selected from the underlying distribution of financial asset returns;
they were specific events with their own causes, which is why they
appeared to be Black Swans to people who weren't paying attention to
those causes. That's not going to happen again, or at least not in that
specific way, not for a while.</i><br />
<br />
<i>
</i><i>As far as I can see, Brad, you're more right than the people worrying
about financial instability, because they're looking at this from a
partial analysis - they're looking at either the (small) empirical
evidence of people increasing holdings of credit-risk securities or the
theoretical arguments to the effect that the private sector has an
incentive to increase those holdings and saying - increase risk equals
bad.</i><br />
<br />
<i>
</i><i>You, for your part, are looking at the system as a whole and saying
that there's something close to a conservation law; that duration risk
has gone down, while credit risk (and equity risk) has gone up, for the
private sector. </i><br />
<br />
<i>
</i><i>Stein's view seems to be that the total amount of "risk" can go up if
the total amount of *activity* goes up (which is true, activity is
risky), and that in so far as the QE channel works by encouraging the
private sector to buy credit- and equity-risk securities and thereby ...
(cough mumble) investment in real entrepreneurial projects, then it's
possible that QE might encourage the kind of over-leveraged risky
structures that lead to financial fragility.</i><br />
<br />
<i>
</i><i>My view is that, while your view and Stein's are clearly better than
the partial view, this is all the sort of blackboard thinking you're
going to get if you start off by making the mistake of drawing supply
and demand diagrams denominated in generic "risk"! The attraction of
cash isn't that it's "safe" - ten year floating rate government bonds
would have zero duration risk, but they wouldn't be cash. The reason
that people hoard cash in liquidity traps is that it's *liquid* - it
preserves your optionality, and combines zero risk of being unable to
meet nominal liabilities, with instant convertibility into consumption
or investment goods. Cash is what you want to hold when you don't know
what to do next.</i><br />
<br />
<i>
</i><i>And people's decision about what they want to do next are driven by
animal spirits and expectations about an unknowable future. The kind of
thing that makes people take non-ergodic, non-insurable, non-hedgable
entrepreneutrial risk is really not very related to the kind of thing
that makes people move the equity weighting of their portfolio from 40%
to 45%. </i><br />
<br />
<i>
</i><i>If, at some future date, activity picked up and we had a normal
investment environment and yields were still at 2%, then this might be a
problem, as it would mean that people would be able to finance very
low-yielding projects, and as a result would be vulnerable to
comparatively small real shocks to either their refinancing cost or
their cash flows. But this is to assume that future massive mistakes
would be made.</i><br />
</span>
</div>
<b> </b>The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com2tag:blogger.com,1999:blog-3699020.post-89175115967740186122014-04-02T00:08:00.002-07:002014-04-02T00:08:33.861-07:00<b>A minor squib about Ukraine</b><br />
<br />
Hmmm...<br />
<br />
<i>A few weeks ago</i>: Europe and Russia were politicking over whether Ukraine should be considered to be Finlandized to the EU sphere of influence or to the Russian sphere of influence.<br />
<br />
<i>Now</i>: Basically the same diplomatic and grand political struggle, over Eastern Ukraine.<br />
<br />
Remind me again who looks weak and silly and has been humiliated? It looks to me as if, in sheer territory-lost-versus-gained metrics, there's a clear winner and a clear loser among the two imperial powers on the European continent, to the tune of half of Ukraine.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com3tag:blogger.com,1999:blog-3699020.post-84823234172689979542014-04-01T23:59:00.002-07:002014-04-01T23:59:43.242-07:00<b>An absurdly simplistic point about High Frequency Trading</b><br />
<br />
This seems like such an obvious point that it surprises me I haven't seen it being made over and over again, presumably in industry publicity material. The <a href="http://www.nytimes.com/2014/04/06/magazine/flash-boys-michael-lewis.html">central anecdote</a> of Michael Lewis's book (and a story that very often forms the centrepiece of an article about high frequency trading), goes as follows:<br />
<br />
<i>"Before RBC acquired this supposed state-of-the-art electronic-trading firm, Katsuyama’s computers worked as he expected them to. Suddenly they didn’t. It used to be that when his trading screens showed 10,000 shares of Intel offered at $22 a share, it meant that he could buy 10,000 shares of Intel for $22 a share. He had only to push a button. By the spring of 2007, however, when he pushed the button to complete a trade, the offers would vanish."<br />
[…]<br />
To make his point, he asked the developers to stand behind him and watch while he traded. “I’d say: ‘Watch closely. I am about to buy 100,000 shares of AMD. I am willing to pay $15 a share. There are currently 100,000 shares of AMD being offered at $15 a share — 10,000 on BATS, 35,000 on the New York Stock Exchange, 30,000 on Nasdaq and 25,000 on Direct Edge.’ You could see it all on the screens. We’d all sit there and stare at the screen, and I’d have my finger over the Enter button. I’d count out loud to five. . . .<br />
“ ‘One. . . .<br />
“ ‘Two. . . . See, nothing’s happened.<br />
“ ‘Three. . . . Offers are still there at 15. . . .<br />
“ ‘Four. . . . Still no movement. . . .<br />
“ ‘Five.’ Then I’d hit the Enter button, and — boom! — all hell would break loose. The offerings would all disappear, and the stock would pop higher.”<br />
At which point he turned to the developers behind him and said: “You see, I’m the event. I am the news.”</i><br />
<br />
Fair enough. But … tell me about the other side of this trade. Brad Katsuyama, in this story, had to pay a few fractions of a cent more for the 100,000 shares of AMD stock he wanted to buy, because high frequency trading firms saw his order coming and took out the sellers. But if he paid a few fractions of a cent more, then someone else who was selling the stock received a few fractions of a cent more. Here's a story you don't ever see told.<br />
<br />
"One day, he came into work and started trying to sell a block of stock at $15 a share. There wasn't much interest at that price and a bunch of offers at $14.9995. Brad knew he needed to get the trade finished, so he sighed and got ready to lower his quote. Just as he was about to press the button, though, a shoal of high frequency traders took out all the offers below him and an institutional investor paid up the full $15! He said hurray".<br />
<br />
Nobody would think that way. If you put in an order and get a fill which has a bit more slippage [1] in it than you were expecting, then you start looking around for explanations of why this thing could have happened. If you get an unexpectedly good fill, then you tend to presume that this is just because you're such a great trader.<br />
<br />
All of which certainly isn't my general view on HFT; I have always thought that the whole business of payment for order flow was hinky in the first place, and I've always been suspicious of entities which behave like liquidity providers but don't commit to providing liquidity when it's needed. But by definition, when the price moves away from one trader, it's moving toward another one. So I don't think that estimates of the "cost" of the presence of high frequency traders can be supported based only on anecdotes of bad fills. <br />
<br />
[1]("slippage" = "the difference between the price you saw on the screen when you made the decision to trade, and the price where the order actually gets filled")The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com4tag:blogger.com,1999:blog-3699020.post-58349642008009705392014-03-21T04:43:00.000-07:002014-03-24T00:06:04.585-07:00<b>If you want to send a message, use Western Ukraine</b>
<br />
<br />
My analysis of WTFF is going on in Ukraine at the moment, and why everything is so god damned chaotic.
<br />
<br />
My basic game theoretic analysis comes from a game which we used to call "What's the Time Mr Wolf", but has a bunch of other names. Basically, one kid stands facing the wall, and the rest of you creep closer and closer, with the tension rising, until the kid facing the wall decides everyone's got a bit too close, then he suddenly turns round and tries to grab one of the other kids and beat the crap out of him, as everyone runs away.
<br />
<br />
The geopolitical version of this game which we're interested in is called "chipping bits off the former Soviet Union", and I am in favour of our playing it because it expands the imperial power which I am part of, and contracts the imperial power which is the most obvious danger to me. I am actually quite hawkish when it comes to cold wars, it's the fighting kind I don’t like.
One of the consequences of the EU playing the game of chip-bits is that from time to time we're going to over-reach and provoke some sort of reaction. After all, if one looks at this from Putin's point of view, he's in a really unenviable situation; taking a look at the way that the EU's borders have moved since 1989 you can sort of see how someone whose view of the world was not our own might see the EU as a totally out-of-control expansionist imperial power.
<br />
<br />
Another way of looking at this is to remember that people judge others by the standards of their own behaviour. Putin is a bit of an authoritarian maniac, so he presumes that other people are also authoritarian maniacs. If your worldview is that of a maniac, and you see what you believe to be a fellow maniac behaving like the EU does, it's worrying.
<br />
<br />
But as I say, this is normal diplomatic politics. And we're actually pretty good at it, having chipped off the Baltic states and (in my opinion) shifted the real hard-line "nuclear" boundary of NATO from Berlin to eastern Poland. You have to expect setbacks. What seems to have changed is the way in which setbacks are handled.
<br />
<br />
So this is what happened in my view. We were doing our usual game of extending the hand of friendship, the latest move in a two-decade effort to chip Ukraine away, but we made the mistake of thinking that Yanokovych was a crook we could do business with, rather than a Putin lackey. Putin, for his part, made the mistake of believing that Yanukovych was a lackey who could deliver his province, rather than an over-reacher who had more reason than most to not make the mistake he did about the willingness of the Ukrainian population to be used in this way. The Ukrainians, as far as I can see, played a blinder and made no mistakes at all - I would personally question their taste in laughable crooks as a political class, but you play the cards you're dealt, and we had Berlusconi after all.
<br />
<br />
At this point, there was a clear off-ramp and everyone, including me, was expecting that it would be taken. Around the time that Yanukovych fled, everyone sensible ought to have been thinking that the EU had overreached a bit, and we were at the stage in which the rules of the game dictated that everything had to be rowed back quickly.
<br />
<br />
What was needed was for someone (probably Baroness Ashton) to go and deliver the message <i>"Don't worry Vlad, not while the Ukrainian people have holes in their arses will they be members of the EU and as far as NATO membership is concerned they are somewhere behind North Korea. We fully appreciate that Ukraine is your back yard, not ours and we have no interest in doing anything that makes you feel threatened"</i>. At which point it could all have been stood down in a cloud of bad temper, but kept relations on the same broadly productive track they were before.
<br />
<br />
Thing is, this is now the post-Wikileaks era. And the trouble with the little speech I indicated in the last paragraph is that a) it's a total lie and obviously so, and b) it involves selling out the Ukrainian opposition in a really unedifying way - we keep financing these people and providing the expectation of help that we're never going to deliver, in order to use them as pawns in our game of chip-bits, and I suspect they might kind of know that, but we can't rub their faces in it and expect to keep their support. There is no way that any official is going to be prepared to have that speech attached to their name, and so no way anyone's going to do it if there is a risk of it being plastered all over the internet (and there is; EU diplomats have screwed up their comms at least once already and seen embarrassing conversations appear in the papers). There's a symmetry too here - there are all sorts of threats and deals that Putin might want to communicate but can't.
<br />
<br />
So the normal channels of diplomatic communication aren't working, and people are working blind, while trying to communicate strategies and alternatives to each other by the traditional Cold War means of costly signalling theory. My answer to the question of "why did Putin invade Crimea?" is that it is quite likely that he did it "in order to transmit a single bit of information". We're trying to use various forms of sanctions as a communication tool, but we haven't got an agreed code to match them up with - we need to develop a set of bidding conventions, like bridge players have. My guess is that because it has now become someone's job to develop a new substitute diplomatic communication channel, and fast, it will get done, and things will get a lot more normal. But it's also possible that they won't, and that we will be seeing a lot more use of the tactic of annexation of territory as a means of self-expression.
The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com4tag:blogger.com,1999:blog-3699020.post-36875212502258958962013-08-09T04:35:00.001-07:002013-08-09T04:35:24.216-07:00<b>Philosophies of economic policymaking - a comment which growed</b><br />
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Think I kind of disagree with <a href="http://delong.typepad.com/sdj/2013/08/paul-krugman-milton-friedman-as-a-minor-post-hicksian-noted-for-august-9-2013.html">this</a> victory lap on the part of Paul Krugman over the legacy of Milton Friedman. Friedman himself is a bit absent, but sometimes people disappear simply because their victory has been so total that it's not necessary to argue for it any more. And although k% M2 has turned out to be an embarrassing relic, the general concept of rules-based policy rather than discretionary is more or less hegemonic - when the Taylor Rule broke down, we had a short period of trying to make policy based on judgement, but we were very quick to try and find another rules-based framework. Adam Posen's criticising the Bank of England's forward guidance strategy for being insufficiently rules-based as if this was a desideratum in and of itself.<br /><br />And (via Prescott & Kydland of course, although everyone including Taylor would trace the lineage of the Taylor Rule back to Friedman), the impetus for rules-based policy is precisely the tension in Friedmanism that Krugman identifies in his last few paragraphs as the reason for his disappearance; the tension between a free-market ideology and the need for aggregate macroeconomic policy. As PK correctly notes, Friedman's response to this was to try and package the whole of policymaking into a simple feedback rule, but although k% disappeared, the general project of making macroeconomic policy a rules-based system is definitely not gone - it's the water that we all swim in.<br /><br />I think that the real Keynes versus Friedman philosophical distinction is whether you believe in actual, active policymaking, in the sense of someone taking a decision about the economy and saying "this is my decision, and as the planner responsible for this aspect of macroeconomic conditions, I am implementing it". If you believe that someone in the system has to do this - that the buck has to stop somewhere - you're philosophically Keynesian. If not, then even if your modelling is pure Hicks-Keynes (or even pure Keynes-Keynes - iirc Paul Davidson is basically opposed to active management), you are philosophically a Friedmanite.<br /><br />And (I think I'm making my own position clear here) I think this is why Friedmanism fails. Because actually, the buck does have to stop somewhere, and pretending that you can manage a complex system via a simple rule is basically impossible (it falls foul of Stafford Beer's Principle Of Sufficient Variability). In practice, in a system based on a Taylor Rule, an Evans Rule or even an NGDP target, the buck stops with whoever it is that is responsible for maintaining the model which generates the forecasts of the control parameter. And this person is always going to deny that he's making activist policy and claim that he's a technocrat who simply goes where the data takes him. Friedmanism in economic policy, in the general sense I'm talking about here, is nothing more nor less than a distributed responsibility avoidance system.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com3tag:blogger.com,1999:blog-3699020.post-273999922377764982013-07-24T09:03:00.001-07:002013-07-29T00:40:14.685-07:00<b>Banknote trivia ...</b><br />
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Although it was a silly mistake on the part of the Bank of England[1] to phase out the Elizabeth Fry notes before bringing the Jane Austen ones in, and having an all-male series of notes isn't on, I think that the people behind <a href="http://storify.com/CCriadoPerez/men-explain-bank-notes-to-us">this campaign</a> are being a little bit precious in getting offended at the fact that a lot of people on Twitter (including me, although I'm not listed there) made an amazingly obvious joke. It's presumably quite tedious to get the same amazingly obvious and weak joke repeated to you dozens of times but ... well, Twitter innit?<br />
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Actually, there is a decent case to be made that HM the Queen is on the banknotes for her own achievements rather than simply because of an accident of birth. She was born into the monarchy, but it is not the case that being monarch automatically gets you onto the banknotes. In fact, HM Queen Elizabeth II is the <i>only</i> British monarch ever to have been honoured with a portrait on Bank of England notes.<br />
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Notes aren't printed by the Royal Mint - they're handled completely separately from coins. For most of its existence, the Bank of England did not want its own unassailable credit to be associated with the often decidedly ropey finances of the royal house. After nationalisation in 1945, and the post war constitutional settlement, the relationship between Bank and State and that between Queen and State changed pretty fundamentally , and in 1960, they produced the first series of notes with the royal portrait on them. So I would say that QEII is on the banknotes at least partly because she's the first British monarch to have developed a fully modern relationship with her government, of the sort that they have in countries which put their heads of state on the notes much earlier.<br />
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[1] Not sure how it happened really; unlikely to be institutional sexism as the BoE's head of banknotes, Victoria Cleland (as well as being a really nice person as I remember) is pretty active in "Women in the City" type groups.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com1tag:blogger.com,1999:blog-3699020.post-14544087680403036062013-07-17T07:17:00.002-07:002013-07-17T07:17:17.825-07:00<b>What a way to earn a living, part etc</b><br />
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I'm thinking of starting a series of these, like that awful "Markets in everything" one. This week ... it is bad enough to be forced to <a href="http://www.guardian.co.uk/politics/2013/jul/17/five-year-olds-tests-clegg">administering a state-mandated exam to</a> five year olds, which consists of asking them to point at a picture of a carrot. But, reading carefully ...<br />
<br />
<blockquote class="tr_bq">
<i>The new tests would be subject to external supervision: outside examiners would assess papers but would not sit in on the tests.</i></blockquote>
Yep, some lucky punter is going to get the job of <i>quality assuring </i>an exam which consists of five-year-olds pointing at carrots.<br />
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"Did the kid point at the carrot?"<br />
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"Yes"<br />
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[ticks box]<br />
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For no extra money too, I'll bet. The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com2tag:blogger.com,1999:blog-3699020.post-75716275392347112002013-06-12T04:19:00.004-07:002013-06-12T04:19:29.370-07:00<b>Mistakes we knew we were making ...
</b><br />
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<i>"When you ask them about the bloodshed, they tell you that you can't make an omelet without breaking eggs. When you ask where's the omelet, they tell you Rome wasn't built in a day"</i> - George Orwell, possibly apocryphally.
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I am not sure that I would have chosen the job of "Professional Apologist For Extremely Problematic People And Organisations" on the graduate milk-round, but I also suspect that if it was a choice between that and losing my benefits, I'd have the sense to realize that I'm more temperamentally suited to that than many other things. And it does strike me that in the specific case of Greece, the IMF deserves a fairer shake than it got, and that its "<a href="http://www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf">lessons learned</a>" exercise is in danger of learning a load of wrong lessons. In particular, even if I spot the IMF's many detractors most of the political and bureaucratic constraints summarized in <a href="http://pawelmorski.com/2013/06/06/imf-whoops-i-did-it-again/#comments">that tweet Pawel quoted</a>, there are still a number of issues on which I think that the general market and media consensus is oversimplifying and (literally) taking things at face value. Mind you, I need two subheadings and a conclusion to make my case, which is usually a sign that it's wrong, and I still basically end up criticizing the IMF staff ...
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1. <i><b> <a href="https://twitter.com/Pawelmorski/status/342413876756897792">This</a> Isn't Your Parents' 180% Debt Ratio
</b></i><br />
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Consider Tarquin, who has rich parents. He has monthly income of $x, and monthly expenditure of $x + y. Historically, the gap has been financed by, every few months, calling up his dad and asking for a "loan" of $3y. Tarquin's dad keeps track of these "loans", and the balance has built up to somewhere around $36y. Tarquin has no other liabilities at present, so his equivalent "debt/GDP ratio" is 300%.
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I think the sharp cookies who read this blog can see where this example might be going. Tarquin's debt profile is <i>completely sustainable</i> and more importantly the 300% figure is <i>utterly irrelevant</i> to assessment of that sustainability. In Tarquin's case, if he is asking you to lend him a score until Tuesday, the only piece of information you need to know is whether he's in his dad's good books at the moment.
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Debt that is very likely to be written off isn't debt; it shouldn't go into the calculation at face value and it might be less misleading to exclude it entirely. And debt which, with high degree of certainty, is going to be rolled over again and again, always on concessional terms, into the far future, is quite like debt that's going to be written off, for a lot of financial purposes. When one considers that there is a road map to fiscal union for the Eurozone (which is obviously as controversial as all hell and shot with political difficulties, but see the section below), I would say that on the relevant continuum, Greece's intra-EU official sector debt looks much more like borrowings from the Bank Of Mum And Dad than Argentina or Indonesia's external debts ever did.
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Which, to me, says that the exercise of doing a bunch of forecasts, dividing the "debt" number by the "GDP" number and seeing if the line on the chart is going north-east or south-east is not going to give you a useful answer, particularly if your question is "has this program been good or bad for Greece?". The program needs to be assessed on the basis of the cash flows, not the debt stocks, precisely because this is not a case where double-entry bookkeeping is appropriate; the true debt burden of Greece isn't necessarily equal to the sum of past borrowings.
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In cash flow terms (and presuming that at some future date there is going to be major official sector writedowns, because there will), the program was a <b>massive</b> positive for Greece. One can certainly argue about the speed of consolidation and whether it made any sense to try to get Greece back to primary balance so fast[1]. But that's the sort of argument that needs to be had, not anything based on the debt burden number being "too big" or "unsustainable". Anything's sustainable if there's a clear and obvious interest on the part of one of the world's biggest economies in sustaining it.
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<br />
But ... my argument here is that the Greek debt burden doesn't matter, because the dogs in the street know it's going to be restructured [2]. So why not just write it down and make the accounting a little cleaner and more transparent? That goes on to ...
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<i><b><br /></b></i>
<i><b>2. Rome Wasn't Built In A Day, Minister
</b></i><br />
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I admit it, I was the only viewer of "Yes Minister" who used to cheer for Sir Humphrey, but really - RWBIADM. Some delays are the result of bureaucracy, foot-dragging and politicized attempts to run out the clock. But some delays are the result of either a) something taking a while to do because it is difficult, or b) something being more sensible to delay, because it depends on something else, and that something else will be in better shape if you leave it a while. Greece was very much a case of b), where the "something else" was the Euroland banking system.
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<br />
It's sometimes very frustrating to watch people in the markets demand that everything must be sorted out! now! and with certainty! now! while you can see that a civil service is operating to its own timescale, and is keeping control of developments by, literally, controlling the agenda - the order in which things are decided. If you're going to have a PSI debt writedown, you do it <i>after</i> you're sure that it's not going to cause any domino effects anywhere else. If you're going to put a bank into insolvency, you do it <i>after</i> you've created a set of legal and administrative structures that allow you to default on the bonds while keeping money in the ATMs.
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And in so far as is possible, you don't set hares running by talking about massive apocalyptic scenarios more than you absolutely have to. Which is a principle that the EU doesn't really observe, and the IMF rightly criticizes them for. Lots of reserves of energy, goodwill and risk tolerance were burnt up by Trichet's steadfast refusal to rule out Grexit in any kind of clear or unambiguous language. But that wasn't the IMF's fault.
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<br />
Related to this issue is that it doesn't make much sense to talk about any program as having been one in which the interests of Greece were sacrificed in the name of broader stability in the Euro area. The number one interest of Greece was in preserving its external financing, the number one provider of financing to Greece was the Eurogroup, and it's pretty obvious that the ability (let alone the political feasibility, and remember that in context "politically possible" just means "possible") of the Eurogroup to provide financing to Greece is highly dependent on whether or not they are having a massive crisis triggered by trying to do things too quickly in Greece. The Eurogroup were totally correct in doing this - it's the equivalent of making sure that your own oxygen mask is securely fastened before helping others.
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Rome really wasn't built in a day, minister. And it's surprisingly difficult to say what would have been gained by writing down the debt early. All the IMF can come up with is that it "allowed private sector participants to exit without losses and increased the cost to the official sector". To which, a) this is only true for the bonds which matured between 2010 and 2011, everyone else took their lumps, b) conversely, the way things were done preserved the T-Bill roll and therefore kept a bunch of private sector participants in the game, who would otherwise have had to be replaced, and c) since the IMF is a preferred creditor, where do they get off anyway, telling the Eurogroup how to spend their own money.
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There are a lot of other RWBIADMs which in my view explain all sorts of things about the Eurocrisis, but they're not directly relevant to Greece.
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<i><b>3. Conclusion
</b></i><br />
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In the end, I think people just hate the IMF debt sustainability analysis because it was so far off, and it was a political compromise. Fair enough, if a private sector bank or quoted company printed anything into the markets that was so clearly in bad faith I would be jumping up and down and calling the regulators. But really - in context, honesty is over-rated. Given the constraints on the IMF's ability to act (and the requirement for the ESM to only lend in the context of an IMF program), to fail to find the debt to be sustainable would have meant no package, no loan and probable Grexit. If I was a Greek diabetic in a hospital running out of insulin, I think I'd like to be sure that if I was having my health sacrificed for something, it would be a bit more significant than the sacred purity of IMF debt sustainability analyses. Sure, it's wrong to sign off on a dishonest document, but there are always get-outs when the consequences are disastrous. By convention, it's even acceptable to lie to the House of Commons about an impending devaluation of the currency.
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<br />
And in any case, how very very awful was this analysis anyway? It failed because of pretty predictable incompetence and bad faith on the part of the political partners. But really, is it incumbent on the IMF to predict that everyone else involved in the deal is going to screw it up? You or I might want to operate on that basis as a principle of sensible risk management, when investing our own or other people's money. But is it really <b>actually dishonest</b> for the IMF to plan on the basis of the assumption that the people it deals with will keep their promises? Remember as well that this was 2010, at which point it was not at all yet known that Germany wasn't prepared to pick up the whole tab or allow some form of mutualisation, eventually.
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I'm not Dr Pangloss here. This wasn't the best of all possible programs in the best of all possible worlds. But it was a decent stab at a compromise, given the actual world that we have. It bought time, and (with the Banking Union, a new ECB governor and a roughly 50% increase in the capital base of the banking system) I do not agree that this time was entirely wasted, just because some of it was spent chasing up a blind alley of Eurobonds. As I keep saying, the IMF, ECB and Eurogroup aren't supervillains and they aren't bumbling incompetents. They are reasonably intelligent public servants, trying to deal with an almost unimaginably difficult problem (which was not created by them), under circumstances of absurdly difficult constraint (most of which, to be fair, were created by them in the first place). I am going to keep on writing lousy adventure games until people get this point.
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<br />
<i>" The major difference between a thing that might go wrong and a thing that cannot possibly go wrong is that when a thing that cannot possibly go wrong goes wrong it usually turns out to be impossible to get at or repair."</i> - Douglas Adams
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[1] The IMF document explicitly rejects "speed of adjustment too fast" as a possible ground for criticism, despite the fact that it's one of the main ways in which any such problem could have been really "bad for Greece" (the IMF actually says the program was "bad for Greece" because the debt/GDP ratio was a big number, and this might have depressed ye confidence and investment. Which, yeah maybe, but surely probably a second-order effect at most?).
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[2] It is even possible to construct a "Springtime for Hitler" scenario in which Greece ends up getting, ex post, debt relief which is <i>larger</i>, as a EURbn sum, than its entire outstanding debt burden before the crisis struck. "But ... Mr Bialystock ... it seems that in some circumstances a peripheral state could get more fiscal transfers by <i>not</i> running a functional political and economic system!"
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<br />The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com2tag:blogger.com,1999:blog-3699020.post-14100010860052133292013-04-22T06:15:00.000-07:002013-04-22T08:43:08.105-07:00<b>Sympathy for the Dijsselbloem</b><br />
<br />
At some point, and the one-month anniversary of the <a href="http://ftalphaville.ft.com/2013/03/25/1438662/dijsselbloem-do-remember-that-careless-talk-costs-lives/">fabled interview</a> seems as good as any, I think we have to start taking seriously the possibility that the reason why we haven't had a generalized bank run in Europe is that we're not gonna to have one. And as I <a href="https://twitter.com/dsquareddigest/status/313013231901884417">said at the time</a>, if there isn't a massive bank run, then this idiot scheme starts to look a bit more like a genius solution. As the man <a href="http://www.youtube.com/watch?v=InwMfeT2FdY&feature=player_detailpage#t=50s">said</a>, it's such a fine line between stupid and clever.<br />
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I think the issue here is that, as the lady said, <a href="http://www.youtube.com/watch?v=i4Pm4CQ1NjY&feature=player_detailpage#t=202s">money talks and bullshit walks</a>. It's pretty costless to speculate in your FT column (<a href="http://www.ft.com/cms/s/0/b501c302-8cea-11e2-aed2-00144feabdc0.html#axzz2RAjm6vTT">OI</a>, <a href="http://www.google.fr/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&ved=0CDIQFjAA&url=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F1e4547c8-9554-11e2-a4fa-00144feabdc0.html&ei=CRF1UfbIEO3b7AbHrIGgAQ&usg=AFQjCNGfGr9FM41bBcnhUbreecgE5lOIiA&sig2=n2MVU9B0uvBG6649IvOhDw&bvm=bv.45512109,d.ZGU">MUNCHAU!</a> <a href="http://www.ft.com/cms/s/0/1c481838-92e3-11e2-b3be-00144feabdc0.html#axzz2RAjm6vTT">NO!</a>) that it's rational for everyone to run on their local banking system - if you're of an academic turn of mind you can even find a <a href="http://en.wikipedia.org/wiki/Diamond%E2%80%93Dybvig_model">model</a> to tell you how right you are. But in the real world, running on a bank is hella inconvenient, which is why people usually don't do it. Northern Rock was the anomaly.<br />
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(Quick finger exercise: it's been suggested to me more than once that corporate deposits are going to start "sweeping" cash balances on a daily basis out of places like Spain into a head office account in Germany, or even outside the Eurozone. Maybe. But say your cash float is EUR200,000 in a branch of a Spanish bank, and it has to be in that branch because you can't persuade your cashiers to walk to Frankfurt every evening (this setup is not impossible for, say, a supermarket). You are unlikely to get the bank transfers for less than EUR100 round trip. So if you sweep it daily, over the course of 200 business days you have given yourself a 10% haircut on that float, simply with the cost of bank transfers. You're protecting yourself against a Cyprus-like loss, but it isn't cheap insurance. This is true of retail customers too - shift your money to Rabobank? Now every time you go to an ATM in Rome, it's an international Cirrus transaction, which you will be lucky to get away with for less than EUR1.50 a go).<br />
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The frictional costs of running on even a single bank (let alone the logistical difficulties of running on an entire local banking system) are very significant. People run on banks when they're specifically worried about something nasty; they don't get round to it on the basis of general policy uncertainty. They hardly ever run on transactional deposits (as opposed to savings deposits) at all. Even last year in Greece, when there was a very genuine danger of getting one's entire deposits redenominated into drachma-denominated claims on a bankrupt guarantee scheme, nobody managed to get up anything much more than a "jog".<br />
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Furthermore, it's worth being aware that although the concept of a bail-in is brand new to the newspapers, it's actually been around for a couple of years .I can make a reasonable argument that careless handling of the original proposal was a contributing factor to the 2010 Irish bank run. The current proposal is up on the Commission website, and as long as you keep a clear head, it's pretty easy to understand, although in fairness, it is also very easy to get confused. The trick is (a very useful piece of advice given to me by a wise old head who was the Bank of England's tax expert at the time) to remember that official documents appear on the page as intimidating long lists of specific cases, but they are written as sets of general underlying principles, and if you keep your eye on the general principle then not only will you understand the reasoning much clearer, you'll be much better placed to spot the departures and loopholes and guess at the reasons for their exclusion.<br />
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In the case of the bail-in rules, the general principle is a division of the banking sector's liabilities into "basically risk capital" and "basically financial sector plumbing". You want to, if at all possible, restrict losses to the first category, leaving the payments infrastructure intact. Into the at-risk category falls equity (of course), subordinated debt and bonds, while the protected category ought to include short term interbank credit and retail deposits. Because this is Europe, nothing can be simple, so there are loads of weird and ambiguous cases like covered bonds and high-value deposits which might go either way, but the general principle is clear. So Cyprus isn't a "template" - it's the application of an already existing template to the particular oddity of the Cypriot financial system.<br />
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So, the more I think about this, the more I think that the risks of the new Dijsselbloem era in European policy are perhaps not as great as I initially thought that they were. The strength of a bridge is tested by the weight of the things you drive over it, and the fact that the European deposit system has survived not only Jeroen D's bumbling, but also considerable cheerleading for bank runs from the press should surely update our estimates of its underlying robustness. Even looking at the prices of term bank debt, or CDS on instruments which are indisputably in the "risk capital" part of the liability structure, I'm seeing a lot of discrimination; a few known peripheral problem children are trading at no-market-access levels, but the majority of core well-capitalised banks (including a number of peripherals) are basically unchanged on 18 March.<br />
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But ... "it doesn't appear to have blown the whole thing apart" is hardly the sort of thing that would justify a rating of "genius move" - even in the context of Eurozone politics, we've got to set the bar higher than that. So where's the genius bit?<br />
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It's about Spain. It's always been about Spain. This whole sorry spectacle has always been about Spain. Greece and Ireland, forgive me, are small. So's Portugal. But Spain and Italy are too big to be successfully yaddayaddaed. And the way that the contagion dominoes have stacked up, it has been clear for a few years that if you win the battle in Spain, you won't have to fight it in Italy, while if you lose the battle in Spain, you're probably not going to get a chance in Italy. And Spain (unlike Italy) has always been a case where it's basically a banking sector problem that has infected the sovereign, rather than basically a sovereign problem that has infected the banks.<br />
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There are "a few tens of billions" of real estate lending losses, which are hanging around in Spain. They are not meant to be on the credit tab of the Kingdom of Spain, but they are standing close enough to the Kingdom of Spain that people worry that they might be. To a first approximation, the Eurozone sovereign/bank crisis could be substantially ameliorated if this mountain of excess debt could be made to go away.<br />
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Now there are only three things that can happen to an excess debt problem. Either it gets inflated away, or someone else pays it, or it doesn't get paid. Monetisation, mutualisation or default. The ECB constitution means that monetization is off the table, and mutualisation (ie, Germany pays) is what we wasted most of 2012 finding out wasn't politically or constitutionally possible.<br />
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[we pause here for a short break in which readers may, if they wish, conduct a brief Three Minute Hate aimed at "Germany". Other countries, of course, are allowed to have democratic politics and to have constitutions and legislatures which constrain the ability of other people to write unlimited cheques on their behalf. But the Germans, of course, could make everything go away if they wanted to and only refuse to underwrite literally unlimited deficits with no control over how the money is spent because they are being awkward]<br />
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Anyway, "not politically possible", in context, means the same thing as "not possible", which narrows the space of possibilities down to "default". And so it really is a big win if Europe can overcome the taboo against banks ever defaulting on their creditors, a taboo which, we should note, does not exist in the USA. Ask IndyMac's uninsured depositors what they think about what happened in Cyprus, for example. The Kingdom of Spain needs to get the bank bailout liability shifted, in order to make room for a sane fiscal policy, and the way to shift it is going to involve some hefty defaulting; on bonds and "risk capital" instruments for choice, but on deposits if necessary, and I suspect that unless someone can come up with some fairly swift corporate-finance footwork, we are going to have to cut quite deep into the "plumbing" part of the balance sheet in some cases. Not nice, but there really never was a way out of this mess that didn't involve confiscating somebody's life savings, and doing it this way is no more morally shitehouse, and potentially considerably more practically effective, than letting it fester and putting the cost on taxpayers for the rest of forever.<br />
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I think my bottom line here is that this was a clearly high risk but potentially high return strategy for Europe, and all of the play-it-safe gradualist stuff had been tried and wasn't working. Dijsselbloem clearly talked out of turn, but what he was saying wasn't untrue, and the whole of Europe is going to have to be let in on the secret sooner or later. So maybe the guy is effing stupid, but he's <a href="http://www.fanpop.com/clubs/fox-cartoons/videos/3282520/title/simpsons-stupider-like-fox">stupider like a fox</a>.<br />
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<br />The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com0tag:blogger.com,1999:blog-3699020.post-83375803503774523072013-04-10T00:41:00.002-07:002013-04-10T00:41:56.374-07:00<b>Upside down CDOs and leverage ratios </b><br />
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I thought I might as well expand on <a href="http://www.slate.com/blogs/moneybox/2013/04/09/brown_vitter_good_on_capital_good_on_bank_size_bad_on_liquidity.html">the tweet quoted here</a>, as rather too many people seemed to have jumped on the bandwagon of assuming that anything "risk weighted" is in some way suspect and probably manipulated, while "straight"[1] leverage is honest, simple, probably speaks with a Northern accent, et cetera.<br />
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Not so many people realize that under the Basel standards, you can often get risk weights of more than 100% assessed, even using those terrible internal models[2]. This is because (as I alluded in that tweet), the question of what appears on a balance sheet is not a fact of nature - it's a control parameter itself.<br />
<br />
Stretch your memory back to 2007(!) and <a href="http://upstart.bizjournals.com/multimedia/interactives/2007/12/cdo.html">Felix's</a> explanation of how to make a CDO if you need to. Then consider a really simple transaction:<br />
<br />
1. I'm a bank and I take 1000 loans, each with an expected loss of 5%, so the expected loss is 50.<br />
2. I bundle them up and sell them to a special purpose investment company.<br />
3. That special purpose investment company has two classes of debt - 500 of senior and 500 of subordinated.<br />
4. I sell the 500 of senior to bondholders and keep the 500 of subordinated.<br />
<br />
For reasonably normal accounting policies, my balance sheet will now show that I have sold 500 of my 1000 of loans, and will be smaller by 500. An accounting balance sheet is always going to show something like this, because the 500 that I've sold off are now on someone else's balance sheet and so shouldn't be on mine.
The <i>risk-weighted</i> balance sheet, though, will show no effect at all.<br />
<br />
The regulator would argue thus:<br />
<br />
1. The expected loss on this portfolio is 50.<br />
2. The senior debt does not take any loss unless the realized loss on the loans is 500, ten times the expectation.<br />
3. Therefore, the junior debt takes all the realized loss in all but a tiny minority of situations<br />
4. Therefore, the 500 that is on my balance sheet is bearing substantially all the risk of the original 1000 of loans.<br />
5. So the 500 asset on my balance sheet needs to be given a risk weighting of 200%.<br />
<br />
Of course, as the man said "It's More Complicated Than That", but this is the idea. A regulation based on accounting leverage is very easy to game because the composition of the balance sheet matters. By the way, if you think that this is all a product of nasty investment banking and financial wizardry and could be stopped by sufficiently draconian Glass-Steagall type law, no luck there either.<br />
<br />
All that is really going on here is that the leverage ratio doesn't distinguish between a loan to an ungeared borrower and a loan to a borrower that has loads of other debt. So it doesn't have to be a special purpose vehicle although that makes the problem clearer; historically it has been found that leverage regulations reliably give you a banking system with no surplus cash balances and loads of leveraged buyout loans. One of the things that they teach you in the relevant business school course is that you need to dig down to the leverage of the underlying "real" assets, and that's basically what Basel risk-weighting is all about.<br />
<br />
There aren't any silver bullets. There's no substitute for an active, involved and self-confident supervisor. But "straight" balance sheet leverage is a real blind alley. It's a classic case of taking a set of information produced for one purpose and hoping it will be useful for another. As far as I can tell, the idea that people have is that they want "objective" measures, based on the financial accounts[3] because they don't trust the banks not to fiddle the model. But if that's your problem, then that's your problem right there - if they're meant to work as a solution to a fundamental problem of trust, then leverage ratios are ludicrously inadequate.<br />
<br />
<hr />
[1] Pet theory alert; you'd be surprised at the extent to which a lot of financial regulation is all about the sublimated performance of masculinity.
[2] There are echoes here of the 2008-era religious horror of "Level 3" or "Mark to Model" assets. As in that case, refusing to model something (or to accept someone else's modeling of it) doesn't actually make the answer more objective, it just ensures that you will remain ignorant whatever information arrives.
[3] I have no idea how anyone says this with a straight face, and suspect that the answer might be lack of ever having seen a balance sheet prepared.
The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com2tag:blogger.com,1999:blog-3699020.post-47922502869001460012013-02-08T05:16:00.002-08:002013-02-08T05:16:48.763-08:00<b>From my email outbox, on UK libel laws ...</b><br />
<br />
It's also worth adding that [Simon, in an article] Singh is quite inaccurate in his discussion of the UK libel laws. The points he makes are:<br />
<br />
1. "Defendants are guilty until proved innocent, a reversal of normal<br />practice"<br />
<br />
This isn't a reversal of normal practice; even (informed) libel reform campaigners recognise that this is more or less intrinsic to the nature of libel ( <a href="http://jackofkent.blogspot.com/2009/11/understanding-reverse-burden-of-proof.html" target="_blank">http://jackofkent.blogspot.<wbr></wbr>com/2009/11/understanding-<wbr></wbr>reverse-burden-of-proof.html</a>). It's similar to "the burden of proof" being on someone accused of trespass to prove that he has the legal right to be where he is. It's actually the practice in the USA too, except as modified by the very unusual public figure doctrine.<br />
<br />
2. "On the other hand, claimants do not even need to prove that they have been damaged in any way". I think he must mean that defendants don't have to prove specific harm - they do have to show that they have a reputation in England & Wales to defend (subject to a test which libel reformers think is not stringent enough), and if you have a reputation, then libel to it is itself a harm.<br />
<br />
3. "Moreover, there is no robust public-interest defence". Just not true. There is Reynolds qualified privilege and there are all the protections in the European Convention and the Human Rights Act 1998. I suspect that what Singh means here is that there isn't a catch-all- come-free libel-as-you-please clause for people who are acting "in the public interest" by being on the right side in public debates about alternative medicine or terrorist funding or what have you. And of course nor should there be; the rule of law doesn't work like that.<br />
<br />
4. "When it comes to censoring publications and blocking online content, it is arguable that Britain has an even worse record than Hitler!". (Actually he said "an even worse record than China", but it's hardly more ridiculous when altered for comic effect).<br />
<br />
5. With regard to the "Funding Evil" lawsuit: "The case was held in London, because an international businessman such as Mahfouz can claim a reputation in almost any jurisdiction". He had a house and several<br />businesses there.<br />
<br />
6. "Mahfouz was able to play high-stakes poker with Ehrenfeld and push a $1 million stack of chips on to the libel table. Ehrenfeld and her publishers could not afford such losses as it would have meant bankruptcy, so they backed down, settled early and paid £30,000 damages and £80,000 in costs". Actually Mahfouz desperately wanted the case to be heard so he could clear his name and spent a lot of time and effort providing evidence to allow the judge to make a ruling on the facts in any case. Ehrenfeld never responded to the case, preferring to whine to the US press about the awful British courts. She also never refuted any of Mahfouz's case in subsqeuent US editions of her book, leading an awful lot of people who had supported her to feel rather burned.<br />
<br />
In general, this debate is very confused. There are a large number of issues:<br />
<br />
a) Mr Justice Eady specifically, and whether he is too plaintiff-friendly (this is the only *legal* issue at stake in Singh's case, btw, which is otherwise an utterly straightforward one of a journalist having made a careless remark which was susceptible to a libellous interpretation, and not wanting to wear the consequences, combined with a plaintiff who is unattractive for unrelated reasons).<br />
<br />
b) the extortionate cost (which I suspect is what Singh is *really* upset about and who can blame him. It's unfortunately a consequence of the generally massive expense of the British courts, basically as a result of the opportunity cost of lawyers' time being so high because their next best thing to do is a massive international commercial case, of the sort that is always heard in England (legal tourism! oh noes!) because our legal system is so good). But something probably could and definitely should be done here.<br />
<br />
c) whether the UK should be the second country in the world to adopt the NYT vs Sullivan standard for public figures (which the British media love the idea of, because it would be carte blanche; anyone else should be very frightened of what might happen when British journalistic standards of ethics were loosed from any legal restriction at all).<br />
<br />
d) whether the UK should refuse access to its courts to foreigners libelled here (which would be contrary to European law) or restrict that access more than it currently does.<br />
<br />
e) whether Americans specifically, as Lord Hoffman says "should only have to say civis Americanus sum to cloak [themselves] in the immunity of the First Amendment against liability for injury which [they have] caused in a foreign country"<br />
<br />
f) whether the burden of proof ought to be changed for defendants not subject to Reynolds qualified privilege (which already removes the burden of proof and substitutes a test of "responsible comment"). Which is more arguable, but leaves the unattractive prospect of someone like Robert Murat having his life destroyed because he can't prove he's not a sex offender.<br />
<br />
Which of these ones are you actually up in arms about, [snip]? I suspect that it's the public figure defence, but it needs to be recognised that this is a very US-specific feature and one that was invented quite recently by the Supreme Court in response to a specific historical situation in the Civil Rights period. Other countries don't have the USA's history of vexatious libel and SLAPP suits so it's reasonable that we've made the tradeoff differently.<br />
<br />
best<br />dd<br />
The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com0tag:blogger.com,1999:blog-3699020.post-85177878195643254122013-02-08T04:57:00.004-08:002013-02-08T04:57:59.811-08:00<b>From my email outbox, on the importance of independence for left opposition</b><br />
<br />
[this was sent during debates over US healthcare reform - "Dennis" is of course Dennis Kucinich, "Jane" is Jane Hamsher of Firedoglake]<br />
<b> </b><br />
The logic is only difficult if you assume that it always makes sense to give up in an ultimatum game, always makes sense to blink in a chicken-game and that the outcome of a voting process is always the median. If you get even a little bit more sophisticated then it can make a lot of sense to oppose from the left. I'll try and set it out in a totally deracinated and oversimplified model (note that I am not going to use any iterated results; I think people are correct to be very suspicious of "reputation", "credibility" and other results from iterated game theory).<br />
<br />
First, set up a simple median voter model. You've got a spectrum of possible healthcare reforms from 0 to 100, taking 0 as the rightmost and 100 as the leftmost position. Say also that there are four groups in a unicameral parliament with 99 members and simple majority voting that are going to vote on it:<br />
<br />
49 republicans, clustered at position 0<br />30 mainstream democrats, clustered at position 50<br />19 rightwing democrats, clustered at position 20<br />1 leftwing democrat called Dennis at position 100<br />
<br />
The mainstream Democrats choose what bill to put before parliament and we assume that if it fails, this is equivalent to a bill of value 0 being passed.<br />
<br />
Now let's take three alternatives<br />
<br />
<b>One</b>, pure median voter with no strategic behaviour. Everyone's (negative) utility is simply equal to the difference between their ideal point and the outcome (if you are hung up on utilities being positive numbers, you can say that utility is equal to 100 minus the difference but frankly I think it's clearer to just work with negative numbers).<br />
<br />
Outcome: It is fairly obvious to see that the eventual outcome will be 39 - this has a value of -19 to right-dems which is better than -20, and for everyone to the left of them clearly any bill is better than 0. This is the median voter theorem.<br />
<br />
<b>Two</b>, Dennis's strategic model. Make the additional assumption that for all Democrats except Dennis, there are political considerations which make the value of not passing a bill equal to -90 rather than 0. For the right-dems, there is a 10 point political penalty for voting for any bill above 50. Also assume that an outside party (called Jane) will give Dennis a psychic gift worth 98 if a bill pitched at less than 100 fails.<br />
<br />
Outcome: This is an equally uninteresting corner solution - there is one party who can make a credible threat and he gets what he wants. Dennis considers any bill at less than 99 as worth more to him dead than alive because of the present he gets from Jane. A bill at 99 is worth -89 to right-dems (79 for distance from their ideal point, plus 10 point penalty), but this is better than the -90 they would get from a total failure. Since the mainstream Democrats need to make a coalition of themselves, the right-dems and Dennis in order to pass<br />the bill, they have to give him all the concessions.<br />
<br />
<b>Three</b>, something closer to reality. This is like model two, but the penalty for not passing a bill is X, an unknown number, and the value of the utility Dennis gets in the event of failure is Y, a number known only to Dennis and the unwillingness of the right-Dems to vote for a leftwing bill is Z, a number known only to them.<br />
<br />
Outcome: In order to pick their bill, the mainstream Dems need to make an estimate of X and Y, and then (on the assumption that these values are consistent with a bill being passed at all), choose the bill that combines the best chance of passing with the best outcome for them in terms of their ideal point of 50. You can't say what will definitely happen, but you can be sure that the higher the Dems believe Y to be, the higher the number they will pick. The relationship between X and the solution is complicated (because a bill<br />can fail because of either the right-dems or Dennis) and so is the relationship between Z and the solution, for the same reason.<br />
<br />
Basically the point I'm making here is the one I made to Rich - if there is no possibility of left-wing opposition, then this just becomes a median voter game, in which the left will always lose. If there is even a small likelihood of a nonzero Y, then it becomes a much more complicated game, but a game in which the eventual outcome gets monotonically better for them the more credible their threat is. In actual fact, Y is almost certainly a very small number compared to the difference between 0 and their preferred policy outcome, but clearly it makes sense to bluff that it might be a bigger number.<br />
<br />
best<br />dd<br />
<b> </b>The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com0tag:blogger.com,1999:blog-3699020.post-9116540405128433652013-02-08T04:36:00.000-08:002013-02-08T04:37:32.106-08:00<b>From my email outbox, on behavioural economics ...</b><br />
<br />
sadly, behavioural economics is really really plagued with the same sort of pathological incentives as "Freakonomics", because like quirky-dataset regressions, it really lends itself to small-topic research of the sort that will get your PhD completed on schedule and/or produce a stream of publishable[1] papers to demonstrate one's value to a department research assessment exercise. As a result it has basically spent the last twenty years working on producing a theory to describe the behaviour of one particular class of person (economics graduates students) in one particular situation (behavioural economics laboratories) and is nearly there. IMO, behavioural economics is to a significant degree responsible for the suspicion in which interdisciplinary research is held by economics profs, as it appears to me to be chock full of people who have used the psychology department's ignorance of economics and the economics department's ignorance of psychology to play the two off against each other and avoid going into either in any depth[2]. Which is a form of arbitrage, so I suppose they know a bit about economics after all.<br />
<br />
The trouble is - as I say, most interesting economics problems are not really about psychology. If it takes 9 minutes of labour and 10c worth of metal to make a widget which sells for $2.50, then the answer to "what is the wage rate in widget manufacture" is going to depend on specific conditions relating to the widget industry, not general theories about altruism. Nearly all the time spent on behavioural economics would be better spent on specific institutional work. It is notable that the puported big success of BE - the "hyperbolic discounting" theory of why people undervalue future benefits and costs - is so transparently nothing more than a redescription of the problem that after ten years it still basically hasn't left the psychology lab (apart from showing up in a couple of Freakonomics papers).<br />
<br />
best<br />
dd<br />
<br />
[1]Where "publishable" is defined in strictly empirical terms related<br />
to the current academic journal industry and implies no wider<br />
judgement on whether these articles ought to be stuffed in a bottom<br />
drawer somewhere forever.<br />
<br />
[2] Apologies to any list members working in the field but come on,<br />
you know what I'm talking about.<br />
<br />
<br />
[...]<br />
<br />
ah yes, I forgot the other tendency of economists - the appropriation of already existing concepts by claiming that it was economists that put them on a rigorous footing. I mean, the Yorkshire Penny Bank was founded in 1859, and the concept of weakness of will was being noted by the Ancient Greeks. British Leyland in the 1960s actually had an automated machine that could split a worker's pay packet into a number of different envelopes of cash, reflecting family preferences for housekeeping, rent and beer money. There's probably a good article for someone in finding out how many of the hard-won results of behavioural finance had already been discovered by Victorian ironmasters.<br />
<br />
best<br />dd<br />
The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com3tag:blogger.com,1999:blog-3699020.post-46492707032213274122012-12-20T02:37:00.000-08:002012-12-20T02:37:49.484-08:00<b>The "ist" in "economist" resembles "Trotskyist", not "biologist"</b><br />
<br />
From the Department of "Yeah, but really"...<br />
<br />
<b> </b><br />
<a href="http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/12/the-dirty-secret-of-economics-education.html"><i>Realistically, the students who are struggling to pass third year economics courses are never going to be policy analysts or economic journalists. So what am I teaching them that would help them in the job market?</i></a><br />
<br />
All sorts of useful things! Things like "unions are bad and self-serving"! Like "government regulation is bad"! Like "The USA's business friendly climate makes it the strongest nation in the world"! Or "Minimum wages are bad for everyone"! And so on.<br />
<br />
What do the Chinese equivalents of this guy's students learn in their corresponding political indoctrination which helps them in the job market? How to be a politically sound cadre who can be relied on to support the existing system. Come on, dude, you are simultaneously wildly overvaluing yourself as a provider of useful knowledge, and undervaluing yourself as a vital part of the educational system.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com4tag:blogger.com,1999:blog-3699020.post-25971227802357821052012-12-10T13:16:00.001-08:002012-12-10T13:16:12.392-08:00<b>The fragility of antifragility</b><br />
<b><br /></b>
Just reading through "Antifragile" now, and with rue my heart is laden at the mathematical and technical annexes. It's a very similar sensation to the one I get when reading something in Welsh - I recognise this, it's a language I used to speak, but although I can pick up the general sense and even understand bits and pieces, the nuance and the ease is all gone. And realistically, given constraints of time and brainpower, it ain't coming back. All I can do is chew over the concept ...<br />
<br />
And I'm having a few problems with it really. I think it might not be workable - the original dispute between me and NNT was about dynamic modelling, and I think that antifragility as a strategy might have some nasty dynamic properties. Consider ...<br />
<br />
1) Presume that there is someone at your place of work who has become, somehow, antifragile. They benefit from shocks and uncertainty. How is that person going to act?<br />
<br />
2) Well, they benefit from shocks and uncertainty. So all of their incentives are to create more shocks, and to create uncertainty.<br />
<br />
3) Doesn't that sound like kind of a pain in the ass?<br />
<br />
4) Yes it does. Specifically, I would guess that an antifragile person would be set up specifically to benefit from conflict and combat, and lots of other passages in "The Bed of Procrustes" and in "Antifragility" itself suggest to me that this is a correct interpretation of the concept.<br />
<br />
5) So, I would guess, after a short while in the company of the antifragilist, I suspect I would be thinking of ways to do him a bad turn, and specifically to try and come up with a sufficiently large unanticipated shock to test whether he was really all that antifragile after all. I think I would have quite a few allies in doing so.<br />
<br />
6) And of course, antifragility can only ever be a local rather than global property; for any entity X, there is some shock that would destroy it totally, so anything that's antifragile is only ever antifragile over some bounded range of shocks.<br />
<br />
7) Taleb, Nietzsche and similar thinkers tend to decry this tendency of the ordinary, conventional and mundane to drag down the truly extraordinary man, but actually it's very sensible and something like it is the basis of all civilised society, IMO. <br />
<br />
I am only 9% through the book according to my Kindle, so maybe this is dealt with later or in the technical annex. But I am not yet convinced that antifragility is an intrinsically valuable property of all and every system. I think it's a strategy like any other - sometimes useful, sometimes useless, sometimes actively self destructive.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com8tag:blogger.com,1999:blog-3699020.post-68878264101118516382012-10-08T09:24:00.003-07:002012-10-08T09:36:03.917-07:00<b>Transitivity</b><br />
<br />
Regarding <a href="http://t.co/rBKBQmVg">this case</a>, and a few others like it, where the freedom-of-speech-absolutist view that "nobody should ever be put in jail just for hurting someone's feelings/making a joke, per se", I find myself wanting to make the following argument:<br />
<br />
1. If the family of the murdered child concerned ever got hold of the person who wrote those things on the internet, they would be within their (moral) rights to punch him. (Source: general and IMO convincing moral intuition).<br />
<br />
2. If someone did punch that person, they should be subject to some legal penalty, probably including a prison term and this would also be morally the right thing to do. (Source: practical intuition against vigilante justice; victims of an offence don't per se have special status).<br />
<br />
3. Therefore, given 1 and 2, if we can regard it as a morally correct state of affairs that the perpetrator is subject to a direct physical sanction of the sort that we regard it as correct for the state to punish by a jail term, why shouldn't it be a morally correct (indeed superior, because it preserves the important practical principle in 2 and saves time and trouble) state of affairs for the internet sicko to be directly punished by the state?<br />
<br />
Somehow I think this is a bit fast and glib, but I think it has something to it, and most of the libertarian responses seem to me to achieve the superficial consistency that makes them attractive by simply ignoring the strong moral intuition in favour of 1 above.<br />
<br />
<b>Edit</b>: I think my intuition here is the one behind the common law offence of "conduct likely to result in a breach of the peace" - that the rest of us just want to go about our business and have a general right to do so without trouble and disorder caused by the rest of youse. So if victims don't have special status, then you're not allowed to go around stirring up hatred against yourself (by acting like a hateful bastard), because public order offences aren't just offences against the specific individuals harmed; they're offences against public order.<br />
<br />
Which raises an equally tantalising possibility that I doubt the legislators will take seriously - as more and more of our life moves online, does the concept of the public peace begin to extend there? It's certainly an inconvenience to me when a screaming Twitter pitchfork mob gets up, and the site becomes unusable. Obviously the inconvenience is laughably de minimis compared to anything in which the criminal law might get involved, but this seems to me like a difference of degree rather than kind.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com7tag:blogger.com,1999:blog-3699020.post-61690504692019899892012-09-26T03:51:00.000-07:002012-09-26T03:51:40.104-07:00<b>From my email outbox, once more</b><br />
<br />
This time, on the subject of online discussion of Israel/Palestine, and the alleged excessive, obsessive concern ....<br />
<br />
"The thing is, how many well-educated middle class English speakers are active in the American and European press who are prepared to defend the Chechen occupation? One side causes the other.
Here's a thought experiment. Pretend that I only care about three things in the world - Burma, Chechnya and Palestine. Pretend also, that I care a hundred times more about Burma and Chechnya than I do about Palestine. Pretend also that I am confined to my house and all I do all day is argue on the internet. How much time am I going to spend arguing about Israel/Palestine, compared to Burman and Chechnya?<br />
<br />
Answer; I am going to spend much more time on I/P. Because (this is
the important bit) - this is the only subject on which I will find
someone to argue with. Unless I speak Russian or Burmese, I am not
going to be able to find someone to address my polemics to on my real
topics of interest. But Israel has loads of people who are prepared
to do apologetics for war crimes in English, on prominently available
websites. A similar phenomenon accounts for the massively greater
salience of Zimbabwe compared to much worse places in Africa.<br />
<br />
There is no different standard. It's the same standard; it's just
that if you go around condemning abuses in Yemen then you can get your
excoriation done in five minutes flat and get on with the day, whereas
if you get into an argument about Palestine then you can kiss the
morning goodbye.<br />
<br />
Personally I am more than anything else outraged by the behaviour of
Idriss Deby's regime in Chad. It is a phenomenal time saver."The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com2tag:blogger.com,1999:blog-3699020.post-1291113991188383702012-08-22T07:29:00.003-07:002012-08-22T09:05:48.388-07:00<b>On Julian Assange</b><br />
<br />
Is nobody at all going to notice, in any context at all, that disputed-consent acquaintance rape cases have an very, very low conviction rate no matter what else, that nobody has ever found a way to alter this fact, and that therefore the odds are astonishingly high that everyone involved in this shit-show is wasting their time? I mean, everyone involved on both sides of the thing is bellowing about "due process" of this and that, but is there nobody at all involved who has even considered renting a room and getting some coffee for both sides' lawyers and having a get-it-done meeting aimed at actually advancing some slim possibility of ever reaching a conclusion? Or would everyone involved prefer to just carry on making speeches and appearing on television until kingdom come? I apparently meet only a particular and specialised subset of the legal profession.<br />
<br />
<a href="http://en.wikipedia.org/wiki/Jacques_Verg%C3%A8s">Jacques Verges</a>, in France, invented the concept of the "barrage". It's a specialised defence strategy for use when your client is not only amazingly obviously guilty, but also guilty of such horrendous (often literally genocidal) crimes that there is no hope of leniency or mitigation either. Basically it involves just fucking around and taking up as much of the court's time as possible to allow your client to make unrelated political speeches and/or throw around accusations of greater moral culpability at the side which won the war in which your client committed the atrocities he is currently on trial for.<br />
<br />
I read about it in the 1980s. I thought it would remain a micro-curiosity, but no, here people are trying to convert it into the beginnings of a mass market product. Michael Mansfield QC and Claes Bergstrom. Two guys who deserve each other.<br />
<br />
<b>Update</b>: Apparently Wikipedia says that the Verges strategy was called "rupture", not "barrage". Memory is unreliable so I won't gainsay them. The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com7tag:blogger.com,1999:blog-3699020.post-65220590030960321452012-07-26T06:13:00.003-07:002012-07-26T06:13:46.592-07:00<b>Booking now - speaker tours for books that have not been written yet</b><br />
<br />
<i>"<a href="http://www.gladwell.com/blink/index.html">Cake</a>" by Malcolm Gladwell </i><br />
<br />
This is a book about having your cake, and the power and complexity of having your cake. We've always been taught that cake is for eating. "Eat your cake!", our mothers said to us, pushing slices of delicious Victoria Sponge down our throats. But counterintuitively, that might not be true. Actually, in many exciting cases, having your cake is better.<br />
<br />
Take the example of Jim-Bob Houlihan. Every day for forty years, he bought a cake from the bakery next to his house. His workmates thought he was crazy; he never ate them, and he doesn't even like cake. But when the bakery burned down, it was possible to reconstruct its valuable recipes from the museum of cakes, all stored in Jim-Bob's lever arch files. Now he's a billionaire and lives in a cake-shaped mansion in Beverly Hills. He has all the biscuits he can eat.<br />
<br />
The idea for this book came to me when I was at a friend's wedding. I was given a slice of wedding cake and ate it. It was delicious! I particularly liked the marzipan. I love cake and eat it every time I get the chance.<br />
<br />
But hang on, you might say - isn't that more of a story about eating your cake? I thought this was meant to be a book about having your cake, not eating it! Well, it's both. A lot of the time - even most of the time - eating your cake is a lot more sensible than having it. After all, what would you want to have a cake for, if not to eat it? And most cakes don't really store very well, so if you've had your cake for a while, you probably need to either eat it or throw it away.<br />
<br />
So when I say that this is a book about how great it is to have your cake, I should probably say that it's about having your cake and eating it as well. Some people say that you can't have your cake and eat it. They're probably right. But have your cake, eat your cake - really the most interesting and vital issue here is that now you have to give me ten thousand dollars please.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com6tag:blogger.com,1999:blog-3699020.post-53310162895137335572012-07-13T06:05:00.003-07:002012-07-13T06:05:36.178-07:00<b>Also from my email outbox ...</b><br />
<br />
"As far as active investment goes, I always put it this way - are you
prepared to put as much time and effort into managing your investments
as you would into running a small business? If you are then go for it
- playing the market is not a bad hobby, about as interesting as
birdwatching or something. And most people on this list actually do
have enough intelligence to beat the market and therefore to beat most
active-managed funds, in my opinion. The trouble is of course that beating the market
doesn't just require intelligence, it requires self-discipline, hard work and the ability to control
your emotions. But in many ways so does success in bird-watching."<b> </b>The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com6tag:blogger.com,1999:blog-3699020.post-2199340993805265092012-06-25T01:12:00.000-07:002012-06-25T01:12:17.866-07:00<b>From my email outbox, an occasional series ...</b><br />
<br />
"Blaming the markets for why the USA has so many financial crises is like
blaming the arms manufacturers for why the USA has so many wars -
they're certainly involved, and they're certainly guilty of some very
bad practices, but if that's where your analysis starts and stops then I'd say you're
missing the big picture."The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com6tag:blogger.com,1999:blog-3699020.post-73494142067402163082012-06-22T03:13:00.002-07:002012-06-26T15:52:45.071-07:00<b>I say "cultural criticism", you say "trolling beer nerds", the truth's probably somewhere in between</b><br />
<br />
I like <a href="http://ohgoodale.wordpress.com/2012/06/13/be-silly-with-beer/#comment-629">this comment</a> a little too much to let it languish at the bottom of Phil's blog, at the bottom of a debate about "craft beer" and (once more) the general project of paying four quid for a half pint. The context is branding, the goods and evils of, and in particular the pub chain "Brewdog", whose marketing material irritates beer nerds to hell.<br />
<br />
<b>Update!</b> Four quid for half a pint? Those were the good old days. I remember when you could get one third of a pint of lambic IPA with cherries and still get change from a fiver. No more. "Anarchist Alchemist" (I know, <i>I know</i>) currently selling across the road from me for £5.95 for a 190ml glass, or shall we say roughly the same price per bottle as single malt from Sainsbury's. There can be no possible rationale to this pricing decision other than that the head barman guesstimated that there was about a £1500 market for the stuff locally, a barrel contains 88 pints and did the division accordingly.<br />
<br />
<hr />
<br />
Thinking about that a bit more, every subculture has this complicated
relationship with its “trendy” element. And it is not exactly difficult to map
the Brewdog flamewars onto a generic template which also fits “heavy metal bands
with a pop single”, “Twenty20 cricket”, “New Labour” etc etc. We have:<br />
<br />
1. What they’re doing has nothing to do with us and our subculture and I just
find it boring and can’t see why we’re all talking about them actually.
Boooring. Can we talk about something else please please.<br />
<br />
2. It is good to see all these young people and new people jumping onto our
bandwagon but we should not compromise any of our own traditions at all. So
popular and trendy representatives of our subculture must demonstrate regularly
to the rest of us that they are only working in a missionary role, and we will
monitor their progress regularly to ensure that the educational mission is
delivering a steady stream of hardcore enthusiasts.<br />
<br />
3. This dillettantism just annoys me, all these people pretending to be like
us when they haven’t suffered like us or put in the hard work which it took to
establish our image and culture. It’s insulting! Worst of all, people are using
goodwill that WE built up for them in order to build popularity with a different
audience. They’re rejecting us, what ingratitude.<br />
<br />
4. Actually the purists are the really annoying ones, nothing will ever be
good enough for them and they just alienate people. It’s their fault that our
subculture are looked at as weirdoes. If it wasn’t for the awful bloody purists,
everyone in the land would be just like us and wouldn’t that be great!<br />
<br />
5. Errr … um … don’t jump on me for saying this mmkay … I just … sometimes
think … maybe it wouldn’t actually be all that great if we were the mainstream.
I kind of liked it better when it was just this small community who all knew
each other. Of course I don’t really mean that nononono I realise that some
people have built businesses on our culture and I want them to succeed! I just …
I’ll shut up now.<br />
<br />
6. One of these days the trend is going to move on and all these half-hearted
types and trendies will leave you know. Then we’ll be back where we started, or
probably worse off because some of us have overextended. We’ll regret any and
all compromises we ever make with the mainstream.<br />
<br />
7. They’ll never leave us! We’re so great and everyone’s going to realise it!
WE’LL TAKE OVER THE WORLD! We don’t need to compromise with anything, we’re so
great. Just any moment now, the real, hardcore version of our culture is going
to go mainstream and everyone will forget about the compromise version. Really
soon. Any minute now …<br />
<br />
8. Oh come on guys can’t we talk about something else please, these internal
squabbles are what really puts people off. I just find it all rather boring
actually and can’t we talk about something else please.The Rioja Kidhttp://www.blogger.com/profile/06462814606739183471noreply@blogger.com3