Economics and similar, for the sleep-deprived

A subtle change has been made to the comments links, so they no longer pop up. Does this in any way help with the problem about comments not appearing on permalinked posts, readers?

Update: seemingly not

Update: Oh yeah!

Monday, December 19, 2011


Now that the bookshops are chock full of Scandinavian murder mysteries, I find myself wondering if this doesn't throw something of a light on that region's anomalously high "suicide" rate.
3 comments this item posted by the management 12/19/2011 12:06:00 AM

Friday, December 16, 2011

This is why people hate bankers

There was speculation on Thursday over whether Mr Horta-Osório should be entitled to his full annual bonus for 2011 of potentially more than £2m as a result of his absence

Well yes, if you come in, set a load of unrealistic targets, sack half the top management, fail to recruit replacements, abandon the targets and then take two months off on sick leave with insomnia, then I suppose that is the sort of thing that might go a bit badly at bonio time.

I think that maybe as much as 18% of the banker-rage is to do with the simple word "bonus". If it was called what it is - a commission on revenues - then people would understand a lot more that investment bankers are for the most part basically commission salesmen, that commission salesmen often make a hell of a lot of money, and that if you don't pay commission to your sales force, then soon you don't have a sales force. But linguistically, everyone knows that a "bonus" is an extra special reward for a particularly ace job, and thus they get a bit pissed off when someone standing in a pile of wreckage where a financial system used to be might be asking for one.

It is true about the sleep thing though. An awful lot of what determines success or failure in this industry (and, in my opinion, a lot of the backstory behind commenters on the Guardian banking blog who have a version of history where they left banking because they were just so damn ethical) is how well you handle lack of sleep.
32 comments this item posted by the management 12/16/2011 05:14:00 AM

Thursday, December 15, 2011

There must be something in the water

From Juan Cole's Iraq by the numbers post:

Number of Iraqis who died of violence 2003-2011: 150,000 to 400,000.

Orphans in Iraq: 4.5 million.

At the high end of 400,000, and assuming that no childless Iraqis died at all (and that an "orphan" is someone who has had both their parents die), this would project an average family size of 22.5 children per Iraqi couple.

(Of course, there will be orphans created by causes of death other than violence, but this is really quite rare; people usually die once their children have grown up. If even half the number of orphans represent an increase in the Iraqi orphan population attributable to the war, it must have killed much more than 400,000 adults).
2 comments this item posted by the management 12/15/2011 06:59:00 AM

Wednesday, December 14, 2011

Putting reason aside, how I feel is that you're a creep, mate

Latest and greatest, from the man regularly described as a "reasonable" and "charming" conservative.
5 comments this item posted by the management 12/14/2011 12:13:00 AM

Monday, December 12, 2011

Hanging out your shingle

I think Felix has missed a trick here, in that the purpose of "charity" auctions for dinner-with-a-legislator is one part machismo to ten parts classified advertising.

Look at it this way; when someone pays $218,000 to have lunch with you, it cements your status as the kind of guy who people pay $218,000 to have lunch with. Which means that you're probably the kind of guy who it's worth paying larger sums to. But you can't just put up a sign on your office door saying how much you want in order to get out of bed in the morning - you're a Senator for god's sake, not Christy Turlington. And you can't really just auction off your lunch calendar either, it's vulgar. So two or three times a year, you have this set-piece of a lunch auction so that the world can see just what a massive pair you have, and so people know where to pitch your offers.

It's the equivalent of the summer balls and beefsteak dinners that Plunkitt of Tammany Hall used to organise.
0 comments this item posted by the management 12/12/2011 05:43:00 AM
Could Henry the Eighth have got a cheeseburger, if he wanted one?

Via Paul Krugman, this guy tries to do the "I, Pencil" bit with respect to the cheeseburger. Basically it's a bait-and-switch, possibly an unintentional one, but by the definition he is using (multiple specialized vendors, ability to transport foodstuffs large distances while keeping them fresh), the Homeric Greeks were probably an "highly-developed, post-agrarian society" and the Romans certainly were. I think that where he went wrong was in starting off thinking about Thanksgiving, and assuming that the whole world was like America[1] - a tribal subsistence farmer-hunter society, that suddenly became a modern capitalist one at the end of the eighteenth century. Also one where pasture is a "near zero cost" input (see comments), which has only been even nearly true in a small number of geographical and historical islands.

[1] Actually, like New England - I bet the Incas and Aztecs weren't far off being able to do the same things with food as the Romans. They were also positioned near the equator and thus presumably didn't have to deal with this strange thing about only slaughtering animals in the autumn, about which the author seems very strict.
2 comments this item posted by the management 12/12/2011 02:10:00 AM

Thursday, December 08, 2011

It gets worse, then it gets worse, until it can't get any worse, and then it gets worse

Elsewhere on the internet, I am running into pushback on a key thesis regarding undifferentiated banker-bashing, inadvisability and general political pointlessness of. I'm gathering together ideas for a post on this, but a key part of the thesis is that we have to be aware of the potential for metastasis here. If you look at the oil[1], tobacco and defence industries (and ye gods, the nukemen), you see that there is a certain pattern of behaviour seen in industries after they give up on having any hope of getting anything approaching a fair hearing. If you chuck enough hostile and ill-informed criticism at an industry, then sooner or later it will retreat into its shell, develop its own private reality and stop listening to any criticism at all, internal or external. With pretty predictable results in terms of the possibility of ethical behaviour. Or to put it shorter; if you keep telling people that they're evil, dishonest, predatory locusts, sooner or later they're going to believe you.

As Douglas Adams said:

There is a theory that if the universe is ever understood, it will immediately disappear and be replaced by something much more incomprehensible. There is a theory that this has already happened

This thesis does invite the objection - how much worse could the banksters get? In my view, a lot worse. Just a top of the head list of ways in which the industry could act if it was a genuinely antisocial and evil actor, rather than an absurdly myopic and unusually greedy part of a complicated market economy system:

1. It should be noted that the only people actually providing debt relief to Greece are the banking system, through a voluntary exchange. There will be holdouts to this exchange, but they will be small. There is very little of the regulatory strong arm in the debt exchange (which was actually suggested by a bank) - there is just a general recognition on the part of the industry that their collective interest in maintaining a stable and prosperous Eurozone is greater than their individual interests in getting 100 cents in the Euro.

2. Similar, in the case of Hungary and Romania, where the "Vienna Accord" between private sector lenders stopped these small and volatile economies from experiencing catastrophic capital flight.

3. The UK could see the dawn of US-style foreclosure practices. These are, of course, the effect of the regulatory developments which pushed mortgage servicing out of the normal base of the banking industry and into specialist, largely unregulated subsidiaries. No UK bank would ever do this, because the brand on the mortgage foreclosures is the same as the name above the door, and, for the moment, they have an interest in maintaining the value of their good name.

4. In general, a *lot* more activity would migrate to the offshore, tax haven and unregulated sectors (hedge funds at the top end, payday lenders at the bottom). At the moment, there is effectively a social constraint on the size of the tax and regulatory avoidance industries. You can do business much more profitably if you operate in this way, in return-on-capital terms, but you can't do it at large scale, which limits the amount of capital you can earn that high percentage return on.

The reason why you can't do it at scale is that if you are too aggressive in pushing the envelope on regulation or tax, you will find it difficult to get counterparties and brokers. The reason for that is that there still survives in the industry a perception that tax and regulatory avoidance is (while often necessary) a slightly hinky thing to do, and that people who are too blatant and aggressive about doing it are likely to be hinky people, who might be just as willing to bilk you as they are the taxman. Despite what you read about clever accountants (one for the catechism of course ... and what type of schemes do clever accountants find? Complicated schemes), most people in the industry have a visceral horror of corporate finance bells-and-whistles as being "too clever" and likely to conceal a con game.

Obviously, if the industry turned inward, and the social stigma attached to those upstanding and necessary people in the tax structuring industry were to be lessened, then it would no longer be the case that the only people who did hinky deals were hinky people. And you would see a *hell* of a lot more such deals.

Of course, if you think that the financial industry created the asset bubble off its own bat, purely in order to earn short term bonuses and in the knowledge that it would burst and impose costs on someone else, then this isn't going to be very convincing. Which is why I think it's very important to explain that this wasn't what happened. There needs to be a space kept open for people like Andy Haldane to tell the industry what's wrong with it and to be listened to.

[1] Oil is an interesting one, as there is a continuum of standards of behaviour from BP to ExxonMobil ...
18 comments this item posted by the management 12/08/2011 04:52:00 AM

Wednesday, December 07, 2011

Facts about financial regulation

By pretty popular acclaim, the two banking systems and their regulators which have come through the crisis with their reputation closest to intact are those of Canada and Australia. With Sweden perhaps close behind. All three of these regulators share a specific policy approach. Can you guess what it is?

They more or less explicitly endorse a cartel of a small number of major banking groups in the domestic market. This ensures that a) the banks are consistently strongly capitalised, because they are profitable, b) they have a reduced incentive to expand lending too rapidly, because margins are high enough to allow them to earn a mid-teens return on their enlarged capital base, c) they have a reduced incentive to take risks in non-core business areas, because doing so would put at risk the "franchise value" of their core domestic lending business and d) they tend to have a much more respectful and obedient relationship with their domestic regulators because they know that the regulators are on the same side. France used to have a version of this more or less formalised (they called it the "ni-ni" regime - no charging for bank accounts, no payment of interest on current accounts) until they caught a bit of neoliberalism.

A profitable banking system is a safe banking system, it's known throughout the world regulatory community. Now, how are we going to fit this insight into our new post-crisis regulatory framework?

(POSSIBLE QUICK-WAY SOLUTION: We can regulate bonuses! That will make the banks more profitable! WHY IT DOESN'T WORK: Sadly, any cost improvements of that sort get competed away quite soon in a banking system that looks like the UK or USA rather than Canada or Australia).

(I actually think Australia is riding for a fall, for largely unrelated reasons. Australia, Canada and Sweden all have incipient real estate bubbles, which have been retarded but not eliminated by tough and prescriptive regulation. It will be interesting to see what happens if and when they bust, as this will destruction-test, one way or another, the idea that there was anything at all that could have been done at a regulatory level to prevent or mitigate our own crisis).
8 comments this item posted by the management 12/07/2011 11:09:00 AM
Adjectives in financial journalism

Related to Felix's complaints here, I am increasingly noticing sentences in the press (the FT Alphaville blog is a particular offender, but Bloomberg News is also bad) of the form:

"Troubled banks have been arranging complicated deals for vital short-term finance"

If you strip the adjectives out, you get:

"Banks have been arranging deals for short term finance".

I think the urge is to sprinkle some financial crisis fairy-dust over an otherwise intolerably dull story that ought to be headlined "Technical Changes Respond To Rising Yield Basis In The Dollar Repo Market". But guys? The financial crisis is interesting in and of itself. And guys? We don't buy the financial times (or subscribe to Reuters or Bloomberg) for the interesting stories - we buy it for the boring ones.

Edit: Oh Felix, Felix. Two posts down from that one ... "falling perilously low to zero". What's perilous about the Bundesbank having a zero balance on one line of its accounts?
0 comments this item posted by the management 12/07/2011 12:37:00 AM

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