Posts (page 2)
Courtesy of the Financial Times, I present what I believe is a nice explanation of the inefficient, not to say evil, workings of the financial system which has confronted the world with its worst economic situation in decades.
Enjoy.
Great quote from George Elliot, which I just found via Felix and Milrayas, and in the process I found BrainyQoute.
We are used to it, but I still find remarkable the sequence of discoveries that can be unleashed by the simple act or reading an entry in a blog or website. Every link can be the door to a whole new world, which even if it is just the small world of an unknown blogger, it can be enriching and illuminating. Sometimes it is just a brick wall, but hey, brick walls can be very useful too, like Randy Pausch showed us.
I believe so. Hyman Minsky, whose book "Stabilizing and unstable ecomy", written in 1986, I am reading right now, has been an illuminating discovery for me. This book provides a sober explanation of the convulsive times we are living. I do not intent to summarize a whole book in a few lines, but in a nutshell, Minsky argues that the financial system, if left unregulated (and even so), contains the very seeds of its own destruction.
He comes to say, that as in many things in life, "success breeds success, and then excess", as I read a long time ago in The Economist.
The financial system is inherently unstable, highly pro cyclical: good times create excessive lending, asset bubbles and risky behavior, and the bad times feed on a spiral of declining asset value, declining confidence, restriction of credit, reduced investment and reduced consumption, which results in a recession, and if the cycle is not short-circuited, a depression.
Here is where we are right now: in the middle of the downward spiral, looking down on an abyss which is, more and more, staring back at us.
But do not despair: our good friend Hyman, left us some ideas to avoid the dreadful scenario. In the 1970´s and in the early 1980´s, a full blown depression was avoided by what he calls Big Government (an increase in government spending to substitute the declining business and consumer spending and investment), and Lender of Last Resort measures by the central banks (making sure than money is available to business to run their operations). He admits that Lending of Last Resort is a way of socializing risk, and yes, we all hate that banks keep the profits and share the losses, but there is no other way.
The result will be inflation, which is bad, but unemployment is far worse.I know this is not orthodox thinking now. Many people will argue that this will bring "stagflation", and I used to think so myself, but I have changed my mind. Leaders of the World: forget about inflation (Mr.Trichet, please....),......the beast at our door is Depression right now. Let us fight our enemies one by one. Let us worry about inflation later.
I just finished the other great book by Nassim N.Taleb (unfortunately I read them in the wrong order), Fooled By Randomness, which became an international Best Seller when published in 2004. This book, although not exactly related to the financial markets, explains many of the false illusions that are at the origin of the turmoil we are suffering.
"This book is about luck disguised and perceived as non-luck (that is, skills) and, more generally, randomness disguised an perceived as non-randomnes (that is, determinism)."
"Past events will always look less random than they were (it is called the hindsight bias)": keeping this in mind, one can not avoid to be skeptical of most accounts and explanations of the past, even those by well-informed and and well-intended authors.
"Why don´t most journalists end up figuring out that they know much less than they think they know": we are all condemned, it seems, to be bombarded by opinionated and self-rightous journalists and writers who are experts in absolutely everything, from the world economy, to the war in Georgia, to the AIDS epidemic, to the problems of education, to the inner politics of every small town in Spain. How can they possibly be so smart?
"I believe that the principal asset I need to protect and cultivate is my deep-seated intellectual insecurity. My motto is, my principal activity is to tease those who take themselves and the quality of their knowledge too seriously." If only we could encounter more people with this same humility in all walks of life.
"Things are always obvious after the fact."
"The wise man listens to meaning: the fool only gets the noise."
"Remember that nobody accepts randomness in his own success, only his failure"
"Dress at your best in your execution day (shave carefully); try to leave an impression on the death squad by standing erect and proud.....The dignified attitude will make both defeat and victory feel equally heroic".
uyuyui,uyuyui,uyuyui,uyuyui,uyuyui,uyuyui!!!!,
What is going on here,....is everybody going insane!!!!?????
Probably not, is just another episode of very human feelings, a dangerous cocktail of greed, fear, self-delusion and ego crashing reality. I believe that only with sufficient time and perspective will be able to understand the causes and consequences of the historic events we are living..
These are historic, turbulent and exciting times we are living......., big sand castles are tumbling down,...uncertainty is widespread,...no one seems to know exactly what to do about the financial crisis ....
I keep reading what all the experts have to say about this,...from Martin Wolf to George Soros or Krugman,....they have wildly different opinions about what should be done to avert disaster....Is Paulson a megalomaniac disguised as Mother Teresa, or is Bernanke trying to kill the shadow of the father Greenspan. Is Bush drinking again? Hell, this is so confusing....!
There is one possible solution I am not reading anywhere,....so I must be wrong and it must be quite stupid,...but the more I think about it the more obvious it is to me.....
The stock markets of the world are at their lowest prices in months, so there is a huge opportunity for those with real money to invest, to buy stocks very cheap, and hence providing a floor for the valuation of companies....and we are told that there are huge pools of money in the Sovereign Funds of countries in the Middle East as well as in China. Why are Chinese not running to buy up some of the best companies in the world and fire sale prices??
I don´t understand it....
I´ll keep reading,...surely somewhere, somebody has the answer...
"What is surprising is not the magnitude of our forecast errros, but our absence of awareness of it"
(in the presence of Black Swans)..."The strategy for the discoverers and entrepreneurs is to rely less on top-down planning and focus on maximum tinkering and recognizing opportunities when they present themselves"
"Recognition can be quite a pump. Believe me, even those who genuinely claim that they do not believe in recognition, and that they separate labor from the fruits of labor, actually get a serotonin kick from it".
"Read books are far less valuable than unread ones.Indeed, the more you know, the larger the rows of unread books"
"I had no defined specialty and wanted none"
"By imitating, we get closer to others---that is, other imitators. It fights solitude"
"Death is often a good career move for an author"
"We all become stingy and calculating when our wealh grows and we start taking money seriously."
"What we have learned from the past turns out to be at best irrelevant or false, at worst viciously misleading".
"Do you face the possibility of an adverse event? Don´t worry. Who knows, it may turn out to be good for you. Doubting the consequences of an outcome will allow you to remain imperturbable".
"Both Huet and Bayle were erudites and spent their lives reading. Huet, who lived into his nineties, had a servant follow him with a book to read aloud to him during meals and breaks and thus avoid lost time. He was deemed the most read person in his day. Erudition is important to me. It signals genuine intellectual curiosity. It accompanies and open mind and the desire to probe the ideas of others. Above all, an erudite can be dissatisfied with his own knowledge, and such dissatisfaction is a wonderful shield against Platonicity, the simplifications of the five-minute manager, or the philistinism of the overspecialized scholar. Indeed, scholarship without erudition can lead to disasters".
"We have a natural tendency to look for instances that confirm our story and our vision of the world, these instances are always easy to find".
"Uncertainty: understanding how to act under conditions of incomplete information is the highest and most urgent human pursuit".
"We, members of the human variety of primates, have a hunger for rules because we need to reduce the dimension of matters so they can get into our heads".
"The graveyard of failed persons will be full of people who shared the following traits: courage, risk taking, optimism, et cetera. Just like the population of millionaires. There may be some differences in skills, but what truly separates the two is for the most part a single factor: luck. Plain luck."
"Someone who could figure out how to buy me at the price I am truly worth and sell me at what I think I am worth would be able to pocket a huge difference"
"You cannot ignore self-delusion. The problem with experts is that they do not know what they do not know".
"In the end we are being driven by history, all the while thinking that we are doing the driving"
"Someone with a low degree of epistemic arrogance is not too visible, like a shy person at a cocktail party. We are not predisposed to respect humble people, those who try to suspend judgment. Think of someone heavily introspective, tortured by the awareness of his own ignorance. He lacks the courage of the idiot, yet has the rare guts to say "I do not know"
"I do not worry a lot, I try to worry about matters I can do something about. I worry less about the embarrassment that about missing an opportunity."
This book is just great reading. I started it just two days ago, and I look forward for the weekend to finish it so that I can......start reading it again.... (well, maybe not straight away) but surely this is one of those books I plan to read more than once.
We are psychologically biased to look for frameworks and stable patterns in which to comfortably allocate our lives, yet we are often just pawns, feathers in the wind, nutshells in dark oceans,......or, just as easily,.....kings of the castle, the best horse in the race, or the smartest in the room. In both instances,....please, do not get confi, it is never for too long......
