Archives for posts with tag: Too big to fail

What if our self awareness, otherwise known as conscience, has evolved in order to understand, accept and mitigate randomness?

There’s no evolution – hence no life, without randomness.
Yet life, anyway you look at it, is about maintaining a certain degree of order.

Whenever there’s so much randomness that life can no longer adapt to it… evolution stops.
Whenever structures become so big/rigid that they find it harder and harder to evolve, they eventually succumb to an otherwise survivable amount of randomness. Dinosaurs and too big to fail corporations versus mice and flexible operators.

In a nutshell, self-awareness is about not being ‘fooled by randomness‘.

And to avoid the deepest pitfall we’ll encounter during this never ending journey – randomness will always be wider than our individual ability to encompass it, we must keep remembering that conscience is selfish. Untrained, it is more about protecting itself than about helping the entire ‘individual’ to survive.

‘What?!?’

Yes, it’s hard to believe!
But what other explanation is there for so many of us continuing to smoke after finding out, the hard way, that this habit might actually kill us?
I use this example simply because I still remember the cigarette I smoked when I last visited the grave where rests a woman I loved dearly. And who is no longer with us because of lung cancer.

Too often our conscience will prefer to rationalize away new information than accept that past choices could have been better.

I’m certain all of you are already too familiar with ‘confirmation bias‘.

For a (free) market to function, at all, it needs active economic agents.
Which economic agents need, in their turn, certain amounts of concentrated resources at their disposal. A certain amount of ‘capital’. Regardless of who owns it. Or disposes of it.

In this sense, no matter where each of them finds itself on the individual to socialist spectrum, all societies are ‘capitalist’.

On the other hand, individual capitalists – economic agents, do not need a free market to thrive. The do indeed need a market to sell their products/services, only that market does not have to be free. On the contrary, even.

OK, no monopolistic market has survived for long. And all monopolies have eventually failed. Even those who had grown ‘too big to fail’!

But go and tell this to any of those who happen to be at the helm of a monopoly… be it of economic or political nature …

“The world’s 400 richest people lost a combined $70 billion on Monday as equity markets around the globe were hammered on fears about Greece and declines in China fueled by leveraged investors exiting the market.”

So. Just because a smallish country failed to pay a mere 1.6 billion euros and because China finally joined the rest of the globe – both moves being obvious for some time now for all who wanted to see – the 400 richest people lost a total of $70 billion.

Does any of this make any sense?

Why didn’t some of those guys get together and used their absolutely huge resources to do something to avoid their losses – saving the planet as a by product? And what’s the use of them being so ‘resourceful’ if they weren’t able to do this?

Things are even stranger because these guys can act without having to look over their shoulders. Political leaders depend on their constituents, the CEO’s of the big international corporations depend on their boards… the 400 depend on absolutely nobody but their own judgement.

Or maybe this is the real problem? That too many resources are concentrated in too few hands?

‘Too big to fail’?!?

Shouldn’t Warren Buffett and the company step on it about the Giving Pledge while there still is something left to give?

Not to mention the fact that we, the people, should hold our elected governments responsible for their shenanigans,,,

By the way. Taxing our way out of this huge imbalance wouldn’t work. It would just move concentrated decision power from one set of hands into another. The cause of what is going now is that power has become too concentrated for our own good, not who exerts it. Just take a peek back in history. Every imperium has crumbled under its own weight very soon after decision has become centralized. From the Roman Empire to the Soviet Union who tried to run a centrally planned economy. And the same is valid for economic ventures, monopolies end up badly.

PS I’ve just read an article by Hans-Werner Sinn, a Professor of Economics and Public Finance at the University of Munich, and President of the Ifo Institute for Economic Research who serves on the German economy ministry’s Advisory Council.
He analyzes the current developments as a ‘game’ between the Tsipras/Varufakis team – who are supposedly using the good cop/bad cop tactic and the ‘naive’ ECB who doesn’t make up its mind to start acting responsibly towards the profligate Greeks.

Maybe this is exactly the problem. Some of the top decision makers have forgotten that the ordinary people, those who bear the brunt of the decisions taken at the highest levels, are human beings. Not numbers to be interpreted using the ‘game theory’… or masses (herds) to be managed (manipulated) according to the latest ‘political science’ theories…

‘Varufakis’s Great Game’.

Further reading:

How we got here:
“Greek Debt Crisis:
How Goldman Sachs Helped Greece to Mask its True Debt”
“Why Greece is in trouble (again)”

How some of the international financial institutions envision that the economies of the EU new entrants should be run:

“These public institutions, funded by taxpayers and owned by governments, have explicit mandates to increase local development in the countries where they spend their money.”
“Lidl has received almost $1bn in public development funding”

Time and time again history has taught us that systems where decisions are taken in a centralized manner eventually fail. The Soviet Union had a centrally planned economy and even privately owned monopolies end up in failure. United Fruit is only one of the many examples that we have at our disposal.

Going back to Greece we have two sides that have promised so much that they cannot back down without personal damage.
The Greek political establishment has promised eternal bliss for those linked with the state – and used borrowed money to fund their promises. Now, that the entire system needs a thorough reform no one is daring even to speak about this subject. Things there are compounded by the fact that the Greek bona fide entrepreneurs, those that keep the economy going, are used to dodge taxes – a somewhat understandable position, who would pay willingly knowing that the money would be squandered?
The European decision makers, those who have turned a blind eye to the Greek shenanigans and later bailed out the banks who have lavished money into those shenanigans, now have to explain to their constituents how come so much money has been sunk into this mess and why so much of it will never be recouped – Greece cannot ever repay the whole amount and survive as a working economy.

Quite a complicated mess that cannot be solved until all the cards are thrown on the table.

students of history

 

Not that simple…
Those who have understood something from studying history already know that eventually people will learn to avoid repeating the same mistakes… or else…
It is true that new mistakes appear all the time!

Image

Please read first Mr. Binswanger’s article by clicking on the picture and only then proceed to my humble comments.

Even though I’ve been disappointed by Obama I don’t think yours is the right way out the current mess.
While you are right when claiming that the regulatory/welfare state is part of the problem I strongly oppose your solution: wholesale dismantlement.
The point of contention between us is the Sherman Antitrust Act of 1890.
You are right when you say that ultimately the free market will take care of everything – eventually even the ‘too big to fail’ will ‘eat the dust’, no matter what – my only problem is why allow them to grow so big as to put all of us in jeopardy when they fail/fall?
So how about putting the Sherman Antitrust Law to its intended use, to protect the freedom of the market from any entity, public or private, gaining any degree of control over the economic agents? (Here is a lot to be discussed, what I mean is that the state should only be able to restrict economic agents from acts that would harm the others – including from getting control over a market – and not to tell any of them what to do)
How about putting the entire state back to its intended use, a regulatory tool for making sure that the table stays level?
Right now it is anything but that but, I repeat, dismantling it altogether would not bring in freedom. It will bring very shortly a long period of dictatorship punctured by brief but very intense episodes of anarchy. Some like to call them revolutions …
In fact there is no difference between a state run monopoly and a private one, both fail eventually. And this is what Sherman had in mind, back in 1890.

Image

Yesterday I shared this picture on FB.

One of my friends asked me:
“How do you define “greed”. In the movie “Wall Street” Michael Douglas has this great speech saying that “greed is good” meaning that passion for things in life is good. Where is the line between greed and passion? Does that line look differently depending on where you are in the deal chain?”

This was my answer:
“This one is simple.
If you are willing to do your best in order to get something then you’re passionate ABOUT that something.
If you are ready to ‘step on corpses’ to reach your goal then you are ‘greedy’ FOR that something.”

Another friend commented:
“Well I have a problem with this; the Catholic church is one of, if not the richest organization in the world, how does the pope plan on distributing the assets? The church generally asks for 10% of your income to be ‘donated’; not mandatory but one of the heftiest taxes around. Practice what you preach.”

Me again:
“It seems that Romanians have already solved this conundrum.
We have a saying that goes like this: “Do what the priest says, not what he does!” ”

Thank you guys!

Ce a fost.
Ce ar fi putut sa fie.
Ce a iesit.
Ce va sa fie.

Voi incepe cu sfarsitul.

Vom repeta aceleasi greseli de cate ori va fi nevoie pana cand vom intelege ca greseala este inevitabila si ca daca tot am facut-o ar fi mai bine sa invatam ceva din ea.
 A te intoarce din drum pina inainte de greseala si a porni din nou cu gandul de a nu o (mai) repeta nu face decat sa te aduca, din nou si de cate ori este nevoie, in fata aceleiasi lectii: decat sa te ridici pentru a cadea din nou mai bine mergi in patru labe pana se termina gheata!

Ce ar fi putut sa fie? Greu de spus. Ar fi putut sa fie mai bine dar in acelasi timp ar fi putut sa fie mult mai rau. Sa ne bucuram ca a fost.

Ce a iesit? Din cate se pare nu ‘a iesit’ inca. Ne ‘pregatim’ cu naivitate sa urcam, precum Sisif, acelasi deal la capatul caruia in realitate se afla o raspantie numai ca pana acum noi am vazut doar varianta ‘din nou si de la capat’.

Ce a fost? Eu m-as intreba mai degraba ‘a cata oara a fost?’…

Nu, nu ma refer doar la caderea comunismului sau la criza financiara!
In realitate atunci nu a cazut comunismul ci doar prea putine dintre regimurile comuniste, am sa  dezvolt subiectul asta mai tarziu.
Ma refer la faptul ca nu am inteles nimic!
Pe ce ma bazez cand spun asta?
Simplu. Pe faptul ca peste nici 20 de ani ni s-a intamplat acelasi lucru si atunci iarasi am fost luati prin surprindere precum si pe faptul ca ne straduim de zor pentru a reface seturile de conditii care au condus la cele doua miscari tectonice.

Ca sa fie clar ce am in cap am sa o spun pe sleau: atat prabusirea regimurilor comuniste cat si criza economica din 2007-2008 au avut aceiasi cauza si din pacate lucrurile au reinceput sa curga in aceiasi directie: autoritarismul/centralismul politic revine in forta – chiar daca sub alte forme – iar modul de functionare al economiei mondiale revine incet la obiceiurile de dinainte de 2007.

Toate necazurile astea provin din faptul ca ne credem mai destepti decat suntem cu adevarat.
Asta duce pe de o parte la aroganta – unii dintre noi cred ca stiu ei mai bine ce este potrivit pentru toti ceilalti – iar pe de alta la ‘autocastrare’ – prea mare parte dintre acesti ‘ceilalti’ accepta cu resemnare concluzia ‘logica si rationala’ la care au ajuns: aceea ca ‘nu ma pot descurca de unul singur’, ‘El este acela’ asa ca se aseaza disciplinati si ascultatori in spatele ‘lui’, ii indeplinesc fara sa cracneasca ordinele si apoi isi justifica ‘rational’ faptele in fata propriei constiinte.
“In conditiile acelea nu se putea altfel!”
Daca am avea mai putina credinta oarba in rationalitatea noastra si mai multa modestie poate ca am fi in stare sa intelegem mai multe din ceea ce ni se intampla.

Aproape nimic din ceea ce veti citi in continuare nu este nou. Eu nu sunt un tip caruia sa ii vina ‘idei’! In schimb imi place foarte mult ca atunci cand ma intalnesc cu una sa o intorc pe toate fetele si sa incerc sa vad ce legaturi exista intre ea si celelalte idei cu care m-am intalnit pana atunci.

Ceea ce urmeaza poate fi asemuit cu un ‘carnet de bal’. Este ‘lista’ ideilor cu care m-am intalnit. Am schimbat pe ici pe colo ordinea, unele intalniri nu au fost chiar atat de intamplatoare ca altele dar nimic nu a fost atat de premeditat precum este faptul ca am inceput, in sfarsit, aceasta impartasanie.

Some twenty-five years ago one of my childhood friends emigrated to America.
I reconnected with him in 1994. He had worked his way up from the ‘floor’ of a auto-parts distribution business to manager of the most important of its warehouses. At that time he was putting on at least 10 hours a day from Monday to Friday and some 5 hours on Saturdays. At some point he felt the need to go back to school – he had very little formal education – and told the owner of the business he wouldn’t be able to contribute so much as he did until then so he was willing to accept a pay cut. The owner replied that he would have to replace him. They departed in good terms, my friend told me he didn’t harbor any bad feelings toward the guy because he was honest and straightforward.
Flash-forward three years. My friend had finished a course for computer engineers and got hired by a really big, privately owned, multinational corporation. He told me he had the impression of working again for a state owned company: people didn’t have the guts to speak up their minds and their main occupation was to cover up their asses under a ton of paper. Procedures took prevalence to common sense. He was the first to tell me that if there is too big a distance between the shareholders/owners and the general management the people at the top of the company start acting as if they own it and this is the reason for which it doesn’t really matter if a huge corporation is privately  or state owned. What it does matter is local culture – if earning undeserved money is shunned by the people then things are OK but if people put money above anything else the big corporation will run into trouble sooner or later. My friend gave up working for others and started a hair-salon with his wife.
Flash-forward to our times.
We have found out about the existence of some (privately owned) corporations which are too big to fail but  which despite (because?) their size and importance have reached some really dire straits and desperately need assistance. We have experienced TARP and QE I and II.
The general public is now split in two:
The Tea Party abhors big Government because it is intrusive and stifles individual initiative.
The Occupy Movement abhors big Business because it is callous and treats the individual exclusively as a consumer/workhorse, effectively disregarding its very humanity, and because it has dumped a huge pile of loses on the humble taxpayer.

And yet Tea Partiers and Occupiers can’t see eye to eye with each-other.

Isn’t this the strangest thing of all?

PS. The existence of a significant shareholder might help a big corporation to overcame the disadvantages of its size. Ford has coped better than GM or Chrysler, BMW (controlled by the Quandt family) than Daimler-Chrysler, etc. Same rationale works for the .com companies where the founders still have a loud enough voice on the board. And maybe the secret of Warren Buffet’s success is that he invests in companies which already have a management focused on the long term survival of the company instead of their own enrichment at all costs (all costs for the company, of course).

“…in many developing countries, conglomerates have not played an equivalent role. They have focused on non-tradable goods and services – those that cannot be imported or exported – and have eschewed international competition. They have focused on banking, construction, distribution, retail, and television broadcasting.

Once these companies dominate one market, they move to another that is equally sheltered from competition and devoid of export opportunities, often using their size and political influence to keep out would-be competitors. Instead of becoming agents of change, they often prevent change. (Indeed, the big economic debate in South Korea nowadays concerns whether the chaebols are stifling innovation by preventing start-up competitors from challenging them.)

Read more at http://www.project-syndicate.org/commentary/big-companies-and-economic-growth-in-developing-countries-by-ricardo-hausmann#OADjtOketlJabvST.99 

http://www.economica.net/isarescu–iti-cade-o-banca-mare–se-prabuseste-o-economie–deponentii-mari-sa-plateasca_57666.html

In principiu are dreptate. Orice depozit mai mare decit cele garantate este o investitie si nu ‘bani albi pentru zile negre’. Cu atit mai mult daca este facut la o banca care ofera dobanzi semnificativ mai mari decit restul pietei (Oricum asta e semn clar ca banca respectiva are nevoie disperatata de fonduri dar asta e deja alta poveste). Iar daca este investitie trebuie tratata ca atare si riscurile asumate de investitor. Ce, daca ma apuc sa cumpar actiuni la bursa imi garanteaza statul ceva? Si care e diferenta intre a alege companii de pe bursa sau banci de pe strada mare? Nu tot investitorul poarta responsibilitatea finala a actelor sale?
Pe de alta parte de ce oare au fost lasate bancile sa devina atit de mari incit sa existe unele atat de mari incit caderea uneia dintre ele sa puna in pericol o intreaga economie? Ba chiar atit de mari incit sa poata santaja o inreaga tara? (Codul de procedura civila nu poate intra o data in vigoare pentru ca bancilor le este frica ca vor trebui sa dea inapoi nu stiu ce comisioane incluse abuziv in contractele de creditare)

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