Bankcrupt Sheiks, Merkel vs Ackermann & Beer and Bankers
I am busy preparing a project for the Department for Culture, Media and Sports… but here’s a quick list of what I have picked up from reading British and German news:
1) The Sheiks are bankrupt! I guess I don’t have to elaborate too much on this, it’s all over the news…
2) Angela Merkel, the chancellor of the Federal Republic of Germany is quarrelling with the current CEO of Deutsche Bank about who should decide on whether and how to reform the financial markets following the outfall of the credit crunch. Ackermann has lately been in the habit of pointing out with a certain sense of charme that politicians know nothing of complicated financial derivatives and shouldn’t meddle with this issue. Angela Merkel lost her patience this week when Ackermann – besides telling politicians politely to shut up – decided to suggest in public that it would be a good idea to pump more public money into the financial system, beyond what had already been done. So he is essentially telling politicians to be quiet and keep on paying…
3) An advert has surfaced – which is now being shown to cinema goers before any movie release – deriding bankers for their alleged uselessness. The clip is here…
Oh, and by the way, for those who have already forgotten about how the crisis happened, I can only recommend the following brilliant visualized exposition produced by Mr. Jarvis. Take a look…
(Broad) Money Matters !
There is much talk again in the media of a real possibility of seeing green shoots, however fragile they may be. In many countries, following the substantial decline in economic activity observed over the last year or so, a number of indicators have either bottomed out or even appeared to start growing again. The Eurozone and the United States have reported positive growth rates for Q3Y9. This has been interpreted by many as glimmers of hope. Programmes aimed at injecting huge amounts of liquidity into the markets have been tried throughout the globe coupled with serious fiscal measures, such as the “cash for clunkers” initiatives. But what if these measures propping up markets are removed? Two serious and probably broadly underestimated problems remain.
Measures of broad money keep on contracting in the UK, the EU and the US. Also, it appears as if a huge carry-trade piggybacking on the low interest-yielding dollar is underway, which has triggered countries like Brazil - which appears to have taken on the status of international investors’ new darling for now – to tax hot money flows on their way in. (Broad) money matters and so far it has not resumed flowing to households and to the nimble small- and medium-sized companies who are often praised for their innovativeness and capacity to stimulate growth in economies. I am somewhat confounded by the Bank of England’s recent increase of growth projections for 2010 and thereafter. The two oil-price shocks of the 70s gave us stagflation. If the horse doesn’t start drinking soon, we could be in for a time posing a serious policy-making dilemma characterised by stagnation or even a resumption of economic decline coupled with a deflationary spiral.
Gobal Warming?
What would a time series model (say, a simple AR2) predict if it was fit to the following graph(s)? That a new ice-age is upon us. But of course we know better, everybody knows it is global warming which is the main problem faced by humanity. And, by the way, the average global temperature has actually fallen since 1998. There is one further factor which needs to be borne in mind, which is that sunspot activity has now reached a natural trough of inactivity, which could counteract any alleged man-made global warming.
Persecution and the Art of Writing – Leo Strauss (1952)
Leo Strauss (September 20, 1899 – October 18, 1973) was a German-born American political philosopher who specialized in classical political philosophy. He spent most of his career as a professor of political science at the University of Chicago, where he taught several generations of students and published 15 books.
Strauss on reading
In 1952 Strauss published Persecution and the Art of Writing, commonly understood to advance the argument that some philosophers write esoterically in order to avoid persecution by political or religious authorities. A few readers of Strauss suggest esoteric writing may also seek to protect politics from political philosophy – the explosive reasoning of which might well shatter fragile opinions undergirding the political order. Stemming from his study of Maimonides and Al Farabi, and then extended to his reading of Plato (he mentions particularly the discussion of writing in the Phaedrus), Strauss proposed that an esoteric text was the proper type for philosophic learning. Rather than simply outlining the philosopher’s thoughts, the esoteric text forces readers to do their own thinking and learning. As Socrates says in the Phaedrus, writing does not respond when questioned, but invites a dialogue with the reader, thereby reducing the problems of the written word. One political danger Strauss pointed to was students’ too quickly accepting dangerous ideas. This was perhaps also relevant in the trial of Socrates, where his relationship with Alcibiades was used against him.
Persecution and the Art of Writing.
Ultimately, Strauss believed that philosophers offered both an “exoteric” or salutary teaching and an “esoteric” or true teaching, which was concealed from the general reader. For maintaining this distinction, Strauss is often accused of having written esoterically himself. Moreover he also emphasized that writers often left contradictions and other excuses to encourage the more careful examination of the writing.
Seven Soul-Searching Shakespeare Sonnets
SONNET CXXIX
The expense of spirit in a waste of shame
Is lust in action; and till action, lust
Is perjured, murderous, bloody, full of blame,
Savage, extreme, rude, cruel, not to trust,
Enjoy’d no sooner but despised straight,
Past reason hunted, and no sooner had
Past reason hated, as a swallow’d bait
On purpose laid to make the taker mad;
Mad in pursuit and in possession so;
Had, having, and in quest to have, extreme;
A bliss in proof, and proved, a very woe;
Before, a joy proposed; behind, a dream.
All this the world well knows; yet none knows well
To shun the heaven that leads men to this hell.
SONNET CXXXVII
Thou blind fool, Love, what dost thou to mine eyes,
That they behold, and see not what they see?
They know what beauty is, see where it lies,
Yet what the best is take the worst to be.
If eyes corrupt by over-partial looks
Be anchor’d in the bay where all men ride,
Why of eyes’ falsehood hast thou forged hooks,
Whereto the judgment of my heart is tied?
Why should my heart think that a several plot
Which my heart knows the wide world’s common place?
Or mine eyes seeing this, say this is not,
To put fair truth upon so foul a face?
In things right true my heart and eyes have erred,
And to this false plague are they now transferr’d.
SONNET CXLI
In faith, I do not love thee with mine eyes,
For they in thee a thousand errors note;
But ’tis my heart that loves what they despise,
Who in despite of view is pleased to dote;
Nor are mine ears with thy tongue’s tune delighted,
Nor tender feeling, to base touches prone,
Nor taste, nor smell, desire to be invited
To any sensual feast with thee alone:
But my five wits nor my five senses can
Dissuade one foolish heart from serving thee,
Who leaves unsway’d the likeness of a man,
Thy proud hearts slave and vassal wretch to be:
Only my plague thus far I count my gain,
That she that makes me sin awards me pain.
SONNET CXLIV
Two loves I have of comfort and despair,
Which like two spirits do suggest me still:
The better angel is a man right fair,
The worser spirit a woman colour’d ill.
To win me soon to hell, my female evil
Tempteth my better angel from my side,
And would corrupt my saint to be a devil,
Wooing his purity with her foul pride.
And whether that my angel be turn’d fiend
Suspect I may, but not directly tell;
But being both from me, both to each friend,
I guess one angel in another’s hell:
Yet this shall I ne’er know, but live in doubt,
Till my bad angel fire my good one out.
SONNET CXLVII
My love is as a fever, longing still
For that which longer nurseth the disease,
Feeding on that which doth preserve the ill,
The uncertain sickly appetite to please.
My reason, the physician to my love,
Angry that his prescriptions are not kept,
Hath left me, and I desperate now approve
Desire is death, which physic did except.
Past cure I am, now reason is past care,
And frantic-mad with evermore unrest;
My thoughts and my discourse as madmen’s are,
At random from the truth vainly express’d;
For I have sworn thee fair and thought thee bright,
Who art as black as hell, as dark as night.
SONNET CLI
Love is too young to know what conscience is;
Yet who knows not conscience is born of love?
Then, gentle cheater, urge not my amiss,
Lest guilty of my faults thy sweet self prove:
For, thou betraying me, I do betray
My nobler part to my gross body’s treason;
My soul doth tell my body that he may
Triumph in love; flesh stays no father reason;
But, rising at thy name, doth point out thee
As his triumphant prize. Proud of this pride,
He is contented thy poor drudge to be,
To stand in thy affairs, fall by thy side.
No want of conscience hold it that I call
Her ‘love’ for whose dear love I rise and fall.
SONNET CLII
In loving thee thou know’st I am forsworn,
But thou art twice forsworn, to me love swearing,
In act thy bed-vow broke and new faith torn,
In vowing new hate after new love bearing.
But why of two oaths’ breach do I accuse thee,
When I break twenty? I am perjured most;
For all my vows are oaths but to misuse thee
And all my honest faith in thee is lost,
For I have sworn deep oaths of thy deep kindness,
Oaths of thy love, thy truth, thy constancy,
And, to enlighten thee, gave eyes to blindness,
Or made them swear against the thing they see;
For I have sworn thee fair; more perjured I,
To swear against the truth so foul a lie!
Turning point and Ninjas…
This weekend’s Financial Times contains a number of articles which appear to be signaling a change in market sentiment, possibly resulting in the much-anticipated follow-up slump in equity markets. First of all, the one-quarter gain o 21% of the FTSE is the largest (or steepest) gain every recorded in its history. This looks and feels a lot like bubblenomics. Secondly, US labour market data has disappointed and it seems as if much of the pick-up observed in production activity may be completely down to the bangers-for-cash schemes – which upon removal – have led to a fall in factory orders in the US. There is therefore much reason to believe that a similar fate may await other economies which have opted to prop up demand in their economies using similar methods. It is quite possible that the coming week may be of telling importance regarding the general direction markets are likely to take.
Aside from this, I find it ironic how certain acronyms frequently used in government departments are also used elsewhere, but mean something completely different. BIS (The department for business, innovation and skills) uses NINJA as an abbreviation for “New Industries, New Jobs”… but in the banking industry, NINJA means “No Income, No Job, No Assets”, which describes a category of high-risk borrowers.
A truly historic (emotional) moment – Olympics 2016 to be held in Rio
Yesterday, Rio de Janeiro, the former capital of Brazil and home to the local sun-loving cariocas (who are always mocked by the paulistas, the inhabitants of Sao Paulo, whose larger metropolitan area alone can be linked to an approximate 70% of overall economic activity of the whole of Brazil) won the bid for hosting the Olympic games in 2016. This was a truly historic event, as for the first time in history this important sports event is set to be held in a south-American country. The current president, Luis Inacio da Silva – also known as Lula – broke out in tears when Rio’s victory was announced. Indeed, it must have been a truly emotional event for any Brazilian. Commenting on this momentous and emotional occasion, Lula exclaimed:
“We are going to have to sleep less, think more and work more. Now our term of reference is going to be work, work, work — work for Brazil to do better than any other time in its history”
Spoken like a true leader infusing his people with the right sort of motivation and energy needed to prepare Brazil for a great leap forward. What a brave new world unfolding before us!
Archduke Franz Ferdinand of Austria and Chaos Theory (and else)…
An isolated event taking place in Vienna, Austria today, triggering a wave of violence in Punjab (India) bears an eerie resemblance to the way another isolated event (the assassination of Archduke Franz Ferdinand) led to a then unprecedented escalation of violence in Europe between sovereign states, now remembered as World War I (unfortunately dubbed by Lloyd George – the then British prime minister – as The War to end all Wars). To be sure, the scale of things is of course very different – all I want to highlight is how one single local event can trigger wider-spread violence elsewhere – much akin to Chaos Theory’s butterfly analogy. Besides this, one should not fail to recall the Scramble for Africa (or Race for Africa) and the associated wave of colonialism (or new imperialism) occurring before and during WWI. According to newspaper sources, there appear to be two new scrambles (or races) going on at the moment, one of which is the scramble for the (deep-sea) ocean – in particular the Arctic and the other the scramble for Africa – again.
What else is new?
Shortly before European parliament election day, the U.K. has now officially joined the ranks of political banana republics and it’s public debt-to-gdp ratio is forecasted to be at or exceed the magic 100% threshold in the not-too-distant future – likening it even more to the former European champion of the bananas, Italy. Meanwhile, the latter country’s president has announced to make a statement before parliament to finally explain (or add further spin to) his involvement with a minor – as his own (soon-to-be ex-) wife likes to put it.
Today, North Korea has successfully tested a nuclear bomb and – visibly unaffected by a storm of international protest – launches a short-range missile and announces further nuclear tests. Language at the diplomatic level between North Korea and the U.S. is turning very frosty. Also, last week Barack Obama visited Israel to press the two-state solution. Ahead of his visit the U.S. administration broke convention by openly calling Israel a nuclear-weapons state.
Else, China holds so much of it’s reserves in predominantly short-term U.S. debt that it appears to not only have cornered the market, but indeed cornered itself into having to continue buying more of the same stuff – amazing, the world of Finance!
Also, in spite of the U.S. Fed’s attempts to reduce yields on long-term bonds, the short-long maturity spread is rising again, keeping long-term finance dear. Not to mention equivalent spreads implied by the current return on commercial paper. Here are two recent articles by members of the St. Louis Fed on this (invoking the good old expectations hypothesis of the term structure):
Turbulent times like the ones we are living in at the moment ought perhaps be met with the right kind of attitude so as to avoid unwarranted and exaggerated despair. Franz Kafka’s diary for instance contains the following entry on the day Germany declared war on Russia (August 2,1914):
“Morning -Germany declares war on Russia. Afternoon – swimming.”
