Should We be Concerned...

...that anarchy has become super-sexy?

"Super-sexy?" you may ask. "How so?"

Well, personally, I don't know. But if it weren't, why would Axe body spray name a new fragrance after it?

For the Lintel

I would like to get some words painted over the entrance to my office: "Let no one enter who is ignorant of geometry."

This was the inscription over the entrance to Plato's Academy. Today it would be more about algebra than geometry, but the point is clear enough.

My Favorite Quote about Banking

"There are more banks than bankers."

Brilliant. This observation comes from the king of over-the-counter bank stock market makers, Morris Schapiro, who died at age 93 in 1996. I know little about Schapiro, but loved him instantly when I heard this quote. I was, therefore, delighted to spot his name on a dormitory some years ago at Columbia University. Apparently, Marty Sosnoff likes the quote, too.

Caffeine, Soy Milk, and Central Banking

Coffee is no long-term replacement for sleep. It's not even a very good short-term replacement, although, in a pinch, it helps.

Likewise, we should not be relying nearly as much on central banking as we are, when we need fundamental reform. Mainly, we need to shrink the size of the financial sector and give the biggest banks an incentive to break themselves up. Capital requirements should increase steeply with size.

Such were the thoughts that ran through my mind as I ordered, a little self-righteously, a tasty Indian Spice soy milk hot chocolate, after lunch, at Whole Foods.

We Can't Go On Together...

Click on the cartoon to see it bigger and better. 

This is a new cartoon conceived by me that nutty financial country singer, Merle Hazard. The very talented artist and illustrator Grey Blackwell drew it.

You download it in a high-resolution 3.6 meg PDF.

The original Elvis song is here. A little history of it is here at Wikipedia, and the earlier, non-hit version by the songwriter Mark James, is here.

Thankyouverruhmuch.

Chicken and Egg

A pattern: policymakers in Europe and the U.S. do not make hard decisions unless the markets force them to do it. A crashing stock or bond market really gets their attention and forces them to make political compromises and act.

The plot continues: once the officials act, markets rally. Now, if the markets knew the policy response in advance, there would not be a crash to begin with. So there never really needs to be a crash, does there? But, on the other hand, if markets didn't crash, then policymakers would never act. So then, yeah, there does need to be a crash, even though it will be followed by a recovery.

The equilibrium state seems to be dynamic rather than static: a crash, followed by policy response, followed by a recovery in the markets, followed by new problems, another crash, a new policy response, another recovery, and so on. Sort of like the propagation of a wave, with peak causing trough, and vice versa.

I am, of course, over-simplifying massively and almost comically. For one thing, there are problems too big for any economic policy response to patch over (e.g. a big war, or, here's a depressing thought, a famine that wipes out a significant part of a country's population). And there is a mix of things making securities prices change, with sheer randomness being among them. My hypothesized cycle is only one of the things going on.

Still, the crash-response cycle is, I suspect, a part of the mix. It seems too dilute to have direct usefulness for investing, but I find it interesting intellectually. It may be good to be aware of simply for the purpose of keeping one's self from getting caught up in the emotional swings.

On Regulation

"[G]ood regulation should take account of our rather extreme ignorance. That means emphasizing the more general protections, as embodied in a ready supply of safe liquid assets, rather than obsessing over the regulatory micromanagement of particular bank activities."


-- Tyler Cowen, in The New York Times ("From the Fed, a Shield Against Europe," Dec. 24, 2011)