the rational post » in other words

failure by design

The Editor — Fri, 23 Apr 2010 03:22:42 +0000

Churchill argued that democracy is the worst form of government, except for all the others. With capitalism now falling under similar fire, modern politicians, businesspeople and academics are once again questioning both the failures of free markets and the failures of government. As pundits gather on either side of the debate — casting blame and contempt across the regulatory divide — one often overlooked explanation for all the recent chaos is the time-honored tendency for human society to self-destruct. Behavioral economists and psychologists are having a field day watching our worst decision-making biases play themselves out in political and capital markets. But few in the legislative capitals of the world have taken…

turning a new leaf?

The Editor — Wed, 07 Apr 2010 20:56:52 +0000

Mr. Dollar testified before the Financial Crisis Inquiry Commission today about the challenges of a self-regulating market and the dangers that lie ahead. While his belief in free market capitalism remains unshaken, Greenspan’s warnings about the key attributes that should underpin a stable banking system — adequate capitalization, liquidity, and regulatory oversight — cast a surprising shot across the bow of modern banking giants who have grown a little too comfortable with their bailout blanket and artificially low interest rates.

Whether the economy tips back into chaos or not remains to be seen, but the rare regulatory prudence recommended in the Maestro’s testimony is a welcome conservative voice in the growing chorus to…

complexity and collapse

The Editor — Thu, 01 Apr 2010 00:29:56 +0000

From daily solar cycles to quarterly seasonal changes to the 130,000-year lapse between Ice Ages, our world is filled with natural ebbs and flows. Those that try to forecast the future by studying these longer sweeping patterns are often accused of being out of touch, relying on the distant past for established wisdom rather than embracing contemporary optimism that “this time is different“. In this essay in Foreign Affairs, Niall Ferguson reminds us that America is just as vulnerable to collapse as the many great civilizations that preceded it — maybe even more so given the increasing complexity of our modern global economy…

Complexity and Collapse
Empires…

market makers

The Editor — Fri, 26 Mar 2010 00:38:26 +0000

As ideological battles are waged over the benefits of free markets, the challenges of financial regulation, the inefficiency of policymaking, and the design of a sustainable path forward, pundits often attack one another without a fundamental understanding of the mechanics of our modern financial system. This primer helps to explain the unique roles that banks and capital markets play in the efficient (and sometimes painfully inefficient) functioning of of modern society. While it won’t settle any debates, it certainly reminds us how little we may know about the way the economy works…

Did the Capital Markets Fail Us?
By Karen Johnson | Thursday, March 25, 2010

Amid the debate about excessive bonuses and inadequate risk management, it…

the spanish prisoner

The Editor — Thu, 11 Feb 2010 06:03:49 +0000

“Zapatero is not a good driver. It’s like a boat, which in calm waters steers fine, but when it gets bumpy, they are not prepared.” The same could be said for many of the world’s C-level leaders, so it’s perhaps not surprising that both companies and countries are finding out the hard way that credit can dry up when the sea gets choppy…

Not a bull in sight as the bears go after Spain
From the nosebleed seats of the E.U., government cries out ‘We are not Greece’

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) — Eduardo Fernandez Agudo is old enough to have lived through other economic crisis in Spain, but the current one has…

if piigs could fly

The Editor — Sun, 07 Feb 2010 15:55:23 +0000

The markets whipsawed in volatile trading last week as war was waged over key technical levels in the Dow (10,000) and S&P (1050). The backdrop was bitter sweet: trouble among the perennial sick men of Europe (Portugal, Italy, Ireland, Greece and Spain) on the one hand, and upbeat earnings in Corporate America on the other. With all the uncertainty over the short-term trajectory of the economy, it would be tough to fault political leaders for at least preaching that the glass is still half full. That said, it’s almost criminal for the Secretary of the Treasury to tell the American people — on their holiest of sporting days — that…

one island, two worlds

The Editor — Tue, 02 Feb 2010 22:02:16 +0000

It isn’t surprising that so-called “ambulance economics” has gained mass policy appeal as the global economy descends into madness. The battlefield, after all, is no place for quiet research and careful study. But even the most pressing humanitarian disasters could use a little “clinical economics” to help decision-makers better chart out the way forward. Recent poverty relief efforts in Haiti, for instance, should certainly focus first on the bare essentials of sustenance, sanitation, and security. Once politicians and development professionals are able to stop the bleeding, however, the really critical work actually begins in terms of supporting the long-term prosperity of the country. In that spirit, any path forward should take into consideration the unique historical,…

volcker rules

The Editor — Tue, 02 Feb 2010 12:20:15 +0000

A perennial hot ticket on the lecture circuit at economic clubs and grad schools around the planet, Paul Volcker‘s influence is finally starting to resonate where it counts: at both ends of Pennsylvania Avenue. As his testimony in front of the Senate Banking Committee looms, the broader premise of a more responsible financial services sector pursuing sustainable, profitable growth needs to get out in clear journalistic prose from a messenger untarnished by the last 18 months of political and economic triage. This Sunday NYTimes op-ed attempts to do just that, despite the complexity of the topic. Unfortunately, it falls a little short for those either too stubborn or greedy to…

christianity and the crash

The Editor — Fri, 25 Dec 2009 16:25:54 +0000

“America’s mainstream religious denominations used to teach the faithful that they would be rewarded in the afterlife. But over the past generation, a different strain of Christian faith has proliferated—one that promises to make believers rich in the here and now. Known as the prosperity gospel, and claiming tens of millions of adherents, it fosters risk-taking and intense material optimism. It pumped air into the housing bubble. And one year into the worst downturn since the Depression, it’s still going strong.”

Did Christianity Cause the Crash?
by Hanna Rosin in The Atlantic Monthly

IMAGE CREDIT: MARK PETERSON/REDUX

LIKE THE AMBITIONS of many immigrants who attend services there, Casa del Padre’s success can be measured by upgrades…

calculated terror

The Editor — Tue, 22 Dec 2009 04:27:01 +0000

In the 400+ years since the birth of modern statistics, data has been collected on everything from life expectancy and planetary motion to little league batting averages and micro-loans in rural Bangladesh. As technology catches up with the world’s desire to better predict the future and understand the past, applications have expanded to include dynamic models of the global economy and more recently the probability of a terrorist attack. The danger with relying on this methodology, of course, is that the same statistical biases that contributed to the recent financial chaos may cause more harm in the real world than they ever did on…

trouble on the homefront?

The Editor — Fri, 18 Dec 2009 12:31:13 +0000

As rare proof that not all ex-Goldman bankers are great vampire squids wrapped around the face of humanity, Bank of Canada Governor Mark Carney turns his gaze toward households as the holidays approach with some keen macro observations and their implications for micro decision-making. Though the central bank recently raised flags about Canadian household finances and talk of a real estate bubble has begun to resurface, this public address seems measured both in its observations and its conclusions, and reflects well on the current poster child of responsible 21st century monetary governance…

Remarks by Mark Carney, Governor of the Bank of Canada
at The National Forum (Canadian Club of Toronto…

bunning ♥ bernanke

The Editor — Fri, 18 Dec 2009 01:52:21 +0000

For all its flaws, one of the great strengths of the American political system is the degree to which competing perspectives fight to the death in Washington’s marketplace of ideas. A perfect example is the recent exchange between Senate Banking Committee member (and Baseball Hall of Famer) Jim Bunning and his monetary nemesis Fed Chairman Bernanke on the eve of a controversial re-nomination…

Bunning Statement On The Re-Nomination Of Ben Bernanke To Be Chairman Of The Federal Reserve
Senate Banking Committee on Thursday, December 3, 2009

Four years ago when you came before the Senate for confirmation to be Chairman of the Federal Reserve, I was the only Senator to vote against you. In…

war games

The Editor — Thu, 17 Dec 2009 03:35:35 +0000

Scores of advanced military technologies – from radio to the Internet to GPS – have successfully made the leap from combat central to electronics expo since the dawn of the industrial military complex. As game consoles grow ever more powerful and programmers continue to push the envelope of simulated reality, consumer electronics are returning the favor. At a fraction of the cost of custom hardware designed by established global defense contractors, networked PS3s and the benefit of retail economies of scale are being used for everything from high-tech imaging systems to simulating the behavior of nuclear weapons, blurring the line yet again between war…

financial crisis for beginners

The Editor — Tue, 15 Dec 2009 07:03:47 +0000

Commentators often question how recent events in global capital markets could possibly sneak up on the world’s leading economists and policymakers. One possible explanation begins with the premise that the average citizen is reasonably unaware of even the most basic financial and economic concepts – like fractional reserve banking and the time value of money. As a result, generations of otherwise sophisticated individuals have grown up trusting that our economic plumbing and the individuals who manage it are fundamentally sound.

From the sophisticated supply chain that furnishes your morning cup of Ethiopian dark roast to the number of travel miles it takes to fly home for the holidays, the financial…

great leap forward

The Editor — Fri, 04 Dec 2009 21:48:47 +0000

The next wave of web-ready tablets represents a great leap forward in mass communication and may rescue the industry from commercial obsolescence. But any real progress will take genuine collaboration between content providers, aggregators, advertisers, and hardware designers — along with the courage to cannibalize an antiquated 19th century business model and dive head-first into the 21st century…

How Google Can Help Newspapers
Eric Schmidt in the Wall Street Journal

It’s the year 2015. The compact device in my hand delivers me the world, one news story at a time. I flip through my favorite papers and magazines, the images as crisp…