Monday, March 23, 2009

Intellectual Recovery

Christopher Caldwell's column started predictably by attacking the 90 per cent tax on bonuses. But then he surprised me. He pointed out that the rage against the bonuses in the US was a middle class phenomenon and that it represents merely the most violent expression of an anger with executive compensation that has been growing for some years. He does not, therefore, simply go along with the banker backlash from the likes of Citi's Pandit the Bandit. They say punishing the bankers will drive them out and destroy the financial services sector. This rather overlooks the point that we'd all be a lot better off now if we'd driven out this generation of bankers some years ago. It's not too late to get on with this. Nobody implicated in the insanity of recent banking history is qualified to demand respect, trust or a part in the reconstruction. They destroyed much more wealth than they ever created. People are still not understanding this because the extent of the change involved has not sunk in. If they continue not to say it, then we shall have the worst of all possible outcomes - a restoration of the same old business model followed by a much more severe crash. This is why I am intrigued by Caldwell's reasoning. Even if only intellectually, it might be a green shoot of recovery.
In the same edition of the FT, I was also intrigued by this leader. It's not the risk maths that was wrong, it's the application. 'The standard risk measures used from the mid 1990's, know as value-at-risk or VAR, was criticised by mathematicians almost from the start for the way it drew inferences about forward-looking risk from past patterns of price movements.' The criticisms - of Taleb, Mandelbrot and others - were much more interesting and fundamental than that. But, hang on, were the criticisms of VAR widely reported? Because, it seems to me, they should have provided a series of FT splashes accompanied by a campaign against bad maths in the banks. This should have been followed by demands by depositors and investors for an independent investigation, government intervention, the banning of the use of VAR, a realistic re-assessment of risk and so on. But nothing happened. Strange that.


  1. One cause of the slide into national insolvency may be the kraal mentality, all groups working within their own compound, a lot of communication, little of it decipherable outside of the mud walls. From within everything seemed fine and dandy, few bothered looking out over the ramparts. Ubersetzers nowhere to be found, no Latin aiding communication. You're talking but were not hearing.
    The odd voice in the wilderness unheard over the white noise of greed.

    Then Valhalla burst into flames and now the media tsunami, it wasna us, it was the others in their kralls.

  2. I dont think it's fair to single out bankers like that.. they're people who were driven by greed maybe but were given opportunities. And that same greed infected much more then them, even ordinary joes salivated at investment opportunities, or house price booms. When you think about it, what is the point of having more then one house? Really? And yet a hell of a lot of people own more then one house. I would say that almost anyone in the face of opportunity will allow greed in to at least some extent. There wasn't much criticism directed towards bankers before all this happened.

    I think it's a systemic failure, there is a possibility of some small positive change coming out of this, but there will no profound change because we are all part of this system/civilisation/society which is inherently flawed and finding perspective outside of this is extremely difficult.

  3. I love the idea of a journalistic campaign against bad maths!

  4. They all need to be hung by the neck until dead and let God sort them out. However not at the expense of the US Constitution [Article I, Section 9, Paragraph 3] and after the fact. The Constitution has been used for toilet tissue for the last eight years and enough is enough.

  5. Well at least we now know what to do with The Shred: he should be allowed too keep his pension but forced to eat nothing but pink wafer biscuits for the rest of his natural.

  6. Confession time, recently I have used the parking spaces at Edinburgh airport with RBS painted on them, sorry Fred.
    Couldn't use your jet though, it's got a for sale notice stuck on the windscreen.

  7. The bankers are the obvious tip of the iceberg that is our decadent society.
    We've got the government we deserve. When we elected them we weren't bothered about their doing the right thing; we wanted rulers who would see us right for our lifetimes and to hell with what might happen afterwards. The aspirational middle class (that elected this shower) is annoyed because they've made a mess of it too soon, they knew a mess would be made, but not this quickly.