Barclays boss Bob Diamond has been forced out this morning, as the LIBOR scandal continues to pick up momentum (at least in the UK).
Every CEO of a major bank is going to be having a queasy feeling this morning. It's probable many other major institutions were doing the same thing. Charles Schwab filed a lawsuit last year accusing JPMorganChase, Citi and Bank of America of doing the same thing, not to mention Credit Suisse, Deutsche, RBS, HSBC, WestLB and UBS.
Expect a blizzard of other lawsuits, including from consumers, US states, and shareholders alleging negligence. The question is whether there will be criminal as well as civil prosecutions in some jurisdictions.
There could also be difficult questions about the role of Paul Tucker of the Bank of England in Parliament today. It just does not seem believable that the Bank would encourage any distortions, however.
Tuesday, July 3, 2012
Macro dominates
This CNBC story says risk appetite and macro trends are so dominating markets there may be no future in covering individual stocks.
This has been a trend for a while, of course, since the Spitzer research settlement. What is still surprising is that the same thing is not happening more actively to quants. After all, most quant funds turned in horrific performance during 2008-10.
The field is effectively commoditized. There may be room for one or two players with superior quant techniques. But it's hard to see how most players have any sustainable advantage running algorithms and mining high frequency data or econometric series. If everyone has physics PhDs playing with Mathematica, then there's no extra edge, and no point to having thousands of people do it. The market becomes completely efficient in that respect.
With markets continuing to move in lockstep to every headline out of Europe, China or the Fed, the days of individual stock analysts may finally be numbered. ..
To be sure, many investors said that markets can't move forever on the whims of central banks. At some point in the future, individual stock picking and research is bound to matter again.The question is, how long will that take? Investment banks and boutique firms can't keep low-margin research businesses going forever, especially with the proliferation of free content on the Internet.
This has been a trend for a while, of course, since the Spitzer research settlement. What is still surprising is that the same thing is not happening more actively to quants. After all, most quant funds turned in horrific performance during 2008-10.
The field is effectively commoditized. There may be room for one or two players with superior quant techniques. But it's hard to see how most players have any sustainable advantage running algorithms and mining high frequency data or econometric series. If everyone has physics PhDs playing with Mathematica, then there's no extra edge, and no point to having thousands of people do it. The market becomes completely efficient in that respect.
Monday, July 2, 2012
Forgetting previous dreams
The puzzle of why we work harder and harder, in the Guardian.
If there's one thing practically all futurologists once agreed on, it's that in the 21st century there would be a lot less work. What would they have thought, if they had known that in 2012, the 9-5 working day had in the UK become something more like 7am to 7pm? They would surely have looked around and seen technology take over in many professions which previously needed heavy manpower, they would have looked at the increase in automation and mass production, and wondered – why are they spending 12 hours a day on menial tasks?
It's a question which isn't adequately answered either by the right or by the official left. Conservatives have always loved to pontificate about the moral virtue of hard work and much of the left, focusing on the terrible effects of mass unemployment, understandably gives "more jobs" as its main solution to the crisis. Previous generations would have found this hopelessly disappointing.
The Long View
I've found myself reading a lot of ancient history recently. I read a lot of history in general, but for some reason the Ancient World seems particularly interesting right now, and I wondered why.
I talked to G about it. It's the long view, she says. It's some perspective on deeper trends.
I think that's absolutely right. It is far away and different, but also familiar, our own roots.
Add to that an interest in previous episodes where civilization eroded and societies fell. One of the most terrifying is around 1200 BC, when the old socieites of the Eastern Mediterranean were attacked and burned by the "Sea Peoples". I talked about it here.
The Trojan War was fought just a few decades before this, around 1260, and indeed it may have been connected. I read Michael Wood's In Search of the Trojan War
yesterday, an older book from 1984, just because I wanted to know a little more about this era when civilization faltered.
One thing which comes across was what a fragile and violent world it was. Homer's war was not the first time Troy fell. It had been repeatedly attacked, burned, destroyed by earthquakes and rebuilt for over two thousand years. The mound at Hisarlik in northwestern Turkey, which we identify as Troy, has at least five (or six, depending on which you identify as Homeric) layers of cities before the war. And several cities come after, a Greek colony in the 700s and a Roman/Byzantine city.
Bronze Age cities rarely escaped destruction. All the palaces the victorious Greeks sailed home to, like Mycenae and Pylos and Sparta and Tiryns, were themselves burned and destroyed within fifty years or so. Greece went into a dark age that lasted five hundred years. Writing itself was forgotten - although the Linear B script was probably only known to a few administrative scribes in the palaces. When the palaces fell, the scribes did too.
It's still not clear why it happened. Maybe short-run climate change set peoples on the move, whose names we know from Egyptian accounts.The Sherden. The Sheklesh. The Aqaiwasha. The Tjerkeryu. The Tursha. The Pulsati.
The Aqaiwasha may be Achaens, Homer's "Achaiwoi" -the Greeks. The Tjerkeryu may be Teucrians - Trojans. The Sherden may have moved west and given their name to Sardinia. The Tursha may be Tyrsenoi, Tyrrhenians- Etruscans. But we don't know for sure.
The Romans, of course, believed they were descended from the refugees from Troy, as the The Aeneid tells. Julius Caesar visited the site in 48 BC to mourn his "ancestors."
No matter who they were, a whole world of civilizations vanished under their onslaught. The huge Hittite empire fell, and lay forgotten for thousands of years. Indeed, the Trojan War may have been just one skirmish in a wider pattern of Greek tensions with the Hittite Empire in the Anatolian interior.
The Syrian Coast was devastated. Egypt narrowly escaped invasion in 1210 and 1180 BC.
The Egyptians ended up settling one group of failed invaders, the Pulusati, on their frontiers as a buffer. We can identify this group. We know them as the Philistines. They were settled in the Gaza area, and they were probably of Aegean/Greek origin. Goliath's armor, says Wood, had features which linked it to Mycenean Greece.
That Greece long before classical Greece was driven by slavery and war. Warrior kings needed plunder to reward their followers, and they needed slaves to produce textiles and olive oil and other goods to export in exchange for bronze and luxury goods. The slaves were mostly women, as the males in conquered cities were slain.
That is the backdrop to the Iliad. Destruction and War were built in. And a whole world disintegrated.
I talked to G about it. It's the long view, she says. It's some perspective on deeper trends.
I think that's absolutely right. It is far away and different, but also familiar, our own roots.
Add to that an interest in previous episodes where civilization eroded and societies fell. One of the most terrifying is around 1200 BC, when the old socieites of the Eastern Mediterranean were attacked and burned by the "Sea Peoples". I talked about it here.
The Trojan War was fought just a few decades before this, around 1260, and indeed it may have been connected. I read Michael Wood's In Search of the Trojan War
yesterday, an older book from 1984, just because I wanted to know a little more about this era when civilization faltered.One thing which comes across was what a fragile and violent world it was. Homer's war was not the first time Troy fell. It had been repeatedly attacked, burned, destroyed by earthquakes and rebuilt for over two thousand years. The mound at Hisarlik in northwestern Turkey, which we identify as Troy, has at least five (or six, depending on which you identify as Homeric) layers of cities before the war. And several cities come after, a Greek colony in the 700s and a Roman/Byzantine city.
Bronze Age cities rarely escaped destruction. All the palaces the victorious Greeks sailed home to, like Mycenae and Pylos and Sparta and Tiryns, were themselves burned and destroyed within fifty years or so. Greece went into a dark age that lasted five hundred years. Writing itself was forgotten - although the Linear B script was probably only known to a few administrative scribes in the palaces. When the palaces fell, the scribes did too.
It's still not clear why it happened. Maybe short-run climate change set peoples on the move, whose names we know from Egyptian accounts.The Sherden. The Sheklesh. The Aqaiwasha. The Tjerkeryu. The Tursha. The Pulsati.
The Aqaiwasha may be Achaens, Homer's "Achaiwoi" -the Greeks. The Tjerkeryu may be Teucrians - Trojans. The Sherden may have moved west and given their name to Sardinia. The Tursha may be Tyrsenoi, Tyrrhenians- Etruscans. But we don't know for sure.
The Romans, of course, believed they were descended from the refugees from Troy, as the The Aeneid tells. Julius Caesar visited the site in 48 BC to mourn his "ancestors."
No matter who they were, a whole world of civilizations vanished under their onslaught. The huge Hittite empire fell, and lay forgotten for thousands of years. Indeed, the Trojan War may have been just one skirmish in a wider pattern of Greek tensions with the Hittite Empire in the Anatolian interior.
The Syrian Coast was devastated. Egypt narrowly escaped invasion in 1210 and 1180 BC.
The Egyptians ended up settling one group of failed invaders, the Pulusati, on their frontiers as a buffer. We can identify this group. We know them as the Philistines. They were settled in the Gaza area, and they were probably of Aegean/Greek origin. Goliath's armor, says Wood, had features which linked it to Mycenean Greece.
That Greece long before classical Greece was driven by slavery and war. Warrior kings needed plunder to reward their followers, and they needed slaves to produce textiles and olive oil and other goods to export in exchange for bronze and luxury goods. The slaves were mostly women, as the males in conquered cities were slain.
That is the backdrop to the Iliad. Destruction and War were built in. And a whole world disintegrated.
Sunday, July 1, 2012
The Busy Trap
This is an interesting op-Ed in the NYT, by a writer who is suspicious of busyness.
It's not when I'm in an e-mail or blackberry frenzy.
It is interesting to compare this with the already infamous Atlantic article we were talking about a few days ago, about whether "women could have it all", by a very busy Princeton professor who worked for the State Department.
There's something very interesting here. People like to feel important - of course. But that desire for particular feelings, particular forms of status or respect, can distort what we want in self-defeating ways. The culture gets skewed.
We should be busy at the things that do matter. But most of the time we don't think about what those are. And we don't have good ways of recognizing people for what does matter.
We stress appearances over purpose.
Almost everyone I know is busy. They feel anxious and guilty when they aren't either working or doing something to promote their work.
It's almost always people whose lamented busyness is purely self-imposed: work and obligations they've taken on voluntarily, classes and activities they've "encouraged" their kids to participate in. They're busy because of their own ambition or drive or anxiety, because they're addicted to busyness and dread what they might have to face in its absence.This is the kicker.
I can't help but wonder whether all this histrionic exhaustion isn't a way of covering up the fact that most of what we do doesn't matter.I like this. I also think that busyness often stops genuine work getting done.
I've found myself that the most productive work ideas I ever have often come at 4am or 5am, lying half asleep. Suddenly something just connects, a neuron fires, and I see things in a new way. I have to rouse and write it down before I forget.The space and quiet that idleness provides is a necessary condition for standing back from life and seeing it whole, for making unexpected connections and waiting for the wild summer lightning strikes of inspiration - it is, paradoxically, necessary to getting any work done. "Idle dreaming is often of the essence of what we do," wrote Thomas Pynchon in his essay on sloth. Archimedes' "Eureka" in the bath, Newton's apple, Jekyll & Hyde and the benzene ring: history is full of stories of inspirations that come in idle moments and dreams.
It's not when I'm in an e-mail or blackberry frenzy.
It is interesting to compare this with the already infamous Atlantic article we were talking about a few days ago, about whether "women could have it all", by a very busy Princeton professor who worked for the State Department.
There's something very interesting here. People like to feel important - of course. But that desire for particular feelings, particular forms of status or respect, can distort what we want in self-defeating ways. The culture gets skewed.
We should be busy at the things that do matter. But most of the time we don't think about what those are. And we don't have good ways of recognizing people for what does matter.
We stress appearances over purpose.
"Experts eat crow on ruling"
It's never easy to predict the court. And expert prediction is very often wrong, as we've discussed before. But it has to be said almost no one got this Supreme Court decision right in advance. As the Hill says:
If Court outcomes are so unpredictable it detracts from the image of neutral legal reasoning and settled expectations.
The Supreme Court’s healthcare ruling upended conventional wisdom and expert predictions at nearly every turn.
The court said in a 5-4 decision this week that the individual mandate in President Obama’s healthcare law is constitutional. The court also said the law’s Medicaid expansion was unconstitutional, but found a fix that didn’t require striking down the entire law.
Even lawmakers and legal experts who correctly predicted that the court would uphold the mandate were surprised by the details of the decision and the makeup of the court’s majority.
If Court outcomes are so unpredictable it detracts from the image of neutral legal reasoning and settled expectations.
The Healthcare Ruling: the issue is back where it belongs
The aftershocks of the Supreme Court ruling on Obamacare are still rumbing around DC and the mediaverse. I've held off talking about it for a few days while I read the various responses from those who are experts in constitutional law (which, incidentally, I find fascinating.)
I think, on balance, it's a good outcome. Obamacare impresses few people in itself, of course. Even most Democrats would have preferred more of a single-payer outcome, or extension of medicare.
Obamacare also fails the most important task. The Affordable Care Act does not deal with health cost inflation - the single biggest challenge to the Republic - beyond a few pilot projects. Bending the cost curve would utterly transform the fiscal future of the United States. Without a serious effort to do that, every other thing that government does, from education to the military to interstates to the weather service, is going to be increasingly at risk. Healthcare spending will kill everything else that Democrats want to do with government. And soaring healthcare premiums are undermining many private sector companies and diverting consumer spending into inefficient and unproductive areas.
If healthcare was cheaper, universal care would be much less of a problem.
The bill is a huge, ramshackle contraption which leaves many of the most problematic features of the current healthcare system in place. Radical reform in either direction, towards single payer or a more market-oriented defined contribution system, would have been better than this Frankenstein monster.
But it should not be up to the Court to overrule the legislature in most cases. Judicial review should be a last resort. After all, overturning Congressional law is a clever invention of first Chief Justice John Marshall. It is not actually in the constitution itself. And it has grown far too extensive in recent years. The rule of law is not the same thing as the rule of lawyers.
Politicians also often use the Court as an excuse to confront deepseated problems, rather than fighting things out and resolving them in the court of public opinion.
The Court's history shows that it can often be terribly wrong - most obviously, the Dred Scott case which helped drive the country into civil war. It has often been too far behind the public, as in the 1930s and the "switch in time that saved nine." It has got too far out ahead of the public, especially Roe v Wade which ignited a socially conservative backlash which dominated politics for a generation.
There is no reason to believe that nine justices will make more just decisions than the other branches. They will not necessarily know better what makes for the common good. In fact, their decsions generally have little or nothing to do with the common good, often protecting sectional rights at the expense of the wider good. Instead, it is a kind of clerical elevation, a scholastic belief that points of law and procedure can deal with the human condition.
The Court works best when it frustrates the momentary imposition of elite opinion on the rest of the country, not when it faciliates it. That, to me, is part of the message of the Acemogulu and Robinson book we were looking at the other week. Most governments throughout history have been extractive, using power to exploit the rest of society for their own benefit. The great genius of the American constitution is it makes it hard to do that. No-one has untrammelled power.
That is part of the explanation of the Court's undoubted legitimacy from the civil rights cases in the 1950s. Congress was blocked and inactive, as long-serving Democratic committee chairs from the south blocked any legislative action. The system was gridlocked, and the Court broke that. But better Congressional rules and action would have been a better way if it had been possible. And the unintended consequences of even good policies have reverberated in damaging ways. School busing, for example, helped drive the segregation is was intended to prevent. Consequences have to be factored into legitimate public policy, not just rights or legal procedure. Fiat iustitia et pereat mundus is a deeply immoral stance.
Huge Supreme Court blockbusters which unilaterally overturn the other branches are rarely a good thing. The Court should be able to delay, force a rethink, balance different states or deadlocked lower courts. But not impose positive policy of its own.
And in that light, the Roberts decision has returned the issue to where it belongs - the 2012 election and Congress. Republicans will have to come up with a better alternative.
So far they have not. I don't believe the GOP has had a sensible line on this. It's all very well to talk about market forces, but we simply don't have real market forces in healthcare at present. Talking about the market in the abstract just irritates me, given it requires willful blindness to the failure of the healthcare market as it actually exists. The health insurance companies are inefficient, greedy and economically useless. They compete by skewing the pool of insured, not in terms of quality or cost effectiveness. The whole system is dizzyingly expensive, wasteful and it undermines both public finances and private sector competitiveness. It is a disgrace to the private sector.
I had a routine checkup a few months ago. It took three months and six letters to get the doctors' surgery and the insurance company to sort out their billing codes and pay for things properly. It took hours of my time. The system is a disgrace.
And I am a little bored by GOP fulminations on the individual mandate, especially when most of that came from GOP sources like the Heritage Institute. It prevents adverse selection, so it makes economic sense. But more importantly, the problem with it is it forces the young to subsidize blatantly crazy overspending on uncontrolled healthcare costs for the old.
The cost of healthcare is the heart of the problem. Period. Fix that, and everything else works. If you don't fix that, then nothing you do is more than a stopgap along the way to disaster.
The answer has to be innovation. That is what the private sector is good at, not entrenching some kafkaesque private sector bureaucracy that tries to compete by shirking obligations. There needs to be a productivity revolution in healthcare. I remember going to a conference and someone saying the next billionaires, the next Bill Gates or Steve Jobs, will probably be the people who can use technology and other means to solve some of these cost problems in the health sector.
But for that to happen, there needs to be an open playing field, not a court-imposed structure. And there needs to be discussion of the big issues of how to make choices of who gets what.
It increasingly seems to me that many of our biggest economic problems are caused by sidestepping ethical or moral problems. This is a prime example. We have to confront the fact that no amount of spending can deliver immortality. We have to talk about what we want. We have to talk about the purpose of health spending.
Right now, a disproportionate amount of spending is on futile and painful interventions to prolong the lives of the terminally ill for two or three months, often against their will. That is, in essence, what we are buying with our trillions on healthcare, at the expense of working families without cover, higher taxes and education stripped bare. There has to be some relationship between means and ends. We have to know when to let go. Incidentally, it is the GOP who have done most damage in this respect with their silly talk of "death panels".
There should be more open discussion of different tiers of coverage, and selective coverage of different procedures. Everyone should have access to standard medicine at very low cost. If they want more than that, they should make their own arrangements.
And the employer-based system and the associated tax expenditure is clearly stupid. Healthcare needs to be separated from employment once and for all, for the good of both individual Americans and companies.
So: healthcare is still a mess. But the political system has to to deal with it. And it is a good thing the Court has left it to do so.
I think, on balance, it's a good outcome. Obamacare impresses few people in itself, of course. Even most Democrats would have preferred more of a single-payer outcome, or extension of medicare.
Obamacare also fails the most important task. The Affordable Care Act does not deal with health cost inflation - the single biggest challenge to the Republic - beyond a few pilot projects. Bending the cost curve would utterly transform the fiscal future of the United States. Without a serious effort to do that, every other thing that government does, from education to the military to interstates to the weather service, is going to be increasingly at risk. Healthcare spending will kill everything else that Democrats want to do with government. And soaring healthcare premiums are undermining many private sector companies and diverting consumer spending into inefficient and unproductive areas.
If healthcare was cheaper, universal care would be much less of a problem.
The bill is a huge, ramshackle contraption which leaves many of the most problematic features of the current healthcare system in place. Radical reform in either direction, towards single payer or a more market-oriented defined contribution system, would have been better than this Frankenstein monster.
But it should not be up to the Court to overrule the legislature in most cases. Judicial review should be a last resort. After all, overturning Congressional law is a clever invention of first Chief Justice John Marshall. It is not actually in the constitution itself. And it has grown far too extensive in recent years. The rule of law is not the same thing as the rule of lawyers.
Politicians also often use the Court as an excuse to confront deepseated problems, rather than fighting things out and resolving them in the court of public opinion.
The Court's history shows that it can often be terribly wrong - most obviously, the Dred Scott case which helped drive the country into civil war. It has often been too far behind the public, as in the 1930s and the "switch in time that saved nine." It has got too far out ahead of the public, especially Roe v Wade which ignited a socially conservative backlash which dominated politics for a generation.
There is no reason to believe that nine justices will make more just decisions than the other branches. They will not necessarily know better what makes for the common good. In fact, their decsions generally have little or nothing to do with the common good, often protecting sectional rights at the expense of the wider good. Instead, it is a kind of clerical elevation, a scholastic belief that points of law and procedure can deal with the human condition.
The Court works best when it frustrates the momentary imposition of elite opinion on the rest of the country, not when it faciliates it. That, to me, is part of the message of the Acemogulu and Robinson book we were looking at the other week. Most governments throughout history have been extractive, using power to exploit the rest of society for their own benefit. The great genius of the American constitution is it makes it hard to do that. No-one has untrammelled power.
That is part of the explanation of the Court's undoubted legitimacy from the civil rights cases in the 1950s. Congress was blocked and inactive, as long-serving Democratic committee chairs from the south blocked any legislative action. The system was gridlocked, and the Court broke that. But better Congressional rules and action would have been a better way if it had been possible. And the unintended consequences of even good policies have reverberated in damaging ways. School busing, for example, helped drive the segregation is was intended to prevent. Consequences have to be factored into legitimate public policy, not just rights or legal procedure. Fiat iustitia et pereat mundus is a deeply immoral stance.
Huge Supreme Court blockbusters which unilaterally overturn the other branches are rarely a good thing. The Court should be able to delay, force a rethink, balance different states or deadlocked lower courts. But not impose positive policy of its own.
And in that light, the Roberts decision has returned the issue to where it belongs - the 2012 election and Congress. Republicans will have to come up with a better alternative.
So far they have not. I don't believe the GOP has had a sensible line on this. It's all very well to talk about market forces, but we simply don't have real market forces in healthcare at present. Talking about the market in the abstract just irritates me, given it requires willful blindness to the failure of the healthcare market as it actually exists. The health insurance companies are inefficient, greedy and economically useless. They compete by skewing the pool of insured, not in terms of quality or cost effectiveness. The whole system is dizzyingly expensive, wasteful and it undermines both public finances and private sector competitiveness. It is a disgrace to the private sector.
I had a routine checkup a few months ago. It took three months and six letters to get the doctors' surgery and the insurance company to sort out their billing codes and pay for things properly. It took hours of my time. The system is a disgrace.
And I am a little bored by GOP fulminations on the individual mandate, especially when most of that came from GOP sources like the Heritage Institute. It prevents adverse selection, so it makes economic sense. But more importantly, the problem with it is it forces the young to subsidize blatantly crazy overspending on uncontrolled healthcare costs for the old.
The cost of healthcare is the heart of the problem. Period. Fix that, and everything else works. If you don't fix that, then nothing you do is more than a stopgap along the way to disaster.
The answer has to be innovation. That is what the private sector is good at, not entrenching some kafkaesque private sector bureaucracy that tries to compete by shirking obligations. There needs to be a productivity revolution in healthcare. I remember going to a conference and someone saying the next billionaires, the next Bill Gates or Steve Jobs, will probably be the people who can use technology and other means to solve some of these cost problems in the health sector.
But for that to happen, there needs to be an open playing field, not a court-imposed structure. And there needs to be discussion of the big issues of how to make choices of who gets what.
It increasingly seems to me that many of our biggest economic problems are caused by sidestepping ethical or moral problems. This is a prime example. We have to confront the fact that no amount of spending can deliver immortality. We have to talk about what we want. We have to talk about the purpose of health spending.
Right now, a disproportionate amount of spending is on futile and painful interventions to prolong the lives of the terminally ill for two or three months, often against their will. That is, in essence, what we are buying with our trillions on healthcare, at the expense of working families without cover, higher taxes and education stripped bare. There has to be some relationship between means and ends. We have to know when to let go. Incidentally, it is the GOP who have done most damage in this respect with their silly talk of "death panels".
There should be more open discussion of different tiers of coverage, and selective coverage of different procedures. Everyone should have access to standard medicine at very low cost. If they want more than that, they should make their own arrangements.
And the employer-based system and the associated tax expenditure is clearly stupid. Healthcare needs to be separated from employment once and for all, for the good of both individual Americans and companies.
So: healthcare is still a mess. But the political system has to to deal with it. And it is a good thing the Court has left it to do so.
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