BBC has a pretty interesting take on the Eurozone crisis and it explains how past information is often irrelevant in the market's considerations of matters; and of course, the short-sightedness of the market.
As I previously mentioned, I'm working on a piece on global imbalances once again (fact is that I feel like I've done countless stuff on this but then it is always just some other topic that obliquely references to it somehow). I guess I'm a little behind times on reading about this issue but the more I looked into Bernanke's earlier arguments about the 'Global Savings Glut (GSG)' and his subsequent 'revisions', the more I find it difficult to swallow the notion that 'it's not just the US who is at fault'. Of course, he has softened his stand from a while back in 2005, when he actually believes that the current account deficits were hardly within the control of US and if you need someone to blame, you got to blame the rest of the world. There are many flaws in the speeches he delivered in 2005 (here and here), especially with the benefit of hindsight and additional data. Hence, I would not be launching an attack on those ideas.
In any case, as John Taylor suggested to anyone who would care to scrutinize the statistics (I actually bothered; macroeconomic data on the World Bank Database is particularly handy for looking up stuff that are two years old or earlier), there was no significant rise in world savings (in the recent years). World savings fell from 22.25% of world GDP in 2000 to 20.88% of world GDP in 2003. In that sense, there wasn't really a savings 'glut' to push down interest rates at least during that time (I refer to the beginning of 2005 when the speeches were made). In fact, during that period US investments fell from 20.58% to 18.35% of GDP - a great chance for correcting the current account deficit. But no, the chance was wasted because savings in the US declined even more, from 16.72% to 13.80% of GDP, thus increasing their current account deficit from approximately 3.8% to 4.5% of GDP. Granted, I'm looking at a selective time period and being a bully but that is just a distraction from my main point that if the 'GSG' idea continues, US will forever think they are simply a victim of circumstances when they are clearly not.
Daniel Gross characterized the idea of a 'savings glut' as a meme on Slate when it was first introduced. And I think he can't be more right. It is a matter of perspective but there is this notion of sacrificing current consumption when it comes to the idea of 'savings' but reality is that these 'saving glut' countries were pushed to purchase 'safe' investment products by none other than the deep, sophisticated financial system of the United States. In what WSJ terms as an expansion on his 'saving glut' research, Bernanke supposedly places the blame on US' mismanagement of the capital inflow but, I quote the Luca from WSJ:
The paper’s main focus, however, is on the intense foreign investor demand for what seemed at the time like safe U.S. assets in the years before the crisis.
The paper appears to be suggesting that US is merely giving investors what appears to be products they wanted - the mortgage-backed securities (MBS), safe from the rating perspective, backed by the government somewhat, and also offering the returns. In fact, it goes on further to imply that financial engineers were being efficiently responding to market demands with innovations that would generate the supply to quell this demand. I quote from various segments of the paper:
"...we verify that the “GSG countries”—that is, emerging Asia and Middle Eastern exporters—did indeed evince a strong preference for the safest U.S. assets. On the margin, this preference most likely helped push down yields on MBS relative to other assets, as most MBS were either guaranteed by the Agencies or sold as tranches carrying AAA credit ratings."
"In fact, the strong preference of the GSG countries for Treasuries and Agencies appears to have pushed Europeans and other advanced-economy investors, including U.S. investors, into apparently safe “private-label” MBS."
"Finally, the demand for safe assets by investors, both domestic and foreign, appears to have engendered a strong supply response from U.S. financial firms. In particular, even though a large share of new U.S. mortgages during this period were of lower credit quality, such as subprime loans, Agency guarantees and financial engineering in the private financial services industry resulted in the overwhelming share of mortgage-related securities being rated AAA."
I'm going to use a rather extreme analogy here and say that this is really no different from a doctor saying, "Wow, so many patients only trust me and they would only take medication I prescribe to them, so never mind if the drug is effective, I'll prescribe as long as I get paid really good commission from the drug firms. In fact, let me just prescribe these pills I just found in the cabinet here though I don't even know what they are." Granted, the financial engineers probably really believe that they have managed to tuck risks away and that the instruments were really safe, how about those pushing NINJAs to take up loans they can ill-afford? John Cassidy's How Market Fails is a collection of such stories. There appears to be a culture of absolute irresponsibility - the financial institutions couldn't care less about the fate of clients on both sides (people who took out mortgages and investors who bought MBS).
I guess the 'GSG countries' are just too eager to save they didn't practice their due diligence just like many of their counterparts in US and the finance system only mean all good and no harm. Maybe. But maybe, if the financial system was more responsible, if the culture was not all that screwed up and money was rejected on the basis that there was no more good quality investment opportunities in US and savings were allowed to 'go home' to these 'GSG countries', then things won't be so bad. For goodness sake, if investment opportunities are dried up, then curb excesses. Leave the punchbowl and you get a bust. There you had it.
If you're old (like me), you'll probably be happy to learn about the U-bend theory of happiness currently forwarded by some experts in the field, suggesting that people generally gets happier and more satisfied with their lives after mid-forties (the average is exactly that figure).
A recent issue of The Economist had an article on the unemployment issue in America and it describes the plight of a family surviving on savings and unable to secure income. It discusses how the period of unemployment has increased and the efforts by the state to extend support for these people. On the print edition, a couple of page later, there's an article on the migrant farm workers United States who came from Mexico.
The later article describes the plight of these people, their motivation (the main mother featured had her first son died of illness because she had no money to bring him to the doctors and now that she has another son, she want to make enough money) and the hardship they suffer while trying to cross the border. More importantly, it tries to show that the hardship of people just began after they cross the border successfully. Work at the farms were tough and seasonal, and they were constantly living in fear of being deported.
Towards the end of the second article, The Economist mentioned about how the Americans always believed that these illegal migrants are robbing them of their jobs, worsening the unemployment that they are already facing. That is obviously not true given how the Americans refuse to take up many jobs because they were either part time or that they didn't provide the benefits they wanted - farm jobs were simply out of question because they were extremely unpleasant and definitely incapable of compensating the locals. In other words, the unemployment is wholly structural. The Take Our Jobs campaign by the UFW is an extremely intelligent means of conveying the message that Americans need to recognize the structural issues revolving around unemployment learn to expect that life will no longer be the same (jobs will be different, benefits will be reduced, pay will be lower) if they are not going to improve themselves or be willing to suffer more hardship.
The essence of the American Dream is that of freedom to pursue success and happiness; it is the idea that free competition allows you to achieve your potential. There is nothing unfair about someone who suffers more hardship, working harder and achieving a little more so that they are better off than the past and in so doing, outlasting and essentially beating you in the competition. It seems that if that as Americans get wealthier they believe that it has become their right and new competition no longer seemed 'fair' to them. They need to know that getting their way all the time and crying foul when others beat them at competition is not exactly the world order anyone desires.
In the recent report on China's rise in the world, The Economist featured a long discussion about China coming into the world order/framework that America has built and operated within as a new power. It then mentioned a problem:
But the picture is flawed. America has indeed been willing to be bound by rules in ways that 19th-century European powers never were. That is one reason why so many countries have been prepared to live under its sway. However, when America thinks important interests are at stake, it still ignores the rules, just like the next hegemon. In 2005 the bid of the China National Offshore Oil Company to buy America’s Unocal was, in effect, blocked after a public outcry. When America wanted a nuclear deal with India, it rode a coach and horses through the NPT. It fought in the Balkans in the 1990s and again in Iraq in 2003 without the endorsement of the United Nations. It may yet go to war with Iran on the same basis.
This is not to dispute the merits of each case, though some of those decisions looked foolish even at the time. Rather the point is that superpowers break the rules when they must—and nobody can stop them. Over time that logic will increasingly apply to China too. America must decide whether “accommodating China” means living with this or denying it.
Perhaps America would do better if it starts abiding by its own rules more and set a good example of what kind of superpower a nation ought to be in its perspective and allow China to follow. If they are hoping to influence the power equation of the future, the first step would be to behave (in the world affairs) in they way they hope China would in the future.
Some time a year ago, I introduced Barry Schwartz's Paradox of Choice in an entry to encourage students to watch TED.com videos and read more widely. I have been intrigued by Barry's idea but didn't exactly give much thought to it. All I took away was that from a marketer's point of view, offering customers a wide range of choices may frustrate him more than anything else. Now, we are all more of consumers than marketers, so how are we going to use Barry's ideas in our daily conduct of life and consumption?
Before we go on to that, we need to understand why Barry's ideas merit much more careful thinking. Intuitively, it is true that when you're confronted with a myriad of choices, you become frustrated and you cease to be able to decide properly. Yet when there's too few choices you wonder if there are alternatives to what is offered.
In other words, there is an optimal number of variety that we would like to see for different things in our lives, assuming you're searching for anything in particular. We might be happy to have a couple of models of cameras with different functions, size, ease of use and other technical specifications but we would probably prefer to have less choices when it comes to carrots (think different shades of red, lengths, textures, maturity, country of origin, etc). Nonetheless, it takes quite a lot to build up a theory that suggests that a multitude of choices may have a negative impact on society's welfare.
But one key idea that we often leave out, is that when we are confronted with too many choices, we almost definitely believe there is a particular option that will be the perfect one. This is perhaps the source of frustration that we feel when confronted with so many choices. The Economist discusses this at length recently. It also highlights how the multitude of choices raises our expectations of the eventual choice we make, increasing room for disappointment and unhappiness. More importantly perhaps, this finding is a call for simplifying our lives and reducing decision-making to things that matters and wisely defer the insignificant choices to others.
It is interesting then, that Barry's book was published with 2 different cover designs; not that we would be making the choice anyways.
The fact that this unit-independent constant links up several important constants of physical laws and therefore represents most of the physical laws in the universe as we know implies that if it varies, the physical laws across the universe is not consistent (putting their identity as 'laws' into question as well). Ever in search of mathematical elegance, the idea of such a constant is really beautiful but the implications of this new finding isn't exactly known. As far as we know, a slight deviation of the Constant from what it is as measured could mean that life as we know would not exists. Nevertheless, the deviation discovered is way less significant.
Don't expect to be able to float in an atmosphere bubble or bend light with your bare hands yet.
The videos on his website spans topics on Mathematics, Sciences and some investment/banking related stuff. The target audience is going to range from high school students to the people in college. Being an undergraduate-to-be, I'm glad to have stumbled on his site. You too, should take a look.
Khan Academy is a recipient of the 2009 Microsoft Tech Award in Education:
Writers often draw or attract the attention of reader by posing interesting questions which they then seek to explain in their writing content. But then how about the readers? Could they also pose questions for themselves or other readers so that they make the reading experience a little more active?
So when you're reading, you might like come up with interesting questions that will lead readers to those articles. Here are some attempts of mine:
Article 1: Does drinking water make you slimmer? Even when you maintain food intake?
Article 2: Is spying on your spouse going to keep him/her faithful?
Article 3: Are corporate giants necessarily clumsy innovators?
This activity helps you identify key interesting elements of an article that you think is worth highlighting and then forces you to come up with a means to attract people's attention to it. In this case, you can only use a question out of your toolkit (which might include graphics, data charts, a different font colour or font size). A question draws attention through it's interaction with mental processes and thinking rather than through visual content and so is much more difficult at times.
The question trains you to draw your attention towards interesting areas of a topic you might not exactly be particularly interested in and then, you may see it in a different light.