"Counter Insurgency: Central counterparties may not be all they are cracked up to be", The Economist, 06.27.2009, 83.
Central Counterparties act as the buyer to every seller in a market, and the seller to every buyer. They collect margins on every trade; members put money into a reserve fund as well. Traders only have to worry about the creditworthiness of one entity, with which they can net off their trades. If a big trader goes under the financial system is less likely to go with it.
...
Not everyone is happy about this trend. Craig Pirrong of the University of Houston worries that CCPs dull the incentive to trade prudently. Traders are more likely to take on risky positions because some of the losses they may generate are ultimately borne by others - the CCP and its other members. As for a CCP itself, however well intentioned it may be, it cannot monitor traders' complex derivative prositions as well as they themselves can. And it is probably less motivated to try.
[Centralization]
"Can pay, won't pay: It is easier to dump a home loan if a friend has done so too", The Economist, 06.27.2009, 83.
Anger about bail-outs of banks or carmakers does not weaken the moral barrier to default. But people who live in neighbourhoods where home repossessions are frequent are more likely to welsh on loans. Homeowners who know someone who has defaulted strategically are 82% more likely to say they would do so, too. The likelihood of strategic default rises more quickly once the rate of local home foreclosures reaches a critical level. That hints at a vicious cycle of foreclosures that both depress home prices and weaken the social and economic barriers to further defaults.
[Critical Mass]
6.27.2009
6.20.2009
The Economist
"No empty threat: Credit-default swaps are pitting firms against their own creditors", The Economist, 06.20.2009, 79.
Bankruptcy codes assume that creditors always attempt to keep solvent firms out of bankruptcy. Six Flags and others are finding that financial innovation has undermined that premise.
...
Some investors take an even more predatory approach. By purchasing a material amount of a firm's debt in conjunction with a disproportionately large number of CDS contracts, rapacious lenders (mostly hedge funds) can render bankruptcy more attractive than solvency.
...
About two years ago Henry Hu of the University of Texas began noticing odd behavior in bankruptcy proceedings - one bemuse courtroom witnessed a junior creditor argue that the valuation placed on a firm was too high. With default rates climbing, he sees perverse incentives as a looming threat to financial stability.
[Perverse Incentives, Unintended Consequences]
"Like father, like son: There is a benefit in looking like dad", The Economist, 06.20.2009, 85.
There are few more foolish actions, from an evolutionary point of view, than raising another male's progeny.
...
The result, published in the latest edition of Animal Behaviour, is that children who looked and smelled like their fathers did indeed enjoy more paternal care than those who did not. They averaged +1 on the paternal investment index. The 'non-resemblers', those adjudged by outsiders not to smell or look like their fathers, averaged -1. This mattered, for there was also a strong connection between paternal investment and a child's nutritional state. Children whose index was +2 had an average BMI of 16.5. Those whose index was -2 averaged a BMI of 15.
Bankruptcy codes assume that creditors always attempt to keep solvent firms out of bankruptcy. Six Flags and others are finding that financial innovation has undermined that premise.
...
Some investors take an even more predatory approach. By purchasing a material amount of a firm's debt in conjunction with a disproportionately large number of CDS contracts, rapacious lenders (mostly hedge funds) can render bankruptcy more attractive than solvency.
...
About two years ago Henry Hu of the University of Texas began noticing odd behavior in bankruptcy proceedings - one bemuse courtroom witnessed a junior creditor argue that the valuation placed on a firm was too high. With default rates climbing, he sees perverse incentives as a looming threat to financial stability.
[Perverse Incentives, Unintended Consequences]
"Like father, like son: There is a benefit in looking like dad", The Economist, 06.20.2009, 85.
There are few more foolish actions, from an evolutionary point of view, than raising another male's progeny.
...
The result, published in the latest edition of Animal Behaviour, is that children who looked and smelled like their fathers did indeed enjoy more paternal care than those who did not. They averaged +1 on the paternal investment index. The 'non-resemblers', those adjudged by outsiders not to smell or look like their fathers, averaged -1. This mattered, for there was also a strong connection between paternal investment and a child's nutritional state. Children whose index was +2 had an average BMI of 16.5. Those whose index was -2 averaged a BMI of 15.
6.13.2009
The Economist
"Economics focus: Fatalism v fetishism", The Economist, 06.13.2009, 82.
Countries grow by shifting labour and investment from traditional activities, where productivity is stagnant, to new industries, which abound in economies of scale or opportunities to assimilate better techniques.
Countries grow by shifting labour and investment from traditional activities, where productivity is stagnant, to new industries, which abound in economies of scale or opportunities to assimilate better techniques.
5.16.2009
The Economist
"Three trillion dollars later...", The Economist, 05.16.2009, 13.
Because the market has seen the state step in when the worst happens, it will again let financiers take on too much risk. Because taxpayers will be subsidising banks' funding costs, they will also be subsidising the dividends of their shareholders and the bonuses of their staff.
It should be obvious by now that in banking and finance the twin evils of excessive risk and excessive reward can poison capitalism and ravage the economy. Yet the price of saving finance has been to create a system that is more vulnerable and more dangerous than ever before.
...
Limiting banks' size could stop them from attaining the scale and scope to finance global business. Confronted with restrictions, financiers innovate - in recent years, for instance, risk was shifted to non-banks such as money-market funds, which then needed rescuing. Regulators can stop innovation, some of which has indeed been abused, but Luddites in finance would do as much harm to the economy as Luddites in anything else.
...
As the crisis has brutally shown, regulators are fallible. In time, financiers tend to gain the advantage over their overseers. They are better paid, better qualified and more influential than the regulators. Legislators are easily seduced by booms and lobbies. Voters are ignorant of and bored by regulation. The more a financial system depends on the wisdom of regulators, the more likely it is to fail catastrophically.
[Reverse Wealth Transfer, Evolution of Regulation]
Because the market has seen the state step in when the worst happens, it will again let financiers take on too much risk. Because taxpayers will be subsidising banks' funding costs, they will also be subsidising the dividends of their shareholders and the bonuses of their staff.
It should be obvious by now that in banking and finance the twin evils of excessive risk and excessive reward can poison capitalism and ravage the economy. Yet the price of saving finance has been to create a system that is more vulnerable and more dangerous than ever before.
...
Limiting banks' size could stop them from attaining the scale and scope to finance global business. Confronted with restrictions, financiers innovate - in recent years, for instance, risk was shifted to non-banks such as money-market funds, which then needed rescuing. Regulators can stop innovation, some of which has indeed been abused, but Luddites in finance would do as much harm to the economy as Luddites in anything else.
...
As the crisis has brutally shown, regulators are fallible. In time, financiers tend to gain the advantage over their overseers. They are better paid, better qualified and more influential than the regulators. Legislators are easily seduced by booms and lobbies. Voters are ignorant of and bored by regulation. The more a financial system depends on the wisdom of regulators, the more likely it is to fail catastrophically.
[Reverse Wealth Transfer, Evolution of Regulation]
2.07.2009
The Economist
"Triple trouble", The Economist, 2.07.2009, 67.
Just as straight-A students have been drawn to exotic areas of finance over recent decades, so have several firms with AAA credit ratings. General Electric relentlessly expanded its finance arm which handles everything from credit cards to property. American International Group diversified from plain insurance into credit derivatives. And even Warren Buffett's Berkshire Hathaway was tempted to write a book of equity-derivative contracts that has recently created a big mark-to-market liability in its accounts.
Just as straight-A students have been drawn to exotic areas of finance over recent decades, so have several firms with AAA credit ratings. General Electric relentlessly expanded its finance arm which handles everything from credit cards to property. American International Group diversified from plain insurance into credit derivatives. And even Warren Buffett's Berkshire Hathaway was tempted to write a book of equity-derivative contracts that has recently created a big mark-to-market liability in its accounts.
2.04.2009
The New Republic
John B. Judis, "A Man for All Seasons", The New Republic, 02.04.2009, 22.
Public investment in a new hospital, say, creates jobs and income not only for construction workers, but for the people and businesses that service the workers. Conservatives and big business, however, have objected to public investment - for instance, in high-speed rail or solar paneling - that would strengthen government's hand in dealing with an industry or compete with private industry. It's socialism, they say - and, in Keynes's terms, it is.
Next on the list of Keynesian tools are government programs that redistribute income from the well-to-do (who have the least propensity to consume) to the poor (who have the most). As John McCain demonstrated during the presidential campaign, such redistributionist programs can also easily be denounced as socialism.
...
The bulk of income tax cuts usually don't accrue to the people with the highest propensity to consume.
Public investment in a new hospital, say, creates jobs and income not only for construction workers, but for the people and businesses that service the workers. Conservatives and big business, however, have objected to public investment - for instance, in high-speed rail or solar paneling - that would strengthen government's hand in dealing with an industry or compete with private industry. It's socialism, they say - and, in Keynes's terms, it is.
Next on the list of Keynesian tools are government programs that redistribute income from the well-to-do (who have the least propensity to consume) to the poor (who have the most). As John McCain demonstrated during the presidential campaign, such redistributionist programs can also easily be denounced as socialism.
...
The bulk of income tax cuts usually don't accrue to the people with the highest propensity to consume.
1.24.2009
The Economist
"Greed - and fear", The Economist, 1.24.2009, special feature
Financial transactions are a series of promises. You hand your money to a bank, which promises to pay it back when you ask; you invest in a company, which promises you a share of its future profits. Money itself is just a collective agreement that a piece of paper can always be exchanged for goods or services. [4]
...
Reform is certainly needed, yet, for all the excesses and instability of finance, a complete clampdown would be a mistake. For one thing, remember the remarkable prosperity of the past 25 years. Finance deserves some of the credit for that. Note, too, that finance has always been plagued by crises, whether the system is open or closed, simple or sophisticated. Attempts to regulate finance to make it safe often lead to dangerous distortions as clever financiers work around the rules. If there were a simple way to prevent crises altogether, it would already be the foundation stone of financial regulation. [4]
[ignorant, Milton Friedman sychophant, economist idiots!]
"Wild-animal spirits", The Economist, 1.24.2009, special feature
These are bets, remember: if the punters are down, the bookies are up by the same amount. In the jargon, the claims 'net to zero'. That sounds safe enough. Yet the winners and losers behave differently. The winners' extra spending may not offset the losers' retrenchment. And the losers may not be able to afford to pay out, either because they do not have the money - they are insolvent - or because they cannot easily raise the money - they are illiquid. This 'counterparty risk', which grows with the volume of bets, has been the outstanding feature of this crisis. [6]
...
The more efficient the financial system, the faster fear will spread. [8]
...
In the booming American housing market mortgage originators were happy to accept no security at all, lending 100% of the value of the house - partly because they though house prices woudl continue to rise, and partly because they assumed the market would be liquid enough for them to palm the mortgages off on other investors. As it happened, the mortgage originators were wrong and the loans that were stuck on their books helped destroy their businesses. [8]
[they had a huge financial incentive to risk being wrong, especially when liability for bankruptcy does not pass to owners]
...
If it is hard to stop booms once they are in full swing, it is no easier to prevent them from starting in the first place. Hyman Minsky, an unconventional economist who made it his life's work to study crises, was convinced that they arose spontaneously. Financial stability itself creates confidence and risk-taking eventually leading to recklessness and instability. After the bust, stability will return and the cycle will begin again. Similarly, David Roche and Bob McKee, of Independent Strategy, an investment consultancy, among others, think credit started flowing more easily in teh 1980s because the rich economies conquered inflation and the large emerging markets embraced globalisation. [10]
"In Plato's cave", The Economist, 1.24.2009, special feature
Modern finance may well be making the tails fatter, says Daron Acemoglu, an economist at MIT. When you trade away all sorts of specific risk, in foreign exchange, interest rates and so forth, you make your portfolio seem safer. But you are in fact swapping everyday risk for the exceptional risk that the worst will happen and your insurer will fail - as AIG did. Even as the predictable centre of the distribution appears less risky, the unobserved tail risk has grown. Your traders and managers will look as if they are earning good returns on lower risk when part of the true risk is hidden. They will want to be paid for their skill when in fact their risk-weighted returns may have fallen. [14]
[fatter tails = hidden risk = shuttered costs = profitability : bailout = socialized cost]
"How to play chicken and lose", The Economist, 1.24.2009, special feature
Financial services will always be a tug-of-war between two contradictory promises: 'Your money is safe with us' and 'We will earn you higher returns.' The disturbing truth behind Charles Prince, former CEO of Citigroup,'s words is that bit by bit a boom kills off those who tend toward safety. The survivors, meanwhile, go for returns, because as long as the sky is clear financial-services companies grow by earning money. [14]
...
In 1970 Goldman Sachs had about 1,300 people. At the end of last year it had roughly 30,000. In 1971 Morgan Stanley had about 3,500 people; at the peak, in 2006, it had 55,000. Although boutiques such as Perella Weinberg have sprung up in the intervening period, the story of commercial and investment banking has been broadly one of consolidation.
Roy Smith, a finance professor at NYU Stern School of Business in Manhattan, has counted no fewer than 28 takeovers of once-important commercial and investment banks since 1977. Kuhn Loeb, White Weld and Donaldson, Lufkin & Jenrette have all disappeared, as have Soloman Brothers, First Boston and Kidder Peabody. Firms also built up their capacity to trade in the secondary market, at first so they could make markets and later to earn profits on their own account. As the demand for capital grew, the partnerships were tempted to list their shares. The old Wall Street was lost. [16]
...
Rather than being victims, shareholders may well have driven managers on. Hans-Werner Sinn, the head of Ifo, an economic research institute in Munich, argues that limited liability gives them a reason to flirt with disaster. The creditors of a failed firm have no claim on the personal assets of its shareholders. So if the bank takes big risks that promise big profits, its shareholders stand to enjoy the full gains but to bear only part of the losses. By contrast the shareholders of low-risk, low-return banks that never collapse have to bear all the losses. [17]
...
George Gilbert Williams, long-time head of Chemical Bank in New York in the 19th century, once explained that his success was founded on 'the fear of God.' But as a boom takes its course, fear is supplanted in what a senior quant at an American bank calls the 'Cassandra effect'. The more you warn your colleagues about the tail risks - the rare but devastating events that can bring the bank down - the more they roll their eyes, give a yawn and change the subject. This eventually leads to self-censorship. 'The system', he says, 'filters out the thoughtful and replaces them with the faithful.' [17]
...
To paraphrase Keynes, if you work in finance the market can stay irrational longer than you can stay in your job. As managers built financial conglomerates and sought to push them even harder, the quality of earnings in their industry was deteriorating. [17]
"The uneven contest", The Economist, 1.24.2009, special feature
In a fight, the regulators have the legal power. But the financiers have the political power, at least when there is no financial crisis in progress. The industry stands to make or lose large sums if the rules are changed, whereas everyone else has got better things to worry about than financial regulation. The wealthy and well-connected people on Wall Street, fine citizens and generous donors, usually get their way. [18]
...
The problem was not so much deregulation but regulation's failure to evolve with the so-called 'shadow banking system.' [18]
...
If the market for auction-rate securities had been a bank, you would have said that it had suffered a run. Yet auction-rate securities were not regulated like banks. Time after time the market seems to have found ways to work around regulation. Banks paid insurers such as AIG to take on the risk that their assets would default, which saved them having to put capital aside as the regulations required. This neatly converted lower-rated securities into AAA ones - except that AIG almost went bust. [20]
...
capitalism requires the possibility of failure. Investors must pay for their mistakes. [20]
"Fixing finance", The Economist, 1.24.2009, special feature
At the same time the financial-services industry is condemned to suffer a horrible contraction. In America the industry's share of total corporate profits climbed from 10% in the early 1980s to 40% at its peak in 2007. Its share of the stockmarket's value grew from 6% to 23%, according to Martin Barnes of BCA Research. It is hard to believe that financial services create enough value to command such pre-eminence in the economy. At the peak, the industry accounted for only 14% of America's GDP and a mere 5% of private-sector jobs. [20]
...
In America, for instance the insurance industry is regulated by the states; AIG's capital-markets group which lost all the money insuring CDOs for foreign banks, fell between stools. [21]
...
The rules need to be able to evolve along with the financial services themselves. That means regulating by function rather than by institution: if something looks like a bank, it should be treated like one. If a hedge fund or any other type of fund looks large enough to threaten the system, it will need watching. [21]
...
Centuries of boom and bust show that you cannot avoid financial crises altogether, but you can exercise some choice over what kind of crisis you get. Charles Wyplosz, professor of economics at the Graduate Institute in Geneva, envisages a spectrum, with an innovative, lightly regulated but crisis-prone financial system at one extreme and a stable, heavily regulated but stodgy one at the other. Depression-era America tried to tame finance's most dangerous traits by moving towards safety. Gradually, modern finance has reversed that shift, creeping towards innovation and light regulation. There will no be strong calls to restore some of the old values. Is that the best balance to strike? [21]
Financial transactions are a series of promises. You hand your money to a bank, which promises to pay it back when you ask; you invest in a company, which promises you a share of its future profits. Money itself is just a collective agreement that a piece of paper can always be exchanged for goods or services. [4]
...
Reform is certainly needed, yet, for all the excesses and instability of finance, a complete clampdown would be a mistake. For one thing, remember the remarkable prosperity of the past 25 years. Finance deserves some of the credit for that. Note, too, that finance has always been plagued by crises, whether the system is open or closed, simple or sophisticated. Attempts to regulate finance to make it safe often lead to dangerous distortions as clever financiers work around the rules. If there were a simple way to prevent crises altogether, it would already be the foundation stone of financial regulation. [4]
[ignorant, Milton Friedman sychophant, economist idiots!]
"Wild-animal spirits", The Economist, 1.24.2009, special feature
These are bets, remember: if the punters are down, the bookies are up by the same amount. In the jargon, the claims 'net to zero'. That sounds safe enough. Yet the winners and losers behave differently. The winners' extra spending may not offset the losers' retrenchment. And the losers may not be able to afford to pay out, either because they do not have the money - they are insolvent - or because they cannot easily raise the money - they are illiquid. This 'counterparty risk', which grows with the volume of bets, has been the outstanding feature of this crisis. [6]
...
The more efficient the financial system, the faster fear will spread. [8]
...
In the booming American housing market mortgage originators were happy to accept no security at all, lending 100% of the value of the house - partly because they though house prices woudl continue to rise, and partly because they assumed the market would be liquid enough for them to palm the mortgages off on other investors. As it happened, the mortgage originators were wrong and the loans that were stuck on their books helped destroy their businesses. [8]
[they had a huge financial incentive to risk being wrong, especially when liability for bankruptcy does not pass to owners]
...
If it is hard to stop booms once they are in full swing, it is no easier to prevent them from starting in the first place. Hyman Minsky, an unconventional economist who made it his life's work to study crises, was convinced that they arose spontaneously. Financial stability itself creates confidence and risk-taking eventually leading to recklessness and instability. After the bust, stability will return and the cycle will begin again. Similarly, David Roche and Bob McKee, of Independent Strategy, an investment consultancy, among others, think credit started flowing more easily in teh 1980s because the rich economies conquered inflation and the large emerging markets embraced globalisation. [10]
"In Plato's cave", The Economist, 1.24.2009, special feature
Modern finance may well be making the tails fatter, says Daron Acemoglu, an economist at MIT. When you trade away all sorts of specific risk, in foreign exchange, interest rates and so forth, you make your portfolio seem safer. But you are in fact swapping everyday risk for the exceptional risk that the worst will happen and your insurer will fail - as AIG did. Even as the predictable centre of the distribution appears less risky, the unobserved tail risk has grown. Your traders and managers will look as if they are earning good returns on lower risk when part of the true risk is hidden. They will want to be paid for their skill when in fact their risk-weighted returns may have fallen. [14]
[fatter tails = hidden risk = shuttered costs = profitability : bailout = socialized cost]
"How to play chicken and lose", The Economist, 1.24.2009, special feature
Financial services will always be a tug-of-war between two contradictory promises: 'Your money is safe with us' and 'We will earn you higher returns.' The disturbing truth behind Charles Prince, former CEO of Citigroup,'s words is that bit by bit a boom kills off those who tend toward safety. The survivors, meanwhile, go for returns, because as long as the sky is clear financial-services companies grow by earning money. [14]
...
In 1970 Goldman Sachs had about 1,300 people. At the end of last year it had roughly 30,000. In 1971 Morgan Stanley had about 3,500 people; at the peak, in 2006, it had 55,000. Although boutiques such as Perella Weinberg have sprung up in the intervening period, the story of commercial and investment banking has been broadly one of consolidation.
Roy Smith, a finance professor at NYU Stern School of Business in Manhattan, has counted no fewer than 28 takeovers of once-important commercial and investment banks since 1977. Kuhn Loeb, White Weld and Donaldson, Lufkin & Jenrette have all disappeared, as have Soloman Brothers, First Boston and Kidder Peabody. Firms also built up their capacity to trade in the secondary market, at first so they could make markets and later to earn profits on their own account. As the demand for capital grew, the partnerships were tempted to list their shares. The old Wall Street was lost. [16]
...
Rather than being victims, shareholders may well have driven managers on. Hans-Werner Sinn, the head of Ifo, an economic research institute in Munich, argues that limited liability gives them a reason to flirt with disaster. The creditors of a failed firm have no claim on the personal assets of its shareholders. So if the bank takes big risks that promise big profits, its shareholders stand to enjoy the full gains but to bear only part of the losses. By contrast the shareholders of low-risk, low-return banks that never collapse have to bear all the losses. [17]
...
George Gilbert Williams, long-time head of Chemical Bank in New York in the 19th century, once explained that his success was founded on 'the fear of God.' But as a boom takes its course, fear is supplanted in what a senior quant at an American bank calls the 'Cassandra effect'. The more you warn your colleagues about the tail risks - the rare but devastating events that can bring the bank down - the more they roll their eyes, give a yawn and change the subject. This eventually leads to self-censorship. 'The system', he says, 'filters out the thoughtful and replaces them with the faithful.' [17]
...
To paraphrase Keynes, if you work in finance the market can stay irrational longer than you can stay in your job. As managers built financial conglomerates and sought to push them even harder, the quality of earnings in their industry was deteriorating. [17]
"The uneven contest", The Economist, 1.24.2009, special feature
In a fight, the regulators have the legal power. But the financiers have the political power, at least when there is no financial crisis in progress. The industry stands to make or lose large sums if the rules are changed, whereas everyone else has got better things to worry about than financial regulation. The wealthy and well-connected people on Wall Street, fine citizens and generous donors, usually get their way. [18]
...
The problem was not so much deregulation but regulation's failure to evolve with the so-called 'shadow banking system.' [18]
...
If the market for auction-rate securities had been a bank, you would have said that it had suffered a run. Yet auction-rate securities were not regulated like banks. Time after time the market seems to have found ways to work around regulation. Banks paid insurers such as AIG to take on the risk that their assets would default, which saved them having to put capital aside as the regulations required. This neatly converted lower-rated securities into AAA ones - except that AIG almost went bust. [20]
...
capitalism requires the possibility of failure. Investors must pay for their mistakes. [20]
"Fixing finance", The Economist, 1.24.2009, special feature
At the same time the financial-services industry is condemned to suffer a horrible contraction. In America the industry's share of total corporate profits climbed from 10% in the early 1980s to 40% at its peak in 2007. Its share of the stockmarket's value grew from 6% to 23%, according to Martin Barnes of BCA Research. It is hard to believe that financial services create enough value to command such pre-eminence in the economy. At the peak, the industry accounted for only 14% of America's GDP and a mere 5% of private-sector jobs. [20]
...
In America, for instance the insurance industry is regulated by the states; AIG's capital-markets group which lost all the money insuring CDOs for foreign banks, fell between stools. [21]
...
The rules need to be able to evolve along with the financial services themselves. That means regulating by function rather than by institution: if something looks like a bank, it should be treated like one. If a hedge fund or any other type of fund looks large enough to threaten the system, it will need watching. [21]
...
Centuries of boom and bust show that you cannot avoid financial crises altogether, but you can exercise some choice over what kind of crisis you get. Charles Wyplosz, professor of economics at the Graduate Institute in Geneva, envisages a spectrum, with an innovative, lightly regulated but crisis-prone financial system at one extreme and a stable, heavily regulated but stodgy one at the other. Depression-era America tried to tame finance's most dangerous traits by moving towards safety. Gradually, modern finance has reversed that shift, creeping towards innovation and light regulation. There will no be strong calls to restore some of the old values. Is that the best balance to strike? [21]
1.17.2009
The Economist
"Law v common sense", The Economist, 1.17.2009, 38.
The direct costs of lawsuits are only one of the drawbacks of an over-legalistic society. Too many rules squeeze the joy out of life. Doctors who inflict dozens of unnecessary tests on patients to fend off lawsuits take less pride in their work. And although the legal system is supposed to be neutral, the scales are tilted in favour of whoever is in the wrong. Because the process is so expensive and juries are so unpredictable, blameless people often settle baseless claims to make them go away. The law is supposed to protect individuals from the state, but it often allows selfish individuals to harness the state's power to settle private scores.
"Not playing", The Economist, 1.17.2009, 64.
Rumours of an impending closure caused suppliers to pull back deliveries and workers to demand salaries in advance. 'I learnt that without confidence, a business is dead,' says Smart Union's founder, Tony Wu. The firm essentially shut down in September, despite having a heavy backlog of orders.
"Growing insecurities", The Economist, 1.17.2009, 73.
Mr. Obama has talked about the need for regulatory consolidation. Mary Schapiro, who is due to succeed Mr. Cox at the SEC later this month, pending Senate approval, has publicly advocated merging the two agencies. This would require a doctrinal ruling, since the Commodity Futures Trading Commission's approach is far more principles-based than that of the SEC, which cleaves to hard rules. It would also call for some deft politics, since they are overseen by separate congressional committees, for whose members disbandment would mean an end to juicy campaign contributions from financial firms.
[congress is no more eager to regulate business than business]
The direct costs of lawsuits are only one of the drawbacks of an over-legalistic society. Too many rules squeeze the joy out of life. Doctors who inflict dozens of unnecessary tests on patients to fend off lawsuits take less pride in their work. And although the legal system is supposed to be neutral, the scales are tilted in favour of whoever is in the wrong. Because the process is so expensive and juries are so unpredictable, blameless people often settle baseless claims to make them go away. The law is supposed to protect individuals from the state, but it often allows selfish individuals to harness the state's power to settle private scores.
"Not playing", The Economist, 1.17.2009, 64.
Rumours of an impending closure caused suppliers to pull back deliveries and workers to demand salaries in advance. 'I learnt that without confidence, a business is dead,' says Smart Union's founder, Tony Wu. The firm essentially shut down in September, despite having a heavy backlog of orders.
"Growing insecurities", The Economist, 1.17.2009, 73.
Mr. Obama has talked about the need for regulatory consolidation. Mary Schapiro, who is due to succeed Mr. Cox at the SEC later this month, pending Senate approval, has publicly advocated merging the two agencies. This would require a doctrinal ruling, since the Commodity Futures Trading Commission's approach is far more principles-based than that of the SEC, which cleaves to hard rules. It would also call for some deft politics, since they are overseen by separate congressional committees, for whose members disbandment would mean an end to juicy campaign contributions from financial firms.
[congress is no more eager to regulate business than business]
1.10.2009
The Economist
"Writ Large", The Economist, 1.10.2009, 53.
Groups that investigate government misbehaviour say their efforts are now being hampered by English libel law. 'London has become a magnet for spurious cases. This is a terrifying prospect to most NGOs because of legal costs alone,' says Dinah PoKemper, general counsel at the New York - based Human Rights Watch. It recently received a complaint from lawyers acting for a foreign national named in a report on an incident of mass murder. 'We were required to spend thousands of pounds in defending ourselves against the prospect of a libel suit, when we had full confidence in the accuracy of our report,' she says.
The problem is not just money. Under English libel law, a plaintiff must prove only that material is defamatory; the defendant then has to justify it, usually on grounds of truth or fairness. That places a big burden on human-rights groups that compile reports from confidential informants - usually a necessity when dealing with violent and repressive regimes.
"Indefensible", The Economist, 1.10.2009, 66.
Rather than driving good Asian companies and managers from Hong Kong, closing such a loophole that allows companies to report earnings up to 3 months after the end of the fiscal period while directors and managers can still trade shares would instil greater confidence in minority investors. That should lower the cost of capital for companies and enhance returns - exactly what executives should want, if they are really working for all owners, that is.
[transparency -> trust -> investment]
[Law used to stifle dissent, opposition or competition]
Groups that investigate government misbehaviour say their efforts are now being hampered by English libel law. 'London has become a magnet for spurious cases. This is a terrifying prospect to most NGOs because of legal costs alone,' says Dinah PoKemper, general counsel at the New York - based Human Rights Watch. It recently received a complaint from lawyers acting for a foreign national named in a report on an incident of mass murder. 'We were required to spend thousands of pounds in defending ourselves against the prospect of a libel suit, when we had full confidence in the accuracy of our report,' she says.
The problem is not just money. Under English libel law, a plaintiff must prove only that material is defamatory; the defendant then has to justify it, usually on grounds of truth or fairness. That places a big burden on human-rights groups that compile reports from confidential informants - usually a necessity when dealing with violent and repressive regimes.
"Indefensible", The Economist, 1.10.2009, 66.
Rather than driving good Asian companies and managers from Hong Kong, closing such a loophole that allows companies to report earnings up to 3 months after the end of the fiscal period while directors and managers can still trade shares would instil greater confidence in minority investors. That should lower the cost of capital for companies and enhance returns - exactly what executives should want, if they are really working for all owners, that is.
[transparency -> trust -> investment]
[Law used to stifle dissent, opposition or competition]
12.31.2008
The New Republic
Jonathan Cohn, "Auto Destruct", The New Republic, 12.31.2008, 15-16.
Even though constantly rising wages helped create what's known as a wage-price spiral, or repeating cycle of inflation, the net effect still seemed to be positive. Between the 1940s and '70s, real wages - that is, wages adjusted for inflation - for the typical American worker doubled. As Paul Krugman, the Nobel Prize-winning economist, concluded, 'everything we know about unions says that their new power was a major factor in the creation of a middle-class society.
...
There's a broad consensus that, over the last 30 years, real wages for the typical American worker have stagnated - in contrast to the 30 years before that, when unions thrived and real wages doubled. As an exercise, I asked Dean Baker, from the Center for Economic Policy Research, to calculate informally where wages for the typical working-age American would be if they'd continued to rise as they had done before the 1970s, while the unions were strong and helping to raise living standards for everybody. He determined that somebody between 45 and 55 years old, roughly the average UAW age today, would be making about $25 per hour - which is very close to the $28 per hour the typical UAW member makes.
...
Health benefits, and retiree health benefits in particular, became the most glaring problem, since foreign competitors didn't have similar burdens. Workers in the factories these companies maintained abroad benefited from national health insurance programs. Workers in the plants these companies established here didn't have that advantage.
...
But, if the 2007 UAW agreement represented a lifeline for the industry as a whole, it also represented a death knell for the old way of doing things. No longer would the auto industry guarantee its factory workers a middle-class way of life, because it simply wasn't possible for a company to accomplish that on its own. The global economy had rendered the Treaty of Detroit null and void - and pushed the ambitions of Flint's sit-downers farther out of reach.
Even though constantly rising wages helped create what's known as a wage-price spiral, or repeating cycle of inflation, the net effect still seemed to be positive. Between the 1940s and '70s, real wages - that is, wages adjusted for inflation - for the typical American worker doubled. As Paul Krugman, the Nobel Prize-winning economist, concluded, 'everything we know about unions says that their new power was a major factor in the creation of a middle-class society.
...
There's a broad consensus that, over the last 30 years, real wages for the typical American worker have stagnated - in contrast to the 30 years before that, when unions thrived and real wages doubled. As an exercise, I asked Dean Baker, from the Center for Economic Policy Research, to calculate informally where wages for the typical working-age American would be if they'd continued to rise as they had done before the 1970s, while the unions were strong and helping to raise living standards for everybody. He determined that somebody between 45 and 55 years old, roughly the average UAW age today, would be making about $25 per hour - which is very close to the $28 per hour the typical UAW member makes.
...
Health benefits, and retiree health benefits in particular, became the most glaring problem, since foreign competitors didn't have similar burdens. Workers in the factories these companies maintained abroad benefited from national health insurance programs. Workers in the plants these companies established here didn't have that advantage.
...
But, if the 2007 UAW agreement represented a lifeline for the industry as a whole, it also represented a death knell for the old way of doing things. No longer would the auto industry guarantee its factory workers a middle-class way of life, because it simply wasn't possible for a company to accomplish that on its own. The global economy had rendered the Treaty of Detroit null and void - and pushed the ambitions of Flint's sit-downers farther out of reach.
12.20.2008
The Economist
"Dumb money and dull diligence", The Economist, 12.20.2008
"Bernard Madoff thrived in an era of cheap credit, when greed and gullibility became far more powerful than fear and suspicion." [17]
[too much trust or too little]
"Bavarian baksheesh", The Economist, 12.20.2008
About $805m was paid to foreign officials to help Siemens win contracts over about six years after the firm's American listing, according to the DOJ. And the brazenness of the firm's bribe-paying points to a rotten corporate culture pervasive across Germany at the time. 'The great majority of companies operating in the international market were well aware that German law - and the law of most OECD countries - allowed foreign bribery and even subsidised this,' says Peter Eigen, the founder of Transparency International, an anti-corruption group. [112]
"The beauty of bubbles", The Economist, 12.20.2008
Sceptics have an obvious rejoinder to the observation that bubbles can leave behind useful physical assets: those assets, they say, would eventually have been built anyway, and on better terms. They have a point. The main routes built as a result of the railway mania would surely have come about with or without the frenzy of the 1840s, and been part of a more rationally planned national network.
Robert Stephenson, son of George and one of the principal figures behind the expansion of Britain's railways, reckoned that a network that was just as productive could have been built for a third less than the actual cost. Similar calculations would probably apply to the investment in fibre-optic cables better suited to rising demand. For a bubble to have a genuinely valuable lasting effect, it must do something more than construct useful things wastefully. There are at least two ways in which it can do this.
The first relates to spillover effects. Bubbles, when they burst, are ruinous to direct investors but can be helpful to other parts of the economy. The railway boom made Britain's economy more productive by reducing transport costs. ...
The second thing that a bubble can do is to make a more profound impression on the public mind than a more conservative period of economic development can manage. The 1920s land boom implanted the idea of Florida as a glamorous holiday destination that has lasted to this day. [117]
"Con of the century", The Economist, 12.20.2008
Mr. Madoff's investment business was overseen by the Securities and Exchange Commission (SEC), but it failed to carry out any examinations despite receiving complaints from investors and rivals since as long ago as the late 1990s. As a Wall Street fixture, Mr. Madoff was close to several SEC officials. His niece, the firm's compliance lawyer, even married a former member of the team that had inspected the market making division's books in 2003 - though there is no evidence of impropriety. [120]
"Why we are, as we are", The Economist, 12.20.2008
The relative nature of status explains the paradox observed in 1974 by an economist called Richard Easterlin that, while rich people are happier than poor people within a country, average happiness does not increase as that country gets richer. This has been disputed recently. But if it withstands scrutiny it means the free-market argument - that because economic growth makes everybody better off, it does not matter that some are more better off than others - does not stand up, at least if 'better off' is measured in terms of happiness. What actually matters, Darwinism suggests, is that a free society allows people to rise through the hierarchy by their own efforts: the American dream, if you like. [128]
...
When researchers ask people whether they would rather be relatively richer than their peers even if that means they are absolutely worse off, the answer is yes. (Would you rather earn $100,000 when all your friends earn $50,000, or $150,000 when everybody else earns $300,000?) The reason socialism does not work in practice is that this is not a question that most people ask themselves. What they ask is how to earn $300k when all around them people are earning $50k.
A Darwinian analysis does, however, support one argument frequently made by the left and pooh-poohed by the right. This is that poverty is relative. The starkest demonstration of this, discovered by Richard Wilkinson of Nottingham University, in England, is that once economic growth has lifted a country out of penury, its inhabitants are likely to live longer, healthier lives if there are not huge differences between their incomes. This means that poorer countries with low income-variation can outscore richer ones with high variation. [128]
"Bernard Madoff thrived in an era of cheap credit, when greed and gullibility became far more powerful than fear and suspicion." [17]
[too much trust or too little]
"Bavarian baksheesh", The Economist, 12.20.2008
About $805m was paid to foreign officials to help Siemens win contracts over about six years after the firm's American listing, according to the DOJ. And the brazenness of the firm's bribe-paying points to a rotten corporate culture pervasive across Germany at the time. 'The great majority of companies operating in the international market were well aware that German law - and the law of most OECD countries - allowed foreign bribery and even subsidised this,' says Peter Eigen, the founder of Transparency International, an anti-corruption group. [112]
"The beauty of bubbles", The Economist, 12.20.2008
Sceptics have an obvious rejoinder to the observation that bubbles can leave behind useful physical assets: those assets, they say, would eventually have been built anyway, and on better terms. They have a point. The main routes built as a result of the railway mania would surely have come about with or without the frenzy of the 1840s, and been part of a more rationally planned national network.
Robert Stephenson, son of George and one of the principal figures behind the expansion of Britain's railways, reckoned that a network that was just as productive could have been built for a third less than the actual cost. Similar calculations would probably apply to the investment in fibre-optic cables better suited to rising demand. For a bubble to have a genuinely valuable lasting effect, it must do something more than construct useful things wastefully. There are at least two ways in which it can do this.
The first relates to spillover effects. Bubbles, when they burst, are ruinous to direct investors but can be helpful to other parts of the economy. The railway boom made Britain's economy more productive by reducing transport costs. ...
The second thing that a bubble can do is to make a more profound impression on the public mind than a more conservative period of economic development can manage. The 1920s land boom implanted the idea of Florida as a glamorous holiday destination that has lasted to this day. [117]
"Con of the century", The Economist, 12.20.2008
Mr. Madoff's investment business was overseen by the Securities and Exchange Commission (SEC), but it failed to carry out any examinations despite receiving complaints from investors and rivals since as long ago as the late 1990s. As a Wall Street fixture, Mr. Madoff was close to several SEC officials. His niece, the firm's compliance lawyer, even married a former member of the team that had inspected the market making division's books in 2003 - though there is no evidence of impropriety. [120]
"Why we are, as we are", The Economist, 12.20.2008
The relative nature of status explains the paradox observed in 1974 by an economist called Richard Easterlin that, while rich people are happier than poor people within a country, average happiness does not increase as that country gets richer. This has been disputed recently. But if it withstands scrutiny it means the free-market argument - that because economic growth makes everybody better off, it does not matter that some are more better off than others - does not stand up, at least if 'better off' is measured in terms of happiness. What actually matters, Darwinism suggests, is that a free society allows people to rise through the hierarchy by their own efforts: the American dream, if you like. [128]
...
When researchers ask people whether they would rather be relatively richer than their peers even if that means they are absolutely worse off, the answer is yes. (Would you rather earn $100,000 when all your friends earn $50,000, or $150,000 when everybody else earns $300,000?) The reason socialism does not work in practice is that this is not a question that most people ask themselves. What they ask is how to earn $300k when all around them people are earning $50k.
A Darwinian analysis does, however, support one argument frequently made by the left and pooh-poohed by the right. This is that poverty is relative. The starkest demonstration of this, discovered by Richard Wilkinson of Nottingham University, in England, is that once economic growth has lifted a country out of penury, its inhabitants are likely to live longer, healthier lives if there are not huge differences between their incomes. This means that poorer countries with low income-variation can outscore richer ones with high variation. [128]
12.13.2008
The Economist
"Wall Street's annus horribilis", The Economist, 12.13.2008, 85.
Convinced that the era of big, highly geared bets is over, Morgan Stanley has shrunk its balance-sheet from $1.3t to a shade over $750b. It expects to earn a return on equity of three to five percentage points less as a result of lower leverage. Retail banking, once mocked as deathly dull at the white-shoe firm, will become its 'fourth leg'. Having come so close to failing, Morgan is going all out to win back clients who fled. It says most have returned.
This marks a stunning about-turn, for John Mack, Morgan's chief executive, who must feel a bit like the Grand Old Duke of York. On returning to run the firm in 2005, after the ejection of the risk-averse Philip Purcell, he declared that it was under-leveraged and needed to push into mortgages, proprietary trading and private equity. These businesses are not being dramatically 'reshaped', ie, shrunk.
Convinced that the era of big, highly geared bets is over, Morgan Stanley has shrunk its balance-sheet from $1.3t to a shade over $750b. It expects to earn a return on equity of three to five percentage points less as a result of lower leverage. Retail banking, once mocked as deathly dull at the white-shoe firm, will become its 'fourth leg'. Having come so close to failing, Morgan is going all out to win back clients who fled. It says most have returned.
This marks a stunning about-turn, for John Mack, Morgan's chief executive, who must feel a bit like the Grand Old Duke of York. On returning to run the firm in 2005, after the ejection of the risk-averse Philip Purcell, he declared that it was under-leveraged and needed to push into mortgages, proprietary trading and private equity. These businesses are not being dramatically 'reshaped', ie, shrunk.
12.08.2008
New York Magazine
Steve Fishman, "Burning Down His House", New York Magazine, 12.08.2008, 32-33.
Leverage was the way to supercharge revenues. At one point, it was said that Lehman had borrowed $32 for every $1 in its coffers. By comparison, at Merrill Lynch and Goldman Sachs, the ratio was roughly 25 to one. For all of the firms, a small dip in the value of collateral could prove calamitous.
Citigroup and Merrill Lynch would both announce significant first-quarter losses - Merrill at $1.97b, Citigroup at $5.1b. Lehman coolly posted a profit of $489m. It was smaller than usual and included some 'hard-to-repeat gains,' as The Wall Street Journal put it. Still, it was Lehman's 55th consecutive profitable quarter.
One hedge-fund owner, David Einhorn, later asserted that Lehman had overvalued important assets, in effect fudging its books. In fact, many of Lehman's losses were 'backloaded', already lurking on its books.
Leverage was the way to supercharge revenues. At one point, it was said that Lehman had borrowed $32 for every $1 in its coffers. By comparison, at Merrill Lynch and Goldman Sachs, the ratio was roughly 25 to one. For all of the firms, a small dip in the value of collateral could prove calamitous.
Citigroup and Merrill Lynch would both announce significant first-quarter losses - Merrill at $1.97b, Citigroup at $5.1b. Lehman coolly posted a profit of $489m. It was smaller than usual and included some 'hard-to-repeat gains,' as The Wall Street Journal put it. Still, it was Lehman's 55th consecutive profitable quarter.
One hedge-fund owner, David Einhorn, later asserted that Lehman had overvalued important assets, in effect fudging its books. In fact, many of Lehman's losses were 'backloaded', already lurking on its books.
12.03.2008
Donella H. Meadows
Donella H. Meadows, Thinking in Systems: A Primer, Chelsea Green Publishing, December 3, 2008.
There is an integrity or wholeness about a system and an active set of mechanisms to maintain that integrity. Systems can change, adapt, respond to events, seeks goals, mend injuries, and attend to their own survival in lifelike ways, although they may contain or consist of nonliving things. Systems can be self-organizing, and often are self-repairing over at least some range of disruptions. They are resilient, and many of them are evolutionary. Out of one system other completely new, never-before-imagined systems can arise. [12]
A system generally goes on being itself, changing only slowly if at all, even with complete substitutions of its elements - as long as its interconnections and purposes remain intact. [16]
The least obvious part of the system, its function or purpose, is often the most crucial determinant of the system's behavior. Interconnections are also critically important. Changing relationship usually changes system behavior. The elements, the parts of the system we are most likely to notice, are often (not always) least important in defining the unique characteristics of the system - unless changing an element also results in changing relationships or purpose. [17]
System thinkers see the world as a collection of stocks along with the mechanisms for regulating levels in the stocks by manipulating flows.
That means system thinkers see the world as a collection of 'feedback processes.' [25]
The flows into or out of the stock are adjusted because of changes in the size of the stock itself. Whoever or whatever is monitoring the stock's level begins a corrective processes, adjusting rates of inflow or outflow (or both) and so changing the stock's level. The stock level feeds back through a chain of signals and actions to control itself. [26]
The information delivered by a feedback loop can only affect future behavior; it can't deliver the information, and so can't have an impact fast enough to correct behavior that drove the current feedback. A person in the system who makes a decision based on the feedback can't change the behavior of the system that drove the current feedback; the decision he or she makes will affect only future behavior. [39]
When one loop dominates another, it has a stronger impact on behavior. Because systems often have several competing feedback loops operating simultaneously, those loops that dominate the system will determine the behavior. [44]
Self-organization produces heterogeneity and unpredictability. It is likely to come up with whole new structures, whole new ways of doing things. It requires freedom and experimentation, and a certain amount of disorder. These conditions that encourage self-organization often can be scary for individuals and threatening to power structures. [80]
Hierarchical systems are partially decomposable. They can be taken apart and the subsystems with their especially dense information links can function, at least partially, as systems in their own right. When hierarchies break down, they usually split along their subsystem boundaries. [83]
To be a highly functional system, hierarchy must balance the welfare, freedoms, and responsibilities of the subsystems and total system - there must be enough central control to achieve coordinated toward the large-system goal, and enough autonomy to keep all subsystems flourishing, functioning, and self-organizing. [85]
Hierarchical systems evolve from the bottom up. The purpose of the upper layers of the hierarchy is to serve the purposes of the lower layers. [85]
You can't navigate well in an interconnected, feedback-dominated world unless you take your eyes off short-term events and look for long-term behavior and structure; unless you are aware of false boundaries and bounded rationality; unless you take into account limiting factors, nonlinearities and delays. You are likely to mistreat, misdesign, or misread systems if you don't respect their properties of resilience, self-organization, and hierarchy. [87]
Structure determines what behaviors are latent in the system. A goal-seeking balancing feedback loop approaches or holds a dynamic equilibrium. A reinforcing feedback loop generates exponential growth. The two of them linked together are capable of growth, decay, or equilibrium. If they also contain delays, they may produce oscillations. If they work in periodic, rapid bursts, they may produce even more surprising behaviors. [89]
There is no single, legitimate boundary to draw around a system. We have to invent boundaries for clarity and sanity; and boundaries can produce problems when we forget that we've artificially created them. [97]
Growth itself depletes or enhances limits and therefore changes what is limiting. The interplay between a growing plant and the soil, a growing company and its market, a growing economy and its resources base, is dynamic. [102]
We do our best to further our own nearby interests in a rational way, but we can take into account only what we know. We don't know what others are planning to do, until they do it. We rarely see the full range of possibilities before us. We often don't foresee (or choose to ignore) the impacts of our actions on the whole system. So instead of finding a long-term optimum, we discover within our limited purview a choice we can live with for now, and we stick to it, changing our behavior only when forced to. [106]
There are three ways to avoid the tragedy of the commons.
* Educate and exhort. Help people to see the consequences of unrestrained use of the commons. Appeal to their morality. Persuade them to be temperate. Threaten transgressors with social disapproval or eternal hellfire.
* Privatize the commons. Divide it up, so that each person reaps the consequences of his or her own actions. If some people lack the self-control to stay below the carrying capacity of their own private resource, those people will harm only themselves and not others.
* Regulate the commons. Garrett Hardin calls this option, bluntly, 'mutual coercion, mutually agreed upon.' Regulation can take many forms, from outright bans on certain behaviors to quotas, permits, taxes, incentives. To be effective, regulation must be enforced by policing and penalties. [119]
Regulation makes an indirect feedback link from the condition of the resource through regulators to users. For this feedback to work, the regulators must have the expertise to monitor and interpret correctly the condition of the commons, they must have effective means of deterrence, and they must have the good of the whole community at heart. (They cannot be uninformed or weak or corrupt.) [119]
[Actually, all three different approaches require monitoring, enforcement and goodwill, but of different sorts.]
Most people comply with regulatory systems most of the time, as long as they are mutually agreed upon and their purpose is understood. But all regulatory systems must use police power and penalties for the occasional noncooperator. [121]
The competitive exclusion principle: the more the winner wins, the more he, she, or it can win in the future. If the winning takes place in a limited environment, such that everything the winner wins is extracted from the losers, the losers are gradually bankrupted, or forced out, or starved. [127]
Species and companies sometimes escape competitive exclusion by diversifying. ... Diversification is not guaranteed, however, especially if the monopolizing firm (or species) has the power to crush all offshoots, or buy them up, or deprive them of the resources the need to stay alive. Diversification doesn't work as a strategy for the poor. [129]
There are many devices to break the loop of the rich getting richer and the poor getting poorer: tax laws written (unbeatably) to tax the rich at higher rates than the poor; charity; public welfare; labor unions; universal and equal health care and education; taxation on inheritance (a way of starting the game over with each new generation). Most industrial societies have some combination of checks like these on the workings of the success-to-the-successful trap, in order to keep everyone in the game. Gift-giving cultures redistribute wealth through potlatches and other ceremonies that increase the social standing of the gift giver.
These equalizing mechanisms may derive from simple morality, or they may come from the practical understanding that losers, if they are unable to get out of the game of success to the successful, and if they have no hope of winning, could get frustrated enough to destroy the playing field. [130]
You have the problem of wrong goals when you find something stupid happening 'because it's the rule.' You have the problem of rule beating when you find something stupid happening because it's the way around the rule. Both of these system perversions can be going on at the same time with regard to the same rule. [141]
No one would think of using an America's Cup yacht for any purpose other than racing within the rules. The boats are so optimized around the present rules that they have lost all resilience. Any change in the rules would render them useless. [141]
[Evolved fragility]
You can often stabilize a system by increasing the capacity of a buffer. But if a buffer is too big, the system gets inflexible. It reacts too slowly. And big buffers of some sorts, such a water reservoirs or inventories, cost a lot to build or maintain. [150]
Physical structure is crucial in a system, but is rarely a leverage point because changing it is rarely quick or simple. The leverage point is in proper design in the first place. After the structure is built, the leverage is in understanding its limitations and bottlenecks, using it with maximum efficiency, and refraining from fluctuations or expansions that strain its capacity. [151]
Delays that are too long cause damped, sustained, or exploding oscillations, depending on how much too long. Overlong delays in a system with a threshold, a danger point, a range past which irreversible damage can occur, cause overshoot and collapse. [152]
Strengthening and clarifying market signals, such as full-cost accounting, don't get far these days, because of the weakening of another set of balancing feedback loops - those of democracy. This great system was invented to put self-correcting feedback between the people and their government. The people, informed about what their elected representatives do, respond by voting those representatives in or out of office. The process depends on the free, full, unbiased flow of information back and forth between electorate and leaders. Billions of dollars are spent to limit and bias and dominate that flow of clear information. Give the people who want to distort market-price signals the power to influence government leaders, allow the distributors of information to be self-interested partners, and none of the necessary balancing feedback work well. Both market and democracy erode. [154]
[Commonwealth is stock. Democracy is balancing feedback loop. Market is reinforcing feedback loop.]
Reinforcing feedback loops are sources of growth, explosion, erosion, and collapse in systems. A system with an unchecked reinforcing loop ultimately will destroy itself. [155]
Reducing the gain around a reinforcing loop - slowing the growth - is usually a more powerful leverage point in systems than strengthening balancing loops, and far more preferable than letting the reinforcing loop run. [156]
[There's the rub. Slow growth and the system itself becomes competitively disadvantageous]
There are many reinforcing feedback loops in society that reward the winners of a competition with the resources to win even bigger next time - the 'success to the successful' trap. Rich people collect interest; poor people pay it. Rich people pay accountants and lean on politicians to reduce their taxes; poor people can't. Rich people give their kids inheritances and good educations. Antipoverty programs are weak balancing loops that try to counter these strong reinforcing ones. It would be much more effective to weaken the reinforcing loops. That's what progressive income tax, inheritance tax, and universal high-quality public education programs are meant to do. If the wealthy can influence government to weaken, rather than strengthen, those measures, then the government itself shifts from a balancing structure to one that reinforces success to the successful! [156]
There is a systematic tendency on the part of human beings to avoid accountability for their own decisions. That's why there are so man missing feedback loops - and why compelling feedback is so often popular with the masses, unpopular with the powers that be, and effective, if you can get the powers that be to permit it to happen (or go around them and make it happen anyway). [157]
In a strict systems sense, there is no long-term, short-term distinction. Phenomena at different time-scales are nested within each other. Actions taken now have some immediate effects and some that radiate out for decades to come. We experience now the consequences of actions set in motion yesterday and decades ago and centuries ago. The coupling between very fast processes and very slow ones are sometimes strong, sometimes weak. When the slow ones dominate, nothing seems to be happening; when the fast ones take over, things happen with breathtaking speed. Systems are always coupling and uncoupling the large and the small, the fast and the slow. [183]
There is an integrity or wholeness about a system and an active set of mechanisms to maintain that integrity. Systems can change, adapt, respond to events, seeks goals, mend injuries, and attend to their own survival in lifelike ways, although they may contain or consist of nonliving things. Systems can be self-organizing, and often are self-repairing over at least some range of disruptions. They are resilient, and many of them are evolutionary. Out of one system other completely new, never-before-imagined systems can arise. [12]
A system generally goes on being itself, changing only slowly if at all, even with complete substitutions of its elements - as long as its interconnections and purposes remain intact. [16]
The least obvious part of the system, its function or purpose, is often the most crucial determinant of the system's behavior. Interconnections are also critically important. Changing relationship usually changes system behavior. The elements, the parts of the system we are most likely to notice, are often (not always) least important in defining the unique characteristics of the system - unless changing an element also results in changing relationships or purpose. [17]
System thinkers see the world as a collection of stocks along with the mechanisms for regulating levels in the stocks by manipulating flows.
That means system thinkers see the world as a collection of 'feedback processes.' [25]
The flows into or out of the stock are adjusted because of changes in the size of the stock itself. Whoever or whatever is monitoring the stock's level begins a corrective processes, adjusting rates of inflow or outflow (or both) and so changing the stock's level. The stock level feeds back through a chain of signals and actions to control itself. [26]
The information delivered by a feedback loop can only affect future behavior; it can't deliver the information, and so can't have an impact fast enough to correct behavior that drove the current feedback. A person in the system who makes a decision based on the feedback can't change the behavior of the system that drove the current feedback; the decision he or she makes will affect only future behavior. [39]
When one loop dominates another, it has a stronger impact on behavior. Because systems often have several competing feedback loops operating simultaneously, those loops that dominate the system will determine the behavior. [44]
Self-organization produces heterogeneity and unpredictability. It is likely to come up with whole new structures, whole new ways of doing things. It requires freedom and experimentation, and a certain amount of disorder. These conditions that encourage self-organization often can be scary for individuals and threatening to power structures. [80]
Hierarchical systems are partially decomposable. They can be taken apart and the subsystems with their especially dense information links can function, at least partially, as systems in their own right. When hierarchies break down, they usually split along their subsystem boundaries. [83]
To be a highly functional system, hierarchy must balance the welfare, freedoms, and responsibilities of the subsystems and total system - there must be enough central control to achieve coordinated toward the large-system goal, and enough autonomy to keep all subsystems flourishing, functioning, and self-organizing. [85]
Hierarchical systems evolve from the bottom up. The purpose of the upper layers of the hierarchy is to serve the purposes of the lower layers. [85]
You can't navigate well in an interconnected, feedback-dominated world unless you take your eyes off short-term events and look for long-term behavior and structure; unless you are aware of false boundaries and bounded rationality; unless you take into account limiting factors, nonlinearities and delays. You are likely to mistreat, misdesign, or misread systems if you don't respect their properties of resilience, self-organization, and hierarchy. [87]
Structure determines what behaviors are latent in the system. A goal-seeking balancing feedback loop approaches or holds a dynamic equilibrium. A reinforcing feedback loop generates exponential growth. The two of them linked together are capable of growth, decay, or equilibrium. If they also contain delays, they may produce oscillations. If they work in periodic, rapid bursts, they may produce even more surprising behaviors. [89]
There is no single, legitimate boundary to draw around a system. We have to invent boundaries for clarity and sanity; and boundaries can produce problems when we forget that we've artificially created them. [97]
Growth itself depletes or enhances limits and therefore changes what is limiting. The interplay between a growing plant and the soil, a growing company and its market, a growing economy and its resources base, is dynamic. [102]
We do our best to further our own nearby interests in a rational way, but we can take into account only what we know. We don't know what others are planning to do, until they do it. We rarely see the full range of possibilities before us. We often don't foresee (or choose to ignore) the impacts of our actions on the whole system. So instead of finding a long-term optimum, we discover within our limited purview a choice we can live with for now, and we stick to it, changing our behavior only when forced to. [106]
There are three ways to avoid the tragedy of the commons.
* Educate and exhort. Help people to see the consequences of unrestrained use of the commons. Appeal to their morality. Persuade them to be temperate. Threaten transgressors with social disapproval or eternal hellfire.
* Privatize the commons. Divide it up, so that each person reaps the consequences of his or her own actions. If some people lack the self-control to stay below the carrying capacity of their own private resource, those people will harm only themselves and not others.
* Regulate the commons. Garrett Hardin calls this option, bluntly, 'mutual coercion, mutually agreed upon.' Regulation can take many forms, from outright bans on certain behaviors to quotas, permits, taxes, incentives. To be effective, regulation must be enforced by policing and penalties. [119]
Regulation makes an indirect feedback link from the condition of the resource through regulators to users. For this feedback to work, the regulators must have the expertise to monitor and interpret correctly the condition of the commons, they must have effective means of deterrence, and they must have the good of the whole community at heart. (They cannot be uninformed or weak or corrupt.) [119]
[Actually, all three different approaches require monitoring, enforcement and goodwill, but of different sorts.]
Most people comply with regulatory systems most of the time, as long as they are mutually agreed upon and their purpose is understood. But all regulatory systems must use police power and penalties for the occasional noncooperator. [121]
The competitive exclusion principle: the more the winner wins, the more he, she, or it can win in the future. If the winning takes place in a limited environment, such that everything the winner wins is extracted from the losers, the losers are gradually bankrupted, or forced out, or starved. [127]
Species and companies sometimes escape competitive exclusion by diversifying. ... Diversification is not guaranteed, however, especially if the monopolizing firm (or species) has the power to crush all offshoots, or buy them up, or deprive them of the resources the need to stay alive. Diversification doesn't work as a strategy for the poor. [129]
There are many devices to break the loop of the rich getting richer and the poor getting poorer: tax laws written (unbeatably) to tax the rich at higher rates than the poor; charity; public welfare; labor unions; universal and equal health care and education; taxation on inheritance (a way of starting the game over with each new generation). Most industrial societies have some combination of checks like these on the workings of the success-to-the-successful trap, in order to keep everyone in the game. Gift-giving cultures redistribute wealth through potlatches and other ceremonies that increase the social standing of the gift giver.
These equalizing mechanisms may derive from simple morality, or they may come from the practical understanding that losers, if they are unable to get out of the game of success to the successful, and if they have no hope of winning, could get frustrated enough to destroy the playing field. [130]
You have the problem of wrong goals when you find something stupid happening 'because it's the rule.' You have the problem of rule beating when you find something stupid happening because it's the way around the rule. Both of these system perversions can be going on at the same time with regard to the same rule. [141]
No one would think of using an America's Cup yacht for any purpose other than racing within the rules. The boats are so optimized around the present rules that they have lost all resilience. Any change in the rules would render them useless. [141]
[Evolved fragility]
You can often stabilize a system by increasing the capacity of a buffer. But if a buffer is too big, the system gets inflexible. It reacts too slowly. And big buffers of some sorts, such a water reservoirs or inventories, cost a lot to build or maintain. [150]
Physical structure is crucial in a system, but is rarely a leverage point because changing it is rarely quick or simple. The leverage point is in proper design in the first place. After the structure is built, the leverage is in understanding its limitations and bottlenecks, using it with maximum efficiency, and refraining from fluctuations or expansions that strain its capacity. [151]
Delays that are too long cause damped, sustained, or exploding oscillations, depending on how much too long. Overlong delays in a system with a threshold, a danger point, a range past which irreversible damage can occur, cause overshoot and collapse. [152]
Strengthening and clarifying market signals, such as full-cost accounting, don't get far these days, because of the weakening of another set of balancing feedback loops - those of democracy. This great system was invented to put self-correcting feedback between the people and their government. The people, informed about what their elected representatives do, respond by voting those representatives in or out of office. The process depends on the free, full, unbiased flow of information back and forth between electorate and leaders. Billions of dollars are spent to limit and bias and dominate that flow of clear information. Give the people who want to distort market-price signals the power to influence government leaders, allow the distributors of information to be self-interested partners, and none of the necessary balancing feedback work well. Both market and democracy erode. [154]
[Commonwealth is stock. Democracy is balancing feedback loop. Market is reinforcing feedback loop.]
Reinforcing feedback loops are sources of growth, explosion, erosion, and collapse in systems. A system with an unchecked reinforcing loop ultimately will destroy itself. [155]
Reducing the gain around a reinforcing loop - slowing the growth - is usually a more powerful leverage point in systems than strengthening balancing loops, and far more preferable than letting the reinforcing loop run. [156]
[There's the rub. Slow growth and the system itself becomes competitively disadvantageous]
There are many reinforcing feedback loops in society that reward the winners of a competition with the resources to win even bigger next time - the 'success to the successful' trap. Rich people collect interest; poor people pay it. Rich people pay accountants and lean on politicians to reduce their taxes; poor people can't. Rich people give their kids inheritances and good educations. Antipoverty programs are weak balancing loops that try to counter these strong reinforcing ones. It would be much more effective to weaken the reinforcing loops. That's what progressive income tax, inheritance tax, and universal high-quality public education programs are meant to do. If the wealthy can influence government to weaken, rather than strengthen, those measures, then the government itself shifts from a balancing structure to one that reinforces success to the successful! [156]
There is a systematic tendency on the part of human beings to avoid accountability for their own decisions. That's why there are so man missing feedback loops - and why compelling feedback is so often popular with the masses, unpopular with the powers that be, and effective, if you can get the powers that be to permit it to happen (or go around them and make it happen anyway). [157]
In a strict systems sense, there is no long-term, short-term distinction. Phenomena at different time-scales are nested within each other. Actions taken now have some immediate effects and some that radiate out for decades to come. We experience now the consequences of actions set in motion yesterday and decades ago and centuries ago. The coupling between very fast processes and very slow ones are sometimes strong, sometimes weak. When the slow ones dominate, nothing seems to be happening; when the fast ones take over, things happen with breathtaking speed. Systems are always coupling and uncoupling the large and the small, the fast and the slow. [183]
12.01.2008
The New Yorker
John Cassidy, "Anatomy of a Meltdown: Ben Bernanke and the financial crisis", The New Yorker, 12.01.2008, 53-61.
As house prices soared, many Americans took out home-equity loans to finance their spending. The personal savings rate dipped below zero, and the trade deficit, which the United States financed by borrowing heavily from abroad, expanded greatly. Some experts warned that the economy was on an unsustainable course; Bernanke disagreed. In a much discussed speech in March, 2005, he argued that the main source of imbalance in the global economy was not excess spending at home but, rather, excess saving in China and other developing countries, where consumption was artificially low. Lax American policy was helping to mop up a 'global savings glut.'
'Bernanke provided the intellectual justification for the Fed's hands-off approach to asset bubbles,' Stephen S. Roach, the chairman of Morgan Stanley Asia, who was among the economists urging the Fed to adjust its policy, told me. 'He also played a key role in the development of the 'global savings glut' theory, which the Fed used as a very convenient excuse to say we are doing the world a big favor in maintaining demand. In retrospect, we didn't have a global savings glut - we had an American consumption glut. In both of those cases, Bernanke was complicit in massive policy blunders on the part of the Fed.'
...
In May, 2006, Bernanke rejected calls for direct regulation of hedge funds, saying that such a move would 'stifle innovation.' The following month, in a speech on bank supervision, he expressed support for allowing banks, rather than government officials, to determine how much risk they could take on, using complicated mathematical models of their own devision - a policy that had been in place for a number of years. 'The ongoing work on this framework has already led large, complex banking organizations to improve their systems for identifying, measuring and managing their risks,' Bernanke said.
It is now evident that self-regulation failed. By extending mortgages to unqualified lenders and accumulating large inventories of subprime securities, banks and other financial institutions took on enormous risks, often without realizing. Their mathematical models failed to alert them to potential perils. Regulators - including successive Fed chairmen - failed, too.
...
One of the supposed advantages of securitizing mortgages was that it allowed the risk of homeowners' defaulting on their mortgages to be transferred from banks to investors. However, as the market for mortgage securities deteriorated, many banks ended up accumulating big inventories of these assets, some of which they parked in off-balance-sheet vehicles called conduits. 'We knew that banks were creating conduits,' Don Kohn, the Fed's vice-chairman, told me. 'I don't think we could have recognized the extent to which that could come back onto the banks' balance sheets when confidence in the underlying securities - the subprime loans - began to erode.
...
A senior Fed official recalled, 'The problem wasn't the size of Bear Stearns - it wasn't the fact that some creditors would have borne losses. The problem was - people use the term 'too interconnected to fail.' That's not totally accurate, but it's close enough.' In the repot market, for example, Bear Stearns had borrowed heavily from money-market mutual funds. 'If Bear had failed,' the senior official went on, 'all these money-market mutual funds, instead of getting their money back on Monday morning, would have found themselves with all kinds of illiquid collateral, including CDOs and God knows what else. It would have caused a run on the entire market. That, in turn, would have made it impossible for other investment banks to fund themselves.
...
Bernanke couldn't say so publicly, but he agreed with some of the critics. For years, the Fed had warned that Fannie and Freddi were squeezing out competitors and engaging in risky mortgage lending practices. Bernanke would have liked to combine a rescue package with extensive reforms, but he realized that an overhaul of the companies was not politically feasible. Despite their financial problems, Fannie and Freddi still had many powerful allies in Congress.
As house prices soared, many Americans took out home-equity loans to finance their spending. The personal savings rate dipped below zero, and the trade deficit, which the United States financed by borrowing heavily from abroad, expanded greatly. Some experts warned that the economy was on an unsustainable course; Bernanke disagreed. In a much discussed speech in March, 2005, he argued that the main source of imbalance in the global economy was not excess spending at home but, rather, excess saving in China and other developing countries, where consumption was artificially low. Lax American policy was helping to mop up a 'global savings glut.'
'Bernanke provided the intellectual justification for the Fed's hands-off approach to asset bubbles,' Stephen S. Roach, the chairman of Morgan Stanley Asia, who was among the economists urging the Fed to adjust its policy, told me. 'He also played a key role in the development of the 'global savings glut' theory, which the Fed used as a very convenient excuse to say we are doing the world a big favor in maintaining demand. In retrospect, we didn't have a global savings glut - we had an American consumption glut. In both of those cases, Bernanke was complicit in massive policy blunders on the part of the Fed.'
...
In May, 2006, Bernanke rejected calls for direct regulation of hedge funds, saying that such a move would 'stifle innovation.' The following month, in a speech on bank supervision, he expressed support for allowing banks, rather than government officials, to determine how much risk they could take on, using complicated mathematical models of their own devision - a policy that had been in place for a number of years. 'The ongoing work on this framework has already led large, complex banking organizations to improve their systems for identifying, measuring and managing their risks,' Bernanke said.
It is now evident that self-regulation failed. By extending mortgages to unqualified lenders and accumulating large inventories of subprime securities, banks and other financial institutions took on enormous risks, often without realizing. Their mathematical models failed to alert them to potential perils. Regulators - including successive Fed chairmen - failed, too.
...
One of the supposed advantages of securitizing mortgages was that it allowed the risk of homeowners' defaulting on their mortgages to be transferred from banks to investors. However, as the market for mortgage securities deteriorated, many banks ended up accumulating big inventories of these assets, some of which they parked in off-balance-sheet vehicles called conduits. 'We knew that banks were creating conduits,' Don Kohn, the Fed's vice-chairman, told me. 'I don't think we could have recognized the extent to which that could come back onto the banks' balance sheets when confidence in the underlying securities - the subprime loans - began to erode.
...
A senior Fed official recalled, 'The problem wasn't the size of Bear Stearns - it wasn't the fact that some creditors would have borne losses. The problem was - people use the term 'too interconnected to fail.' That's not totally accurate, but it's close enough.' In the repot market, for example, Bear Stearns had borrowed heavily from money-market mutual funds. 'If Bear had failed,' the senior official went on, 'all these money-market mutual funds, instead of getting their money back on Monday morning, would have found themselves with all kinds of illiquid collateral, including CDOs and God knows what else. It would have caused a run on the entire market. That, in turn, would have made it impossible for other investment banks to fund themselves.
...
Bernanke couldn't say so publicly, but he agreed with some of the critics. For years, the Fed had warned that Fannie and Freddi were squeezing out competitors and engaging in risky mortgage lending practices. Bernanke would have liked to combine a rescue package with extensive reforms, but he realized that an overhaul of the companies was not politically feasible. Despite their financial problems, Fannie and Freddi still had many powerful allies in Congress.
11.29.2008
The Economist
"Grease my palm", The Economist, 11.29.2008, special report, 10.
The reason for the persistent corruption is not that the Russian people are genetically programmed to pay bribes, but that the state still sees them as its vassals rather than its masters. The job of Russian law enforcers is to protect the interests of the state, personified by their particular boss, against the people. This psychology is particularly developed among former (and not so former) KGB members who have gained huge political and economic power in the country since Mr. Putin came to office. Indeed, the top ranks in the Federal Security Service (FSB) describe themselves as the country's new nobility - a class of people personally loyal to the monarch and entitled to an estate with people to serve them.
"Plan C", The Economist, 11.29.2008, 73.
Still, helping banks recapitalise only partly mitigates deleveraging. Many large buyers of debt assets have simply disappeared, such as 'structured investment vehicles', or SIVs, that used short-term financing to buy up asset backed securities, often from banks seeking to free up capital. At one point they held up to $400b in assets. But, unable to roll over their funding, they have been either reabsorbed by banks or closed. In October one of the last big SIVs, Sigma Financing Corporation, with $27b in assets, collapsed. Its liquidation by creditors is thought to have contributed to the plunge in prices of asset-backed securities which has made it impossible for new securities backed by student, credit-card and car loans to be issued.
Securitisation is decades old, mundane and vital. Banks and other lenders routinely pool their student, car, small-business and credit-card loans, and residential and commercial mortgages into securities and sell them to investors, leaving room for them to make new loans. The deleveraging of banks may be inevitable and healthy, but the disappearance of the securitisation market is not. Without it, 'millions of Americans cannot find affordable financing for their basic credit needs,' Hank Paulson, the treasury secretary, said on November 25th.
"Singing the blues", The Economist, 11.29.2008, 75.
Humbled by a devastating, Lehmanesque run on its shares, Citi has become the latest, and largest, financial institution to need rescuing. The giant bail-out gives the bank breathing space. But it also leaves Citi in what a prominent financier calls a 'financial no-man's-land': still too leveraged for comfort and too cumbersome to manage effectively, yet far too big to fail.
Citi's off-balance-sheet exposures - $1.2t at the end of September
[how can off-balance-sheet be construed as anything but fraud?]
The reason for the persistent corruption is not that the Russian people are genetically programmed to pay bribes, but that the state still sees them as its vassals rather than its masters. The job of Russian law enforcers is to protect the interests of the state, personified by their particular boss, against the people. This psychology is particularly developed among former (and not so former) KGB members who have gained huge political and economic power in the country since Mr. Putin came to office. Indeed, the top ranks in the Federal Security Service (FSB) describe themselves as the country's new nobility - a class of people personally loyal to the monarch and entitled to an estate with people to serve them.
"Plan C", The Economist, 11.29.2008, 73.
Still, helping banks recapitalise only partly mitigates deleveraging. Many large buyers of debt assets have simply disappeared, such as 'structured investment vehicles', or SIVs, that used short-term financing to buy up asset backed securities, often from banks seeking to free up capital. At one point they held up to $400b in assets. But, unable to roll over their funding, they have been either reabsorbed by banks or closed. In October one of the last big SIVs, Sigma Financing Corporation, with $27b in assets, collapsed. Its liquidation by creditors is thought to have contributed to the plunge in prices of asset-backed securities which has made it impossible for new securities backed by student, credit-card and car loans to be issued.
Securitisation is decades old, mundane and vital. Banks and other lenders routinely pool their student, car, small-business and credit-card loans, and residential and commercial mortgages into securities and sell them to investors, leaving room for them to make new loans. The deleveraging of banks may be inevitable and healthy, but the disappearance of the securitisation market is not. Without it, 'millions of Americans cannot find affordable financing for their basic credit needs,' Hank Paulson, the treasury secretary, said on November 25th.
"Singing the blues", The Economist, 11.29.2008, 75.
Humbled by a devastating, Lehmanesque run on its shares, Citi has become the latest, and largest, financial institution to need rescuing. The giant bail-out gives the bank breathing space. But it also leaves Citi in what a prominent financier calls a 'financial no-man's-land': still too leveraged for comfort and too cumbersome to manage effectively, yet far too big to fail.
Citi's off-balance-sheet exposures - $1.2t at the end of September
[how can off-balance-sheet be construed as anything but fraud?]
10.11.2008
Science News
Bruce Bower, "Pain relief you can believe in", Science News, October 11, 2008
"Our data suggest that religious belief alters the brain in a way that changes how a person responds to pain." - Irene Tracey (University of Oxford) p.9
"Practicing Catholics perceived electrical pulses as less painful while viewing an image of the Virgin Mary than while viewing a non-religious picture. Functional MRI showed a change in these volunteers' brain only while looking at the religious icon." p.9
[Opiate of the masses indeed! Making sense of suffering helps us endure it. Just one of many ways that we are fundamentally psychosomatic.]
"Our data suggest that religious belief alters the brain in a way that changes how a person responds to pain." - Irene Tracey (University of Oxford) p.9
"Practicing Catholics perceived electrical pulses as less painful while viewing an image of the Virgin Mary than while viewing a non-religious picture. Functional MRI showed a change in these volunteers' brain only while looking at the religious icon." p.9
[Opiate of the masses indeed! Making sense of suffering helps us endure it. Just one of many ways that we are fundamentally psychosomatic.]
9.27.2008
Science News
Bruce Bower, "Blindfolded babies show ability to learn how others see the world", Science News, September 27, 2008
'This first-of-its-kind training study shows how infants use themselves and their own experiences to understand the inner lives of others' - Andrew Meltzoff (University of Washington in Seattle) [10]
Bruce Bower, "Study evaluates kids' therapies", Science News, September 27, 2008
On the upside, research shows that cognitive-behavioral therapy eases post-traumatic stress disorder and other trauma-related problems in the young. On the down side, most mental-healthy practitioners use other therapies for kids and teens that lack scientific support. [11]
'This first-of-its-kind training study shows how infants use themselves and their own experiences to understand the inner lives of others' - Andrew Meltzoff (University of Washington in Seattle) [10]
Bruce Bower, "Study evaluates kids' therapies", Science News, September 27, 2008
On the upside, research shows that cognitive-behavioral therapy eases post-traumatic stress disorder and other trauma-related problems in the young. On the down side, most mental-healthy practitioners use other therapies for kids and teens that lack scientific support. [11]
9.13.2008
Science News
Tom Siefried, "It's Likely That Times Are Changing", Science News, September 13, 2008
Yet quantum physics requires time to tell the universe what to do - time is necessary for things to happen. Or, as the famous restroom graffito puts it, time is nature's way of keeping everything from happening at once. [27]
[What if all the potentialities of the universe existed in extreme superposition, disentangled by the momentary effect of what we call 'time'? But that the past, the present and the future still remain inextricably tied to each other in a Parmenidean totality? That we merely experience expressions of this totality, as destiny.]
In quantum math, time is represented in a formula called a wave function, which describes a multiplicity of possible realities. [27]
'I showed that you could make different choices of what you mean by time and get any law of physics you want.' Andreas Albrecht, a cosmologist at the University of California, Davis, says. [28]
If you can choose any time you like and get different laws, it makes no sense to say that the universe is ruled by a single Constitution of Physics. The cosmos becomes more like the United Nations, a hodgepodge of jurisdictions with diverse codes of conduct. 'The clock ambiguity suggests that we must view physical laws as emergent from a random ensemble of all possible laws,' Albrecht and Iglesias write. [28]
"Freedom to choose different clocks means choosing from among a multitude of possible laws, some wildly different from those in human textbooks. But quasiseparability places limits on which sets of laws humans could possibly experience. Only those laws consistent with quasiseparability would permit systems containing objects like physicists. [28]
[We exist in an object frame of reference, where the experience of objective coherence occurs on account of reality's quasiseparability. But that is not to say that simultaneously right now, many non-objective laws of physics are superimposed upon our reality, affecting the nature of our being; as we are but one physical expression of reality]
Yet quantum physics requires time to tell the universe what to do - time is necessary for things to happen. Or, as the famous restroom graffito puts it, time is nature's way of keeping everything from happening at once. [27]
[What if all the potentialities of the universe existed in extreme superposition, disentangled by the momentary effect of what we call 'time'? But that the past, the present and the future still remain inextricably tied to each other in a Parmenidean totality? That we merely experience expressions of this totality, as destiny.]
In quantum math, time is represented in a formula called a wave function, which describes a multiplicity of possible realities. [27]
'I showed that you could make different choices of what you mean by time and get any law of physics you want.' Andreas Albrecht, a cosmologist at the University of California, Davis, says. [28]
If you can choose any time you like and get different laws, it makes no sense to say that the universe is ruled by a single Constitution of Physics. The cosmos becomes more like the United Nations, a hodgepodge of jurisdictions with diverse codes of conduct. 'The clock ambiguity suggests that we must view physical laws as emergent from a random ensemble of all possible laws,' Albrecht and Iglesias write. [28]
"Freedom to choose different clocks means choosing from among a multitude of possible laws, some wildly different from those in human textbooks. But quasiseparability places limits on which sets of laws humans could possibly experience. Only those laws consistent with quasiseparability would permit systems containing objects like physicists. [28]
[We exist in an object frame of reference, where the experience of objective coherence occurs on account of reality's quasiseparability. But that is not to say that simultaneously right now, many non-objective laws of physics are superimposed upon our reality, affecting the nature of our being; as we are but one physical expression of reality]
1.01.2008
Tony Wagner
Tony Wagner, The Global Achievement Gap, New York, Basic Books, 2008
Collaboration is an essential skill for us. Command-and-control leadership style is becoming less and less valued in organizations. People have to understand the importance of working fluidly and across boundaries. As organizations become more global, the ability to work fluidly around the world is a competitive advantage. [23]
It's hard for many to let go and trust people to do the work, to truly empower people to achieve results, not just to complete tasks. [25]
Corporations are increasingly being organized around a very different kind of authority and accountability structure - one that is less hierarchical and more reciprocal and relational. [28]
Collaboration is an essential skill for us. Command-and-control leadership style is becoming less and less valued in organizations. People have to understand the importance of working fluidly and across boundaries. As organizations become more global, the ability to work fluidly around the world is a competitive advantage. [23]
It's hard for many to let go and trust people to do the work, to truly empower people to achieve results, not just to complete tasks. [25]
Corporations are increasingly being organized around a very different kind of authority and accountability structure - one that is less hierarchical and more reciprocal and relational. [28]
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