On Bezzle

In his 1954 book, The Great Crash: 1929, John Kenneth Galbraith observes that commercial morality gets lax during a boom, and tightens up during the bust that follows. This cycle actually exacerbates the bust, because money or wealth that people thought they had turns out not to be there, once auditors and regulators get strict. (Think of Bernie Madoff's investors, or of the fake bank statements and bankruptcy at Peregrine Financial earlier this month.) I like how analysts at Credit Suisse, quoted in this FT Alphaville post, relate the Libor rate-rigging scandal to the cyclical expansion and contraction of what Galbraith called "bezzle."

Quote of the Day

"This is a problem of vast, nontransparent and dangerous government subsidies; the market cannot take care of this by itself." -- Simon Johnson, of MIT, in the last sentence of this piece on the Libor rate-rigging scandal.

Einstein

I found a nice collection of quotes from Albert Einstein online. Things like this:

Any intelligent fool can make things bigger and more complex... It takes a touch of genius --- and a lot of courage to move in the opposite direction.

Another one of his I like a lot is:

I want to know God's thoughts...the rest are details.

This may help explain why, in his personal life, he was so detached from his family, and, in general, so skeptical of anyone in authority.
 
There are many more good ones at the link above. If you like them even half as much as I do, then you would also enjoy Ideas and Opinions. It is a collection of many of his essays, speeches and letters. At least one piece was for the Sunday New York Times. Some are on science, but more, I believe, are on education, religion and politics. It is mostly very accessible stuff, believe it or not. Two-thirds of the book can be understood by anyone who went to high school.

Some of his thinking on politics will seem too idealistic to almost everyone, and does to me. I still like seeing how he thinks things through. This is literally the book I would take with me to a desert island, if I could take only one.

The Recession / Depression, in a Graph

Click it to zoom in.

HT: Greg Mankiw.

E.O. Wilson and Multi-Level Selection

     My philosophically-inclined friend Jamie Kyne sent this piece by the biologist E.O. Wilson. It is one of the most thought-provoking things I have read in years. It seeks to explain good and evil by looking at natural selection.
     The idea is that natural selection is happening at both the individual and tribal levels, simultaneously. Individual selection promotes selfishness, which we think of as evil. On the other hand, selection at the tribal level promotes altruism within the group, which we think of as good. Somewhat controversial, I know, but it seems logical to me that, when resources are scarce, a group whose members cooperate has improved chances of beating out a group whose members are fighting among themselves. And both groups would tend to beat individuals who are not in a group.
     I would like to have more insight into the the multi-level-ness of things, not just biology, in time.  I tend to think reductionistically, so, it is helpful to get this prod from Wilson.

Gillian Tett's Concerns

     I tend to be one of those guys who thinks about the downside more than the upside. It may be visceral, or it may be rational. I don't know. Maybe it is that good news can always take care of itself.
     In that spirit, or lack of spirit, I recommend this piece in the FT (registration required) by the ever-incisive Gillian Tett. The title is, "Five reasons the summer curse may strike." No prediction intended on my part, but this is a good list of the downside risks, and it made me think.
     I found it interesting that Tett includes the Libor scandal as a risk for the markets more broadly; I had not thought of that, but it does undermine confidence.
     She leaves out profit margins being wide, and therefore at risk of reverting downward. But that is a longer-term matter, and her piece is focused on the here and now.

Lord's Prayer, Spanish Edition

Our European Bank, which art in Germany, hallowed be Thy Name.
Thy Kingdom come, Thy will be done, in Spain as it is in Germany.
Give us this day, our daily bailout,
And forgive us our debts, as we forgive our tax defrauders.
...
For Thine [ECB's] is the Kingdom and the Power and the Glory forever and ever.
Amen.

HT:  Paul Solman and Elizabeth Shell