OK, now that we have the demise of Lehman, Merrill and AIG, and with HBOS teetering on the brink (and remembering that we don’t do anniversaries here), let it be noted that it’s just over a year since Northern Rock collapsed, and it’s also a year to the day since I coined the phrase “Magoo Finance” to refer to a remarkably near-sighted interpretation of financial events: let’s just call it linear thinking in a non-linear world.
Like “Gordonfreude”, “Magoo Finance” failed to catch an internet viral wind and remained locked in the doldrums of cyberspace, drifting aimlessly, waiting for wiser or more popular bloggers, twitterers, friendfeeders and maybe even journalists to jump on it, expound and celebrate it. The fact that it included an excuse to watch 6 minutes of unremittingly nostalgic 1960s cartoon mirth further confirmed my expectations for its success. Ah well.
A year on and, as a treat, here’s a small pointer to an essay by Nassim Taleb posted by The Edge organization. It’s well worth a read, not least as it elaborates on the problem at the centre of our financial woes. I may be wrong but I don’t think I’ve seen Nassim point the finger so directly at Alan Greenspan and Ben Bernanke before now:-
Now let me tell you what worries me. Imagine that the turkey can be the most powerful man in world economics, managing our economic fates. How? A then-Princeton economist called Ben Bernanke made a pronouncement in late 2004 about the “new moderation” in economic life: the world getting more and more stable—before becoming the Chairman of the Federal Reserve. Yet the system was getting riskier and riskier as we were turkey-style sitting on more and more barrels of dynamite—and Prof. Bernanke’s predecessor the former Federal Reserve Chairman Alan Greenspan was systematically increasing the hidden risks in the system, making us all more vulnerable to blowups.
And for newer readers (thanks for dropping in), you may want to read my post Smarter Than the Av-er-age Bear in which I reference some of my writing from way back in 2005:-
When people think about housing they don’t tend to think of a complex system. They will first think about their own house, those in the neighbourhood, and then a national price index recently described in the press which provides a sense of overall direction. They will probably then invoke a sense of someone who made a killing on property, or whom they saw renovate and sell at a profit on some TV show. From this they will make decisions to buy or sell. There is a strong element of imitation in what motivates them.
These behaviours are definitely part of what makes up a market, but Sornette’s specialism is in analysing them mathematically through study of the price activity of markets. Sornette’s last paper on housing demonstrated that the UK housing market would peak late 2003 or mid 2004, and then be susceptible to a crash. At that time, he did not characterise the US market as a bubble, but in his latest paper he shows that, two years on, the US is in a bubble.
A bubble with a crash in the UK will be one thing, but a serious reversal in the US would be very damaging. It remains to be hoped that the pump priming that occurred in 2000-2001 has not created a greater problem from which the world economy will suffer a more severe hangover.
I mention this again because I was quite astonished by the BBC‘s “heavyweight” Newsnight current affairs programme on Monday. Economic pundit Diana Choyleva from Lombard Street Research said that central bankers — and Alan Greenspan in particular — might shoulder much of the blame for the current problems through keeping policy interest rates too low for too long. This was met with a characteristic disbelief on the part of news anchor Jeremy Paxman which I feel suggested a serious lack of editorial understanding of the issues, now 18 months into a rolling crisis. But then, I haven’t yet told you of the disdain for business journalism that I personally experienced when interviewed for a very senior BBC post.
If you can’t be bothered to read Magoo Finance I, the video is here:-Donate and help me buy back my Fender ('About' tells you why)
- magoo finance
- magoo finance III
- magoo finance II
- bloomberg’s late lunch with taleb
- smarter than the av-er-age bear