Archive for the 'black swans' Category
There seems to be a move to make the Lehman Brothers’ collapse the central turning point in the whole financial and economic crisis. But this is what Nouriel Roubini thinks:-
Some people suggest that letting Lehman go in this way was a mistake and if we had just bailed out Lehman everything would have been fine. We would have avoided this global meltdown, this global recession. I believe this interpretation of history is totally incorrect, because by the time Lehman had collapsed the housing recession had already started two years ago and was getting worse. So the idea that the crisis started with the collapse of Lehman and if we had only bailed out Lehman everything would have been OK in my view is just total nonsense. We were already in the middle of a severe economic and financial crisis, and a mortgage problem and a greater credit crunch that had been developing and worsening step by step for almost two years.
Why might it be attractive at this stage in the crisis to draw attention to Lehman as a key turning point? I wonder if such a simplified narrative, and one that hinges on a relatively recent policy error (if that is what Lehman’s collapse was), lets a lot more of us off the hook. If you did not appreciate the enormity of what was happening before Lehman collapsed and weren’t prepared — whether in business, journalism or just in your own household — you can draw a line under your ignorance and apportion blame more specifically. I suspect for journalists, analysts, investors and executives who found themselves adrift as events started turning sour post-February 2007, it allows them to reinvent themselves as more knowledgeable than they in fact were.
It must be some kind of memory bias at work. But which one to choose?
More from Roubini and the notion that we may still face death by a thousand cuts:-Donate and help me buy back my Fender ('About' tells you why)
Since I heard about social proof, and more specifically Joshua Bell’s famous busking experiment, I’ve wondered what in fact determines my own musical taste: how independent is it of others? Like anyone, I want to think I’m a free spirit.
This may not be helpful, but the only sure example I have where I responded independently to a piece of music was Michael Jackson‘s Billie Jean. I really did not like his music in the period up to 1983 for very particular reasons: Off the Wall had been played in our house for several years till it drove me up the wall.
From what may have been the very first UK airplay of Billie Jean, I immediately went out and ordered the 12″ version, making the record an outlier in an LP collection of otherwise orthodox neurotic-boy-outsider (NBO) teenage angst music. That’s if you exclude the bootleg Buddy Guy album that found its way to small-town Lincolnshire by some miracle or another. Much is made of the revolutionary impact the accompanying video had on the success of Billie Jean, and that may all be true, but I know that did not influence me.
It didn’t stop there. Soon after, and in a similar fashion, I heard the roughly contemporaneous Walk Right Now, penned and performed by Jackson and brothers.
Walk Right Now certainly does illustrate my early experiences of social proof in action. I upset and embarrassed a good many of my adolescent chums with this one, particularly one who was a dyed-in-the-wool Joy Division and Morrissey fan. He loathed it, until his big brother (whom he worshipped) returned from Cambridge porting it in his own diminutive singles collection. Things were crossing over fast in 1983 for those of us with parochial musical tastes and where the only good record shop occupied the tiniest of former corner stores. Within a few months of Billie Jean’s release, my friend found his erstwhile NBOs, New Order, going all techno-dance on him, creating a yet more legendary 12-inch.
It seems impossible to know the truth about Michael Jackson. Maybe, with Billie Jean, he flew too close to the sun. I understand New Order, meanwhile, retired and went yachting.
And here, as promised, we cross over from maudlin to up-tempo.Donate and help me buy back my Fender ('About' tells you why)
It’s perhaps time to end this maudlin phase on the blog, but before we go up-tempo, here’s an excuse to post another picture of ’80s Soviet rock icon Viktor Tsoi. Nearly forgotten him had you? Newbies can start an excursion here to learn more about my chance encounter with Tsoi nearly a quarter century ago.
I may be wrong but I believe this photo was taken on Kodachrome transparency film. I know I used a bit of Ektachrome in those days too, but I suspect this was 200 ASA, out of the red packet. Tuesday saw the demise of this much loved film brand.
On a happier note, I was recently reunited with my long lost Nikon FM, with which the above photo was taken.Donate and help me buy back my Fender ('About' tells you why)
In the middle of that 2001 Chapter 11 process, I was being primed for information in the Tipperary pub in Fleet Street. The “Tip” is the oldest Irish pub in England and the first ever to sell Guinness here, or so the free information on the internet tells me today. I did not know that then. There was plenty of free information available in 2001 despite a relative shortage of comprehensive pub histories. All the same, you still had to pay for the Guinness. And that’s invariably the case today.
I was with a very senior colleague who was plying me with the black stuff; I think he’d been asked to keep an eye on me and my rank-breaking entrepreneurship. I said to him that I thought part of the problem for even highly specialized subscription content businesses, like the one we were proposing to launch out of the bankruptcy, was that so much generic news was then free on the internet. This factor perhaps had already tipped investor sentiment away from the concept of proprietary news content. I suggested that one of the principal reasons for this may have been the example set by our competitor, the news agency Reuters, in selling its news feed to search engine/portal Yahoo!, without obvious limitations on what could be published.
“Oh, I did that deal!” said the executive. Imagine the Knackered Hack coughing into his artisan-poured pint, spraying his “mentor” with white foam. [For sure, that's not what happened exactly, but I'm not a factual journalist any more; I don't carry an NUJ card these days and even my poetic licence is provisional.]
Some of us had known for a long while that the value proposition of unbundled real-time news was not what it once was. It wasn’t a good time to be giving so much of it away. Reuters seem to have wised up a couple of years ago because they no longer operate that Yahoo! deal.
But I still wonder, in my counter-factual way, if such a vast organization as Reuters had not taken that fork in the road so prominently would other news media have felt so compelled to provide so much stuff for nothing? And thence GoogleNews. Would a viable subscription model not have been built by now to get the more innovative news organizations [oxymoron warning] cleanly out of the ink-on-dead-trees business? Perhaps not.
There may be more lessons from the real-time news industry of the ‘80s and ‘90s for today’s media to illustrate the tragedy/farce heuristic. Anyone interested in another chapter on that soon?
Photo credit trickyDonate and help me buy back my Fender ('About' tells you why)
As heuristics go, just as the most expensive wine on the wine list is not to be trusted, writers should be given a wide berth if they quote the first lines of books, especially if they are quoting Marx paraphrasing Hegel.
At the start of The Eighteenth Brumaire of Louis Napoleon, a book which I probably have read in its entirety (but don’t quote me), the bearded one says this:-
Hegel remarks somewhere[*] that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce.
Chevy Tahoe, first a gas-guzzler, then a hybrid?
I risk getting into even deeper water with the mathematicians for suggesting there is something of the self-similar in Marx’s statement, and then with historians for invoking the idea that history repeats itself. Perhaps I’d be safe with Yogi Berra: “It’s like déjà vu all over again”.
Yesterday General Motors announced it had filed for Chapter 11 bankruptcy. This is on a grand, publicly-listed, credit-fuelled scale (GMs’ annual revenue was $149 billion last year, and it’s lost more than $80 billion in the past four years, its market capitalization collapsing from a surprising $26 billion in October 2007, when the credit crisis was well underway, to next to nothing.) The German and US governments have intervened to save jobs.
My own experience of Chapter 11 in 2001 was a less remarked upon affair (less than $1billion in revenue). But at their respective times, within their respective universes, the two Chapter 11 incidents share significance: the words “too big to fail” were uttered in both instances.
There is no shortage of animal spirits evident in either, some interesting uses of expenses, and for those observing closely (perhaps that’s just me in my Chief Brody hat ) the one may have heralded the other. Did the one in fact scale into the other? GM is now perhaps the most iconic victim of the credit crunch, which through my long-path-dependent-tinted spectacles was hinted at way back when, in the perennial struggle between debt and equity.
The Chapter 11 that dissolved the news organization I worked for merited very little press comment; ironic given that 600 global journalism jobs disappeared more or less overnight. Almost without exception those jobs were engaged in purely factual reporting: the scrutinizing of financial markets, banking and economic and monetary policy. Instructive perhaps, given the current collapse of news businesses the world over, that they were entirely online, publishing by corporate subscription, and over internet protocol for several years already. They could not be saved because the consensus then was that this market was already oversupplied. News was a commodity, and only so much was necessary to lubricate the inner workings of global financial markets.
I’ve long since given up the conceit that the factual information output of my professional career met some fundamental human need (except the feeding of my family). This was a way that I used to comfort myself: as a journalistic form, economic and financial newswire reporting could legitimately claim a fourth-estate function of representing important facts about the world, even if it was bounded in its day-to-day ability to call policy-makers and financiers fully to account. It was not the sharpest instrument, but it was probably a lot sharper than print journalism which in effect fed off some of its by-products.
I’ve already described how, in my own attempts to refinance this organization — as I moulted my middle-management plumage and temporarily tried on the peacock feathers of the imagined future CEO — I submitted with my colleagues a restructuring that would focus news reporting resources on the growing and mostly under-reported market in credit derivatives. That market was the one that made sense to my diverse rescue task force: whether their personal focus was Whitehall, currencies, commodities or companies, Essex-boy, anarchist or Etonian. In retrospect, it is clear that transparency and scrutiny of those complex markets would have been useful in the post-9/11 world. But in the summer of 2001, investors came there none. The lesson, as ever, seems to be: if you’re going to fail, fail big. Don’t pin your hopes for rescue on a knackered hack, but a newly minted Barack.
This takes us back to Robert Shiller and George Akerlof’s qualification of capitalism: “It does not automatically produce what people really need; it produces what they think they need, and are willing to pay for.” Since 2001, it is clear that a great many people, and at the same time too few, thought they needed GM’s Chevy Tahoe SUV. President Obama agrees that they need more. Me? I’m not so sure.
Photo credit Chevy Tahoe: anthonaresDonate and help me buy back my Fender ('About' tells you why)