No Free Lunch [Or: The Stupid Germans Come Home To Roost]

Posted on by David Wright

I know that my friends and associates who work at at investment banks make piles of money. I know that they make this money mostly because the value of their skills is colossal. I know that the value of their skills is colossal because people with their skills can make mountains of money with a sprinkling of capital and a deluge of leverage.

Nine years out of 10, anyway.

But in that 10th year they wipe out about 10x-100x their capital. The business model is spared, the conventional wisdom goes, because of bailouts of various kinds.

But bailouts don’t tell the whole story for me. Bailouts aren’t certain so there will only be SO much money willing to bet on a bailout. There’s an idiot at that poker table and I think we’re figuring out who it is.

Here are some quotes about this recent paper:

Krugman:

this is the latest in a series of papers arguing that the U.S. shadow banking system consists in large part of … European banks. This suggests that the creation of the euro had large implications even in US capital markets; and of course it suggests that the financial fallout of the euromess could be very large here as well.

In short, the ECB could be in the process of destroying not just the euro, but the world.

Cowen quotes the abstract under the title “If True We Are Doomed”:

European banks may have played a pivotal role in influencing credit conditions in the United States by providing US dollar intermediation capacity. However, since the eurozone has a roughly balanced current account while the UK is actually a deficit country, their collective net capital flows vis-a-vis the United States do not reflect the influence of their banks in setting overall credit conditions in the US.

Michael Lewis:

When Goldman Sachs helped the New York hedge-fund manager John Paulson design a bond to bet against—a bond that Paulson hoped would fail—the buyer on the other side was a German bank called IKB. IKB, along with another famous fool at the Wall Street poker table called WestLB, is based in Düsseldorf—which is why, when you asked a smart Wall Street bond trader who was buying all this crap during the boom, he might well say, simply, “Stupid Germans in Düsseldorf.”

How To Make Temporary Friendships (Sell Stuff)

Posted on by David Wright

From Barker:

Overall, we find that retail employees use five broad categories of rapport-building behaviors in commercial contexts: uncommonly attentive behavior, common grounding behavior, courteous behavior, connecting behavior, and information sharing behavior.

All the old sales gimmicks work.

One thing that intrigues me is the connection between these traits and Chateau Heartiste ‘beta’ behaviour traits. While I think the boys at CH take those arguments to extremes sometimes, it’s probably fair to say that women like bad boys, but need to mask that fact because society, in general, likes nice, attentive people.

Today In Things I Don’t Understand

Posted on by David Wright

Emacs, the development environment for gods.

Here is xkcd:

I find myself completed fascinated by computer programming. I admire people who are awesome at it. I follow the culture. I’m desperate to learn it.

I code in just about every waking moment not explicitly devoted to something else. I still lead a life, of some sort (wife, exercise routine, job), but few hobbies: the odd boxing match (5%), my blogroll (10%), this blog you’re reading (5%) and programming projects (80% of my free time). I am so frustrated with myself for not learning this years and years ago. Here I am in my 30s and scratching the surface of something immense. I will never be good at it… Never.

So. Emacs. I’ve read about. Heck, I even downloaded the thing onto one of my computers and completely ran aground. “You see, chortles the silverback neckbeard, real software isn’t ‘INSTALLED’ (*spits*), it’s compiled… AFTER editing a few non-trivial text files to suit your system’s specific requirements. If you can’t handle that…”

Pathetic, he whispers dismissively, turns and waddles away.

THAT’s Emacs. That’s the C library for XML processing I strangled my mind with the other day. Heck, that’s just about everything you do with C, which I’m desperate to learn but simply cannot see how I do that without spending months of dedicated evenings/weekends studying it. I have too many priorities. I have too little time.

I feel stupid every single day.

@#$@ing Monopolies

Posted on by David Wright

From my hometown:

Those owners want to add 500 acres of space under glass, which would allow them to operate 24 hours a day, 12 months a year. That would translate into 2,300 short-term and 1,050 permanent jobs, not to mention allow the town to expand its market for locally grown fruits and vegetables.

It seemed like a done deal when system upgrades in Essex County were set to begin in May 2010. But when Leamington Mayor John Paterson met with hydro officials he learned the ugly truth. “They said, with the way the economy was going in Windsor, their bosses said there wasn’t enough economic activity down here to worry about it,” he said. “My jaw dropped.

This infuriates me. A potentially positive NPV infrastructure project going unfunded because the bureaucrats in charge of the process possess local POWER but no local KNOWLEDGE.

THIS is a fantastic example of why governments fail. This makes me want to camp outside this despicably ignorant bureaucrat’s office and shout Arnold Kling blog posts from the top of my lungs.

Motivations And Scale

Posted on by David Wright

A paper on small businesses.

[W]e show non pecuniary benefits (being one’s own boss, having flexibility of hours, etc.) play a first-order role in the business formation decision. We then discuss how our findings suggest that the importance of entrepreneurial talent, entrepreneurial luck, and financial frictions in explaining the firm size distribution may be overstated.

Here’s the MR link.

Another important quote:

some firms do not grow or innovate simply because they do not want to grow or innovate… those business owners that report starting their business in part for non-pecuniary reasons were much more likely to want to keep their firm size small well into the future.

I recently heard a story about a round of layoffs at a large reinsurance company. It started with an email to 50 or so people (NOT BCC’d!!) who were told to cancel any vacation they had for the next two weeks. Sure enough, two weeks later, as told to me by one of the guys on the list, HR and managers were walking the hallways and slipping into offices to deliver their fatal blow. My storyteller suddenly found himself facing his own angel of death (his boss) but was told his name was a decoy on the list (they couldn’t be that obvious!). He was fine.

Work for yourself, indeed.

Another quote:

Second, some businesses may stay persistently small because they are in industries which have low natural efficient scales. Many small businesses are dentists, plumbers, real estate and insurance agents, small shop keepers, and beauticians. Within these industries, the productivity of the firm is directly linked to the individual’s skill set.

If you’re in a business for which human service is the primary function, there is NO economy of scale. Humans aren’t scalable.

Once upon a time, Investment Banks were such businesses, like doctors and lawyers. They ate or starved on the relationships and execution skill of a few individuals. They found scale when they figured out they could raise capital and trade on their knowledge advantage. The free option (bailout) on their debt for their bondholders turbocharged this model and they became the omnipotent behemoths we know today.

Occupy Wall St.

Posted on by David Wright

OWS represents four things to me:

  1. An expression of discontent protected by constitutional rights
  2. A convenient cover for run-of-the-mill hooligans, crackpots and anarcho-douchebags to abuse local business or yank the mic and step up on their soapbox  as suits their fantasies.
  3. A political movement that, yes, like the Tea Party, represents the polarization of political discourse when confronted with intractable economic problems. In other words, a pointless endeavor.
  4. An occasional fantastic inconvenience for me personally since I live and work in the area. I HATED OWS for inspiring the NYPD to crank up security in the area (costing god knows how much money) and forcing me to constantly reroute my commute.

Homeless Shelter No More

Posted on by David Wright

The Occupation is over:

The ruling by Manhattan Supreme Court Justice Michael Stallman says that city can stop protesters from bringing tents, tarps and other camping equipment into the park…

“That was my home,” said Shane Stoops, 23, an occupier from Seattle who said he had been at Zuccotti since the dawn of the protest Sept. 17.

“You see all those garbage trucks? That’s where I live now. They took my life… all my clothes, my four-man tent and mattress, all of my books and three years of drawings.”

Maps

Posted on by David Wright

Excellent xkcd today (it’s always excellent).

I just want to say that I learned something about the details of how effed up the Earth’s surface is when I tried to implement a few different distance-calculation algorithms.

The Earth isn’t a sphere, the Earth isn’t even an ellipsoid. The Earth is a GEOID, an object made up expressly for the purpose of describing how screwed up the topography is on this gigantic gravity-glued rock floating through the void.