… and is still a Philistine. Economists are not Concerned Only with the Financial Value of Things:
The dismal performance by the London stock market leaves City high-flyers facing much reduced bonuses and foot soldiers fearing thousands of redundancies…With no obvious turnround in sight some of the gloomiest market watchers are making comparisons with other share meltdowns such as the 1929 crash. The FTSE 100 index is now down 43% from the peak reached on New Year’s Eve 1999.
Wall Street traditionally enjoys a late rally in the last couple of weeks of December but this time the fillip failed to materialise. The Dow is also ending down for the third consecutive year. The Nasdaq has dropped even more sharply, recording a 31% drop this year.
The Dow has now suffered a cumulative fall of almost 38% since January 2000, compared to a slide of 45% during the 1970s oil crisis and an 89% drop during the depression of the 1920s and 1930s.
This was 2003, right in the middle of the UK housing boom and a 15 year stretch without a recession. The point being that things can get better quickly, but that the UK markets still have a long way to drop, relative to the gravity of the downturn.
This recession is really bad, its the first systemic failure of globalization in the electronic age. I am a naturally negative doomsayer and I think this will end in a large war within 10 years, but now I’m seeing some irrational pessimism that I don’t buy, regarding all banks, and so I’ve bought Goldman Sachs stock.
Jeremy Warner says it well in the Independent:
“If every house on your street was put up for sale all at the same time and it was announced that they must all be sold within the week, you wouldn’t expect to get much for your property…Nobody in their right mind would think of participating in such a firesale unless they absolutely had to, yet this is the sort of nonsense approach to valuation which is now routinely applied by analysts, accountants, regulators and financial commentators to bank and insurance balance sheets.”
Myth busting the Wild West.
In the cowboy towns that epitomized the Wild West: “Abilene, Ellsworth, Wichita, Dodge City, and Caldwell, for the years from 1870 to 1885, there were only 45 total homicides. This equates to a rate of approximately 1 murder per 100,000 residents per year”.
Source.
Measured by murder rate, in 2007 New York was 6 times; DC, 31 times; Newark, 37 times and Baltimore, a staggering 45 times more wild than the Wild Wild West.
DC – 183 Murders (31 per 100,000 residents)
New York – 494 Murders (6 per 100,000 residents)
Baltimore – 281 Murders (45 per 100,000 residents)
Newark – 104 Murders (37 per 100,000 residents)
In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America’s sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.
Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets….
Whether it takes months, or just weeks, the world is going to discover that Europe’s financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus
The pinch of salt that should be taken with this article is that its author is a renowned euro-skeptic. For example, Polish mortgages in Swiss Francs are still cheaper than if they had been taken out in Zloty, and the number of people with large levels of housing debt is much less than US or UK.
Highly revered traditional boat building techniques, all around the world, almost universally created leaky, structurally unsound objects which were entirely patched up with caulking to prevent them sinking, since there was no rational understanding of how boats should be designed.
Although people more often complain that we pay no respect for the past, the evidence points to the fact that the opposite is true – i.e. we often tend to respect things and accept them as true specifically because they are old – such as the current version of a religious text such as the bible versus countless other original versions.
As a dedicated futurist, I am always on the lookout for examples of old is bad, and a good one is in J.E. Gordon’s classic structural engineering book, The New Science of Strong Materials. Gordon stripped away sacrosanct notions in the name of science and reason a way that is sadly uncommon today. He pointed out that gothic cathedral structural gymnastics were often an inelegant structural mess when compared to elegantly balanced dome structures such as Hagia Sophia, but he was especially scathing about boat design.
“In spite of all the centuries which he had to learn about it the traditional shipwright seemed to be unable to understand about shear.”
Gordon was originally a naval architect and It turns out that centuries old traditional wooden boat construction was based upon poor engineering instinct. Boats were designed like primitive beams with no account of increased stresses around openings. More importantly there was no concept of shear stresses which would open up gaps between planks causing leaks, in other words there wasn’t even any consideration of beam theory itself which takes into account shear stresses within the web of a beam. Boats were like five-bar gates without the diagonal member and angled iron bracings were first introduced as late as 1830.
Gordon contrasts with fashionable writers such as George Dyson who documented the years he had spent designing traditional Aleut sea kayaks noting their superior evolved design.
Aleutian sea kayaks may be a special case, a niche exception that tests the rule, however, until the early 20th century boats were badly designed.
CNN’s Senior health correspondent, Elizabeth Cohen has some tips about healthcare mistakes to avoid if you fear a layoff. Number 1. is avoiding getting every test out there.
Elizabeth quotes Dr. Delia Chiaramonte, a Baltimore patient advocate: “If a mammogram shows a likely cancer, it will be very hard to get insurance in the future,” she says. “If I knew I was going to start another job with insurance in two months, I might hold off on cancer screening until then.”
In a country where coffee has to have a label warning that it may be dangerous to drink, where buses are evacuated because of a missing peanut and slipping on a wet floor can secure your retirement, all because of people getting sued, a national news outlet can include, what would elsewhere be criminally negligent, advice of a qualified Doctor (who has sworn the hippocratic oath), to avoid prudent screening for a life threatening illness, in a list of health tips.
To add insult to potential injury, this advice concerns an illness whose risk has been diminished by recent health education campaigns consisting of well meaning charity runs, sincere TV hosts and pink ribbon wearers everywhere urging you to screen yourself – on places like CNN. But here we have the farcical situation where a professional patient advocate is telling you not to bother on a news outlet that would be careful not to recommend drinking hot coffee in case it got sued.
Ultimately, all of this stems from the incompatibility of healthcare and capitalism, in a country that has an idealogical attachment to the latter. Capitalism is genuinely ideal for things where there is a level playing field and everyone has an equal opportunity to thrive. But unfortunately not everyone is equal when it comes to health, and therefore, in a free market, insurance companies can’t break even from the unlucky people who are already or are likely to be ill.
Something that is becoming apparent in this recession is that until America has universal healthcare, like nearly all other developed countries, it will be a sick place for the sick.
The front page of the New York Times website features a tribute to Joe Ades, one of New York’s true characters:
“Joe Ades got people’s attention at Union Square: the British man with expensive suits and a radio announcer’s voice — the man selling the $5 peeler. He died on Sunday”.
There is a meme that exists on both sides of the Atlantic about people who beg or sell on the street that they are somehow secretly rich. This is used uncharitably to denounce beggars as frauds and to romanticize the lives of flamboyant and charismatic salesmen.
The rumors about Ades were that he lived with on the Upper East Side and was independently wealthy. Vanity fair describes him as he dines “with his fourth wife at exclusive restaurants, sips Veuve Clicquot at the Pierre, and goes home to a three-bedroom Park Avenue apartment.” Somehow Ades was selling for his love of the job rather than needing the money. If this is entirely true, it is romantic, if not its a bit patronizing. The Joe Ades story has all the ingredients of one which will become embellished as it becomes part of New York folklore, so its worth dissecting in the interests of historical accuracy, and to understand how myths originate.
Ades used to sell on the corner of my street, so I saw him nearly every week day over a period of years. Dave Pell bought me one of his peelers when he came to visit, which made me like Dave even more because he appreciated there was something special about Ades.
The Times story tells us that Ades wore “…expensive European suits and shirts”. European has been dropped on the front page to read “expensive suits”. I suspect that European suits is accurate and via a two step mutation within a single New York Times report, ‘European’ became ‘expensive European’ which became ‘expensive’. In defense, the 2006 Vanity Fair article is specific: “Joe cut a noticeably soigné figure in his classic, British-made Chester Barrie suits and bold shirts and ties from Turnbull & Asser.” However, I’ve witnessed the process of journalistic profiling enough to know that one swallow makes a summer in profiles, and people can become characterized by their Sunday Best rather than their less interesting, everyday attire.
Ades wore suits which were well worn and did not look particularly expensive to me, they also looked like they may have been from the early 80s as can be seen by the width of the lapel in the photo in today’s Times. In addition Ames wore the same suit most of the time (either a gray or tan one) and with mismatching shirts suggesting that he did not or could not spend a fortune on clothes. These suits would surely have been European if they were the same ones he owned when he came to America, but the phrase “expensive European suits” is loaded with different connotations which are misleading, allowing the story to morph into a more exaggerated form. The most noticeable omission from the Times’ description is the fact that Ades wore old beaten up soft shoes or sneakers with his suits, they are absent in the picture but were conspicuously jarring in reality.
The second feature that the Times mentions is Ades’ ‘radio announcer’s voice’. This could mean that he spoke resoundingly clearly but given the focus on the fact that he was British the inference is more likely that he had the antiquated dipthong-ridden vowels of the upper classes as personified by Pathe News reels and the pre-war BBC. To most people, many English accents may sound similar, but to an anally retentive native, like myself, they are an object of endless fascination in both their variety and the obnoxious English attachment of status to them. Although Ades was apparently from Manchester, his accent was neither Mancunian or upper class English, but blue-collar London. In fact Ades had a very interesting and specific accent, one that has become more associated with North London but originated in the East End. To hazard a guess, Ades accent may have been an example of that of Jewish East Enders whose families settled in the UK having fled eastern European pogroms and migrated north as they became more affluent, from Brick Lane to Hackney to Stoke Newington and eventually Hampstead and Golders Green. Many Ashkenazi families who progressed up the London social ladder by hard work, often as street salesmen, have success stories which are familiar in New York and are no doubt why Ades resonated on a subconscious level.
None of this myth busting denigrates the fact that Ades was a charming and charismatic New York character. But if, in future, Ades is remembered as an aristocratic, fancy suited, upper-class English dandy that hawked vegetable peelers as an ironic hobby, that would be wrong and actually less interesting.
Politics, Protectionism and Patriotism.
[despite popular outrage that British workers should have to find work in Europe, as recently as the 80s, this phenomenon was commonplace enough to be the subject of the sitcom above, about migrant UK builders in Germany]
The is alarming evidence building that co-ordinated efforts to ward off a depression could fail because of a political climate which will demand suicidal protectionism.
Here is what looks like a reasonable blog post attacking UK anti-protectionist politician, Peter Mandelson, someone who is certainly worth attacking, but not for these reasons. What I am about to argue seems ridiculous, that the attitude expressed in an innocuous blog post which is entirely representative of the popular mood, is terrifyingly dangerous, points to a political climate which will cause a depression wherever it takes hold and leads to fascism when unchecked. The problem is that this meme will spread through nice enough people.
During the Great Depression American manufacturing slumped causing misery among workers and creating the the political environment for the introduction of the highest import duties in US history. A chain reaction of protectionism spread throughout the world, global industrial production fell 36% in three years and world trade dropped by 62%.
People who know this, such as Britain’s Euro-politician, Peter Mandelson, are panicking. A series of wildcat strikes in the UK against workers from another EU country is feeding populist anger that British jobs should be for British people. This is a reaction which provably leads to less jobs for British people if the trade of workers and capital throughout Europe is stymied. On the other hand, to tell British workers that they should get jobs in Europe and stop being racist (as Mandelson, who is nothing if not a schemer and political animal, and therefore should know better) is politically useless and will deepen that anger, even if it is a fact.
People who try and teach the facts of evolution to religious people often show a similar naivety, thinking that reason is a weapon against a belief held for emotional reasons. We are on a dangerous path that leads to a depression, because of the way people feel when they are suffering, when the root causes are not immediately visible and there is an understandable denial that their previous lifestyle was an unsustainable fiction.
People are currently angry, and human beings are naturally tribal. It is much more likely that a country of angry people will cripple itself attacking trade with other tribes, than accept than suddenly join hands with those of another and accept lower status, working for them. For the UK in particular, the recent past has been forgotten. Migrant British workers were the subject of a popular sitcom, Auf Wiedersehen Pet, as recently as the 80s. The previous reality of British builders working in barracks in Germany was been replaced by migrant Poles coming to a booming UK and living of the fumes of fraudulently leveraged banking and fictitious housing asset prices. With jobs disappearing in Britain, people are less happy about European workers.
The solution to this protectionist climate is to create a scapegoat other than racism. This is obviously playing with fire, but channeling rage against the banking industry may actually be an alternative which has some constructive benefits. Anti-usury legislation, transparency and accountability with risks of over regulation would be preferable to racism and destruction in trade.
If Britain goes down the route of protectionism it may only hurt the UK, but if it shows an inexorable trend capable of spreading worldwide, then a political solution capable of channeling people’s anger and convincing people to avoid protectionism needs to be found. The facts will not speak for themselves in politics, as many scientists know.
Remember the huffing and puffing by Cheney that the American way of life was not negotiable, in the face of mammoth oil prices that proved that it certainly was?
It now seems that negotiability might be wishful thinking. The Chinese, who buy our debt, are making noises that sound awfully like they are about to try and dictate the American way of life. This is what the Chinese premier is saying about America, and it doesn’t sound like he’s ready to bargain:
“their unsustainable model of development, characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit; lack of self-discipline among financial institutions and ratings agencies and ensuing distortion of risk information and asset pricing; and the failure of financial supervision and regulation to keep up with financial innovations, which allowed the risks of financial derivatives to build and spread”
[Living in downtown Manhattan is rather like being in the Walled City of Kowloon]
The place where I live, specifically, the few blocks where I live in New York’s financial district, resembles the fabled Walled City of Kowloon having the highest population density in the world. It is known affectionately as ‘The Canyons’, on account of the combination of an 18th Century organic, narrow street pattern and 20th Century skyscrapers.
[The street where I live, in the canyons.]
During weekdays, every horizontal surface takes a beating that compares to a continuous exodus from a stadium event. Road surfaces are a patchwork quilt of tarred repairs, near indestructible travertine slabs outside corporate HQs are cracked and worn and the Fulton St. subway looks like an abandoned ruin, on account of the fact that it is the exact opposite. Even the cookie-cut design of the Starbucks on the corner next to J & R shows signs of decay in the varnish that has worn from the floorboards, rendering it unlike the sanitized Starbucks elsewhere that are stamped from exactly the same mold.
Federal borrowing till end of 2007:
Federal borrowing till end of 2008:
This comes with the following scary statistic:
“The cost of the bailout ($4.6165 trillion) exceeds the inflation adjusted cost of the Marshall Plan, New Deal, S&L Bailout, Nasa’s Lifetime Budget, the Korean, Vietnam, and Iraq wars and also the Lousiana Purchase, combined ($3.92 trillion). “
The don’t panic argument comes from the fact that the above sentence doesn’t include the WWII spending which resulted in a similar debt as a percentage of GDP, and things worked out OK for the US.
The problem is that the US was more like China, at the end of WWII, essentially a creditor nation that made things for the rest of the world.
The bottom line is that the best we can hope for here is a period of very aggressive inflation as a global recovery starts. All the more reason to reduce dependence of oil during this respite from inflation.