Reclaiming America’s Soul

"Nothing will be gained by spending our time and energy laying blame for the past." So declared President Obama, after his commendable decision to release the legal memos that his predecessor used to justify torture. Some people in the political and media establishments have echoed his position. We need to look forward, not backward, they say. No prosecutions, please; no investigations; we’re just too busy.

And there are indeed immense challenges out there: an economic crisis, a health care crisis, an environmental crisis. Isn’t revisiting the abuses of the last eight years, no matter how bad they were, a luxury we can’t afford?

No, it isn’t, because America is more than a collection of policies. We are, or at least we used to be, a nation of moral ideals. In the past, our government has sometimes done an imperfect job of upholding those ideals. But never before have our leaders so utterly betrayed everything our nation stands for. "This government does not torture people," declared former President Bush, but it did, and all the world knows it.
Read more

The real crisis? We stopped being wise

By : Barry Schwartz
Barry Schwartz makes a passionate call for "practical wisdom" as an antidote to a society gone mad with bureaucracy. He argues powerfully that rules often fail us, incentives often backfire, and practical, everyday wisdom will help rebuild our world.

Watch the video: Loss of wisdom

The paradox of choice

By : Barry Schwartz

Psychologist Barry Schwartz takes aim at a central tenet of western societies: freedom of choice. In Schwartz's estimation, choice has made us not freer but more paralyzed, not happier but more dissatisfied.

Note:
When there is only one jean and it is not good who is responsible? The world
When there are hundreds to choose from and what you chose is not good who is responsible? You.

Why choice make people miserable?

• Regret and anticipated regret
• Opportunity Cost
• Escalation of expectations
• self blame

Watch the video..

Making Banking Boring

By: Paul Krugman
Thirty-plus years ago, when I was a graduate student in economics, only the least ambitious of my classmates sought careers in the financial world. Even then, investment banks paid more than teaching or public service — but not that much more, and anyway, everyone knew that banking was, well, boring.

In the years that followed, of course, banking became anything but boring. Wheeling and dealing flourished, and pay scales in finance shot up, drawing in many of the nation’s best and brightest young people (O.K., I’m not so sure about the “best” part). And we were assured that our supersized financial sector was the key to prosperity.

Instead, however, finance turned into the monster that ate the world economy.

Recently, the economists Thomas Philippon and Ariell Reshef circulated a paper that could have been titled “The Rise and Fall of Boring Banking” (it’s actually titled “Wages and Human Capital in the U.S. Financial Industry, 1909-2006”). They show that banking in America has gone through three eras over the past century.

Before 1930, banking was an exciting industry featuring a number of larger-than-life figures, who built giant financial empires (some of which later turned out to have been based on fraud). This highflying finance sector presided over a rapid increase in debt: Household debt as a percentage of G.D.P. almost doubled between World War I and 1929.

Read more

Awake and Sing

By FRANK RICH
“I am pronouncing the depression over!” declared CNBC’s irrepressible Jim Cramer on April 2. The next day the unemployment rate, already at the highest level in 25 years, jumped yet again, but Cramer wasn’t thinking about the 663,000 jobs that disappeared in March. He was thinking about the market. Mad money. Fast money. Big money. The Dow, after all, has rallied in the weeks since Timothy Geithner announced his bank bailout 2.0. Par-tay! On Wednesday, Cramer rang the opening bell at the New York Stock Exchange, in celebration of the 1,000th broadcast of his nightly stock-tip jamboree.

Given Cramer’s track record on those tips, there’s no reason to believe he’s right this time. But for the sake of argument, let’s say he is. (And let’s hope he is.) The question then arises: What, if anything, have we learned from this decade’s man-made economic disaster? It wasn’t just trillions of dollars of wealth that went poof in the bubble. Certain American values also crumbled and vanished. Making quick killings by reckless gambling in the markets — rather than by investing long-term in new products, innovations, technologies or services that might grow and benefit America and the world — became the holy grail in the upper echelons of finance.

This was not an exact replay of the preceding dot-com bubble. As a veteran of the tech gold rush recently observed to me, in Silicon Valley “the money comes later” and “the thing you make comes first, however whimsical, silly, microscopic, recondite it may be.” On Wall Street over the past decade, the money usually came first, last and in between. There was no “thing” being made at all unless you count the slicing and dicing of debt into financial “products,” the incomprehensible derivatives that helped bring down the economy, costing some five million Americans their jobs (so far) and countless more their 401(k)’s.

On the same Friday that the Labor Department reported the latest jobless numbers, the White House released (in the evening, after the network news) some other telling figures on the financial disclosure forms of its top officials. From those we learned more about how much the bubble’s culture permeated this administration.

We discovered, for instance, that Lawrence Summers, the president’s chief economic adviser, made $5.2 million in 2008 from a hedge fund, D. E. Shaw, for a one-day-a-week job. He also earned $2.7 million in speaking fees from the likes of Citigroup and Goldman Sachs. Those institutions are not merely the beneficiaries of taxpayers’ bailouts since the crash. They also benefited during the boom from government favors: the Wall Street deregulation that both Summers and Robert Rubin, his mentor and predecessor as Treasury secretary, championed in the Clinton administration. This dynamic duo’s innovative gift to their country was banks “too big to fail.”

.......

Lawrence summers and conflict of interest..

Read more

Obama’s Ersatz Capitalism

By : JOSEPH E. STIGLITZ

THE Obama administration’s $500 billion or more proposal to deal with America’s ailing banks has been described by some in the financial markets as a win-win-win proposal. Actually, it is a win-win-lose proposal: the banks win, investors win — and taxpayers lose.

Treasury hopes to get us out of the mess by replicating the flawed system that the private sector used to bring the world crashing down, with a proposal marked by overleveraging in the public sector, excessive complexity, poor incentives and a lack of transparency.

Let’s take a moment to remember what caused this mess in the first place. Banks got themselves, and our economy, into trouble by overleveraging — that is, using relatively little capital of their own, they borrowed heavily to buy extremely risky real estate assets. In the process, they used overly complex instruments like collateralized debt obligations.

Read more..

Life Lessons From the Family Dog

By Dana Jennings

Our family dog started failing a couple of months ago. Her serious health problems began at about the same time I was coping with my own — finishing my radiation and hormone therapy for prostate cancer.

Since last summer, I’ve learned that my cancer is shockingly aggressive, and the surgery, radiation and hormone treatments have left me exhausted, incontinent and with an AWOL libido. These days I’m waiting for the first tests that will tell me the status of my health.

Even so, as I face my own profound health issues, it is my dog’s poor health that is piercing me to the heart. I’m dreading that morning when I walk downstairs and … well, those of us who love dogs understand that all dog stories end the same way.

Her full name is Bijou de Minuit (Jewel of Midnight) — my wife teaches French. She is a 12-year-old black miniature poodle, and she is, literally, on her last legs. Her hind quarters fly out from beneath her, her back creaks and cracks as she walks, she limps, she’s speckled with bright red warts the size of nickels, her snore is loud and labored (like a freight train chugging up some steep grade) and she spends most of the day drowsing on her pillow-bed next to the kitchen radiator.

Bijou’s medicine chest is impressive for a 23-pound dog: A baby dose of amoxicillin for chronic urinary tract infections; prednisone and Tramadol for pain; phenobarbital for seizures; Proin for incontinence – all of it wrapped in mini-slices of pepperoni.

She is, I realize, “just” a dog. But she has, nonetheless, taught me a few lessons about life, living and illness. Despite all her troubles, Bijou is still game. She still groans to her feet to go outside, still barks at and with the neighborhood dogs, is willing to hobble around the kitchen to carouse with a rubber ball — her shrub of a tail quivering in joy.

I know now that Bijou was an important part of my therapy as I recovered from having my prostate removed. I learned that dogs, besides being pets, can also be our teachers.

Human beings constantly struggle to live in the moment. We’re either obsessing over the past (”Gee, life would’ve been different if I’d only joined the Peace Corps.”), or obsessing over the future (”Gee, I hope my 401K holds up”). We forget that life, real life, is lived right now, in this very moment.

But living in the moment is something that dogs (and cancer patients) do by their very nature. Bijou eats when she’s hungry, drinks when she’s thirsty, sleeps when she’s tired and will still gratefully curl up in whatever swatch of sunlight steals through the windows.

Read More

China’s Dollar Trap

Back in the early stages of the financial crisis, wags joked that our trade with China had turned out to be fair and balanced after all: They sold us poison toys and tainted seafood; we sold them fraudulent securities.

But these days, both sides of that deal are breaking down. On one side, the world’s appetite for Chinese goods has fallen off sharply. China’s exports have plunged in recent months and are now down 26 percent from a year ago. On the other side, the Chinese are evidently getting anxious about those securities.

But China still seems to have unrealistic expectations. And that’s a problem for all of us.

The big news last week was a speech by Zhou Xiaochuan, the governor of China’s central bank, calling for a new “super-sovereign reserve currency.”

Read More

Journal Calls Into Question Plan for Digital Health Records

Now that the federal government plans to spend $19 billion to spur the use of computerized patient records, the challenge of adopting the technology widely and wisely is becoming increasingly apparent.

Two articles, published on Wednesday in the New England Journal of Medicine, point to the formidable obstacles to achieving the policy goal of not only installing electronic health records, but also using them to improve care and curb costs.

Read more...

Related Article ...

The Daily Me

Some of the obituaries these days aren’t in the newspapers but are for the newspapers. The Seattle Post-Intelligencer is the latest to pass away, save for a remnant that will exist only in cyberspace, and the public is increasingly seeking its news not from mainstream television networks or ink-on-dead-trees but from grazing online.

When we go online, each of us is our own editor, our own gatekeeper. We select the kind of news and opinions that we care most about.

Nicholas Negroponte of M.I.T. has called this emerging news product The Daily Me. And if that’s the trend, God save us from ourselves.

Read More...

In One Ear and Out the Other

By all accounts, my grandfather Nathan had the comic ambitions of a Jack Benny but the comic gifts of a John Kerry. Undeterred, he always kept a few blank index cards in his pocket, so that if he happened to hear a good joke, he’d have someplace to write it down.

How I wish I knew where Nathan stashed that deck.

Like many people, I can never remember a joke. I hear or read something hilarious, I laugh loudly enough to embarrass everybody else in the library, and then I instantly forget everything about it - everything except the fact, always popular around the dinner table, that "I heard a great joke today, but now I can’t remember what it was."

For researchers who study memory, the ease with which people forget jokes is one of those quirks, those little skids on the neuronal banana peel, that end up revealing a surprising amount about the underlying architecture of memory.

Read more...

John C boogle - George town univ - May 2007 - "Enough"

Commencement Address MBA Graduates of the McDonough School of Business by John C. Bogle, founder, The Vanguard Group Upon receiving the Honorary Degree of Doctor of Humane Letters from Georgetown University May 18, 2007


Here’s how I recall the wonderful story that sets the theme for my remarks today: At a party given by a billionaire on Shelter Island, the late Kurt Vonnegut informs his pal, the author Joseph Heller, that their host, a hedge fund manager, had made more money in a single day than Heller had earned from his wildly popular novel Catch 22 over its whole history. Heller responds,

"Yes, but I have something he will never have . . . Enough."

Enough. I was stunned by its simple eloquence, to say nothing of its relevance to some of the vital issues arising in American society today. Many of them revolve around money--yes, money--increasingly, in our "bottom line" society, the Great God of prestige, the Great Measure of the Man (and Woman). So this morning I have the temerity to ask you soon-to-be-minted MBA graduates, most of whom will enter the world of commerce, to consider with me the role of "enough" in business and entrepreneurship in our society, "enough" in the dominant role of the financial system in our economy, and "enough" in the values you will bring to the fields you choose for your careers.

Kurt Vonnegut loved to speak to college students. He believed, if I may paraphrase here, that "we should catch young people before they become CEOs, investment bankers, consultants, and money managers (and especially hedge fund managers), and do our best to poison their minds with humanity." And in my remarks this morning, I’ll try to poison your minds with a little bit of that humanity.

.........................

Once a profession in which business was subservient, the field of money management and Wall Street has become a business in which the profession is subservient. Harvard Business School Professor Rakesh Khurana was right when he defined the conduct of a true professional with these words:

"I will create value for society, rather than extract it."

And yet money management, by definition, extracts value from the returns earned by our business enterprises. Warren Buffett’s wise partner Charlie Munger lays it on the line:

"Most money-making activity contains profoundly antisocial effects . . . As high-cost modalities become ever more popular . . . the activity exacerbates the current harmful trend in which ever more of the nation’s ethical young brain-power is attracted into lucrative money-management and its attendant modern frictions, as distinguished from work providing much more value to others."

..........................


Three, no matter what career you choose, do your best to hold high its traditional professional values, now swiftly eroding, in which serving the client is always the highest priority. And don’t ignore the greater good of your community, your nation, and your world. After William Penn, "we pass through this world but once, so do now any good you can do, and show now any kindness you can show, for we shall not pass this way again."

Most commencement speakers like to sum up by citing some eminent philosopher to endorse his message. I’m no exception. So I now offer to you new Masters of Business Administration these words from Socrates, spoken 2500 years ago, as he challenged the citizens of Athens.

"I honor and love you: but why do you who are citizens of this great and mighty nation care so much about laying up the greatest amount of money and honor and reputation, and so little about wisdom and truth and the greatest improvement of the soul. Are you not ashamed of this? . . . I do nothing but go about persuading you all, not to take thought for your persons and your properties, but first and chiefly to care about the greatest improvement of the soul. I tell you that virtue is not given by money, but that from virtue comes money and every other good of man."

Read more

The Inflection Is Near?

Sometimes the satirical newspaper The Onion is so right on, I can’t resist quoting from it. Consider this faux article from June 2005 about America’s addiction to Chinese exports:

FENGHUA, China -- Chen Hsien, an employee of Fenghua Ningbo Plastic Works Ltd., a plastics factory that manufactures lightweight household items for Western markets, expressed his disbelief Monday over the "sheer amount of [garbage] Americans will buy. Often, when we’re assigned a new order for, say, ‘salad shooters,’ I will say to myself, ‘There’s no way that anyone will ever buy these.’ ... One month later, we will receive an order for the same product, but three times the quantity. How can anyone have a need for such useless [garbage]? I hear that Americans can buy anything they want, and I believe it, judging from the things I’ve made for them," Chen said. "And I also hear that, when they no longer want an item, they simply throw it away. So wasteful and contemptible."

Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall -- when Mother Nature and the market both said: "No more."

Read more..

They Tried to Outsmart Wall Street

Emanuel Derman expected to feel a letdown when he left particle physics for a job on Wall Street in 1985.

After all, for almost 20 years, as a graduate student at Columbia and a postdoctoral fellow at institutions like Oxford and the University of Colorado, he had been a spear carrier in the quest to unify the forces of nature and establish the elusive and Einsteinian "theory of everything," hobnobbing with Nobel laureates and other distinguished thinkers. How could managing money compare?

But the letdown never happened. Instead he fell in love with a corner of finance that dealt with stock options.

"Options theory is kind of deep in some way. It was very elegant; it had the quality of physics," Dr. Derman explained recently with a tinge of wistfulness, sitting in his office at Columbia, where he is now a professor of finance and a risk management consultant with Prisma Capital Partners.

Dr. Derman, who spent 17 years at Goldman Sachs and became managing director, was a forerunner of the many physicists and other scientists who have flooded Wall Street in recent years, moving from a world in which a discrepancy of a few percentage points in a measurement can mean a Nobel Prize or unending mockery to a world in which a few percent one way can land you in jail and a few percent the other way can win you your own private Caribbean island.

They are known as “quants” because they do quantitative finance. Seduced by a vision of mathematical elegance underlying some of the messiest of human activities, they apply skills they once hoped to use to untangle string theory or the nervous system to making money.

Read more

Recipe for Disaster: The Formula That Killed Wall Street

A year ago, it was hardly unthinkable that a math wizard like David X. Li might someday earn a Nobel Prize. After all, financial economists--even Wall Street quants--have received the Nobel in economics before, and Li's work on measuring risk has had more impact, more quickly, than previous Nobel Prize-winning contributions to the field. Today, though, as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut--determining correlation, or how seemingly disparate events are related--and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide.

For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.


.....................

Wall Street solved many of these problems through a process called tranching, which divides a pool and allows for the creation of safe bonds with a risk-free triple-A credit rating. Investors in the first tranche, or slice, are first in line to be paid off. Those next in line might get only a double-A credit rating on their tranche of bonds but will be able to charge a higher interest rate for bearing the slightly higher chance of default. And so on.

The reason that ratings agencies and investors felt so safe with the triple-A tranches was that they believed there was no way hundreds of homeowners would all default on their loans at the same time. One person might lose his job, another might fall ill. But those are individual calamities that don't affect the mortgage pool much as a whole: Everybody else is still making their payments on time.

But not all calamities are individual, and tranching still hadn't solved all the problems of mortgage-pool risk. Some things, like falling house prices, affect a large number of people at once. If home values in your neighborhood decline and you lose some of your equity, there's a good chance your neighbors will lose theirs as well. If, as a result, you default on your mortgage, there's a higher probability they will default, too. That's called correlation--the degree to which one variable moves in line with another--and measuring it is an important part of determining how risky mortgage bonds are.

Investors like risk, as long as they can price it. What they hate is uncertainty--not knowing how big the risk is. As a result, bond investors and mortgage lenders desperately want to be able to measure, model, and price correlation. Before quantitative models came along, the only time investors were comfortable putting their money in mortgage pools was when there was no risk whatsoever--in other words, when the bonds were guaranteed implicitly by the federal government through Fannie Mae or Freddie Mac.

........................

Nassim Nicholas Taleb, hedge fund manager and author of The Black Swan, is particularly harsh when it comes to the copula. "People got very excited about the Gaussian copula because of its mathematical elegance, but the thing never worked," he says. "Co-association between securities is not measurable using correlation," because past history can never prepare you for that one day when everything goes south. "Anything that relies on correlation is charlatanism."

Li has been notably absent from the current debate over the causes of the crash. In fact, he is no longer even in the US. Last year, he moved to Beijing to head up the risk-management department of China International Capital Corporation. In a recent conversation, he seemed reluctant to discuss his paper and said he couldn't talk without permission from the PR department. In response to a subsequent request, CICC's press office sent an email saying that Li was no longer doing the kind of work he did in his previous job and, therefore, would not be speaking to the media.

In the world of finance, too many quants see only the numbers before them and forget about the concrete reality the figures are supposed to represent. They think they can model just a few years' worth of data and come up with probabilities for things that may happen only once every 10,000 years. Then people invest on the basis of those probabilities, without stopping to wonder whether the numbers make any sense at all.

As Li himself said of his own model: "The most dangerous part is when people believe everything coming out of it."

Read more

Propping Up a House of Cards

Next week, perhaps as early as Monday, the American International Group is going to report the largest quarterly loss in history. Rumors suggest it will be around $60 billion, which will affirm, yet again, A.I.G.’s sorry status as the most crippled of all the nation’s wounded financial institutions. The recent quarterly losses suffered by Merrill Lynch and Citigroup -- "only" $15.4 billion and $8.3 billion, respectively -- pale by comparison.

At the same time A.I.G. reveals its loss, the federal government is also likely to announce -- yet again! -- a new plan to save A.I.G., the third since September. So far the government has thrown $150 billion at the company, in loans, investments and equity injections, to keep it afloat. It has softened the terms it set for the original $85 billion loan it made back in September. To ease the pressure even more, the Federal Reserve actually runs a facility that buys toxic assets that A.I.G. had insured. A.I.G. effectively has been nationalized, with the government owning a hair under 80 percent of the stock. Not that it’s worth very much; A.I.G. shares closed Friday at 42 cents

....................
....................

To be sure, most of A.I.G. operated the way it always had, like a normal, regulated insurance company. (Its insurance divisions remain profitable today.) But one division, its "financial practices" unit in London, was filled with go-go financial wizards who devised new and clever ways of taking advantage of Wall Street’s insatiable appetite for mortgage-backed securities. Unlike many of the Wall Street investment banks, A.I.G. didn’t specialize in pooling subprime mortgages into securities. Instead, it sold credit-default swaps.

These exotic instruments acted as a form of insurance for the securities. In effect, A.I.G. was saying if, by some remote chance (ha!) those mortgage-backed securities suffered losses, the company would be on the hook for the losses. And because A.I.G. had that AAA rating, when it sprinkled its holy water over those mortgage-backed securities, suddenly they had AAA ratings too. That was the ratings arbitrage. "It was a way to exploit the triple A rating," said Robert J. Arvanitis, a former A.I.G. executive who has since become a leading A.I.G. critic.

Read More ......

Taking the Wheel as Toyota Skids

THE Japanese phrase genchi genbutsu translates as “go to the spot” — in other words, “see it for yourself.” Few executives embrace that philosophy as completely as Akio Toyoda, who is slated to become the next president of the Toyota Motor Corporation.
...........................
Akio Toyoda is not expected to turn the company upside down. Toyota is governed by a series of management principles that collectively represent the “Toyota Way” — practices that focus on consensus management, continuous production improvements and in-depth investigations before any strategic shifts occur.
....................

AS Mr. Toyoda prepares to become president, one critical change awaits: opening Toyota’s management doors to outsiders.

Despite its rapid growth in the United States and Europe, and an increasingly global viewpoint, Toyota remains a Japan-centric company, dominated by Japanese managers, who have yet to give significant, lasting authority to their foreign counterparts.

Two Americans who rose to high-ranking positions this decade — James E. Press and Gary L. Convis — left for top jobs at other companies, Mr. Press at Chrysler and Mr. Convis at the Dana Holding Corporation, an auto supplier

..............................

Despite the gloom surrounding the industry, Mr. Toyoda has the opportunity to “take everything that looks bad, and use it as an opportunity to learn,” Professor MacDuffie said.

Read more

Bailouts for Bunglers

Question: what happens if you lose vast amounts of other people’s money?

Answer: you get a big gift from the federal government but the president says some very harsh things about you before forking over the cash.

Am I being unfair? I hope so. But right now that’s what seems to be happening.

Just to be clear, I’m not talking about the Obama administration’s plan to support jobs and output with a large, temporary rise in federal spending, which is very much the right thing to do. I’m talking, instead, about the administration’s plans for a banking system rescue — plans that are shaping up as a classic exercise in “lemon socialism”: taxpayers bear the cost if things go wrong, but stockholders and executives get the benefits if things go right.

Read More

Six companies born during downturn...

• Procter and Gambler
• IBM
• General Electric
• General Motor
• UTX (United Technologies Corporation)
  
• Fed Ex
  

Read more...

What Life Asks of Us

A few years ago, a faculty committee at Harvard produced a report on the purpose of education. "The aim of a liberal education" the report declared, "is to unsettle presumptions, to defamiliarize the familiar, to reveal what is going on beneath and behind appearances, to disorient young people and to help them to find ways to reorient themselves."
Skip to next paragraph

The report implied an entire way of living. Individuals should learn to think for themselves. They should be skeptical of pre-existing arrangements. They should break free from the way they were raised, examine life from the outside and discover their own values.

This approach is deeply consistent with the individualism of modern culture, with its emphasis on personal inquiry, personal self-discovery and personal happiness. But there is another, older way of living, and it was discussed in a neglected book that came out last summer called "On Thinking Institutionally" by the political scientist Hugh Heclo.

Read more....

A Reading List That Shaped a President

A Reading List That Shaped a President

Some of President-elect Barack Obama’s favored reading matter as mentioned in this article:

• The Bible
• "Parting the Waters," Taylor Branch
• "Self-Reliance," Ralph Waldo Emerson
• Gandhi’s autobiography
• "Team of Rivals," Doris Kearns Goodwin
• "The Golden Notebook," Doris Lessing
• Lincoln’s collected writings
• "Moby-Dick," Herman Melville
• "Song of Solomon," Toni Morrison
• Works of Reinhold Niebuhr
• "Gilead," Marilynne Robinson
• Shakespeare’s tragedies

Read More

Some interesting sites

• 15 built using ruby on rails
• Free Icons, Dry Icons site