The price of everything

A rush from sugar or a rush to gold ?

“We think we have an agreement, but we are not sure what it is.”

 

-       Negotiator at the Euro zone “crisis summit” last week, as reported in The Economist.

 

“You don’t have to be paranoid to be terrified.”

 

-       Ditto.

 

If a ballistics expert were so poor at his job that his artillery routinely fired missiles into the sea or, worse still, at his own men, he would soon be removed from office. He might perhaps be purged more dramatically, pour encourager les autres. No such logic would seem to apply, however, in either politics or economics in the west, where discredited practitioners of failed theories are allowed to pontificate and spend into absurdity. We cannot say with certainty what was spooking European investors prior to last week’s make-or-break summit (the 14^th such “crisis summit” in 21 months), but it seems plausible to argue that they were concerned about an unsustainable build-up of credit, credit risk and leverage. Happily, those concerns have now been put to rest, because the euro zone’s leaders have pledged more credit, more credit risk, and more leverage. To put it another way, Messrs Sarkozy and Merkel have bought more time, albeit time paid for with yet more borrowed money. A three ring circus of blind, incontinent clowns would have more class.

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Robot judges and the watched pot

“Gold – a six thousand year-old bubble”

 

-       Headline of an FT piece from 2009 by Willem Buiter.

 

There are still reasons to like Mel Brooks, and most of them are in ‘Blazing Saddles’. As with the output of other writers and directors, it’s always the early, funny ones that last. Brooks’ 1974 Western spoof happens to give us the perfect embodiment of the witless bundled morass of hugely conflicted high absurdity and outright surrealism that constitutes today’s financial markets and the major players within them (sovereigns as well as banking institutions). Take the sequence where new sheriff and gentleman of colour Bart is attacked by a raging mob. To divert them, he holds a gun to his own neck. Of course, in the face of such dramatic posturing, the townspeople have no choice but to back down.

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What colour is your lifejacket ?

“Manek: How I beat everyone during volatile summer”

 

-       Headline in ‘Investment Week’ extolling the performance of Jayesh Manek’s ‘Manek Growth Fund’, which has so far lost 23.6% during 2011.

 

This is, at heart, a tale of one tragedy, or two films. Roy Ward Baker’s 1958 classic ‘A Night To Remember’ is a simple, heartbreaking gem – an account of the sinking of the Titanic, clearly told, putting on display the culture and ethics of at least one bygone age (1958 and 1912). And it has Kenneth More, who at least in cinematic terms is surely the finest Englishman who ever lived. James Cameron’s 1997 blockbuster is also a product of its time – gaudy but empty spectacle, grotesquely overbudgeted and even more bafflingly materially successful. And it has Leonardo DiCaprio, the fey, cat-faced boy who is almost crushed beneath Kate Winslet in a grotesquely shot coupling sequence devoid of any hint of romanticism. But the Titanic story also happens to be the perfect encapsulation of our ongoing financial crisis; as The Onion put it, in perhaps its finest ever satirical headline, “WORLD’S LARGEST METAPHOR HITS ICE-BERG”. The “unsinkable” triumph of hubristic faith in (financial) engineering over the natural world sets sail on its maiden voyage buoyed up by mass overconfidence, hits the maritime equivalent of a black swan, and a lot of people end up underwater. A few rich folk get soaked in the process, but it is the lower orders (and the Irish !) that really get stiffed. Plus ça change..

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Groundhog Year !

“If you are going to buy worthless banks then it makes sense to use worthless money to do it.”

 

-       Posting on The Daily Telegraph website in response to story ‘Bank of England hits the panic button’.

 

Harold Ramis’ 1993 film ‘Groundhog Day’ may well be the funniest thing to come out of the 1990s, apart from Vanilla Ice or New Labour. Bill Murray’s cynical weatherman finds himself trapped in a surreal existential crisis, and forced to live out the same day over and over again. Pretty soon he begins a plot to seduce his boss, Andie MacDowell, which gives rise to the following exchange:

Him: You weren’t in broadcasting or journalism ?

Her: Uh-uh. Believe it or not, I studied 19^th Century French poetry.

Him: What a waste of time !

Now we have something that trounces the original Bill Murray response. In the HBO movie version of Andrew Ross Sorkin’s ‘Too Big To Fail’ (a.k.a. The Last Days of Lehman Brothers), Paul Giamatti (playing The Ben Bernank) tells a roomful of politicians that he spent his entire academic career studying the Great Depression.

Him: What a waste of time !

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Received wisdom

“Mises was infinitely patient and kind with even the most dim-witted of us, constantly tossing out research projects to inspire us, and always encouraging the shiest and most awestruck to speak. With a characteristic twinkle in his eye, Mises would assure them: ‘Don’t be afraid to speak up. Remember, whatever you say about the subject and however wrong it might be, the same thing has already been said by some eminent economist.’”

 

-       From ‘Ludwig von Mises: Scholar, Creator, Hero’ by Murray N. Rothbard.

 

There is hope for all of us in the news that an experiment at CERN may have challenged Einstein’s theory of relativity. It suggests that deep-seated and long-cherished ideas can still be knocked off the pedestal of conventional wisdom. The process may take an age, but as Max Planck observed, Science advances one funeral at a time. If only the study of economics could evolve as quickly. Sadly, the mouthpiece of conventional economic wisdom, the Financial Times, continues to provide the oxygen of relevance to commentators like Martin Wolf, who if his latest article is any guide (“Time to think the unthinkable and start printing again”) has simply gone mad.

Future historians will not look kindly on those who continually and repeatedly advocated the wrong remedies – inflationary money-printing, or the issuance of yet more debt – to a problem in large part caused by unsound money and inordinate debt. Einstein himself defined insanity as doing the same thing over and over again and expecting different results.

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