Are You a Free Market Supporter? A Self-test

Question: Do you think the government should support businesses or the free market?

Yes or No?

The answer can be find in this book, and this is a recent profile of one of the authors the book. And yes he is from Chicago's Business School.

What Do You Call a Nerd in Ten Years?

BOSS.

Source here.

It's a story about Quants, yes the math genius/nerds (delete whatever is appropriate) that have some commentators blamed them for indirectly causing the current financial mess through their math models which help create all the complex financial products.

But if math geeks and their models were indeed the source of the current problem, how reliable would it be now that governments all over the world are using similar models created by the same geeks to help assess whether banks are viable (the US Treasury is stress testing the major banks as I type and I know as a fact that HKMA, the local banking sector watchdog, asks local banks to perform such stress test all the time).

Rocket Scientists on Bubble

The WSJ has an excellent story on three financial economists, all at Princeton and hired by then Department chair Ben Bernanke, who have their research focus on the causes of bubbles. And yes, Hayek is cited. Enjoy it here.

Byron, The Global Economy Needs You

"Macroeconomics has taken a turn towards theory in the last 10-15 years. Most young macroeconomists are more comfortable with proving theorems than with getting their hands on any data or speculating on current events."

Read the whole thing here.

Byron, where are you just when the global economy needs you most?

Clueless About the Unfolding Financial Market Mess? No Worries You are Not Alone

In an excellent NYT story here, former Fed Vice-chairman and currently professor of economics at Princeton Alan Blinder said;

Mr. Blinder, the former Fed vice chairman, holds a doctorate in economics from M.I.T. but says he has only a “modest understanding” of complex derivatives. “I know the basic understanding of how they work,” he said, “but if you presented me with one and asked me to put a market value on it, I’d be guessing.”

My responses:

1. If even sophisticated traders don't know what they are buying and selling, monitoring costs go up the roof and the monitors of these traders could do nothing even if they are well incentivized to do their job. The whole internal risk management function of the firm falls apart.

2. You see pages and pages of stock market recommendations or comments in the papers' financial section, are writers of those pieces smarter than Blinder and the traders and know exactly what's going on? If they are clueless, why readers would want to read junk stories then? Is it related to human nature, a relic of our tribal past, where one always look for wisdom from a wise-man in times of panic (even if the wiseman also has no clue on what's going on)?

A New Phase of Financial Globalization?

No, yes? Read it for yourself here.

A New Look at Financial Globalisation

Four heavy weights combine efforts in tackling the issue of financial globalization. The site where this commentary is posted is a new one called Vox, where a bunch of European economists contribute. HT to David Warsh for the pointer.

Some new insights from the piece:

The notion that financial globalisation influences growth mainly through indirect channels has powerful implications for an empirical analysis of its benefits. Building institutions, enhancing market discipline, and deepening the financial sector take time, as does the realisation of growth benefits from such channels. This may explain why, over relatively short periods, it seems much easier to detect the costs but not the benefits of financial globalisation. More fundamentally, even at long horizons, it may be difficult to detect the productivity-enhancing benefits of financial globalisation in empirical work if one includes structural, institutional, and macroeconomic policy variables in cross-country regressions that attempt to explain growth. After all, it is through these very channels that financial integration generates growth benefits.

Bottom line:

There is, however, unlikely to be a uniform approach to opening the capital account that will work well for all countries.

Read the whole thing here.

What it Takes to be a Private Banker in Asia?

WSJ has an interesting story on the booming private banking industry in Singapore.

Besides knowledge on financial products, to be a private banker one also has to learn how to choose correct attire (such as not to wear golden shoes) and use forks and knives in the appropriate manner. One also has to learn basic etiquette like don't ever touch the head of a Thai, don't wear black to a Chinese wedding, and eat before going to an Indian party so your hungry stomach doesn't gurgle while waiting for a late meal. It is actually quite interesting, read more here.

Another interesting bit is that the private banking industry in Asia is a far more labor-intensive mode of business than its counterpart in Europe. Whereas a private banker in Asia handles about 30 clients, an equivalent banker in Europe handles 10 times more at 300!

Any clue as to why that is the case?