May 2009 Archives

Greg Mankiw had an Op-Ed in the New York Times recently about the changes that he will be implementing in his freshman economics course as a result of the recent "great recession."

It's interesting that even though there is a frenzied discussion about what economic educators have been doing wrong in the past few years, there is little discussion about what they have been doing wrong for the past hundred. To this observer, there is a need for a genuine re-imagining of the educational process.

It can be argued that there isn't much wrong with the traditional "Tell 'em what you're gonna tell em, tell 'em, then tell 'em what you told 'em" method of teaching, but there wasn't much wrong with swords until europeans found out about gunpowder.

I'm not saying that there is no value in the traditional system, and I say that not just because some of my professors might stumble across this website. Arnold Kling blogged a few weeks ago that for an autodidact, the presence of the Internet makes for a golden age of learning.

It's cheap to harp on the transformative power of the internet, but I wonder why there isn't more of a societal method to acknowledge autodidactic learning of the sort that can take place over the internet.

The exercise of blogging (when done regularly, sorry for sparse updates) is after all much like writing a spate of reaction essays to topics as they are presented by cobloggers and the news cycle. Isn't there grist somewhere in there for an educational process to replace the quiz-and-lecture format?

There's nothing wrong with kickin' it old school, but a new school needs to emerge.

Since I am still a young buck, I am often surprised to read past works of financial commentators who I respect very much and find that their commentary reflects present trends. I was directed by the excellent Felix Salmon to an article that Michael Lewis wrote in 1992 about Mr. Buffet's rescue of the troubled Salomon Brothers. 

His windfall came out of the shareholders' pockets, since his cheap option dilutes the value of the existing shares. Although a few of them sued, the deal never met the popular resistance it deserved, mainly because it involved Buffett. Public feeling was that if it was wrong, Buffett would never have done it; therefore it must have been right.

In effect the moralist had sold his reputation, without pausing to measure the man willing to pay such a price for it. Perhaps heartened by the critical success of the first foray, Buffett quickly made the business of saving CEOs from corporate predators a rule rather than an exception in his portfolio. He cut about $1.2 billion more of similar sweet, off-market deals with the chief executives of U.S. Air, Champion, and Gillette.

Curious to this observer is the similarity that this pattern of investments has to his more recent investments in Goldman Sachs and GE. In his more recent review of a 960 page biography of Buffett, Lewis happily points out further deviations from the folksy style of investment that Berkshire Hathaway trumpets in its annual newsletters, and notes the similarity of the recent Berkshire investment in Goldman Sachs to Buffett's investment in Salomon.

He stops short of acknowledging that in another customer of Buffett's positive image rental service has been General Electric - an institution that he mentions only as an entity which used to have a AAA rating that is "in the process of collapsing."

At the conclusion of the interview, he notes that this biography will be valuable to a reader in twenty years because it paints the most renowned investor in history with a human brush. This only leads me to wonder: why must we wait so long to see him thusly? 

I remember reading that America's storied AAA rating was at risk years ago, but it seemed to have been ignored by most talking heads at the time.

Now we have an op-ed in the FT from a former Comptroller General of the United States about it. It's worth a read.

An excerpt:

For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition. One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate. The credit rating agencies have been wildly wrong before, not least with mortgage-backed securities.

How can one justify bestowing a triple A rating on an entity with an accumulated negative net worth of more than $11,000bn (€8,000bn, £7,000bn) and additional off-balance sheet obligations of $45,000bn? An entity that is set to run a $1,800bn-plus deficit for the current year and trillion dollar-plus deficits for years to come?

Dustin Curtis recently did a redesign of American Airlines' website (apparently out of sheer frustration) and he makes a pretty good point...check out his rant here and his redesign here.

How does a company like American Airlines justify having such a medieval website? Are they actually trying to prevent customers from booking on line? They are actually driving people (like me) away from their website to places like kayak that make it possible to book a plane ticket without internal hemorrhaging.

Businesses need to begin to understand that a website is essentially another employee. Having a website as archaic as American's is kind of like having these guys greet your customers.

"Duuuuhh...you wanna go to Fiji?" AA should listen to Mr. Curtis...at least get the guy on the right a clean shirt.

How to be invisible to cameras

Dilbert explains what's going on in the economy

Afghanistan's only pig

Too lazy to call mom? Outsource the call to India!

Recently, a satirical article was posted on the internet in such a way that an untrained observer would think it was on the BBC website. The article detailed an alleged mutation in the Swine Flu virus. 

There has been a small outbreak of "zombism" in London due to mutation of the H1N1 virus into new strain: H1Z1.

Similar to a scare originally found in Cambodia back in 2005, victims of a new strain of the swine flu virus H1N1 have been reported in London.

After death, this virus is able to restart the heart of it's victim for up to two hours after the initial demise of the person where the individual behaves in extremely violent ways from what is believe to be a combination of brain damage and a chemical released into blood during "resurrection."

The likely intent of the article was to produce belly laughs among a subculture of individuals who are web savvy enough to understand the article to be fake. My roommate and I both saw it and immediately laughed. Another effect was to induce an element of panic among people who didn't know how to spot a fake website.

Both groups had a great reason to spread the article around; but one group was spreading a joke while the other was spreading an article which contained a credible threat to their life.

It didn't even occur to me that there were very many people who would take this seriously, until a friend made a reference to it in conversation and discussed it in a serious tone. I was taken aback, and frankly didn't know how to break it to him that he had been trolled.

This is curious to me because we are all part of a generation that is (at least in theory) supposed to be more web savvy. If we're so great, how come people who are part of our generation are still falling for this stuff?

I'll posit a guess that it comes not in a small way in the way that we get our information. I found that website through reddit.com, a website which is designed to link its users to other interesting information on the internet. Much of the content that users are directed to is pretty entertaining, so I assumed it would be a joke because of the source.

My friend likely received the link through a more traditional source; perhaps a friend or a family member sent him a link and advised him to be cautious.

It then became clear to me that he wasn't using the same internet I was, even though there is no barrier to him accessing the internet in the same way as I have been.

If he wasn't using my internet, then there must be a whole other group of people who use the internet as a superpowered post office/newspaper. They haven't developed the tools to validate information from sites that they don't always go to because for them the internet is a collection of websites which they regularly visit. These people hang out on ESPN, the New York Times, Yahoo!, Youtube, and the like.

Since they always go to the same sites, their ability to detect a poor source atrophies. One doesn't need to think as hard about information they get from the paper of record as one does when gleaning information from a collection of lower-profile blogs and websites.

We begin to see a clash when the more web-savvy culture crashes with the first. An excellent NYT article worth a full read profiles the people behind these "trollings." One prominent troll characterizes his activities as "Leading on confused people" and adds "Why don't people fact-check who this stuff is coming from? Why do they assume it's true?"

I would guess it's because they're not conditioned to.

I guess a group of "investment firms and hedge funds" are Chrysler's demons. 6:20 in the video. Linked here.

The level of orwellian control Obama has been exercising here must be brought up. He emphasizes that this process will be "quick", "efficient", and "controlled". If this doesn't terrify you, you aren't thinking about it.

To characterize Barack Obama's actions here as unjust is close to a patriotic imperative. Obama has been able to draw those banks that have accepted TARP money to his heel and force them to abide by his diktat as concerns the Chrysler bankrupcy. It should be a gigantic; neon exclamation point that those who object to the government's handling of this event are those who have not taken TARP money. These healthy financial institutions, who have not taken a dime of government money are forced to deal through those who have taken taxpayer dollars in order to gain a voice in negotiations. I'm still just a neophyte, but if this isn't criminal, it should be.

From the open letter of the "investment firms and hedge funds," courtesy of John Carney

As much as anyone, we want to see Chrysler emerge from its current situation as a viable American company, and we are committed to doing what we can to help. Indeed, we have made significant concessions toward this end - although we have been systematically precluded from engaging in direct discussions or negotiations with the government; instead, we have been forced to communicate through an obviously conflicted intermediary: a group of banks that have received billions of TARP funds.

Perhaps these guys are engaged in doublespeak as much as Obama. Look to the point about how they must deal through conflicted intermediaries; in the past there has been a certain binary question. That question has been: Is this the government, or is it a private company? Who exactly are investors dealing with?