A few days ago someone posed a question on Twitter: what’s you most favorite 5-10 seconds of any piece of music. I didn’t have to think long, few came immediately to mind.
1. Intro/Opening guitar riff on Money for Nothing, Dire Straits;
http://www.youtube.com/watch?v=iwDDswGsJ60
2. Jimmy Page’s entry on Bring it on Home (at 1:45) and almost immidiate follow by John Bonham (at 1:49)
http://www.youtube.com/watch?v=ihWhTvHVLAM
3. Opening riff for Travelling Riverside Blues.
How many of our actions are driven by fear of appearing uncool? What immeasurable damage has been wrought on the unsuspecting populace by the insecurities of the powerful few? Our collective quest for coolness, for the perfect at the expense of the good, for victory drives many into unmanageable situations. It’s hard to quantify, but we should at least attempt to examine the dynamic behind it.
What is cool according to current popular culture? It is the ability to win battles and arguments, to demonstrate your professional prowess with ease, to make money, to accumulate followers and admirers, to be full of potential. In our competition obsessed society the greatest sin one can commit is to be considered a loser. And what is lame, what is loserville? It is to be average, to be comfortable with what one has, to be static, to not seek the levers of power.
It is a sad paradox that the most ambitious and driven among us reach the positions of power in politics, finance, academia – industries that require the best and the brightest – and then something happens to them once they are there: they turn into insecure narcissists. Those that spent a lot of energy getting to the top, once there, spend a lot of energy on maintaining the image of success. It’s a draining, tiresome task. Daily focus is shifted from concentrating on task at hand to watching others watch you. One begins to develop delusions of threat around every corner and assumes a defensive posture as a default attitude. Every human encounter is seen as a potential minefield, every incoming query is interpreted not as a bid for information but as a test of competency, a personal attack, a scheme to undermine. “Why are you adding on your position?” – an uninitiated intern might innocuously and not without a reason ask a trader whose position is losing money. “He’s questioning my expertise!” – an insecure trader will think to himself. “It’s a dynamic hedge, kid, go get me some coffee” – the trader will say aloud with the hope of putting the matter to rest by way of using industry jargon. With such entrenched mindset any retreat in any argument or discussion is out of the question, because that would require an acknowledgement of a flaw in one’s skillset or premise, and thus be damaging to the image of success. Search for rationalizations, excuses, assigning blame consume even more time and resources that could be spent productively.
When one has achieved some level of expertise and power, the same amount of effort as before fails to bring about the same results; the career trajectory that has been steep in the early years begins to flatten. Daily routine becomes an exercise of pushing against the ceiling: your success will fail to impress, and if you fail – all hell will break lose. To use industry lingo, their situation is becoming negatively convex, a limited upside/unlimited downside kind of scenario. Just look at Rogoff/Reinhart fiasco: if they haven’t made a mistake no one would have heard of them outside their skull and bones society (academia and a few politicians); one mistake – and that’s what they will be remembered for by the entire world for the rest of their careers. But for a driven and ambitious personality it’s tough to switch gears: he keeps doing what he’s always been doing but with no result, and unable to sense a shift in balance. That’s when apathy and resignation kick in; and bad but manageable position/situation deteriorates into a disaster.
But let’s now examine pockets of society where there are secure enough personalities. Those would include people capable of projecting realistic expectations for themselves: Lower class, illegal immigrants, athletes, most of retirees, sport handicappers. Good poker players are another subgroup of those with secure egos, “good” being a key word. The paragons of security are the ones who are not a part of a professional or academic group, everyone who is not employed in a high-pressure, high-pay (or both) environment. Those who do not belong to any exclusive club, any skull and bones society, those uninitiated are not burdened with the constant struggle to maintain good standing of membership, to prove one’s worth, to impress. The only person they have to impress is themselves.
Sir Richard Branson recently gave us all a demonstration of a cool secure personality: dressing in drag and serving passengers of a rival airline after losing a bet. Such ability to acknowledge and accept defeat and to move on is the foundation of a correct play. To harness such skill requires complete negation of self-importance. A guy at the poker table mindful of his appearance and protective of his image, constantly excusing and justifying his strategy to his table neighbors is a bad player. But beware of a 400-pound guy with body odors, receding hairline and a pony tail – he has long given up caring about what you think about him. Guys like him have nothing to prove and no one to impress. Those guys are paragons of security, of mental fortitude. They are there for the game and for the game only. Their only display of vanity is the size of the stack in front of them. By virtue of not giving a damn they free themselves from having to worry about what others think of their game. That’s coolness.
Brad Delong draws a nice picture of how hedge funds see the world.
Some in the industry like to draw parallels between the London Whale trade last year that cost JP Morgan $6bn and being short US sovereign debt: they think one day the trade has to be unwound in a quick and messy manner and then the shorts will cash in. There’s one big difference: JP Morgan can’t print money, Bernanke can. And then there’s a concern for inflation ( a strange concern for someone who’s supposedly short Treasuries).
But, the hedge fundies say: “What if the economy recovers and starts to boom? What if inflation shoots up? The Fed could loose $500 billion on its portfolio as it moves to control inflation! Why doesn’t that fear that?”
The Fed does not fear that. That is what it is aiming for.
Hedgies also upset that there’s no higher authority that can come in and right the imagined wrong done to them. Unlike London Whale (Bruno Iksil), Bernanke doesn’t have a boss who can force him to unwound this trade today. This fact really annoys the hedgies.
Who do the hedgies imagine are the Fed’s political masters who will tell it to shift and adopt policies that will bring on even massier unemployment? Rand Paul?
There is a reason that the trade of shorting the bonds of a sovereign issuer of a global reserve currency in a depressed economy is called “the widowmaker”.
Oh, this is so good.
One trader explains what he thinks are the origins of such Bernanke hatred:
Some guys don’t understand monetary policy and think he’s doing wrong thing.
Others think it’s immoral that markets aren’t let to clear (meaning, collapse to a point where someone will swoop in and just by). Others are pissed because they missed rally so they blame Bernanke as the exogenous factor that made them wrong. Like “if not for this STUPID policy I’d be making money.”
And then here’s Krugman’s perspective:
I don’t really know, although at some level I’m not surprised: finance types just hate, hate easy money policies, although you would think that these policies are often good for their bottom lines. I do wonder in this case whether there’s extra hatred of Bernanke because he keeps proving them wrong: they keep predicting terrible things from QE, runaway inflation, and all that,and instead the bearded academic stuff keeps turning out right.
Again, and I know at this point I’m belaboring the point, but how did it happen that me, a nobody who just reads the generic news, could be so right and those pompous overpaid hedge fund managers could be so wrong?
My article on Warren Buffett at Policymic.
This is a link to Barry Ritholtz recent article on how to be wrong and move on. He applies it to trading, but the same philosophy could be used at anything. Admit your mistake, correct it and move on without dwelling on it. It helps not having a big ego – a rarity among the trading kind.
What does NOT admitting error look like? It is Apple investors, who double up all the whole way down from $700 to $400. It is the radical financial deregulators like Edward Pinto & Peter Wallison blaming the financial crisis on unrelated bank loans to poor minorities. It is the cacophony of excuses from the Gold community, blaming the 30% drop on central banks, Goldman Sachs, “paper” gold, the shorts and the dollar. My friend Albert Edward’s reiterated call for S&P500 at 450 — with the SPX kissing 1600 — smacks of a classic non-admission of error. His preference is to go down with the ship.
I would also include another category to this group: those who trade on political inclinations rather than on reality. John Paulson, one of the goldbugs (and a Romney donor) who saw his fund lose 27% last month (and 47% YTD) is one of those sophisticated guys who are no different from Glenn Beck, betting on the apocalypse. Why do they bet on the apocalypse? Because Obama is a socialist, thus the economy cannot possibly recover during his term. Although, I have to give John Paulson some credit – at least he bets his own money on entrenched personal sentiments. Glenn Beck types first scare regular folks about the upcoming Armageddon and then simultaneously peddle them gold coins. Nice, full-proof business model.
But still, I’m puzzled, and even fascinated how smart guys can be so blinded by political hatred that they allow it to envelop their thinking. John Paulson is not a stupid guy: he made billions betting against subprime in 2007-2008. How could guys like him not have put two and two together? For the last 3 years it was obvious to me that Bernanke will keep his foot on the QE gas pedal for as long as possible, and given the abject economic situation in 2009-2010, one could safely say that it’s going to be years, not months. This simple fact guided my being long stocks and withstand all the ups and downs. You don’t have to have a PhD to see what was going on. Whether QE is good or bad is secondary to this discussion: guys like Paulson don’t care about social implications when they make money; they only bring up social implications when they have lost all other arguments. Zerohedge guys, another famous goldbugs, are now annoyed to find out that without QE the market would have stayed flat. They want QE ended immediately because it was so successful and thus prevented their luddite, gold-obsessed worldview to be realized in real life! WTF?
My latest article for policymic.
We hear about “uncertaintly” from business leaders on a daily basis. They can’t plan ahead and they can’t hire anybody. As if any business was ever about certainty.
So the unemployed took over where businesses have left off. There’s a $2 trillion shadow economy where people work for cash.
Here’s a very good summary by Matt Yglesias about how right-wing ideology is succeding in proving Karl Marx right.
A juicy and telling quote:
[T]hat even though the ruling class could appease the working class by using the state to redistribute and share the fruits of economic growth it would never do so. They would be trapped by their own ideological legitimations–they really do believe that it is in some sense “unjust” for a factor of production to earn more than its marginal product. Hence social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would collapse or be overthrown. The Wall Street Journal editorial page works day and night 365 days a year to make Marx’s prediction come true. (Emphasis mine)
And, specifically for those who see Marx quotes and immediately assume that the quoter is a hardcore Marxist: it is not the left-wing commies who are the torch-bearers for Marx; it’s the right-wing who are bent (intentionally or unintentionally) on proving him right. Dismiss the concerns of the poor, the unemployed, the socially vulnerable by immersing in “survival of the fittest pulling oneself by the bootstraps” dogma and you’ll reap what you saw.
This dramatic encounter happened a few weeks before the 2012 US Presidential election. I was traveling from New York to Virginia quite a lot to work with the OFA campaign there. Obviously, the whole stint was unpaid, so I paid for my own hotel stay and everything else. One time my boyfriend suggested that I stay with his friends who live near Tyson’s Corner which was not very far from Obama campaign office. I thought, sure why not. So one day, after an exhausting 5-hour drive from NY to NoVa I arrive at their house. Now it’s important to remember that just weeks before the election the polls are getting tighter and passions are flying high reaching the fever pitch on both sides. The tensions were especially high in VA since it was a heavily contested battleground state. People are high-strung and anxious everywhere you look. One Virginia man shot his entire family and then himself out of fear of the upcoming Obama victory. Just to give you an idea of the polarization at the time. So, I come into the house, meet the wife – a nice lady, say hello to the kids, drop my stuff in one of the rooms (it’s one of those mansions in “leafy DC suburbs” as they say, with infinite number of rooms) and come down to the kitchen for a drink. The wife opens a bottle and we engage in some chit-chat. About half-hour later the husband comes into the kitchen, we shake hands and then the inevitable question: “So what’re you here for?” I, in my habit of not beating around the bush, say half-jokingly: “Yeah, let’s get this out of the way before you kick me out – I’m here to volunteer for the Obama campaign.” Now, I played this scenario with my boyfriend and was reassured that there won’t be a problem. The problem was that he spoke on the phone with the wife – who had no issue with the purpose of my visit. Well, the husband wasn’t informed in advance. Even worse, he was a major Romney donor, I later found out. Anyway, long story short, he leaves the kitchen without saying a word and about 3 minutes later I receive a frantic text from my boyfriend that literally says: “dude, I think it’s better if you get out and go to the hotel.” I show this text to the wife and say something like “Uh, I think I have to leave now”. It’s not often we get kicked out of somebody’s house for political reasons. Face to face encounters even with political opponents seem to be milder in real life than online, simply because we see the human side of the opposition. But this wasn’t the time to test the bounds of southern hospitality. So I raced upstairs, got my things, said thank you to the wife, jumped in the car and left. I was a little shaken, but instantaneously sober, as the surge of adrenaline helped me get rid of the buzz from a couple of glasses of wine. It was getting dark, but I had a GPS and was on the way to the hotel within a half-hour drive that my boyfriend booked for me in a matter of minutes. I made it to the hotel, and luckily, there was some steakhouse next to it where I could get some dinner, couple of vodka-cranberries, and contemplate.
Rupert Murdoch, chairman and CEO of News Corporation, addressed the morality of free markets in his recent editorial. The essence of Mr. Murdoch’s argument is that free market is inherently moral and that greed is not the driving force of success.
“The market succeeds because it gives people incentives to put their own wants and needs aside to address the wants and needs of others. To succeed, you have to produce something that other people are willing to pay for.” Mr. Murdoch writes.
Let’s dwell on this for a moment. Benevolence is not why people start a business. Businesses are profit driven. Some enterprises can begin as an experiment and be iconoclastic and pioneering in nature, like Apple; the rest are founded with the sole purpose of making a profit. If someone wants to put his own wants and needs aside to address the wants and needs of others he volunteers or starts a non-profit.
One can’t mindlessly marvel at the virtue of the free markets without considering the following: people are not always rational; markets do not always self-correct; there are informational asymmetries between transaction parties; there’s an agency problem (that is when a hired representative, in business or in public life, represents his own interests rather than the client’s). If we lived in an idealistic world of artisanal mom and pop shops, Mr. Murdoch would have a case for the morality of market participants. But when those small shops run out of natural customers the troubles begin. Embarking on the quest of permanent growth, those businesses tend to enter the realm of creative finance, consolidation, dubious products and political favors. Business models for many big firms have long ceased to resemble the innocuous model that some laissez faire idealists subscribe to. We’re not living in the world of mom and pop cupcake stores and community banks anymore. Consumers’ interests and corresponding profits are not aligned anymore: customers and their interests are secondary to the interests of shareholders and investors. Because everything is put at the altar of “growth” there’s a point where a business begins to invent useless or harmful products (addictive prescription drugs, subprime mortgages, leveraged buyouts, entertainment disguised as “news”).
Left with Balls 