Assorted links


1. He's arguing against the words "too big to fail" which aren't the right words anyway. The actual words are "the government is too candy ass to allow markets to pause long enough to change managements." That is the actual debate. I don't think anyone really believes we should flush the assets down the nearest toilet. They need to have a clear succession plan.

He could just as easily argue for a separation of market-making and ownership (holding risks). With new technology there is less and less frictional reason why things can't be spread across smaller players and the major need for complex hedging (didn't work anyhow) is to keep the big big (raise your hand if you currently hold a derivative!). In fact, long-term profitability undercut from competition may have played a minor role in undercutting the bigs. It was long-term profitability on the balance sheet side that played a major role in the short-term debt spiral.

The unwisdom of government euthanasia is why I didn't like mark-to-market or the stress tests, but a few distressed sales would have been okay. Banks are always illiquid. But, only a few big players actually went insolvent and the government peed their pants on the prospect that the markets would take the rest. But, they didn't actually remove all the cataclysm catalysts under their own purview.

His main benefits for huge market makers is low borrowing costs and the liquidity to use mark-to-market accounting. Both are really sweet in a boom. Borrowing costs are too low BECAUSE the banks are illiquid.

"Efforts to reach Ariely and others in charge of the research project were unsuccessful..."

That's got to be a first.

From the comments I liked this:

"I'm a feminist who thinks that this behavioural study is no problem at all--the participants are volunteering rather than being forced. If you're offended by it, then don't take part."

I'd like to not take part, but I'm a taxpayer so I'm compelled. It's kind of like breakfast. The chicks are involved, but the bacon is committed.

A doctor who combines acute diagnostic ability
with a high empathy quotient (genuine, not
faked) is bound to make a difference.

#3: Predictably Controversial.

4. Gladwell. The great white Oprah.

The following comment from Gmorbgmibgnikgnok on the Yglesias post gets to the heart of my point:

"When the medium is centrally controlled, and you need permission to get on it, anything subversive is fun.

There’s no such tension on the internet. Unsurprisingly, some of the biggest recent successes are not all that edgy."

What we lose in a free market is the rewards of subversion.

Here is a counterpoint to #1.

I'm not excited about a political breakup. However, I do wonder about a system that is big enough to trick all the little people into taking on too much debt while at the same time not being able to control the fact that if you lend to enough insolvent homeowners you have the tiger by the tail. It turns out the old adage that if the bank lends you enough money, you own the bank works in the aggregate. It's just that the gov't has a funny way of ownership.

It's nice to see Pinker take Gladwell down a notch. I read about half of one of Gladwell's books once before throwing up my hands in frustration at the irksomely high ratio of authorial self-satisfaction to actual knowledge/insight. He's mildly entertaining, but it annoys me that people who read his books think they're getting smarter.

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