Monthly Archives: June 2017

Janet Yellen and the permanent plateau

Ms. Yellen, the Irving Fisher of today?

A few days ago, Janet Yellen stated:

Federal Reserve Chair Janet Yellen said Tuesday that she believes banking regulators have made enough improvements to the financial system that the world will not experience another financial crisis “in our lifetimes.”

Addressing an audience at the British Academy in London on Tuesday, Yellen said the banking reforms put in place in recent years have made the financial system much safer. She said regulators are doing a better job of watching for the type of systemic risks that struck the global economy in 2008, bringing on the worst global downturn in seven decades.

“Would I say there will never, ever be another financial crisis?” Yellen asked. “You know probably that would be going too far, but I do think we are much safer, and I hope that it will not be in our lifetimes and I don’t believe it will be.”

When hearing this, my mind reeled.  Whiskey Tango Foxtrot!  Not experience another financial crisis “in our lifetimes?”  Did she not read or see The Big Short, or know of LTCM, or a host of other near misses in the financial system, with lots of other people (with Nobel prizes to boot) saying similar things?

There’s a classic bit of hubris from the LTCM folks, which is summed up in this snippet:

…this bizarre belief was mindlessly replicated in the lead-up to the subprime mortgage crisis of 2007-’08, with investors believing that a 20 percent decline in house prices “was likely to happen only in a time frame many, many trillions of years longer than the history of the universe.”

Janet seems to have crossed some sort of intellectual event horizon, where the Fed and the bankers can do no wrong.

Questions:

  • Is she having a ‘senior moment’?
  • What sort of person makes this kind of broad statement?
  • Is anybody betting on this kind of crazy pronouncement?
  • Does Ms. Yellen read any history books?

(Yes, we are off schedule this week – back with another interesting short article next Tuesday, 2017 July 4).

 

 

 

 

 

 

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Death

 

Someone close died last week, after a long and difficult illness.  What can one say?   It happens to all of us, but the reality of it is not just some abstract concept.  One day, you can talk to someone, and the next day they are gone.

One day, our shiny civilization is humming along, and one day, it may not be so shiny.  One day you can talk to people around the world in an instant, and one day, you may not. The bit from Ecclesiastes mentioned a while ago still rings true.

“Vanity of vanities, all is vanity.”

Still, we eat, we drink, we make merry.   We are an odd species, to say the least.   Curious to know how the future will look upon all of this, just as many of us wonder how people will look upon us when we are gone (individually).

 

 

 

 

Skin in the game

Paddy_Power_logo.png

(Folks with skin in the game; en.wikipedia.org/wiki/Paddy_Power#/media/File:Paddy_Power_logo.png)

One of the points that Taleb makes that is of great import is that unless you have skin in the game, you should shut up. The folks who have the ultimate skin in the game, besides those who are “in the line of fire” or the equivalent are those who put their money where their mouth is, and bet real money on real events.   The folks at PaddyPower, as silly as the name might sound, are at least those who are doing just that.

Like it or not, it is going to be an interesting four years, if the odds makers are at least somewhat correct.

Questions:

  • Is betting on events a good way to predict the future?   These folks certainly aren’t going out of business, so they must be doing something correct.
  • They have been wrong before, of course.   Do you think they are wrong here?