Thursday, February 21, 2013

A brief program note and market survey

I'm getting to the end of the Antarctica story, and so the Ramblings will soon be turning to more serious matters.  In particular, I'm going to start tackling the long, long story of why I stopped writing for nearly a year.  One of the reasons that it has taken me so long to get to this point is that telling this story entails some risk.  There are certain advantages to staying off the radar.  But I can't seem to resist the urge to tilt at windmills.

As a sneak preview of what's coming, here's a story that appeared today on Bloomberg:

On television, in interviews and in meetings with investors, executives of the biggest U.S. banks -- notably JPMorgan Chase & Co. Chief Executive Jamie Dimon -- make the case that size is a competitive advantage. It helps them lower costs and vie for customers on an international scale. Limiting it, they warn, would impair profitability and weaken the country’s position in global finance. 
So what if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers? 
Granted, it’s a hard concept to swallow. It’s also crucial to understanding why the big banks present such a threat to the global economy.
That was the program note.  Now the market survey part: suppose I told you that the situation in the banking industry is even worse, perhaps even a good deal worse, than what the Bloomberg story indicates, would you be inclined to believe me, or dismiss me as being paranoid?

The reason I want to know is that this story needs to be told differently depending on whether I writing for a sympathetic or a skeptical audience, and because so many of you seem to be lurking I really don't know.  So please take a moment to do the following: down at the bottom of this post you will find four checkboxes labelled "Reactions:"  Please click on one of them depending on how you reacted to the question I posed above.  And if you don't have a strong feeling about it one way or the other, please click on "Read it" so that I can get some idea of how big my audience is.  (And please feel free to use those buttons on other posts as well.  It really helps me when I try to come up with things to write about.)

Thanks in advance.

[UPDATE] If you're reading this on a newsfeed, the link to the Blogger page with the reaction buttons is here.


Don Geddis said...

You used different phrasing. If choosing "sympathetic or skeptical", I would vote skeptical. But you also describe it as "inclined to believe me" vs. "dismiss me as being paranoid". The first seems like "sympathetic", but the second seems far more extreme than "skeptical". Perhaps you're just using a rhetorical flourish.

Your buttons are also "right on" and "bogus". I voted "bogus", but of course I don't mean the post itself (which is fine), nor even does that word really apply to my reaction to your topic.

For your survey: I don't yet believe it, but I'm open to being convinced if you provide evidence. "Skeptical" seems about right.

Paul said...

I'm in general agreement that the financial industry is too big and occupies too large a fraction of world GDP.

However, I *do* think there is a useful economic role for the finance industry at a certain scale.

In general, my default position is to be suspicious of conspiracy theories because:

1. extraordinary claims require extraordinary evidence
2. never ascribe to malice what can be explained by incompetence

The 2nd where most conspiracy theories fall flat for me.

To convince me, you'll have to prove that you have a good understanding of game theory and all of the ways in which perfectly rational agents acting in their own self-interest can still reach globally sub-optimal equilibriums. Most of economics is about that, and the best argument for regulation is the ways in which it can stop this from happening.

In general, I don't think you need a conspiracy to explain how screwed up the world economy is -> just lots of independent agents chaotically acting in their own self-interest based on imperfect information, and all of the feedback loops and inefficiencies that can ripple around the system as a result of this.

I'm a fan of Paul Krugman, but also quite enjoy reading "The Epicurean Dealmaker". I recommend reading for an anonymous "insiders" perspective. Particularly this post:

Crucially, the most important piece of information that everyone lacks, is what everyone *else* knows about what everyone else knows about what everyone else knows. (cf: Blue Eyed Islanders puzzle/Common Knowledge).

OK well, that's a synopsis of what this reader thinks, FWIW. Carry on!

Unknown said...

Don Geddis, aren't you Ron anyway?!

Or have I mixed pseudonyms? :)

Regardless, just write! As you really think it please.

Best wishes, Adam.

Anonymous said...

Though-provoking feels like almost-provoking

Miron Brezuleanu said...

It's probably more work, but what about approaching this 'Rashomon style'? (tell the story from more points of view)