Cicero's Songs

"Market gurus" in Investment Banking are in the business of marketing like everyone else, so much of what they do is more to do with presentation than reality.  I have been forcibly reminded of this in recent weeks as yet another "emerging markets" crisis has unfolded on the currency and stock exchanges of the planet.  In a way "Emerging Markets" is itself more a presentational than real idea, because the only thing that the so-called  "emerging markets" really have in common is that they are poorer than the so-called "developed markets". About three quarters of the worlds population lives in "emerging markets", and some are growing and some are collapsing. Hence the need for an overpaid "market guru" to try to make some kind of sense of the huge pile of data that comes from 75% of the world. Jim O'Neill, an economist with Goldman Sachs, is usually credited with coining the acronym "BRIC", standing fo...

Amidst all the Jubilee hullabaloo in the UK, the second- and ultimately more significant- story remains the ongoing crisis in the Eurozone and the continued instability in the markets. The signs of a slowdown in the Chinese and the American real economies have put further pressure on the Eurozone economies that are still struggling to return to growth.  The ongoing restructuring of the Spanish banking system has alerted the markets to the fact that their remains a significant capital requirement, even after the forced mergers of the Cajas . However, despite the more hysterical of the comments from UK commentators and politicians, the fact is that the Spanish economy does not have the same long term government problems as Greece does. The deficit issues are a function of the the banking system breakdown, not the series of policy mistakes that hampers Athens even beyond the banking crisis. As a result, although serious, there is far greater trust offered to Madrid- and that solidar...

A couple of days ago " Voter" linked to a blog he had written commenting on a piece I wrote here about my fears that the public sector in the UK is creating a client state that is undermining British global competitiveness. He -I assume he, and I am sure I will be corrected if not- made the point that breaking up the banks might not be the answer, since " Far from different banks behaving in completely different ways, there was some convergence. If banks converge, they are really just equivalent to one larger bank". When it comes to understanding the failure of risk control that led to the credit crunch, I like to quote Chuck Prince, the then head of Citibank who famously said in June 2007: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing,” Well, as we now know, the creation of various innovative instruments like CDOs did not reduced risk by ...

In the dead slot of the BBC Radio 4's Today programme, after 8.45 when everyone is arriving at work, there are often interesting debates about the issues of the day. Today Nassim Nicholas Taleb was one of the guests and, as he has done before, he spoke out about the systemic risks that bankers did not realise that they were undertaking. He also made the point that in the 1982 Emerging markets crash the Bankers lost all the money that they ever made, and then they did it again in the 1991 Savings and Loans crash . In other words, most of the banking system has not, in the long term, been a profitable business. He added that with each successive crash, risk has become concentrated in a smaller and smaller number of banks. As a result the problems have grown larger. The answer is clear- if not simple- the ecology of the global banking system needs to change and become more diversified. Single risk should not be concentrated in the system. Diversity is critical in order to reduce the ...

Nassim Nicholas Taleb's book "Black Swan" is an expansion of the ideas that he put forward in his book "Fooled by Randomness- The Scandal of Prediction" . As regular readers will know, I think that the philosophical ideas that Taleb puts forward have profound political implications . In particular ideology as a Grand Theory- that is a systematised explanation of everything- falls to pieces in the face of the uncertainty that is the basis of empiricism . Intuitively I have always distrusted grand theories, and as an undergrad and as a research student I proceeded from the basis of a partial theorist- in other words that most human activities, especially socially interactive disciplines like politics, are not closed systems , isolated from their context, but open ones . Marxists, by making a statement such as "All history is the history of class struggle" show that they believe that history proceeds from the basis of an ideological driver and t...

As regular readers here will know, I am a big fan of the philosopher Nassim Nicholas Taleb . So I was pleased to see the considerable attention that he has been gaining since the emergence of the credit crisis- the latest is a profile in the Times . He follows in the sceptical traditions of Sextus Empiricus although possibly his determination to avoid prediction makes him reluctant even to describe the systems that he observes in Human behaviour. Perhaps this is part of the intrinsic problem of uncertainty- to describe certain conditions is also to change them. Perhaps more interestingly, he has also demonstrated the practical results of the sceptical mindset- not least in understanding risk within financial markets and in the wider world of economics. His view is clear: human beings are over confident in handling uncertainty- and the world is more uncertain than our brains expect. Humans try to determine patterns, and as a result they tend to see them, even when no pattern actually...