(Roughly) Daily

Posts Tagged ‘finance

“It has been said that arguing against globalization is like arguing against the laws of gravity”*…

 

globalization

 

The preponderance of evidence suggests that financial globalization – especially unrestricted hot money – aggravates macroeconomic instability, creates the conditions for financial crises, and dampens long-run growth by making the tradable sector less competitive. Few economists would list financial globalization as an essential prerequisite for sustained long-term development or macroeconomic stability. And arguments made in its favor presume that every country has already met highly demanding regulatory requirements. Most have not and probably cannot, except over the long run.

While the International Monetary Fund has begun to make some allowance for restrictions on capital flows, albeit only as a temporary last resort for weathering cyclical surges, the dogma of financial globalization remains intact. One reason, perhaps, is that development economics has not shed its resource/savings fundamentalism, which attributed underdevelopment to a lack of domestic savings. The implication was that developing and emerging economies should attract resources in the form of foreign aid or, after skepticism about aid became widespread, foreign private capital.

Alternatively, the orthodoxy may owe its resilience to the power of entrenched financial interests that have stood in the way of new controls on cross-border capital flows. Wealthy elites in several countries – especially in Latin America and South Africa – embraced financial globalization early on because they saw it as offering a useful escape route for their wealth. In these cases, policy inertia and possible reputational costs made it difficult suddenly to start advocating a reversal. Global financial elites had long relied on a narrative that equates capital controls with expropriation, and responsible policymakers did not want to be seen as violating property rights…

Although much of the intellectual consensus behind neoliberalism has collapsed, the idea that emerging markets should throw their borders open to foreign financial flows is still taken for granted in policymaking circles.  Until that changes, Arvind Subramanian and Dani Rodrik argue, the developing world will suffer from unnecessary volatility, periodic crises, and lost dynamism: “The Puzzling Lure of Financial Globalization.”

* Kofi Annan

###

As we cache our cash, we might recall that this was a bad day for inclusiveness in Massachusetts in 1635: the General Court of the then-Colony banished Roger Williams for speaking out for the separation of church and state and against the right of civil authorities to punish religious dissension and to confiscate Indian land.  Williams moved out to edge of the Narragansett Bay, where with the assistance of the Narragansett tribe, he established a settlement at the junction of two rivers near Narragansett Bay, located in (what is now) Rhode Island. He declared the settlement open to all those seeking freedom of conscience and the removal of the church from civil matters– and many dissatisfied Puritans came. Taking the success of the venture as a sign from God, Williams named the community “Providence.”

Williams stayed close to the Narragansett Indians and continued to protect them from the land greed of European settlers. His respect for the Indians, his fair treatment of them, and his knowledge of their language enabled him to carry on peace negotiations between natives and Europeans, until the eventual outbreak of King Philip’s War in the 1670s.  And although Williams preached to the Narragansett, he practiced his principle of religious freedom by refraining from attempts to convert them.

Roger Williams statue, Roger Williams Park, Providence, R.I.

source

 

 

“Money is the opposite of the weather. Nobody talks about it, but everybody does something about it”*…

 

remittance

 

Every month Joy Kyakwita presses a button on her phone and does something in common with millions of other people across the globe: she sends money home.

Ms Kyakwita, a London-based lawyer, gives a third of her salary to her family back home in Uganda, including paying money for school fees for her brothers and nephews.

“I believe that when you pay for them to go on a good course, then there is a good chance of them becoming employable,” she says. “And if they are employed then they will be able to help their siblings as well.”

Ms Kyakwita is just one of an estimated 270m migrants around the world who will send a combined $689bn back home this year, the World Bank estimates. That figure marks a landmark moment: this year remittances will overtake foreign direct investment as the biggest inflow of foreign capital to developing countries.

Remittances were once viewed by many economists as a secondary issue for developing economies behind FDI and equity investments. Yet because of their sheer volume and  consistent and resilient nature, these flows are now “the most important game in town when it comes to financing development”, says Dilip Ratha, head of the World Bank’s global knowledge partnership on migration and development…

The money sent home by 270 million immigrants around the world now exceeds foreign direct investment. The Financial Times takes deep dive into “Remittances: the hidden engine of globalisation.”

(Remittances are painfully expensive for those making them– ranging around the world from over 5% to over 8% of all money transferred… money that goes to financial institutions as opposed to the intended recipients.  Here’s why.)

* Rebecca Johnson

###

As we pass it on, we might note that today, September 9, is the most common birthday in the United States.

birthday source

 

Written by LW

September 9, 2019 at 1:01 am

“We shape our tools and thereafter our tools shape us”*…

 

visicalc

 

By the late 1970s, workers on Wall Street were already using rudimentary email processes, putting them among the first to adopt personal computers outside of the sciences, academia, and home hobbyists, according to technologist David Wolfe. But finance’s love affair with computers really took off in the early ‘80s when spreadsheets arrived, and firms began providing in-house employee training for this tool—one that, even today, surprisingly few of us feel comfortable with.

At the time, those groundbreaking programs included VisiCalc—the first-ever digital spreadsheet, and “the ‘killer app’ for the Apple II,” [technologist David] Wolfe said—along with Lotus 1-2-3, which offered expanded capabilities in some areas, and similarly boosted IBM’s PCs.

According to Wolfe, co-director of the Innovation Policy Lab at the University of Toronto’s Munk School of Global Affairs and Public Policy, “The spreadsheet immediately started getting picked up by the financial services industry for its ability to do ‘what if’ calculations, like: If the rate changes from 1% to 2% percent, how will it affect my investment capital?”

Almost immediately, Wall Street also started using the technology to create new, more complex kinds of trading and investments. “It became an incredible time saver-tool, but also started to play into the creation of derivatives,” Wolfe explained…

Let it Visi-snow: “How the Invention of Spreadsheet Software Unleashed Wall Street on the World.”

* Father John Culkin, SJ (though often attributed to his friend Marshall McLuhan)

###

As we copy and paste, we might send expansionary birthday greetings to Jean-Baptiste Colbert; he was born on this date in 1619.  Minister of Finances of France from 1661 to 1683 under the rule of King Louis XIV, Colbert pursued dirigiste policies (those of a strong, directive state, e.g., tariffs, proactive industrial policy) to create a favorable balance of trade and to increase France’s colonial holdings and foreign market access.  His policies inspired those of Alexander Hamilton, the first treasury secretary of the United States and foundational architect of the U.S. national economy.

Colbert1666 source

 

 

Written by LW

August 29, 2019 at 1:01 am

“A nickel ain’t worth a dime anymore”*…

 

money

 

The instruments of trade and finance are inventions, in the same way that creations of art and discoveries of science are inventions—products of the human imagination. Paper money, backed by the authority of the state, was an astonishing innovation, one that reshaped the world. That’s hard to remember: we grow used to the ways we pay our bills and are paid for our work, to the dance of numbers in our bank balances and credit-card statements. It’s only at moments when the system buckles that we start to wonder why these things are worth what they seem to be worth. The credit crunch in 2008 triggered a panic when people throughout the financial system wondered whether the numbers on balance sheets meant what they were supposed to mean. As a direct response to the crisis, in October, 2008, Satoshi Nakamoto, whoever he or she or they might be, published the white paper that outlined the idea of Bitcoin, a new form of money based on nothing but the power of cryptography.

The quest for new forms of money hasn’t gone away. In June of this year, Facebook unveiled Libra, global currency that draws on the architecture of Bitcoin. The idea is that the value of the new money is derived not from the imprimatur of any state but from a combination of mathematics, global connectedness, and the trust that resides in the world’s biggest social network. That’s the plan, anyway. How safe is it? How do we know what libras or bitcoins are worth, or whether they’re worth anything? Satoshi Nakamoto’s acolytes would immediately turn those questions around and ask, How do you know what the cash in your pocket is worth?

The present moment in financial invention therefore has some similarities with the period when money in the form we currently understand it—a paper currency backed by state guarantees—was first created. The hero of that origin story is the nation-state. In all good stories, the hero wants something but faces an obstacle. In the case of the nation-state, what it wants to do is wage war, and the obstacle it faces is how to pay for it…

The ever-illuminating John Lanchester explains how, over three centuries, the heresies of two bankers became the basis of our modern economy: “The Invention of Money.”

[Lanchester’s latest novel, The Wall, was just long-listed for the Booker.]

* Yogi Berra

###

As we learn from the past, we might recall that it was on this date in 1861 that the U.S. government, in anticipation of the expense of the looming Civil War, levied its first income tax as part of the Revenue Act of 1861.  It assessed 3% of all incomes over $800, but included no enforcement mechanism, and so generated very little revenue.  It was revised in 1862 in a more effective form, then rescinded in 1872.

The first peace-time income tax was established in 1894, but was ruled unconstitutional by the Supreme Court (the 10th amendment forbade any powers not expressed in the US Constitution, and the Constitution provided no power to impose any other than a direct tax by apportionment).  It was in 1913, with the Sixteenth Amendment to the United States Constitution, that income tax became a permanent fixture in the U.S. tax system.

HR54_Revenue_Act source

 

Written by LW

August 5, 2019 at 1:01 am

“There are three types of lies — lies, damn lies, and statistics”*…

 

Charts

“Hiding in Plain Sight”

 

A chart’s purpose is usually to help you properly interpret data. But sometimes, it does just the opposite. In the right (or wrong) hands, bar graphs and pie charts can become powerful agents of deception, tricking you into inferring trends that don’t exist, mistaking less for more, and missing alarming facts. The best measure of a chart’s honesty is the amount of time it takes to interpret it, says Massachusetts Institute of Technology perceptual scientist Ruth Rosenholtz: “A bad chart requires more cognitive processes and more reasoning about what you’ve seen.”…

Five examples (like the one above) of the kinds of tricks that charts can try to pull, explained: “Five Ways to Lie with Charts.”

* Benjamin Disraeli

###

As we stack the deck, we might recall that it was on this date in 2010, at 2:32p EDT, that the U.S. stock markets suffered a “Flash Crash”– in a period of just 36 minutes, the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite collapsed and rebounded (the Dow, e.g., lost 9% of its value, then recovered most of it).

Nearly five years later, the SEC charged a 36-year-old small-time trader who worked from his parents’ modest stucco house in suburban west London with having caused the collapse (using spoofing and layering, along with a form of front-running– all now explicitly outlawed).  But many experts are not convinced; to this day, there are numerous theories– but no consensus– as to the cause(s) of the crash.

Flashcrash-2010

The DJIA on May 6, 2010 (11:00 AM – 4:00 PM EDT)

source

 

Written by LW

May 6, 2019 at 1:01 am

“How about a little magic?”*…

 

sorcerers apprentice

 

Once upon a time (bear with me if you’ve heard this one), there was a company which made a significant advance in artificial intelligence. Given their incredibly sophisticated new system, they started to put it to ever-wider uses, asking it to optimize their business for everything from the lofty to the mundane.

And one day, the CEO wanted to grab a paperclip to hold some papers together, and found there weren’t any in the tray by the printer. “Alice!” he cried (for Alice was the name of his machine learning lead) “Can you tell the damned AI to make sure we don’t run out of paperclips again?”…

What could possibly go wrong?

[As you’ll read in the full and fascinating article, a great deal…]

Computer scientists tell the story of the Paperclip Maximizer as a sort of cross between the Sorcerer’s Apprentice and the Matrix; a reminder of why it’s crucially important to tell your system not just what its goals are, but how it should balance those goals against costs. It frequently comes with a warning that it’s easy to forget a cost somewhere, and so you should always check your models carefully to make sure they aren’t accidentally turning in to Paperclip Maximizers…

But this parable is not just about computer science. Replace the paper clips in the story above with money, and you will see the rise of finance…

Yonatan Zunger tells a powerful story that’s not (only) about AI: “The Parable of the Paperclip Maximizer.”

* Mickey Mouse, The Sorcerer’s Apprentice

###

As we’re careful what we wish for (and how we wish for it), we might recall that it was on this date in 1631 that the Puritans in the recently-chartered Massachusetts Bay Colony issued a General Court Ordinance that banned gambling: “whatsoever that have cards, dice or tables in their houses, shall make away with them before the next court under pain of punishment.”

Mass gambling source

 

Written by LW

March 22, 2019 at 1:01 am

“He read “Principles of Accounting” all morning, but just to make it interesting, he put lots of dragons in it”*…

 

720px-Pacioli

“Portrait of Luca Pacioli [the father of double-entry accounting] with a student”

You’ve never heard of Yuji Ijiri. But back in 1989 he created something incredible.

It’s more revolutionary than the cotton gin, the steam engine, the PC and the smart phone combined.

When people look back hundreds of years from now, only the printing press and the Internet will have it beat for sheer mind-boggling impact on society. Both the net and the printing press enabled the democratization of information and single-handedly uplifted the collective knowledge of people all over the world.

So what am I talking about? What did Ijiri create that’s so amazing?

Triple-entry accounting.

Uh, what?

Yeah. I’m serious.

But don’t feel bad if you slept through the revolution. It wasn’t televised or posted on Reddit. When Professor Ijiri died in 2017, most people didn’t catch his obituary. His most famous book, Momentum Accounting & Triple-Entry Bookkeeping, has a grand total of zero reviews on Good Reads. So you’re not alone if you missed it…

Dan Jeffries at Hacker Noon does a wonderful, engaging job of telling this remarkable story– and of explaining why his claim of importance may not be hyperbolic at all: “Why Everyone Missed the Most Important Invention in the Last 500 Years.”

* Terry Pratchett, Wintersmith

###

As we don our green eye shades, we might recall that it was on this date in 1995 that the longest federal government shutdown in US history took place under former President Bill Clinton while Republicans, led by Speaker Newt Gingrich, controlled both houses of Congress.  It lasted over three weeks, until January 6, 1996.

clinton gringrich source

 

Written by LW

December 15, 2018 at 1:01 am

%d bloggers like this: