Weekly Roundup 46: A Curated Linkfest For The Smartest People On The Web


Hope you’re enjoying the weekend.

Miguel Barbosa
-Founder of SimoleonSense

SimoleonSense Weekly Favorite:

Video: EO Wilson 1 hour profile Via Meaning Of Life TVEdward O. Wilson is Pellegrino University Professor emeritus at Harvard. His awards include the National Medal of Science and two Pulitzer Prizes.

Exclusive Features:

The Embodied Mind and the Nature of Skill – Via Phil.MQ.Edu – Cricket is suffused in memory. Both playing and appreciating the game centrally involve various forms of remembering. This essay focuses on the distinction between explicit autobiographical remembering and the kind of habitual or ‘procedural’ memory involved in complex embodied skills like batting. Generally considered the province of psychology or cognitive science, the phenomenon of habit or skill memory has been largely neglected by philosophical anthropology and the philosophy of mind. However a number of intrinsically interesting questions concerning batting in particular arise when considered from this perspective. While drawing upon ideas from psychology and cognitive anthropology, the argument is supplemented with accounts from general testimony and cricket writing, phenomenology, and other investigations of the embodied mind. While starting from the prevalent view that thinking too much disrupts the practised, embodied skills involved in batting, the essay suggests that experts do in fact successfully learn mental techniques for how to influence themselves in action, and that the kinds of explicit thought and memory in question are themselves active, dynamic and context-sensitive.

Video: Nassim Taleb on so-called Wall Street ‘Talent’ Via Fundamental Analyst – I’ve often scoffed at the notion that guys pushing buttons on computers to send large sums of money around the world and back takes talent. The bromide bandied about by Wall Street banks to the effect that that if compensation limits were imposed on them, that their their so-called ‘talent’ would go elsewhere is an insult to a person’s intelligence. As Nassim Nicholas Taleb testified before Congress in the clip shown below, the Banking Industry has lost every dollar they’ve ever made in history and then some, and their only real talent is paying themselves bonuses


Financial regulation, moral hazard, and the end of “too big to fail” – Via Harvard – The magnitude of the current financial crisis reflects the failure of an economic and regulatory philosophy that proved increasingly influential in policy circles during the past three decades. This philosophy, guided more by theory than historical experience, held that private financial institutions not insured by the government could be largely trusted to manage their own risks—to regulate themselves. The crisis has suggested otherwise, particularly since several of the least regulated parts of the system (including non-bank mortgage originators and the major broker-dealer Bear Stearns) were among the first to run into trouble. Former Federal Reserve Chairman Alan Greenspan acknowledged in October 2008, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”

The CIA Chimes In On Gold Control; Highlights Historical Gold-To-Foreign Holdings Shortfunding – Via Zero Hedge – After yesterday we highlighted a declassified document by the Department of State, in which it was made clear just how critical it is for the US to remain “Masters of Gold”, today we present a comparable memorandum from the same time period (December 1968) this time by the CIA, which presents comparable key high-level gold-related deliberations by the then-administration.


Video: A third way to think about aid – Via Ted – The debate over foreign aid often pits those who mistrust “charity” against those who mistrust reliance on the markets. Jacqueline Novogratz proposes a middle way she calls patient capital, with promising examples of entrepreneurial innovation driving social change.

How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness – Via Nber – This paper reports on several self-assessed and objective measures of financial literacy newly added to the American Life Panel (ALP), and it links these performance measures to efforts consumers make to plan for retirement. We evaluate the causal relationship between financial literacy and retirement planning by exploiting information about respondents’ financial knowledge acquired in school – before entering the labor market and certainly before starting to plan for retirement. Results show that those with more advanced financial knowledge are those more likely to be retirement-ready.

Humanities Face A Bubble Via Times – Bubble trouble – The humanities are in the same state financial markets were in before they crashed. Assessing the growing mountain of toxic intellectual debt, Philip Gerrans considers going short on some overvalued research

We’re more likely to behave ethically when we see rivals behaving badly – Via Science Blogs – Gino’s team says this shows that peers have a very strong influence on ethical behavior. When the actor appeared to be a rival rather than a peer, cheating was nearly eliminated. But when he seemed to be a fellow student, cheating increased dramatically. Clearly having an opportunity to cheat and understanding that it was impossible for them to be caught influenced behavior as well: otherwise, there would have been no cheating when no actor was in the room.

When Assessing Risks, Our Emotions Can Lead Us Astray – Via Medical News Today -If you find yourself more concerned about highly publicized dangers that grab your immediate attention such as terrorist attacks, while forgetting about the more mundane threats such as global warming, you’re not alone.  And you can’t help it because it’s human nature, according to a new study led by University of Colorado at Boulder psychology Professor Leaf Van Boven. That’s because people tend to view their immediate emotions, such as their perceptions of threats or risks, as more intense and important than their previous emotions.

Deposit insurance core principles Via BIS – The crisis has shown that deposit insurance issues matter a lot for financial stability. It is essential to have properly functioning deposit insurance schemes in place when financial stress emerges. And it is essential that these robust insurance frameworks are built sufficiently in advance in good times, given that it is often too late to improvise once the problems occur. From this perspective, the recent completion of deposit insurance core principles is welcome and represents a great achievement on the part of the International Association of Deposit Insurers and the Basel Committee on Banking Supervision. It is one key element of the massive and broad work programme undertaken by the official sector in response to the crisis. But implementation is crucial: the development of prudent, well informed standards and supervisory guidance is only the first step in a two-step process. The second critical step is for these standards and guidance to be implemented in an internationally coordinated and consistent manner. This puts a premium on cooperation and information sharing among supervisors.

Time to buy or just buying time? The market reaction to bank rescue packages – Via BIS – This paper reviews the market reaction to bank rescue packages announced in six countries between October 2008 and January 2009. The study distinguishes the impact on creditors as seen in the change of CDS spreads from the impact on shareholders as seen in the movement of bank stock prices. Government interventions benefited creditors at the expense of shareholders, with bank CDS spreads narrowing around the announcements in all cases. Despite a brief positive reaction, bank stock prices continued to underperform in all countries except the United States where the favourable terms of the government support allowed bank stocks to outperform.

Can Your Company Handle an Onrush of Risk? – How far can risk management be taken? For example, should a company with a superstar risk manager have been able to predict, two years ago, a recession so deep that it was marked by the implosion of Wall Street investment banks, massive layoffs, and plummeting consumer demand? Risk managers on a panel at the CFO Rising West conference in Las Vegas Tuesday agreed that some outlying events cannot be predicted. But they didn’t relieve risk departments of responsibility for making sure companies can respond well to those events when they do happen.

Minsky’s Explanation of Bubbles – Pacific Views – Many financial articles discussing the financial crisis mention Hyman P. Minsky, an economist from a quarter of a century ago, and his insight into asset bubbles. When he wrote his observations and conclusions about the types of problems that could arise from financial deregulation, just as the Chicago boys were getting their chance to change the world, he was scorned for his warnings. Yet, since that time, we’ve had three substantial financial bubbles, the last of which we will spend years unwinding. Thus it might be good to have a broader understanding of what insight Minsky had in order to make sure we don’t set off another asset bubble that finally does our world in.

How to Think, Say, or Do Precisely the Worst Thing for Any Occasion – Via Cognition & Culture – In slapstick comedy, the worst thing that could happen usually does: The person with a sore toe manages to stub it, sometimes twice. Such errors also arise in daily life, and research traces the tendency to do precisely the worst thing to ironic processes of mental control. These monitoring processes keep us watchful for errors of thought, speech, and action and enable us to avoid the worst thing in most situations, but they also increase the likelihood of such errors when we attempt to exert control under mental load (stress, time pressure, or distraction). Ironic errors in attention and memory occur with identifiable brain activity and prompt recurrent unwanted thoughts; attraction to forbidden desires; expression of objectionable social prejudices; production of movement errors; and rebounds of negative experiences such as anxiety, pain, and depression. Such ironies can be overcome when effective control strategies are deployed and mental load is minimized.

Short List FT Book Awards On Financial Crisis Via Huffington Post – Well, to that end, the Financial Times has announced its shortlist for “Business Book of the Year”! On the awards main page, the FT says that “the six books together sum up what went wrong in the crisis and may provide a route map away from the error-strewn past.” But do they? Before you take a guess, here’s a clue: Goldman Sachs is the main sponsor of this book award!

Super Trader On Beating the Odds – Susquehanna International – Jeff Yass – Via Philadelphia –  Susquehanna International  might very well be the biggest privately held options trading company in the world. Over two decades, Jeff Yass and five other founders and many people who work for them — they now employ 1,500, with offices all over the globe — have become very, very rich. Despite the size, secrecy pervades Susquehanna. Stealth is a word that former employees use often in describing the company m.o. A former trader defines it: If you have to choose between fame and fortune, choose fortune. Susquehanna buys and sells options and stocks quickly, in hundreds of thousands of transactions a day, yet it has remained largely below the radar even as it shapes the markets it plays in.

RANDOM ACTS OF FINANCE – CHAOS THEORY AND BUDGET PRACTICE – Via John Allen Paulos – The relatively new mathematical discipline of chaos theory and the associated notion of a non-linear dynamical system are of some relevance to these economic complexities. They help clarify not only some physical and biological phenomena but also why humblingly many of the consequences of NAFTA, environmental laws, Medicare changes, options and derivatives trading, flat tax proposals, and the Contract with America are likely to be unintended. Political hot air to the contrary, the economic climate in 2002 isn’t any easier to predict than is the weather in Washington seven years from today. The Democrats’ 10 year projections are even more nebulous.

Treasury Inc.: How the Bailout Reshapes Corporate Theory & Practice – Via HLS – In my recent paper, currently in the submission process, Treasury Inc.: How the Bailout Reshapes Corporate Theory and Practice, I explore the implications of the U.S. Treasury Department and the Federal Reserve’s controlling ownership positions in many companies through its decision to take equity in TARP bailout participants. I show how existing corporate theory is unprepared for the presence of a controlling government shareholder and I demonstrate a variety of unanticipated complications for corporate practice.  I close with three recommendations, one of which has assisted Senators Corker and Warner in introducing implementing legislation.

Other Interesting Items:

Insurance against financial fear Via PhysOrg – Just one year ago, a worldwide panic was unfolding: Financial markets froze after the collapse of the investment bank Lehman Brothers, leaving businesses without lenders as the economy drastically slowed. How can we stave off such fear-enhanced episodes in the future? Ricardo Caballero, MIT’s Ford International Professor of Economics, offers a distinctive solution: Government-issued investment insurance for banks.

Vanilla is a commodity – Via Interfluidity – But define a reliable vanilla option, and the dynamic flips on its head. Instead of tolerating rent-extraction as a cost of participation, consumers put up with one-size-fits-all products in exchange for peace of mind. Most consumers benefit very little from exotic product features, and I suspect that many are made deeply nervous by the complex contracts they can neither negotiate nor understand, but nevertheless must sign. Vanilla financial products would be extensively vetted and and their characteristics would soon become widely known. Inevitable malfunctions would be loudly discussed in the halls of Congress, rather than hushed-up in rigged private arbitrations. Vanilla products would face discipline both from private markets (no one is suggesting we forbid other flavors) and from a very public political process. Politics and markets are both deeply flawed, but they are flawed in different ways, and we should take advantage of that. In Arnold Kling’s lexicon, a market in which vanilla and exotic financial products coexist and compete offers the benefits both of exit and of voice.

Why African Banks Stay Optimistic Via Africa Confidential -After six weeks of billion dollar bail-outs, high-level sackings and the arraigning in court of five top executives, Nigeria’s financial sector is still robust enough to prompt paeans of praise from banks such as Goldman Sachs, Renaissance Capital and Standard Chartered. Not far behind in their pursuit of Nigerian business are South African banks such as Standard, ABSA (now controlled by Britain’s Barclays Bank) and First Rand – all of which are looking at buying stakes in troubled banks such as Intercontinental, Union and Oceanic.

Behavioral Economics & Tax Policy– Via NBER – Behavioral economics is changing our understanding of how economic policy operates, including tax policy. In this paper, we consider some implications of behavioral economics for tax policy, such as how it changes our understanding of the welfare consequences of taxation, the relative desirability of using the tax system as a platform for policy implementation, and the role of taxes as an element of policy design. We do so by reviewing the logic of specific features of tax policy in light of recent findings in areas such as tax salience, program take-up, and fiscal stimulus.

Another Primer On Short Selling – Via FSA

Video: Whistle-Blowers: A Conversation with Ellsberg and Dean – Via Fora.Tv – What lessons do the Vietnam War, Watergate, and the “war on terror” offer about the abuse of power by the executive branch in times of national crisis?

Video: Who Are the Uninsured? – Via Fora.TV – The 2006 Census Bureau estimate of 47 million uninsured Americans is often cited as a reason that healthcare reform is necessary. But who makes up this 47 million? Is it fair to lump all uninsured individuals into one statistic? Building on her recent Employment Policies Institute paper, “Who are the Uninsured?,” former CBO director June O’Neill discusses the characteristics of the uninsured population and what being uninsured means for individuals’ health status. Cato scholar Michael Tanner comments on O’Neill’s findings.

Video Series: The Dynamics of Illicit Flows from Developing Countries Via Bspan

The Mathematical Foundations of Decision Theory Via Scientific Metrics – We establish the conditions that must be satisfied for the mathematical operations of linear algebra and calculus to be applicable. The mathematical foundations of decision theory and related theories depend on these conditions which have not been correctly identified in the classical literature. Operations Research and Decision Analysis Societies should act to correct fundamental errors in the mathematical foundations of measurement theory, utility theory, game theory, mathematical economics, decision theory, mathematical psychology, and related disciplines.

Game Theory Link Fest – Via Mind Your Decisions

A Fair Deal for Taxpayer Investments – Via HLS – During the financial markets crash of 2008, the Treasury Department and the Federal Reserve—of necessity—improvised dramatic and aggressive solutions to rescue the financial sector from imminent collapse. A welter of creative regulatory and monetary solutions provided massive amounts of government assistance to rescue private firms from probable failure. However, the benefits of government intervention have so far largely flowed one way only—from the taxpayers to the financial sector—and there has been a marked absence of accountability or transparency associated with these government-provided benefits.

About Miguel Barbosa

I run this site.

27. September 2003 by Miguel Barbosa
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