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Top Financial Stories 2014

I generally ask myself at this time of year what were the biggest stories of the past twelve months in business/financial news.

Of course, I choose the ones I do largely because they illustrate an important theme, and in the list below I'll spell out and italicize the theme. Yet the theme itself isn't the story.

What is life?

I remember the following answer to that question from something that Isaac Asimov once wrote, and that I read in my teens. This is from memory:

 Life is a localized resistance to entropy, employing enzymes as a critical weapon in this resistance.

There are at least four distinct elements to that definition.

1) Entropy is the general tendency of things to run down. Every energy exchange is a loser, with some of the energy turned to a useless form in the process of the exchange, so any closed system tends to run down.

2) Living things are a localized resistance. At certain times and places, things become more orderly (which is possible without violating physical law because they are open systems, not closed).

3) Life isn't the ONLY sort of localized anti-entropy. Volcanic activity is another example. It creates a mountain where there may previously have been a flat plain, a transition that represents a gain in potential energy. So to define life properly we need something mor…

O Holy Night

The original French lyrics were as follows:

Minuit, chrétiens, c'est l'heure solennelle,Où l'Homme Dieu descendit jusqu'à nousPour effacer la tache originelleEt de Son Père arrêter le courroux.Le monde entier tressaille d'espéranceEn cette nuit qui lui donne un Sauveur.Peuple à genoux, attends ta délivrance.Noël, Noël, voici le Rédempteur,Noël, Noël, voici le Rédempteur!De notre foi que la lumière ardenteNous guide tous au berceau de l'Enfant,Comme autrefois une étoile brillanteY conduisit les chefs de l'Orient.Le Roi des rois naît dans une humble crèche:Puissants du jour, fiers de votre grandeur,A votre orgueil, c'est de là que Dieu prêche.Courbez vos fronts devant le Rédempteur.Courbez vos fronts devant le Rédempteur.Le Rédempteur a brisé toute entrave:La terre est libre, et le ciel est ouvert.Il voit un frère où n'était qu'un esclave,L'amour unit ceux qu'enchaînait le fer.Qui lui dira notre reconnaissance,C'est pour nous tous qu&#…

From John Milton's Nativity Ode

I'll have nothing to say in this blog over the next couple of days. So this will be our last pre-Christmas post. On Christmas Day itself I'll post the lyrics of a favorite Christmas carol, largely because that's easy to do and I'm holiday-lazy.


See you then!


The following is a fine statement by John Milton of the eschatological hope bound up with Christianity, and for that matter with the Jewish messianic tradition. enjoy.


Time will run back, and fetch the age of gold,
And spekl'd vanity
Will sicken soon and die,
And leprous sin will melt from earthly mould,
And Hell itself will pass away,
And leave her dolorous mansions to the peering day.

Yea Truth, and Justice then
Will down return to men,
Th'enamelled Arras of the Rainbow wearing,
And Mercy set between,
Thron'd in celestial sheen,
With radiant feet the tissued clouds down steering,
And Heav'n as at some festival,
Will open wide the Gates of her high Palace Hall.

John Milton, Nativity Ode (162…

Cromnibus and the Swaps Pushout

President Obama apparently decided to support the omnibus budget bill late Thursday morning, December 11th. He supported the bill because Senate Majority Leader Harry Reid told him the threat of a government shutdown in the first quarter of 2015 was otherwise a real one, and the President should act quickly to get that off the table.

The next few hours appear to have been hectic ones, as alliances formed and shifted both for and against the bill, across party lines. The bill came to be called "cromnibus," apparently for "Continuing Resolution Omnibus." [Personally my first impression was that the "cr" stood from "cram." Alas not.]

At 9:37 Thursday evening, the bill passed the House, 219 to 206. Obama and House Speaker Boehner had both kept enough of their troops in line to get the result they both wanted.

The Senate passed it on Saturday night, with a vote of 56 to 40. The 40 who voted "no" included both Elizabeth Warren and Ted Cruz…

Causal Chains

A thought today from Bertrand Russell's book, Human Knowledge.

Russell is here discussing the relationship of cause and effect. He considers the possibility that the relationship might be entirely subjective, just a name for the fact that A regularly precedes B in my experience. Whenever I see a dry match struck against a rock, I then see a flame, etc. He refers to this hypothesis as that of a "world consisting only of data," because it involves seeing causation (and other relations) as connections between one datum and another, not as facts about some external world whence come the data into my subjective consciousness.

And of that idea, he says this:

"As regards the irregularity of a world consisting only of data, this is an argument to which it is difficult to give precision. Roughly speaking, many sensations occur without any fixed antecedents in our own experience, and in a manner which suggests irresistibly that, if they have causes, these causes lie partly …

What is "Money"?

Almost exactly four years ago, economist Paul Krugman wrote the following explanation of the difficulty in defining the money supply for purpose of monetarist analysis. I think it is worth the resurrection.



Surely we don’t mean to identify money with pieces of green paper bearing portraits of dead presidents. Even Milton Friedman rejected that, more than half a century ago. For one thing, a lot of those pieces of green paper are pretty much inert — sitting outside the United States, in the hoards of drug dealers and such. For another, checking accounts are clearly a close substitute for cash in hand.

Friedman and Schwartz dealt with this by proposing broader aggregates –M1, which adds checking accounts, and M2, which adds a broader range of deposits. And circa 1960 you could argue that those aggregates were good enough.

But now we have a large shadow banking system, in which things like repo serve much the same function as deposits; M3 used to capture some of that, but the Fed…

Currency War

Nouriel Roubini recently tweeted, "Currency wars coming, but don't bet on gold."


Roubini is an economist affiliated with New York University, Stern Sch. of Business. He has had an on-and-off relationship with the International Monetary Fund, and is probably best known to the general economics-literate public for the book Bailouts or Bail-Ins? (2004).


That Roubini believes "currency wars" are coming means that opinion has gone well beyond the "usual suspects."


But why does he mean you shouldn't bet on gold? In essence, he believes that as all currencies are about to drop in value relative to real assets, you should do your best to turn your currency into real assets. And this doesn't mean shiny metals. It means real estate and equities.

Time: Good Choice

http://time.com/time-person-of-the-year-ebola-fighters-choice/




Sometimes I argue with Time's choices for person of the year.


This year I cannot. The "Ebola fighters" generically are the POTY, and I can't imagine anyone more deserving.


All I'll do then, to pad out this entry, is quote a bit of Time's own thoughtful commentary on the Ebola outbreak that has made so many calamitous headlines in 2014.


"This was a test of the world's ability to respond to potential pandemics, and it did not go well. It exposed corruption in African governments along with complacency in Western capitals and jealousy among among competing bureaucrats. It triggered mistrust from Monrovia to Manhattan."


That's sobering, even if the alliteration in that final sentence is a little too neat.


The other finalists for the POTY distinction were: Ferguson protestors; Vladimir Putin; Taylor Swift; Tim Cook; Roger Goodell; Massoud Barzani; Jack Ma. Perhaps I should have b…

Temasek and automatic trading

Temasek, an investment company managing Singapore's surplus revenues, has bought a significant stake in a high-tech trading company: that is, 10% of Virtu.


Here's what Reuters said about the deal on Sunday.


Virtu's CEO is happy about this. "Temasek is an ideal partner for Virtu," etc. Why? Because Virtu is expanding "into new asset classes and geographies."


But what comes to my mind is that Virtu is the kind of operation that serves as the missing 'bad guy' in Michael Lewis' book, Flash Boys.


Lewis' book plays up the market distortions, the "rigging" of markets in his term, that can be accomplished through contemporary electronic/algorithmic wizardry. When the emphasis is on the speed for the wizardly machinations, this is called "high-frequency trading," though speed itself may not be quite as 'of the essence' as that term suggests.


One feature of Lewis' book that many readers found odd was that while h…

John Jay Chapman

I've just read a fine essay by Christopher Reid about the journalist/essayist John Jay Chapman (1862-1933).


Here's the link, if you would also like to dip into it.


And here's a link to one of Chapman's essays, Professorial Ethics (1910).


In that essay, Chapman writes that the type of men who become the presidents of colleges are those who, a rule, began life with ambitions in scholarship, "but their talents for affairs have been developed at the expense of their taste for learning, and they have become hard men. As towards their faculties they have been autocrats, because the age has demanded autocracy here; as toward the millionaire they have been sycophants, because the age has demanded sycophancy here."


Nowadays the word "millionaire" doesn't work well in this context. A million won't go as far in buying sycophants as once it did. Billionaires, though? Make that change and the passage likely still works fine.
Chapman certainly shared my …

Hannah Arendt

A quote from the opening passage of her 1961 book, ON REVOLUTION.


"Justifications of wars, even on a theoretical level, are quite old although, of course, not as old as organized warfare. Among their obvious prerequisites is the conviction that political relations in the normal course do not fall under the sway of violence, and this conviction we find for the first time in Greek antiquity, in so far as the Greek polis, the city-state, defined itself explicitly as a way of life that was based exclusively upon persuasion and not upon violence."


Like many thinkers before and some since, Arendt tended to romanticize the Greek polis. I believe this passage exhibits that fact. Surely the slaves within the walls of Athens could have told stories about the use of violence against their persons to keep them in their status as beasts of burden. I doubt "persuasion" in a contrary sense had much to do with that.


Still, I see her point. Before anybody would have thought to ju…

"Drew could not be reached for comment."

Rolling Stone ran a story recently, by Sabrina Rubin Erdely, on the rape-friendly culture at the University of Virginia. Here's a link.


At the heart of the story is a gang-rape of a woman named Jackie, a crime orchestrated by a "handsome Phi Kappa Psi brother" described in the story as "Drew." Erdely indicates that Jackie really is Jackie's first name, whereas "Drew" is a pseudonym.


Still more recently, Rolling Stone has said: "oops." Or, in their words, "in the face of new information, there now appear to be discrepancies in Jackie's account, and we have come to the conclusion that our trust in her was misplaced."
They aren't specific about the "new information." But they are pedaling backward from this story as quickly as they can.
Days before they started pedaling, two writers for SLATE  had made an observation that I think germane: although the inference that Drew has gotten away with his crime through the…

Engineers versus Bulldogs

Last week, in trying to write a blog entry on Thanksgiving weekend football, I mistakenly stated that the Georgia-versus-Georgia-Tech game was to take place on Thanksgiving day itself.


That was wrong. That game occurred two days later.


Of course if you really care about college football, you necessarily get your news on the subject, and even your opinionating on the subject, other places. Still: to atone for getting this wrong, I'll revisit the game now.


It was a humdinger, decided in overtime.


In the fourth quarter, the GT Yellow Jackets, leading 21 to 17, started playing very defensively, as if their plan was to run out the clock. But GT quarterback Justin Thomas pump faked a pass while scrambling, lost control of the ball, and the Bulldogs took over. They then drove for a TD and one-point conversion, putting them up 24-21.


By the time the Yellow Jackets got the ball back within scoring distance, time really was running out. Their kicker, Harrison Butler, would have to make u…

Carl Bernstein about Bill Clinton's first term

Back in 2007, as Hillary Clinton, Barack Obama, Joe Biden and several others were maneuvering in anticipation of the Democratic Party's upcoming presidential primary campaign, Alfred Knopf brought out a book by Pulitzer Prize winner Carl Bernstein, A WOMAN IN CHARGE, about Hillary's life.

Here's a fascinating passage, describing the inner workings of the Clinton administration in early 1994.

"Many of Bill Clinton's top aides felt that Hillary was impatient when listening to their criticisms [and that Ira Magaziner was acting as her bulldog]....Magaziner infuriated the president's aides when they learned he was meeting privately with the Clintons in the White House residence and urging them to make important decisions without consulting either the [health care] task force or the economic team. Hillary's stature with Bentsen and even her old friend Shalala was deteriorating.

"The president seemed caught between his wife and his advisers. More often than…