Yves Smith at Naked Capitalism has an interesting essay on her site Why So Little Self-recrimination Among Economists? which we would urge you to read if you are interested at all in this topic, as it is sincerely well thought and written, for which we her readers are always grateful.
It is difficult to assess the quality of an unfamiliar game if one does not know the rules, and even more if one does not understand the objectives. What is the 'goal' of the economics game which we all have been observing with greater than usual interest these past few years?
For the past twenty five years at least modern economics has not been seeking objective truth and the advancement of learning as much as the rationalization of policy positions in pursuit of power, awards, grants, and influence. This is not to say that there was a utopia before this, but rather that the less admirable aspects of the profession were in the minority, and not so widely accepted and tolerated and respected.
Our society on the whole does not value the truth as it had done before, but worships money and power and cleverness. That is both the long and short of it. We obtain the politicians and economists and news commentators that we encourage according to the character of the age.
Economics is a social science, with somewhat murky experimental methods, more like redacted statistical vignettes, and difficult to measure theories with grading periods too widely interspersed to be meaningful. This introduces a strong element of peer pressure and factionalism, of quack theories and nostrums hiding in the safe harbors of ambiguity and plausible error.
Granted, the academics are protected by tenure, but tenure is a weak consolation to the ambitious. It can be at worst a kind of exile, a quiet humiliation. And professors are weak in their resources as compared to the think tanks who have no qualms about pursuing their desired objectives. There is a power to the lie that can overwhelm those who stumble about in pursuit of the truth, or at least a better approximation of it.
Economics is not a purely objective science, because its theories are not readily verifiable through controlled experimentation, even allowing for the work of some of the behaviourists.
In this economics is not alone among the sciences, not at all, especially to those in the leading edge of some disciplines like theoretical physics, where experimentation is difficult, and grading periods are also interspersed widely. We often hear of courageous minds who hold out through years of isolated persistence to be eventually vindicated by new discoveries from experimentation and observation.
But is economics so much the problem? We would suggest that its condition, its character, merely makes it vulnerable, a thing to be encouraged and protected, but not to be relied upon as a bulwark against adverse societal influences.
If anything, economics is guilty of pretension, of having more influence and authority than its knowledge would allow. Was there anything so artfully disingenuous as the Congressional testimony of Alan Greenspan regarding critical policy decisions? Or more craven than the way in which many of the Congressmen sought to gain cover for their action under his prevarication?
How can there be self-recrimination where there is no outrage in general? Where is the objective analysis of what went wrong, and proposals to change things to correct this?
Most academics are notorious followers, trodding the well worn and well marked paths, no matter where they might lead. It is only the exceptional, both in mind and spirit, that dare to blaze new trails. Tenure is no armor for the ego, and there are no politics more vicious and petty than those of academia, excepting perhaps the fashion industry.
We ought not to blame economics, beyond its pretensions to administer advice from some position of authority because of superior knowledge. That has been shown to be hollow, false, a totemism. The pseudo-religious aspects of the extreme elements of some economic schools of thought is apparent, almost hysterically funny, when viewed from a distance.
We ought not to single out economists for not being virtuous because there were too few virtuous people on the whole both then and now, if one defines 'virtuous' as one who tells the truth, come what may, as the facts and their analysis leads them even in their lack of certainty.
This is not to say there is no blame to be attached, no criminality to be assessed, that 'society is to blame.' The problem is that there is so much of it that we can spend years striking at the branches, the scapegoats, without approaching the root.
The remedy is the law, and to affect this we must take back the rule of law from those who have corrupted it.
The Federal Reserve raised an enormous debt bubble to lift the economy out of the slump of 2002, and for this trouble we were rewarded with a housing and stock market bubble, and remarkable imbalances that are just now being unwound. This is what happens when one liberally applies monetary and Keynesian stimulus without reform. And we are doing it again.
Things will change for the study of economics, and probably for the better. There are more extreme examples of professions which were co-opted by the political world, like psychology in the Soviet Union and medicine in the Third Reich, sciences subjected to what some might call deep capture.
How can a society which defines its first principle, the ultimate good, as greed be anything but what it is? Cruel, self-absorbed, shallow, unjust, delusional and imbalanced. Nothing made this more apparent than the spectacle of the outgoing President's press conference today. And, we might add, the actions of his predecessor in that office.
Fear is the tool of a tyranny, and greed is a horse to be harnessed, not the measure of policy or an administrator of justice to run maximized, or even unchecked.
Why the lack of self-recrimination among the economists? Because they are no different than anyone else who failed to exercise their stewardship and basic human obligation to protect the innocent and to stand for justice, and uphold the standards of their profession. In this they are no different than politicians and lawyers and accountants and the mainstream media, although we foolishly expected more.
Economics will recover eventually from this lapse, as the majority of economists look back in quiet horror at the carnage that was inflicted on the world, accommodated by their silence. There were many who spoke out. There were even some who took the time and trouble to go to places where economists frequently discuss things, and caution that their silence would discredit the profession.
What is the next step? Forward, off the beaten path.
12 January 2009
In Defense of Economics
09 January 2009
Citi Unloading Robert Rubin and Salomon Smith Barney
We hope that Teflon Bob will not be finding a position with the Obama Administration. If he does they might have to drop the 'reform' label on that Administration. This is starting to look more like the shift change at the Rogues Gallery.
Citi is also said to be shopping (trying to unload) its Salomon Smith Barney brokerage division. They are said to be in talks with Morgan Stanley. Apparently MS is finding its current life as a bank holding company a bit timesome, coming in at 10 and out on the links by 3.
How fast time flies on the Street. It seems like only yesterday that little Philbro was in short pants, and then its first pair of white shoes. Then they grow up and rig the Treasury market and help set up the dotcom bubble, those little scamps.
Both Citi and JP Morgan continue to be plagued by rumours of large undisclosed losses and troubled positions.
Since Bob Rubin was on Sandy's and Vikram's A team, one has to wonder. As Pliny the Elder observed, "Ruinis inminentibus musculi praemigrant:" When collapse is imminent, the little rodents flee.
Wall Street Journal
Rubin to Leave Citigroup
By DAVID ENRICH
Robert Rubin, the former Treasury secretary who has been sharply criticized over his role in the financial turmoil at Citigroup Inc., is leaving the bank.
Mr. Rubin is senior counselor and a director at the New York company, which has suffered $20 billion in losses over the past year and got a government bailout of at least $45 billion. Citigroup's troubles cast an awkward spotlight on Mr. Rubin, who received $115 million in pay since 1999, excluding stock options.
Citi said in a statement that Mr. Rubin retired decided to retire as senior counselor effective Friday and decided not to stand for re-election as a director at the company's next annual meeting.
"Since joining Citi nearly 10 years ago, Bob has made invaluable contributions to the company," said Vikram Pandit, Chief Executive Officer of Citi.
While Mr. Rubin has defended his performance since joining Citigroup in 1999, insisting that the bank's problems were due to wider turmoil in the financial system, not failures by Citigroup, he is "tired of it," a person familiar with the matter said. Mr. Rubin now wants to focus instead on his non-profit work and other outside interests.
The exit of Mr. Rubin likely will do little to ease the questions swirling around Citigroup, now just the fifth-largest U.S.-based bank as measured in stock-market value. Since late 2006, Citigroup's share price has plunged nearly 90%. On Friday, the stock was down more than 5% in recent New York Stock Exchange composite trading.
Besides an initial $25 billion injection as part of a broad rescue of financial firms, the government agreed in November to put in $20 billion more and vowed to protect Citigroup against most losses on $306 billion of its assets.
The second infusion, which the government as the bank's largest shareholder, with a 7.8% stake, coincided with federal regulators putting Citigroup on a tighter regulatory leash, according to people familiar with the situation said.
Federal banking regulators have toughened their scrutiny of Citigroup, becoming involved in internal discussions about the company's strategic direction and discouraging executives from pursuing certain acquisitions.
In an interview with The Wall Street Journal in late November, Mr. Rubin said risk-management executives are responsible for navigating around problems like those now battering Citigroup. "The board can't run the risk book of a company," he said in the interview. "The board as a whole is not going to have a granular knowledge" of operations.
Still, Mr. Rubin was deeply involved in a decision in late 2004 and early 2005 to take on more risk to boost flagging profit growth, according to people familiar with the discussions.
Mr. Rubin also played a major role in getting Mr. Pandit appointed as Citigroup's chief executive in December 2007, following the resignation of Charles O. Prince.
In the Journal interview, Mr. Rubin said Mr. Pandit was doing a good job and would prosper in its current structure once the financial crisis eases.
Merrill Lynch: The Wealthy Are Turning to Physical Gold for Safety
And so it begins...
Each person has to allow for their own circumstances, and provide for their daily needs as well as their longer term investment decisions.
Speculation and leverage are a trap in this market, because it is permeated by abusive practices and a deterioration of the conditions necessary to free markets.
It is truly amazing that the world continues to allow New York, Chicago and London to set the short term prices for their goods and labor.
The status quo will do all in its power to perpetuate itself, and hold the line on meaningful change and reforms for a variety of all too human motivations. This, we believe, is what has been causing this series of bubbles, booms and busts. Bernanke is fighting the last economic crisis.
As we can, provisions should be made for the troubles to come. We did not get where we are overnight, and we will not repair ourselves in a year either.
UK Telegraph
Merrill Lynch says rich turning to gold bars for safety
By Ambrose Evans-Pritchard
Last Updated: 10:32AM GMT 09 Jan 2009
Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or "paper" proxies.
Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. "People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs," he said, referring to exchange trade funds listed in London, New York, and other bourses.
"They are so worried they want a portable asset in their house. I never thought I would be getting calls from clients saying they want a box of krugerrands," he said.
Merrill predicted that gold would soon blast through its all time-high of $1,030 an ounce, and would hit $1,150 by June.
The metal should do well whatever happens. If deflation sets in and rocks the economic system it will serve as a safe-haven, but if massive monetary stimulus gains traction and sets off inflation once again it will also come into its own as a store of value. "It's win-win either way," said Mr Dugan.
He added that deflation may prove the greater risk in coming months. "It's very difficult to get the deflation psychology out of the human brain once prices start falling. People stop buying things because they think it will be cheaper if they wait."
Merrill expects global inflation to hover near zero, with rates of minus 1pc in the industrial economies. This means that yields on AAA sovereign bonds now at 3pc will offer a real return of 4pc a year, which is stellar in this grim climate. "Don't start selling your government bonds," Mr Dugan said, dismissing talk of a bond bubble as misguided. (Government bonds are a safe haven for now on the short tend of the curve, but to say there is no bubble on the long end is remarkable. The only vairable is how long before that bubble bursts. The real question is whether the risk is worth the return for you, and that will vary. It seems insane to hold the long end when you can take the shorter end. - Jesse)
He warned that the eurozone was likely to come under strain this year as slump deepens. "There is going to be friction as governments in the south start talking politically about coming out of the euro.
I don't see the tensions in Greece as a one-off. It is a sign of social strain in countries that have lost competitiveness." (Wait until it really gets rolling in the US, UK, Russia and China. Then there will be headlines - Jesse)
Daily Telegraph
Gold rush erupts over financial crisis
By Nick Gardner
January 10, 2009 12:01am
THE global financial crisis has sparked a new gold rush.
Worried investors seeking a safe home for their money are ploughing billions of dollars into the precious metal in a bid to preserve their wealth.
Demand has now reached such unprecedented levels that the Perth Mint, Australia's biggest wholesaler of gold coins and bars, has been forced to ration its sales.
Perth Mint's bullion sales rose 194 per cent in the December quarter compared with the corresponding period in 2007, while silver bullion sales were up 140 per cent.
The mint has suspended sales of all gold bars and all bullion coins - except its 1oz "Kangaroo" gold bullion coin.
On Monday, after a three-month suspension, it will expand its range of bullion coins for sale but the restrictions remain in place for minted gold bullion bars so the mint can sell some gold to as many customers as possible.
"We are working three shifts a day, six days a week, and still can't keep up with demand," Perth Mint CEO Ed Harbuz said. "I've never known anything like this in the precious metals market.
"We would be working Sundays too but we are having difficulty getting enough staff."
Non-minted gold in the form of cast bars produced by Perth Mint's local refinery can still be bought, although customers who want the bigger bars often have to wait several weeks.
One customer recently bought $500,000 worth of bullion and wanted it delivered so he could hold it personally.
"For very big orders we normally keep the gold in our depository for security reasons," Mr Harbuz said.
"Orders of $10 million or more are not unusual. Often the orders are much larger if we are dealing with pension funds or institutional investors."
