It looks like the financial transaction tax is still not dead and getting support from academics. It’s probably true that such a tax would help avoid a similar crisis IF the same kind of crisis happened again. Always good to be ready for the crisis of last year. But you could also eliminate such risks by not having mortgages, not allowing derivatives, not having financial institutions, not selling houes or tulips or whatever. It’s too bad Krugman prefers to pick the easy way out. After all, this crisis had several players, not just one.

1. People who bought things they couldn’t afford
2. Mortgage companies lending without any checks and balances
3. Financial institutions re-packaging complex products
4. Financial institutions rating and wrongly certifying the risk level of these products
5. Financial institutions and traders who bought and sold those products
6. Government regulators who were supposed to oversee the process
7. Economists who were supposed to advise and provide thought leadership

So according to Krugman in order to avoid this type of crisis from happening again all we need to do is put a tax on the activity in item number 5 and never mind all the other issues. And in the process make everyone who ever owns any kind of investment in a financial product, whether for shot/medium/long term investment or retirement pick up the tab, or the ball that all the others, including people like Krugman, dropped.

Richard Feynman: There are 10^11 stars…

There are 10^11 stars in the galaxy. That used to be a huge number. But it’s only a hundred billion. It’s less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.

Richard Feynman

US educator & physicist (1918 - 1988)

This is a good talk by Dan Gilbert. I’ve listened to several of his previous talks at TED. Always interesting material at these conferences, I check them out perdiodically but almost missed this one.

Thankfully, the psychology of humans is unlikely to change in, say the next few thousands of years, if ever. Sorry Gilbert. Most people will continue to think in this way about odds and rewards and economic utility and make irrational choices. Which also means my job is pretty secure.

H/T maoxian.com

BusinessWeek’s Ben Steverman makes some good points here. Alan was making a similar point a few days ago in our conversations. I think there should be quite a few intelligent investors out there who aware of this well. But of course acting on it and getting the timing right are a completely different ballgame and way way tougher, for anyone.

Stocks: The Meltdown and the Media - BusinessWeek

Wall Street has been through crises before—1907, 1929, the 1970s, and 1987 all tested investors as much as the financial crisis of 2008. But this time, something is different: Three cable business channels and countless web sites offer 24-hour coverage of financial markets seven days a week.

The sheer quantity of information available raises the question: Could the media actually be contributing to the very crisis it is covering?

During past crises, average investors needed to wait until the evening news or the next day’s newspaper to learn how their investments had done.
A Recipe for Panic

This year, the financial panic has unfolded minute by minute in front of investors’ eyes. Meanwhile, online tools allow investors to make rash decisions, buying or selling stocks with the click of a mouse.

An interesting post at Proprietary Trader about Singapore: Rethink Singapore Economic Growth Model. I agree with the spirit of most of the text highlighted in red. However with some caveats and a pre-requisites which I feel weren’t addressed by Prof Lim.

For one, it’s a pity the article starts with “Singapore should..”, this is like the code for government speak when trying to coax people into a certain mindset/action, for example: “Singaporeans should speak proper English instead of Singlish” or “Singaporeans should make more babies”, it immediately creates a dissonance, well at least for me.

Secondly, in order for “releasing capital and talent to local entrepreneurs” to be effective you need the right kind of infrastructure and environment in place, and I’m not talking about communications hardware or low cost business registration fees and online facilities, it goes much deeper than that.

Third, making big bets on few projects has worked reasonably well for Singapore over the long run. Sure there were some hiccups with over investments in hard disks, wafer fabs etc. and maybe now in the financial sector but it’s not possible to get it right 100%, under any kind of model. I do agree though that there should be a more balanced approach and less reliance on just those big bets.

Fourth, the sentence “a national government, for example, should not use domestic savings to create employment disproportionately for foreigners simply in order to claim success in establishing a particular sector of its choosing that may not be validated by underlying market forces.” sounds a bit populistic to me. I think Sg’s flexibility in attracting foreign workers while still maintaining control over long term immigration is a strength rather than a weakness, but I may be biased :-) Also “claiming success” isn’t, I believe, the top priority of policy makers, rather it’s increasing the size of the pie for everyone.

As for the last part: “‘Don’t think of yourself as an outpost of a declining empire, or a
second Shanghai or a second Boston. Why not be a first Singapore?’” I think there’s already a shift away from that mindset and there are attempts to develop a more unique Sg. Ironically, one of the best ways to do that is through the actions Prof Lim criticises, i.e. government initiatives, making several big bets and seeing what sticks and how they develop.

Funny video. H/T to TraderGav.

Markets all around the world from Asia to Europe and America show massive declines. MSCI World index is now apparently heading to its worst year, EVER. US futures at pre-market limit down. Panic over the world economy is making everyone dump almost every financial asset they have. The problem as I see it is the vicious cycle and effects back on the real economy that this will bring.

Update: So, no armageddon (yet?), in fact quite a dull day I would say, slightly bullish but not overly so. Maybe shorts didn’t want to hold over the weekend, or some (smart / dumb ?) money being put to work very cautiously. I just sat out the action on the sidelines, there weren’t any attractive trades for my style anyway. Let’s see what next week brings.