Panic! The Story of Modern Financial Insanity

Posted on by

panicThis book was loaned to me by a friend, and it provides useful information and warnings to people interested in or involved in stock market investing It was edited by Michael Lewis, as described on the front flap, is about “…the crash of 1987, the Russian default…the Asian currency crisis of 1999, the Internet bubble, and the ongoing subprime mortgage disaster.” The book is composed of more than fifty articles that were written by numerous authors, and several are by Lewis himself. The approach had both positives and negatives. The chapters are usually short and to the point, but there is obviously no consistency of style. Also, the articles often have redundancies.

I recommend scanning the reviews on Amazon. Many reviewers warn that the book is edited by Michael Lewis, and is not a “Liar’s Poker,” “Money Ball” or “Blind Side.” I will say in Mr. Lewis’s defense that the front cover clearly says at the top “Edited by…” (although in relatively small print). Another point in his defense is that he mentions in acknowledgments that proceeds from the book will go to Katrina victims (and the first person he thanks is himself).

I found the most interesting sections to be about the Internet bubble and the real estate collapse. Perhaps the most interesting theme in the book is that crises often find their beginnings when smart people begin running complicated but legal versions of Ponzi schemes. The nice thing about Ponzi schemes is that early investors can make lots of money if they get out in time. The bad thing is that those getting out late can easily result in losing everything. Overvaluation results from sellers looked for “the greater fool” to buy what they had bought for too high a price. They hope someone else would give them an even higher price before the price collapses. Another theme is that we think of the people who are involved in mind-numbingly complicated financial schemes and “instruments” as geniuses. The author often reminds us those revered experts often don’t understand any better than others. One statement worth remembering is, “The longer the bull market goes on, the more believers there are.” Continue reading →

Presidential Election and Aftermath

Posted on by

It is 9:14 P.M. Mountain Standard Time on election day November 6, 2012 as I begin typing, and the announcement just came that Ohio will cast its electoral votes for President Obama. That virtually guarantees that President Obama has won reelection. What next?

I expect that Republicans will be quite critical of themselves and Mitt Romney’s campaign strategy. They will ask why he did not mention Libya in the foreign policy debate when there was ample evidence that the Obama administration bungled the security for the consulate by responding to requests for additional security by reducing the number of security agents. They then covered up the terrorist attack that resulted in the death of the ambassador and three other Americans by repeatedly claiming the attack resulted from a spontaneous demonstration. The only reason to cover up the truth was that the facts would be embarrassing to the administration. The focus was protecting President Obama’s chances for reelection, and the facts of what resulted in the four dead Americans might have been “problematic.”  The cover story succeeded because Mr. Romney did not make it an issue.

On a societal note, I find it distressing that we have reelected a president whose campaign was almost exclusively based on advocating that people who earn more should be taxed at higher rates. His campaign worked despite the flaw that it won’t work. Wealthy people already pay most of the taxes, and even if you take all of their money it won’t solve the budget deficit. The only way to control the deficit is to staunch the government thirst for more and more spending while getting out of the way of economic development. Economic development is the key. Romney’s approach would have encouraged entrepreneurs to develop businesses, the business would pay taxes, the employees would pay taxes, and the government would have more income. The majority of voters went with the guy who promised to raise taxes on people other than themselves. Continue reading →

Don’t Change Horses in Midstream

Posted on by

Yahoo observes that this phrase was made popular by one of Abraham Lincoln’s speeches in 1864 in explaining it isn’t wise to change leaders. He said, “An old Dutch farmer, who remarked to a companion once that it was not best to swap horses when crossing streams.”

This expression was posted on this date because the country decided yesterday to keep Barrack Obama on as President.

Lies My Teacher Told Me, Everything Your American History Textbook Got Wrong

Posted on by

Reviewed by Kathy London

teacher-liesThis book by James W. Loewen covers a survey of twelve major high school history textbooks that the author found to be full of irrelevant and erroneous details, yet omitting pivotal facts. While history contains fantastic and important stories which “have the power to spellbind audiences, even audiences of difficult seventh-graders”, textbooks come up lacking. They are concoctions of “lies, half-truths, truths, and omissions” that avoid many important ideas, and they are generally boring. No wonder students lose interest. Since I was bored by history in high school, Loewen’s book rings true for me.

Loewen will provide any group with lively conversation: people of Columbus’ age did not believe the world was flat; Europeans were able to conquer the New World because European diseases decimated Native Americans, Helen Keller was an active social radical, and Abraham Lincoln did say the Civil War was fought to end slavery. Be outraged when Loewen labels your favorite piece of history as bland optimism, blind nationalism, or plain misinformation, and delve your own research.

I recommend the book and Loewen’s home page. So I was delighted recently to find Loewen’s home page. Here are some provocative quotes from that site:

“Most Americans hold basic misconceptions about the Confederacy, the Civil War, and the acts of neo-Confederates afterward. For example, two-thirds of Americans–including most history teachers–think the Confederate States seceded for ‘states’ rights.’ This error persists because most have never read the key documents about the Confederacy.” Continue reading →

Wrong: Why Experts Keep Failing Us – And How to Know When Not to Trust Them

Posted on by

Reviewed by Kathy London

wrongThe topic of this book by David H. Freedman might seem disheartening, but proving wrongness is not Freedman’s point. Rather, he is interested in how people can seek out trustworthy advice: “you are [not] helpless to judge…. Look over the evidence, gauge the quality… weigh the likely biases… and take your best shot at deciding…”

While I enjoyed Freedman’s book, I did skim sections where examples kept going long after I thought his point was made.

I admire Freedman for tackling the first obvious question: “Is This Book Wrong?” I suggest you read the appendix first. Freedman’s researcher-father kept, framed and hung on his office wall, a letter that torpedoed one of his published studies. “It reminds me how easy it is to be wrong” his father said. Freedman admits his book is probably “riddled with factual and conceptual errors”, describes how errors probably snuck in despite his attempts to keep them out, but why you should read it anyway.

Freedman’s introduction addressed the second question that sprung to my mind: if experts are wrong, why are we better off now than a hundred years ago? Freedman argues that most progress comes when experts, every once in a while, get it right: wrongness “punctuated” with success. Continue reading →

Dueling Presidential Candidate Gaffes

Posted on by

With less than a week until we learn who will be elected president it seems the time is right for a mention of gaffes by the two candidates. It wouldn’t be a duel if the subject referred to Joe Biden and Paul Ryan, since Mr. Biden would win on the numbers of gaffes by an overwhelming margin.

Mitt Romney stirred understandable criticism when he foolishly mentioned that he need not campaign to the 47 percent of Americans who are “dependent on government” and consider themselves “victims.” He later said that he understood that he wasn’t going to get the vote of people who expected that the government’s job is to redistribute wealth, and that “I’m not going to get them.” He added “I do believe we should have enough jobs and take-home pay to allow people to pay taxes. I think people would like to be paying taxes.”

Mr. Obama presented a different opinion in an appearance at Loyola University in 1998 when he was an Illinois state senator. The admittedly 14 year-old video has Mr. Obama saying, “The trick is figuring out how do we structure government systems that pool resources and hence facilitate some [wealth] redistribution — because I actually believe in redistribution, at least at a certain level to make sure that everybody’s got a shot.” Continue reading →