Category Archives: Crowds

Judged by the Elitest of Elites

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I knew the Supreme Court of the US was weighted heavily in favor of the elite products of high-powered law schools, high-powered federal work experience, and high-powered theories.

But this chart of the make-up of the Supreme Court in recent years at the New York Times (May 2, 2009) was still something of a stunner to me.

One hundred percent of SC justices are former federal judges.

How many now are state judges? Nil.

How many now are private lawyers? Nil.

How many now are elected officials? Nil.

How many now are government lawyers? Nil.

How many now are law professors? Nil.

As Adam Liptak, the SC correspondent at The Times, justifiably complains,

“None of the justices have held elective office. All but one attended law school at Harvard or Yale. And the only three justices in American history who never worked in private practice are on the current court..”

But then Liptak holds up as a model, David Souter, a former attorney-general of the State of New Hampshire.

This, as trial lawyer Norm Pattis points out, is like depending on a sprinter to win a marathon.

“When is the last time a lawyer who made his living from fees earned
representing ordinary working people sat on the Supreme Court?”

But the question could be asked of many more government insitutions.

When was the last time the SEC was staffed with officials from small banks and  thrifts?

When was the last time a mayor from a small-town made it to the White House?

We talk about localism a lot. But in practice we’re heavily prejudiced against it.

A small-town resume, we presume, is fit only for small-towns.

There are a lot of reasons for this but I’ll focus on a couple that strike me at once (and I’ve blogged on them recently):

(1) It used to be that education fitted you to exercise judgment. These days we avoid judgment altogether, confusing it with judgmentalism.

In the absence of the ability to judge (and any common standard to judge by), we become victims of public relations and marketing. When no one can agree on substance, image becomes everything.

Brands rule. Harvard and Yale are the best known national brands, so we outfit our justices in them.

(2) Increasing specialization means that fewer people feel capable of pronouncing judgment about something, even if they felt it was permissble to. They look instead to experts to make their choices for them. The media, which has a disproportionate effect on nearly every choice made,  tends to focus on experts who come from the same educational and socio-economic background. The circle of the elite thus tends to get smaller and clubbier with every year.

Indian Business Students Drive Sales Of Mein Kampf

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“Sales of Mein Kampf, Adolf Hitler’s autobiography and apologia for his anti-semitism, are soaring in India where business students regard the dictator as a management guru.
Booksellers told The Daily Telegraph that while it is regarded in most countries as a ‘Nazi Bible’, in India it is considered a management guide in the mould of Spencer Johnson’s “Who Moved My Cheese”.

Sales of the book over the last six months topped 10,000 in New Delhi alone, according to leading stores, who said it appeared to be becoming more popular with every year.

Several said the surge in sales was due to demand from students who see it as a self-improvement and management strategy guide for aspiring business leaders, and who were happy to cite it as an inspiration.

“Students are increasingly coming in asking for it and we’re happy to sell it to them,” said Sohin Lakhani, owner of Mumbai-based Embassy books who reprints Mein Kampf every quarter and shrugs off any moral issues in publishing the book.

“They see it as a kind of success story where one man can have a vision, work out a plan on how to implement it and then successfully complete it”.

More at The Telegraph, UK”

My Comment

April 20 was Hitler’s birthday and I suppose the anniversary provides the justification for stories like these.  Mein Kampf is a book that I’ve never read myself and haven’t felt curious enough to read, either . It’s apparently selling briskly to Indian students, not for its anti-semitism but for the inspiration it provides management students.

More mischievously, the article goes on to insinuate a link between Gandhi and the Nazis.

There was one, but nothing that would please any Nazi-hunter. Gandhi was not unusual in seeing the European war as intra-imperial and seemed to think that satyagraha would work on the Germans as well as it had done on the British.

He went so far as to advise  Jews to let themselves fall before the Nazis as a kind of sacrificial gesture that would turn the consciences of their oppressors. Many scholars have – unsurprisingly – reacted to this with repugnance, but the advice was more a symptom of Gandhian quixotry than anti-Semitism – conscious or unconscious.

Bernays On Citizen Parrot

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Theory:

“Opinion polls are designed to gauge whether the agitprop of the corporate state is having the desired narcotic effect on the general population. The more the average citizen can parrot back what he has been told by his betters, the more democracy, as defined by the elite, can be preserved.”

– Edward Bernays, the father of modern marketing psychology

Practice:

“When You’re Flush But Acting Flat Broke: Social Cues Can Drive a Downturn” Washington Post, April 16, 2009, is an interesting piece by Michael Rosenwald, which quotes Robert Cialdini on how social influence can make a downturn even worse.

Interestingly, we referenced Cialdini’s enormously useful work in “Mobs, Messiahs and Markets” (Bonner & Rajiva, 2007) in Chapter 4, footnote 14. p.88. I happened on the book purely by chance, but now, reading the Post piece, I’d like to read his other work.

Rosenwald’s take in his piece is rather close to mine, with one crucial difference.

I see no reason why people who have money in their pockets should hold off buying when there are so many bargains to be had.

I wouldn’t go so far as to say it’s your patriotic duty to go forth and spend when the economy is hurting.  But there’s certainly no reason why doom-saying should prevent people who are far from the edge from continuing with their investments. Panic only makes things worse. And many astute people are no doubt making things much worse because they’re on that end of the trade.

I don’t believe in papering over how serious the economic situation is. But ‘serious’ is not the end of the world, even if such a thing could be.

So I think the Wash Po piece gets the “Mobs” part of the equation right.

But I’m not sure if getting experts to sell optimism is the right advice. That’s where the “Messiahs” part of our book comes in.

Whatever you decide to do should be based on your own study of the matter at hand and should suit your own circumstance, life-style, psychological profile, risk appetite, and responsibilities.  Trading gurus, commodity mavens, gold boosters, currency experts, professors, analysts, and talking heads – take all the advice you want and look through as many eyes as you can.

But in the end, choose for yourself.

Ultimately, it’s the only way to build up your own economic and moral well-being.

No one else will do it for you.


Hedge Funds Reap Billions From Calling Market Right

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“With a combined $2 trillion under management, the hedge fund industry is coming off its richest year ever — a feat all the more remarkable given the billions of dollars of losses suffered by major Wall Street banks.

In recent months, however, scores of hedge funds have quietly died or spectacularly imploded, wracked by bad investments, excess borrowing or leverage, and client redemptions — or a combination of those events.

“To some degree it’s a very gigantic version of Las Vegas,” said Gary Burtless, an economist at the Brookings Institution.

As Alpha’s list shows, managers who reap big gains one year can lose the next.

Edward Lampert, the founder of ESL Investments and a member of the 2007 Alpha list, was absent this year. His fund fell 27 percent last year, according to Alpha. About 60 percent of ESL’s equity portfolio is invested in Sears, whose shares plunged 40 percent last year. ESL is also a major holder of Citigroup, whose abysmal performance matched that of Sears.

A manager who ranked high in the 2007 list and fell off in 2008 was James Pallotta of the Tudor Investment Corporation, who was 17th last year and earned $300 million. Mr. Pallotta’s $5.7 billion Raptor Global Fund fell almost 8 percent last year, according to Alpha.

A few who did not make the cut still made buckets of money. Bruce Kovner of Caxton Associates and Barry Rosenstein at Jana Partners didn’t make the top 50. But Mr. Kovner earned $100 million, and Mr. Rothstein earned $170 million, according to Alpha. Spokesmen for the hedge fund managers either declined to comment on Tuesday or could not be reached.

Since 1913, the United States witnessed only one other year of such unequal wealth distribution — 1928, the year before the stock market crashed, according to Jared Bernstein, a senior fellow at the Economic Policy Institute in Washington. Such inequality is likely to impede an economic recovery, he said.”

More at the New York Times.

Comment

Inequality in a free market is the result (among other things, of course) of  different levels of competence and of capitalization. It’s not the essential problem.  If it’s increased tremendously, it’s because we’ve also been fiddling with the market tremendously, ostensibly to make things better, but with the opposite result.

But the crash has now given a lot of people a platform to vent.

The very people who called the market wrong (Citi, Goldman and their buddies in the regulatory business) are going to blame their incompetence on lack of regulation…. and make successful managers  pay a price. (Note that it was Goldman and Citi managers in government who helped pushed many deregulatory initiatives and changes in leverage requirements, in the first place).

I’m all for transparency, following the rules, and proper regulation.

But let’s face it.  Where we are now, more regulation isn’t going to protect the little guy or a small business from fraud. The little guys are already crushed by rules and regulations….and they’re still being defrauded. It’s just going to give one set of  big money managers yet another weapon they can use against another set of big managers. And since the guys who didn’t lose are obviously smarter than the losers, what makes anyone think they’re going to sit around and become targets?

The only reason we have such monster financial firms, anyway, is because of laws that enabled the growth of monopolies….and because we keep depreciating the cost of money through interest-rate manipulation.

Give Immigrants Residency to Prop Up Housing Market

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“The Obama administration should seriously consider granting resident status to foreigners who buy surplus houses in this country. This makes more sense than the president’s $275 billion housing bailout plan, which Americans greeted with a Bronx cheer.”

Comment:

A great proposal and one I wrote up here on March 6 2009….

http://www.google.com/search?hl=en&q=lila+rajiva&start=30&sa=N

Lila Rajiva: The Mind-Body Politic. Individuals Not Ideologies ….. Lila Rajiva on Washington Won’t Let Skilled Immigrants Solve Housing Crisis …
lilarajiva.org/ – 57k

Some of my pieces have this weird way of getting tucked behind the others, even when they’ve been opened many more times.

The immigration piece only shows up on the second or third page when you do a search for Lila Rajiva. Same for this piece:

The Paulson Putsch

Sep 25, 2008 … Lila Rajiva [send her mail] is the author of the ground-breaking study, The Language of Empire: Abu Ghraib and the American Media (MR Press, …
www.lewrockwell.com/rajiva/rajiva10.html – 56k – Cached –

But this one with far fewer hits is on the first page.

Three Card Capitalists.

Oct 1, 2008 … Lila Rajiva [send her mail] is the author of the ground-breaking study, The Language of Empire: Abu Ghraib and the American Media (MR Press, …

www.lewrockwell.com/rajiva/rajiva11.html – 35k

It’s from the same site, Lew Rockwell, so I don’t see why Google wouldn’t put that on the first page of a search. Got to figure that out.

That Darn Elusive Black Swan

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“The profit motive is a good thing when it operates in an environment where bad bets are punished with losses and good investments are rewarded. Only government can distort that healthy profit-and-loss system, giving people incentives to make bad decisions. And it’s in this environment that greed is no good to anyone. It turns out, however, that greed—or better, rational self-interest—can help our economy stabilize faster than government ever could. As the lubricant of our economic system, self-interest will cause a million market actors to recalibrate and to direct resources to projects that create value in our society. We the people will temper our irrational urges and mitigate our risks if government restores the rules that let profit and loss bring discipline. But if government continues to change the rules to bias the market in favor of irrational behavior, rent-seeking, and corporatism, the chaotic aspects of the system will continue to wobble out of equilibrium. Black swans will become commonplace.”

Max Borders in The Freeman

Thanks to Mike Martin for pointing out the piece.

Comment:

This is a nice piece pointing out how metaphors govern our thinking – we talk about the economy as it were a machine when it’s actually more like an  eco-system. Interestingly, Tom Wolfe made a similar point about the misuse of metaphors in Freudian psychology (for eg. the term repression, as though the body were in need of an outlet to blow-off steam).

But there are at least two things I object to here.

One is – greed isn’t rational self-interest. That’s a complete confusion of terms. Gordon Gekko-like greed is anything but rational. It’s compulsive.  The self has many other  interests and drives besides doing down other people. Rational self-interest is the prudent self-interest of “right reason,” as the Catholics call it. A well-ordered reason. Not one that’s the slave of your drives. It’s self=governing reason which produces genuine self-interest.

And two: sigh.  None of this was a black swan.  Taleb himself doesn’t claim it was, either.  Black swans only make sense in talking about  an un-manipulated world, I would think. Taleb was talking about the way risk is modeled. He says on his website that he uses the banks in his book as an illustration and then gives some quotes in support, which, he says he wrote between 2003-2006 (the book was published April 2007).

But Felix Salmon at Portfolio.com points out that his actual comments on Fannie in an interview before they went bust were quite vague.

However, the author of this piece is spot on in the rest of this comments.

I’ll try to  post my calls on this, not to prove I can predict the markets (I can’t), but to prove that we don’t have a market. We have a kind of rigged puppet show, which you can (sort of) predict, not because of any genius on your part, but because of the obviously crooked motives of of several leading actors. The only special skill you need for this is the ability to recognize propaganda.

I know I came across Fannie’s corruption when I was researching Goldman Sachs in July 2006 from the Washington Post which had a long series of excellent articles on it from 2004. So, how was this crisis unexpected?

Here’s my piece (from 2006)

“Most recently, regulators are looking into claims that Goldman (among others) helped managers at the US Federal National Mortgage Association (known as Fannie Mae) prettify their books to maximize performance bonuses at the company entrusted with keeping US home loans afloat. Which means that Goldman was center-stage not only in the credit and derivative booms, but in the housing boom too. (Goldman and the other firms deny wrongdoing.)”

My original investment report on which this article is based had much more on Fannie and I will post it here. I’m pretty sure there were plenty of  prominent people in the financial world who had already decided that Fannie was going to go bust. In fact, I think a lot of people had taken short positions on it.  I’m not sure how on that basis you could argue this crisis was a Black Swan.

In Trading, Go Against the Crowd…

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Betting against crowd sentiment is usually a reliable trading method.  Which is why I’ve expressed some reservations about the incessant trashing of the dollar.

Not that I don’t agree with the fundamental analysis behind it. The dollar, like all currencies, is toast if central banks around the world embark on a massive reflationary scheme, such as looks to be in the works. But…and this is the million dollar but…because the ultimate direction of a policy is clear, it does not mean that the proximate (near-term) developments by which that policy unfolds are going to be unidirectional.

Meaning, just ‘cos the buck’s going to hell doesn’t mean it’s going to hell in a straight line.

Things zig. And they zag. That’s the way the US Government operates and it’s also the way nature does.

There are no straight lines in nature.  They only look straight because we’re time-and-space-bound creatures.

Everything moves in curves…and cycles….and waves…..

A wave up is followed by one down. You can’t always tell the size or the timing but you can tell the sequence.

So when the dollar went through 72 on the most popular index of the dollar (it was over 120 at it’s height in the 1990s), I waited things out. Since then, the dollar – in fits and starts – has pushed upward with considerable strength (in light of its rotten fundamentals).

Likewise, despite the gold community rah-rahing about precious metals prices,  I expressed some doubts about its immediate prospects and  in  a Feb. 23 post (Gold Double Top?) cited a post suggesting that gold was putting in a double-top in the mid-term (for a couple of weeks to months) .

The thrust upward just didn’t seem as strong as everyone said it was.

My proprietary trading signal?

A complex multidimensional formula based on fractal theory that took me several years of advanced training in mass psycho-dynamics, linguistic structural analysis, and advanced organizational observation theory, all of which told me:

WJCPG-IT(/3)5

When Jim Cramer Pumps Gold – It’s Time To Take Five

(Check out this video of Cramer saying not to worry about Bear Stearns).

And, wouldn’t you know, this morning I see that the spot price has fallen below $900….

(And it’s closed below $900…)

Obama: Yes to Banksters, No to Haitian Refugees

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“BBC called the situation “eye-popping,” and the Miami Herald said it was “the worst humanitarian disaster (for) Haiti in 100 years” leaving:

— Gonaives, Haiti’s third largest city, uninhabitable;

— most of the nation’s livestock and food crops destroyed as well as farm tools and seeds for replanting;

— irrigation systems demolished;

— collapsed buildings throughout the country; 23,000 houses destroyed; another 85,000 damaged; 964 schools destroyed or damaged;

— conservatively about $1 billion in storm damage;

— the threat of famine, especially for children and the elderly;

— 2.3 million Haitians facing “food insecurity,” according to USAID, reeling under 40% higher prices than in January;

— inadequate sanitation and clean water;

— the widespread threat of disease; and

— overall millions lacking everything needed to survive who in normal times struggle to get by.

In December, Director Randy McGorty of Catholic Legal Services for the Archdiocese of Miami said:

“After dealing with this administration on Haitian issues for eight years, I’m forced to conclude that its policy toward Haiti is based on racism. It’s shocking. People (lack everything and) are starving. This callous disregard for human life is inexplicable. Many deported Haitians simply have no communities to return to. It is disappointing that the Bush administration would even consider sending people back to this incredibly fragile nation….(Haiti’s) humanitarian crisis….continues and worsens.”

(South) Florida Immigrant Advocacy Center’s (FIAC) executive director, Cheryl Little, said: “We are attempting to do whatever we can to convince government officials to change their minds on this. It’s an outrageously inhumane act.”

On January 26, FIAC urged new DHS Secretary Janet Napolitano to “immediately stay the inhumane deportations and to seriously consider granting Temporary Protected Status (TPS) for Haitians already in the United States.” On December 19, former DHS Secretary Michael Chertoff denied the Preval government’s TPS request. As a result, Haiti won’t cooperate, so ICE is making Haitians get their own travel documents (including passports) and assist in their own deportations.

Throughout 2008, around 1000 occurred in total. After a near-three month suspension (from September 19 – December 9), they resumed slowly, but picked up noticeably after Obama’s inauguration. According to FIAC, men like Louiness Petit-Frere are affected, deported on January 23: “Here ten years with no criminal record, he leaves his US-citizen wife behind along with his mother and four siblings, all (with) legal status….One of his brothers, US Marine Sgt Nikenson Peirreloui, served and was injured in Iraq.”

In 2008, Obama campaigned vigorously for South Florida’s Haitian vote. Now he’s betrayed it the way he’s abandoning millions of distressed households by providing little in real relief compared to trillions in handouts to Wall Street and the rich….”

More at Stephen Lendman

Comment:

Here’s a link to a report on Haiti’s hope for an Obama presidency

and an open letter from Haitians to Obama on the catastrophic conditions in their country.

Obama Tanks the Dow

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More here

Comment:

Going further,  the Deal Journal gives the President some tips on how to make nice to the market and stop being Obummer.

The budget numbers are out, and they aren’t pretty, projecting a $1.75 million deficit for the year and including a provision to auction off permits to exceed carbon emission caps (frankly, this sounds like the sale of indulgences by popes during the Middle Ages – only now, we’re all so much more enlightened...).  This might tank the Dow even more,…

Especially if it also takes a look at  GM’s horrible numbers (a $9.6 bn Q4 loss and a decline in its cash position from the previous quarter of $2.2 bn ($16.2 bn to $14 bn).  And let’s see what London’s FTSE will do now that Royal Bank of Scotland has announced the biggest annual corporate loss in UK history ($34.2bn/24.1 bn BP)