Charlie Munger: "One of my favorite cases about the power of incentives is the Federal Express case. The heart
and soul of the integrity of the system is that all the packages have to be shifted rapidly in one
central location each night. And the system has no integrity if the whole shift can't be done fast.
And Federal Express had one hell of a time getting the thing to work. And they tried moral
suasion, they tried everything in the world,
and finally somebody got the happy thought that they were paying the night shift by the hour, and
that maybe if they paid them by the shift, the system would work better. And lo and behold, that
solution worked."
I think he actually argued that men might have a different distribution for mathematical ability than women. Specifically, he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides. But the distributions would still have the same mean. So men are not 'better than math' than women -- there would be more dumb ones and more smart ones, and less in the middle, effectively.
This phenomenon, by the way, is commonly observed in other species for various genetic traits. From an evolutionary perspective, it makes sense for the males to "roll the dice" and have a higher variance for many traits. For example, one superstar male frog can have many more offspring than one average male frog. But one superstar female can really only have as many offspring as the average female. That's a crude over-simplified explanation, but the idea is sound.
he suggested men might have a higher variance in their distribution, meaning more men in the tails at both sides
That's my understanding as well.
A professor I respect a lot presented his analysis of Summers' argument in a lecture I went to. This professor said that Summers' argument was statistically invalid, since the number of outliers in the tails of the IQ distribution was insufficient to tell if the distribution was in fact different at the tails between men and women.
It's fair to say that this rebuttal was not the one Summers got when he presented his idea to the faculty. :)
The company should have gone bankrupt (and certainly would have, without US government intervention), in which case none of these people would have seen any bonuses at all. he should be grateful for the $1 :-)
So it's his fault the government intervened, then? Imagine for a moment that logic crept into this train-wreck of a thread:
All I see is
some guy
who
took no salary for a year
on the promise that
he'd get a bonus at the end
The situation became politicized, so his bonus was rescinded. For all those people accusing him of whining, I hope you never complain about politics at your workplace.
Do you realize what the consequences of letting AIG go bust could be? Do you realize that bailing out crippled financial institutions is entirely different from bailing out Motown's idiot car companies? Do you realize that AIG has various divisions and only one of them was trading the toxic financial products that destroyed the company?
Unprofitable firms and crippled fianancial insitituions are a libability to the economy. Proping them up with stolen taxpayer money is not a sound way to run an economy.
Profit and loss exists for a reason, they finetune the allocation of resource to ones we find most efficent. If we don't allow the bust to run the course, than we will be less prosperous in the long run.
Beside, this is not the end of the world. We suffered worser recession like the recession of 1921.(Yes, worser than the Great Depression) Then the 1920s became the roaring 20s.
I am also a fan of "Darwinian Capitalism", but AIG and other huge financial institutions aren't called "too big to fail" without a reason. I advocate pragmatism over blind ideology. As much as I would like to see AIG implode, I think one should be careful and take into account what that would imply, and how the shockwave of destruction would affect the rest of the economy. All in all, all I am saying is: analyze the problem, make decisions based on data, not based on gut feelings or dogma.
Last but not least: the financial world in the 1920s was completely different than what it is today. Unfortunately, in Economics experiments are not exactly reproducible. For one reason they call it the dismal science, right?
I do think there is a legitimate debate as to whether or not we should have bailed out AIG. To address your later points, there are plenty of respectable people who argue we should have let AIG go bankrupt. "Financial experts", if it makes you feel better, for example Jim Rogers, whom I mention since you seem hung up on this point.
Knowing that Jim Rogers argues that we should have let AIG gone bankrupt does not affect me. What I am interested in is knowing WHY Jim Rogers believes that AIG should have gone bankrupt. I would like to know on what ground he argues that. Do you have any URLs on that? I am intrigued.
Going into bankruptcy does not mean going out of business, at least not immediately. It basically just lets you put your debts "on hold" while you either reorganize or wind down under court supervision. Gives everyone time to take a breath and think rationally. Sounds pretty good in comparison to what happened?
I have read articles written by so-called "experts" explaining clearly and forcefully why we should let AIG go bankrupt. Then I have read articles written by other "experts" who claim the opposite, also in a convincing manner. When experts look at the same problem and draw entirely different conclusions, then:
i) their own interests are clouding their judgement.
ii) they don't all have the same data.
iii) their "expertise" is greatly overrated.
In the last few months there has been so much irrationality and lack of transparency, that I now truly find it hard to believe anything I read on this topic.
The argument was NOT the one you cherry-picked. The argument was that bailing out financial institutions is NOT the same as bailing out non-financial institutions. Since you did not get the idea, I assume that Finance is not your forte. My mistake for not having made my point more explicitly.
What we are witnessing is collective schadenfreude. Most people are happy to see these giant institutions fall. Unfortunately, most people know zero of Economics and Finance and fail to realize that if some institutions collapse, we might end up in an even worse situation.
"The argument was NOT the one you cherry-picked. The argument was that bailing out financial institutions is NOT the same as bailing out non-financial institutions."
You asked a series of rhetorical questions of the form " Do you realize blah". That isn't "argument" or reasoning.
Do you expect people to automatically agree to anything you say just because you say "do you realize.."?
"Since you did not get the idea, I assume that Finance is not your forte."
A better assumption is that you didn't make your point well ;-)
True, I concede that I didn't make my point well. Also true is that my goal was to counter the OP's argument, not present a forceful one.
I don't know what you do in your professional life and I would be lying if I said I care. Before coming to grad school I worked at a hedge fund and I realized I know practically zero of Finance. I strongly believe that discussing the details is what matters, and no one on HN is qualified to discuss the details on the AIG debacle. Let's face it. These financial discussions here on HN are usually enormous displays of ignorance (there are rare exceptions). This community's forte is coding. No one around here knows what's on AIG's books. I bet no one around here is a great bankruptcy lawyer. Even those who know Finance only know a few instruments, and AIG was trading a lot of instruments. It would take decades for one to learn all it takes to REALLY understand what's going on in Wall Street.
Knowledge is not a matter of consensus. Some comments are written by clueless people. Many of these comments are upvoted by even more clueless people. I make no claims that I know what is going on, but I see a lot of pompous fools on HN who believe they know it all. I say, let us go back to coding because we all suck at Finance. I only happen to suck less than most because I worked in the field.
"I concede that I didn't make my point well. Also true is that my goal was to counter the OP's argument, not present a forceful one."
I fail to see the difference.I would have thought the best way to counter someone's argument is to make a logical, coherent counter point.
I am not questioning your background. I am sure you have many valuable points to make and I look forward to hearing them. My background is irrelevant as regards how well you are expressing yourself.
Our disagreement (such as it is) revolves around your use of such terms as "pompous fools on HN who believe they know it all".
I'd much rather assume that someone on this board is intelligent (taking out the "fools" part) and has put some thought into what he/ she is saying (removing the "pompous" part). He could still be mistaken though. That doesn't make him a "fool" or "pompous".
It is very possible that you have more knowledge of finance and what happened at AIG than the hacking centric folks on this board. This is a good thing.
What I find less than optimal is your hurried/ill thought out arguments (" do you realize .. ") and your constant "attack the person vs the argument" style.
If you would use your knowledge of finance to illuminate the errors made by others (vs calling them names) with solid reasoning and argument that would be very valuable. That kind of high quality conversation is what HN was set up for.
I'm done with this thread and will let you have the last word if you so wish it. :-)
I am not a United States taxpayer and have no stake in the whole AIG debacle at all. Peace.
Dude, I have no problems with you. You pointed out some flaws in my arguments. You didn't act as if you were an expert. You didn't act as a pompous fool. My problem is with the collective belief here on HN that just because most of us are good at coding, then we are soooooooo smart that we can understand any topic without any study. That is naive and offensive. People in other fields who take decades to become proficient are not stupid. It takes a long time and a lot of effort to become an expert in any field. Period.
"I would have thought the best way to counter someone's argument is to make a logical, coherent counter point."
True. The problem, you see, is that I don't know what is happening at AIG! What I do know is that I know close to zero on that topic. What I do know is that many people try to paint things with a very broad brush and go for simplistic and superficial analyses.
You are right that my writing style is a bit too aggressive. I get downvoted all the time because of that. I should remind myself that I am no longer in the jungle-like financial world. And though I am not a U.S. citizen, unfortunately I am a U.S. tax-payer :-( Peace.
yes. i've been disappointed that the controversy about the bonuses on the order of $200M have gotten more press and attention than the AIG bailout which is orders of magnitude more taxpayer dollars.
One private company (AIG) insured 10 other private companies, and that one private company is now not in a position to honor the insurance policies. and now the Govt. on behalf of the public is giving money to that private company to save other companies.
isn't this wrong in many levels?
this is against capitalism, this is rewarding bad behavior, it is immoral - in the sense that Govt is taking money from Peter to pay Paul, this approach is not going to work on top of all this, I just feel this is just wrong.
If you think the extent of AIGs insurance business was 10 companies, you're hugely mistaken. AIG is the backer of a huge number of corporate, state and municipal bonds. The usual terms of those bonds state that if the insurer fails, the bond becomes due right away. In a single day, we'd see a huge percentage of the solvent/proper economy just evaporate.
AIG would take an enormous part of both the private and public economy with it, if it ever failed.
I like the idea that if a company is too big to be allowed to fail, then it's to big to be allowed to exist. After we recover, possibly if, companies like AIG that are single points of failure need to be broken up.
I don't know if this is practical or not, but what if future regulation were aimed at limiting the total size/amount of money/whatever that a company is allowed to own with the goal of keeping risk distributed enough so that we wouldn't fear letting bad companies fail?
They'd also have to monitor board membership and stock ownership to ensure you didn't end up with hundreds of companies being virtually one giant company behind the scenes all following the same bad policies.
I'd imagine this isn't all that dissimilar to dealing with monopolies. Too little competition is bad and now we've learned that allowing any single point of failure is just as bad.
As all hackers know, single points of failure are risky, even if a crash is unlikely. Our economies load needs to be better distributed.
>"I don't know if this is practical or not, but what if future regulation were aimed at limiting the total size/amount of money/whatever that a company is allowed to own with the goal of keeping risk distributed enough so that we wouldn't fear letting bad companies fail?"
Interestingly, during the Great Depression there existed laws which limited the number of branches that banks could have. Politicians preferred to keep banks small, fearing the power of larger banks. You see, anti-capitalism and a populist distaste for financiers are nothing new.
Perhaps surprisingly, states that forced banks to be small were the hardest hit by bank failures in the Depression. The tiny, unthreatening banks did not have the margin of error to wait out the financial chaos. Meanwhile, places like Canada that allowed large national banking conglomerates avoided bank failures almost entirely.
Our recent crisis was very different from the Great Depression. Contrary to the 1930s, scale was often a vulnerability, and not an asset. However, the example of the Great Depression ought to drive home to us the danger of optimizing to the last crisis, lest we precipitate a new one in our rashness.
There is also danger in drawing simple, neat lessons from a messy crisis. Scale was not always our enemy. We must remember that several private firms were bailed out, not by public dollars, but by private acquirers. Wachovia's sale to Wells Fargo would have been legal under many of the world's regulatory regimes, and it was legal in the 2008 United States, but it would not have been legal in the 1998 United States when we still had anti-scale laws on the books. If those regulations were still in place, at least a few more large firms would have been at the government's door, hat in hand.
Populism is politically fruitful, but it can wreak havoc on an economy, and it is almost never thoughtful or well-informed. We ought to pause before giving in to its mellifluous rhetoric.
> You see, anti-capitalism and a populist distaste for financiers are nothing new.
No surprise, financiers ripping us is nothing new either.
> The tiny, unthreatening banks did not have the margin of error to wait out the financial chaos. Meanwhile, places like Canada that allowed large national banking conglomerates avoided bank failures almost entirely.
Perhaps they didn't set the right limits, kept them too small. Because we failed to get it right once doesn't mean we should stop trying and just accept being ripped off as a cost of doing business.
Either we figure out how to regulate the market such that this won't happen in the future or we nationalize the banking industry like others have done and admit that the only thing that's really to big to fail is the government.
> There is also danger in drawing simple, neat lessons from a messy crisis.
That, I agree with. But our current system has clearly failed, something needs to be done, time for another experiment.
> We ought to pause before giving in to its mellifluous rhetoric.
Talking about possible solutions on a website is pausing, it's not like we're implementing policy here or anything. It's just an interesting things to speculate about.
>"No surprise, financiers ripping us is nothing new either."
Is this what you really think about finance?
If I were to weigh the good and the bad that finance has done for the human species, I have little doubt to which side the scale would tilt. Finance is an essential part of an advanced economy, and advanced economies are much more fun to live in than the other kind.
Populism is driven by basic, tribal emotions and explanations that appeal to the lowest common denominator. Humans fear that which is complex and hard to understand. They are envious creatures with a poor natural grasp of economics. They reason that if the goldsmith is getting richer, why, then I must be getting poorer!
Populism hasn't really progressed since the days of goldsmith banking. That's not what it is built to do.
I don't think populism is the wisest way to modify the banking system, but sadly we have decided that voting is the best method to make such decisions. Since populism is simple and appeals to the gut instinct, it wins out in votes. So populism is what we get.
> "Because we failed to get it right once doesn't mean we should stop trying"
The first failure caused immense human suffering. What we have now needs some tinkering, but it is immensely better. It would be foolish to make large, rash actions to experiment recklessly when the costs are so high. Speaking of which:
>"or we nationalize the banking industry like others have done and admit that the only thing that's really to big to fail is the government."
I can think of three nations off the top of my head that nationalized banks. One was temporary (Sweden). The other two had immense problems with bad debt in good times (Japan and China, if I recall correctly). It turns out that the profit motive does help banks make good loans.
> "But our current system has clearly failed, something needs to be done, time for another experiment."
Our system has produced the most prosperous society in the history of the world. It did a bad job reacting to a novel circumstance. It needs to be patched, not scrapped.
>"Talking about possible solutions on a website is pausing, it's not like we're implementing policy here or anything. It's just an interesting things to speculate about."
There are a few places where temperate, informed discussion of these issues take place. None of them has little voting arrows to click on next to the content, nor do they exchange information in short soundbites.
All of finance, of course not, I was talking about the bad ones, the criminals.
> What we have now needs some tinkering, but it is immensely better.
You'll note, I was discussing tinkering. When I say our system has failed, I don't mean throw out the whole system and start over. I was specifically talking about tinkering with how large we allow the banks to get. Me thinks you're over reacting a bit and assuming I'm wanting to completely change the current system.
"Perhaps they didn't set the right limits, kept them too small. Because we failed to get it right once doesn't mean we should stop trying and just accept being ripped off as a cost of doing business."
Ah yes, the classic "I know I'm right and we just need to try harder and better and it'll work next time" argument.
The problem with that argument is that it is too powerful. It applies to everything, equally. Consequently, it's a null argument.
If you want to argue about this, you need to be more specific and not just wave this magical "Staples Easy button (TM)" at the problem.
As opposed to what, the classic let's just do nothing, bury our head in the sand, and hope the market failure that just fucked us six ways from Sunday just fixes itself?
I was proposing a specific solution, limiting the size of the banks so we keep our current system but not allowing it to get too dependent on any one bank to eliminate single points of failure. Perhaps you missed that part.
I disagree. There were no specifics mentioned about how many branches banks were allowed to have during the previous attempt. For the sake of argument, if that number had been say 5, my reply was a perfectly logical rebuttal to that evidence. The outcome could have been vastly different if that limit had been 50.
My calling that into question doesn't mean "I know I'm right and I'm ignoring your evidence". Nor does the fact that a similar but not identical process been tried in the past infer that all such attempts with different constraints would fail in the future.
It's not a null argument, that's absurd. That's like saying we tried pay per click once on our site years ago, it didn't work, and holding that up as evidence that pay per click won't work for any site ever. My rebuttal was a valid response to the history cited.
I believe PG said he is taking more of a long-run view on this. He's not trying to make Arc what's hot right now, but rather thinking more about a "hundred-year language"
True enough, but I do think there might be a lot of validity in the comparison with hurd. After all, Hurd is still under development, but there is little question that it has been eclipsed by Linux. While many have certainly become aware of the advantages of Lisp, they also want something that just works as much as possible, and the large collection of Java libraries will be a great help in this regard. By the time that arc is "ready" to be the 100 year language, it may be that it is too late to gain acceptance.
Still, I'll admit that only time will tell. Both languages are still quite young, and it is hardly uncommon for languages to develop slowly in obscurity before rising to prominence. Maybe it will gain traction, maybe it won't, but either way I think we will benefit from the increase in competition and the ideas that are generated in its creation.
