Creed, greed and hubris

I've recently been reading Philip Augar's The Greed Merchants. Augar, previously a top name at NatWest and Schroders, gives an inside view of the investment banking game. Despite the rather sensationalist title, it's a solid, sober look at how the 'bulge bracket' banks work, where they make their money, and why they generally don't do what they're supposed to.

The main problem, Augar argues, is that the integration of the big firms means that the Chinese walls between activities that should be mutually incompatible - most notably, equity research and corporate finance advisory work - have been gradually eroded. It's hardly an original complaint, most especially after the inquest on the excesses of the dotcom boom, but it's well explained and analysed.

The end effect is that the big banks are able to put their own interests - both the interests of the bank as an entity, and the interests of the individual bankers - and those of their pet corporate clients (in the hope of winning further lucrative commissions) well above the interests of smaller clients. The bottom line is an estimated $180 billion of value transferred from shareholders (including pension funds, of course) to the bankers.

Unlike some critics, Augar doesn't claim that the bankers are necessarily fully conscious evildoers (not even the ones that enabled Enron's misdeeds, necessarily). Instead, he blames a combination of creed, greed and narcissism for creating an insitutional bentness: an ideological commitment to the supremacy of capitalism and the 'free market'; the aggressively competitive mindset required to pursue a career on Wall Street; and the sense of power fed by the banks' own internal and external rhetoric (where there's very small difference between bullish and bullshit).

Augar's proposal is a separation of powers - basically, a reversal of many of the changes bemoaned in his previous book, The Death of Gentlemanly Capitalism. That would probably be a sensible move but, as another sceptical insider, Edmond Warner, noted in the Guardian last year, one that's highly unlikely to happen.

In investment banking, as in many other areas of endeavour, expect no decline in creed, greed and hubris.

Radical history

The Guardian (who else?) is launching a campaign to better commemorate Britain's long history of radical political and democratic activity. Media-friendly historian Tristram Hunt kicks off with his own nominations of events and sites that deserve monuments, including Manchester's Peterloo Massacre, the signing of the National Covenant in Edinburgh, and key scenes from the Chartist movement.

Hunt notes, with regards to the BBC's Restoration programme:
But there is another story of Britain's heritage which this picture-postcard take on the past is studiously ignoring. While Restoration Village shores up rural pastiche - complete with dry-stone walls and a warm, feudal glow of noblesse oblige - Britain's more exciting, more radical heritage is once again being by-passed in the search for funds and fame.
...
The stories, monuments and myths that traditionally linked progressives with their heroic past have steadily retreated from public consciousness. This amounts to something akin to a loss of collective memory. And so it should come as no surprise that we have difficulty rallying any broader, popular enthusiasm for our political process when we lack an appreciation of our democratic heritage.

It's a useful adjunct to the History Matters campaign which, with high-profile backers such as Boris Johnson and David Starkey (though Hunt and Tony Benn were also among the founders), can appear to be promoting an 'official' institutional version of histor, as per the Telegraph's interpretation -
Without a sense of history, we are not a nation, simply a random set of individuals born to another random set of individuals. Lose the thread that links us to our institutions and we lose ourselves. [...] Unless we know who the Stuart kings were, when they ascended to their thrones, and the main events of their reigns, the outlook of the contemporary peasant loses its reference points.

There's certainly appetite for history about all those radical events despised by the Telegraphs of their day. Here in Halifax last weekend, there was a healthy turnout for a Chartist Festival celebrating the lives and works of local figures. We joined in a walk around key scenes from the Chartist-backed Plug Plot of 1842, including the rallying ground on Skircoat Moor and the site of a pitched battle between mounted soldiers and workers down the hill at Salterhebble (just by the Shell garage and drive-through Macdonalds). I briefly mentioned the events in the local psychogeographical piece I wrote for Strange Attractor Journal -
On 15 August 1842, probably the largest mob ever seen in Halifax began with a procession of four or five thousand Chartist marchers entering across North Bridge from Bradford, a famished-looking mob armed with bludgeons, flails, pitchforks and pikes. Another march of five thousand entered the town from Skircoat Moor, where they'd spent the night. That group had come across from Lancashire, swelling in number as it came, closing the mills as it went by drawing the plugs from the mill boilers. They entered Halifax singing Chartist hymns and the 100th Psalm: "Make a joyful noise unto the Lord, all ye lands." The two groups met and the Riot Act was read. At the height, a mob of some 25,000 people thronged the streets of Halifax.

History worth remembering, I reckon.

The trouble with models

Well-researched feature in the Economist on the limitations of macro-scale economic models. In particular, the computable general equilibrium (CGE) models deployed by governments and macro-players like the IMF to demonstrate the economic benefits of whatever measures they're proposing. Unsurprisingly, as even the Economist accepts, the results depend heavily on the presuppositions of their authors:
Most empirical exercises confront theory with numbers—they test theories against the data; sometimes they even reject them. CGE models, by contrast, put numbers to theory. If the modeller believes that trade raises productivity and growth, for example, then the model's results will mechanically confirm this. They cannot do otherwise. In another context, Robert Solow, a Nobel prize-winner, has noted the tendency of economists to congratulate themselves for retrieving juicy plums that they themselves planted in the pudding.
In a recent article, Roberta Piermartini and Robert Teh, two economists at the WTO, urge modellers to “demystify” their creations, making it clear to their audience what makes their models tick. A failure to do this, they argue, “risks bringing a useful analytical tool into disrepute and may even induce unwarranted cynicism about the economic case for open trade.”

An interesting read, if still weighted by the paper's usual doctrinal bent: In countries not cursed by socialism or war, the market is left to decide what to produce and in what proportions...
I'm still slightly confused as to how such a nebulous thing as 'the market' can exist and dominate when, as this feature repeats, there's not even such a thing as 'society'.

Steam powered internet machine

Another great piece of art (or whatever you want to call it) from Jeremy Dellar - an Apple Mac powered by a steam engine. According to the Guardian report, which includes a wee picture of the gizmo, it's a Merryweather boiler from 1945, originally used to pump water for fire engines. A handsome object, the boiler has brass taps, a fine whistle and smart teak cladding.

Dellar, whose previous works include the inspired re-enactment of the Battle of Orgreave and brass band arrangements of acid house anthems, is again working with collaborator Alan Kane. The Guardian notes:
There's a marvellous impracticality to the machine. But it does work - unlike the disused Richborough power station, whose cooling towers loom, and the abandoned wind turbine at the end of the field. "We like inverting economics," said Kane, adding, perhaps unnecessarily: "This is a very uneconomic way of having a portable computer."

Not that coal-fired computers are a great idea for mass use, what with greenhouse gases and all. Here at 2ubh, all our hardware runs off the wind and the sun. Really.

The steam-powered internet machine is touring Kent this month.

Fehr and loathing

Interesting research from Ernst Fehr at Zurich University's Institute for Empirical Economic Research, as presented this week at the Forum of European Neuroscience in Vienna.

Fehr claims to have found a neurological basis for compliance with economic and social norms. His research started with a simple economic game in which players chose to share an initial pot of money with an anonymous partner. In a repeat game, the second partner could punish the first if he felt he'd been cheated. Unsurprisingly, the first player chose to share more money if he knew the second could punish him.

The change in a handful of players was more marked, however. On average, people would give 10 units from their pot of 100 without the fear of punishment, and 40 with. A few players gave nothing in the first game, and almost half in the second.

MRI scans of the players showed strong activity in the parts of the forebrain that deal with punishment stimuli and impulse control, as expected. But Fehr also found strong activity in the nucleus caudatus, part of the brain that deals with rewards systems, when the players faced punishment. The greater the activity here, the greater the change in behaviour between the first game and the second. Fehr says this shows that economic decision-making is much more driven by the emotions than the 'rational man' model of conventional economics claims. Emotional engagement with social norms also play a major role.

Earlier work by Fehr showed that the prospect of being able to punish unfair players in a similar game also activates the nucleus caudatus. This could explain why people are often prepared to accept personal disadvantages to punish others - enforcing the social norms by punishing perceived cheats just feels good.

The implications obviously go beyond economics.

Tinsley towers update

An update from the BBC on the plan to turn the cooling towers at Tinsley, just by the M1 viaduct in north-east Sheffield, into works of art.

The plan's got the backing of Channel 4's Big Art Project but, as peviously noted, has suffered a bit of a setback in that the site's owners at Eon Energy are planning to have the towers demolished.

This new report quotes a C4 spokesperson:
She said the site was the focus of the art project's involvement in Sheffield, but added even if the towers were destroyed they would remain a "symbol" of the art re-development that would take place in the city.
For now though, the future of what some people believe are icons of the city remains undecided.
An Eon Energy spokeswoman said "We are looking to demolish the towers later this year and negotiations are taking place with the Highways Agency".
However, she added that discussions are still ongoing with the Big Art project to save the towers.

I'd hate to see them go, if they're just going to be replaced with extra Meadowhall parking. But if they must go for safety reasons, and the artists are allowed free run on the site, what glories can replace them?