Posted by: gautithor | 10. February, 2009

Wilders denied access to UK

One of the most ridiculous politicians in the Netherlands (in my humble opinion) has managed to make the headlines again, with great help from the British government. Invited to show his “film” Fitna in the British parliament, he has been denied access to UK.

They told him…

your statements about Muslims and their beliefs, as expressed in your film Fitna and elsewhere, would threaten community harmony and therefore public security in the UK

This is a dilemma and Mr. Wilders is testing the limits of free speech. As are many on each side of the discussion.

I haven’t been able to make up my mind on whether Wilders should be able to say whatever he wants or if he should somehow be stopped, as the UK government and Dutch justice system seem to be doing. But this seems like an important topic and very similar to the Danish cartoons a few years ago. Bottom line, we have no idea how to deal with this as a society.

Posted by: gautithor | 10. February, 2009

Unpreventable crisis?

It is interesting to read this story about the executive warning of excess risk in the UK banking industry. In short, he was fired and gagged.

Professor Lo discussed this in class last fall (and in his testimony for the House oversight committee, see here) and pointed out that even if you were working in one of these banks and you saw what was happening, you could not have stopped it:

Lo said: 

Consider, for example, the case of a Chief Risk Officer (CRO) of a major investment bank XYZ, a firm actively engaged in issuing and trading collateralized debt obligations (CDO’s) in 2004.  Suppose this CRO was convinced that U.S. residential real estate was a bubble that was about to burst, and based on a simple scenario analysis, realized there would be devastating consequences for his firm.  What possible actions could he have taken to protect his shareholders?  He might ask the firm to exit the CDO business, to which his superiors would respond that the CDO business was one of the most profitable over the past decade with considerable growth potential, other competitors are getting into the business, not leaving, and the historical data suggest that real-estate values are unlikely to fall by more than 1 or 2 percent per year, so why should XYZ consider exiting and giving up its precious market share?  Unable to convince senior management of the likelihood of a real-estate downturn, the CRO suggests a compromise— reduce the firm’s CDO exposure by half.  Senior management’s likely response would be that such a reduction in XYZ’s CDO business will decrease the group’s profits by half, causing the most talented members of the group to leave the firm, either to join XYZ’s competitors or to start their own hedge fund.  Given the cost of assembling and training these professionals, and the fact that they have generated sizable profits over the recent past, scaling down their business is also difficult to justify.  Finally, suppose the CRO takes matters into his own hands and implements a hedging strategy using OTC derivatives to bet against the CDO market.4  From 2004 to 2006, such a hedging strategy would likely have yielded significant losses, and the reduction in XYZ’s earnings due to this hedge, coupled with the strong performance of the CDO business for XYZ and its competitors, would be sufficient grounds for dismissing the CRO. 

In this simple thought experiment, all parties are acting in good faith and, from their individual perspectives, acting in the best interests of the shareholders.  Yet the most likely outcome is the current financial crisis.  This suggests that the ultimate origin of the crisis may be human behavior—the profit motive, the intoxicating and anesthetic effects of success, and the panic sell-off that inevitably brings that success to an end. 

Posted by: gautithor | 10. February, 2009

World oil production

An interesting take on the world oil consumption from our System Dynamics class at MIT. Here is a graph showing how oil consumption has been constantly growing but production has dropped off recently in non-OPEC. The general consensus seems to indicate that we have reach so called “peak oil”, or will do so soon.

 The future is downward sloping, but just a question how fast.

Looking at this in a more historic context, we see the problem a little bit better.

But the kicker is when we think of this issue in the correct context.

Historical world oil production

Anyone agree we need to think long and hard about how to solve our energy needs in the future?

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