We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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Contrary to what most people had assumed, banking in the United States had been highly stable in the decades before deposit insurance. Of course, depositors were concerned about their safety, but this made them cautious in whom they banked with. They demanded reassurance from their banks, and the banks gave it to them. Pressure from depositors forced the banks to be conservative, to lend carefully, to keep their leverage ratios low, and to disclose their broad positions. The bankers themselves were conservative even in their dress, but this was itself reassuring, and the solid architecture of the banks’ offices reinforced the notion that they were pillars of the community with solid roots in it. The key to banking was maintaining the confidence of depositors and not taking that confidence for granted.
Before deposit insurance, a bank that took too many risks would eventually undo itself. It would do well for a while, increasing market share and generating better shareholder returns than the fuddy-duddy banks, which would feel the pressure. However, come the inevitable downturn, the cowboy bank would experience heavy losses on its questionable lending, liquidity would tighten, and a point would come where the frightened depositors would run for their money: the cowboy would be literally run out of business. These occasional crises were unpleasant, but good for the long-term health and even stability of the system: the runs would expel the cowboys from the system and give a salutary reminder to those who survived. The system itself was rarely seriously at threat, because the depositors would redeposit their funds with the safe banks. There would typically be a flight to quality, a transferring of funds within the system, rather than a run on or threat to the system as a whole. Thus, it was the threat of a run that kept the bankers in line.
Once you introduce deposit insurance the situation changes profoundly. Deposit insurance allows the bankers to take their depositors’ confidence for granted. This takes the pressure off the bankers, who can now safely increase both their lending risks and their leverage ratios, thereby increasing returns to their shareholders (or, in modem Wall Street, to themselves). For their part, the depositors are no longer concerned with the risks their banks are taking, but only with the rates they get on their deposits. Consequently, deposit insurance subsidizes risk-taking, so leading to excess risk-taking with the deposit insurance agency and, ultimately, the taxpayer, picking up the tab.
Nor does the damage end there. With deposit insurance, there is no longer any run to fear and even the most insolvent banks following the most unsound “shoot to the moon” investments can now remain in business indefinitely, attracting more funds and staying in business by merely raising deposit interest rates. The process of competition then becomes utterly subverted: instead of allowing the conservative banks to drive out the cowboys, even if it takes a little time, the process of competition now rewards the cowboys and penalizes the good banks. It therefore pays to become a cowboy and, eventually, all banks do.
– From Alchemists of Loss by Kevin Dowd and Martin Hutchinson (pp. 271-2). Pictures of the two authors here, taken at the launch of the book last Wednesday evening at the Institute of Economic Affairs.
A most enjoyable trip was had by yours truly on the Thames yesterday in the company of the Adam Smith Institute. Every year, the think tank invites its members and various assorted free marketeer campaigners to have a glass of bubbly or two on a nice pleasure cruiser. Old age must be setting in as far yours truly is concerned, since the revellers seem to be getting younger. But then again, that is testimony to the cleverness of the ASI’s outreach programme to universities and colleges. It is impossible to over-stress how important this is. Anyway, thanks to the ASI for an extremely pleasant evening, blessed by superb weather and great company.
I am going to say naathing specific about this, but the best response to this sort of thing is for everyone to immediately make private copies of all the associated information and stash them somewhere.
The Internet is Forever, but some folk are just too dense to figure it out.
As I have seen before, a lot of political news coverage in the UK (and in the US, for that matter) rather resembles sports coverage, if without the tone of hysteria covering the media’s reporting on England’s World Cup horror show. For instance, over at the Spectator’s Coffee House blog on the issue of public spending cuts, it goes into a lot of the arguments about who said X or Y about cutting A or B. In fairness, the Coffee House crew are pretty good at teasing out the statistics – Spectator editor Fraser Nelson has been excellent in hammering the former government over its debt – but there is something a bit missing from its analysis. And that is this: the scale of the shift that we might see from public sector jobs to private sector. If is true that hundreds of thousands of public sector jobs are to go, and the private sector is going to be encouraged to pick up the slack by new job creation, that is surely good news.
We are not admirers of Cameron’s style of Conservatism here at Samizdata (that’s putting it mildly, Ed), but I’ll give him and his finance minister credit if, at the end of the current parliament, there has been a significant shift away from the state and towards the private sector. We libertarian ideologues are hard to please, but such a shift will be pretty tough to pull off. If it means we have to put up with a certain amount of political BS along the route, I don’t especially mind. It is the general direction that counts.
Update: Guido Fawkes points out that certain leftist publications, reliant on public sector job ads, such as with the Guardian, have an obvious reason to fear the axe. It’s not a bug, it’s a feature!
Michael Jennings just emailed me the link to this, “You may have seen this” being the title of his email. No, I hadn’t. “This” starts thus:
There was an unusual match between Barbados and Grenada.
I’ll say. Read the whole thing. Really, read the whole thing. It’s a classic of perverse incentives, showing how the wrong kind of rules can cause everyone to want to do badly. It’s about much more than football, in other words.
I have visited Germany several times – I lived there for about a month while a student (in the Moselle area) and briefly attended a Gymnasium school in the town of Ahrweiler, but have not yet been to Berlin, the capital. I have always had a good time in the country – the Rhineland is as impressive as the photos suggest – and this article by Tyler Cowen at his Marginal Revolution blog definitely makes me want to get on an aircraft and go there. I’d probably avoid it in the height of summer, though, not to mention the harsh Prussian winter.
Talking of Berlin, here is one of my favourite Michael Caine films. And of course David Bowie did a lot of his best work while living in the city.
Inevitably, when the name of Berlin comes up , it raises the issue of that palaver of 1939-45. Anthony Beevor’s book about the attack on Berlin in 1945 is a must-read. I remember there was an old guy who used to live in my parent’s village who was on pathfinders (Mosquitos) during WW2, and he played a part in the near-flattening of that city.
And of course, like many people of my generation, I vividly remember those scenes as beamed around the world of the Berlin Wall coming down, and imagining the joy of people in the East who were no longer treated like cattle in their own nation. I sometimes wish, naively, that there was more sense of shame among the hard left about its support for such a state of affairs. Let’s not forget that that overrated smart alec, JK Galbraith, made light of the wall and what it represented.
Tim Worstall writes, “You know the Bolivarian Revolution is toast when…”. His criteria for Bolivarian toastiness is “when even the Guardian is running reports on how socialism makes the food supply go tits up.” He links to a Guardian article about the “economic war” launched by Chavez in Venezuela which does indeed make it sound as if Chavez has defied reality once too often.
Trouble is, as The Remittance Man says in the comments, we saw the same and worse from Mugabe – and he is still in power, sort of. Indeed we saw the same and much worse in the Soviet Union and that lasted seventy years.
How do these regimes hold on for so long? Shopkeepers in Venezuela are being ordered on pain of imprisonment to sell at a loss. One would think they would just walk away. Why does it take so long for Atlas to shrug? Perhaps most of his economic war is just bluster and shopkeepers know this. Perhaps there is some mechanism of benign corruption operating that means that the shopkeepers do continue to make money regardless. Perhaps Chavez is right and they do have a lot of money stashed away and can afford to run at a loss for a time, and also have some reason to believe that this episode will be sufficiently brief that it is worth their while to do so.
Or perhaps the toast is about to burn.
Proof that the US remains a very different nation to the UK at the moment. I just caught this Supreme Court decision via Bloomberg.
Basic logic is something that Mr Richard Murphy, wonderfully flayed by the indefatigable Tim Worstall, is blissfully unaware of. As Tim points out, Murphy reckons we can use inflation to somehow “wash” out massive debt (by shafting savers and others on a fixed income) while he also vents about the terrible plight of pensioners and the need to protect them.
It might be easier to deal with Richard Murphy in the same way that you might an old, very ill dog. Don’t worry, Richard, there would be no pain.
Over the next two days, there are two linguistically Spanish versus Portuguese games in the World Cup: Chile plays Brazil this evening, and Spain itself plays Portugal itself tomorrow evening. Brazil and Spain are two of the favourites to win the tournament, Portugal is a good side, although perhaps without the depth of the first two, and Chile have played much more impressively than most people expected in this tournament, but are outsiders. So probably a hard fought but still one-sided game this evening, and a good game tomorrow night. Although one of course never knows.
However, disregarding the actual sport and thinking about bigger things, it seems pretty clear that the governments of the two Latin American countries are rather less profligate and rather less broke than those of the two Latin European countries.
How did we get here?
This posting is going to have to be of a more than usually interrogative sort, since I am more than usually ignorant of that whereof I blog, and which I will now copy and paste:
Certainly, on my travels, I’m going to be wary of accepting euro notes with serial numbers that are prefixed with the letters Y (coming from Greece) or M (from Portugal).
I shall also strongly steer clear of notes with the serial numbers starting G (Cyprus), S (Italy), V (Spain), T (Ireland) and F (Malta).
This might sound as if I’m being ridiculously alarmist, but you cannot be too careful.
However, other euro notes should be reasonably safe.
These include those marked Z (Belgium), U (France), l (Finland) and H (Slovenia). As for those with serial numbers beginning with X (Germany), P (the Netherlands) and N (Austria), they can all be used with total confidence.
Is this common knowledge? Am I the last person in Europe to hear about this? I shouldn’t be surprised. You can tell which country printed which Euro. Well, well. Who knew? Who, even now, knows?
The above quoted text is from a Daily Mail piece by Peter Oborne (linked to by Instapundit) about the various economic disasters the world faces. One of which is the melt-down of the Euro.
My big question, aside from wondering who else does or does not know this, is: supposing lots of people do know this, or get to know it, does it not provide a mechanism by means of which mere people might hasten the collapse of the more dubious EUrozone economies, by demanding, when being paid in actual money, to be paid only in Euros printed by the undubious countries?
Perhaps the answer might go: but making such judgments would be, in EUrope, illegal. Maybe so, but that won’t stop a black market making minute comparisons between differently lettered Euros, nor will it stop tourists in other parts of the world, planning their EUropean trips, demanding, once they hear such stories, to receive only the kinds of Euros that they would like. They could, for instance, refuse to accept the wrong kind of Euros, or, if given a mixture of good Euros and bad Euros, sort out the good from the bad and swap the bad ones back for pounds, or dollars, or whatever.
The wrong kinds of Euro notes, from the dubious countries, could soon be treated exactly as if they were forgeries, could they not? The big difference being that these forgeries will be easier to spot.
So, the much prophesied melt-down of the Euro can now be accelerated in a much more discriminating way than merely by people judging that the Euro as a whole will soon be disappearing down the toilet. We will all be able to decide – many may soon be forced to decide – which Euros will descend toilet-wards first. Won’t we? Can’t we? Now? I realise that there is more to money than mere bank notes. But if stories like those sketched above were to start circulating …
Has Oborne got his facts right about this? And if he has, do my supplementary questions also make any sense? As I say, this is all completely new to me, so I could soon, after the first few responses, be wishing that I’d never even asked.
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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