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Bloodbath aftermath

Posted by Harry Stotle on October 16, 2008

A quieter week was wrongly expected after the interbank pacemaker was put into place and before October 21st, the day when the general public discovers the meaning of the three letters C.D.S.

Leveraged investors are now forced to sell and the professional wishful thinkers (e.g. your account managers) are losing drive, leading markets to nervously slide down to the levels reached 6 years ago (2002). This is much steeper than the 87 crash, the oldest memory of most traders, and the main obstacle to their comprehension of current events. As they were raised to believe that stock markets downturns are short-lived, they took immediate comfort in a ready-made solution: just wait for recovery while only the panicking fools are selling. These ideas led them to ignore 2 important facts: thresholds can be reached beyond which situations do not repeat themselves; and this crash has causes (uncontrolled financial leverage on a giant scale) that the 87 crash did not have. Even the optimist is now aware of the recession to come (it has hardly started yet), under the impact of the inevitable crunch of consumers’ markets which shall follow mechanically a universal loss of net worth, leverage and employment The only debate is how deep? How long?

This depends on various factors, such as the intensity with which leveraged real estate shall blowup, the magnitude if the CDS blast and the capacity of governments, which are already drained of blood, to ‘reflate’ the economy. Concerning real estate, prices have not yet declined in percentages anywhere close to those of the early 80s. Thus the risk is high in many places, including Europe and emerging countries, where a 50% decline is not unrealistic at all. For the CDS, better not talk about them until October 21, where we shall know the proportion of net exposure in the due $410 billion for Lehman only (i.e. 0.6% of the total), who are the main victims and if they can survive. As to what’s left of the capability of governments to compensate all the losses, no one has the slightest idea at this time.

Let’s fasten our seat belts (before tightening our own belts)

This is how the world goes

Posted in Economics, France, Ideas, Trends, USA, world markets | Leave a Comment »

Re-educating educators

Posted by Harry Stotle on February 18, 2008

The education system in France, which used to be among the best in the world, undergoes a deep crisis, for reasons of wider interest than the local problems encountered by this specific nation.

The most-cited causes are lack of public funding and rigidity of the unions. Lack of public funding is a relative notion, especially when the entire proceeds of the national income tax are devoted to education (€77 billion in 2007, equivalent to 28% of government spending, almost 6% of GDP, compared to about 5.5%. in the U.S.). Private funding is missing much more, as the total expenditure for all levels of education reaches 7.5% of GDP in the US against 6.4% in France, a spread that could not possibly be reduced by a further increase in public spending.

Improper diagnosis and subsequent mistreatment only add to the intricacies of any serious illness. What motivates teachers’ unions to oppose almost any reform is a combination of constant decline in relative income together with a severe degradation of their working conditions. Masses of students are now unfit to classical forms of education for which they show little or no respect at all. It should be said in their defence that the system was not designed for their current needs, leaving them with high levels of unemployment.

The key to these issues is that a small-scale production system was turned into a mass-production with no structural change. This would be true in almost any country. Shameless demagogy only made things worse in France. Politicians, who had received an ultra-elitist education, promised the baccalaureate to everyone (a target of 80% of each generation was proudly announced in 1985).Putting aside the pure and simple impossibility to do this by other means than devaluating diplomas, professional training at primary school level was abandoned, secondary education being put on the same track in the name of equality, while overcrowded universities were discreetly postponing the necessary selection until it was too late.

Before WWII, a university such as Sorbonne had a faculty of hardly a few dozens people and a few thousands students. Secondary school teachers were recruited among the best students, paid like superior army officers, and treated as notables. Most jobs were obtained after primary school. Faculties are now measured in thousands, upper education in millions, teachers are underpaid, students spend years unwillingly sitting in classes where they remain unprepared to the real world. Those of them who do not dream of becoming drug-dealers or civil servants struggle to obtain internships from corporations terrified by what they see as hordes of unreliable barbarians.

Well-off families spend fortunes in private lessons to help their children keep up with the most exclusive private or public schools which, in any case, eliminate all students not on a par with their statistics, leaving others with the prospects of always more assistance from their parents or of a shaky future.

Few students are good or bad in maths by themselves. Some are lucky to have had a good math teacher, while others were not. The same applies to most fields of knowledge. No country can produce tens of thousands of good maths teachers. It is even more difficult to train at once new teachers for new branches of education better corresponding to the actual marketplace: accounting, law, electronics, general problem solving, design, etc.

The goal therefore is not to have more teachers leading more students to upper education, but teachers better paid, preparing all students to citizenship and employment.

One way to do this is to include professional training at every level, instead of turning it into mockery and a dead-end for the least gifted. One doesn’t need to be a follower of Mao to understand the advantage of having been trained in several skills during one’s youth. Some notions of say carpentry learnt at primary school and of software development learnt at secondary school would not make a worse lawyer after he got his PhD. Conversely, the basics of citizenship (introduction to the legal system, tax returns, world history, etc) should be considered a must for everyone.

The other way is to switch from the archaic system of one teacher in his class, to fully interactive digital learning. Richard Feynman, a leading physicist of the 20th century, was also a great pedagogue. He could have planted the seeds of science in to the mind of lemmings. Minds of such quality are scarce, and yet can be found in every generation. We can however leverage their talents by massive investments in the production of multimedia courses by people of this kind. Regular teachers should be retrained as coaches for the controlled and efficient use of digital lessons and related tests. A smaller number of more efficient teachers would select these courses as they used to do with manuals, customizing their usage for their various types of students. A large part of school time would be spent at multimedia libraries and workshops, requiring less physical supervision. Work could be seamlessly continued from home. Programs could easily evolve according to the economical or technological developments.

The goal is clear, the money is there. Will it happen soon enough?

You know how the world goes.

Posted in Economics, Education, France, Ideas, Institutions, Trends | 2 Comments »

Opinions & readers’ mail

Posted by Harry Stotle on February 12, 2008

An interesting entry today in Opinions & reader’s mail

(see tab)

Posted in France, Recreation, USA | Leave a Comment »

Can museums make money?

Posted by Harry Stotle on February 4, 2008


I am not sure art gained much from deserting the service of the gods for the service of money. Once the harm has been done, however, better be consistent. New puritans of art, replacing older puritans of religion, frown at the opening of a branch of the Louvre in Abu Dhabi (next to the Guggenheim’s).

This is strange, really. None of us has had time to see all the works belonging to the Louvre, or, for that matter, all works exposed in the regional museums participating in the project. So, the “Oh no, we won’t see these 300 works for 30 years!” sounds hypocritical to say the least. Why not start by having a better look at the tens of thousands of remaining works we keep neglecting every day?

As to the so-called “alienation of national treasures”, one should remember that many of these works were stolen by French armies or bought at a time when France had more cash than Abu Dhabi, and that they will be back anyway.

More importantly, even if museums are now quite uncertain of their missions, education certainly remains one of them. Educating other people to European art sounds like a decent idea. Doing it for a price makes perfect sense when you lack money and such people hardly know what to do with theirs.

The problem is that we are not very clear either about what education is. Understanding a work of art implies some knowledge of its iconography (another word for its “meaning”) and historical context. In order to acquire this kind of knowledge, digital copies can be used until a minimal level of familiarity is reached. They can easily be multiplied all over the world, while original works are used to show the real thing to people in grade of appreciating them. We are not exporting this to Abu Dhabi for a good reason: we don’t have it even at the Louvre. All we seem to offer to the masses of tourists invading the premises every morning are “Da Vinci Code trails”. Lucky Abu Dhabians who will be deprived of such achievements!

This is how the world goes

Posted in Art, Economics, France, Ideas | Leave a Comment »

Das Kapital 2008: the exploitation of fools by fools

Posted by Harry Stotle on February 3, 2008

You probably heard by now of Jerome Kerviel, world champion of trading scams, who was capable of generating by himself a loss of no less than €5 billion (yes) to his employer, the giant Societe Generale.

Being a reasonable person, your guess is of course that the young man is a genius and/or a criminal, one of these overpaid traders seized by some hubris. He is not. He was actually one of the least paid traders in the Western world: € 35.000 (before tax and social insurances, equivalent to € 20.000 net) + a gross bonus (still before tax etc.) of € 60.000.

Understandably the young man wanted to increase his bonus. The employer’s response was: “Are you kidding us? First increase your profits for the bank and we shall see to raising your bonus”. All right, thought the young man, and as there is no way I can increase my profits by regular means (after all, all traders have more or less the same training, information and skill), I shall increase them by taking more risks. Well, not really more risks, because there is a well know trick: if you go wrong one day, simply double the stake the next day, until you are back to profits. Renew the operation as long as necessary. This takes a deep pocket, but Societe Generale does (did) definitely have a deep pocket.

As a matter of fact it did work! On December 31, 2007 Kerviel had made € 1.4 billion in undisclosed profits. Why undisclosed? Because there was simply no way to announce such a gigantic amount without revealing at the same time the unauthorized risks that had made it possible. Stupid isn’t it?

A criminal mind would have cashed in the € 1.4 billion by putting it onto some offshore account, then resigned from the bank and gone for a long cruise with at least a couple of Russian models. Kerviel however was honest! As a new kind of proletarian banker, he simply was looking for a better salary. As a fool, he was using a method that cannot be disclosed, and cannot therefore trigger a bonus. There was only one way out left: going on like this for ever, until you reach irreparable losses (with stakes superior to the very capital of the bank). And so he did.

Now, if we consider the employer, underpaying traders may look rational at first sight (after all, as I said, they are all about the same, with simply more or less individual luck). But if you do, better enforce your procedures! Even if you have never been a banker, you know that limits must be documented and checked by third parties. It was not the case. And if you have been a banker you also know that the most basic rule applicable to anyone in a bank, including a mere cashier, is to have people take their vacations! When they go on vacation they have to release their books and positions to someone else. Thus, should there be a scam, it gets discovered. Kerviel did not take any vacation and the bank was happy to have an underpaid trader doing overwork.

Hence, the title of this paper: New capitalism is turning into the exploitation of fools by fools. As to Societé Generale, due to be taken over after such a loss: requiescat in pace!

This is how the world goes.

Posted in Economics, France, Ideas | Leave a Comment »

How to turn a good idea into a bad one

Posted by Harry Stotle on February 3, 2008

During a recent press conference, President Sarkozy (one new idea a day) announced he would prohibit advertising on public TV networks in order to free them from market constraints and let them pursue quality. Excellent goal indeed: why would we need public networks if their programs are more or less identical to commercial TV’s? He suggested that from now on public networks would be financed by some new tax on TV advertising. Brilliant idea: advertising masses remain unchanged and public TV is freed from advertisers.

A few days later, when asked about this project, staff members start saying that, after all, the new tax could be based on TV sets or cell phones, or God knows what else. Now an absurd imbalance in created in favour of commercial TV (benefiting from a huge and unjustified increase in their advertising income), allowing them to crush Public TV. A couple of other sectors, starting with electronic appliances, suddenly become victims of a distortion.

This is how the world goes.

Posted in Economics, France, Ideas | Leave a Comment »

How to turn a bad idea into a good one

Posted by Harry Stotle on February 2, 2008

French taxi drivers, a strong force within French politics, now loathe President Sarkozy. Do you want to know why? Sarkozy had asked Jacques Attali , a former aid to President Mitterrand, to suggest a few new ideas on how to modernize the country. The man came up with 135 or so proposals (yes I know, but this is France). The most remarked output of this improvised think tank was not to alter the course of the Brahmaputra river (a former intention of the modest Attali), but to increase the number of taxi cabs inside Paris, by lifting the obligation of a paid license.

I do not intend to minimize the importance of such a move. Anyone who has tried to find a cab in Paris to take him or her to a restaurant knows that taxi drivers in the city of Descartes usually take their one and a half hour long meals during rush hour!

The thing is there are now 16.000 cabdrivers in Paris as opposed to 25.000 in 1920, and 42.000 in New York. No wonder: they have to purchase a licence at outrageous market prices (reaching $ 200.000).

If you tell them that their main asset overnight will be worth nothing, they understandably go crazy and this is what happened, with a nationwide strike and Sarkozy collapsing in the polls.

Hmm. You wonder why no one thought of a very simple idea to resolve this matter: release new paid licenses and distribute the proceeds to former owners of a license. Everyone would be happy: new cab drivers (now unemployed) would find a job, older cab drivers would receive a new source of income, Sarkozy would rise back in the polls, Attali would be comforted in his opinion of himself, and you and I would find a cab when we need one!

Too simple probably.

This is how the world goes.

Posted in France, Ideas | Leave a Comment »