Commentary: How to prevent the next Wall Street crisis
September 18, 2008
Editor’s note: Joseph E. Stiglitz, professor at Columbia University, was awarded the Nobel Prize in Economics in 2001 for his work on the economics of information and was on the climate change panel that shared the Nobel Peace Prize in 2008. Stiglitz, a supporter of Barack Obama, was a member and later chairman of the Council of Economic Advisers during the Clinton administration before joining the World Bank as chief economist and senior vice president. He is the co-author with Linda Bilmes of the “Three Trillion Dollar War: The True Costs of the Iraq Conflict.”
NEW YORK (CNN) — Many seem taken aback by the depth and severity of the current financial turmoil. I was among several economists who saw it coming and warned about the risks.
There is ample blame to be shared; but the purpose of parsing out blame is to figure out how to make a recurrence less likely.
President Bush famously said, a little while ago, that the problem is simple: Too many houses were built. Yes, but the answer is too simplistic: Why did that happen?
One can say the Fed failed twice, both as a regulator and in the conduct of monetary policy. Its flood of liquidity (money made available to borrow at low interest rates) and lax regulations led to a housing bubble. When the bubble broke, the excessively leveraged loans made on the basis of overvalued assets went sour.
For all the new-fangled financial instruments, this was just another one of those financial crises based on excess leverage, or borrowing, and a pyramid scheme.
The new “innovations” simply hid the extent of systemic leverage and made the risks less transparent; it is these innovations that have made this collapse so much more dramatic than earlier financial crises. But one needs to push further: Why did the Fed fail?
First, key regulators like Alan Greenspan didn’t really believe in regulation; when the excesses of the financial system were noted, they called for self-regulation — an oxymoron.
Second, the macro-economy was in bad shape with the collapse of the tech bubble. The tax cut of 2001 was not designed to stimulate the economy but to give a largesse to the wealthy — the group that had been doing so well over the last quarter-century.
The coup d’grace was the Iraq War, which contributed to soaring oil prices. Money that used to be spent on American goods now got diverted abroad. The Fed took seriously its responsibility to keep the economy going.
It did this by replacing the tech bubble with a new bubble, a housing bubble. Household savings plummeted to zero, to the lowest level since the Great Depression. It managed to sustain the economy, but the way it did it was shortsighted: America was living on borrowed money and borrowed time.
Finally, at the center of blame must be the financial institutions themselves. They — and even more their executives — had incentives that were not well aligned with the needs of our economy and our society.
They were amply rewarded, presumably for managing risk and allocating capital, which was supposed to improve the efficiency of the economy so much that it justified their generous compensation. But they misallocated capital; they mismanaged risk — they created risk.
They did what their incentive structures were designed to do: focusing on short-term profits and encouraging excessive risk-taking.
This is not the first crisis in our financial system, not the first time that those who believe in free and unregulated markets have come running to the government for bail-outs. There is a pattern here, one that suggests deep systemic problems — and a variety of solutions:
1. We need first to correct incentives for executives, reducing the scope for conflicts of interest and improving shareholder information about dilution in share value as a result of stock options. We should mitigate the incentives for excessive risk-taking and the short-term focus that has so long prevailed, for instance, by requiring bonuses to be paid on the basis of, say, five-year returns, rather than annual returns.
2. Secondly, we need to create a financial product safety commission, to make sure that products bought and sold by banks, pension funds, etc. are safe for “human consumption.” Consenting adults should be given great freedom to do whatever they want, but that does not mean they should gamble with other people’s money. Some may worry that this may stifle innovation. But that may be a good thing considering the kind of innovation we had — attempting to subvert accounting and regulations. What we need is more innovation addressing the needs of ordinary Americans, so they can stay in their homes when economic conditions change.
3. We need to create a financial systems stability commission to take an overview of the entire financial system, recognizing the interrelations among the various parts, and to prevent the excessive systemic leveraging that we have just experienced.
4. We need to impose other regulations to improve the safety and soundness of our financial system, such as “speed bumps” to limit borrowing. Historically, rapid expansion of lending has been responsible for a large fraction of crises and this crisis is no exception.
5. We need better consumer protection laws, including laws that prevent predatory lending.
6. We need better competition laws. The financial institutions have been able to prey on consumers through credit cards partly because of the absence of competition. But even more importantly, we should not be in situations where a firm is “too big to fail.” If it is that big, it should be broken up.
These reforms will not guarantee that we will not have another crisis. The ingenuity of those in the financial markets is impressive. Eventually, they will figure out how to circumvent whatever regulations are imposed. But these reforms will make another crisis of this kind less likely, and, should it occur, make it less severe than it otherwise would be.
This article orginally appeared on CNN on the 17th of Sep 2008
True Wealth Moment #2 by Manoj Sharma
September 17, 2008
True Wealth Moment #2 by Manoj Sharma
Be True To Your SELF
Be True To Your SELF and you will automatically see, hear and feel beyond the clutter of chaos that is everywhere in every facet of everyday life. You will elevate yourself beyond the ebbs and flows simply by Being True To Your SELF and this will result in great equanimity of your mind.
It is with equanimity of mind alone that a human being is able to gain clarity with respect to the past. Not just their past but the past of all of humanity. Likewise it is with equanimity of mind that a human being can be fully present and fully savour the preciousness of the now. And ultimately it only with equanimity of mind that a human being can be fully clear about what the future, both near and far, holds for all.
Being True To Your SELF requires you to shun the normality of your “self” and do your best to live up to the highest ideal of humanity. The highest ideal that are within the reach of each and every one of us and that all of us, with a little examination, deeply know.
We all have to face the endless “formidables” that life throws up. But by living a life Being True To Your SELF, the anxiety, fear, worries, concerns and doubt that often go with facing endless “formidables”, simply disappear or become completely insignificant. By living a life Being True To Your SELF your confidence will remain high, your conscience will be clear and your spirit will be uplifted. The baseness that most of humanity dwells in as a normal way of life will no longer be a disease you have to suffer. Congruency will arise from within you, substance will build itself up and a quite confidence will be self evident.
Ignore the need for you to Be True To Your SELF and you will, through your own bravado, spell your own demise and merrily lead you and your self to ruin. Ignore the need for you to Be True To Your SELF starting right now and you will continue to engage in pointless power games, never fully experience lasting holistic success and the joy of mastery will forever elude you.
Most people will never consider the above as something within their domain to exercise. They may also due to a lack of putting in the effort never be the wiser as to what they stand to lose out as a result of living a “normal” life and therefore will surely waste a lifetime rescuing an ever deteriorating situation by fighting a constant battle within, the reprieve from which is but fleeting.
Avoid this fate for yourself, by Being True To Your SELF, starting right now!
As usual, please feel free to send me your thoughts and comments to Info@ManojSharma.com
If you’d like to explore how you, your teams and your organization can benefit from the above please feel free call me at now! For more, please go to http://www.differworld.com and http://www.manojsharma.com
Practice With A Purpose by Gary Player
September 16, 2008
Practice With A Purpose by Gary Player
Very few weekend golfers have any concept of what it means by practice. Some run out to a local driving range once a month or so, for what they call a practice session. Their idea is to hit a bucket of balls, invariably with their driver, as hard and as fast as they can. When they thin one ball along the ground, they quickly tee up another only to top it as badly as the first. They seem to think that if they hit enough balls quickly they will eradicate any faults and improve their swing. What they are doing however is meaningless, without any thought or purpose behind it and they are probably grooving in some basic faults in their swing that will take effort to correct. That is not practice.
Nor is the golf course the right place for practice. On many a weekend round when a golfer slices his first few shots, he starts to brood about it. “Did I sway?” he thinks, “Or did I hold it too hard with the left hand?”. After the next slice he reconsiders: “Maybe I pulled across it, or drove too quickly with my legs?” From then on he practices not swaying or pulling across, oblivious to the fact he is actually playing a game. He doesn’t concentrate on his next shot, nor the target area he should be aiming for. All he can think of is to practice his swing, so it is little wonder that he scores in his high nineties.
All of that should be left for the practice ground. There is a time for practice and that’s the place. All professional golfers use it to practice all the time. They warm up on the range, before and after each tournament round, often honing one particular shot, like a high fade, that is the shot to play on many of the holes on the course. But they will also spend time chipping or practicing sand shots, even if this is a strength, and they will certainly hit putt after putt from all distances to the cup on the practice putting green.
Many professionals enjoy practice and for others it’s a way of life. I remember that in 1958 when I finished second in the US Open, I played one round with Ben Hogan. In the locker room afterward, he said: “Well, that was very well played. Make sure you practice hard. I never stop practicing.” Nor have I, from the time I started to play golf.
There is no fast way to become a better golfer overnight. I am totally convinced that practice is the only way to improve any part of your game, especially bunker play.
In South Africa, before I started to compete in tournaments around the world, I spend several hours a day practicing, as I still do. I take a bag of old balls out, dump them in a bunker and set myself a goal, say, to hole five shots. Once I’ve achieved that, I’ll work on another part of my game. Sometimes I’ll hole five fairly quickly, whereas other times I’ll be there quite a while and only hole one.
I’ll never forget the time when I was practicing at home, where we always had a bunker and putting green in the garden. Some friends were coming over for dinner that night, but I thought I would give myself an hour before they arrived to hole five shots from the sand. I holed three fairly quickly, then a fourth. Then our guests came, but I just couldn’t hile the fifth. When my wife came out to drag me in forty minutes later. I told her to “start without me, if you have to, but I am not coming in until I hole another shot.” As you can see I believe in setting yourself targets when you’re practicing, targets that you have to achieve.
I know the average golfer has very little time for golf, and when he does get away from home or work, he wants to enjoy playing the game. The last thing he fancies is to spend an hour or two in isolation on the practice ground. I’d feel the same in his shoes. But one thing is sure: however talented you are, if you really want to improve your game, you have to practice with a purpose. They is no gain without pain and the practice ground is the arena.
Pointers for The Samurai Code of Conduct
September 12, 2008
Here you go! Please read though these Pointers for The Samurai Code of Conduct in depth and do your best to elevate your consciousness and thinking to appreciate the value of the content. Most importantly integrate them into your live first and experience them first hand.