Club Troppo

Credit derivatives “enhance the transparency of the markets’ collective view of credit risks.. [and thus]… provide valuable information about broad credit conditions and increasingly set the marginal rice of credit. Therefore, such activity improves market discipline”

“There is a growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors has helped make the banking and overall financial system more resilient …
The improved resilience may be seen in fewer bank failures and more consistent credit provision”.

IMF, Global Financial Stability Review, April 2006, HT Lord Turner.

Julia Gillard’s tactic of targetting Tony Abbott’s refusal of an offer to join her trip to Afghanistan was certainly a bit tacky, but it pales into insignificance beside the cynical efforts of Abbott and his team to extract maximum partisan advantage from the Afghan engagement by hook or by crook (mostly crook).

Indeed it’s abundantly clear that the real reason Abbott declined Gillard’s joint visit offer had nothing to do with either jet lag, the UK Tory conference or existing unchangeable plans.  It was solely to allow Abbott to profess a desire for responsible bipartisanship on Afghanistan while in practice doing exactly the opposite.  The Coalition would not have been able to maintain its idiotic call for more troops and tanks for as long as it managed had Abbott joined Gillard in Afghanistan and been briefed by military leaders on just how silly these demands were.

However, even this silliness has now been exceeded by Abbott’s thoroughly unprincipled politicking on the manslaughter charges against three Australian commandos over the killing of 5 Afghan children in Oruzgan province last year.  It seems that no stance is now too low for Abbott in his unrelenting efforts to attack the Gillard government at every conceivable opportunity and simultaneously appeal to the lowest common denominator of Alan Jones talkback audience ignorance:
(Continued)

When you’re regulated, like mortgage brokers are, regulators sit around thinking what it would be good for you to do. What could be better than to get you to do ‘professional development’? Wasn’t that one of the reasons you got regulated in the first place? Because you weren’t professional enough? After all, you’re a professional aren’t you? Your invested in your professionalism or at least in others seeing you as you hope they see you, as a professional. The regulator likes you to be professional. It’s their job to make you professional and to ensure that the public have confidence in the industry.  So you need professional development.

To make sure you do enough of this, there are professional development points and you have to get so many per year. If you just sell home loans, you can get two thirds of your yearly requirement for professional development from going to a course on how to sell commercial loans. The fact that it’s completely useless to you is neither here nor there. The fact that it doesn’t make you any better at what you are doing is neither here nor there.

But lots of professional development involves golf. Golf is a pretty professional looking sport – better than rugby for instance. You don’t have to dress in a tie for people to get the idea that you’re a professional.

And professionals need to sell (well mortgage brokers need to sell).  In fact they’re not really professionals at all – they’re salespeople – and salespeople dress like professionals.  That’s why you can get 3 PD points for going to this function.

Sell More, Live Well (Continued)

I’m afraid I don’t have time to explain this in any detail. But Hegel is perhaps my favourite philosopher. I worked out I’d like to know more about Hegel when so many of the people who interested me seemed to somehow go back to Hegel. R.G. Collingwood is a good example, but lots of others. My own perhaps idiosyncratic, and from the point of view of someone who’s seriously studied philosophy amateur view is that the enlightenment gradually gathered steam through to Hume, who then awoke Kant from his dogmatic slumbers. There are lots of people – like Popper for instance and I suspect Hayek – for whom Kant is the apotheosis of the Enlightenment. But for me it’s Hegel. I could go on about why, and I’ve already said I don’t have time. But I don’t want to let this article, which I really like, get away without quoting it.

Anyway, the joke is that though I did a course on Hegel, with Richard Campbell who could reduce any passage, not matter how apparently impenetrable to something simple and compelling, I still find it almost impossible to read Hegel. I don’t know how much Hegel was joking when he said (or is he just reputed to have said) that he didn’t understand his own philosophy until he read it French translation, but I must say, I think that’s hilarious.

And so to the article  . . . Here is J. M. Bernstein expounding a ‘Hegelian’ approach to the issue of the day – the role of ‘selfishness’ in society in the light of the GFC.

. . . Hegel, of course, never directly wrote about Wall Street, but he was philosophically invested in the logic of market relations. Near the middle of the “Phenomenology of Spirit” (1807), he presents an argument that says, in effect: if Wall Street brokers and bankers understood themselves and their institutional world aright, they would not only accede to firm regulatory controls to govern their actions, but would enthusiastically welcome regulation. Hegel’s emphatic but paradoxical way of stating this is to say that if the free market individualist acts “in [his] own self-interest, [he] simply does not know what [he] is doing, and if [he] affirms that all men act in their own self-interest, [he] merely asserts that all men are not really aware of what acting really amounts to.” For Hegel, the idea of unconditioned rational self-interest — of, say, acting solely on the motive of making a maximal profit — simply mistakes what human action is or could be, and is thus rationally unintelligible. Self-interested action, in the sense it used by contemporary brokers and bankers, is impossible. . . . (Continued)

I recently attended the David Solomon Lecture in Brisbane as part of Right to Information Day. David Solomon designed the freedom of information architecture of Qld and Anna Bligh asked him to do it and more or less implemented what he recommended.  So good on her. He is a Good Guy. Anyway, the lecture was given by Don Watson and it was a fun listen – though nothing surprising if you’d dipped into his books on the subject of the mangulation of the language.

I must admit that the highlight for me was the consultants who’d been hired to diagnose why the Anglican Church had lost some umpteen hundred millions in the GFC. The consultants reported that there was an “endemic culture of forgiveness” reaching right up to top management. I laughed.

Anyway, I just sent a former colleague an email, and then realised it should be grist for Don’s mill and sent it to him. Then I thought it could become Troppodillian grist as well.

I used to be confused. I used not to REALLY know what public policy was all about.

But now, with DIAGRAMS® I can go to work every day knowing what my KPIs are.

This is the diagram that did it for me.

I’m only hoping that it can do it for your organisation. God knows you people need it.

Just remember.

1. Ensure the evaluator is independent [fair enough too - except sometimes it's not a good idea, but we'll leave that to one side. Ensuring that all evaluations are objective should look pretty good on your self-evaluation.]
2. Align evaluation with real action and outputs [ie, not pretend. Can’t stress this one enough – pretend is never good enough. You’re in the real world now]
3. Build the right team  [ie – not the wrong team. Note this is not as important as 2, but it’s pretty damn important. For instance Hitler was crazy enough. He needed sound chaps to help with the war effort – not more nutters like Goebels, Goering, Hess, Himmler and something simmler]
4. Obtain the right data  [ie – not the wrong data. Note this is not as important as 2 but more important than 3. Remember – if you’ve got the wrong data, you’re on the wrong tram]
5. Timely advice  [ie, not too late. For instance, if you get advice on building some major public road after you’ve built it, it can be quite expensive to move it, or even to unbuild it – if your advice shows that it shouldn’t have been built in the first place. All this could have been avoided if your advice was timely - capiche? If not see rule 6.  If you didn't come good on rule 5, you're unlikely to know where rule 6 is. Don't worry you're bound to run into it]
6. (That’s rule 6). Focus on the future  [ie not the past. The problem with the past is that it cannot be changed. You are a change manager. All change in the past has already been managed – unless you’re in fantasy land – see rule 2.]
7. Manage risk  [ie do not just sit around eating sandwiches and so on. Manage risk as in – you know managing risk – it really shouldn't be that hard.]
8. Choose the most appropriate analytical technique [ie if you are building a bridge and you need to add up all the weight that will be on the bridge, don’t use subtraction – just throw subtraction away. Same goes for multiplication and division. Stick to adding up. That's for bridges. It's different for inventory - when people are nicking stuff from your stores, subtraction comes in handy. It’s easy when you get the hang of it].
9. There are not nine points in the program evaluation challenge. Please pay attention. And you’ve not followed the order – which goes clockwise (for obvious reasons – we’re moving forward here.)
10. There is a blank space in the – well the ‘space’. (Clue it’s in the middle of the eight boxes). This space is handy because it’s the ‘improvise’ space. It’s the sandpit, the skunkworks. If you want to do something that’s not indicated in the eight boxes, do it. It is very important in strategic planning that anything that any of these guides say, can be ignored – pretty much any time you like. It’s important to be flexible. If you can’t think inside the first eight boxes, think inside the ninth one – which will really let you think outside the box – well inside the box really- but it’s a special ‘thinking outside the box’ box. A win win. This is different to the grey bit in the circle.  This is really just, well no-one really knows what it is. It’s just filling space. That’s why it’s dark grey. Don’t write in it (that’s why it’s dark grey), and try not to think about it.

Regards,

Nicholas Gruen
Consultant and changed man. (if it worked for me, it can work for you)

I’m seriously conflicted by the debate over Labor’s National Broadband Network.

On one hand, the future of CDU’s online Bachelor of Laws programs, whose creation and development I oversee, is heavily dependent on the availability of almost universal truly fast broadband within the next few years.  The policy that the federal Coalition took to the last election just doesn’t cut the mustard and would if implemented effectively stymie our plans and possibly the long-term viability of the law school itself.

Indeed it would imperil federal government plans to expand the scope of higher education to cover double the number of Australians presently studying by 2020.  That can only be achieved if people can study effectively using powerful flexible learning technologies which allow them to study from home or the workplace rather than needing to traipse to a university campus after work.

On the other hand, I think Labor’s current NBN policy is seriously wasteful and dangerously extravagant.  An adequate fast broadband policy could certainly be fashioned which would cost much less than Labor’s plan but deliver reliable fast broadband to a much greater proportion of Australia’s population than the Coalition’s badly flawed ideas.  Let me explain.

(Continued)

A couple of months ago I caught up for lunch with Peter Dawkins whom I’ve known since my time at the BCA – which is to say since 1997 when he was running the Melbourne Institute of Applied Economic and Social Research. He’s now head of the Dept of the Victorian Dept of Eductation and Early Childhood Development and seems to be doing a great job judging by the things the Department are up to.  He told me about ultra-net which is a very ambitious project which has just started running and is intended to essentially link all students and teachers – that is any one with any other – in the Victorian education system. Anyway we spoke about lots of things and I got a few things off my chest.

Like how the curriculum seems to be moving at glacial pace while the world around us accelerates away, how we barely use the obvious tools that are successors to the slide-rule and the calculator, namely the spreadsheet in maths education.  How we don’t teach our kids computer skills and on and on.  I impressed upon Peter the extent to which the online world of web 2.0 is one in which people are just doing it for themselves, with all all the tools available for free onine – YouTube, Facebook, Twitter, widgets, mashup platforms like Google Maps and on and on. And that doing things like building mashups on Google Maps or learning stats by competing for Dream Team points could really turn kids on.   But I went on to say that the worst thing one could do if one agreed with what I was saying would be to spend time and money skilling up teachers to teach this stuff.  They wouldn’t want to – or many wouldn’t and they wouldn’t be any good at it.

I suggested instead that those students who were enthusiasts could teach others, and spread things that way. Of course if one wanted to take it seriously you’d give the ‘student/teachers’ in this situation some credit for what they were doing – giving them credit for a unit.  But the details can be worked out with serious and good intentions. I didn’t really go to the lunch intending to download a list of ‘everything I always wanted to do in education’ but Peter was intrigued and asked me to come and speak to some senior people in DEECD, which I did just last week.  Then this week Peter was kind enough to invite me to a roundtable with Professor Stephen Heppell who is an educationalist and IT guy from the UK.

We had a great lunch discussion with all sorts of people from the world of Victorian education. Then we went downstairs – we were in the State Library – to Experimedia, a large exhibition space where the library was hosting the first Australian event in the image of Heppell’s brainchild which is a kind of showcase for kids doing it for themselves in IT in the education system. Heppell calls his program BVA (for Be Very Afraid!) which is a hoot. In fact it was a sufficient hoot that the Victorians performed a hootectomy on it, toned it down and called it Listen2Learners (though if you look really carefully, you’ll see little red lettering giving away L2L’s provenance. It reads BVA 7 with Steven’s outfit BVA having run BVA1 through to BVA 6.)

And it was fantastic. (Continued)

Joan Sutherland has passed on. Inevitably, obituarians are taking the opportunity to contend that she was the greatest soprano, or even the greatest singer, of the post war period, or even of the 20th Century. Others are content just to raise the question.

When it comes to choosing between artists in the highest rank, it’s a partly matter of taste. Some will prefer one singer for her ability to convey emotion; others will prefer a different one for the ‘purity’ or ‘warmth’ of her tone, whatever those words mean (the vocabulary of the voice critic is as specialised as the wine taster’s). But when it comes to something called technique, I suspect that Martin Kettle (linked above) is expressing conventional wisdom in saying that:

…it’s the once-in-a-lifetime combination of instrument, ambition and technique that makes [Sutherland] such a complete artist. Of course, it was the amazing security of her top notes and the dazzling accuracy of her coloratura that always brought the house down. But it was Sutherland’s soaring, flowing line that really marked her out from the others…

However, this is actually the worst time for ranking exercises. (Continued)

The other day I was describing my honours research to someone (namely James Farrell), which started me churning some of the frustrations I have had with the empirical institutional literature of the past 10 years and I stumbled upon another issue I hadn’t considered before – if institutions can increase the output of a society, who can claim this increased output?

The link above covers it in slightly more detail, but to recap: The fact that institutions – that is the “rules of the game”, both formal laws and how they are enforced and social convention and practice – matter in economics has been known since the times of the  hero ancestor Adam Smith. Difficulties in formalising them in mathematics, testing them empirically or giving policy recommendations meant they had limited influence in published work (with some marvelous exceptions). The experiences of the 1990s, especially the transition and developing economies that failed to prosper when first best, Washington Consensus policy was implemented, led some (mainly US) economists to adapt institutional rhetoric, but also to attempt to empirically test the influence of institutions, with many flaws.

What I chewing over today is one particular flaw – the tragically limited views of what institutions are. Take this excerpt from Hall and Jones (1999) – a paper which seeks to explain differential output per worker between countries and which is a mandatory citation amongst the literature I described.

A social infrastructure favorable to high lev-
els of output per worker provides an environment that supports productive
activities and encourages capital accumulation, skill acquisition, invention,
and technology transfer. Such a social infrastructure gets the prices right so
that, in the language of North and Thomas (1973), individuals capture the
social returns to their actions as private returns.
Social institutions to protect the output of individual productive units
from diversion are an essential component of a social infrastructure favor-
able to high levels of output per worker.

Institutions “get the prices right”. The institutions, “social infrastructure” they describe don’t create or productivity in any way, they just make sure that the return on factors of production is what theory says it should be so that people have enough incentive to be or become productive. The institutions merely prevent returns to factors of production being appropriated rather than actually contributing to their growth. They stop brigands and crooks, but they do not invent or generate. (Continued)