Why Lehman’s Failure Was The Right Move

Millions of gallons of ink must have been consumed in the neverending discussions about the “disaster” represented by the US Government’s decision to let Lehman Brothers fail and disappear. Andrew Ross Sorkin on today’s IHT agrees:

With hindsight, many in the financial industry blame a deepening of the global financial crisis on the government’s decision to let Lehman crumble

I disagree with that analysis, for two very simple reasons. When Lehman was allowed to go bankrupt, a signal was sent to all, saying that not everybody will be rescued. This was in direct contrast with the Japanese Government’s decadal efforts to prop up every financial institution under its watch (that’s why those efforts lasted for a decade or even more).

More importantly, the failure of Lehman Brothers showed everybody what the failure of “just a bank” may mean, with innumerable, overwhelmingly negative consequences propping up even in unlikely places. And this was good: because it is in the human nature to seriously question people advising that something bad may be happening in the near future, and to need a direct experience of that “something bad” before properly reacting.

You can spend every last molecule of your breath explaining a child that eating too many sweets can be painful. But there is nothing like going through a “tummy ache” that will convince the child of changing their way.

And you could transfer yourself back to January 1939 and explain all the reasons for the upcoming Nazi continent-wide monstruosity, but I am sure nobody in the UK or France (or the USA) will agree to go to war until forced to by the pain of circumstance.

And so, had Lehman Brothers been rescued alongside the other relatively large institutions, we would still be discussing the pro’s and con’s of rescue packages. And we would have never known that it takes just a bank to fail, to see a run on money-market funds.

Hindsight will fuel further commentaries on now-defunct Lehman Brothers: and hindsight can be useful to make sense of the world, but only works when there is something to look back at…

The Economist: Does Charlemagne Speak Any French?

Perhaps it would be better for commentators in European matters to travel and live a bit more around Europe

Letter to The Economist:

Dear Editors

The author of the “Charlemagne” column makes quite a fuss about the alleged ability in EU documents for fish to “fish themselves” (“A fishy tale“, Dec 13).

The incipit and a lot of the sarcasm in the article are about “a daring, if grammatically correct, use of reflexive verbs, so that a ministerial statement blamed undersized hake that se pêchaient et se vendaient, suggesting the fish had fished and sold themselves.”

The actual ploy though appears to be based on “Charlemagne“‘s own challenged relationship with the French language.

Far from being “daring“, “passive impersonal” (or “passive reflexive”) is a very common construct in French and in other languages, with the reflexive pronoun “se” used to avoid the seldom-liked standard passive voice.

No French speaker, and nobody but a person with plenty of negative prejudices against the European Union, would have imagined that anybody had ever suggested that “the fish had fished and sold themselves“.

If you have something to criticise about the EU (and there is plenty of material in that respect!) could you please at least make an effort not to concoct baseless innuendos.

Pearls of Unintended Irony on The Economist

Editorial control must have relaxed at The Economist, of late, or else for a series of unfortunate circumstances nobody at HQ is reading the magazine end-to-end any longer.

That may be a couple of reasons to justify the following of pearls of unintended irony on those esteemed pages…

(1) From one kind of waste to another

“Nuclear power-Atomic renaissance“, Sep 6th, where we are told that “the current expansion of nuclear power”, based on lowering emissions of greenhouse gases, “is unlikely to be slowed down by concerns about what to do with the waste”.

(2) Errare humanum, perseverare…

“Jolly green heretic“, Sep 6th, where credit is given to a Stewart Brand who, having been wrong about “his alarmism over the Y2K computer bug”, and having thereby convinced himself that the world is “modular, shockproof and robust”, for unfathomable (and unfathomed) reasons considers global warming the “single most important environmental threat facing mankind”.

(3) Warming fantasy

“Gambling on Tomorrow” and “Tomorrow and Tomorrow“, Aug 18th, where we are told that all current climate models are too simple, and were not really checked against reality. This from the same magazine that has recently changed its mind, and thinks global warming is “for real”.

Grey-sky Hubris on The Economist

If the effect of clouds on climate is “obscure” and “little is currently known about where [aerosols] end up in the atmosphere” (as recognised on The Economist’s “Grey-sky thinking”, July 5, 2007), what kind of hubris is necessary to state, as at the beginning of the article, that “the general trends [of climate] are clear”?

Late-XIX-century physics looked pretty much complete too, apart from the obscure problem of black-body radiation, solved by Planck in 1900 by discovering the hitherto completely unknown world of quantum physics.

The Economist…and the economists

(Letter sent to The Economist)

Dear Editors

One wonders how much to read in what you don’t appear to be daring to explicitly write, in your commentary about Sir Nicholas Stern’s review of the economics of climate change (“It may be hot in Washington too“, Nov 2nd 2006)

Let’s see: Sir Nicholas, the “head of Britain’s government economic service” and with a past in very senior positions at the World Bank, delivers a series of economical figures…perfectly in line with what is politically needed by the commissioner of his latest effort, Gordon Brown

Contrarily to the Financial Times, only very obliquely you suggest that all that economics may as well have no value (apart of course from Mr Brown’s effort to get “America involved in the global effort to mitigate climate change“)

All in all, Sir Nicholas’s report may end up being remembered as a travesty of economics

Do you really hold expert economists in such a low esteem, not to feel any outrage at seeing their profession so heavily manipulated for political ends? And if that is true, what is the point of your Buttonwood and other economics columns?

One may even ask, what is the point of your magazine? Why not close it down, perhaps, to open it anew as “The Politician”?