Monday, February 23, 2009

It is not important to vote

If you live in a democratic country it is not important whether or not you vote, which is not to say that the right to vote is unimportant. When it comes to supermarkets, it matters to me that there is competition between them for my business. That said there is no need for me to frequently check the prices of given products in each of the shops near me. By not making an effort to find the best bargains it could cost me more than a few percent of my salary as I waste money that could have been saved.

On the other hand, the last time I voted I was living in the UK and there I had a choice between the two parties. The main difference that I could see was that one was going to put up tax by a couple percent to fund an improved health service. To me I wasn't something that mattered much to me. Even if the politicians kept their word after elections, for many people life goes on very much the same whether one party gets in or another.

However, as a general rule, people are power hungry and politicians are no exception. By having a democracy politicians are motivated to please the people, well at least to please the people that vote, or more specifically the swing voters. Those who consistently vote along given party lines aren't really participating and more than the non-voters are.

It is important that people have the power to vote out politicians that don't do well, but whether one member of the population actually votes doesn't make a difference.

Friday, February 13, 2009

You can't fly and grow at the same time

The problem with flying and growing at the same time is that flight is very tricky and controlled flight is nearly impossible. But it is not completely impossible, as long as you get everything absolutely right. Having different parts growing at differents rates is just not going to allow you get off the ground.

Another little issue is that flying models are not scalable. If you were to tripple the size of everything in a helicopter, then you'd end up with something very dangerous. The only good news for potential passengers would be that it most likely wouldn't even be able to take off.

Looking at teenagers it is clear to see that growing is slightly uncontrolled process that may produce a swan in the end, but there is a long period of being an ugly duckling.
And speaking of swans have you ever noticed that small (young) signets don't fly.
In fact the same goes for all birds. They wait till they are the same size as their parents before flying! This is in contrast the ability to walk. For example a lion cub can run and jump even though it is much smaller than its parents. The dynamics of the walk of a lion cub are slightly different to that if an adult. But not fundamentally.

Also insects can't fly and grow! A fly will start life as a maggot or grub, then turn into a pupa and after that start to fly. By the time a fly flies, its growing days are over. Sometimes round the house, mostly near the rubbish bin, I see small flies that, to me, look just like miniature versions of the common house fly, well I can be sure that tiny ones are not the young of the larger ones. They are in fact a different species.

Bats are another fine example, their young they are cared for and fed by their mothers until they are ready to fly, by which time the growing will have stopped!

If an animal were to try to fly and grown then the growing rates of different body parts would need to be very precisesly governed. Also subtle changes in wing shape would be required and timed perfectly to deal with the altering body mass. A big ask.

So in summary:
  • a controlled walk is not tricky and is more or less scalable so you can walk and grow.
  • a controlled flight is very tricky and it is not scalable so you cannot walk and fly

Thursday, February 5, 2009


For economic growth we people to take risks by lending money.
For long term stability we need banks that don't go bankrupt.
Thus we need banks to pass on the default risk.

It seems that the word 'banker' sounds like a swear word more-so now then ever before. Banker bashing is a popular pursuit in blogs and newspapers. But seldom do we hear the view from the inside, so let me try to start to remedy that.

Banks are full of regular people, who can show kindness and compassion, particularly to friends and family. They will hold open the door open for a little old lady, but when it comes to large sums of money, they will be, for the most part, very selfish. It is reasonably rare for individuals or firms to give more than 1% in truly charitable donations and the giving that is done is often used as a form of relatively cheap PR work.

Overall I think it is fair to say that banks are selfish institutions, full of selfish individuals. People just like me. In our desire for money we are very much like other groups. In our defence I would say that we are perhaps more open about aims than some. For example politicians frequently claim that they are motivated by a desire to do go and to help others, but their actions are much more consistent with a group whose primary motivation is a lust for power.

In banks, the executive boards have some significant power, but it is not absolute. Ultimately they are accountable to share-holders, who do from time to time demand the sacking of the board.

Suppose, back in 2004, a board member of a major bank were to present to the board the suggestion that they seriously reduce the credit exposure of the bank, which would drastically reduce risk of bankruptcy and indeed the profit of the bank. The board would know well that if they were to take up this suggestion then the share-holders would have them all sacked. If their competitors are making billions by taking large risk, then they are very heavily pressurised to do the same.

Roughly speaking, businesses work for the benefit of the share-holders. They take risks to generate profit. Outside of banking, firms go bankrupt reasonably frequently. Only a tiny fraction of firms that were in operation in 1900 were still going in some shape or from in 2000, without having experienced a bankruptcy and bail-out at some stage.
It turns out that in fact banks have good longevity compared to pretty much any other industry.

However, if we want any form of economic growth, then we need there to be risk-takers. We need to allow firms the right to risk bankruptcy. However suppose we say that the collapse of a retail bank is too devastating for an economy for a government to allow, then we cannot let banks take much risk at all. Any time money is lent there is a risk. So, if we absolutely can't let the banks go bust, then we need to have other risk takers. One solution would be just to let the banks just be intermediaries, not wear-housing the default risk, but rather passing it on. Hedge funds have the potential to be very very helpful to an economy, if they can be encouraged to take credit risk. If they are paid enough of course they will.

Individuals with deposits in banks could also be paid to take on some additional risk. For example an investor could be offered the following:
Choice 1:
Lock away 100,000 Euro for 1 year in super-safe bank and you'll get 1% interest.

Choice 2:
Lock away 100,000 Euro for 1 year and you'll get 6% interest, subject to Ryanair not defaulting on any of its debts. If Ryanair defaults, the 100,000 Euro deposit will be converted into a Ryanair bond, with face-value 100,000 euro.

It is clear, it is simple and we can have safe-guards against mis-selling.

The benefits of offering choice 2 to investors are:
1: Ryanair, and companies like it, will be able to raise money more easily
2: Individuals can get better returns on their savings, by choosing to take some risk
3: The safe banks which the government won't let to bankrupt are exposed to much lower credit risk.

Choice 2 above is basically a 'credit default swap'. They are not very popular at the moment, but they have great potential to come back in future.