Tag: credit crunch

Liberal democracies of the modern world based on lightly regulated capitalism acknowledge two mechanisms of accountability – the marketplace and the ballot box.

Power is a duty, not a prize, is probably the most important reason why some countries in the world are rich and others poor. The point needs to be brought home in equal measure to legislators, chief executives and bankers.

The crippling consequence of inability to admit error is the impossibility of learning from past mistakes.

There is not, and never will be, an economic theory of everything. We should observe empirical regularities and we will often find pragmatic solutions that work even though our understanding of why they work is incomplete.

To choose appropriate models you need to understand both the maths and the business environment. Media industries and financial institutions have both been unsuccessful in marrying these two skills.

Our capacity to learn from the Great Depression is limited because we do not know how economies would have evolved after 1938 if politics had not supervened.

No one wants bank managers to be replaced by civil servants. But there are a lot of perfectly competent bank managers out there, even if there are a lot of incompetent bank executives.

It is true that professional reputations are not what they once were, that self-regulation of standards of competence has often been inadequate, that professions’ ethical standards have declined generally. But it is also striking that such decline is most noticeable in the areas of law and accountancy closest to financial services.

Diversified financial conglomerates are a bad idea. Shareholders become victims of the organisational tensions that follow, customers suffer the resulting conflicts of interest, and taxpayers see government guarantees used as collateral for speculative trading.

Diversification is a matter of judgment not statistics. A model will tell you only what you have already told the model and can never replace, though it can enhance, an understanding of market psychology and the factors that make for successful business.