The alchemists

By William Pfaff

Friday, May 23, 2008

PARIS: The global financial market has become "a monster," responsible for "massive destruction of assets," according to the president of Germany and former head of the IMF, Horst Kohler. It "grotesquely" remunerates its executives, he added.

According to Kenneth Griffin, founder and head of the $20 billion Citadel Investment Group - one of the biggest and most successful American hedge fund companies - international finance has been functioning on the judgment of "29-year-old kids" who "control the capital markets of America ... young guys right out of business school."

In the big banks that provide universal financial services, he said in an interview published in the International Herald Tribune, the chief executives often "only understand a part of the business."

In the celebrated case of the French bank Société Générale, it appears that the head of the bank had little idea what went on in its trading rooms, where a young man, eager to earn the approbation of his superiors and a larger bonus, made trades involving sums exceeding the total worth of the bank.

Griffin says his "tentative" conclusion is that the industry needs greater regulation. To the industry outsider, regulation is needed not only because of what the CEO does not know, but because of the discrepancy between reality and the academic market-models that provided the rationale for the vast deregulation of the global economy in recent years.

As viewed from universities, the international economy is thought to be composed of well-informed individuals and companies acting rationally in their own and their customers' best interests, maximizing profit opportunities, aware of risks and managing them prudently, committed to the integrity of the system upon which they and their national economies depend.

The academic model of commodities trading does not regard speculation as a problem because any anomalies are corrected by rational consumer reactions.

Paul Krugman wrote last week in the International Herald Tribune that if the world oil price had been quadrupled by speculation, "drivers would cut back on their driving; homeowners would turn down their thermostats; owners of marginal oil wells would put them back into production."

I'm sure they would. Industry would develop Canadian shale oil, the big oil companies would resume exploration (which they have neglected) and start building new refineries, General Motors and Ford would make smaller cars, and the Japanese and Europeans who already make small cars would have booming sales.

That's what happened in the wake of the 1973 OPEC oil price crisis, which was a deliberate oil producers' boycott. By 1982 the oil price was forced down.

That experience has nothing to do with the present situation. No market speculator intends to hoard his oil until the price goes up.

Speculative trading deals in points and quarter-points. You buy a contract if the oil price is moving up, and sell it three minutes later to someone convinced it will go higher. Traders buy their contracts and spread rumors suggesting increased shortage of the commodity (not too hard to do with nonstop financial TV, which lives by reporting every scrap of news affecting commodity or stock prices). When the price begins to move, the trader unloads.

Real or rumored problems in the Nigerian oil fields, political troubles for Hugo Chávez in Venezuela, Gazprom uncertainties - all have been the stuff from which trading fortunes are made.

Futures trading in commodities originally had a necessary role in stabilizing prices. As the financial frenzy of recent years took over the big banks, the markets obliged by creating derivatives and other new instruments of trade, while the futures market retained traditionally low margin requirements.

The Chicago commodities markets, the Mercantile Exchange and the Board of Trade, merged to form a new company in order to create new trading opportunities. The volume of this year's trades - now over a million a day - is already close to the total for all 2007.

As a general rule, the margin required to buy an oil futures contract is 10 percent. Pledge $10,000 and buy $100,000 worth of oil. Or why be a piker? Put up $100,000 and buy a million-dollar contract. The price goes up one dollar five minutes later and you've made a million.

These are not transactions between producers and consumers, when the classical economic rules would function. These trades, unregulated, have virtually no useful economic role. They have become a form of parasitical professional gambling that distorts the transactions between producers and buyers.

Kohler compared the speculative bankers with alchemists, who purported to make gold from dross. It is not a bad comparison, and our contemporaries have, thus far, done better than their medieval counterparts, who often ended burned at the stake.

Source: http://www.iht.com/bin/printfriendly.php?id=13161495

Nobody loves you like Mama does

By Garrison Keillor
Wednesday, May 7, 2008
The last time I witnessed a woman becoming a mother, it wasn't anything like the frilly sentiments of Mother's Day. She lay on her back, perspiring heavily and yelling, "Oh my God, why did you do this to me? I'll never forgive you in a hundred years. I hope you hurt like this someday. Give me another epidural, you sadists. And get this thing out of me!" and looking up at me as if she were burning at the stake and I had lit the fire. And when the Infant appeared and was placed on the Madonna's chest, she said, "What in the world am I supposed to do with that?"
It begins in innocence. Music is playing, the night smells of lilacs, she asks if he would like to come in for a minute, and he does, and little does she know what cataclysm awaits her inside: the loss of individuality as she joins the Holy Order of Maternity.
Mothers were, at one time, young women with possibilities who might have taken a different route and become glamorous and powerful figures in size-two dresses and instead found themselves cleaning up excrement and jiggling colicky babies to get them to stop screaming. They hardly ever get to London anymore or have time to read James Joyce. They sit down to dinner with adults and feel brain-dead. A bouquet of flowers hardly seems compensation enough. How about a million dollars and a house in the south of France?
My mother appears in a photograph of five young women in white summer dresses walking hand-in-hand, grinning, on a country lane near Cottage Grove, Minnesota, in 1932 when she was 17, not long before she met my father, and they all look so fresh and happy, as if in a careless paradise all their own.
She is willowy, shy and beautiful and she might've modeled evening gowns at Dayton's Sky Room and maybe been spotted by a Hollywood scout and wound up in pictures, playing the village girl who charms the world-weary tycoon stranded in Littleville by the blizzard.
Instead, she became a suburban pioneer, making a home in a muddy cornfield, putting up the stewed tomatoes and canned beans every fall, raising six children, slogging through bouts of mumps and flu, whomping up big Christmases, fishing the laundry out of the washing machine and putting it through the wringer and hanging it on the line. Is that what the smiling girl of 1932 had in mind?
The cruel injustice of motherhood is that, out of devotion to her brood, she sacrifices so much of her own life that her children grow up to find her a little boring in comparison to the maiden aunt who is a little rebellious and more fun to be around, whereas Mom is just the lady who runs the vacuum. As Erma Bombeck said, the kids walk in and ask her, "Is anybody home?"
But she loves you. You could come home with snakes tattooed on your face and she still would see the good in you. Most great men were mama's boys. She encouraged them long before anybody else could see any talent there.
Your mother is on top of the situation. Your father has a hard time remembering your birthday or even your Christian name, but your mother knows you by scent, thanks to years of doing your laundry. She knows when you're in trouble. And you will get into deep trouble someday. Count on it.
Someone will file a lawsuit against you and subpoena your e-mail and it will all come flooding out, your dark secrets, your nefarious dealings, and your friends will cross the street to avoid you and your brothers and sisters will fade into the woodwork, but your mother will still love you. Like an old lioness, she'll come running even if you're two thousand miles away.
That is why you pay homage to the old lady on Mother's Day. You entered this cold world causing her more pain than she thought possible and now she won't ever give up on you. Those old ladies you see being wheeled onto airliners are the mothers of children facing imminent indictment for terrible things. Mama will be in the courtroom for you, baby. She will look the jury in the eye and her look may get you acquitted.
Buy her something nice for Mother's Day this spring, like a set of gold ingots. Or a black car with a chauffeur. She's your mama, honeybuns. At least you could write her a note.


Source: http://www.iht.com/bin/printfriendly.php?id=12652559

Can you become a creature of new habits?

By Janet Rae-Dupree
Tuesday, May 6, 2008

Habits are a funny thing. We reach for them mindlessly, setting our brains on auto-pilot and relaxing into the unconscious comfort of familiar routine. "Not choice, but habit rules the unreflecting herd," William Wordsworth said in the 19th century. In the ever-changing 21st century, even the word "habit" carries a negative connotation.

So it seems antithetical to talk about habits in the same context as creativity and innovation. But brain researchers have discovered that when we consciously develop new habits, we create parallel synaptic paths, and even entirely new brain cells, that can jump our trains of thought onto new, innovative tracks.

Rather than dismissing ourselves as unchangeable creatures of habit, we can instead direct our own change by consciously developing new habits. In fact, the more new things we try — the more we step outside our comfort zone — the more inherently creative we become, both in the workplace and in our personal lives.
But don't bother trying to kill off old habits; once those ruts of procedure are worn into the hippocampus, they're there to stay. Instead, the new habits we deliberately ingrain into ourselves create parallel pathways that can bypass those old roads.

"The first thing needed for innovation is a fascination with wonder," says Dawna Markova, author of "The Open Mind" and an executive change consultant for Professional Thinking Partners. "But we are taught instead to 'decide,' just as our president calls himself 'the Decider.' " She adds, however, that "to decide is to kill off all possibilities but one. A good innovational thinker is always exploring the many other possibilities."
All of us work through problems in ways of which we're unaware, she says. Researchers in the late 1960s discovered that humans are born with the capacity to approach challenges in four primary ways: analytically, procedurally, relationally (or collaboratively) and innovatively. At puberty, however, the brain shuts down half of that capacity, preserving only those modes of thought that have seemed most valuable during the first decade or so of life.

The current emphasis on standardized testing highlights analysis and procedure, meaning that few of us inherently use our innovative and collaborative modes of thought. "This breaks the major rule in the American belief system — that anyone can do anything," explains M. J. Ryan, author of the 2006 book "This Year I Will..." and Markova's business partner. "That's a lie that we have perpetuated, and it fosters mediocrity. Knowing what you're good at and doing even more of it creates excellence."

This is where developing new habits comes in. If you're an analytical or procedural thinker, you learn in different ways than someone who is inherently innovative or collaborative. Figure out what has worked for you when you've learned in the past, and you can draw your own map for developing additional skills and behaviors for the future.

"I apprentice myself to someone when I want to learn something new or develop a new habit," Ryan says. "Other people read a book about it or take a course. If you have a pathway to learning, use it because that's going to be easier than creating an entirely new pathway in your brain."
Ryan and Markova have found what they call three zones of existence: comfort, stretch and stress. Comfort is the realm of existing habit. Stress occurs when a challenge is so far beyond current experience as to be overwhelming. It's that stretch zone in the middle — activities that feel a bit awkward and unfamiliar — where true change occurs.

"Getting into the stretch zone is good for you," Ryan says in "This Year I Will... ." "It helps keep your brain healthy. It turns out that unless we continue to learn new things, which challenges our brains to create new pathways, they literally begin to atrophy, which may result in dementia, Alzheimer's and other brain diseases. Continuously stretching ourselves will even help us lose weight, according to one study. Researchers who asked folks to do something different every day — listen to a new radio station, for instance — found that they lost and kept off weight. No one is sure why, but scientists speculate that getting out of routines makes us more aware in general."

She recommends practicing a Japanese technique called kaizen, which calls for tiny, continuous improvements.

"Whenever we initiate change, even a positive one, we activate fear in our emotional brain," Ryan notes in her book. "If the fear is big enough, the fight-or-flight response will go off and we'll run from what we're trying to do. The small steps in kaizen don't set off fight or flight, but rather keep us in the thinking brain, where we have access to our creativity and playfulness."

Simultaneously, take a look at how colleagues approach challenges, Markova suggests. We tend to believe that those who think the way we do are smarter than those who don't. That can be fatal in business, particularly for executives who surround themselves with like-thinkers. If seniority and promotion are based on similarity to those at the top, chances are strong that the company lacks intellectual diversity.
"Try lacing your hands together," Markova says. "You habitually do it one way. Now try doing it with the other thumb on top. Feels awkward, doesn't it? That's the valuable moment we call confusion, when we fuse the old with the new."

AFTER the churn of confusion, she says, the brain begins organizing the new input, ultimately creating new synaptic connections if the process is repeated enough.
But if, during creation of that new habit, the "Great Decider" steps in to protest against taking the unfamiliar path, "you get convergence and we keep doing the same thing over and over again," she says.
"You cannot have innovation," she adds, "unless you are willing and able to move through the unknown and go from curiosity to wonder."

Source: http://www.iht.com/bin/printfriendly.php?id=12604112

Who will tell the people?

By Thomas L. Friedman
Sunday, May 4, 2008
Traveling the United States these past five months while writing a book, I've had my own opportunity to take the pulse, far from the campaign crowds. My own totally unscientific polling has left me feeling that if there is one overwhelming hunger in our country today it's this: People want to do nation-building. They really do. But they want to do nation-building in America.

They are not only tired of nation-building in Iraq and in Afghanistan, with so little to show for it. They sense something deeper - that we're just not that strong anymore. We're borrowing money to shore up our banks from city-states called Dubai and Singapore. Our generals regularly tell us that Iran is subverting our efforts in Iraq, but they do nothing about it because we have no leverage - as long as our forces are pinned down in Baghdad and our economy is pinned to Middle East oil.
Our president's latest energy initiative was to go to Saudi Arabia and beg King Abdullah to give us a little relief on gasoline prices. I guess there was some justice in that. When you, the president, after Sept. 11, tell the country to go shopping instead of buckling down to break our addiction to oil, it ends with you, the president, shopping the world for discount gasoline.

We are not as powerful as we used to be because over the past three decades, the Asian values of our parents' generation - work hard, study, save, invest, live within your means - have given way to subprime values: "You can have the American dream - a house - with no money down and no payments for two years."
That's why Donald Rumsfeld's infamous defense of why he did not originally send more troops to Iraq is the mantra of our times: "You go to war with the army you have." Hey, you march into the future with the country you have - not the one that you need, not the one you want, not the best you could have.
A few weeks ago, my wife and I flew from New York's Kennedy Airport to Singapore. In JFK's waiting lounge we could barely find a place to sit. Eighteen hours later, we landed at Singapore's ultramodern airport, with free Internet portals and children's play zones throughout. We felt, as we have before, as if we had just flown from the Flintstones to the Jetsons. If all Americans could compare Berlin's luxurious central train station today with the grimy, decrepit Penn Station in New York City, they would swear we were the ones who lost World War II.

How could this be? We are a great power. How could we be borrowing money from Singapore? Maybe it's because Singapore is investing billions of dollars, from its own savings, into infrastructure and scientific research to attract the world's best talent - including Americans.

And us? Harvard's president, Drew Faust, just told a Senate hearing that cutbacks in government research funds were resulting in "downsized labs, layoffs of post-docs, slipping morale and more conservative science that shies away from the big research questions." Today, she added, "China, India, Singapore . . . have adopted biomedical research and the building of biotechnology clusters as national goals. Suddenly, those who train in America have significant options elsewhere."

Much nonsense has been written about how Hillary Clinton is "toughening up" Barack Obama so he'll be tough enough to withstand Republican attacks. Sorry, we don't need a president who is tough enough to withstand the lies of his opponents. We need a president who is tough enough to tell the truth to the American people. Any one of the candidates can answer the Red Phone at 3 a.m. in the White House bedroom. I'm voting for the one who can talk straight to the American people on national TV - at 8 p.m. - from the White House East Room.

Who will tell the people? We are not who we think we are. We are living on borrowed time and borrowed dimes. We still have all the potential for greatness, but only if we get back to work on our country.
I don't know if Barack Obama can lead that way, but the notion that the idealism he has inspired in so many young people doesn't matter is dead wrong. "Of course, hope alone is not enough," says Tim Shriver, chairman of Special Olympics, "but it's not trivial. It's not trivial to inspire people to want to get up and do something with someone else."

It is especially not trivial now, because millions of Americans are dying to be enlisted - enlisted to fix education, enlisted to research renewable energy, enlisted to repair our infrastructure, enlisted to help others. Look at the kids lining up to join Teach for America.

They want our country to matter again. They want it to be about building wealth and dignity - big profits and big purposes. When we just do one, we are less than the sum of our parts. When we do both, said Shriver, "no one can touch us."

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