Pater Familias

TWO YEARS. I began this blog two years ago today. I want to thank Annalisa and Lee Bryant again for giving it to me. And thanks to all of you who have helped and encouraged me with it.

A RATING AGENCY FOR LIQUIDITY. Financial institutions have relied on rating agencies to evaluate the credit-worthiness of financial instruments. Now that it has been dramatically shown that credit-worthiness is different from being liquid, perhaps there should be a rating agency for liquidity. Of course, I think everybody’s going to be a lot more cautious about liquidity–for a few years.

HEANEY—BOG PEOPLE. Seamus Heaney has special meaning for me because of his poems about bog and peat. (The Sidestep essay I linked to yesterday refers to Heaney’s “obsession with peat bogs.”) I have long thought of my ancestors on both sides as bog people. My father was primarily Irish and my mother was primarily Danish. Seamus Heaney writes of Ireland, but he begins his poem on the bogman, Tollund man, in Aarhus, which is the city in Denmark where my mother’s people lived. Our family went to an exhibit on bogs at the Norwalk Aquarium some years ago. The kids thrilled to the exhibit on the bogey man, the bog man, with one of Heaney’s poems posted on the wall. There was a peat fire, giving off the only peat smoke I have ever smelled. I still imagine the smell of that peat fire when I drink Laphroaig.

Here is a link to Seamus Heaney reading “Tollund Man”, which begins;
“Some day I will go to Aarhus
To see his peat-brown head….

THE GLAMOUR OF “STANISLAVSKY AND SOCIAL PROTEST.” In TIMEBENDS Arthur Miller refers to “that thirties mixture of Stanislavsky and social protest which was the real glamour to me.” I think that it is the Stanislavsky part of the mixture that Als forgets. Miller saw ALL MY SONS in terms of the repressed emotions and guilt that Stanislavsky’s methods could show. He applauded the original casting of Ed Begley as Keller in ALL MY SONS “because he was a reformed alcoholic and still carried the alcoholic’s guilt. Keller is of course a guilty man, although not an alcoholic; thus traits could be matched while their causes were completely unrelated.” Miller justifies a plot twist in ALL MY SONS that was attacked as involving implausible coincidence on the grounds that the plot twist has meaning in terms of the emotions in the play. It symbolizes “the return of the repressed.”

DELEVERAGING. The weekend editions of the Financial Times and the Wall Street Journal both have articles which cite the need of hedge funds to raise cash to meet current and possible future requests for redemptions as one of the factors leading to the sudden drops in the markets that we have seen. This article from two weeks ago by Robert Samuelson describes the scale of deleveraging that could be required. (You can think of deleveraging as the flip side of increasing liquidity— by reducing debt rather than raising cash). I am going to quote a couple sentences in case you don’t want to register for the article: “Large parts of the financial system are too thinly capitalized and too dependent on unreliable short-term debt. Leverage ratios often reached 30 to 1 for investment banks and hedge funds (that is, $30 of debt for every $1 of capital).”

BARNEY FRANK AND LEARNED HAND ON VOTING. Back over forty years ago, the problem that it is irrational to make the effort to vote was attracting a lot attention, especially among graduate students in government. Learned Hand was quoted often on the meaninglessness of his vote: “My vote is one of the most unimportant acts of my life; if I were to acquaint myself with the matters on which it ought really to depend, if I were to try to get a judgment on which I was willing to risk affairs of even the smallest moment, I should be doing nothing else, and that seems a fatuous conclusion to a fatuous undertaking.” (quote from thinkexist.com) At the time, Barney Frank was a graduate student in government, already known for his wit. His comment on Hand was reported to me several times: “If I were a judge on the Second Circuit Court of Appeals, voting would also be one of the most unimportant acts of my life.” Of course, Barney Frank is now a Congressman, and voting in a general election is one of the least important acts in his public life.

BUY AND HOLD. Burton Malkiel wrote an important book on the economics of the stock market, now in its 9th edition: A RANDOM WALK DOWN WALL STREET. (Annalisa commented on the randomness of the stock market here.) In today’s Wall Street Journal, Malkiel writes that investors should not try to time the market and that by his calculations investors who moved money in and out of equity mutual funds between 1995 and 2007 underperformed buy-and-hold investors by three percentage points. He urges younger investors who save regularly to continue to buy equities. He urges investors approaching retirement to rebalance their savings annually, and points out that, since equities are down and bonds are up, rebalancing will lead to purchasing more equities. He says this even though he predicts that “We will have a serious recession now.” Of course, as I have been pointing out, you need enough cash to live on before you can buy and hold.

BORROWING SHORT AND LENDING LONG—REVISITED (KIDS, PLEASE READ). Kids, I am writing today’s posts because they apply to people too, as I will explain tomorrow. Six months ago I posted here about the problems that a bank has if there is a run on the bank, with short term lenders refusing to lend to the bank or demanding their deposits back. At the time Bear Stearns had been unable to withstand such a run. Next, it turned out that another major investment bank, Lehman Brothers, and a major insurance company were unable to deal with a run. And then there were others. Traditionally banks have held a percentage of their assets in liquid assets, as a cushion against a run. Meyer Burstein defined in MONEY defined liquid assets as “assets which can be converted with little expense at short notice into means of payment.” If you have borrowed short to lend long, and there is a run, and you don’t have enough liquid assets, you may never get the chance to hold on long enough to benefit from your long-term assets. You will either have to sell some long-term assets at a loss or find another investor or go bankrupt.

LEARNING HOW TO CHOOSE HOW AND WHAT YOU THINK. After David Foster Wallace’s tragic suicide, the Wall Street Journal reprinted much of his commencement address at Kenyon College in 2005. One of the points that Wallace made was that: “[L]earning how to think really means learning how to exercise some control over how and what you think. It means being conscious and aware enough to choose what you pay attention to and to choose how you construct meaning from experience.” He suggests that a liberal arts education is a good way to deal with boredom because it teaches you to think interesting thoughts. I think his examples indicate that he does not have in mind the kind of languorous ennui that is found in Chekhov. Rather, he seems to be talking about frustration—the kind of frustration that results from being delayed in doing things we really want to do—traffic delays and chores like grocery shopping. He emphasizes that this kind of thing is inevitable—now that we don’t have personal servants—and that we have to prepare to live with it. Wallace also suggests that the value of a college education is that it enables us to empathize with others and thereby avoid frustration. He says that because of a college education: “I can choose to force myself to consider the likelihood that everyone else in the supermarket’s checkout line is just as bored and frustrated as I am, and that some of these people probably have harder, more tedious and painful lives than I do.” It is interesting that for Wallace, developing empathy is difficult and complicated, requiring years of education.

WHEN I FIRST WORE SCRUBS. I am astonished to learn that clean scrubs for hospital workers are not routine. Twenty-four years ago when Annalisa was born, I was provided with scrubs before I went in the delivery room, and it seemed a matter of course. I remember the green smock, clean hat and clean booties because I quickly put the hat on one of my shoes, and then couldn’t make the rest of the outfit come out right.