Must Read Article - Deconstructing Today's Ongoing Revolution In Finance

This article is from the always excellent John Mauldin, by Woody Brock.

Some of the better quotes:

...yes, there is a theoretically optimal value of contracts that ideally "should" exist: Incredibly, it is a number millions of times larger than today's value...This being true, the number of securities now in existence is a mere drop in the bucket of what is required for true economic efficiency to be reached.

...

Their impact far transcends the kinds of securities that are now created and traded, and is permitting new solutions to a broad array of financial and economic problems. As one example, our new found ability to securitize and repackage assets and to slice and dice risk has led to a complete reconceptualization and utilization of leverage.

...

Even more fundamentally, without a complete set of hedging markets in which all agents can hedge all risks, the Invisible Hand of the market will fail to achieve an efficient allocation of all resources--commodities, services, and risk. This is Arrow's main theorem. In brief, if you believe in capitalism, in markets, and in the Invisible Hand, then you had better sing the praises of today's revolution in finance. For it has brought us closer than ever before to the idealized economy of the text book.

Why We Do Not Behave Like Human Beings - Albert Nocks Philosophy of Mass Men

"All the animals come out at night - whores, skunk pussies, buggers, queens, fairies, dopers, junkies, sick, venal. Someday a real rain will come and wash all this scum off the streets."

Travis Bickle - Taxi Driver

In Taxi Driver, one of the best American movies, Travis Bickle's alienation from society has violent results. He lashes out at his own irrelevance by purchasing several guns and going on a rampage. His attempt to kill a politician fails and he ends up killing a pimp instead. Like vigilante Bernie Getz, Bickle ends up an odd hero when his intentions are interpreted by the public to be noble.

Surely there is better way to deal with the undesirable members of society without growing frustrated by their unchanging self-destructive nature. In Nock’s Memoirs of a Superfluous Man he discusses his own change in philosophy that insulated him from the idiocy of the mass men.

Ralph Adams Cram’s nearly unreadable essay Why We Do Not Behave Like Human Beings, makes a simple proposition – “that we do not behave like humans because the great majority of us, the masses of mankind are not human beings.” Of course, physically they are men, and yet they are mindlessness, selfishness, and rely mainly on brute instinct. They have all the raw material to be considered man and yet they remain sub-human - as if civilization has eluded them.

Acceptance of this view had great results for Nock – he expected mass men to act that way and he was never disappointed. He says:

Since then I have found myself quite unable either to hate anybody or lose patience with anybody…One can hate human beings, at least I could, - I hated a lot of them when that is what I thought they were, - but one can’t hate sub-human creatures or be contemptuous of them, wish them ill, regard them unkindly…If cattle tramp down your garden, you drive them away but can’t hate them, because you know they are acting up to the measure of their psychical capacity.

My acceptance of Mr. Cram’s theory also caused me for the first time to really like people-at-large…when one gets it fixed firmly fixed in one’s head that they are living up to the measure of their capacities to the point of making themselves as human beings, one comes at once to like them.

One has great affection of one’s dogs, even when one sees them reveling in tastes and smells which to us are unspeakably odious. That is the way dogs are, one does not try to chance their peculiar penchant…

So there you have it – the mass men and their habits are not a group to be scorned or hated. They do all they are capable of. Expecting their, “virtues to be touched with nobleness,” is too much.

Weekend Reading - That Which is Seen, and That Which is Not Seen

A Bastiat classic from 1850. Its depressing in that it could have been written yesterday. It means 150 years of the ascent of man and capitalism in lockstep has not advanced economic debate very much at all.


“Your arguments are fashionable enough, but they are too absurd to be justified by anything like reason.”

“They would gladly suppress the capitalist, the banker, the speculator, the projector, the merchant, and the trader, accusing them of interposing between production and consumption, to extort from both, without giving either anything in return. Or rather, they would transfer to the
State the work which they accomplish, for this work cannot be suppressed.”

"Directed by the comparison of prices, it distributes food over the whole surface of the country, beginning always at the highest price, that is, where the demand is the greatest. It is impossible to imagine an organization more completely calculated to meet the interest of those who are in want; and the beauty of this organization, unperceived as it is by the Socialists, results from the very fact that it is free. It is true, the consumer is obliged to reimburse commerce for the expenses of conveyance, freight, store-room, commission, &c.; but can any system be devised, in which he who eats corn is not obliged to defray the expenses, whatever they may be, of bringing it within his reach?”