Quotes of the day

... most true bargains are not available in large blocks.--Benjamin Graham

Every investment strategy has a limited carrying capacity, and those that exceed the strategy’s capacity are prone for a comeuppance. Here is today’s rule: There is no net hedging in the market. At the end of the day, the world is 100% net long with itself. Every asset is owned by someone, regardless of the synthetic exposures that are overlaid on the system. ... The phrase, “You can always refinance,” is a lie. There is never a guarantee that financing will be available on terms that you will like.--David Merkel

[Harry] Markopolos is an extraordinary character with a complex array of motives. A hard-nosed military reservist whose dad owned a diner in Erie, Pennsylvania, he first became aware of Bernie Madoff when his employer, an options-trading firm based in Boston, asked him to devise a financial “product” that could match Madoff’s returns. Markopolos couldn’t do it, and deduced that Madoff must be a crook. Thus began a failed decadelong campaign to arouse the interest of regulators and journalists. Pride and a sense of fairness, as much as anything, were the driving factors. For all this, Markopolos is not a mass-market figure. He’s too weird and off-kilter. At one point, after years of frustration, he admits that he “had worked out my plan to go to New York and kill” Madoff. But unlike the gung-ho pessimists who populate Lewis’s book, he’s no cynic. He’s a closet optimist, so he closes his book with a list of reforms needed to protect the world from future Madoffs. It doesn’t make for scintillating reading, but it displays an interest in something other than his own net worth, and in the context of Wall Street, that is heroic.--Hugo Lindgren

Why do policymakers screw up financial crises?” he said before I left his office. “They screw up financial crises because the politics are horrible, and that deters action. They are slow and late and tentative and weak because they are scared to death of the politics. But sometimes a policymaker has to say, I’ll take pain now against pain later.--Tim Geithner

Take President Obama’s first budget, released last year. In it, he assumed that most of the $600 billion coming from proposed cap-and-trade fees would be allocated to deficit reduction. A year later, his budget still assumes the revenue (even though the law is not yet passed), but all of it has been allocated to spending programs, not to reducing the deficit. A government that cannot commit fictional revenue to deficit reduction is unlikely to do so with actual money either.--Veronique de Rugy

Protecting consumers and breaking up large banks is fine. But neither will prevent banks from acting stupidly again. The surest safeguard is to ensure that, when they do, they aren’t up to their necks in debt.--Roger Lowenstein

Unfettered capitalism does not work, but over the past 300 years capitalism has created jobs and reduced poverty. To turn around and say that it is defunct is really a stretch. The banks didn't do anything illegal. It's completely simplistic to say that they are bad.--Dambisa Moyo

The largest silver mines in the Spanish empire were the Potosí mines, discovered in 1545 in what is now Bolivia. Exploiting the mines was dangerous, and in the late 16th century, the Spanish introduced the mita system of forced labour. Villages near Potosí were obliged to provide one-seventh of their adult male population to work the mines, and the mita system continued until its abolition in 1812. That is history. This is not: the former mita districts are 25 per cent poorer than apparently identical districts on the other side of a boundary that ceased to mean anything 198 years ago. A long-abolished colonial system has somehow shaped the modern world.--Tim Harford

Now I’m sure that you don’t ration the supply of the books you write according to any criteria as sordid as requiring people actually to pay for them. But our society is full of people less enlightened than you. For example, the typical worker rations his labor services according to who pays and who doesn’t. That must stop. Oh, and supermarkets! Every single one rations groceries according to who pays. Likewise with restaurants, clothing stores, home-builders, furniture makers, even lawyers! You name it, rationing is done according to who pays. Indeed, my own county government has been corrupted by this greedy attitude: if I don’t pay my taxes, the sheriff takes my house – effectively booting me out of the county merely because I didn’t pay for its services. Preposterous! I look forward to your changing this selfish and unfair system of rationing that for too long now has kept Americans impoverished.--Don Boudreaux

Such a badly designed health care bill would on the whole worsen rather than improve the American health care system, and it should not be allowed to slip by through the back door of reconciliation. So my conclusion is that the supermajority requirement of invoking closure to cut off Senate debate is useful protection not only to minorities, but also to overly hasty passage of controversial legislation. People on all positions will sometimes be frustrated by the need to have such a supermajority, but in the long run most of the time they will be happy that such rules are in effect.--Gary Becker

The absence of resolution authority has become as handy an excuse for the mess as any, like the lack of a League of Nations after World War I. When Paul Volcker surfaced as Obama's go-to guy, providing the sexy name for the plan to ban proprietary trading at banks, he seized on resolution authority as essential to making the sketchy scheme work, as if it were some sort of superglue. Now, even though the Volcker Rule has been lost on Chris Dodd's desk, resolution authority still glows in all its alluring, mysterious, opaque bureaucratese. ... Resolution authority, in short, is the Maltese Falcon of regulatory reform. What is this strange bird? Simply put (though nothing here is simple), it's the legislative authority to wind down a financial firm. In fact, this definition is about as far as anyone ever gets on the subject, except to add sagely that we're talking wind-down, not bankruptcy, which as we all know, despite General Motors, is an interminable process involving lawyers and thus to be avoided, like reading terrorists their rights. Resolution authority is fast, decisive, authoritative. Resolution authority means banks can fail in ways that don't upend the global economy, particularly its sensitive consumer parts. Past this point, details get murky. In its grandiose form (as if its normal form isn't ambitious enough), the mere presence of resolution authority will scare the crap out of stockholders, creditors and counterparties and make them do their job, which is insuring that banks don't go all suicidal, blow themselves up and force regulators to do their jobs. That may be wishful thinking. We're talking a plaster bird here, not a splinter of the True Cross.--Robert Teitelman

The term “high-frequency finance” has a deeper meaning and is a statement of intent indicating that research is data-driven and agnostic. There are no ex ante theories or hypotheses. We let the data speak for itself. In natural sciences this is how research is often conducted. The first step towards discovery is pure observation and coming up with a description of what has been observed – this may sound easy but is not at all the case. Only in a second step, when the facts are clearly established, do natural scientists start formulating hypotheses that are then verified with experiments.--Richard Olsen

China alone stands to have as many unmarried young men—“bare branches”, as they are known—as the entire population of young men in America. In any country rootless young males spell trouble; in Asian societies, where marriage and children are the recognised routes into society, single men are almost like outlaws.--Economist editorial board