Lending more money to real estate

A fine little list from a reader commenting on Fed Vice Chair Stan Fischer’s Lunch with the FT:

  • “What is wrong with lending more money into real estate?” Australian, Canadian, Swedish and Norwegian bankers now
  • “What is wrong with lending more money into the Chinese stock market?” Chinese banker pre-2015
  • “What is wrong with lending more money into real estate?” Chinese banker pre-2104
  • “What is wrong with lending more money into real estate?” Spanish banker pre-2012
  • “What is wrong with lending more money into real estate?” Irish banker pre-2010
  • “What is wrong with a NINA (no income, no asset) mortgage?” US banker pre-2008
  • “What is wrong with lending more money into real estate?” US banker pre-2008
  • “What is wrong with lending more money into real estate?” Japanese banker pre-1989
  • “What is wrong with lending more money into real estate?” UK banker pre-1989
  • “What is wrong with lending more money into real estate?” Australian banker pre-1989
  • “What is wrong with lending more money into real estate?” Canadian banker pre-1989
  • “What is wrong with lending more money into real estate?” Scandinavian banker pre-1989
Advertisements
Lending more money to real estate

The Googlememo

Interesting story on the explosive “anti-diversity” memo circulating inside Google:

“The person who wrote the document argued that the representation gap between men and women in software engineering persists because of biological differences between the two sexes, according to public tweets from Google employees. It also said Google should not offer programs for underrepresented racial or gender minorities”

And link to the full #googlememo :

“Philosophically, I don’t think we should do arbitrary social engineering of tech just to make it appealing to equal portions of both men and women. For each of these changes, we need principles reasons for why it helps Google; that is, we should be optimizing for Google—with Google’s diversity being a component of that. For example currently those trying to work extra hours or take extra stress will inevitably get ahead and if we try to change that too much, it may have disastrous consequences. Also, when considering the costs and benefits, we should keep in mind that Google’s funding is finite so its allocation is more zero-sum than is generally acknowledged.”

Will be interesting to see where this story goes from here.

 

The Googlememo

The myth of the Weightless Economy

FullSizeRender (4).jpg

An interesting interview with Bill Gates’ “favourite thinker”, Vaclav Smil on his book “Making the Modern World: Materials and Dematerialization.”

Smil is particularly scathing in his assessment of Silicon Valley’s contribution to “making the world a better place”:

“I wouldn’t put a big trust in what people in Silicon Valley say,” he says. “They may be good at manipulating ones and zeroes and writing software, but beyond that their contribution to human progress has been pretty dismal.”

When Bill Gates have had disagreements in the past with Mark Zuckerberg over the importance of poor countries’ access to internet vs basic human needs such as access to water or vaccines, his thinking is likely to have been influenced by Smil.

And nobody has done more to debunk the myth of the “Weightless Economy” – the theory that digitalization would lead to dematerialization – than Smil. While technology has enabled some relative dematerialization, this has not translated to any absolute declines in materialization on the global scale – as huge numbers of people in emerging economies have joined the global middle class and adopted more resource-intensive lifetyles.

As illustrated by the tripling of global paper even though we were supposed to be having paperless offices by now, (I am writing this post as a break from the tedious process of printing and scanning 80-odd pages):

“Some years ago, everyone was enthusiastic about the paperless office that would be made possible by the advent of word processing and computers. Well, it didn’t happen. The consumption of paper has tripled in the last 20 years.”

Another reason that dematerialization has failed to happen is because we simply produce so much bad stuff, and turn it over much more rapidly than before. A new iPhone may be lighter than a 1990’s-era Ericsson or Nokia, but it has a much shorter lifespan. Equally with cars, and probably houses too. Smil makes a simple but strong argument for producing more durable stuff:

The other obvious solution, Smil points out, “is to build the quality of longevity into products. There is no reason we can’t design a car to last for 35 years instead of six or seven. This is the core of the matter.”

While Smil is mostly focused on the macro level, his insights have implications on the company level too. In the textbook version of the weightless economy profit margins for technology firms with “scalable” business models should have been almost ever-increasing. But it has largely failed to happen. Even digital firms like Google and Facebook (with very high profit margins) are not nearly as dematerialized in practice as theory would have it, (which I intend to come back to in another post).

So what is to be done?

Well, Smil has no interest in playing God, and neither does he hold much belief in the many Messiahs popping up in Silicon Valley on an almost daily basis:

“I don’t propose,” he says. “I’m old fashioned. I’m not one of these young guys who think they are so smart that they can prescribe what humanity ought to do. Humanity never learns any lessons. Prescriptions don’t matter. We already know exactly what to do. We just don’t do it.”

The myth of the Weightless Economy

Good Reads

Good Reads

Norwegian traffic deaths approaching zero

New numbers from Statens Vegvesen (The Norwegian Public Roads Administration) show that road traffic deaths in Norway almost halved in June and July compared to the same period last year.

Which begs the question: Are traffic accidents in Norway about to be eradicated as a cause of death?

The preliminary numbers show that traffic deaths fell by 46 percent to 20 from 37 last summer (which was the highest number in the last five years):

  2017 2016 2015 2014 2013
June 12 15   9 18 16
July   8* 22 15 18 17
Total 20* 37 24 36 33

So far this year 57 lives have been lost in road traffic accidents, down from 84 in the first seven months of 2016.

If this trend continues 2017 may be the first year with less than 100 traffic deaths since 1947. According to the NPRA Norway has been ranked Europe’s best country for traffic safety with the lowest number of fatalities and the lowest risk of accidents for the second year running – (though they don’t specify by which agency).

(According to these numbers from the WHO several countries had lower road fatalities per 100.000 inhabitants per year than Norway (3,8) back in 2013, including Sweden (2,8), the UK (2,9), Denmark (3,5) and Spain (3,7).

While the NPRA report does not enquire into the causes of the decline in traffic fatalities, both the significant increase in infrastrucure spending started during the Stoltenberg government as well as strict enforcement of speed limits, including the proliferation of average speed controls over longer distances, may have explanatory power. The debate whether lower death numbers should mainly be attributed to better roads (with higher speed limits) or lower speeds are unlikely to be resolved anytime soon.

In any event, Norway is no at a point where the semi-Utopian vision of zero traffic deaths are within reach, (in theory at least), which certainly is feat worth celebrating.

However, there are trade-offs. What is the ideal number of traffic deaths in a society? 0? From a (coldly) utilitarian perspective the optimum number of traffic deaths in order to maximize societal (not individual) utility is probably above zero.

My anecdotal evidence suggests that average speed controls in Norway (over ~5-10km stretches) lead to significantly below limit speeds – with driving speeds below 60 km/h in 80 km/h zones for instance. Adding up for all drivers/passengers in the course of a year, that translates to substantial amounts of superfluous time spent/wasted in traffic.

The cost in terms of loss of economic activity is probably not insignificant. On a deeper more philosophical note it may be asked what a population driving along in 60 in 80 zones does to the long-term vitality of a nation?

 

 

Norwegian traffic deaths approaching zero

The Rise of the Trump Dynasty: Can Ivanka win in 2024?

Tyler Cowen linked to Edward Luttwak’s TLS review of a quartet of books on how Hillary Clinton managed to lose the election.

However, the book essay is more interesting for Luttwak’s speculation about the rise of a Trump Dynasty, with the prospect of eight years of Donald to be followed by eight years of Ivanka.

The idea is neither new nor original But given Luttwak’s reputation as an astute historian of the grand strategy of empires, from the Roman to the Soviet, it may well be worth giving him a fair if brief hearing. The Ivanka scenario may not be as outlandish as it sounds. I for example particularly liked the Ivanka 2066winner of Gideon Rachman’s hypothetical history exam in the FT. Written before the election, Jeremy Shapiro’s essay (to the extent this very unserious text can be taken seriously at all) assumed that Ivanka would win the presidency in 2036, even after her father’s loss in 2016.

No matter how unpopular President Trump becomes, Ivanka’s chances to reach the same office is likely to be higher than if her father had never become president. Even in the post-dynastic age political capital is remarkably hereditary, perhaps even more hereditary than financial or other forms of capital. And inter-generational political capital even seems to be remarkably resistant to scandal. It is certainly a topic which requires more careful study, but intergenerational political capital may possess antifragile properties and, to use Nassim Taleb’s words, be Lindy-compatible. For example, it is possible that by the time Napoleon III became President/Emperor the French only remembered/chose to pay attention to his uncle’s glories and not his failures. Likewise Park Geun-hye (daughter of Park Chung-hee), Aung San Suu Kyi (daughter of Aung San), Marine le Pen or several others. Even Imee Marcos (daughter of Ferdinand, provincial governor and potential future president) – proving that even the offspring of quite notorious (non-hereditary) dictators can make successful political careers.

What is certain is that Ivanka is already being groomed for the office. Following the le Pen playbook she can present a toned-down Trumpism with a human face. Being a woman may be an asset in this regard too, compared to her male brothers who are both political non-entities.

Despite the Trump administration’s obvious troubles, Luttwak sketches out a landslide scenario for 2020 – to what extent he actually believes in it himself or just tries to make a provocative argument I don’t know. In any case he rests his case for re-election on Trump’s $1,3 trillion infrastructure plan, if it can be converted to action:

“If the resulting employment generation kicks in fully by 2020, Trump will coast to re-election, especially if by then he can claim that the Mexican border is “sealed”,,”

Why infrastructure?

Of the four books Luttwak has reviewed, he only offers praise to one: Shattered: Inside Hillary Clinton’s doomed campaign by Jonathan Allen and Amie Parnes. The book convinced Luttwak:

“that Clinton did not understand in what country she was running for election: not one populated by black women (they dominated her convention), environmental activists, patriotic Muslims, vegans, committed free-traders and social engineers,,”

In reality, what Luttwak argues Trump and Bernie Sanders were the only two candidates to understand was that America is not a basket of deploarables but:

“A country of car owners and bitterly frustrated would-be new car owners,,”

And the problem in America, where car-ownership has long been the ultimate symbol of individual freedom, was that the median American could no longer afford a new car. Luttwak makes a persuasive, if somewhat Monday-morning-quarterbacking argument that:

“Had journalists studied the numbers (car affordability statistics published in June 2016) and pondered even briefly their implications, they could have determined a priori that only two candidates could win the Presidential election – Sanders and Trump – because none of the others even recognized that there was problem if median American households had been impoverished to the point that they could no longer afford a new car.”

While the maximum affordable price limits for a new car was $7,558 in Cleveland and $6,174 in Detroit, the cheapest new car on sale in the United States in 2016 was the Nissan Versa sedan at $12,825  – the failure of the American dream in one statistic.

…………………………………………….

Probably very few people feel the need or desire to read more books about the 2016 election. The good thing with multi-book reviews like this one from Luttwak is that you don’t have to either – the main arguments can be just as well summarised in a long-form review.

Apart from the Ivanka theory and car affordability statistics Luttwak make an interesting Chris Arnade-like observation of how: “candidate Trump positively relished his frequent stops at Domino’s, KFC and McDonald’s, where he went for Big Macs with a large order of french fries,” in contrast to uptight front-row politicians who pretend to enjoy their state fair hot dogs but who can’t wait to get back to their coastal quinoa salads.

Luttwak also interestingly contrasts the top-down centralized structure of the DNC, which significantly favoured the candidate of the elites (Clinton) over the people’s candidate (Sanders), with the decentralized bottom-up nature of the Republican Party, which made it liable to takeover from a non-party outsider like Trump, in a way that would probably have been unimaginable in the Democratic Party.

The Rise of the Trump Dynasty: Can Ivanka win in 2024?