Archive for the 'Welfare' Category

A taxonomy of bank failures

I hereby present John’s Not Particularly Innovative Taxonomy Of Bank Failures ™.  In increasing order of severity:

Category 1) A pure liquidity crunch — traditionally a bank run — when, by any measure, the bank remains entirely solvent and cash-flow positive;

Category 2) A liquidity crunch and insolvent (assets minus liabilities excluding shareholder equity is negative) according to market prices, but solvent according to hold-to-maturity modeling and cash-flow positive;

Category 3) A liquidity crunch and insolvent according to both market prices and hold-to-maturity modeling, but still cash-flow positive;

Category 4) A liquidity crunch, insolvent and cash-flow negative, but likely to be cash-flow positive in the near future and remain so thereafter; and, finally,

Category 5) A liquidity crunch, insolvent and permanently cash-flow negative.

A category 1 failure is easily contained by a lender of last resort and should be contained: the bank, after all, remains solvent and profitable. Furthermore, a pure liquidity crunch, left unchecked, will eventually push a bank through each category in turn and, more broadly, can spill over to other banks. There need be no cost to society of bailing out a category 1 failure. Indeed, the lender of last resort can make a profit by offering that liquidity at Bagehot‘s famous penalty rate.

A category 2 failure occurs when the market is panicking and prices are not reflecting fundamentals. A calm head and temporarily deep pockets should be enough to save the day. A bank suffering a category 2 failure should probably be bailed out and that bailout should again be profitable for whoever is providing it, but the authority doing to bailing needs be very, very careful about that modeling.

For category 1 and 2 failures, the ideal would be for a calm-headed and deep-pocketed private individual or institution to do the bailing out. In principle, they ought to want to anyway as there is profit to be made and a private-sector bailout is a strong signal of confidence in the bank (recall Warren Buffett’s assistance to Goldman Sachs and Bank of America), but there are not many Buffetts in the world.

Categories 3, 4 and 5 are zombie banks. Absent government support, the private sector would kill them, swallow the juicy bits and let the junior creditors cry. If the bank is small enough and isolated enough, the social optimum is still to have an authority step in, but only to coordinate the feast so the scavengers don’t hurt each other in the scramble. On the other hand, if the bank is sufficiently important to the economy as a whole, it may be socially optimal to keep them up and running.

Holding up a zombie bank should optimally involve hosing the bank’s stakeholders, the shareholders and the recipients of big bonuses. Whether you hose them a little (by restricting dividends and limiting bonuses) or a lot (by nationalising the bank and demonising the bonus recipients) will depend on your politics and how long the bank is likely to need the support.

For a category 3 failure, assuming that you hold them up, it’s just a matter of time before they can stand on their own feet again. Being cash-flow positive, they can service all their debts and still increase their assets. Eventually, those assets will grow back above their liabilities and they’ll be fine.

For a category 4 failure, holding them up is taking a real risk, because you don’t know for certain that they’ll be cash-flow positive in the future, you’re only assuming it. At first, it’s going to look and feel like you’re throwing good money after bad.

A category 5 failure is beyond redemption, even by the most optimistic of central authorities. Propping this bank up really *is* throwing good money after bad, but it may theoretically be necessary for a short period while you organise a replacement if they are truly indispensable to the economy.

Note that a steep yield curve (surface) will improve the cash-flow position of all banks in the economy, potentially pushing a category 5 bank failure to a category 4 or a 4 back to a 3, and lowering the time a bank suffering a category 3 failure will take to recover to category 2.

In which I defend ‘Girls Around Me’ and Public-By-Default in general

For those people that don’t know:  A few days ago John Browlee discovered and wrote about an iPhone/iPad app called ‘Girls Around Me‘.  The app does a mash-up of publicly accessible data from Facebook and foursquare, together with Google Maps, to show you girls that had checked in to locations near where you are and some information about them.  John was not amused:

[T]he girls (and men!) shown in Girls Around Me all had the power to opt out of this information being visible to strangers, but whether out of ignorance, apathy or laziness, they had all neglected to do so. This was all public information.  […]

“It’s not, really, that we’re all horrified by what this app does, is it?” I asked, finishing my drink. “It’s that we’re all horrified by how exposed these girls are, and how exposed services like Facebook and Foursquare let them be without their knowledge.” […]

This is an app you should download to teach the people you care about that privacy issues are real, that social networks like Facebook and Foursquare expose you and the ones you love, and that if you do not know exactly how much you are sharing, you are as easily preyed upon as if you were naked.

Picking up on John’s piece, Charlie Stross took the ball and ran with it, extrapolating out into the truly horrific:

It’s easy to imagine how we could make something worse than “Girls Around Me”—something much worse. Facebook encourages us to disclose a wide range of information about ourselves, including our religion and a photograph. Religion is obvious: “Yids Among Us” would obviously be one of the go-to tools of choice for Neo-Nazis. As for skin colour, ethnicity identification from face images is out there already. Want to go queer bashing? There’s an algorithm out there for guessing sexual orientation based on the network graph of the target’s facebook friends. It’s probably possible to apply this sort of data mining exercise to determine whether a woman has had an abortion or is pro-choice.

In the worst case, it’s possible to envisage geolocation and data aggregation apps being designed to facilitate the identification and elimination of some ethnic or class enemy, not only by making it easy for users to track them down, but by making it easy for users to identify each other and form ad-hoc lynch mobs. (Hence my reference to the Rwandan Genocide earlier. Think it couldn’t happen? Look at Iran and imagine an app written for the Basij to make it easy to identify dissidents and form ad-hoc goon squads to proactively hunt them down. Or any other organization in the post-networked world that has a social role corresponding to the Red Guards.)

Not surprisingly, people freaked out.  Foursquare pulled the app’s access rights to their data, Apple pulled the app from the iTunes store altogether and — no doubt to the great relief of people like John and Charlie — a lot of people started talking about internet privacy in an era of social networking (e.g. a BBC News article).

Both John and Charlie emphasise that their concern is not with the app itself, per se, but with the approach to privacy (public by default) built-in to social networking websites’ very business plans that allowed the app to exist in the first place.

I want to defend that approach to privacy.

Let me repeat the first bit of that John Brownlee quote:

[T]he girls (and men!) shown in Girls Around Me all had the power to opt out of this information being visible to strangers, but whether out of ignorance, apathy or laziness, they had all neglected to do so.

Here is Marie Connelly, one of the girls that John apparently had around him, in response to the whole kerfuffle:

I have a problem [with this], because I’m not ignorant, apathetic, or lazy.

I’ve made a choice to participate publicly in the internet. I try to be careful about what I make accessible and what I share with everyone, and for the most part, I think I’ve found a balance that works pretty well for me. […]

The whole tenor of this, however, has been that if you are in this app, if you have been posting information publicly, especially if you’re a woman, you’re doing something wrong. […]

Checking in at your office, or a coffee shop, or The Independent (which is a great bar, by the way), whether publicly or not, doesn’t mean you’re “asking” to get stalked, or mugged, or anything else. People generally don’t ask for bad things to happen to them, and by and large, I don’t really believe anyone deserves to have something bad happen to them.

Kashmire Hill captured the same point in her excellently titled post, “The Reaction To ‘Girls Around Me’ Was Far More Disturbing Than The ‘Creepy’ App Itself“:

  • All men are creepy stalkers looking for new digital aids to help them catch and rape women.
  • All women are damsels-in-distress who have no idea how much danger they are exposing themselves to with every Foursquare check-in.
  • “You’re too public with your digital data, ladies,” may be the new “your skirt was too short and you had it coming.”

Those are my takeaways from the past week’s furor over “Girls Around Me.” […]

Many of us have become comfortable putting ourselves out there publicly in the hopes of making connections with friends and with strangers, whether through Facebook, Twitter, or OKCupid. It’s only natural that this digital openness will transfer over to the ‘real world,’ and that we will start proactively projecting our digital selves to facilitate in-person interactions. (For example, KLM is now allowing passengers to link their digital identities to their seats on the plane so that people can choose seatmates accordingly.) […]

In rejecting and banishing the app, we’re  choosing to ignore the publicity choices these women have made … in the name of keeping them safe … If you extend this kind of thinking ‘offline,’ we would be calling on all women to wear burkas so potential rapists and stalkers don’t spot them on the streets and follow them home.

I’m sorry, my friends, but I think apps like ‘Girls Around Me’ are the future … We don’t fear making connections with strangers; we crave it. […]

Yes, think about your privacy settings. They’re important. But critics, also remember that some of us have thought about our privacy settings, chosen accordingly, and don’t mind showing up on geo-mapping apps. We’re not all damsels-in-distress going pale at the thought of being seen in public places and digital spaces.

I couldn’t possibly agree more.

I’m happy to require by law that all websites that gather personal information give plain-English explanations of how your information might be used under each setting.  I’m also happy to be very, very angry at Facebook for changing their policy in such a way as to change your settings from “keep this private” to “make this public” after you made an explicit choice (although, to be fair, social networks are still a new industry and should consequently be granted at least some leeway for their frequent adjustments).

But there’s a much bigger topic here.  Whether or not public exposure has negative consequences is a social norm, based on co-ordination effects.  It’s socially acceptable in America for girls to wear bikinis at the beach, for girls in France to go topless at the beach and for people to use mixed-sex saunas and public showers throughout Germany and the Scandinavian countries.  It’s not as though they have massive rates of rape or sexual abuse.

The reason I see no problem with apps like ‘Girls Around Me’ is because I believe they represent the emergence of a new social norm that supports and encourages the public sharing of information about yourself, perhaps even a step towards David Brin’s Transparent Society.  Disagree with me?  Well, I would argue that of those people that (a) are doing it; (b) don’t realise they’re doing it; and (c) would actually care if they were to discover they’re doing it, the vast majority are over the age of 30.  In other words, this is a generational development.

Here’s an excellent example of that generational change.  Earlier this year the NY Times wrote about teenagers’ new habit of sharing their passwords with their (boy|girl)friends:

Young couples have long signaled their devotion to each other by various means — the gift of a letterman jacket, or an exchange of class rings or ID bracelets. Best friends share locker combinations.

The digital era has given rise to a more intimate custom. It has become fashionable for young people to express their affection for each other by sharing their passwords to e-mail, Facebook and other accounts. Boyfriends and girlfriends sometimes even create identical passwords, and let each other read their private e-mails and texts. […]

In a 2011 telephone survey, the Pew Internet and American Life Project found that 30 percent of teenagers who were regularly online had shared a password with a friend, boyfriend or girlfriend. The survey, of 770 teenagers aged 12 to 17, found that girls were almost twice as likely as boys to share. And in more than two dozen interviews, parents, students and counselors said that the practice had become widespread.

Knowing their audience, though, they couldn’t help being a little worried about it (and, of course, nothing sells newspapers like sex):

Rosalind Wiseman, who studies how teenagers use technology and is author of “Queen Bees and Wannabes,” a book for parents about helping girls survive adolescence, said the sharing of passwords, and the pressure to do so, was somewhat similar to sex.

Sharing passwords, she noted, feels forbidden because it is generally discouraged by adults and involves vulnerability. And there is pressure in many teenage relationships to share passwords, just as there is to have sex. […]

Ms. Cole’s mother, Patti, 48, a child psychologist, said she believed her daughter would be more judicious now about sharing a password. But, more broadly, she thinks young people are sometimes drawn to such behavior as they might be toward sex, in part because parents and others warn them against doing so.

“What worries me is we haven’t done a very good job at stopping kids from having sex,” she said. “So I’m not real confident about how much we can change this behavior.”

Speaking of sex and intergenerational concerns, this whole affair reminds me enormously of a post I wrote back in 2008 about the increasing public acceptability of sex for it’s own sake:

These developments are not without their concerns. Sara Montague – a presenter on BBC Radio 4′s Today programme – is clearly concerned, noting that much of the movement seems grounded in the hope of empowerment and self-confidence, but worrying that this serves indirectly to promote eating disorders among girls and the acceptance of rape among boys.

The main problem that Montague faces is that for most people, embracing public sexuality is non-harmful – not every girl gets an eating disorder and not every boy contemplates forcing himself on a girl – and is undertaken by choice. Montague is, in essence, faced with Douglas Adams’ cow that wants to be eaten. […]

By all means work to increase support for those burdened excessively by concerns of body image. By all means increase support to rape victims and ease the ability of the state to bring those guilty to justice. But that doesn’t mean we should fight to stop it altogether if people choose it freely and feel that it helps them, or even if they just enjoy it.

Anyway, that brings me back to ‘Girls Around Me’.  It — and other apps like it — really are designed to be fun, to let Kashmir and people like her make connections with strangers.  Yes, of course Facebook and Foursquare can be used by creepy stalkers and Rwanda 2.0 ethnic cleansers.  So what?  I have a 20cm Global Cook knife beside me right now.  I could use it to cut chunks out of hipsters, but that doesn’t make it flawed by design.  My credit card can be used to fund the KKK, but it’s also useful for other stuff, too.  There’s nothing wrong (and there should be nothing illegal) with having information.  It’s only when somebody acts on information in a manner harmful to others that we should care.  ‘Girls Around Me’ was about sharing information; how people act on that information is up to them.

Let me finish with this incredibly relevant and, as ever, excellent comic from xkcd:

To what extent should the media mention that somebody is from a minority?

It turns out that Tim Cook, the new CEO of Apple, is gay.

Felix Salmon suggests that this makes him the most powerful gay man on earth (an idea of which I am sceptical – surely at least one head of state among all the nations of the world has been queer at some point) and that the media ought to be celebrating this fact, or at least making mention of it:

Personally, I don’t care.  Why should I?  Fundamentally, the only relevant facts are those that inform me about his ability to do his job, and knowing whether he’s a member of ethnic group X, holds religious view Y or is turned on by Z is of no use in that regard.

In a completely post-bigotry world, those things might (or might not!) be included in a puff piece that wanted to tell you about Tim Cook, the man, as a sort of background colour (“raised a Catholic, Mary-Anne’s atheism was a source of family friction in her early adulthood, but …”), but they’d play no part in people’s opinion of him as a manager and so would never appear in a serious article about the future direction of whichever company he works for.

Salmon’s point, I believe, is that (a) we’re not in a post-bigotry world and so there is a lead-by-example case for publicising Cook’s sexuality in the same way that people discussed that Hillary Clinton is female and Barack Obama is black; and (b) even if we were, the media is going out of its way to make no mention of it even in the puff pieces, that it’s going out of its way to self-gag and so, ironically, subtly reinforcing the closet.

I dunno.  I think that stuff like this is only relevant to public discourse — even puff-piece writing — if at some point it helped shape the subject’s motivations in life.  Furthermore, I believe that for at least some queer people now, and eventually for all of them, their sexuality (will have) played absolutely no role in shaping their motivations in anything other than who to look for in a partner.

As such, I’m instinctively sceptical of a need to draw attention to it.  Not even the puffiest of puff pieces would spend time discussing people’s preferences over ice cream flavours unless the subject made a point of bringing up their obsession with chocolate-mint.

When it comes to playing a role as a societal leader, I can’t help but feel that it’s up to Mr. Cook to decide for himself.

Dani and I rewatched “Good Will Hunting” last night.  I think there’s a parallel with the kid who’s a genius.  I always get angry when Ben Affleck’s character (the well-meaning, but idiot friend) tells Matt Damon’s character (the genius) that “you don’t owe it to yourself man, you owe it to me … ‘Cause I’d do fuckin’ anything to have what you got. So would any of these fuckin’ guys. It’d be an insult to us if you’re still here in 20 years” [IMDB].  It’s Rawls’ veil of ignorance turned arse-end backwards.  It’s also complete rubbish.

I can see a moral argument for why Rawls’ veil implies that society at large should help people who drew particularly shitty numbers, but why should any one individual be required to do something just because they drew a particularly awesome number?  The whole goddamn point of Rawls’ veil is that nobody consents to it in the first place and so, as a society, we ought to not force people into the pigeon-hole that the lottery put them in.  Just because you were born into a poor family doesn’t mean you have to stay poor.   Just because you’re black doesn’t mean you have to like basketball.  Just because you have an IQ of 180 doesn’t mean you must do research.  Messers Affleck and Damon need to reread “Brave New World”.

Nobody can deny that Barrack Obama is black, but the extent to which he makes speeches to the black community declaring that they can be black, proud and successful is entirely up to him.  People working to bring about racial equality might feel he has an obligation, but he really doesn’t.

If Tim Cook wants to try to improve the acceptance of gay people in society at large, he can, but the idea of saying that he ought to just because he’s gay himself is illiberal.

France is set to ban the burqa and niqab

The French Senate has passed the bill after the General Assembly (lower house) did in July.  From that HuffPo piece in July:

Officials have taken pains to craft language that does not single out Muslims. While the proposed legislation is colloquially referred to as the “anti-burqa law,” it is officially called “the bill to forbid concealing one’s face in public.”

It refers neither to Islam nor to veils. Officials insist the law against face-covering is not discriminatory because it would apply to everyone, not just Muslims. Yet they cite a host of exceptions, including motorcycle helmets, or masks for health reasons, fencing, skiing or carnivals.

I’d really like to read a literal translation of the bill.  I’m curious whether it effectively also bans this sort of thing or this sort of thing.  Do French citizens have a right to privacy?  Wouldn’t this bill violate such a right?

Why I (probably) oppose the RMT’s strikes at London Underground

Here is a quick, dirty and poorly-written explanation why I (probably) oppose the RMT’s strike action at London Underground:

The Tube, like most public services, is a monopoly.  As such, Transport for London (TfL) has pricing power and the ability to extract economic rents from consumers.  To whom would those rents flow?  There are three possible groups:  Capital owners (bonds), Capital owners (equity) and Labour (the suppliers of the stuff, not the political party).

The owners of capital in the form of bonds have no ability to insist on being paid economic rents because they cannot credibly threaten to walk away.  There are plenty of other (institutional) investors that are perfectly happy to step in and receive the low interest rates paid by TfL because TfL has the backing (implicit or otherwise) of the UK government and investors value that security.

The sole owner of capital in the form of equity is the UK government.  They have no desire to extract economic rents.  Indeed, they have an incentive to keep economic rents to a minimum because their existence is, on net, welfare-destroying for Britain as a whole.

That leaves the suppliers of labour.  If no TfL worker was unionised, then individual employees would be unlikely to be able to insist on receiving economic rent (i.e. a wage in excess of the value of their marginal product).  By being unionised, however, the employees have collective bargaining power and are therefore able to insist on economic rents.  They can do this because they can credibly threaten to stop the tube from working.  The current strikes are a demonstration of the credibility of any future threat.

There are two further issues to consider, however.  First:  what if without the union, workers would be unfairly exploited — paid less than the value of their marginal product?  If this were the case, the increased bargaining power of unionisation would be justified as it would offset the exploitation.  This is not a problem, however, because the owner of the Tube — the UK government — is not a a profit maximiser.  It is a (zero-profit seeking) service maximiser.  They have literally no incentive to pay less than the employees are genuinely worth.

Second:  what if, when paid the value of their marginal product, TfL employees end up with incomes that are less than the cost of living?  Once again, this fails as an argument for unionisation of TfL workers.  It is the job of the government to guarantee a living wage to all workers across the country, regardless of their job.  If TfL employees are concerned about this, they should be canvassing for an increase in the national minimum wage, not insisting on a higher wage just for themselves.

Therefore, to a first approximation, there is no justification for the unionisation of (and hence, no justification for the strike action by) London Underground employees.