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Banbury Cross

a pillow for lost thoughts...

Archives for: June 2012


Any time I come back from the West - I feel like my soul has just taken a good shower. All the dirt has been washed away and clean sheets await - courtesy of the combined magic of high mountains, picturesque valleys, blue skies, simpler people and relatively pristine nature. The feeling of organic cleanliness is unmistakable. This is the world where land is not framed by industry or agriculture, but rather by its wild horses, by its soaring eagles and the open spaces in between.

And nowhere is the allure of open spaces as palpable as in the seemingly infinite prairies of North Dakota.

They seem comfortingly close and intriguingly distant at the same time. Like a slowly undulating green ocean. In fact, they are an ocean. A vast and living sea of grass that fills you with the same sense of wonder as sitting at the Jersey shore. You just wish you could hop on the nearest schooner and set sail across the green plain, guided only by stars, ancient spirits hovering above the prairie and your sense of adventure.

Most people do not think of North Dakotans as a great sea faring nation. But that's what they really are. When I was driving on Interstate 94, I had to make a quick stop at a rest area not very far from Bismarck. As I was strolling around and stretching my arms, I could not help noticing a rugged strapping trucker with XXL sized beard who was checking some stuff around his semi. And I swear, he looked just like Sinbad the Sailor about to set out on his voyage across the Pacific Prairie.


The Immigration Issue

Politicians have an amazing ability to becloud an otherwise clear sky beyond all meteorological recognition. Give them a simple choice and a few "Lobbying Welcome" signs and in a few weeks they will turn a legislative no-brainer into a spaghetti bowl of conflicting regulations, obscure edicts, executive orders, prohibitory statutes and arcane ordinances all intertwined in such confounding manner that it would take five armies of clairvoyant constitutional scholars to figure out what's right and what's wrong.

Take the issue of immigration, for instance. On the surface it looks like a reasonably clear cut matter. Either we think it is legal for people to just saunter into this country at will or it is not. There is no middle ground. There is no point just trying to make it somewhat legal or somewhat illegal or in general discourage immigration by instructing enforcement officers to frown and glower at the entry booth. This is a simple yes or no question. Are unauthorized border crossings within the law or not.

I am not saying that either variant has a moral high ground, because I see pros and cons on either side, but we should choose one and stick with it. If entering the country without permission is legal, then we should stop harassing throngs of prospective immigrants and make moving into this country as easy as moving from Alabama to Arkansas. On the other hand, if it is not legal then we should simply make sure that violators of the law will face consequences. For the Number One superpower which has placed a man on the moon and which can wage drone based surgical strikes half way across the globe it should be no problem to seal up the southern border and make sure that any new immigration is done in a controlled fashion. If we need more labor of a certain type, I am sure we can increase the appropriate quotas.

But such dichotomy would be too simple. Politicians hate transparency. They love murky waters where they can set up the traps of palace intrigue and flaunt their wheel greasing and elbow rubbing expertise. Rather than saying which variant they'd prefer, they keep dancing in the gray area, creating targeted pardons and temporal exceptions and a climate in which grand horse trading thrives. Imagine we'd apply the same standards to say stealing: Hear Ye! Hear Ye! Henceforth it will be deemed beyond the law to pilfer private property from other citizens, except on New Year's Eve and maybe also on Tuesdays as long as the name of the pilferer begins with "P". Just imagine the legal havoc.

While the political system flails in a legislative limbo, a motley crew of potential new Americans is pouring into the country day in and day out, whether through the Port Authority or through the Sonoran desert. The colorful crowds contain a varied mosaic of people: foreign experts with critical skills, gangs of drug traffickers hoping to expand their nefarious networks, hard working laborers on a quest for a decent job, gimmigrants whose one and only goal is leeching off the welfare system, stranded family members looking to reunite with their kin. The bandwagon teems with motives and aspirations, with schemes and visions. But the saddest part is that without clear and enforceable laws we won't be able to separate the good from the bad.

Clouds of Glass


any time clouds percolated above the horizon
large crowds gathered on a high plateau
all decked up with trumpets and motley hats
and bringing wines and crackers to the party

when the clouds rolled high above their heads
some pointed short and shiny harpoons in the air
some turned up their palms as if moisture was imminent
some cupped their hands around ears and started listening

sounds became hushed and muffled
as the clouds were getting closer
and closer
and closer
and closer
and when they were almost too close to each other
a faint clinking sound nicked the silence
and all the clouds just shattered

down comes the queen of morrow
and fills my glass with brandy
the time is yours to borrow

and streams of dust are swirling
and bells of rain are ringing
and apple trees are growing

paw pads of restless tigers
may touch those few still waiting
night tucks in smiles and whispers

and dreams


Waiting for a Financial Einstein

Towards the end of the 19th century, the towering edifice of science, by then well grounded in Newtonian mechanics, seemed consummated, plausible and self-consistent. But as the ever restless gang of physicists started plowing the elusive electromagnetic field, hairline fractures started showing up in its polished walls. The mathematical development of the underlying theory spurred by the barrage of high precision experiments began exerting significant strain on the foundations of classical mechanics. Soon it became clear that in order to reconcile the old with the new, the fundamental notions of space and time will need a serious adjustment. However, tweaking the statements and definitions within the existing schema created more problems than it solved. Scientists educated in the classical ways could not divorce themselves from the shadows of status quo. Lots of duct tape was expended to hold the teetering structure together but none was good enough to provide permanent relief.

Fast forward to 1905. Enter 27 years old clerk from the Swiss Patent Office named Albert Einstein. Unencumbered by the previous dogma, his mind could freely set sail on the vast ocean of imagination, guided only by the positions of the stars rather than by man made navigational structures. In his Special Relativity he boldly demolished the increasingly confusing labyrinth of ad hoc fixes and empirical constants and based his overall vision on two simple principles.

The Principle of Relativity - the laws of physics should be the same when expressed in coordinate systems that move with respect to each other with constant velocity.

The Principle of Invariant Light Speed - light propagates in empty space with a fixed and definite velocity which is independent of the motion of the body which emits it.

There. Instead of hectic, chaotic and mutually contradicting scribbles, two masterful strokes of a brush. Armed with only these two simple propositions and some relatively straightforward geometry Einstein laid foundations to of all of the 20th century physics. The survival of his theory on the boisterous seas of modern science (hundred years and counting) is the best testimony to the effectiveness of his sleek logical design.


These days, the banking system is floundering in a quagmire similar to the one physics was stuck in 100 years ago. Bound by the regulatory straight jacket, constantly undermined by rampant greed, conflicted by competing interests and helplessly overwhelmed with complexity, the system is on the verge of crumbling under its own weight like a bridge made out of reinforced corn flakes. Things are not helped by the fact that the central pillar of the whole structure, the US Federal Reserve Bank, was designed just a few years after Einstein published his ground breaking paper and it is not clear whether it still reflects the needs of the highly interconnected world or whether it was hijacked to serve the needs of a few. Viewed from the ground, the global financial system looks like a giant plumbing fixture whose sole purpose is to transfer wealth from productive sectors to financial centers.

Over the past few centuries, economists managed to create a veritable Babel tower of capital ratios, credit derivatives, currency swaps, collateral obligations and other obscure mumbo jumbo. No one - and that clearly includes CEOs of major banks - can even begin to understand all of its implied feedback loops. A brand new paradigm is obviously needed. Not a patchwork of regulations and exceptions which are being piled on top of each other without regard for consequences, but rather a clearly formulated framework which would benefit most citizens of this planet.

Something like this.

The Core Business of Banks is Lending - the primary purpose of banks is to match people who have extra money (i.e. capital) with entrepreneurs who have solid business ideas (i.e. people who can put that money to the best use).

People control the money - every now and then it may happen that existing money stock needs to be expanded. In such situations the power to print money rests with the people and they are the primary beneficiaries of such action

The first postulate defines the purpose of the financial sector. At least of the part that is protected by the central banking system. Banks are merely matchmakers. That is the function that is socially useful and as such should be protected. And if a group of wizzards - whether from Goldman Sachs or JP Morgan - wants to have fun in the cassino and do some proprietary trading on the side - sure - they can create their own hedge fund and gamble away to their heart's content but without implicit or explicit backing by taxpayers.

The second one refers to the crucial issue of who exactly has the power to print money. If Joe Sixpack prints or copies a $100 bill in his garage, he goes to jail, because he has to earn that money. So why would give a small group of financiers and bureaucrats a license to counterfeit our currency for their own purposes? The power to create money out of thin air can lead to enormous wealth whether it is implemented directly though the actions of the central bank or indirectly through a sleight-oh-hand known as Fractional Reserve Lending. In a democratic system, one would expect that any unbacked expansion of the money stock would be done in a way that supports all participants of the economy, and by extension all people. Not just those who managed to elbow their way into positions closest to the monetary spigot.

Bankers are not humanitarians and they are not supposed to be. They have a legitimate business and are perfectly entitled to make money off of it. It is up to us - or more precisely up to our elected representatives - to set up a system which will not only prevent abuse but also ensure that the evaluation and assessment of risks can be done in an efficient way. But instead of searching for the grounding principles, we are drowning in a sea of random details and expedient measures which are only good for creating thousand page monstrosities such as the Dodd Frank Financial Reform.

Now I am obviously not an expert, so I am not saying that the two postulates above should be at the heart of the new financial charter. What I am saying is that someone knowledgeable should come forward and lay out a simple and clear blueprint for a system that would respect the principles of fairness and functionality. Perhaps we could even have several competing visions. But the important point is that those visions should be formulated through a small set of transparent principles, rather than amendments to the current financial jungle. Which - as anyone knows by now - is neither fair nor functional.

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