Readings: Bank run in Second Life, GMO’s Grantham, Cut in lending rates?
- Wall Street Journal: Cheer Up, Ben: Your Economy Isn’t As Bad as This One
In the online game Second Life, a shutdown of the make-believe banking system is causing real-life havoc for thousands of people.
Yesterday, the San Francisco company that runs the popular fantasy game pulled the plug on about a dozen pretend financial institutions that were funded with actual money from some of the 12 million registered users of Second Life. Linden Lab said the move was triggered by complaints that some of the virtual banks had reneged on promises to pay high returns on customer deposits.
Real banks have steered clear of the make-believe world so far, partly out of concerns that interacting with avatars could cause them to run afoul of federal “know your customer” rules, which are meant to prevent money laundering.
Unreally unreal.
- Via Paul Kedrosky, Jeremy Grantham @ GMO: The Minsky Meltdown and the Trouble with Quantery
(free reg. reqd)
My extreme prejudice has always been that only the relatively rare major events matter. The rest of the time you show up for work, worry about the details, and hold the clients’ hands.
U.S. house prices were in a genuine bubble, a 2-sigma 40-year event, that would need either a 30% price decline or 6 years of flat prices allowing for incomes to catch up or some other combination. (Now it is a 25% decline or 5 flat years.)
Since quants measure risk more precisely and continuously than ordinary mortals, they become the frontline troops in a Minsky Meltdown: volatility rises, their ‘risk’ – typically entirely (although inappropriately) based on volatility – is seen by them as rising above their target, and they immediately reduce it. Unfortunately all their leveraged competitors do the same.
The extremely difficult objective is to maintain the advantages of quant discipline 95% or so of the time and hand over to a human being when you reach the edge of the cliff.
Excellent article - try to read it in its entirety.
- Morgan Stanley on India: Time for a Meaningful Cut in Lending Rates?
We believe that the relatively high level of lending rates has already resulted in a sharp reduction in consumption growth. This is evident in the consumer goods production growth, which has decelerated sharply to 3.2% during the three months ended November 2007 from the peak of 18.5% in June 2005.
The leveraged spending by households has already declined sharply, as reflected in two-wheeler sales, consumer durables production and mortgage lending growth.
. . . even as private capex has picked up significantly to an estimated 13.7% in F2007 from 5.9% in F2003, infrastructure capex has improved at a relatively slower pace, to 4.2% in F2007 from 3.5% in F2003. We believe that infrastructure spending should be 7-8% of GDP to sustain 9%-plus GDP growth.
Despite this view of “high” interest rates, money supply growth continue to be in the 15-20% range.
Related Posts:
