Revisiting Great Expectations: Part 1

The start of the affair
25 July 2008

I have always had a soft spot for Great Expectations, Charles Dickens’s final masterpiece, which I first read as a set text for my English Literature GCSE. Most of the books I had to read for English class at school were somehow made much less enjoyable by the simple fact that it was being “taught” to me. However, Great Expectations was one of the few exceptions (Animal Farm, Lord of the Flies and maybe Watership Down were others that I managed to enjoy).

Part of the reason would be because the list of books selected by the teachers was a travesty. Even now, when I think I may have reached something approaching a literary sense that was supposed to be nurtured at school, I still cannot fathom why some totally forgettable wastes-of-paper were forced on us, and many classic English authors such as Austen, Bronte, Chaucer and so on, inexplicably excluded. I had to discover these authors by myself later in life. I suppose I should consider that a blessing given how unappreciated they would be had I encountered them at school.

Thank goodness though, that I was at least introduced to Great Expectations, which just about made up for the sabotage of English teaching in school. Indeed, it was the reason that I did much better than expected in my English Literature GCSE exam. I am certain that my essay on the changes in Pip’s character through the book was far ahead of my own time. None of my other friends dared to attempt that question, and to discuss something as subtle as regret, alluding to various points in the text when the adult Pip’s guilt and reproach punctuated the narrative, means it remains my finest attempt at literary criticism to date.

Even though I hated English as a subject at an immature 15 years of age, Great Expectations has always held its place in my heart. I remember actually wanting to do the required reading and homework instead of bluffing my way through class. I even dared to read ahead some chapters occasionally, braving the kind of scorn that 15-year old boys reserve for pansy literary types. Looking back, Great Expectations was the first novel that brought out the inner sensitive and sentimental teenager in me. I think that was exactly the kind of reaction Dickens was aiming for.

It must be hard to write a novel with such strong autobiographical elements and strike a balance between nostalgia and indulgence in condemning past errors given the gift of hindsight. Pip’s character is given a sort of hypothetical sympathy, which is correlated with the reader’s life experience. This is why Great Expectations not only stands the test of time with every reread, but seems to grow up with you.

My baby is back!

Fixed the computer at last, and no data was lost. It is now taking pride of place in the living room, as it should in my opinion. But there is always the tradeoff between sharing and privacy…

Defend not the indefensible

Can we all just be friends?

Making up for it

This piece appeared in another student newspaper, which tries to be the FT for students. I think it’s an OK attempt, but quite out of date by the time I wrote this.  

Even school bells can’t save you now
23 February 2008

When the world starts falling apart, further education is one escape. Too many people hunting too few jobs creates a sellers’ market and you have little choice but to take what you can get. Going to university is a bit like buying a European call option (giving the right, but not the obligation to buy at a set price on the option expiry date). You pay a premium – tuition fees – betting that you will be “in the money” when the economy recovers (hopefully by the time you graduate!) and firms begin selling themselves to potential recruits again. However, 2007’s global credit crunch touched even this hitherto solid insurance plan.

A student loans agency in the US recently suspended one of its programmes because of troubles involving auction-rate securities. These debt products offer floating interest rates, determined at regular intervals through auctions. Student loan companies liked auction-rate securities because they are normally a cheaper way of raising financing than issuing standard long-term debt, for which sellers need to offer higher rates. Buyers saw them as relatively safe and almost as liquid as cash because of constant auctions, but with better returns than holding money. The market is worth an estimated $330bn (£165bn).

When demand in auctions is low, investment banks used to mop up excess supply by putting in supporting bids. However, the current financial turmoil has hit banks’ balance sheets, and auctions are collapsing because of a drop in liquidity. When an auction fails, the interest rate on the security jumps to a high, predetermined level, to compensate buyers. Issuers are also hurt by a feedback effect and are liable to pay punishing interest rates of as much as 20%.

Hundreds of auctions have already failed this year. Aside from low investor confidence and banks conserving cash, the ongoing “monoline” bond insurers saga has compounded problems. These companies sell insurance on bonds, but have been hit by the subprime losses, leading to their treasured top-notch credit ratings to be threatened. You can imagine what markets will think of bonds insured by a guarantor whose own credit rating is being questioned.

Attending university may be expensive, especially in the US, but it can also shelter students during recessions. If student loans dry up, it could cause long term damage to both individual careers and the economy. Current students in the UK have more reason than ever to thank their lucky stars.

(word count: 400)

Zero hour

Computer broken. IRL angst. Work starts.

Whither Entrepreneurship? (for LSE student newspaper)

I had vowed never to write for the university student newspaper. The standard of student journalism is almost invariably dire and my past experience of the people who work on the “official” student rag has never been positive. But on this occasion, it was a favour for a friend who was organising a big series of events about entrepreneurship, and asked me to write a personal view.

Whither entrepreneurship?
19th January, 2008

Announcing that one intends to be an entrepreneur would probably not gather so much awe and envy as questions over one’s grasp on reality. Most people are simply not going to be successful entrepreneurs, and in many cases, it was probably blindingly obvious in the first place. So is it pointless for students to think about “entrepreneur” as a potential career option?

It is not even very easy to define what an entrepreneur really is. First of all, the entrepreneur must have some new or innovative idea, which people are willing to pay for. But I think the crucial test has to be that the entrepreneur must have made money from creating some product or service. Just simple inventiveness is not enough. Nicola Tesla had a mind arguably even more brilliant than that of Thomas Edison, but Tesla was the far inferior entrepreneur. Although his alternating current was better for distributing electric power than Edison’s direct current, Tesla eventually died alone and penniless, while Edison founded the company we now know as General Electric.

Moreover, does one need to be a serial innovator to be considered a successful entrepreneur? Few product or service markets remain static. There are usually ways for competitors to improve either the entrepreneur’s original invention itself, or to better its marketing and distribution. Witness the current, very expensive, next-generation DVD format contest between Sony and Toshiba, which has done little good for either company, or consumers. But it underlines how serious the business of staying ahead is. Sony probably remembers when it lost the Betamax/VHS format war, another example of how just creating a superior product does not automatically equals entrepreneurial success.

Take the entrepreneur to be a creative inventor, a good businessman as well as consistently keeping ahead of rivals in both of those areas. The minimum set of skills required to be a successful entrepreneur would be a good business idea, capital to start selling the idea, and once the money is flowing in a certain determination to keep it that way. None of these on their own are sufficient, nor can they be ranked in order of importance, since deficiency in any one ultimately results in the failure to make money one way or another, which has to be the ultimate criteria for judging an entrepreneur.

But talent is not enough, unfortunately. Money begets money, and not all entrepreneurs are created equal. This is one area where I do sympathise with budding entrepreneurs. There exists a certain degree of market failure that inevitably denies some viable business ideas the chance to come to market. By definition, Capitalism systematically benefits those with higher initial endowments. It may not be optimal individually or socially, but even with its inefficiencies, Capitalism still rewards the individual above all others. It is that which makes it the political economy most suitable for entrepreneurship. It levels the playing field somewhat, and history suggests that there is probably no better time to be an entrepreneur than at present.

Ultimately, any entrepreneur will need one more skill: the ability to face unpleasant facts. This will tell him when not to be an entrepreneur; and just as importantly, when to quit. It is far too easy to amalgamate the entrepreneur and his business. It therefore very important sometimes to realise that some business failures cannot be prevented, and a good entrepreneur should be just as apt at spotting opportunities as unavoidable threats.

Finally, I am thoroughly sick of the clichés surrounding entrepreneurs. The archetypal entrepreneur is as thus: leaving formal education at an early age, never went to university, started out with the one shop, and finally amassing a fortune through nothing but hard work. This is hopelessly unrealistic and misleading. Most entrepreneurs fail, and there is a huge survivorship bias in reporting by the media. But the press cannot be blamed entirely for inflating expectations, as one cannot deny that success stories are invariably more uplifting to read. Only the truly spectacular failures are reported. This distorts incentives and creates a permanent excess of supply of entrepreneurs. However, from a social point of view, this is perhaps no bad thing: one can always rely on someone else to be creative. The invisible hand strikes again.

There is help available, such as prize money from student entrepreneurial competitions. This development is to be welcomed. The potential upside – cash, and the even greater wealth that such capital can give birth to; the satisfaction of achieving success through one’s hard work; even just the competitive thrill of beating other people (nobody said it was a forgiving sport). I am not an entrepreneur, and I cannot promise not to laugh if you should come out and declare your ambition to be an entrepreneur. But those who want to succeed bad enough will not need my blessing, nor will they have needed to read this essay to have already signed up to every advantageous opportunity available.

BV|Chess

Not as much rewriting needed this time, and that means I get a byline to myself, thanks to my editor’s kindness! It has been a good productive week, having two published articles. But I am sure I won’t always be writing about fun things like games and chess so I may well have to get down to some serious hard work next week.
Link

My first obituary

Bobby Fischer died – big news for the chess enthusiast in me. To my surprise, my editor suggested that I think of something to write about this, but with a financial angle. This was also a proper breakingview - the heady rush of stress, nervousness, creativity and excitement when you are on deadline is truly something. This was what I came up with in about 2 hours of thinking, researching and writing. 

Flash

The death of Bobby Fischer, a former world chess champion and considered the most talented player of all time, reminds us of a time when man could beat machine. In finance, however, the contest is not over yet.

Considered view

Bobby Fischer gave up chess at the height of his power and never tested himself against modern chess computer programs. Even with his brilliance, he may have had a tough time against chess computers today, which are now so strong that they have beaten the last two world champions, and remorselessly crush top grandmasters.

In finance too, increased computing power have allowed traders to create complex automated trading models, able to act on the smallest of profit opportunities in the markets. Smart quantum physics PhDs found a lucrative surge in demand for their brainpower from quantitative/statistical arbitrage hedge funds.

But in 2007’s summer market volatility, similar computer-driven strategies at quantitative hedge funds generated herding behaviour and lost money en masse. Some bankers jeered, saying that “common sense” would have prevented the problems. Even Jim Simons’ Renaissance Technologies, the envy of most quant funds, did not prove infallible. Its institutional equities fund has faced redemptions of some $4bn in recent months after losing 1% of its value in 2007, Renaissance’s first loss in nearly 20 years.

The match between computers and human talent is not finished in the world of finance. But those not wishing to be embarrassed by a computer in their leisure time may want to switch to go, whose complexity is still bamboozling computers, and their human programmers.

Context

Bobby Fischer, the former world chess champion, died on 18 January.

BV|SL: final

This is what became of my first draft. Almost nothing survived, although in hindsight, the editor probably did a good job. I simply failed to write something appropiate for our audience, making things far too complicated and geeky. Important lesson to be learned.

Link

First Draft

Done. Sacrificed a lot of sleep, but I think it will be enough to work on with the editor tomorrow.

Flash:
Online world fed up with virtual “banks”

If Ben Bernanke thought economics in real life was tough, he should spare a thought for the monetary authorities of one of the US’s trading partners, the virtual online economy of Second Life, which has dramatically banned all banks after a succession of crises.

Considered view:
A perfect storm, perfected

Ben Bernanke would have been forgiven a few months ago for envying the central bank of one peculiar small open economy, that of the online game Second Life. Its economic growth surpasses real world economies and the only scarce resources are the time and effort players are willing to invest.

The fiscal and monetary branches of domestic government are both controlled by Second Life’s creators, California based Linden Labs. Real life visitors to Second Life are served by a virtual currency, the Linden dollar, whose exchange rate is managed at around L$270 to US$1.

However, the game’s omnipotent creators will soon outlaw virtual banks. Counterparty risk tends to be high in virtual economies and fraudulent banks have destroyed the banking industry’s reputation in Second Life by taking money and running. Interest offered by banks on deposits have increased to thousands of percent, prompting complaints from users that banks were fundamentally insolvent and simply Ponzi schemes enriching those at the top of the pyramid.

Predictably, the ban’s announcement prompted a bank run and turns the financial sector from a laissez-faire playground to state control in a flash, which may not be so much fun – Second Life usage declined over 5% in November, and this crackdown on banks follows a ban on gambling. Differences in valuation and perception allowed users to speculate in markets, some to make money but some just for the fun of it. Many stock exchanges are also tied to interest-bearing banks, and fear that they too will soon be in Linden’s crosshairs.

Second Life may also be a victim of its own success. Its fiscal authorities have to run a budget deficit since presumably not all of its revenues from exchanging L$ for players’ real world currency is passed through in L$ injections into the virtual economy. Linden has to pay electricity and wage bills in real life after all. Since the monetary branch is required to finance the deficit by increasing the L$ supply by an equivalent amount, we may soon see speculative attacks on the exchange rate peg.

Real world central bankers have to balance economic growth and inflation, and perhaps maintain the odd fixed exchange rate. For all their powers, central banks of parallel worlds have to satisfy customers who also want security, innovation and fun.

(Word count: 381)

Context news:

From January 22, the online virtual world of Second Life will prohibit the offering interest or any direct return on an investment (whether in L$ or other currencies) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter.