Category Archives: finance

The Double Whammy

The demands on a finance company are always changing, because regulations and customer needs are always changing. The modern finance company, then, has to be wholly adaptable. We of course know this is often not the case, which is why so many employees and clients are fed up.

Another fact of modern financial institutions is that a lot of their work is self-inflicted. The team who passes on dodgy data that another team has to clean up is causing work that isn’t really work at all but a side-effect of the system.

The double-whammy of our times is this: many financial institutions cause themselves a large amount of re-work and most cannot adapt to satisfy their regulatory or customer needs. Many institutions are therefore not only under-performing but severely under-performing.

Managers and executives must understand the double whammy if they are to understand how they can fulfill their potential.

Debt Ridden Europe 1920

In 1920 John Maynard Keynes wrote 'The Economic Consequences of the Peace' as a critique of the Paris Treaty which outlined the repayment plan for the damages done by the Axis during the First World War. Keynes pointed out that the damage claims were largely excessive and would bankrupt Germany within short order. Nevertheless debt ridden Europe looked to Germany for capital to rebuild their economies. The consequence was the inevitable collapse of the Reichsmark which drew the Weimar Republic in to the abyss with it. Some even argue that the economic collapse, and the consequent large scale poverty, put Germany with its back against the wall giving the Nazi party room to seize Power. Continue reading

Now Fuck Off

Funny & sad RT @energizr: Someone recently commented to me “we are agile now, we are using jira” Can it really be that fucked up out there?
Andy Pols on Twitter.

I am not immune to this sort of incredulousness.  I was at a meeting on Thursday evening, here in Holland.  It was open space and people, instead of proposing sessions, said a variation on this: I am new to agile, I want to find out how to you do x, y and z.  The whole thing reminded me of Monty Python’s 'Life of Brian'.  Brian is mistaken for a messiah and, to his distress, is pursued across the desert where he finally jumps into a hole, hoping to hide, but of course is discovered.  He challenges the crowd:

Brian: I'm not the Messiah!
Man in crowd III: I say you are, Lord, and I should know; I've followed a few!
Crowd: Hail Messiah!
Brian: I'm not the Messiah, would you please listen, I am not the Messiah, do you understand? Honestly!
Woman in crowd II: Only the true Messiah denies his divinity.
Brian: What? Well, what sort of chance does that give me? All right! I am the Messiah!
Crowd: He is! He is the Messiah!
Brian: Now, fuck off!

After a moment of silence someone in the crowd finally asks the question, 'How shall we fuck off, oh Lord'?

The most fucked up thing is that we expect too much from each other.  We are mediocre by nature, pre-programmed to avoid risk, pre-programmed to follow, and on top of that, pre-programmed to tell ourselves fairy-tales about the decisions we make.  Face this fact and incredulousness goes away.

Money doesn’t matter

money does not matter

Milton Friedman, 1970. 'A Theoretical Framework for Monetary Analysis', Journal of Political Economy, 78(2), p. 210

In a previous blog we discussed the role of gold in the monetary system. In doing so, the topic of inflation was touched upon. This blog will explain what inflation is and discuss its consequences. I will also discuss the current state of the economy, with its historical low interest, rising inflation and a quantitative easing policies. Continue reading

Eurobonds, is there even a choice?

Euro_banknotes

Robert Mundell noted, in January 1999, the following on the Euro-zone and its monetary system:

What about instability from within? Nothing can be completely taken completely for granted. Monetary union is supposed to be irrevocable. But it might not be in the face of a violent economic crisis. A real test would be its ability to hold itself together in the face of a drastic terms-of-trade shock such as that experienced in the 1970s when oil prices quadrupled. Dealing with a major economic crisis would probably require further deepening of the integration process. At the same time, however, the process of monetary union will itself be a catalyst for closer political union, quickly bringing to common attention the most fissiparous issues. These factors will greatly mitigate what would otherwise be a dangerous weakness.

http://www.columbia.edu/~ram15/lux.html

Continue reading

Super Taxman Wanted

Hemicycle

The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.

--Jean-Baptiste Colbert

As the euro debt crisis continues, the negotiations in Europe should focus on a homogeneous and centralised tax collection system with local governments guarding a responsible division of wealth. This would entail one European Tax Office that collects, for example 20% VAT and 30% income tax, throughout Europe. Each member state has its own account where the tax income from its population is deposited. Everybody pays tax, Greek fishermen, Dutch cheese makers, Germany factory workers and even euro politicians. This guarantees that everybody within the union contributes to a stable economy. Continue reading

Cutting Corners or Putting Holes in Things

Jamie wrote the other week about how specialism occurs and how it gives rise to corruption.  In this note, I’ll show how it gives rise to something else: money.  This is important for the engineer because it explains technical debt and the cost of change.  In fact, I will go as far to say that cutting corners leads to debt, and this is not a metaphor but a fact of history. Continue reading

101 Hedging Pension Fund Liabilities

Summary

Pension funds receive payments from their active participants, premium paying workers, on a periodic basis. The participants expect pension payments when they retire in return.  The payments are the pension fund's liabilities. The size of the liabilities fluctuates with interest rate movements. This risk should be managed by the funds, while remaining the ability to generate a return. How this can be done is explained here using a simple model based on duration. Continue reading