Guy Berger

Debt-fueled consumption or consumption untethered from income or personal savings , is financially ruinous both individually and collectively . On an individual level , it is axiomatic that borrowing only makes economic sense if the borrowing is used to earn a return greater than the cost of borrowing . As there is no return on consumption , debt-enabled consumption today is purchased at the cost of reduced consumption and a reduced standard of living in the future . Collectively , debt-based consumption results in a grievous misallocation of savings away from economically productive investment of the kind needed to ensure future income growth and consumption . Substituting 'credit-fueled' for 'debt-fueled' in 'Debt-fueled consumption is not necessarily a problem' doesn't change anything either , for while the statement is true strictly speaking ( since grace periods allow disciplined consumers to avoid turning credit-based consumption into financed consumption ) , there would be no consumer credit industry if credit-based consumption didn't in practice become debt-based consumption . It looks like you're answering the question I posed on Christmas Day And it looks like you're saying that the consumer debt business is diverting resources away from more productive uses so that, had there not been a relaxation of credit restrictions in the early eighties, our economies would be better off than they are now, because they'd be able to produce more. But the paradox is that, without the easy credit, that production couldn't be sold, and so wouldn't be produced anyway. MG Well, we'd probably be able to consume more today, but at the cost of consuming less yesterday. But that's just stating a tradeoff, not an argument in favor of reallocating consumption to/from the future (which is what saving really is). Guy

As an economist, I am completely mystified by the distinction between "growth" and "value" stocks.

Instead, the former French bureaucrat was, metaphorically, at the bow when the waves of this year’s global credit squeeze came crashing down on the world’s economies. It was the first financial market crisis fought by BlackBerry from the beach. In possession of such a device but not yet using it, Mr Trichet’s response by fixed and mobile phone and old-fashioned fax was nevertheless swift and bold. As the ripple effects of the collapsing US subprime mortgage market caused global finance to seize up, the ECB announced it would unilaterally pump in unlimited overnight liquidity: in the end it added almost €95bn ($136bn, £69bn). Europe had been hit too early in the morning to allow proper consultations with Washington. “That tsunami that came across the Atlantic had a dimension, when it came to our borders, which was not the dimension it had at the beginning,” explains Mr Trichet. Initial shock at the unexpectedly radical intervention gave way to admiration of its steady hand. As the drama unfolded, the ECB appeared to be setting the pace among central banks. In the ultimate compliment, the venerable US Federal Reserve and Bank of England copied the tactics of an institution not yet 10 years old. Mr Trichet is one of the few to emerge from the turmoil with his reputation enhanced, leading the Financial Times to name him today as Person of the Year. It is true the crisis is not over. The eurozone may yet face a jolt as big as the public UK bail-out of Northern Rock or the US housing slump. The ECB’s initial actions have proved no panacea: financial markets remain on edge as the year ends. Last week the ECB pumped a record €348.6bn into the two-week money markets. But this year has seen the ECB smashing myths about its supposed clumsiness and has secured Mr Trichet’s position as senior prefect among the world’s central bankers. “Especially with Alan Greenspan [the former US Fed chairman] no longer around – Trichet is the most experienced central bank policymaker in existence, by some distance,” says Jim O’Neill, head of global economic research at Goldman Sachs. “The speed at which the ECB responded and its steady tone  . . . have been quite impressive.” “Fancy that at the time we had the reputation of being incapable of taking a rapid decision,” jokes Mr Trichet. It takes just 45 minutes to call a teleconference of its governing council. “The usual criticism,” says Andrew Balls, global strategist at Pimco, the asset manager, “is that the ECB did the right things but six months late. On this occasion they were the first to move.” August 9 was a day for which the silver-haired Mr Trichet, who turned 65 last week, had spent a career preparing. In his first four years at the ECB, his biggest decision was probably to test a still-shaky eurozone economy by raising eurozone interest rates in December 2005, after a pause of more than two years. But he learnt the ropes of global financial crisis management more than 20 years ago when he chaired the Paris Club meetings of international creditors. At the French Treasury he witnessed the 1987 Louvre Accord on shoring up the dollar – and had been at the helm during Europe’s early 1990s exchange rate crises. Mr Trichet was born in Lyons. His father and grandfather were both professors of Greek and Latin. His wife Aline, whose family is of Ukrainian origin, was the head of translation services at the French foreign ministry. Mr Trichet initially trained at university as a mining engineer and briefly worked underground in a coalmine in north-eastern France, later recalling his experience as interesting but tough. He can compare notes with Hans Tietmeyer, the former Bundesbank president, who did holiday work in mines. His experience led him to dally in leftwing politics; he joined the militant PSU political party, earning the nickname Justix after Asterix, the cartoon character, from friends for his defence of workers’ rights. But he quickly rejected his youthful flirtations. His path to the French elite started when he switched to economics and later moved to France’s Ecole nationale d’administration, graduating in 1971, fifth in his class. He then entered the ministry of finance and rose to become director of the Treasury in 1987. “One of his strengths is his ability to manage a crisis – he enjoys that,” says Olivier Garnier, an adviser to Mr Trichet at the Treasury in the early 1990s, now a senior manager at Société Générale Asset Management. Mr Trichet was always even-tempered but forceful in action: “His rules were: act fast, don’t work alone but build your contacts and use your international network of relationships.” Treasury colleagues recall him quoting Napoleon’s dictum “Un bon croquis vaut mieux qu’un long discours”, or “a good sketch is better than a long speech”, capturing the sense that it is better to act quickly. “He is interested in big ideas, strategy and negotiations. He is more a master strategist than a pure central banker sticking to the textbook,” says Mr Garnier. In 1993 Mr Trichet became governor of the Banque de France where he served for 10 years, forging close relations with Germany’s ultra-conservative Bundesbank. He faced criticism from French politicians, notably Jacques Chirac, then French president, for his defence of currency stability and the franc fort (strong franc) and for his veiled attacks on French budget deficits. Even so his credentials in asserting central bank independence made him a plausible candidate for Mr Chirac to nominate as head of the ECB. His progress was interrupted by a long public trial over the collapse of Crédit Lyonnais, the state-owned bank, and his role as Treasury head. His exoneration cleared the way for him to succeed Wim Duisenberg, the ECB’s first president, in November 2003. He arrived with a reputation as someone with diplomatic skills, adept at communicating to financial markets and with little air of French superiority. Mr Trichet has a passion for science, art and poetry – his “secret garden”, says Mr Garnier. The economics editor of L’Express, the French news magazine, once called him “the most cultivated civil servant in France”. He enthusiastically discusses Shakespeare’s sonnets, the works of Léopold Sédar Senghor (the late Senegalese president was a family friend) or François-René Châteaubriand, a pioneer of French romanticism. He regularly reads the Scientific American magazine. These cultural influences were given voice in a speech in the Netherlands in 2004 that was remarkable for a central banker, packed with cultural references and no economics. European integration was built on its diversity – and was richer as a result, he argued: “European-ness means being unable fully to understand my own country’s literature and poetry – Montaigne, Châteaubriand, Baudelaire and Mallarmé – without understanding Dante and Boccaccio, Cervantes and St John of the Cross, Shakespeare and Sterne, Goethe and Heine.” Underlying that speech was Mr Trichet’s fervent belief in European integration. The 1990s exchange rate crises strengthened his support for monetary union and he helped negotiate the 1992 Maastricht treaty, preparing for the euro’s launch seven years later. On a recent trip to Malta, he impressed officials with his enthusiasm for its 16th-century St John’s cathedral, with its individual chapels for each of the langues, or sections, of the knights of Malta. Mr Trichet saw the baroque building as a metaphor for Europe. The euro has this year built its international profile; the dollar’s fall has made it an increasingly plausible alternative reserve currency. Mr Trichet is proud of its success, insisting that he – not any politician – should be seen as “Mr Euro”. (“There is my signature on the notes,” he tells them.) Although at world gatherings the eurozone is still represented by a bus-load of politicians and its fiscal policy is decided in 13 capitals, Mr Trichet’s strength has been to give the ECB a powerful, unified voice. Using political skills honed in Paris, Mr Trichet has imposed discipline over ECB communication, a task not simplified by interacting in 21 languages. Governing council members have learnt not to stray far from the line he sets at his monthly press conferences, which remain an exception among central bankers. In French, Mr Trichet can be eloquent, gently ironic and humorous. Speaking English – the working language of the ECB – he is as animated if not as elegant. Still, ECB watchers observe a pleasing lyricism: he “ships” rather than sends messages to financial markets and does not “think about” or “reflect on” issues but “meditates”. Mr Trichet has not been afraid of controversy, calling for bold structural reforms to boost European growth. He “is a beacon of reform”, says Edmund Phelps, the Columbia university professor who won last year’s Nobel prize in economics. “He is right to stress the need for reform...It looks like it is going to be needed more than one might have thought.” Most resistance is encountered in Paris, where Mr Trichet is seen as being under the spell of the Bundesbank. Indeed Nicolas Sarkozy, France’s new president, has accused the ECB of being obsessed with fighting inflation at the expense of jobs and growth and of letting the euro soar to record levels. In response, Mr Trichet – as during his time in Paris – has stood firm, stressing the inviolability of central bank independence while shunning undignified slanging matches. “Trichet seems to have handled Sarkozy with the appropriate amount of disdain,” says Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. “It is evidence that the ECB has come of age; it is not inherently on the defensive.” His record in crisis management laid the foundation for the ECB’s response to the credit squeeze. Mr Trichet argues that the ECB’s effectiveness was the result of its “lucid” analysis: it correctly read the situation. Although some in financial markets argue that the scale of its initial action on August 9 simply exacerbated the crisis, creating an air of panic, in retrospect the scale of the banks’ difficulties has become clearer. The unlimited amount of liquidity available “was a positive sign of the ECB at least knowing where the problem lay”, says Marco Annunziata, chief economist at Unicredit. Mr Posen argues that the ECB has been “cleaner and more consistent” than the Fed in distinguishing between actions aimed at easing financial market tensions and its interest-rate strategy, aimed at combating inflation. Meanwhile, the Fed and the Bank of England have moved towards the ECB’s system of auctioning funds without applying a penalty rate to a broad range of banks and against a wider range of collateral. Mr Trichet makes much of the fact that he foresaw a market correction; he warned at January’s Davos world economic summit that investors should prepare for a “re-pricing” of assets. Even so, in its “war-gaming” exercises to prepare for financial crises the ECB never imagined a sequence of events spreading across so many markets. The ECB president has played events to the bank’s long-term advantage. In the US, Mr Greenspan won his place in the history books for his forecasting skills and understanding of the forces shaping American capitalism. The eurozone’s less dynamic economies require arguably less economic expertise. But Mr Trichet has as intimate an understanding of the cultural and political forces shaping Europe. His actions in 2007 – the year of the euro’s rise – have left the ECB with credibility and helmsmanship skills that will long outlast the current financial storms. Copyright The Financial Times Limited 2007

OK -- I don't think this contests the main thrust of the article, which is that in material terms inequality in this country is much lower than it was during the Gilded Age. Being poor in this country is tough, and "things aren't as bad as they were 100 years ago" would be a laughable excuse to avoid anti-poverty policy. Guy

I don't think I said anything about consumption being unproductive. Greater expenditure meets diminishing returns in terms of its welfare effect (this is what the Economist article correctly argues) and therefore can be avoided without serious welfare loss when there is a crisis; so it's unreliable and therefore contributes to instability. MG OK, won't disagree with anything you just said -- I misunderstood. Apologies. Guy

I've been enjoying his playing with Ben Webster over the past month or so. Superb. Guy

One thing to add -- Chas is 100% right that any consideration of welfare measures which disregards risk/volatility is highly flawed. If the median household now has superior consumption on average, but the distribution of possible consumption levels for that household is much wider, they could be worse off. Guy

A few things: 1) Consumption isn't necessarily subjectively-measured -- it's an economic statistic like income. 2) In principle, consumption is a better measure than income because people derive their welfare from what they consume, not from what they earn. It can also take into account that the basket of available goods isn't staying static over time. 3) That said, you are 100% correct that any sort of snapshot, static number will give at best an imperfect sense of economic well-being -- we care about the "stream" of consumption, not just consumption at any point in time. 4) Debt-fueled consumption is not necessarily a problem. The article itself -- well, I think it is fundamentally right that in strictly economic terms "material" inequality is much lower now than it was 150, 100, 50 years ago. I don't think this is the only important measure of inequality, but I do think it is important. Unlike MG expenditure on "unproductive" consumption doesn't really bother me.

No argument about that. I hope they won't slack off after Murdoch dilutes the WSJ. Guy

I know a frighteningly large number of people, including possibly some on this list, actually make investment decisions based on what this (entertaining) maniac says on his show, so please read this. Jim Cramer has a new book in which he advises most unsophisticated investors not to buy individual stocks, but rather invest in passive index funds. Also attached at the bottom is Henry Blodget's classic article for Slate, " Pay No Attention to That Crazy Man on TV". ------------------------------------------------------ Business Week: Jim Cramer: Mad No More? 2007-12-17 10:18 (New York) After years of manic rants and crazy antics on live TV, you might think Jim Cramer's shock value has worn off. How about this for a new surprise? Jim Cramer, sober-minded personal finance guru. It creates some contradictions. The hyperactive stockpicker on CNBC's Mad Money has a new book out advising most readers not to buy individual stocks at all. The man who says colleagues called him "Reverend Jim Bob Cramer of the Church of What's Happening Now" is now patiently investing his charitable trust for the long term. Proud of His Plea to Bernanke But is Cramer giving up the props, the sound effects, the temper tantrums, and the lightning rounds of off- the-top-of-his-head stock opinions? Is he a new, distaff version of Jane Bryant Quinn? Not a chance. His proudest moment of the year is an on-air tantrum in the middle of the summer's financial crisis, a plea to the Federal Reserve Chairman Ben Bernanke to take action. "He has no idea how bad it is out there. He has no idea!" he told CNBC's Erin Burnett in what's now a YouTube favorite. Not long after a mostly calm interview with BusinessWeek in mid-December, Cramer was on TV sucking helium to demonstrate his enthusiasm for a gas distributing company. "I am trying to entertain," Cramer says. "I admit that." But, he adds, he's also trying to help people. Don't Forget About Your Homework The new book Jim Cramer's Stay Mad for Life is a primer for saving and investing. It advises readers to pay off credit cards, make the most of 401[k] plans and individual retirement accounts [iRAs], and get the right kinds of insurance. The subtitle of the book, written with Cliff Mason: Get Rich, Stay Rich [Make Your Kids Even Richer]. Most people actually won't get rich by buying individual stocks, Cramer says. Unless you do your homework, namely spending an hour a week researching for each stock you own, "You won't beat the market, and you'll probably lose money," he writes. [Guy: It will take a lot more research than that...] For Cramerites willing to do the research, the book helps construct a long-term, diversified portfolio. For most people, however, he advises low-fee stock index funds. Henry Blodget Is No Cramer Fan The new approach might please Cramer's critics, who have worried his focus on trading your way to riches sets a bad example. Henry Blodget, the former Merrill Lynch (MER) stock analyst who turned writer after being forced from the industry in a scandal, called Cramer a "chair-throwing, self-aggrandizing clown," who gives terrible advice. However, as Blodget wrote in Slate early this year, he's obviously a smart man who knows better. Cramer embodies "the essential conflict in the American financial industry; the war between intelligent investing [patient, scientific, boring] and successful investment media [frenetic, personality-driven, entertaining]." Now, Cramer is echoing the financial advisers who have long warned that individual investors almost never beat the market. The more short-term trades investors make, the more they tend to lose. The "Daily Struggle" to Save Money But in his 14 years as a hedge fund manager, Cramer was a rapid trader, constantly moving in and out of different positions. Lessons from those years found their way into Cramer's previous books and onto many episodes of Mad Money. Times have changed, he writes. Now, partly due to new regulations on how much information executives can reveal to fund managers, "trying to game short-term movements in stocks [is] almost impossible," he says. To advise readers and viewers to trade short-term, Cramer says, is like telling them "you too can play in the NBA." A few might be able to do it, but the vast majority won't. "I've evolved to the point where I see the daily struggle that people go through to just put away $100 a month," Cramer says. It's a more realistic approach. "I wish I wrote this book first," he adds. Avoid the "Cramer Spike" But just because Cramer writes a responsible book doesn't mean his viewers will refrain from using his advice in irresponsible, money-losing ways. The worst example is the "Cramer spike," the jump in price that stocks often make right after they're mentioned on his show. Viewers who buy at these elevated levels will almost always lose money as inevitably the stock drops back to normal a few days later. Cramer warns against this. "I'm pleading with people not to participate in the Cramer spike," he says, urging them to wait before buying. Cramer's critics might prefer he not do the show at all. "There is a component of people who are not going to listen," but there are many other people who are helped by Mad Money, he says. So the show will go on. "I'm not going to bow to the reckless people," he says. Still Criticizing the Fed Cramer bridles at those on Wall Street who say all his shouting and emotion are getting out of hand. Did he really need to flip out on CNBC last August, ratcheting up the fear and anxiety in an already skittish market? "I'm very proud of that call," Cramer says, saying the Fed really had no idea of the severity of the crisis. Arguably Cramer was proven right by the market turmoil that followed. "I subsequently heard from people at the Fed that it had an impact," he says. He's still criticizing Bernanke and the Fed, most recently blasting them for not cutting rates enough at their Dec. 11 meeting. In a lot of ways, this is still the same old, excitable Cramer. The book may contain sober advice on bonds and disability insurance, but he also uses it to rail against a number of targets: 401[k] plans, both for their lame offerings and companies that promote "the most dangerous investment you could ever make" -- buying your employer's stock; the high fees and lousy records of most mutual fund managers; and the journalists who criticize his record as a stockpicker. A New Leaf? Cramer says he tried hard to liven up the "stultifying" subject of personal finance. But writing about certain topics, Cramer doesn't try to hide his boredom. "Investing in stocks can and should be engaging, interesting, and fun," Cramer writes. "Investing in bonds is something that will always be necessary and boring." The new Cramer may be turning over a new, more responsible leaf. But he's still a stock junkie through and through. ------------------------------ bad advice: How to lose your money fast. Pay No Attention to That Crazy Man on TV Why you should never take Jim Cramer seriously. By Henry BlodgetPosted Monday, Jan. 29, 2007, at 5:48 PM ET Click here to read more of Henry Blodget's Bad Advice. It would be impossible to write a "Bad Advice" column about investing without discussing Jim Cramer. I have been through several stages of feelings about Cramer. My initial belief was that the former hedge-fund manager, host of CNBC's hit show Mad Money, and author of several books about speculating was perhaps the worst thing to happen to the financial security of average Americans since the crumbling of the Social Security system. I developed this theory in the early Mad Money days, when Cramer's stock-picking track record—if on-air shouts, blurts, and Tourette's-style tics can ever be called a "record," which, in a serious context, they obviously can't—remained close enough to market averages that Cramer was not laughed out of town when he suggested with a straight face that he was giving good advice. His claim, of course, was ludicrous: Over short time frames, even orangutans have about a 50/50 chance of beating the market, especially when ignoring risks and costs, so his pointing to a several-month record as evidence of good advice was absurd. In 2006, however, when the performance of Cramer's ravings relative to the market went south, he downplayed the idea that he could help viewers whip Wall Street, and, instead, said that he had "just one goal in mind—to help you make money." According to one observer, he apparently failed to clear even this low hurdle last year despite nearly every major equity market on earth being up between about 15 percent and 30 percent. As readers of this column and the "Wall Street Self-Defense" series know, when investment gurus start patting themselves on the back for "making you money," they are condescendingly presuming that you know almost nothing about investing. When you own a diversified portfolio of stocks, it is rarely the stock selections that make you money but the performance of the stock market overall—which, thankfully, usually goes up. What a truly talented stock-picker will do is select stocks that beat the market, after costs, without exposing you to more risk than the market. Because the vast majority of stock-pickers can't do this, you are almost always better off in a diversified portfolio of low-cost index funds. Properly constructed, such a portfolio will, over decades, make you more money, with less risk, than even an above-average stock-picker (let alone a chair-throwing, self-aggrandizing clown). But the more I thought about Cramer, the more I realized that pointing out that he gives terrible investment advice would be like pointing out that the sun rises. Worse, I would be dismissed as a wet blanket who didn't get that the point of Mad Money was just to have a bit of ironic fun. I mean, of course Jim Cramer gives terrible investment advice—we all know that, right?—and we only watch the show because, well, because he does possess a certain bizarre type of market and entertainment genius—if there's a pundit out there with more opinions about more stocks, I've never seen him—and he's irreverent, madcap, and, yes, even brilliant, in an idiot-savant, freak-show sort of way. (Moreover, Cramer is mesmerizing reality TV. Admit it: You watch because you wonder if this is the night he finally has a heart attack, kills someone, or explodes in a tirade of expletive-laced slander.) Reviewing the list of common Mad Money show segments (Stump the Cramer, Am I Nuts?, Pimpin' All Over the World) and sound effects (squealing pigs, a wrecking train, a toilet flushing, a screaming man falling out a window and then crashing on the ground), I realized that, yes, I was taking Jim Cramer waaaaaay too seriously, that his nonstop comedy routine about being a brilliant and respected investor and making everyone rich is just shtick, and that there couldn't possibly be a Mad Money viewer who actually believes that he provides intelligent advice. There is, of course, another James J. Cramer—the one who graduated from Harvard Law School, writes an often sober and astute column in New York magazine, and might actually have put up decent numbers at a hedge fund in the 1990s (link) impossible to say for sure until we can evaluate year-by-year relative returns, risk profile, standard deviation, etc.). That Cramer is a smart man. Smart enough to have read decades of conclusive research about the lousy odds facing all speculators— especially amateurs; smart enough to understand the crippling impact of research, transaction, and tax costs; smart enough to know that when a stock tip is delivered on national television it is no longer of any use (because everyone else now has it); and smart enough to write, in 1999, about an excellent book by a true hero of individual investing, John Bogle, that "After a lifetime of picking stocks, I have to admit that Bogle's arguments in favor of the index fund have me thinking of joining him rather than trying to beat him." The two Cramers—brilliant James J. and vaudeville comic Jim—embody the essential conflict in the American financial industry: the war between intelligent investing (patient, scientific, boring) and successful investment media (frenetic, personality-driven, entertaining).

In other words, create a whole different game than baseball? Or at least, an extremely different version of it? I was being facetious. But my point stands -- if we are going to get extremely exercised about the health risks faced by professional baseball players, then there are plenty of things that could be changed in the sport that will have a far more significant impact on this "problem" than cracking down on steroids. More seriously, we have video footage of the sport going back to 19xx -- we can establish that as the upper bound on acceptable physical exertion for baseball players and enforce it as necessary. That wouldn't create a "whole different game" and would reassure those in this thread who are agitated about the health risks faced by professional baseball players. Once we have taken those steps we could consider reducing less significant health risks like those caused by steroids. I'd still be glad to see any concrete medical evidence (published in top journals) that establishes the health consequences from using steroids. Guy I can't believe I'm dealing with this kind of foolishness. Number one - we're talking about the health consequences of using substances that are illegal without proper medical authorization. That is completely different from the foolishness you are spouting about ways to reduce the health risks associated with playing the game as it was intended. Sorry, Dan, I misunderstood. I had thought you were genuinely concerned about the health risks to professional baseball players. Guy

In other words, create a whole different game than baseball? Or at least, an extremely different version of it? I was being facetious. But my point stands -- if we are going to get extremely exercised about the health risks faced by professional baseball players, then there are plenty of things that could be changed in the sport that will have a far more significant impact on this "problem" than cracking down on steroids. More seriously, we have video footage of the sport going back to 19xx -- we can establish that as the upper bound on acceptable physical exertion for baseball players and enforce it as necessary. That wouldn't create a "whole different game" and would reassure those in this thread who are agitated about the health risks faced by professional baseball players. Once we have taken those steps we could consider reducing less significant health risks like those caused by steroids. I'd still be glad to see any concrete medical evidence (published in top journals) that establishes the health consequences from using steroids. Guy

Jim, happy birthday. May you keep enlightening us for centuries to come. Guy

No, that I am completely indifferent about. I am just glad about the results. Guy So you are grateful for baseball played by juiced up athletes yet completely indifferent should they suffer adverse medical consequences in the future. My understanding is that the "adverse medical consequences" are minor. In terms of current human tragedies, this probably ranks at #1,.......,000,....000,005. From the Mitchell Report: I agree, these are decidedly minor medical consequences. Everyone would enjoy sporting events so much more if we'd just let the athletes use whatever supplement modern science can produce. What are the probabilities of any of those things happening as a direct result of using steroids? The statement you quote is meaningless without some actual numbers. Obviously there is a proven medical link between the two. And you should well know that coming up with precise numbers is problematic because it would require an unethical use of steroids. If there is an "proven medical link", then there should be some concrete evidence from medical studies, as part of a controlled experiment and/or a rigorous statistical study. That's how "medical proof" works. We certainly have comparable information on the effects of substances that are far more dubious legally than steroids. You can't seriously assert that this has anything whatsoever to do with the topic at hand. Injuries occur to anyone from the "weekend warrior" to the professional athlete. They have nothing to do with the proven deleterious medical effects of steroid use/abuse. Oh, I can totally assert it. The probability of injury would go down dramatically for most professional baseball players if they reduced the number of hours they have to play. The game is more physically taxing than it was in the days of Babe Ruth, so it is extremely likely that if we restricted players' exertion we would reduce baseball-related injuries. If we cut the number of games per season to 20 (with a week layoff, like football), limited players to one inning per game, illegalized pitches over 50 mphs or constrained field movement to brisk walking, we would surely improve the health of pro players by far more than the banning of steroids could ever hope to achieve. Guy

You're glad people pumped their bodies full of steroids and whatever else, to gain artificial advantages over honest players? No, that I am completely indifferent about. I am just glad about the results. Guy So you are grateful for baseball played by juiced up athletes yet completely indifferent should they suffer adverse medical consequences in the future. My understanding is that the "adverse medical consequences" are minor. In terms of current human tragedies, this probably ranks at #1,.......,000,....000,005. From the Mitchell Report: I agree, these are decidedly minor medical consequences. Everyone would enjoy sporting events so much more if we'd just let the athletes use whatever supplement modern science can produce. What are the probabilities of any of those things happening as a direct result of using steroids? The statement you quote is meaningless without some actual numbers. Athletes routinely place themselves at risk for injury as part of their line of work, and I am guessing that those risks are substantially higher than those of using steroid usage.

You're glad people pumped their bodies full of steroids and whatever else, to gain artificial advantages over honest players? No, that I am completely indifferent about. I am just glad about the results. Guy So you are grateful for baseball played by juiced up athletes yet completely indifferent should they suffer adverse medical consequences in the future. My understanding is that the "adverse medical consequences" are minor. In terms of current human tragedies, this probably ranks at #1,.......,000,....000,005.

You're glad people pumped their bodies full of steroids and whatever else, to gain artificial advantages over honest players? No, that I am completely indifferent about. I am just glad about the results. Guy

I agree 100%. That's the nature of asset bubbles... even perfectly rational people who know that asset prices are completely unhinged have an incentive to buy in (as long as you aren't the one left holding the hot potato), and it's extremely risky to bet on the bubble popping. Let's be honest -- Goldman got extremely lucky. If the bubble had kept going sufficiently longer they could have lost a ton of money on these positions, as Bear Stearns did. Let me be clear when I say "people" I mean it loosely to include all financial market participants. Everybody wants that magic asset that gives high yield with minimal risk (the modern equivalent of the money tree) and during bubbles they are willing to pretend that the risk simply doesn't exist. Guy

MG, The basic punchline is that central banks are worried that the current credit crunch is (A) going to generate widespread chaos in the financial system and (B) going to generate spillovers into the rest of the economy in the form of tighter lending. (In other words, the crunch is causing a large effective tightening of monetary policy even though policy rates have not gone up.) The belief is that traditional monetary policy tools (raising and lowering interest rates) are not as effective as they were in the past and that more targeted policy is needed. We will see. The coordinated announcement itself is sort of a "sunspot", the actions are operationally independent except for the currency swap. Guy

I think it's a question worth asking, though I'm inclined to think that there isn't a conspiracy there. Most organizations of this type have Chinese Walls theoretically separating these functions, so the guys packaging CDOs and other structured finance products are supposedly kept at arms' length from the trading desk (who in this case were shorting the ABX). In reality, we are talking about human beings and these people talk. Information inevitably flows from one end to the other. You also have the top management, who must know what is going on in both places. That said, I'm inclined to think the conspiracy theory that Goldman was intentionally manufacturing crap SF products so they could effectively short them is implausible for several reasons. (A) they are now stuck with a bunch of them on their books and (B) as far as I know, there were enough players in this market that Goldman's ability to move the market through their own structured finance offerings was somewhat limited. So why was Goldman (and other financial institutions) manufacturing crap SF products? The sad truth is... they were giving the "people" what they want. A few other points -- I know at this point I am echoing the "Communism didn't fail, its misapplication did" line, but I think it's fundamentally true -- subprime mortgages and securitization of assets are both great ideas which generate economic gains, and they worked until 2004 or 2005. The problem is that the incentives in the system led to things going very wrong after that, and that's the mess we will have to deal with for the next few years. Second point -- not sure if you guys remember, but the first real inkling of problems in subprime mortgages leaking into financial markets were in June, when the two Bear Stearns hedge funds collapsed. Like Goldman, these BS were also shorting the ABX. Unfortunately for them the margin calls came a little too early. If they could have held out a little longer they would have made boatloads of money and maybe we'd be talking about BS's genius traders instead of GS's.

Never heard that about him. But if he was, that would kind of make him not boring, wouldn't it? He was a very tough Chief Secretary to the Treasury (the job is to cut spending plans down to size) in the early days of the Labour Government. MG I actually got him mixed up with Alastair Campbell. When the Northern Rock debacle started I read AD's wikipedia biography, he apparently won the "most boring politician" in several polls. Also "Darling's Darlings" and the cat named after Sybil Fawlty. Guy