Urban Hayride

Traunches

From The National Interest (via Richard Florida):

For economists in business schools the answer is straightforward. Business schools see themselves as suppliers of inputs to business. Just as General Motors provides its suppliers with specifications for the cold-rolled sheet it needs for fabricating auto bodies, J. P. Morgan makes clear the kind of financial engineers it requires, and business schools deem to provide. In the wake of the 1987 stock-market crash, Morgan’s chairman, Dennis Weatherstone, started calling for a daily “4:15 Report” summarizing how much his firm would lose if tomorrow turned out to be a bad day. His counterparts at other firms then adopted the practice. Soon after, business schools jumped to supply graduates to write those reports. Value at Risk, as that number and the process for calculating it came to be known, quickly gained a place in the business-school curriculum.

As graduate of an undergraduate business school, this statement brought back some memories.  I cannot claim to be the smartest and/or brightest person in my undergraduate class, or my current graduate class for that matter, but I'm not lying when I say I saw something wrong with, similar to the scenario detailed above, the most recent financial fad - structured finance.

At a upper middle-tier (is that a stretch?) school such as James Madison, I-banking recruiters were not banging down the career center doors.  JMU grads have to fight, hard to get a job on Wall Street.  That being the case, this explosion of newly-created financial instruments offered up an amazing opportunity for schools like Madison.  Enter the trauch.

A seminar in structured finance - "this is how you will split up mortgages and create traunches divided by risk that will then be grouped and sold as one mortgage-backed security", virtually mitigating the risk of the low-quality (sub-prime) mortgages. 

BAM, enter the financial "crisis".  So, yes, Dr. Eichengreen makes a valid point here.

It's not that JMU wasn't turning out excellent graduates, most, I would say, better than many of the "top-tier" schools.  In fact, the top-notch graduates that have landed on Wall Street are still achieving great success.  But on a whole, this observation is relevant. 

Also, it's 1:38am  - I've been in my usual seat in the graduate reading room since 4pm.  ---  this might not make any sense at all, and I'm not proofreading. 

Boombox

Made obvious by its name, this blog is supposed to present urban topics.  There is nothing more urban than the boombox.

I owned a boombox.  I wasn't much of a hipster when I was 12; my boombox was playing Bela Fleck and the Flecktones. Yours?

NPR reports on the death of the boombox.

Boombox

Made obvious by its name, this blog is supposed to present urban topics.  There is nothing more urban than the boombox.

I owned a boombox.  I wasn't much of a hipster when I was 12; my boombox was playing Bela Fleck and the Flecktones. Yours?

NPR reports on the death of the boombox.

Individualism

Its main principle is that no man or group of men should have power to decide what another man's status ought to be, and it regards this as a condition of freedom so essential that it must not be sacrificed to the gratification of our sense of justice or of our envy.
-F.A. Hayek

Hayek is an economist of the Austrian School and a classic liberal. 

This may seem unrelated to my usual urbanist musings, but at the core it's really very much connected.  Individual property rights often cause quite a headache for planners that simply want to see their plan implemented.  Obviously the most successful planners are the ones that learn to work the system efficiently and effectively. 

Also, that being said, I'm not sure what the classic liberal, or present-day libertarian's view is on planning; it is important to note that planning and a free-market society are not opposing theories.

On Second Thought

I take that back; I don't want to end my internal struggle.  That would be boring.

Schumpeter's Prediction

Recently, I've been high on the thought of reading as much as I can of the classical texts in political economy - with good reason.  It's a perfect time to continue, and hopefully end the internal struggle with my own economic philosophy.

I've decided to begin this most recent foray into classic economic literature with a reading of Joseph Schumpeter's Capitalism, Socialism, and Democracy.

I've been wanting to read Schumpeter's work for some time.  Given the summary that Wikipedia offers regarding his work, the timing could be no better.

Schumpeter's theory is that the success of capitalism will lead to a form of corporatism and a fostering of values hostile to capitalism, especially among intellectuals. He argued that capitalism's collapse from within will come about as democratic majorities vote for the creation of a welfare state and place restrictions on entrepreneurship that will burden and eventually destroy the capitalist structure.

Interesting.