Mike’s Comments (group member since Aug 14, 2010)

Mike’s comments from the Illuminati group.

This is a good biography of Warren Buffett, but it could have been better. While it depicted his personal life and his character well, it could have done a better job with his investment philosophy. Roger Lowenstein's earlier biography was better, in this regard.

Buffett is a complex character, as Schroeder portrays him. He inveighs against privilege, inherited wealth and nepotism, but gives his kids $1 million a year as birthday gifts and appoints them as directors of his company, Berkshire Hathaway. He protests loudly and often about the inequality of wealth in the US, but has himself been one of the greatest contributors to that inequality, through his own massive accumulation of wealth and his reluctance to give to charity in his own lifetime. And while he preaches "social justice" he practices hard-nosed capitalism, laying off workers and breaking strikes to add to his already enormous profits. Moreover, while he pushes for higher taxes on the wealthy, he takes every legal measure to minimize his own taxes.

So Buffett is open to charges of hypocrisy, as Schroeder makes clear. Hers is no work of hagiography. But he also deserves much of the praise he gets, as an honest and highly capable businessman who takes his fiduciary responsibilities seriously. Through shrewd investments in companies like See's Candies, GEICO, Coca Cola and Gillette, he built enormous wealth for himself and his shareholders. And he did so honestly and conservatively, not exploiting inside information like Bernie Madoff or George Soros, nor through "greenmail" and risky levereged bets like Michael Milken and his acolytes.

This biography depicts Buffet as a very limited man. He cares little for art, philosophy or literature. He would rather ponder the balance sheet of General Electric than the beauty of the ocean. But he is the greatest in the world in his own limited sphere.

In sum, this is a good biography, but it's too long and should do more to explain Buffett's investing ideas. For example, when describing his investment in Coca Cola, Schroeder mentions Coke's price, but not its P/E ratio, nor does she explain sufficiently why he thought that price was attractive. In 900 pages, one would expect more.

I found this story delightful. It tells of the eccentric Professor Liedenbrock, who "walked by mathematical strides of a yard and a half" and who was a passionate collector of old books, but not just any old books, just those that "had the virtue of being nowhere else to be found, or, at any rate, of being illegible."

The tale really begins when the learned professor comes upon a book by Arne Saknussemm, which is unintelligible. His nephew, a boy who delights in seeing the great professor stymied in his efforts to translate the cryptic work soon changes his mind when the professor declares that noone in the house was to eat until they had understood the book.

That's enough for the hungry lad, who figures out the code and reluctantly informs his uncle. The book, now deciphered, persuades the professor that its author had made a journey through a volcano in Iceland to the center of the earth. This delights the professor to no end, since he staunchly opposed the idea of a "central fire"--that is, that the Earth's core is hot. A journey to the center of the earth would prove otherwise, and so the professor, as much an adventurer and swashbuckler as an antiquarian and scholar, set out on mad mission to duplicate the feat reported in the book and make it to the Earth's core, dragging his uneasy nephew with him.

So they, along with a laconic and stoic Icelandic guide, made there way into the volcano and set out on an epic and comic adventure, which I will not spoil by recounting any further.

This story was exciting, charming and funny. Professor Liedenbrock was at once ridiculous and heroic. Despite the absurdity of his mission, I could not help getting sucked in and rooting for him. There is no deeper meaning to this book that I can see, except for an underlying passion for science and a joy in exploration. It's just good fun. I can't recall the last time I enjoyed a work of fiction this much.

This is a pretty good biography so far. It's interesting to note that, even into his late 30's, Friedman was a New Deal Democrat and a Keynesian.

I'm enjoying this book. I expect to finish it soon. The story has a rich assortment of characters and shows the author's subtle appreciation of the conditions in the country under slavery. The book is clearly an indictment of slavery. Despite comments I have heard to the contrary, there is no ambivalence in Stowe's view on the subject. She despises it as unnatural and degrading to both slave and master.

But she avoids caricatures. There is a world of difference, for example, in the way that August St. Claire treats his slaves and the way the slave traders or some of his neighbors treat theirs.

And she is able to appreciate sharply contrasting characters, from the jaded, skeptical but kind-hearted St. Claire, to the stern, religious and sometimes hypocritical Ms. Ophelia; and from the quiet, faithful and stoic Uncle Tom who accepts his servitude to the fiercely rebellious George who fights to free himself and his family and unite them all in the North.

Sadly, the term "Uncle Tom" has become one of reproach. That is likely because few people read the book any more, and many who did failed to understand either the book or the main character. And some fine people have been branded with this supposed slur by the ignorant.

At any rate, the book is excellent so far. I wish I could write fiction so well. My only criticism is that at times the narrator (or author) intrudes too much into the story, not just relating the story vividly, but then interpreting it for the reader as well. It's quite clear what her meaning is to anyone who reads the story carefully. She needn't tell us directly.

Rajan's analysis of the "fault lines" threatening the American economy is subtle and interesting. To his credit, he does not take an easy partisan line but rather thinks deeply and originally about our economic problems.

He argues essentially that much of what went wrong the last few years was due not to irrationality but to skewed incentives. Like a lot of conservatives, Rajan pins a lot of the blame on government policies, including the easy money policy of the Fed and the push to extend credit to low income people. He also emphasizes the global imbalances which led to huge inflows of capital into the US from China, Saudi Arabia, etc...

But Rajan doesn't stop there. Instead, he points to a deeper structural problem in the economy: namely the stagnation of wages for the middle class and lower classes and the widening of inequality in recent decades. This, he argues at length, is what led to the policies that created the housing bubble. Politicians were desperate to give their constituents something to make them feel wealthier--and that something turned out to be easy credit and rising home prices.

Rajan proposes a lot of reforms, including some aimed at diminishing the moral hazard that pervades our financial system. But he also suggests a strengthening of the social safety net, so that people get some protection from the vicissitudes of the economy and politicians do not feel as much pressure to do haphazard things ad hoc to try to address rising unemployment.

And, crucially, he points out the need for education reforms aimed at giving parents more choice in their kids' education and making teachers and schools more accountable to their customers. For the best way to help people who start life at the bottom is to give them the kind of skills and training they need to get good jobs and rise out of poverty.

I don't agree with all of Rajan's book, but it's a serious reflection on our economy. If only more people would read this book, American policy might take a more intelligent course. No thoughtful person will come away from reading this book believing that markets are always right, or that government is always the solution. Sadly these are the positions usually espoused by conservatives and progressives respectively on cable news and in newspaper op/eds.

I'm enjoying Oliver Twist. This is my first time reading it, though I remember some of the story from film versions. Dickens was an enormously talented writer. He tells the story vividly. I find it exciting even though I know much of what's coming.

Dickens had a tendency to draw caricatures, though. And his incessant references to "The Jew" Fagin, who is a thoroughly vicious and ignoble character are jarring. It seems from the text that Dickens had an irrational animus against Jews... The truth might be more complicated, though. I gather from the Wikipedia entry that after receiving some criticism on that score he halted printing of the book and removed references to Fagin as Jewish and included a very noble Jewish character in his next novel.

I recall reading an excellent essay about Dickens by Virginia Woolf, but I haven't been able to find it again. When i do I'll post it here.

The book is matter-of-fact and at times even dry in its style. But I find it valuable as a brief introduction to Islamic culture and beliefs.

A few things I have found interesting in the book thusfar:

1) The Koran reports that Mohammed consummated a marriage with a 9 year old bride and requires that fornicators be stoned to death.

2) Despite Koran passages like those, the Islamic world was more tolerant and liberal than Christendom for centuries. That seems to have changed when Europeans became increasingly powerful and Islamic power gradually receded. Eventually all of Arabia came under foreign and Christian domination. This seems to have created a poisonous atmosphere of resentment and impotent rage that made the place hospitable to religious fanaticism.

3) The government of Iran is really novel in the Muslim world, with no basis in Islamic political tradition, at least according to Bernard Lewis. Really, he argues, that government's ideology has more in common with fascist and communist thought than with traditional Islamic thought. That's an important point, since the Iranians pretend to be restoring traditional Islam.

4) Muslims do tell jokes, and they aren't very funny.

"If the book were interesting in some way, then I might have enjoyed it more."

That's one of the funniest lines I've read in a book review.

The book is good so far. I'm about a third of the way through it... It's a little annoying though that the author points out what Tocqueville and Beaumont got wrong more often that what they got right... And in some cases I don't think the author is correct--as when he says that evangelical Christianity is fundamentally explained by economics and class resentment.

Still I appreciate the lively and concise story-telling. The details of their travel are interesting. The author dwells a lot on the disappointment Tocqueville felt at seeing how chaste most American women were--except for the prostitutes, of course, whom he was too proud to visit.

I'm enjoying the book. About 40% through it now. So far this is what I have gotten out of it:

1) Hannibal was a crafty general, driven by hatred of Rome but he sometimes failed to understand politics--as when he mistakenly believed he could persuade Rome's allies to change their allegiance.

2) The famous elephants were not a factor in the 2nd Punic War.

3) Many of the Romans found it difficult resist taking Hannibal on headlong, even though such a strategy would have been suicidal. Indeed, Hannibal routed the Romans in every battle (at least to this point in the book).

4) Fabius Maximus deserves a lot of credit for eschewing massed battles with Hannibal in favor of evasion and harassment. He encouraged a "scorched earth" policy (one successfully adopted centuries later by the Russians) and picked off Hannibal's foragers.

I haven't gotten to Scipio Africanus yet... It's a little puzzling that even such shrewd generals as Hannibal and Hamilcar Barca would devote so much energy to the war elephants if they were as ineffective as O'Connell believes. This makes me suspect that, while they did not have much effect in the 2nd Punic War, they must have proven useful in other conflicts (as they were in the Alps during the ambush, even by O'Connell's account).

Anyone else have any thoughts?

I've just read (Illuminati member) Jeremy's review. As he says:

"...Steinbeck provides a wonderful description of life among the poor during the Great Depression - from the dustbowl of Oklahoma, to the journey that the Joads (the family that has most of the main characters in the novel) take along Route 66 to California... It's clear that Steinbeck did his homework, and he painted a very vivid picture."

I agree with that.

Jeremy notes though that "despite the book's merits, it still dragged with too much description and too much repetition of the same themes over and over again."

I agree with that too. This is a common criticism of the book--that Steinbeck can be tediously didactic. Sometimes the narrative, which I enjoy, stops and gives way to a political and moral harangue--like Ayn Rand's "Atlas Shrugged", the philosophical differences between them notwithstanding.

I'm nearly half way through it. I think the style is lovely. Very pleasant to read. And, reading it, I do feel as if I am there watching this family move across the country dogged by worry but fueled by hope--and desperation.

Anyone else have any thoughts?

I have some criticisms, but I'll get into them later.

The Cause of Persistently High Unemployment

I believe the social benefits of equity markets do greatly outweigh the costs. I think though that the efficient market hypothesis is clearly false, that equity markets are prone to bubbles based in part on psychological weaknesses of investors and that the kinds of moral hazard problems you are pointing to are serious... Actually, moral hazard seems to me the most important problem according to Lewis' account--more important than greed, arrogance or stupidity, though these were also present in abundance during the real estate boom.

Incidentally, I didn't mean merely that your proposal wouldn't solve all moral hazard problems, but rather that it wouldn't solve what are by far the most important ones. Even if AIG had been a private company, there would still have been an incentive to gamble if the company had borrowed significantly in bond markets. When you gamble with borrowed money, most of the profits are yours, while the lender bears all or nearly all of the risk. And of course government bailouts create still more moral hazard... My argument is that these sources of moral hazard were far more important than the one you were pointing to.

I haven't paid much attention to options or other sorts of derivatives either. I intend to learn more about them also. We should exchange thoughts about them when we both know more...

I'm only through page 140 at present... I think there is something to your criticism that the employees and management of publicly traded companies have incentives that are imperfectly aligned with those of the shareholders. But that shouldn't blind us to the importance of equity markets for intermediation.

Companies that have profitable investments will want to borrow to fund their investment. Equity markets allow those who have capital to be matched more efficiently with those who have profitable investment opportunities. That's why Apple, Microsoft, Google, Amazon, etc... all went public eventually--not to exploit their investors but to get capital more cheaply to avail themselves of business opportunities.

Besides, even if stock markets didn't exist, there would still be pervasive moral hazard problems. One example is that the bondholders' and bank lenders' interests are very different from those of the company borrowing the funds. Indeed, this seems to me a much bigger problem than the divergence between stockholders and management...

The Cornwall Capital story is very interesting and amusing. I don't know whether Wall Street has abandoned Black-Scholes but I doubt it. Wall Street craves mathematical models that offer precise valuations, not the sort of qualitative analyses being done by Cornwall (or Warren Buffett). The Wall Street people would rather be precisely wrong than vaguely right.

Surely one could come up with a pricing formula based on something other than a normal distribution of returns, but it too would fail in some situations... So, there does seem to be an opportunity to exploit market inefficiency in option pricing.

Does anyone have any thoughts about the book?... For my part what's most striking so far is the stupidity of the AIG management and the financial products division. They were essentially gambling the whole company on a speculative bet that housing prices would continue to rise, despite ample evidence that prices were too high.

Please put any suggestions for future reading here and I'll put them in a poll as soon as is feasible, or else send them to me by email. These suggestions may include books rejected in past polls.

A Biography of Adam Smith

Winston Churchill in the NYT

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