Market Failure - What market failure?

The market is a mechanism, with price as one of its major tools, in order to ‘clear’ or allocate scarce resources.

In centrally planned economies a political elite fulfill the role that price would in order to determine the allocation of the resources.

In a market lead economy price fulfils this role.

The problem is that price (or value) is not always a perfect measure or instrument to send a signal to the participants to ‘clear’ or allocate all the resources effectively and efficiently.

In certain circumstances the market is therefore seen to or perceived to fail, however this is an error in logic, it is not the market that fails, but individual participants within that market that fail.  They fail because of the fact that information asymmetry prevails and not every participant has access to capital and resources at the right time in order to set or take the most efficient clearing price.  The problem is that is not necessarily the market that fails, but individual behaviours of participants in that market that puts a strain on the market and therefore forces it towards a new equilibrium point. 

This is what we recently and so spectacularly experienced as another deep recession.

The focus should be on developing better and more sophisticated tools (other than price alone) to grease and ease the wheels of the market allocation system.

Some would call these tools better regulation, however true libertarians believe in these two maxims of efficiency and effectiveness:

(1) Spontaneous Order

(2) Creative Destruction (Schumpeter)

theMarketSoul ©2009

Comments from a 'lay-economist' on the Credit Quake of 2008 - 2009

More debt cannot solve the current debt crisis!

All we are doing is buying time, (in essence restructuring the principal debt burden) and deluding ourselves that the fundamental problems have been solved. Which of course is not the case.




I think Paul Samuelson defined economics in one of his textbooks as “...the study of scarcity...”



Yes, the crisis was born out of the scarcity of liquid funds or assets, but a large contributor that became a key driver which exacerbated the crisis was regulatory driven, especially the misconstrued IASB (International Accounting Standards Board’s) IAS39 Financial Instruments: Recognition and Measurement standard.



Remember, money or monetary values (currency) only act as a proxy or crude measure for the ‘real economic’ measurement of value and output. At a basic level we have been experiencing a large equilibrium shift away from the traditional factors of production (land, labour, capital and technology & innovation) and the holders or owners of these factors of production, to a fairer distribution and access to these factors of production.



When the equilibrium cannot be maintained at a specific unsustainable level we experience some form of ‘discontinuity’, such as the current crises we are experiencing.



In the old Western oriented G8 or now G20 democracies (and one or two new monarchies throw in together with a quasi-communist regime for good measure), the old G8 leaders thought they were immune against the odd banking crisis . Recall here the Asian Crisis of 1997-1998, the Russian Financial Crisis of 1998, the Argentinean default of 1999; all minor disturbances in the developing economies which did not affect the West.



However, with ‘The Great Moderation’ (thank you Ben Bernanke for that one) so recently behind us, the Great Credit Quake of 2008 – 2009 suddenly meant that the entire G20 club and beyond were dragged into the quagmire.



Therefore, my belief or opinion is that we are still in the midst of a major equilibrium adjustment and the ‘step down’ or up from the previous level will continue to be uncomfortable for many years to come. Asset classes will continue to try to find their new sustainable equilibrium valuation levels, and the stoking of the fires by governments with sovereign debt will only continue to contribute to dragging on the crisis for longer.



Ultimately, the market mechanism did not fail, but a few key players within those markets failed spectacularly. Pumping more liquidity into the system will NOT heal the moral hazard created before and now supported by the current interventions.



Growth is rightly touted as one of the mechanisms by which we get ourselves out of this crisis, but I can see two other unpopular tools at our disposal, one being raising tax burdens generally and the other lesser of the two evils being inflation.



Shall we jump, or wait to be pushed?


The Market Soul © 2009

Confessions of a Behavioural Profit Mechanic

Observing the dung-beetle had me suddenly mesmerized by the thoughts of the impact of the annual organizational lying ritual.

Yes, you are correct in thinking; we have just been through the budgeting process.

Fascinating laboratory work for the typical pin stripe suited behavioral profit mechanics amongst us, with laptops and complex spreadsheets geared up for the task.

Doesn’t matter which large or medium sized organization you go into, observing this annual ritual is either a distinct pleasure (for the sadists among us) or a very drawn out, torturous agony inducing activity.

But it all boils down to exactly the same thing my dung-beetle friend has been up to:  Moving piles of c**p from one place to another.

So what is the value in continuing to entrench this annual ritual into our organizational man or woman’s psyche?

Especially in turbulent times!

The cynics amongst us argue that it keeps the been-counters occupied.  True, there must be some value in keeping those poor (pure) folk slaving away over their budget spreadsheet models late into the night.

But it is the Senior Management Team, the wise elders, whom I ultimately blame.  These are the dungeon masters who routinely get the instruments of torture out, mainly their sharp wit and senses of sarcasm and then put the product or business unit owners and managers, with their been-counters in tow, through this process.  If it was not for their (the wise elders) profound sense of loss of touch with reality, the poor folk who keep the management information beast alive, could be put to better use by adding significant value to the new science of business analytics and value added decision support.

I know the entrenched behaviours are all focused around the ‘rain dance’ of the bonus pot the wise elders so fervently guard.  Maybe we should rethink the way in which this annual ritual is observed?

theMarketSoul ©2009

A Quote of Note

"So let me fill my children's hearts, 
With heroes tales and hope it starts, 
A fire in them so deeds are done, 
With no vain sighs for moments gone."


Stuart Adamson (Big Country - Eiledon)

Everything I know about business

Everything I know about business I learned from the Dung-beetle!

This will be the title of my next series of articles. For when I grew up, we lived in a straw hut in Africa, with cow dung smeared on the floors to serve as insulation or to keep the snakes away; I can't quite remember anymore.

My children don't appreciate the sense of history and perspective that living in the 'civilised' world affords them, because for cultural entertainment, we had to watch the Dung-beetles mate. What start in life was that I ask you?

Anyway, I digress.

A lot of business life is like chasing, or at least wiping off the muck and dung that life throws at you. Dung smells and so does money! And a great deal of this mucky stuff is pretty sticky, therefore dealing with the mucky stuff can be made so much more tenable if we are able to deal with the dung in the way the Dung-beetle manages to deal with it.

These (muck scraping) thoughts will be developed further...

If you are interested in hearing more about it, please post a comment.

Thank you.

theMarketSoul (c)2009 & Idea Merchant
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Persuasion

This is my first attempt at a blog post 'on the go'.

It will be short and sweet. It is a note about persuasion and the art of keeping stakeholders on board. If anyone knows the secret, then please let me know.

I am searching for the elusive ingredients. And the stewing pot of persuasion.

theMarketSoul (c)2009
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Banana Wars are here

Yes, it is official, the Banana Republic state of the national fiscal debt crisis has lead to banana price wars being declared between the major supermarkets.

I picked up, quite deliberately and not by mistake, the biggest selling national tabloid newspaper on Friday 9 October 2009, due to its very sharp and insightful analysis of the recent Tory party conference.  I deftly navigated past the Page 3 detour, reading the opening and concluding paragraphs of the page 6 editorial (that investment in my legal taxation training back in my uni days has therefore paid off, learning how to read and digest case law files), and found myself being drawn further into the murkier depths of the newspaper.  I eventually after approximately 27 seconds hit page 30 and came across the Asda banana price declaration; down from a whopping 84p per kilo to only 38p per kilo!  Wow, I thought to myself, better rush out immediately, before they are all gone.

I persevered with the paper and after a further 36 seconds of intensive reading, hit the Tesco declaration on page 67 that a 1kg pack of bananas was only 35p, and that double club card points were now on offer.

Double wow I thought, I could spend at least 4p more on petrol to drive to the Tesco that is further away, in order to take advantage of the 3p saving on the bananas on offer.

We have been shopping at Aldi recently and yesterday the wife asked one of the students living with us at the moment to pick up a few essentials (fresh fruit and veg at Aldi).  And the best part was that I didn’t spend a penny on petrol to get there, as he picked up the stuff on his bicycle on the way back from school.

So, the ‘piece de resistance’ came this morning when my wife unwrapped the packet and declared that we had only spent 32p on a pack of bananas!!! 

Whoopeee I thought, we are on to a winner here!

The Ice Age is Cometh

Information Asymmetry is what drives the market. I alluded to this in an earlier blog posting (see Market Responsibility, Saturday, 18 October 2008). Yet I still hear the socialist agenda mention regularly that if it wasn’t for the recent government interventions to ‘save the market’, the market would have collapsed. I am sorry, but I just don’t buy this. Yes it is true that individual institutions in the market would have failed, but as a mechanism, the market would have wobbled and other participants would have picked up the distressed bits and pieces and carried on. True, there was a crisis of liquidity in the system, with severe knock on effects, but as a mechanism for allocating resources, effort and reward, I still believe the market would have survived, with or without the ‘nuclear’ option intervention we saw. The moral of this tale is that unfortunately the socialist elite now believe and make the rest of the market believe that they hold the moral high ground and can dictate the agenda for the next several years. Oh well and so the pendulum swings…

Which was entirely a side track to the real intention behind this posting.

‘The Ice Age is Cometh’ was an article headline in the Radio Times edition of 16 – 22 November 1974. I friend of mine came out with the rank smelling edition of the Radio Times of late 1974, that he discovered stuffed in the chimney breast of his new home. Stuffed in that chimney-breast to obviously keep the cold draughts out, as according to the subtitle the next 1,000 years could be very, very cold, with an advance of the polar ice caps and glaciers. Did I blink or something? I will challenge the BBC to dig out the programme aired in the week of 16 – 22 November 1974 on BBC 2, so that we can be reminded how quickly the agenda and the focus can shift, if we take our eye off the ball and let information asymmetry spin the agenda out of our control.

And I suppose we cannot deny the evidence currently in front of our eyes. Polar ice caps are retreating, which is true if you focus purely on an evidence based approach to trying to understand the wider system. But do make your observations and emotive arguments from within the system, or do you need to step outside that system in order to be more objective. And what about intuition? On a purely intuitive level I believe the earth of GAIA is a self correcting system but we do not have enough evidence to conclusively prove this assertion.

So, in the meantime, we swing one generation to the next, waiting for the ‘Information Assymetrists’ (yes my new made up word de jour) to set the agenda and the morals of the market.

As a soul in this market arena I just keep on being amazed, day in and day out. Please just give me the ability to take the long view…

theMarketSoul ©2009

Market Responsibility

At last, I am beginning to hear the argument regarding the failure of the market mechanism begin to turn full circle.

On reflection everyone from the bankers, regulators, politicians hedge fund managers, etc. have been blamed, but returning to the opening paragraph, you will notice that I put juxtaposed two word, namely market mechanism.

It is crucial that we understand the fact that in the turmoil surrounding us, reporters, the media and even experts start confusing the technical language of economics with the layman’s utilization of words and phrases.

But the point that is beginning to come across is that for a market to function properly, it has to have willing and able participants. However, the one of the key ingredients for the market mechanism to function properly is responsibility.

You might argue that responsibility is the main duty of the regulator to enforce, however, I would argue that as a libertarian one of the fundamental principles of the philosophy is ‘personal responsibility’.

Now the problem with this is that personal responsibility is also an excuse for some form of moral crusade being waged, as it is very easy on reflection to espouse the idea and say we should all be taking ‘personal responsibility’ for our actions, yet we do not have the practical mechanisms in place to bring the concept of ‘personal responsibility’ to fruition.

As social beings, our learning is conducted in many forms, but most of us learn by observation and participation. And participation is one of the key drivers of the market mechanism.

So the argument is really to be willing, able and informed participants in the market. Yet another driver or key tenet of a functioning market is information asymmetry, this being defined as: “the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry.” [Wikipedia]

And there we go, I trust that this has again been a simple construction of logic, albeit an incomplete chain of logic…

I have not answered or fully addressed the title of this article, namely Market Responsibility, but in the future I shall attempt to define and build the argument for what I believe the concept should possibly address.

But maybe we shall start with education and other forms of learning in the follow up to this opening gambit.

The Weekend Crisis and other Asymmetrical Information Challenges

Have you noticed how most of the recent financial institution failures occurred over a weekend, with financial institutions or regulatory and Central Bank interventions occurring on a Saturday or more specifically a Sunday in the United States?

Fannie Mae & Freddie Mac were officially nationalized on Monday 8 September 2008 after the announcements were made over the weekend (Sunday 7th September 2008), Lehman Brothers failed well before the weekend of 13 & 14 September 2008, yet the announcement again arrived early on the morning of Monday 15 September 2008 (at least early morning in Europe, again pointing to news leaking out on Sunday in American). Going back to March 2008, the Bear Sterns announcement, again was made on Sunday 16th March 2008?

With heads being scratched and fingers being pointed in all directions, conversations featuring themes such as excessive greed by bankers, an aggressive bonus culture, misunderstanding of financial products being bought and sold and a light regulatory touch, all abound.

Well here is the simple solution and it falls squarely within the remit of the regulators to enforce and execute:

Ban all WEEKENDS!

Yes, stop this ridiculous notion of coming out with bad financial news on a Sunday. Ensure that trading financial instruments can occur 7 days a week 24 hours a day. Most of the tools (computerized trading platforms, algorithms, etc.) do not require ‘downtime’ and switch off time, like us mere simple mortals do.

My conclusion is that with one simple regulatory intervention, most of the "Weekend Crisis" we experienced during this last year, would have been avoided.

© theMarketSoul 2008

Solitude (or social networking)

Where do I seek solitude
In crowds of desperate magnitude?
In a corner of the room
Or plunging headlong in everyone else’s gloom?

Reflection is but a potential key
To unlock our frantic flee
Is that our or should it be me?

Speeding, speeding speeding
What am I to ping?
Clicker, Flikr or Zing?
Where is my home for networking?

Questions of late
How do we continue to create?
Is it a distracted seeking?
Or hiding behind the bling, bling?

Where do I take theMarketSoul?
Is it a process or a goal?

Is the gaol
Merely a symbol of my fail?
..(ure) to drive me on to moor
or fall victim to the lure
of the empty seeking
for the map
or is it space
I seek to hold up my poker Ace?
Where are we off to in this age?
Running to or from our rage?
And that is where I stop
Or tempt the lure to flop

?

theMarketSoul ©2008

The Paradox of Being – Counter Intuitive actions and ways of living (or being)

This article will actually be a study or exploration in relational commercial encounters or law of contract, through “acts of engagement”, which is seen as the extension or natural evolution of the contractual underpinnings or foundation of Western Society’s commercial activity.

So to condense some of the bigger picture conceptual issues raised in the previous paragraph to ‘plain English’ then:

In recent months I have begun to grow more disillusioned with the general ‘confrontational’ or adversarial contractual relationships that generally exist and persist in commercially driven activities. And this bugs me. I believe that I have a strongly developed sense of intuition, my sixth sense, that picks up on these ‘underlying’ issues and then a ‘natural urge’ kicks in to try and tease out the underlying adversarial issues, in order to move to a more engaged or cooperative state of interaction between contracting parties.

And the driver for this feeling and view has been my experience living and working for seven years in the Middle East, where in general I would say a commercial contract merely acts to extend an underlying relationship of trust and mutual respect which already exists between contracting parties, rather than to other way as generally experience in Western Society.

So with these writings and research, over the coming months I will endeavor to explore and tease out the theoretical basis for these ideas, thereby developing a thoroughly researched view of “Counter Intuitive Actions and ways of living (or being)”.

I would welcome all and any contributions by either leaving comments, by clicking on the link, or by sending me an email on innovation@themarketsoul.com, should you want to remain anonymous in your contributions.

theMarketSoul ©– July 2008

The Professional Gypsy

I am a professional gypsy.

So what do I mean by this?

I am:

1. Professionally qualified

2. An international citizen, chasing opportunity wherever opportunity may take me

3. Not necessarily welcome where I come from, and not necessarily welcome where I am now and furthermore, probably not welcome where I am going to…

4. Cynical

Sorry I just had to put down the last point, because it might not be apparent (yet, if you haven’t read past this blog entry), that I am mostly angry and potentially very cynical.

So, what is a professional gypsy class like myself to do?

Some global citizens do not operate on a level playing field. Now that’s fine by me, because it suits me. Lets face it, if the proverbial flak starts coming in, I NEED that ‘unlevel’ playing field to duck behind something solid to save the other proverbial behind bit.

Yet, I find it increasingly frustrating that as a skilled and experienced professional, I on the odd occasion find myself bashing my head against bureaucratic immigration nonsensical idealism or plain and simple ‘catch all’ process driven structures and legislation.

Anyway, enough of the negative stuff.

As a professional gypsy, my ethos is to keep on the move, constantly seeking opportunity, contributing ‘value adding’ activity to local economies and businesses, living by the principle that I will not grow roots and permanently displace to the local populous from moving in, when the temporary ‘resource scarcity’ / allocation problems have been resolved. This is a principle and as long as people understand that, I think they can accept and internalise the concept, which in turn makes me more acceptable to them.

So, my question is thus:

Do you think it will be an accepted answer, by the next process driven immigration control officer, if in the occupation box I put – Professional Gypsy?


© theMarketSoul 2008

Charisma!

I was inspired by a question asked by one of my connections on LinkedIn:

The question was:

Charisma!
Some people have 'it' and some people are charistmatically challenged.

Is this something that can be learnt, and what would we need to do to become more charistmatic?

My answer:

Character
Humour
Aptitude
Rigour
Identiy
Self-belief
Manner
Attitude

Which leads to this little poem:

CHARISMA!

Someday I met this character

Who had great charm and humour

With great poise and aptitude

He framed the argument with rigour

Knowing himself with solid identity

Good grace, and full of self-belief

He had a style and manner

Rounded off by an excellent attitude

!


© theMarketSoul 2008

Knowledge & Statistics

I love this little clip I must have read a few years ago in a Dilbert cartoon strip:

Knowledge:

“I used to read a lot, but I found it easier just to make it up, as I go along…”

The sentiment is just perfect.

Combine this with one of my other wisdoms:

Statistics:

Never quote round number statistics, such as 80% of people or 60% of this, but rather state,
78% of people or 62% of this…

It sounds and looks so much more accurate and researched, don’t you think?

...a cry to Battle...

3resource LLP & 4force.net & comestealmyideas.com

Story telling is the new creative process in business effectiveness…

I am the chief storyteller and creative force at 3resource and 4source.net

We are International Programme (Change) Managers and Humane Venture Capitalists…fed up with the negative image and connotations ‘Vulture Capitalists’ are giving to the Venture Capitalist industry.

We are investigating the “Open source of Ideas” and working towards mending the tyranny of the status quo and the flaws inherently caused and perpetrated by “Information Asymmetry”.

We firmly believe in the creative and relatively regulation free ‘Private Equity’ industry as an engine of growth and promoter of Civil Society values and morals as part of creating opportunity for extraordinary people to create and experience independent and coercive free societies and lifestyles for themselves.

The story goes something like this…

Once upon a time the world was a good and uncomplicated place. It was a small place, with neighbours and friends, tradesmen and merchants living closely together in clusters of innovation. People knew each other, and cared for each other and their communities. It wasn’t a perfect place, because people had lords and masters to serve. Masters who expected a rent for the land utilised and fealty in the form of services from the people to defend the region in case of attack.

However, people’s lives were mostly unregulated and public scrutiny and persecution was rare, provided you conformed to generally accepted social and hierarchical norms.

Then came free market entrepreneurs, the new ‘lords’ of wealth creation outside of the mainstream system of landed gentry and peasantry. These captains of industry helped reshape the landscape, some for the good and others to our detriment. It is these rogue individuals that helped us slip into the challenging and precarious position we find ourselves in today.

In the meantime, people had also started appointing new lords or masters in the form of elected representatives to a common body of representation. These elected and representative members where appointed on social contracts and terms (mandates) to represent their local constituents fairly and equitably in the common sanctums of the representative chambers.

However, this elected body had to appoint agents as their implementers of policy and action. Thus government of the people passed to an unelected body acting as agents for their principals in the corridors of increasing power and alienation.

Thus started the DISCONNECT and erosion of Civil Society and the emergence of a new Ruling Elite and their Agents of ‘Erosion and Deception’, with the subsequent the rise of Political Society.

We as those landless peasants, yet increasingly educated and even more frustrated and disillusioned people, have sat back and allowed this injustice to envelop us, squeezing the life blood out of our existence and encroaching even more and more on our daily existences.

Yet our answer is to continue to sit back and soak it all up, handing the reins to the power and control of our own lives to an unjust, undemocratic and unfair system!

This erosion of our basic freedoms has only occurred over the last 200 years, yet human existence brought us through at least 10,000 years of recorded history, relatively unscathed, yet stronger and more secure individuals, for the process.

Anyone who argues that we cannot exist in a less controlled and less authoritarian environment has been so duped and dazzled by the bright lights of coercive power, that I despair and implore you to start thinking and realising the gift of life and free existence we have lost; unless we start standing up for ourselves and fighting the injustice of the modern political system.

Anyone brave enough to make a stand against this injustice and the erosion of our basic and god-given freedoms?

Myths and tall tales are the instruments through which fear and mistrust is being spread amongst the general populous. A new frame has been created within which we imprison ourselves, yet very few of us realise that we can and must look outside of this new frame. Very few of us have recognised this powerful technique of storytelling being deployed ‘against us’. But, we have the power and ability to fight back and fight them at their own game, by telling fables and stories of HOPE, JOY and POSSIBILITIES.

I trust that you will equally recognise the opportunity we have to stand up and fight back in order to recapture the lost ground of the last two centuries.

Let’s engage in the intellectual battle of storytelling and hope generation, together, aligned and stronger…

Vive la STORY…
© 2008 - theMarketSoul

Enlightenment

"The moment of enlightenment is when a person's dreams of possibilities become images of probabilities." - Vic Braden

FiscalDesigners (Tax Planning)

Fiscal Minimisation Designers are we,
Identifying your jurisdiction
Could be a precarious prediction
Depending on the argument
Leads to our predicament

And loop hole designers are we
Depending on the size of your fee
Will keep us discreet
And you on your feet

Cranking the adding machine
Might keep us slightly keen
But like everything
We live on a prayer and a wing
And you shiny bling
Keeps us from a dishonest fling

So where should we go
And mind you not too slow
Our vehicle of Trust
Is the main thrust
So watch out for the blast ,
it might not be the last

So off he runs,
With all your ones
And a penny to spare, if you and I dare!
[work in progress]

© theMarketSoul 2008

Funky New Jobs Titles

In this new, new world of work

What titles are there yet to lurk?

The new MD

He or she or it could be:

Maverick Director;

Not your average reflector!

The IM is the person

Where intuition is the key

Or are they the Ideas Merchants

or just another fee?

IT stands for Interesting Thing

Technology drives the process

And we are told that knowledge

Must definitely be better than porridge!

The SD drives the sales

Or Sets Deception

Yet revenue collection

their fortunate projection

The HR director,

You’d better respect ‘er

Yet Human Potential

Sounds much more consequential?

Or politically correct,

You OLD cynical fool!

Now even that word

We must reject!

Where am I heading?

With this you ask

Must there be an end?

Or just another bend?

Charisma, inspiration

Or just hyper inflation?

Inspired Profit Mechanic

just more rats running manic?

But to get to the point

I forgot my route

Just tinkering

Under this hood.

I look forward

For backwards is hard

Because of this strain

And a lot of neck pain

Yes, its true!

In the race of life

Looking over my shoulder

I had it all misconstrued

No matter what you call yourself

As long as you with hand on heart

Can jump and not worry, off that shelf

Look out below!!! I’ve made my start!

© 2008 - theMarketSoul

Business Ideas...

“Ideas, we’ve had them
Since Eve deceived Adam
But take it from me,
Execution's the key”

A stanza from a poem entitled “How to get Rich” by Felix Dennis

I would suppose an approach to answering your question, would be to state:

“It depends on how you slice and dice it?”

What is meant by this statement, is that it depends on "where you are now?" and "where are you coming from?"

Are there any urgent needs or unfulfilled desires?
Is there a “tyranny of the status quo?”
Is there a need to re-invigorate profits?
Is it innovation you are after or merely idea generation?
As examples…

If we learn to open our eyes and engage and interact in the world around us, on a slightly different basis, veering slightly off the normal path or direction, keeping an open mind and asking “why” type questions all the time, we might continuously stumble across opportunities to recognize business ideas.

I am investigating the “open source of ideas” via social networking at the moment and your questions fits neatly into this type of category and investigation.

Ideas can also set off a chain reaction and following on from the themes in the poem by Felix Dennis in summary chain would probably look like this:

Ideas [require]
Funding [which attracts]
People [who engage in the]
Execution [adding to]
Overheads [which reduces]
Profit [margins shrinking and leads to a]
Focus [and a need to]
Question the initial proposition [which again leads to]
Ideas….

Rohan Badenhorst
liberate@comestealmyideas.com