Gateway to the West - St Louis

Initially looking at the title I thought the author was exaggerating how central STL was to American History but by the end of it I could see why he would say that. The city lies at the confluence of Mississippi and Missouri.

STL was the HQ for the famous Lewis & Clark expedition who was tasked in exploring the flora and fauna and assess the land further to the West, and also establishing it as a major trade hub for fur trade. The city was a pioneer in lots of activities in the past, and also has a very complicated history - violence, removal and genocide and expropriation and control of land.
The city incidentally also was at the center of Dred Scott decision, and was of strategic importance during the Civil War and was also one that had the first General Strike in the country.

The author introduced me to a new term, which he at many places emphasizes and shares evidence of- the phenomenon of "racial capitalism" - process of extracting social and economic value from a person of a different racial identity. How this has been a consistent manifestation in the city and its adjacent counties for over a couple of hundred years. It has some heavy sections on episodes where even government agencies (Federal Housing Agency) encouraged segregation in neighborhoods basically making it a federally sanctioned segregation policy long after it had been termed illegal, how in the present day tax incentives are being used to used invite economic development only to small tracts rather than the whole town and poor homeowners are evicted for being unable to pay taxes while commercial properties are tax-exempt due to "redevelopment laws". Not surprising to know but still makes one upset.

Also, the book also has uncomfortable portions describing the plight of Native Americans - how they had been lied to, cheated out, dominated and in many instances literally butchered by disproportionate force.

Overall, it's a good read. The author did a great job handling a heavy topic and taking us through the different eras and pointing out different facets of the city - what changed and what has not. Worth reading!

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Some notes -

• The book tells about a few instances where the Native Indians came out with a white flag (a universal sign of truce) but it was ignored and the fighting continued. Seems to be true on researching on the internet.
  
  
• The author lays out reasons how there was a certain degree of class conflict at play even before the Civil War. Those not holding slaves felt marginalized by those who did and actually felt threatened by the accomplishments of the few free "colored" people.
  
  
• Even immigrants from Europe who settled in the region faced hostility from the natives.
  
  
• Many European origin immigrants (Germans specially) were sympathetic to slaves and wanted to give them more rights but there was an unspoken fear in terms of work/labor that the city might become an attractive destination then. 
  
  
• Somehow, even during the struggle for workers rights when Unions were prevalent - it is remarkable that people of color weren't allowed entry in them.
  
  
• There was some hope that in the period of Reconstruction - lots of legislations would be passed to help the now free but the narrative shifted to "freedom" to own property and continue doing whatever and the momentum was lost.
  Tl;dr of the reconstruction period. 
  
  
• John Fremont (many places named after him) has a very checkered record.

Ten Lessons for the Post Pandemic World

The title of the book and the author's name was enough to compel me to put this on my To-Read list and go through it before the subject got outdated. I like the overall tone of the book. Agreed with most of the lessons, appreciated some nuance on thorny topics and definitely benefitted from Fareed Zakaria's international worldview.

Here is a basic summary of the ten lessons - 

Lesson 1 - Buckle up : There will be more pandemics

• Not sure if we will see any global regulation of wet markets and meat factories. What may come out will probably be a patchwork. Hopefully, plant based meats are cheap enough to replace meat to some extent.

Lesson 2 - What matters is Quality of Government

• With so many health departments at state, local and tribal level (2,684) and then add county health departments on top of it - is one reason why the Covid-19 Response was so bad in the U.S
  
  
• If you look at other areas - lobbying and other ills plague the system.
  
  
• It is kinda depressing. It doesn't look like the two political parties, the media and the population have the intention or the "attention span" to indulge in conversations on institutional reform.

Lesson 3 - Markets are not enough

• People specially the young generation has realized that the capitalism in its current form isn't working at all. For example - why is the effect of "government spending" not a concern when Federal Reserve provides support to those with stocks and bonds.
  
  
• Why should "Essential workers" be just respected and not rewarded by the markets?

Lesson 4 - People should listen to the Experts and Experts should listen to the People

• This was a brilliant chapter. It summarized the political, social trends. 
  
  
• Experts have fared badly and seem to be out of touch with the lives of an average person.  Looking down upon those who are non-college educated, not from fancy schools is only going to depend this "anti-elitism" sentiment.
  
  
• How those who are college educated (meritocrats) who rule the rest (technocrats/bureaucrats) - and invite disdain from the rest of population. In other words, two thirds of people stand by and watch as the other third run everything. Experts these days can be vaguely described as = highly educated living in cities, holding professional jobs, tend to be socially liberal.

• Power kills empathy.

Lesson 5 - Life is Digital

• People would naturally adapt to this new world differently, some feeling liberated, others trapped.
  
  
• The pandemic showed us that technological revolutions are further along than we would have thought but also digital life can feel cramped, a poor simulacrum of the real world.

Lesson 6 - We are social animals

• Here the author said that "well managed cities" will thrive -why? Because people will stay because of their friends or because what's easy for their pocket. He also mentioned the "fifteen minute city" model that is coming up.
  
  
• This was slightly confusing as he said in the earlier chapter that life will become digital and just like life was 200 years ago when people used to farm - professional and personal life intertwined together.
  
  
• Not clear how the "social" part will manifest itself in a digital world? Will it be in the form of social gatherings? Educational lessons? Work in person?

Lesson 7 - Inequality will get worse

• The pandemic will push millions back into poverty over the next few years.
  
  
• Growing inequalities if not addressed by reforms, may result in unrest and revolutions.

Lesson 8 - Globalization is not done

• Even if the West wants to move away from Chinese suppliers, the best and easy way is to move factories to places where production costs are low and no such politics like Vietnam, Bangladesh, Romania or even Mexico. In short, globalization is here to stay.
  
  

Lesson 9 - The World is becoming Bipolar

• I agree that the world will become bipolar. However, I feel like U.S may become the weaker of the two powers if current status quo remains. China looks way strong at the moment.

Lesson 10 - Sometimes the Greatest Realists are the Idealists

• It is considered to be an idealism to hope that countries all across the world co-operate but the author reminds us that the world has seen 70 years of peace with intermittent wars in some corners - which has led to a lot of development and people moving out from poverty.
  
  
• He reminds us that the broader view after World War II - that collective security, and collective endeavors were in each nation's self-interest -still holds true today.
  
  
• Somehow a dysfunctional dynamic has set in under which politicians use multi-lateral institutions for their benefit but turn on them whenever problems emerge - and it harms people's faith in institutions and a global rule based order. He gives the example of European Union. 
  
  
• In the author's words - It's not a flight of fancy to believe that co-operation can change the world. It is common sense.

New Deal

The motivation to pick this book was to actually know about the circumstances around and during the New Deal era and then try and draw some sort of comparison between then and now as the world recovers from the Covid-19 shock.

My main preference was a book that was comprehensive and did not have a few volumes - and this fit the bill. Also, I have noticed that the foundations of a lot of influential institutions were laid during that time and that era is supposed to be considered as a prime, rare example of how the government actively stepped in to help and rebuild the society after it was decimated by the 1930s depression. No wonder we hear terms thrown around like the “Green New Deal” - a New Deal’s 21st century version of what many believe should sound like. Also, this program helped cement F.D.R’s position as one of the most successful Presidents. Historical Rankings of presidents of United States

Here is my attempt of what I could find the main features of the New Deal, the similarities and differences between then and now.

Standouts -

• 100 days of any presidency are the most pivotal in terms of setting the tone and agenda for the 4 years.

• Under the New Deal the foundations of quite a few institutions and laws were laid - some of which remain like FDIC, Glass-Steagall Act, NRA, SEC, CWA, FSA.

• Organizations like NRA did standardize code and practices but ended up policing a lot more. It prevented things from getting worse but did little to speed recovery.

• Gold buying was a mistake from FDR. Eventually, he abandoned the Gold standard.

• The Social Security Act was conservative and inept in the context that at that time there was no other welfare system in which the state shirked all responsibility for old age indigency and insisted funds  be taken out of the current earnings of the workers. Sickness, in normal times the main cause of joblessness was disregarded.

• Laid the foundation of Social Security in the form of Old Age Revolving Pensions and later Social Security Act of 1935. 

• FDR’s comment is also remarkable that -  the employee share of taxes was to ensure that the contributors had a legal, moral and political right to collect it (a way of having skin in the game). And with taxes in there, no one could dare scrap it. 

• Building infrastructure helped give employment to so many people. Master-stroke!
  CWA built/improved 500,000 miles of roads, 40,000 schools, over 3,500 playgrounds and 1,000 airports and renovated multiple govt. buildings.
  Unfortunately, alarmed at how much CWA was costing - FDR ended it as quickly as he could.

• Initially, the African American community wasn’t supportive of the New Deal specially because the Congress at that time failed to pass Civil Rights Legislation.Not a single piece of Civil rights legislation was adopted in FDR’s four terms in the White House.

• The big Crossover happened between 1934-36 when they finally became pro-Democratic.

• Lots of tussle between Globalists v/s Isolationists w.r.t WWII. One faction wanted intervention, the other didn’t. The U.S did adopt the policy of indifference/neutrality which did play a little role in things getting out of hand. And ultimately the Pearl Harbor attack forced it to join the war.

• FDR was initially sympathetic to the cause of labor (unions).

• In the late 1930s, there were fears that fascism which was popping its head in Europe might raise its ugly head here in the U.S itself.

• The U.S was desperate to stay out of WWII.

• FDR interacted with the press freely. Monumental in changing the perception of the government - it made them think of the government.

  Similarities

• Heading into 1932, most Americans had come to a despair of the whole political process, a contempt for Congress and political institutions. The country was facing peak unemployment, run on the banks and stock market crash. 
  
  

• The stories in the newspapers of that time and remarks of the observers tell us about abundance for one half and the other half struggling. This is very similar to how the situation is post Covid-19 in the US except for the banks and the stock market. There however remains a high number of unemployment and the main street is reeling from the year that has gone by.

• Plus, the landscape of the world and how it conducts business might have changed forever putting lots of jobs in peril.

• Even in 1933 - the sentiment to forgive debt was very popular. Same as what it is now - in terms of student loan debt, housing.

• I saw some criticism that POTUS 46th took a long time to get the Stimulus Bill passed. But even back then, March 4th FDR was inaugurated and in May - Industrial Recovery Bill passed. Turns out passing legislation is a time consuming process!

• FDR surrounded himself with experts - something happening now too.

• Even in the 1930s - policies were being dictated by interest groups.

• Lots of struggle by the Unions - FDR was not sure about them.

• Same political playbook in elections - fear, exaggeration and distortion.

• Govt. help back in the 1930s was criticized by the same arguments that it violated traditional American assumptions of self-help, self-denial and individual responsibility.

• Met a lot of resistance to tax the inheritance and top 1% and regulate big companies (power utilities in those days).

• America First was still a thing back then. As the world political temperature grew hot and clouds of war assembled, a lot of advisors wanted the U.S to sit out (isolationism). FDR even in his inaugural address said “the putting of first things first”.

• Even back in the 1930s war was considered to be a willful distraction from troubles at home.

• Talk of packing the courts.

• The recession in 1937 - raised concerns of inflation and heavy taxation due to federal spending. FDR did cut WPA rolls and PWA funding being paranoid about inflation.

• Anti-monopoly sentiments.

• It was a widely believed perception in the 1930s that the decade before (1920s) had seen obscene wealth building.

• Quoting from the book verbatim - 

  During the upturn of 1935-37, conservatives argued that, since the crisis had passed, reforms were no longer appropriate.

  Sounds familiar to the rhetoric we are beginning to hear?

• Another line that caught my eye -

  In the early years of the depression, the nation was united by a common experience. People felt genuine compassion for the victims of hard times. By Roosevelt’s second term, as it seemed that the country might never wholly recover, the burden of the unemployed had become too exhausting a moral and economic weight to carry.
  Sounds familiar?

• Tussle over balancing immigration versus high rate of unemployment amongst U.S citizens.

Differences -

• 1934 elections were one-sided. Republicans were almost erased as a national party. Dominating the legislature helped FDR execute his policies without any opposition.

  It doesn't seem one-sided in 2020.

• Looking back from 2021 the jolt in 2020 seemed short-lived compared to how it was in the 1930s. Ofcourse, we don’t know what unknowns lie ahead - variants, inflation, debt-to-GDP ratio.

  
  

• Economics in the 21st century is quite different than 100 years ago.

Then v/s Now

Conclusion -

Finally, it is quite clear that the policies of the New Deal era were quite successful. Almost every big monument, bridge, institution was conceived as part of the New Deal. It is remarkable that it had something for everybody. It had a Federal Art Project under which the artists were paid to pain murals outside government buildings! 

If I were to pick 3 key-takeaways from then - 

1. Government spending is not as bad as it is made out to be.

It generates jobs and touches the lives of more people than we can imagine. The main thing is to go big and not timid in terms of vision.

2. Spending on infrastructure is worth it.

I say that because many of the bridges, highways built under that scheme are now the main tourist attractions and would have probably generated tonnes of jobs, and billions in revenues.

3. Fight the monopolies.

There was an active measure to fight the monopolies during that time and yes, it did face lot of pushback. It didn't do as well as other policies but this is something I wish would have happened.

Lockdown Reading - Golden Gates

Strongly recommend this book for anyone interested in housing. And of-course, everyone would be somewhat interested in it because it is such a basic "goal" on almost everyone's list.

The book talks about in detail the problems that are plaguing the housing market - why at some places rents and prices are exorbitantly high, through multiple interwoven stories.

Housing is such a vast and complex subject. It has so many aspects to consider. Some of them that I can think of are  - 

• Affordable Housing
• Gentrification
• Homelessness
• Climate Change (yes even climate change. Third of the greenhouse emissions are from transport. If people cannot afford close to live close to where they work, they drive to work daily. Let's be honest on an average public-transport is poor in most of the world).
• Zoning Laws (or laws governing how houses need to be built)
• NIMBY/YIMBY
• Redlining
• Evictions

Reading it I had moments of realizations and exasperations in equal measure.

• It seems quite unfair to me that the neighbors can bully the developers to build less housing on the pretext of it'd bring in more crime, spoil the nature of the neighborhood. A new excuse now is the effect on the environment. City councils often bow down to such pressures.
   
• The above ideas can be clubbed under NIMBYism. Also, common is that people objecting are already house owners and make claims like - "...I have no problems with affordable housing but it needs to be built in the right place." 
  Emphasis on right. Also, contributing is the perverse incentive of house price. The law of economics is that if something is in short supply it'll become more valuable and its prices will shoot up.   
• Listening to an interview of the author, the significance of title of the book GOLDEN GATES dawned on me. Remember how in ancient times people who were poor used to live outside the city gates? Similarly, now we have these tendencies to thwart new housing to be built so our "homogeneous, affluent" neighborhood vibe is not disturbed. 
   
• Local politics is scrappy but that is where decisions about approving/denying housing projects are made. Most people do not pay attention to it let alone attend those meetings. But that's what helps people with vested interests (shills) to get the council to do what they want. Also, would note that legislation or passing laws involves serious amount of paperwork and technicalities.
    
• To be realistic, the government alone cannot fix this problem. Cue innovation and technological disruption. Housing Construction is one of the industries that has not seen enough advancement and improvement in terms of productivity. 
  This is where lots of companies like Blokable building modular homes - can come in to help. Imagine a factory churning out houses which just need to be nailed together at the site. Such a process can help a great deal with the supply. However, there's another problem with these - the stigma!   
  Notice how there's a certain kind of perception on those living in trailer homes? What is to say it won't happen with modular homes? What if people from an affluent neighborhood object to modular homes being set up near their area? Do you think the VC or the founder of such modular homes companies would themselves live in this modular home? I think the only way this perception problem would get solved is perhaps if big giants like Amazon jump into this business and make it acceptable and we would see a change in perception in matter of a generation.  

Overall, it's a good read if you want to understand what plagues the housing market.

Lockdown Reading - Adaptive Markets

I don’t remember from where I picked up a recommendation for this book but what a great investment buying this turned out to be. It will not be an exaggeration to say that I really enjoyed this book. It was indeed informative but what made it enjoyable was how easily the transition was between points - concepts supported by anecdotes, stories and research studies and how beautifully in the end they all tie together to frame a powerful, optimistic call to action. The author’s work does make him sound like a good professor. 😃

The book is a collection of a lot of interesting concepts - 

• It talks about how human behavior, emotions influence our financial decisions. It is one of the reasons why the Efficient Market Hypothesis(E.M.H) doesn’t hold true.

• It does critique E.M.H and provides two strong points -

• If the market is really efficient with all the info priced in then what’s the point for any investor to do some work getting new info or numbers when everything is already priced in ?

• Also, if the market is really efficient with all the info priced in then how come George Soros’, Jim Simons’ and Warren Buffets of the world have made billions of dollars?

• It gives a good glimpse on how the concept of “money” has not been around forever and is relatively recent on an evolutionary scale. So the idea of losing money generates similar emotions as “fight or flight” in case of a physical attack.

• Using advanced technologies such as fMRI it has been found that similar centers in the brain are activated when there are prospects of making/losing money.

• Humans are not rational beings and are influenced by emotions of fear, panic and pleasure and thus that is what makes them take irrational decisions in the context of money.

• Concept of probability matching with the help of an experiment:

• Consider the game Psychic Hotline. Either letter A or B will be shown on the screen. If you get it right +$1 else -$1. 

• After a few rounds, the participants observe that A appears more often than B. Say 75% of the times it is A, and B appears 25% times.

• So the optimal strategy is to always pick A.

• But people try to mix it up which is called “Probability Matching” and that is sub-optimal thus reducing the earnings to only 62.5% times.

• It is definitely worth pondering that our DNA is 97% similar to an orangutan but the 3% difference is big enough to keep us on different sides of the fence.
  
  
• Emotion isn't the source of irrationality. The author's proposition is that we wrongly conclude that emotions are the reason for our irrational actions when infact they are the reason of rationality.
  
  
• The author reminds us that although there were so many attempts to draw inspiration from Physics to apply to Economics - it is infact more similar to Biology. Both are equally complicated fields.
  
  
• The author puts forward a new theory to beat the E.M.H. He talks of Adaptive Market Hypothesis.
  This theory is about revolving around heuristics.  It blends in the concept of "bounded rationality" too. A very good example of this is how we may have 10 shirts, 10 pants, 5 ties and 5 jackets. We don't try out every single of them every day before going to work. Because in our minds already have a heuristic/idea about which shirt will shirt well enough with a pant. 
  
  
• Also, going by the word "adaptive" we continue to adapt and learn from our experiences and surroundings (dressing appropriately is an example - while going to a function we don't try out running shorts - adapting and cutting down our choices. This is another example of bounded rationality).

The example that blew my mind was around Biological Evolution. It was fascinating to see how the concepts of risks - system

ic and idiosyncratic can be tied to evolution.

Here's my attempt to summarize it -

Let's say a hypothetical creature which could produce only 3 offsprings (Tribble) has a choice to dwell on a plateau or a valley. Odds are such that in the

a) Valley - 3 offsprings are guaranteed.

b) Plateau - 50% chance for 2; 50% chance for 4 offsprings. Net being still 3.

Now if everyone of the tribble chooses to live in the valley - they will be safe from sunshine but not from floods. If everyone of the tribble chooses to live in the plateau - they will be safe from the floods but not from sunshine.

So which option should they choose? Let, f be probability of choosing the valley. 1-f be probability of choosing the plateau.

Here, even though more tribbles chose to nest in the valley - all of them would be wiped out as soon as there is a heavy rainy season. So, what should be the optimal percentage of tribbles residing in a valley. This is where the principle of Probability Matching ties back in. f should be same as the probability of the sunlight. By probability matching, the reproductive bets will be hedged so that the expected number of offspring will be same, no matter whether it rains or shines. Sparing the complex maths behind it, so you've to trust this!

Another variation of this would be - every tribble family have their own individual experiences ie microclimate. Each family faces rain or shine in a separate and independent toss of a coin that is something like sunshine 75% of the time and rain 25%.

So the probability that all of them (say 10 tribble families) will be washed away is (1/4)^10 i.e 1 in a million. Basically, nature has diversified the risk of extinction via microclimates i.e diversification is necessary in an evolutionary cycle. It also explains why dinosaurs got extinct cause they didn't hedge their bets - they were all on one planet and got wiped out together when a meteor hit. Similarly, you can also argue why it's important for humans to inhabit some other planet too!

I thought this was a very cool thing I learned!

Something that gave me lot of optimism was how finance can actually help fund researches for life saving drugs or even the current Covid-19 crisis. We all are aware how governments are cutting funding for health and research. A cancer drug research takes 10 years and $200 million with a 5% chance of success. Clearly, no private investor would want to put their money in such a venture where they would lose their money 95% of the time. They would rather fund a tech startup and sell to FAANG later.

Better approach is to invest rather one project at a time than to invest in 150 such research projects. Even with 5% chance of success - you can to do the math to see that it is promising that atleast 3 of them will succeed. Now, the crucial part is funding $200mn x 150 i.e $30billion. Here's where you can issue bonds and finance more than half of the projects with long term debt; the intellectual property of 150 projects can be the collateral. And if you get fancy you can use derivatives - securitization, CDOs, Credit Default Swaps. Insurance companies can be invited to buy them too and it'd be a way for them to hedge their bets too considering they use an ugly term called "longevity risk". This $30 billion cancer bonds market will still be way smaller than the housing market. I wrote earlier here how this same principle can be used to fund Covid-19 research as well.

I'm still waiting to come across a logical argument of why this is not a feasible way to cure diseases like Cancer!

Overall, this was a fantastic book and worth my time reading during the lockdown. Hope it excited you to give it a try as well.

BookShop link - https://bookshop.org/books/adaptive-markets-financial-evolution-at-the-speed-of-thought/9780691191362

And the Weak Suffer What They Must

To be honest this book was not even on my reading list. I had my eyes for "The Adults in The Room" - considered to be one of the Top 100 books of the 2010s decade by The Guardian. But it wasn't available in my library. And researching about the author made me aware about this book. 

Besides the provocative title, the subtitle said "Europe's crisis and America's future" which piqued my curiosity as someone who is interested in learning and understanding more about how economies work and specially in this case Europe - of which my knowledge is next to zero.

The book is well-written, easy-to-understand which is not a surprise because the author was a professor at UT Austin and was also Greek finance minister during the most turbulent times. After reading the book I was able to understand why the European Union is a bad idea but the real takeaways for me were the crystal clear understanding of three fundamental questions. 

• How deficits and trade surplus work?
• What does it mean to devalue a currency?
• How lowering interesting rates (or the financial jargon QE) are not granted to work always?

How Deficits Happen?

First this basic principle - One person's debt is another person's asset. Similarly, one nation's surplus is another nation's deficit. 

• In an asymmetrical world, the money that surplus economies amass from selling more stuff to the deficit economies than they buy from them - accumulates in their banks.
• The way banks make money is by lending. With this surplus in their vaults, they are tempted to lend much of it back to the deficit countries where interests rates are always higher [because money is scarce there and, to invite investment those countries resort to increasing their interest rates. Investors love higher rate of returns.]

For example -

• One French family buys a Volkswagen car (a German company).
  Now there is a trade imbalance. To set it right, one German family will have to buy a French car (why would they when German cars are better) or a French wine. Think about competitive advantage here.
• But suppose this balance doesn't happen to the same matching degree i.e a trade imbalance occurs. Surplus (Germany) - Deficit (France)
• Now as soon as the whiff of this gets to the markets, currency traders and speculators will bet on the Franc to be devalued by the IMF.
• They will bet by taking out loans in Paris (in Francs) and buying Deutsche marks and whenever, in future Francs get devalued - sell those Deutsche marks back, repay the loan and make handsome profit.
• Interesting thing is - unlike sporting/weather events the bets here make the event more likely.
• This is how -
  With every Franc borrowed by speculators to buy Deutsche marks it will push Franc's value down. Now there are two exchange rates for Franc - one official and, the other unofficial rate in the markets run by the speculators.
• To defend the official exchange rate, France's Central bank would have to step in using its reserves of Deutsche marks to buy Francs and soak the excess Francs in circulation.
• But now a game of chicken is on and who will blink first.
  If speculators persist - the reserves of Deutsche marks will eventually start to run out.
• Finally, Central Bank will have to call its minister and tell them that they can no longer afford any more French families buying Volkswagen cars. Please call IMF and arrange for the devaluation of Franc.
• The only thing that now stand between speculators and their victory is Bundesbank (German Central Bank). If it prints more Deutsche marks and asks it "chosen traders" to buy more Francs and soak up the excess Francs in circulation thus bringing its price down and burning the speculators.
• But Bundesbank will not like to print more Deutsche marks to defend an exchange rate designed by politicians. As now there will be more Deutsche marks in the system it will cause domestic prices to rise (inflation).
• So the story unravels from here on then.

How does Quantitative Easing (QE) work?

• The Central Bank buys from commercial banks other people's debts.
• In exchange of these debts - the Central Bank deposits dollars to an account the commercial bank keeps at the Central Bank.
• It is hoped that the banks will pass on these huge sums of money to businesses wishing to invest.
• If it happens, the economy rises as the liquidity rushes in.
  
  But for it to work, lots of things have to align. Like,
• Customers for eg. have to believe that the real estate market has bottomed out and their jobs are secure. Only if they feel so they will ask a bank for a loan.
• Bank must be willing to lend the money.
• Companies which employ people must believe that since banks are lending money - the demands for their products will increase.
• Often, even when banks have done their job (under a directive) - companies hesitate to invest more in their operations fearing that demand is not there. So, instead they just buy back their own shares which increases the stock price and get a nice bonus for the execs for supposedly increasing the stock price. Shares rise and everyone thinks all is well while behind the scenes economy is not doing well.
• Mind you, this is not what QE was intended for. These benefits were supposed to trickle down. And for these failures, "trickle down economics" is now not very liked.

I have read bunch of books, articles on these topics and watched lots of videos explaining these concepts but I found the explanation in this book to be the best!

Other than these fundamental explanations, the author also makes a case that European Union essentially favors only a select few countries, likening them to a cartel and run by bureaucrats having plush jobs and perks in Brussels. Inspite of having a Maastricht treaty to draw inspiration from with some shady maneuvering few countries got admitted to the E.U. Read this. 

Yanis does make a good point when he points out that E.U tends to overrule and impose conditions on sovereign countries and democratically elected govts' arm-twisting to do things they weren't elected to do.

Another, interesting argument he makes is that after the end of Bretton Woods era United States propped up E.U with Germany as one surplus country in Europe and Japan in Asia. The way he explains this is that the plan was to entice the surplus nations to send their surpluses to WallStreet by -
i) Pushing American interest rates higher

ii) Make WallStreet more lucrative than its equivalents in London, Tokyo, Frankfurt, Paris etc.

And recycling those surpluses.

The analogy of the Greek fable: Minotaur and King Minos was quite striking here.
WallStreet = Crete

Minotaur = US' trade deficit that kept devouring R.O.W's net exports and their industries running. With profits being sent to WallStreet as a tribute to Minotaur.

To add context, he was the Greek finance minister during a tumultuous period and he resigned when Greece was asked to follow severe austerity measures by the E.U. So he definitely knows the inner-workings of the E.U as he had a seat at the table and was right in the middle of it. He also gives a fascinating account of how the concept of European Union took shape and gives lots of anecdotes.

Overall, I picked this up not entirely sure what this is going to be like but I definitely enjoyed reading and learning a few things!

Lessons from The Psychology of Money

In 2018, I came across this gem of an article "The Psychology of Money". This long article explains all the concepts and principles of money and investing into 20 nuggets. This is my distilled summary of it in a much easy digestible form. I have reordered them and also limited them to around 12.

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Investing is perhaps the only field where someone with no education, no relevant experience, no resources, and no connections can vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections.

The above can't happen in medicine or engineering.

1. In my opinion, the most important concept is Anchored-to-your-own-history-bias. 

Our personal experiences make up of only 0.00000001% of the total possible scenarios of the world. But we tend to think that's mostly how the world works.

Think of it like a video game (a simulation), where and what you are going through is possibly a fraction of the total possible paths the simulation could have taken you through. But you erroneously believe that it is "the" main path. And then we start developing our own false and simple narratives of how the world works.

Best way to get out of this bias is to read a lot, keep an open mind and be emotionally sound.

Also, when everyone has experienced a fraction of what's out there but uses those experiences to explain everything they expect to happen - a lot of people eventually become disappointed or confused at other's decisions.

2. An over-reliance on past data as a signal to future conditions in a field where innovation and change is the life blood of progress.

It essentially means past-performance is not a guarantee of future success. So, avoid over-admiration of people who have been there, done that or lived through "a recession or down-turn". With all due respect, experiencing specific events does not necessarily mean you qualify to know what will happen next. Writers/analysts who correctly predicted past recessions might not be correct on what's next coming.

This also does not mean you should ignore history. The further back in history you look, the more general your takeaways should be.

3. Extrapolation of recent past into the near-future and then over-estimating the extent to which whatever happens in the near future will impact your future.

What just happened, might not happen again soon and assuming that is a mistake!
The fact that there is a spate of negative news when chips are down are probably a sign of extrapolation of the recent past in the near short-term future and must be steered away from.

4. Under-estimating the role of luck in financial success (and life in general).

Since it is hard to quantify the default stance is to simple ignore luck as a factor. Sometimes things happen that influence outcomes more than effort alone can achieve.

5. Allure of pessimism in a world where optimism is the most reasonable stance. 

Historian McCloskey said - 

"For reasons I have never understood, people like to hear that the world is going to hell".

6. Investing based on what others are doing is dangerous.

You start thinking others are doing something that you don't and jump on the bandwagon but they were playing a different game all this time. And you get disappointed.

Also, you should not look at crowds as an evidence of accuracy or as a confirmation of your actions. If you do what everyone is doing, you will get average results. 

7. Underestimating the impact of financial mistakes on psyche and emotions. 

On spreadsheets it looks something you can survive like a 30% drop but then you look at the kids, your family, and you become weak, and start having second thoughts with emotions clouding your judgement.

8. Key to financial success is doing the same thing for decades and also doing nothing.

Compounding remains the key to success and somehow the human mind cannot fully visualize and appreciate its power.
Also, do not stop/break compounding investments. 

9. Do not make "overly optimistic bets" where downside is utter ruin.


Some investment bets have an unacceptable downside in any circumstance. 
Think of it as Russian Roulette - a bullet is only in one chamber out of the 8 (or whatever the number is) and the odds are in your favor but the downside is complete ruin. 

You have to survive/stay in the game to have a chance to succeed.

Ability to do what you want, when you want, with who you want and why you want - is priceless, has infinite ROI and should not be put at stake for any investment bet.

10. Political beliefs need to be kept separate from investing.

Co-relation between politics & economics isn't clear and is very messy.
This graph tells everything 

11. Every money reward has a price beyond the financial fee.
See if you are prepared to pay for it. It could be emotional, material or inconvenience.

12. Wealth is what you don't see, the things not purchased.

Wealth is to control your time and provide you with more opportunities and options not to be used as a status symbol.

The Box: Internet Alone did not bring Globalization

I do not remember where I read about this book but I do remember adding it to my To-Read list. But when I got to it was worth the recommendation! Wonderful book - which gave me lots of valuable insights and perspective on how the world has not solely been transformed by bits and bytes alone. The book's TL;DR can easily be - Globalization did not happen only cause of the Internet, It was the 

Container which laid the groundwork. If the transportation industry hadn't figured out how to ship products from one corner of the world to other efficiently with lowest costs - no matter how easy was it for two people to talk across the world, higher costs would have deterred any free flow of commerce and trade.

I also understood how seemingly slow changes change the course of society and ultimately transform cities and towns unheard before - changing the fortunes of many overnight.

Some might argue that this book is academic and dry at places but having read it thoroughly I would point that the author did an extremely good job in covering all aspects revolving around the container technology - the shippers, trucker, dockworkers, exporters and regulators who were at the center of it but also the macro effect.

What I wish would have been there was some maps of the shipping routes to help the reader easily visualize the challenges and travails of maritime trade. 

Overall it was a great read - feel like I learnt quite a few things!

The Internet is given a lot of credit for the globalization - how the world came closer and trade between countries far across became possible. But it is containerization that was a major precursor to the internet revolution which made the Internet impact possible.

Containers - “the box” made logistically possible how competition would be right there at the doorstep - forcing almost all industries to innovate and take measures to cut costs to stay in the game. 

Ideal X - First container ship to sail in 1956 from Newark to Houston 

Before containers were a thing - shipping was done in break-bulk ships as in all commodities were stocked in the cargo hold of the ship. (breakbulk - all discrete items had to be handled individually - cement bags next to sugar next to copper wires). There was no pattern in how the items were stored - often it would require that at a port all the items to be unloaded because the cargo meant for the that port was at the bottom under all other cargo. Also, loading & unloading was all done by dock workers and longshoremen which were all unionized. Since it was all manual labor they had very less incentive to be efficient which was in direct contrast to the shippers’ interests.

It is also worth mentioning that the working conditions at the docks were not at all safe. Dock workers had low salaries and they had to literally fight to get a job each day by assembling at the square - waiting for the ship to arrive whenever that maybe. Going to home to grab a quick bite or for other errands even though the ship was scheduled for arrival in the evening - usually meant losing their spot in the queue. All this unorganized system meant that the dockworkers had developed more 

loyalty towards each other than to the company. They formed unions which were interested in drawing up contracts with every minute detail like time to take breaks and how long they would be in.

Another thing that happened was that these unions were strictly against outsiders - with the dockworkers living near the docks - it became a family profession i.e the grandfather got his son his place in the docks when he retired and the son tried to make sure no outsiders came in so as to reserve a place for his son in the future. The dockworkers culture was very insular.

Even after unloading a complicated web of interchanges from the port to trucks, trains, planes and ferries awaited the exporters - which drove up the costs. Freight transportation was ultimately too unpredictable for manufacturer to take risk on delivering on time. Large inventory thus became a need to keep the production lines moving. With all these inefficiencies ships spent more time anchored at the docks than sailing which was what it should be primarily doing. The shipping industry was crying in need of an innovation to fix all these problems.

Malcolm McLean came up with this idea of containers and the first container ship - a refitted oil tanker sailed in 1956. It brought with it these benefits: 

• all items could be stored without the need to be handled individually,
  
• also it stopped cases of thefts - thus driving down insurance costs,
  
• The shipping line company over the years made the loading & unloading process more efficient using machinery and custom built cranes - cause of which the longshoremen gangs size constantly dropped from a once all time high of 22. Ultimately all that is needed now is a crane operator who sits many feet above the ground in a crane and picks up the container via the hooks on its corners and places it on a truck (or a flat railway car) and the truck (or the train) drives away to a distribution hub where the container is unloaded - thus reducing the time ship spent waiting for its cargo to unload.
  
• Lots of cities which were hesitant to invest or lacked foresight to see the change coming in maritime industry via containers - missed out.
  On the West coast - Los Angeles, Oakland - Alameda (home to Matson), Seattle and on the East coast - New York (after substantial investment), Savannah (late joiner) cashed in as traditional hubs like San Francisco, Portland and in Europe- London, Liverpool and Paris missed out.
  Globally, Rotterdam, Felixstowe and Antwerp in Europe and China with its relentless investments in its shipping ports caught up late but now is the leader with the most busiest and thriving ports. https://en.wikipedia.org/wiki/List_of_busiest_container_ports
  
• The shipping line companies were earlier organized more as cartels (they were called “conferences”) - they charged for every type of commodity in the cargo which didn’t make sense. And if an exporter ever used any shipping line outside the conference - the next time he tried to use any of the shipping lines of the conference he had to pay fine and pay more over. With the advent of containerships - what was inside a container became immaterial. TEU (20 foot Equivalent Units) became the unit on what was charged. Also, resistance of unions, the proximity of the port to the nearest railroad and trucking routes became super important on where the ships would make a stop. Little known ports benefitted.
  
• Some of the shipping lines tried to tap on the containerization- commissioning new ships to be built for different sizes of containers - a capital intensive project. This was before container sizes were standardized. Different sizes was a problem as it meant all container ships couldn’t stop at any ports as often a port wasn’t equipped with containers of various sizes. Many trucking and railroad companies couldn’t handle different container sizes - thus providing an opportunity for a mini-cartel. There was a difference in container sizes in use between Europe and USA causing logistical nightmares. Until after a long drawn process standardized the container-sizes bringing in some semblance of order.
  
• The time the first container ship sailed in 1956 is consequential as around the same time lots of ports on the Pacific side lost traffic as lumber moved on to road leaving the huge investments as white elephants. It revived the slowing maritime trade. 

If you look around today you can see the undeniable impact of containers all around us - Amazon and e-commerce websites ship multitude of items to their customers all in a box - inspired by the steel container. At a few places you can see people living out of containers or even hosting creative studios or workshops.

Another interesting observation I had was that Malcolm McLean - the pioneer of this technology was not able to cash in completely on the revolution his brainchild ushered. Read about his struggles to keep his shipping line companies (SeaLand and United States Lines) afloat. There were others who built on top of his vision and made the benefits of this technology more profound. Perhaps, this is what should happen - people build on top of each others ideas and visions to arrive at a magnificent future whose scope is way beyond the original idea. Major reason why competition is a good thing!

Interesting tidbits: 

• BBC did story called the Box Project where it covered the journey of the box. http://news.bbc.co.uk/2/hi/in_depth/business/2008/the_box/default.stm

• Panama Canal - how locks work https://www.youtube.com/watch?v=pHmaZw5j1is

• World’s Largest Containership makes its maiden call at a port 

          https://www.youtube.com/watch?v=Moxpa7f1BqM