Tag Archives: The Roaring Nineties

My 2014 reading list

In this post I wanted to share the list of books I read along the year with a small comment for each one, the link to a post about the book in the blog (when applicable), links to Amazon (in case you want to get them) and to the authors. I have also included a small rating from one to three “+” depending on how much do I recommend its reading:

  1. Seeking Wisdom: From Darwin to Munger(by Peter Bevelin) (++): this book is an interesting guide into how to improve our thinking process. It starts with reviewing what influences our thinking, then analyses misjudgments and provides some guidelines for better thinking. It draws heavily on quotations and passages from other authors such as Confucius, Charlie Munger, Charles Darwin, Warren Buffett, Cialdini, Kahneman… therefore if one has read one or several of their books (Thinking Fast and Slow, Influence, letters to the shareholders of Berkshire Hathaway, On the Origin of Species, Poor Charlie’s Almanack…) this book may seem redundant. One thing I liked about the book was the offering of key concepts after each chapter and its appendix on checklists.
  2. What management is (by Joan Magretta) (++): a brief book covering the different aspects of management (from value creation to managing people, business models, strategy, execution) in a very concise way though full of very vivid examples from different companies. While reading the book I marked dozens of passages, and I included one post in the blog about one of the anecdotes related to the Ford Pinto.
  3. The Early History of the Airplane (by Orville and Wilbur Wright) (++): it is a short book or rather a compilation of 3 articles by the brothers (30 pages in the e-reader version I used). The 3 articles are: The Wright Brothers’ Aeroplane (by Orville and Wilbur Wright), How We Made the First Flight (by Orville Wright) and Some Aeronautical Experiments (by Wilbur Wright). In these articles they provide some insight into how they became attracted to the problem of heavier-than-air self-powered controlled flight, what were the difficulties they faced, what schools of thought there were at the moment, who influenced them, what results and experiments from others they relied upon, the experiments they performed, the results at which they arrived… and, yes, they describe their first and subsequent flights. I wrote a post review the book, find it here.
  4. The Racketeer (by John Grisham) (++): in this novel the author has Malcolm Bannister, an attorney half way through his 10-year prison term for racketeering, maneuvering his way out of prison by negotiating with the FBI and helping to solve a crime investigation gone nowhere.
  5. Micro (by Michael Crichton and completed by Richard Preston) (+): the novel is about a group of graduate students seduced by Nanigen, scientific research company, to join them in Hawaii. The story develops in to a hunt of the students in the jungle as they had been miniaturized by the latest technology developed by the company. To my taste, a bit too much on the fantasy side.
  6. Hot, Flat, and Crowded(by Thomas Friedman ) (+++):  In this book, Friedman claims that as we are entering the “Energy-Climate Era” the world is getting hot (global warming), flat and crowded (soaring population growth), and clear action needs to be taken to address these issues. Government need to establish a clear regulatory framework, clear price signals to establish a market in which companies can innovate to solve the problems at hand. The author included in the book dozens of references, quotes from conversations, excerpts of speeches from leading figures, and several examples. I wrote a post review the book, find it here.
  7. The Roaring Nineties(by Joseph E. Stiglitz ) (+++): Stiglitz wrote The Roaring Nineties in 2003 to offer an insider’s view of economic policy making and the economic boom and bust of the nineties. Stiglitz is frank in admitting that all the focus that the Clinton administration had at the beginning of the term in passing laws to improve the living of the disfavored ones was suddenly put aside due to the mantra of deficit reduction. He openly regrets it several times throughout the book and offers some criticism on the administration he took part in and others before and after. Especially Reagan’s and Bush II’s. I wrote a post review the book, find it here.
  8. El amor en los tiempos del cólera (by Gabriel García Márquez) (+++): the author was inspired to write this book by the story of his parents and other old couple who had to keep their relationship in secret all their lives. The novel describes the relationships along all their lives between mainly three characters: Fermina Daza, her husband, Juvenal Urbino, and her ever love from childhood and ever a candidate, Florentino Ariza. I have to say that I liked more this book than “One Hundred Years of Solitude”. I wrote a post review the book, find it here (in Spanish).
  9. Crime and Punishment (by Fyodor Dostoyevsky) (++): the book narrates the story of Rodion Raskolnikov, an poor student in Saint Petersburg who kills an unscrupulous pawnbroker for her cash. Raskolnikov had written an article in which he discussed how some crimes could be seen as acceptable in the name of a greater good by leading individuals. He convinces himself to be one of them. The story gets ever more complicated as his family comes to town for the marriage of his sister, the investigations by the police, the interrogatories, his errors due the constant illness he suffers from malnutrition, etc.
  10. Sycamore Row”  (by John Grisham) (+++): in this book the author writes a kind of sequel to his all time best seller “A Time To Kill” with the appearance of the main characters of the former book: Jake Brigance, Judge Atlee, Harry Rex Vonner, Lucien Wilbanks… this time the case is about a will that is contested. A will from a white businessman leaving all his estate to his black maid, cutting his family out; a tough decision for Ford County, Mississippi.

Note: You can find here my 2012 reading list, and here, embedded in my summary of 2013, the list of that year.

Advertisements

5 Comments

Filed under Books

Stiglitz on shareholders’ mistreatment

A few days ago I published a book review of “The Roaring Nineties” by the Nobel prize Joseph E. Stiglitz. I wanted to share here some passages related to how shareholders, investors are mistreated by those who are supposed to work for them and how alignment of incentives play a role in this.

[On boards of directors] “Here again there was another conflict of interest. Boards are supposed to protect the interests of all shareholders. But some boards, whose members often receive large fees for membership and attendance, were frequently more concerned with pleasing the CEO than fulfilling their supposed fiduciary responsibilities.”

[On one-offs] “[executives] found ways to boost their earnings – through sam transactions which allowed them to book revenues even if they didn’t really have them, or by moving expenses off the books, or by using one-time write-offs (time and time again), to try to give the appearance of robust normal profits. Their objective was to create the appearance of alluring success […] and cash out before the world discovered the truth.”

[On incentives] “The bankruptcy report spoke of “numerous failures inadequacies and breakdowns in the multilayered system designed to protect the integrity of financial reporting system at WorldCom, including the board of directors, the audit committee, the company’s system of internal controls and the independent auditors”. The problem, I would argue, was deeper, and touched not only WorldCom: the problem was with incentives – for the management, and for those who were supposedly watching over management.”

[On the subject of fines] “They accepted fines of unprecedented levels […] but, in most cases, only after being assured that their CEOs would not do [jail] time. […] in many cases it was not the CEOs but the companies that paid them;  indeed, the fines imposed on corporations for such bad behavior represent a curious case where the victim is punished twice over. For ultimately, the shareholders – who have already been cheated by corporate management- bear the costs of such fines.

[On executives’ greed and regulation] “The deregulation mentality made the suggestion of increased government regulation […] an anathema. What worried many were shareholder suits, which they viewed as simply reflecting the rapacious greed of lawyers, not part of a system of checks and balances against the rapacious greed of corporate executives.”

Leave a comment

Filed under Economy, Investing

The Roaring Nineties

 

The Roaring Nineties, Joseph E. Stiglitz.

The Roaring Nineties, Joseph E. Stiglitz.

Joseph E. Stiglitz (1) served and later chaired the  Council of Economic Advisers (CEA) during the Clinton Administration from 1993 to 1997. He was awarded the John Bates Clark Medal (1979) and he Nobel Prize in Economics (2001). After leaving the CEA he moved to the World Bank. He taught in the past at Stanford and now teaches in Columbia University. He also served at the OECD and several other positions to which he has been appointed throughout his career.

Stiglitz wrote “The Roaring Nineties” in 2003 to offer an insider’s view of economic policy making and the economic boom and bust of the nineties. I loved the book. I use to make some annotations and marks in the books I read. I counted the ones I made reading this book: 52.

Stiglitz is frank in admitting that all the focus that the Clinton administration had at the beginning of the term in passing laws to improve the living of the disfavored ones was suddenly put aside due to the mantra of deficit reduction. He openly regrets it several times throughout the book and offers some criticism on the administration he took part in and others before and after. Especially Reagan’s and Bush II’s.

Now, in 2014, there are many who brag about their seeing of the bubble that caused the financial crisis which burst between 2007-2009. It would be rather easy to see what they really said beforehand. See what Stiglitz published in 2003:

The huge tax cuts of 2001 and 2003 were larger than the country could afford. The surplus of 2% of GDP of 2000 was converted in short order to a deficit of 5% of deficit – a huge turnaround in a short space of time. Americans were not saving enough to finance this deficit, and so the country, in effect, turned to the rest of the world. The country is living well beyond its means, borrowing more than a billion and a half dollars a day. […]

Households took on more debt because interest rates were low and they could afford it. But as interest rates inevitably rise as the economy strengthens, households will find it difficult to service their debt. This will be further aggravated in the years to come as large budget deficit means interest rates will be higher than they otherwise would be, putting an extra burden on the country. Many households will be forced into bankruptcy. Many will be forced to rein in their consumption. There is a strong risk that the real state bubble will break, or at the very least, prices will stagnate […] What is clear, however, is thar the Bush-Greenspan strategy, entailing greater reliance on low-interest rates and mortgage refinancing to maintain the economy through the period 2001-2004, and tax cuts for the rich, providing far less stimulus to the economy than would have been provided by investment tax credits or tax cuts for the poor, was a risky one, and has put the future of the American economy in jeopardy.” (emphasis is mine)

The risk then became an issue, which is still lasting 10 years later. This comes just in the preface of the book. Stiglitz specialization is information asymmetry. He gives some examples of such asymmetry in different passages of the book when analyzing errors, incentives, etc., in accounting, auditing, special interest agendas.

Let me quote some of the gems I had marked in his book:

“[…] one of the reasons that the invisible hand may be invisible is that it is simply not there”

“[…] “Voodoo” economics of Reagan, who somehow believed that by cutting taxes you could raise tax revenues […]”

“Developing countries were told to open their markets to every imaginable form of import […]. Meanwhile, we maintained stiff trade barriers and large subsidies of our own on behalf of U.S. farmers and agribusiness, thereby denying our market to the farmers of the Third World. […]

These were not the only examples of what struck those abroad as blatant hypocrisy.”

“We scolded the developing nations about their disrespect for intellectual property laws that we, too, had scorned in our days as a developing nation. (The United States didn’t get around to protecting the rights of foreign authors until 1891)”

“[…] the folly of the Reagan tax cuts. […] a theory scrawled on the back of a napkin, called the Laffer curve – after Arthur Laffer, who then was at the University of Chicago- which claimed  that as taxes got higher and higher, people worked less hard and saved less […]”

“Over the years, I have become convinced that the confidence argument is the last refuge of those who cannot find better arguments; when there is no direct evidence that deficits directly promote recovery or adversely affect growth, then they do so because of confidence.”

“Fiscal responsibility was supposed to be the province of the conservative Republicans, but after twelve years of fiscal profligacy, a tax cut that Reagan said would pay for itself through energizing the economy but did not, it was left to Clinton to do the dirty work, without the help of the Republicans, who voted unanimously against Clinton’s deficit reduction plan. Their opposition confirmed the more diabolic interpretation of the Reagan tax cuts. They didn’t really believe in supply-side economics, the theory that the tax cut would spur the economy so much that tax revenues would actually increase. Instead, they knew that there would be shortfalls, and they hoped that the shortfalls would force a cutback in government spending. The true agenda was thus to force large cutbacks in the size of government […]”

“[…] the IMF was founded, under the intellectual aegis of Keynes: to provide with the money necessary for expansionary fiscal policy in an economic downturn. But the IMF has forgotten its original mission […]”

“The New Economy-the innovations which continue to fuel the productivity growth and form the basis of this country’s long-run strength depend on the advances of science, on researches at universities and research labs, who work sixteen-hour days and more in the tireless search to try to understand the world in which we live. These are the people we should have been rewarding, and encouraging.”

I think that with these excerpts you get a glimpse of the directness of the book. It touches economic policies, creative accounting and accounting standards, conflicts of interests, incentives, the case study of Enron, employment, the role of central banks, the danger of quick adoptions of deregulation, corporate hypocrisy, globalization…

I strongly recommend the reading of this book (about 380 pages).

(1) You may follow him in Twitter.

3 Comments

Filed under Books, Economy