Bitcoin Mania

15. November 2013

I only narrowly missed it. I finally decided to activate my account at the bitcoin exchange Mt.Gox last Thursday so I could buy some of this virtual money. All I had to do was to submit my credit card details and a scanned copy of my passport (what could possibly go wrong?) and I could become a bitcoin investor.

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The Positional Rat-Race

28. October 2013

In recent blog posts, I have explored the difference between positional and non-positional goods, i.e., those goods whose ownership confers some social status on the owner, and those that don’t. As people attach a great deal of importance to how they rank in social comparisons, there is a tendency to sacrifice non-positional goods in favour of positional ones. For instance, people are prepared to forgo time spent with family and friends, or even time spent sleeping, in order to work longer hours. Sleep is a non-positional good, so being able to enjoy more of it has no impact on one’s social ranking. However, the top-of-the-range car that one can afford to buy with the extra income is a positional good; it confers social status on its owner, so this is an important part of its perceived value. Of course, some of this status will be lost as soon as the neighbours park even more desirable automobiles on their driveways. The foregone sleep, in contrast, can never be regained.

Social norms play an important role in this context. Any product that happens to be ‘in’ at a given time, for example the latest iPhone, will see its value as a positional good suddenly upgraded. This can result as a function of its scarcity – only the first people to leave the Apple store with the newly-released smartphone will proudly hoist the gadget into the air. The positional clout of a good could also be due to its lofty price, which means that not everyone can afford one. Even the most unlikely products, which because of the social norm or fashion have become must-have products, can mutate into positional goods. Once again, though, as soon as these products stop being trendy, for example, once everyone else has one, the mutation will go the other way – the positional cachet will be lost.

In the end, a veritable race to consume positional goods can develop. Larger and more powerful cars will be bought as motorists try to improve their relative positions in society. Even if this means that the cars people buy are wholly unsuited to the practical use they are eventually put – for instance, on roads with speed, width, height and emission limits – people still want them. The race is typically led by the wealthiest; they shift the reference point higher for the less-wealthy. This ripple effect is visible even among the least wealthy in society, with less expensive goods. Indeed, the proportion of positional goods in the total household consumption will tend to rise as the household income falls. A poor household has to give up more of their non-positional goods, like sleep, in order to keep up with the Jones’ in the positional race.

The completion for positional goods also manifests itself in financial markets when ownership of certain securities suddenly becomes trendy. Admittedly, this is not very easy; after all, people do not wear their share certificates on their sleeves. However, during phases of stock market bubble when rapid price rises allow investors to quickly realise profits and convert them into more visible positional goods, to be seen as the owner of a must-have start-up company or subscriber to a fast-growing technology firm’s IPO confers social status. A the social reference point rises with the booming stock market, those who would normally squirrel their savings away on a deposit account, suddenly have the need to try their hand at the bourse. This particular race typically ends badly; when the market turns the entire neighbourhood loses money. As they all lose in similar proportions, at least the prior social ranking is left intact.

One could argue that it would be better, for the greater good of society, to bring an end to this positional rate-race. Would this make sense? Would it even be possible? This is the question I will answer in the fifth and final part of this blog series.




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For Whom the Church Bells Toll

17. September 2013
2 glocken

It is no secret that people tend to draw a malign pleasure from witnessing the fall of celebrities who previously laid claim to high moral standing. It is particularly enthralling when those exposed sinners are supposedly in God’s service and, better still, when money is involved.

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A Hot-Dog Stand on Wall Street

15. July 2013

When one tunes into TV network, CNBC, to get some news about the European stock market open, and the developments in the Asian markets, it is a little disconcerting to see a story about a hot-dog eating contest that took place in the US on the previous day. By the time one has seen, for the third time, the report about Joey “Jaws” Chestnut stuffing his 69th sausage snack into his face to win the championship, one becomes somewhat dismayed about future for financial television: is that what people want to watch these days?

Hot-dog eating championships might not please all viewers, but stock market news is not enchanting them either. According to the viewership monitoring firm Nielsen Media Research, the audience numbers of CNBC have shrunk dramatically. The network might claim to be the ‘First in Business Worldwide’, but its world is now smaller than it has been since 2005. Furthermore, the audience in the all-important 25-54 age group has dwindled to the lowest level since 1994.

These figures come as a particular blow for me because they combine two of my passions – the media and financial markets – both of which have had to endure major setbacks. The media world has suffered from the flood of ‘free’ information from the internet. At the same time, investing, and financial markets in general, have incurred a loss of followers. I assume that people are still as interested in making money as they were before,

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Blowing the Whistle

28. June 2013

Is the US whistle-blower Edward Snowden a hero or a traitor? This is the question that is currently fuelling some heated discussions. Has he simply raised concern about bad behaviour, mismanagement, or other nuisances, for the public good? Can one really call him an ‘informer’ if he acted without hope

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Jealous Society

10. May 2013
Neid 2

One can hardly blame governments around the world for going after tax evaders. Across Europe, finance ministers are battling to reduce budget deficits while at the same time trying to find resources for stimulus measures, and anti-capitalist upstarts are snapping at the electoral heels of the established parties. Sometimes the word ‘fairness’ slips into the discussion, but political leaders can hardly pretend that morality is the motivation for the siege on tax-havens. If that was the case, they would have acted long ago.

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The Cold Heart

22. April 2013
Kaltes Herz

I relish the chance to make a trip to the Black Forest whenever I visit my native Freiburg. Those woods have the magical ability to chase away all thoughts about financial markets and to stir up long-forgotten memories from my childhood.  One such reminiscence on a recent trip was of the fairytale by Wilhelm Hauff, ‘The Cold Heart’. For those who do not know it, the tale, which was set in the Black Forest in the 19th century, recounts the misadventures of a poor charcoal burner named Peter Munk. 

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Jesus in the Eurozone

18. March 2013

When the financial website “Business Insider” proposed a solution to the euro crisis I was all ears.  But when the saviour turned out to be none other than the Saviour, one could forgive me for being a sceptical. Although I agree the euro mess could do with a little divine intervention, a transcript of a speech by Deutsche Bank’s head of FX strategy, Bilal Hafeez, was the last place I expected an appeal for it.  The euro area, like any teenager needs a father figure to accompany it through its present pubescent throes and to guide it to adulthood. Its birth parents, Germany and France, are not up to the job, so a respected, sinless, external figure is necessary – Jesus.

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Coffee Mourning

4. February 2013

Cost-cutting measures in one stressed investment bank have reached such an extreme that bankers will have to forego a coffee service during their meetings from now on. Admittedly, the saving is hardly likely to felt on the bank’s bottom line; like cancelling the newspaper subscriptions,

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Old Heads on New Shoulders

17. December 2012

Hardly a week goes by it seems without some new banking scandal in the headlines: tax evasion; LIBOR manipulation; mis-selling of derivative products and insurance; embargo dodging; money laundering, etc. Some of the obvious victims have included private investors and municipalities, but there are also innumerable faceless individuals and firms, taxpayers and savers who have suffered indirectly as a result of the apparent lack of integrity.

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A Crash Course on Ethics

12. December 2012

Although High-Street bank Santander has taken the unprecedented step of suspending 800 of its UK retail investment advisors and sending them off to intensive re-training, angry bank customers are not appeased. Online comments continue to slate the bank’s management for pressuring these ‘advisors’ into heavy-handedly selling products that suit the seller more than the buyer. However, if Santander is ever to achieve anything positive on this front, this is certainly the way to do it.

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Class Reunion

10. December 2012

A class reunion is a very peculiar event. I have often wondered what it is about these anniversary get-togethers – 10, 20 or 25 years after leaving school – that makes them so appealing. Naturally, there is a certain thrill about the prospect of seeing an old buddy from one’s childhood again. But not all of those present are former friends. Not only classmates are reunited at these events, but human reference points.

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Borrowing and Blame

26. November 2012

The clash of money and morality holds a particular fascination for me. Although it is seemingly everywhere, and we read daily tales of fraud, insider-dealing, income inequality, conflicts of interest, payday lending, etc., it almost never fails to surprise us. When embarking on a simple and purely economic activity, we rarely think that it might one day collide with our own or others’ sense of morality.

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Caught Out

19. November 2012
Gedeck mit ipad

Sometimes even children can teach us a thing or two about behavioural economics.  At least, I received an unexpected (and unwanted) lesson just a couple of weeks ago during a discussion about Christmas wish-lists.

“Paula got an iPad for her birthday, can I have one too?” my nine-year daughter asked me. Her friend Paula was born on the exactly the same day as my child, but she can just about read and her writing leaves much to be desired.

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Debt Forgiveness ‘Occupy’ Style

14. November 2012

Occupy Wall Street’s (OWS) idea of using charitable donations to buy up distressed consumer debt, and then simply forgiving it, sounds very appealing. I am very much in favour of pardoning debt that everyone knows can never be repaid. This allows overly-indebted people to get on with their lives, hopefully in a more productive way. One of those ways, OWS hopes, is eventually to make their own financial contribution to the project, thereby ‘paying it forward’.  The impact of a test project was impressive: according to one of the organisers, OWS was able to buy $14,000 of distressed debt with an investment of just $500.

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The Redemption of a Scoundrel

12. November 2012

It is obvious why people seem to enjoy seeing a hero fall: it is all about changing the reference point. For example, when a beacon of morality – a sporting hero, an outspoken priest, a clean-cut politician, a decorated general – is dragged into the mire of sleaze and shame, it lowers the bar for our own patchy integrity. Without having to do anything, we are instantly able to see ourselves as more honest. Quite why anyone would like to see someone’s tainted image redeemed is perhaps counter-intuitive, but we like that too.

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Morality and Markets

5. November 2012

I was so impressed by a lecture on the fascinating subject of ‘Economics and Ethics’ by Julian Nida-Rümelin, a former German culture minister and currently professor of philosophy and political theory at the Ludwig-Maximillian University in Munich, I literally ran out and bought the book. Nida-Rümelin’s newest publication, entitled The Optimisation Trap[1], deals with the philosophy of a human economy.

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Sucked into the Memory Hole

29. October 2012
Newspaper burning

Is the publisher of the UK’s Guardian and Observer newspapers close to pulling the plug on print editions and moving to wholly digital newspaper publications? This, at least, was the contention of a report posted on the website of a rival high-brow newspaper, The Telegraph. The ‘breaking story’ came in the wake of the US magazine Newsweek’s decision to do just that, so it seemed plausible. But it was entirely wrong. 

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Born to Fly

17. October 2012
Born to fly_mini

‘Born to Fly’ is the phrase tattooed on Felix Baumgartner’s arm. Flying is perhaps not the word one would use to describe his supersonic sky-dive from a hot-air balloon at a height of 39 kilometres, but it was no less fascinating to watch. Hours after the record-breaking plunge on Sunday, I still sat engrossed in front of the television while he recounted the details of his exploit in the press conference. All of the time, I had to ask myself why in heaven (excuse the pun) he wanted to risk his life trying to dive further and faster than all before him?

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How Much Do You Want for Your Job Security?

15. October 2012
Niere organspende

In an online poll, the Guardian newspaper was among the first to test the public reaction to the UK Chancellor George Osborne’s proposal to give workers the option to sacrifice some or all of their employment rights in exchange for shares in their respective companies. In essence the question was: would you give your employer the right to fire you at will in exchange for a tax-exempt equity stake in the firm? The sample was probably not representative of the labour force, but the result was nonetheless remarkable: 94 percent rejected the offer.

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Apple is (Also) Doing God’s Work

17. September 2012

A blogger railed against Apple’s decision to change the docking connector on its latest iPhone because it rendered his beloved internet radio obsolete. This blogger does not yet own an iPhone 5, nor is he under any obligation to buy one. Yet the notion that he absolutely must have one as soon as it goes on sale is so self-evident that it simply did not occur to him that he could just as easily keep his existing iPhone 4S and keep on docking it to the internet radio.

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Goldman’s Secret Society II

12. September 2012

Yesterday’s post concerned the documentary recently broadcast by Franco-German TV network ARTE: ‘Goldman Sachs – one Bank Rules the World’. In reality, one could easily have replaced the name Goldman with that of any number of institutions or associations, from Harvard University to the Freemasons, but I am not fond of conspiracy theories.

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Goldman’s Secret Society

11. September 2012

The Franco-German TV network ARTE ran a documentary at the weekend with the ominous-sounding title ‘Goldman Sachs – one Bank Rules the World’.  I was totally absorbed while watching, and a little shocked that such a high-brow TV network could portray an investment bank in such a damning fashion. The documentary’s producers sought to generate fear and loathing as it showed Goldman alumni – former employees – occupying leading positions in politics, government, business and regulation in the US and the EU.

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How Line-Jumping Became Respectable

27. July 2012

How do you feel when, after you have stood in line for 15 minutes in front of a supermarket check-out, someone jumps in ahead of you? Maybe, on a good day, you simply turn a blind-eye. But on a normal day, you’d probably be annoyed by the unfairness. I was certainly irked the other day when a woman ‘secured’ a place in the line ahead of me while her husband ran back and forth between the aisle, slowly filling her caddy with groceries.

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Pauget’s Automobile

24. July 2012

A couple of years ago I attended a speech by Georges Pauget, the then outgoing CEO of Crédit Agricole. The bank had escaped the worst of the financial crisis largely unscathed, so he had a very flattering tale to tell. Remember, bankers were not very popular characters in early 2010; in one poll they ranked just above ‘prostitute’ at the bottom of the list of occupations respondents said they would like to have as a friend.

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Children of the Great Recession

4. July 2012
Anzugträger im Regen mini

Say you are driving down a highway, the day after getting your license, and pass a dreadful crash that has scared you out of your wits. In the rear-view mirror, you see the destruction scattered across the road. You promise yourself to never drive recklessly, as that driver obviously did. With the vivid image seared into your mind, you drive cautiously away. And so is the feeling of the younger American generation regarding financial markets, particularly stocks. 

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Freedom or Broccoli

2. July 2012
Brokkoli mini

“What are they going to force us to do next – eat broccoli?” raged one American TV commentator about the healthcare reform known as Obamacare. He considered it an impingement on his personal liberty to be obliged by law to buy health insurance. The decision by the US Supreme Court last Thursday to uphold the plan as constitutional has obviously ignited a wave a discontent across many parts of the country, not least in the campaign headquarters of Republican presidential candidate, Mitt Romney. He has already promised to repeal the law if he is elected in order to give the American people their freedom back.

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Tabloid Gold

22. June 2012

Bild-Zeitung, Germany’s most popular tabloid newspaper ran a front page last year that pictured a hundred gold bars. Within the paper’s colourful pages, readers were offered free tips on how to profit from the ‘limited sources’ of gold. A headline bore the lofty price target of analysts at JPMorgan who, like pundits at the other major banks, predicted a gold price of $2,500 per ounce by the end of 2011. That was last August, at which time the spot price was around $1,800. I remember the moment well because, in the subsequent week, volatility rose sharply. Why? The latecomers had arrived.

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The Fitness of Good

15. June 2012

The Bloomberg anchor-woman was to blame. She started it. Right at the outset of a TV interview with a Global Head of Economic Strategy, she decided to limit the scope of the discussion about the world’s ills to one region: Europe. She then further sub-divided the Europe issue into a simple question: “Will Greece exit the eurozone or not?” It was almost as if this binary yardstick could adequately measure the goodness or otherwise of future outcomes for investors or for viewers in general.

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The Two-Wheeled Menace

13. June 2012

I have often seen cyclists squeeze through the pedestrians on zebra crossings with no concerns that they might hurt them. Often a short step in their direction by small children on the roads can cause an accident. But not only in Frankfurt, in many other ‘bike-friendly’ German cities too have cyclists shown this unconcerned and careless behavior. I am also an enthusiastic cyclist. I enjoy the feeling of freedom and flexibility that riding a cycle gives especially in big congested cities. And since cycling is considered healthy and environment-friendly, perhaps many cities in Germany are now equipped with cycle paths.

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