The Icelandic meltdown and dilettantism of finacial markets

So how can we calculate the absolute risk aversion in the Icelandic banking industry?—As the curvature of u(c) increases, so does one’s aversion to risk..Outside of those parameters I’m lost.

It’s funny because if you don’t study history you get the great opportunity of repeating it..1,000 years ago Icelanders left Scandinavia in search of freedom and a better life far away from Medieval feudal establishment. Combine this cultural risk-seeking behavior with a desire to be modern, and a neo-culture of inflation and debt, and we begin to see the very underpinnings of a financial meltdown.

The people are industrious and dynamic, and they have a tendency to take on tasks that are beyond them. The current prime minister used to be the foreign minister and he also happened to be the minister of finance – at the time when the head of the central bank, who also did a stint as foreign minster, was the prime minister, and the current finance minister was serving office as minister of fisheries.

Now things are almost back to the way they were in the 80s: the inflation rate is almost double-digit; the state controls the banks and rations currency exchange. All we need now is to re-introduce the beer-ban, and it will look as if the Icelanders want to start the process of globalisation all over again.

Read the entire article via Financial Times Deutschland.

Somali Pirates: 34 Brigade des Forces Spéciales Terre:1

It seems as though French Special Forces have drawn blood against Somali pirates off the coast of the semi-autonomous region of Puntland. Nine suspected pirates have been apprehended in the Gulf of Aden and face possible punishment from local authorities.

Read the article, via BBC.

The Panic of 1873

A more apt comparison to the current economic crisis, rather than the Depression of 1929. Easy credit financed a real estate boom in Europe, combined with cheap American food imports undermined global prices, ultimately sparking a mortgage crisis. Banks begin to horde money, short-term loans dried up, and day-to-day operations came to a screeching halt.

Scott Reynolds Nelson is a professor of history at the College of William and Mary. His article is here.

The bicycle solution

Rising gas prices, increasing environmental concern, and a seemingly obese nation have all contributed to increases in demand for our more humble modus operandi, the bicycle. Unlike most industries bicycle manufacturing has to an effect zero barriers of entry, and as a result maintains one of the most competitive and innovative market environments. Read the article, via Economist.

Bicycle and car production grew pretty much in tandem in the two decades beginning in 1950. But since 1970 bike production has nearly quadrupled while car production has roughly doubled.

Should we be scared?

The government is looking for an agreement that would not involve public money.

Recent discussions amongst Lehman Brothers, the Federal Reserve, and Treasury Department in regards to actively selling the financial giant.

And I don’t see where anything has really changed in the last few days to make Lehman a $4 stock versus a $20 stock. So what we’re dealing with, I think, is less fundamentals than fear,” Paulsen said. “It’s spooky because I’m not sure anyone has an answer as to how you’d end it.”