6th Emerging Scholars conference – some papers

I have been meaning to write these posts (I do not know how many they will be) but some things got in the way, mainly Christmas holidays and exam marking. We had a wonderful 6th Emerging Scholars in Banking and Finance conference the 10th and 11th of December last year; 13 papers were presented, and we enjoyed a keynote lecture by David Miles about the half-life of economic injustice and a publication workshop—all that matters to assistant professors is to publish in top journals—by Thorsten Beck and Neeltje Van Horen. Two exhausting but very productive days (although I did not present, I discussed Ishita Sen‘s job market paper, which is a great paper and it seems that many institutions agree with this assessment).

So I wanted to quickly mention some of the papers that were presented. I am going to start with Collateral requirements and corporate policy decisions, presented by Kizkitza Biguri and co-authored by Jorg Stahl. The authors want to empirically assess whether there is a trade-off between risk management and investment decisions due to collateral constraints.

Some firms have limited collateral, and this collateral can be used to hedge risks in the derivative markets (for instance by entering an interest-rate swap or an exchange-rate forward). But the collateral can also be used to borrow (from a bank) and invest into long-term projects. Therefore, at least in theory, firms could face a trade-off in terms of hedging versus investment. This questions is particularly important since the introduction of central clearing, which affects big financial firms and some non-financial corporations as well, given the fact that central clearing of derivatives is associated to a substantial increase in collateral requirements.

The authors test this trade-off empirically for non-financial firms but do not find evidence that it exists. In particular, while financially constrained firms do hedge less, among those firms that are financially constrained, the ones that are pledging some collateral for debt purposes actually hedge more that the ones that are not pledging collateral. Therefore, having some collateral tied-up in debt (in a secured loan, for instance) does not prevent hedging.

Instead, they identify cash as being very relevant for hedging—and not other type of collateral such as properties and equipment—thus introducing a trade-off between liquidity management and (other) risk management. They test this additional trade-off using the Hurricane Katrina as an exogenous shock to liquidity, and they find that firms in states more affected by the hurricane hedge less after the shock.

One thing I find particularly relevant about the paper is the focus on non-financial firms. Most papers on the topic have so far focused on financial institutions because of, well, the mess they made during the financial crisis. But research on non-financial companies is key to properly understand the effects of the new financial regulations; it would not be a great outcome if reforms on the financial sector led to insufficient hedging in the real sector.

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Mindfulness meditation

It has been several months since I started doing meditating every morning. In the recent weeks, I have discussed my practice with other people who have found it interesting, and hence I thought I could mention it here. There is a lot of confusion about meditation, especially for sceptics, because it might seem to relate to mysticism or strong (Buddhist) religious beliefs. But fear not: meditation is useful to understand our consciousness better. Understand oneself better.

The first benefit that one gets from meditating, which is probably what many people find when they start, is the reduction of stress. This comes from just relaxing for ten minutes before starting the day. At the very beginning, I used to sit in my couch with my eyes closed thinking: should I stop? I have so much work to do. But after few sessions one realises that these ten minutes are nothing compared to how distracted we are during the day.

The second is the training on attention. Breath is a usual one. In a time where our attention is constantly challenged by social media and emails, this training is incredibly useful—and probably more valuable, as Cal Newport explains in Deep Work. How many times a day are you working on something important just to find yourself completely lost in thought? Mindfulness meditation is the solution.

The third and probably most important benefit that I have found is the realisation that I am different than my thoughts. This might be obvious on an intellectual level, but not on a behavioural one. Think about the last time you were angry. Maybe you were angry at someone close to you. Can you remember how long you stayed angry? How much of this anger came from this person’s action, and how much came from your thoughts about this action? You are not your thoughts; you can change them. Understanding this difference is understanding the difference between pain and suffering. While pain might be unavoidable, the suffering associated to it can typically be significantly reduced.

On a more practical note, I usually meditate first thing in the morning, between 4 and  5, just after preparing my coffee. The coffee is key here because if one is tired and sleepy it is extremely easy to just fall asleep while meditating. A 10-minute meditation a day is enough to achieve some of its benefits. From time to time, typically one a week, I do longer sessions: 30 minutes to one hour. I think one hour meditation a day would be fantastic but I have not improved my focus as much as to have time to do that.

People train their bodies, and we identify this practice as healthy—not only that, but this is encouraged in many levels. Mental training and mental health should not be any different—in fact, even if we do not understand many things about consciousness, the brain is just another organ. Training the mind, training the focus, being able to direct your attention to what matters and what makes you happy, should be a must for today’s lives full of distractions.

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Why Orwel Matters, by Christopher Hitchens

Political language… is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind (George Orwell in Politics and the English Language).

And the more one is conscious of one’s political bias the more change one has of acting politically without sacrificing one’s aesthetic and intellectual integrity (George Orwell in Why I Write).

George Orwell appears to be the clearest influence of Christopher Hitchens. They are the two most important British essayist of the past century and the first decade of the current one.  This makes it a joy to read Why Orwell Matters, where Hitch dissects Orwell’s ideas, thoughts and relations with political ideologies and other topics of his time.

Orwell is a difficult figure to analyse. He is mostly known by his dystopian book 1984, from which the term Orwellian derives (a usual adjective to describe, for instance, the North Korean regime).  But, as Hitch highlights, this novel is “the first and only time that his efforts as a novelist rise to the level of his essays.” Through his essays, letters, and articles, and to a certain extend his novels, Hitch is able to provide a clear picture of Orwell’s motives, stances and contradictions.

As much as I highly recommend this book for anyone with an interest for Orwell, it is at the same time worth mentioning the prior knowledge of Orwell and history that it requires. This is not an Introduction to Orwell, so to speak. The reading improves dramatically as one increases in particular its knowledge of European history of the first half of the 20th century. Orwell’s writings are marked by the communist revolution, the rise of fascism and Stalinism, and the British empire. Here I must admit my own lack of knowledge of the époque, which I just tried to somehow mitigate, at least in the eyes of the reader, by using a French word to appear culte (Orwell did not feel particularly welcoming of such expressions, as he emphasises in Politics and the English Language: “Foreign words and expressions such as cul de sac, ancien regime… are used to give an air of culture and elegance. Except for the useful abbreviations i.e., e.g., and etc., there is no real need for an of the hundreds of foreign phrases now current in English.”)

Let me, however, remark one thing about Orwell’s life that is extensively covered in Hitch’s book. What fascinates me most about Orwell is how early he realised what the Soviet Union had become. It became apparent to him during his adventures in Spain, where he witnessed first hand how the communist party abducted, and later executed, Andreu Nin, the leader of a different communist party (POUM), on the orders of Josef Stalin. This was at a time where many British socialist intellectuals, as he was, considered the Soviet Union as a utopia-adjacent state. This realisation during the 1930s, and his subsequent activism, made Orwell “one of the founding fathers of anti-communism.” And these are the experiences would later on be the seed to 1984.

All in all, Why Orwell Matters is an excellent book to get closer to the core of Orwell’s thoughts and views about that time, about that époque.

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Youtube channels

I do not remember the last time I used my remote to browse through the different TV channels to find something to watch. That sucked. Luckily we have Youtube and Netflix and Amazon Prime nowadays. And while I barely watch anything in the last two, I do consume a lot of Youtube. And these are some of the channels I follow:

  • I particularly enjoy the Atheist community, with which I agree on almost everything. My favourite would be Rationality Rules. It is quite useful to identify common fallacies used in many discussions, although the focus is obviously religion. Other channels include Cosmic Skeptic, Genetically Modified Skeptic, or Holy Koolaid. Discussing broader topics but also with a focus on identifying logical fallacies is Counter Arguments. Veedu Vid is also quite nice, with a stronger focus on Islam and the UK.
  • I also follow several channels that discuss mathematics, physics, and other related topics. PBS Infinite Series was a very nice one that unfortunately is now over (although the videos are still there). Numberphile is also very good. Kurzgesagt is a very famous one. But probably my favourite one is 3Blue1Brown as it makes complex problems as accessible as possible. The video about Bitcoin is superb and I have recommended it to my students.
  • US “TV” shows: here I follow well-known shows such as Real Time with Bill Maher, LastWeekTonight, and The Rubin Report. I used to watch daily shows, such as The Daily Show with Trevor Noah, Full Frontal with Samantha Bee, and The Late Show with Stephen Colbert, but I have found them quite repetitive and unoriginal after a while. Taking a whole week, as in the case of Bill Maher and John Oliver, significantly improves the end product. As for Dave Rubin, he gets interesting people (although not always) and allows them to talk, which is great.
  • Needless to say, I also follow Sam Harris to make sure I do not miss any podcast of his or debates with the likes of Jordan Peterson. I want to write a post about Sam Harris at some point. But suffice to say that anyone with at least a tiny bit of intellectual interest should listen to his podcast Waking Up.
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HATE, by Nadine Strossen

This one is long overdue—I finished it months ago. I bought this book, “Hate: Why we should resist it with free speech, not censorship”, by Nadine Strossen, to talk about free speech with some friends in a podcast. We never got to do that particular episode but, if you can understand Catalan, you can check the others in this link. Luckily, I enjoyed the book quite a lot.

Nadine Strossen is the former American Civil Liberties Union (ACLU) president. Her tenure expanded from 1991 to 2008. The ACLU is one of the organisations that have filed complains in the recent years against some government action, including the travel ban imposed by Trump in his first days as president and the non-prosecution of policemen involved in the shooting of unarmed African-American civilians.

Apart from that, the ACLU has been a strong advocate of free speech (at least until now, things might be about to change on that front). The best example of this advocacy can be found by going back to 1977-78 when the ACLU defended the right of neo-nazis to demonstrate in Skokie, Illinois, a city with a large Jewish population. What better test of your belief in free speech is there? If someone decides that neo-nazis do not have the right to demonstrate (pacifically) then they are not in favour of free speech. Can you imagine how easy it would be to look the other way? Yet the ACLU, at a high cost (they lost many of their members), decided to stand on their principles in a remarkable non-Groucho Marxist manner. Nadine Strossen defends this episode. It might be worth here to point out that Strossen is Jewish—just in case someone is thinking that she defended the episode because she was a neo-nazi.

The main argument of the book—as the subtitle goes—is that one fights hate speech with more, not less speech. But the underlying theme of the book is a fantastic defence of the First Amendment of the US Constitution and a cautionary tale not to undermine it and end up as many other countries, including unfortunately the UK and others in Europe. We have the recent case of a woman convicted by an Austrian court—a conviction subsequently upheld by the European Court of Justice—for saying that “Muhammad was a paedophile”. Or a youtuber for teaching how to do the Nazi salute to his girlfriend’s dog. These would be clear violations of the First Amendment.

The arguments for free speech can be divided into two. The first argument is that any law that tries to curtail free speech—for instance, by not allowing hate speech towards minority groups—would be vague by definition and hence open to abuse. A usual example is the definition of hate speech itself. What is hate speech? Depending on the definition, it is related to the intentions of the speaker or the offence taken by the subjects of the speech. Trying to guess the intentions of the speaker has always surprised me. I tend to believe people about the reasons they say what they say. But there are others—this is usually the case in partisan discussions—that continuously attempt to read the mind of the adversary. In fact, the Austrian court previously mentioned cited the intentions of the defendant as a reason to convict her. Leaving the conviction to the offence taken by some people seems even more problematic. Any law trying to curtail hate speech, hence, is subject to manipulation.

But let us assume that we can avoid the vagueness problem. Let us assume that the law and its application are perfectly targeted to what we consider hate speech. What do we wish to accomplish by restricting it? There will still be people that believe such things. To the extent that a government cannot prevent speech—and this is a good thing—this speech will continue to exist but underground. There is something attractive about conspiracies and revealed truths. There is no other way to understand how people can believe that the Earth is flat. There is no other way to understand the rejection of evidence. By restricting this type of speech one would push it underground where it can attract more and more people.

The answer is, hence, more speech. This is unfortunately quite unfashionable nowadays. While the First Amendment in the US seems to be in good shape, the attitudes of the population towards free speech might be changing. We have some illustrative examples regarding the presence of Milo Yiannopoulos or Ben Shapiro at Berkeley. And survey data seems to confirm this point. Yet Strossen—and I, for that matter—believe that the answer is to confront Milo, Ben, and company with more speech.

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The missionary position, by Christopher Hitchens

I got Hitch-22, Christopher Hitchens’ autobiography, a month ago. I was about to start, but then I realised that most of what I knew about Hitch is what I have seen of him on Youtube—any video starting with “Hitchens destroys” is wonderful. Hence, before diving into his autobiography, I decided to read every book he wrote.

I have started with The missionary position, a long essay where he deconstructs the character of Mother Teresa. It is astonishing how much we do not know about her. But what is even more astonishing is that the clues about her character were there for everyone to see. As Hitch states, “The rich world likes and wishes to believe that someone, somewhere, is doing something for the Third World. For this reason, it does not inquire too closely into the motives or practices of anyone who fulfils, however vicariously, this mandate.”

Hitch approached this project with the objective of “judging Mother Teresa’s reputation by her actions and words rather than her actions and words by her reputation.” I can only imagine how difficult that must have been (the essay was first published in 1995). And what he found can be summarised in a sentence what he wrote in an article just after she was beatified: Mother Teresa “was not a friend of the poor. She was a friend of poverty.”

She believed that suffering was the way to God, to Jesus. “The point is not the honest relief of suffering but the promulgation of a cult based on death and suffering and subjection“, Hitch claims. We are talking about terminally-ill people that would have to suffer in their final moments because that is what God had decided for them. And it was not for lack of means: she received significant donations—some with highly dubious characters. But it is not clear where these donations went. However, it is clear where they did NOT go: to improve her clinics to relieve the pain and suffering of the ill. As Hitch puts it, “theirs was a regime of austerity, rigidity, harshness and confusion… when the requirement of dogma clash with the needs of the poor, it is the latter which give way.”

There is an episode narrated by Mother Teresa herself that perfectly illustrates the West blindness towards her. She explains the last moments of a cancer patient in excruciable pain. She told him: “you are suffering like Christ on the cross. So Jesus must be kissing you.” To which he replied—according to her: “Then please tell him to stop kissing me.” This is a mad woman as anyone who would take a paracetamol when they have a headache should recognise. She did not do what she did to get rich, true, but her motives were delusional (and to a certain extend cynical since she sought the best care when she had health problems) and the consequences in terms of suffering were significant.

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Danske Bank and HSBC

We have learned today that Danske Bank is being charged for its money laundering scandal. It seems that its branch in Estonia (the only one there) handled around €200bn of Russian and other ex-Soviet money—apparently a large part of it thought to be suspicious.

This reminded me of the excellent episode 4 in Dirty Money, a Netflix TV show. It talks about HSBC, in particular how it got around the anti-money laundering rules years ago. There is when I first heard about the concept too big to jail. Highly recommended.

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