Merry Christmas! Or, 5 tips to staying sane over the festive season…

A puppy is for life, not just for Christmas – On the other hand, some of your more distant acquaintances (and some family!) may well only be for Christmas. Because you haven’t seen them for ages, it’s all too easy to slip straight back into last year’s arguments. If you know this happens, make a special effort to view them with fresh eyes, as if you’ve only just met. You’re unlikely to solve tensions of a lifetime over a few cold days in December; the arguments will only drag you down.

Loose lips sink ships – And nothing loosens them quicker than alcohol. If you’re already feeling irritated, a little too much liquid Christmas cheer will probably just cause you to say something you’d otherwise regret.

“I vant to be alone!” – Make time for yourself. Houses fill up over the festive period, creating less space and more friction, especially if you enjoy peace and quiet. Try going out for a walk occasionally. You never know, you might even enjoy the frosty scenery.

It’ll be lonely this Christmas… -  but if you’re on your own, or feeling lonely even around others, remember that for all the fuss, there’s nothing intrinsically special about these few days. All the cultural meaning we impart to it is man-made symbolism, created consicously & unconsciously through mutual reinforcement and over time. Christmas Day is also just the 25th of December, and New Year’s Day is just the 1st of January.

A change is gonna come – New Year’s Resolutions can sometime help move one from pre-contemplation into the contemplation phase of making changes, but unless planned carefully, they’re easily discarded making last-minute resolutions more likely to be a millstone around your neck or a reason to feel guilty about failing to make changes. So don’t make a resolution unless you’ve thought about it, and really mean it.

Feel free to add your own tips to the list!

A Very Merry Christmas & Happy New Year to everyone out there!

A Panglossian Perspective on the EU summit

Image via Wikipedia

In our turbulent times, it it reassuring to know that certain things remain unwaveringly true. One of those things is that regardless of any grand statements, national interests override supranational ones. Nowhere was this more in evidence than at the European Summit overnight. Interestingly enough, despite that, most of the major countries got their way and will not walk away unhappy.

Purists Germany stopped the ECB from actually solving the Eurozone debt crisis by letting it act as a proper central bank and prevented the ESM/EFSF from getting banking licenses of their own. The UK protected itself from a heavy extra burden of financial regulation in the City, a key driver of our economy, while not preventing the Eurozone from beginning the process of integrating into a more meaningful fiscal union with the real and necessary restrictions of national sovereignty required for a currency union to work. And the French got to maintain the pretence that they are the key diplomatic player in the EU, the power behind Germany’s economic throne, by loading the proposed treaty with so much of that financial regulation as to force the UK to veto an EU-wide treaty. And on an EU level, at least the Eurozone debt crisis has a bigger temporary sticking plaster to kick the can down the road a bit longer.

Let us be clear: Germany holds the Eurozone’s pursestrings and if any nation can be said to have got its way more fully than the rest, it is Germany. They have imposed their economic model on the rest of the Eurozone. It may not quite be an iron hand yet, but the velvet glove is certainly off. In the meantime, the EFSF will run concurrently with the ESM for about a year, which together with other resources pledged, brings the total amount of money in the EU bailout pot for profligate PIIGS to a bit over a trillion euros. That’s still not enough, really. Two would be nicer. But it’s not a bad sticking plaster – certainly better than the ones we’ve had so far – and might just be enough to calm the situation. Time will tell; it’s a little too early to judge that today.

The UK was forced to wield its veto. The usual suspects have begun hand-wringing about “isolation”, but as Terry Smith of brokers Tullet Prebon amusingly suggested this morning: “the UK as isolated as somebody who refused to join the Titanic just before it sailed”. To have signed the treaty would have subjected the City to a huge potential increase in regulation. Like it or not, the City contributes about 10% to our national wealth, a far greater percentage than any other EU country’s financial intermediation services. Add in financial services more generally, and the figure rises to about 1/3 of GDP. Even just considering the taxes it pays (yes, it does actually pay a lot of tax, despite what some would have you believe), that’s an important cash-cow for the UK government to preserve. Subjecting it to a new swathe of regulation is hardly conducive to profit, especially in such fragile times.

The French are very aware of this of course, which is why they insisted on including so much financial regulation in the proposed treaty. Unable to persuade the Germans to give the ECB proper banking powers, they were at risk of appearing impotent in the EU. And if there’s one thing that a French President with a looming re-election campaign can’t afford to appear, it’s impotent. As no other EU nation has as large a financial sector as Britain, it was easy for them to ensure that the other countries would not object; the impact of the regulations would be negligible to them. This ensured that either Britain would capitulate (handicapping one of its traditional strengths, benefiting France) or it would have to veto the treaty (allowing Sarkozy to frame the outcome as British isolation, boosting his domestic prospects).

The UK’s relationship with the EU will certainly now be very different to before. A veto, once wielded, is no longer a frightening spectre to either British PMs or our EU colleagues, but merely a tool. It will likely be used more frequently. I suspect the likely outcome will be a multi-speed EU, with the eurozone (and its likely future members) moving towards a more integrated political and economic union, and the UK and any other permanent non-eurozone members remaining in a looser alliance with the eurozone. The key thing the UK has to negotiate is the maintenance of a single market when it comes to no cross-border tariffs, minimising internal national subsidies, and the other key free trade tenets currently enshrined at an EU-level. Everything else can gradually be allowed to drift apart, which in the medium term will make it easier to begin cutting back on some of the more intrusive bits of current EU social and regulatory legislation.

It is undoubtedly in the UK’s long-term economic interests to remain part of the free-market aspects of the EU (although Channel 4′s relatively impartial FactCheck suggests its benefits may often be overstated). The challenge will be maintaining the UK’s free market relationship with the EU while the Eurozone members integrate further politically. Given the free market aspects are already in place, this should not be an impossible challenge. A delicated balancing act, certainly. But not impossible.

In the longer term, the UK can develop into a low-tax offshore gateway to the rest of the EU, with less regulation than the mainland, attracting global investment precisely because of that lower regulatory burden. A jumbo-sized Hong Kong, if you like. This would not be possible if the UK were part of a more integrated political, fiscal and monetary union with it. In the very long term, the balance may shift again. We cannot predict what the EU or the World will look like in 50 or 100 years. But for today, and for the short and medium terms, David Cameron did the right thing for Britain.

And funnily enough, leaving aside the relative sideshow of financial services regulation, the Eurozone may just have done enough to stave off imminent disaster too. Well, as the title suggests, I am an optimist.

The Fetishisation of Perfection

Head of a Nymph, Sophie Anderson

I must confess a penchant for complex systems.

There is little more pleasant than the intricacy of checks & balances, although I only enjoy them if my understanding of them arrives through noting the overall patterns that result, rather than through crude mechanistic analysis. Appreciating the underlying ebb & flow of emergent phenomena speaks to what Jung would have termed my intuitive rational nature.

My fondness and aptitude for noticing these mechanisms is at least part of what attracted me to psychiatry. The mind is doubly complex, consisting as it does of both physical and psychic constructs. The physical is the complexity of our neuroanatomical wiring and the neurochemical connections within that network. While some argue that theoretically the psychic world can be entirely understood through the physical, even such reductionist evangelists would admit that our current understanding is a long way from complete.

The psychic world is the more intriguing. It consists of our modes of thought: how we view ourselves, others, and the interplay between these entities. We create an internal construct of both ourselves & others, often built upon rather dubious foundations, and our entire understanding of the world in predicated upon these constructs. Some of the constructs emerge through experience, some are models formally taught to us, and some are probably rooted in a genetic hard-wiring. Even more amusingly, we are only generally aware of a small minority of the conceptual filters through which we view the world, which gives rise to what Freud would term the unconscious mind and perhaps also to what the spiritual would call the soul.

Regular readers know I enjoy a variety of complex systems; not just psychiatry & psychology but also clothes, economics, philosophy and some kinds of art. The common thread linking these interests are the delightful emergent patterns that are created through expression & exploration these systems. Different schools of art & philosophy, different conceptual models of the mind & human behaviour, different fashions & economic systems… they are all best considered not as absolutes with pros & cons relative to some theoretical gold standard, but as different sensory modalities. No-one would ever claim that smell is better than sound, or sight is better than touch.

Of course, this very relativist and individualist intellectual position of mine is itself derived from a set of preconceptions. In the end, everything anyone can attempt to say really is nonsense, if Wittgenstein will pardon the liberty of my paraphrasing. But this is to miss the point entirely: it’s rather delightful to play the game anyway.

The title of this post is a lament at how much of the world either cannot play, or refuses to play. Instead, they focus on improving things in an endless search for perfection. While superficially a laudable goal, the problem is that in order to improve a situation, you must understand the system well enough to know what improvement means. Simply having one specific goal in mind frequently – possibly, inevitably – leads to problems in other important areas. Imagine a fat woman being squeezed into a too-small corset: the narrow waist comes at the high price of either fat spilling over as visible unsightliness elsewhere, or internal distress. Similarly, targets and outcome measures can lead to many more negative issues in unexpected areas even if the target is achieved. Better to appreciate the system for what it is, and harmonise your existence within it, which can mean insulating yourself from its excesses by detaching yourself from its impact through rising above it.

Naturally, I am extremely grateful that most people prefer to seek perfection. It has led to tremendous improvements in material comforts, and grants me the luxury of not having to live a purely subsistence lifestyle myself. Nonetheless, those capable of broader perspective will be happier for indulging that aloofness rather than chasing the flitting faerie nymph of perfection. The nymph, you will recall, generally doomed her lover.

The Wisdom of Walter Bagehot

Readers of The Economist will already be familar with the name Bagehot, it being the title for their UK-focused regular column. I suspect fewer will have read anything by the man after whom it is named.

I recently had cause to browse Lombard Street: A Description of the Money Market (a free online copy can be found at Project Gutenberg). Written in 1873, in the aftermath of a banking crisis (Lombard Street is in the City of London, and used in this context to refer to the global banking system), it’s a remarkably prescient view of our current situation, and one worth citing from directly. I will not provide much further commentary as his quoted words are self-explanatory both in their description of the problem and the least-worst solution. I’ve also kept any modifications to the absolute minimum required to retain comprehension on stitching the quotes together.

The briefest and truest way of describing Lombard Street is to say that it is by far the greatest combination of economical power and economical delicacy that the world has even seen. Of the greatness of the power there will be no doubt. Money is economical power. But very few persons are aware how much greater than the ready balance is the floating loan-fund which can be lent to anyone or for any purpose.

A million in the hands of a single banker is a great power; he can at once lend it where he will, and borrowers can come to him, because they know or believe that he has it. But the same sum scattered in tens and fifties through a whole nation is no power at all: no one knows where to find it or whom to ask for it. Concentration of money in banks, though not the sole cause, is the principal cause which has made the Money Market so exceedingly rich.

It is a luxury which has never been enjoyed with even comparable equality before.

But in exact proportion to the power of this system is its delicacy. Only our familiarity blinds us to the marvellous nature of the system. There never was so much borrowed money collected in the world. If any large fraction of that money really was demanded, our banking system and our industrial system too would be in great danger. The amount of cash-in-hand is so exceedingly small that a bystander almost trembles when he compares its minuteness with the immensity of the credit which rests upon it.

We do not always manage it with discretion. There is the astounding instance of Overend, Gurney, and Co. to the contrary. Ten years ago that house stood next to the Bank of England in the City of London; it was better known abroad than any similar firm known, perhaps, better than any purely English firm. The partners had great estates, which had mostly been made in the business. They still derived an immense income from it. Yet in six years they lost all their own wealth, sold the business to the company, and then lost a large part of the company’s capital. And these losses were made in a manner so reckless and so foolish, that one would think a child who had lent money in the City of London would have lent it better. After this example, we must not confide too surely in long-established credit, or in firmly-rooted traditions of business. We must examine the system on which these great masses of money are manipulated, and assure ourselves that it is safe and right.

Ordinarily discredit does not at first settle on any particular bank, still less does it at first concentrate itself on the bank or banks holding the principal cash reserve. These banks are almost sure to be those in best credit, or they would not be in that position, and, having the reserve, they are likely to look stronger and seem stronger than any others. At first, incipient panic amounts to a kind of vague conversation: Is A. B. as good as he used to be? Has not C. D. lost money? and a thousand such questions. And every day, as a panic grows, this floating suspicion becomes both more intense and more diffused; it attacks more persons; and attacks them all more virulently than at first. All men of experience, therefore, try to strengthen themselves in the early stage of a panic [by limiting credit].

A panic, in a word, is a species of neuralgia; you must not starve it. The holders of the cash reserve must be ready not only to keep it for their own liabilities, but to advance it most freely for the liabilities of others. They must lend to merchants, to minor bankers, to ‘this man and that man,’ whenever the security is good. In wild periods of alarm, one failure makes many, and the best way to prevent the derivative failures is to arrest the primary failure which causes them.

There should be a clear understanding between the Central Bank and the public that, since the Bank hold out ultimate banking reserve, they will recognise and act on the obligations which this implies; that they will replenish it in times of foreign demand as fully, and lend it in times of internal panic as freely and readily, as plain principles of banking require.

We should also look at the rest of our banking system and try to reduce the demands on the Bank as much as we can. The central machinery being inevitably frail, we should carefully and as much as possible diminish the strain upon it.

It may be said that the reserve in the central bank will not be enough for all such loans. If that be so, it must fail. But lending is, nevertheless, its best expedient. This is the method of making its money go the farthest, and of enabling it to get through the panic if anything will so enable it. Making no loans as we have seen will ruin the country; making large loans and stopping, as we have also seen, will ruin it. The only safe plan for the Bank is the brave plan, to lend in a panic on every kind of current security, or every sort on which money is ordinarily and usually lent. This policy may not save the Bank [and the country]; but if it do not, nothing will save it.

Bagehot went on to describe the importance of central bank lending at a premium to the pre-crisis rate & to lend against collateral, both to ensure moral hazard remained. The US Federal Reserve, The Bank of England, the Bank of Japan and even China’s central bank have all read & understood Bagehot and turned on the money tap to keep the global system from seizing up entirely and so utterly destroying the quality of life of billions of people. The European Central Bank likely also understands it, given its participation in the 30th November 2011 central bank agreement to increase dollar liquidity. Unfortunately, it is currently prevented from acting further due the legal limitations placed on it by, primarily, the Germans in terms of using one of a central bank’s greatest assets: printing money to permit that liquidity flow and devalue currency, even at the cost of inflation.

As we begin to see the cautious outlines of a potential “grand bargain” on lending involving the IMF, the world’s major central banks, the BRICS, and Eurozone fiscal policy union, let’s hope they haven’t left it too late…