Nous et nos enfans; voilà tout: le reste est rêverie

Marc Vanfraechem introduced me to Ferdinando Galiani, first secretary to the Neapolitan embassy in Paris in the 1760s. Abbé Galiani as he is known to the French became famous in 1770 for his Dialogues sur le commerce des bleds, a witty pamphlet on the limits of free trade. → Read More

War and the financial system

On 4 August 1914 England declared war on Germany. Financial markets on the continent were already severely disrupted by the Austrian ultimatum to Serbia of 24 July. Now the City of London was threatened by the short-term funding and foreign exchange markets effectively dissolving.

The acceptance houses became virtually insolvent as foreign debtors were unable to remit funds to London; the brokers who had discounted their bills followed suit. The ultimate debtholders, the joint stock banks, additionally faced losses on their margin loans to the stock exchange; forced liquidations by their clients set in motion a vicious circle of fire sales. → Read More

Valuation. The illusion of precision

I find it difficult to see how valuation could indeed evolve if it continues to revolve around the CAPM with its normal distributions, its quadratic utility, its homogeneous investor expectations and frictionless markets. The notorious surveys of Pablo Fernández (IESE) – “The equity premium in 150 textbooks” or “Betas used by professors: A survey with 2,500 answers” – expose the emperor as having no clothes and empowers skeptic clients to make a mockery of us all. → Read More

The business of the modern politician

It is the method of modern statesmen to talk as much folly as the public demand and to practise no more of it than is compatible with what they have said, trusting that such folly in action as must wait on folly in word will soon disclose itself as such, and furnish an opportunity for slipping back into wisdom, — the Montessori system for the child, the Public. → Read More

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