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the calvo nexus


AQ 286 = THE CALVO NEXUS (Reza Negarestani - Paul Krugman - Mohamed El-Erian - Charles Taylor).


The International Finance Multiplier [+]
Paul Krugman - October 2008

What was the explanation of global contagion? Some observers suggested that there were informational linkages - such as herding behavior by investors with incomplete information. Others, myself included, suggested that contagion was a sort of “sunspot” phenomenon: the afflicted economies were financially fragile, with the possibility of falling into a bad equilibrium always there, and the crisis atmosphere caused the descent. The proposed channel that seems most relevant, however, seems to have been originally proposed by Calvo (1998): contagion through the balance sheets of financial intermediaries. Loosely, when hedge funds lost a lot of money in Russia, they were forced to contract their balance sheets - and that meant cutting off credit to Brazil. An important paper by Kaminsky, Reinhart, and Vegh (2003) provided support for this view: it compared a number of episodes of international contagion, and found that all of the cases involved a “leveraged common creditor.” The argument of this short note is that an expanded version of the Calvo hypothesis is the best way to think about the global crisis now underway: essentially, all economies now share leveraged common creditors, so that balance sheet contagion has become pervasive. Today, we are all Brazilians. Before we get there, however, it’s necessary to lay out a stylized account of the crisis.

REFERENCES :: Calvo, Guillermo. 1998. “Capital Market Contagion and Recession: An Explanation of the Russian Virus.” Mimeograph.

When Markets Collide: Investment Strategies for the Age of Global Economic Change
Mohamed El-Erian - June 2008

By discussing these phenomena in some depth, When Markets Collide seeks to shed light on how the ongoing economic and technical shifts, what I refer to throughout the book as “transformations,” are impacting the world we live in—present and future. The book offers analytical anchors for identifying the key elements of what, for some, have become drivers in an unusually fluid environment. In so doing, I will uncover many of the understandable reasons that otherwise rational and well informed investors can be late in recognizing important turning points and, subsequently, be prone to mistakes. In some cases, such mistakes have resulted in market turmoil, liquidity sudden stops,1 institutional failures, and emergency policy responses—and they will continue to do so.

1. As noted in a paper by Columbia University Professor Guillermo Calvo published by the IMF (Guillermo Calvo, "Explaining Sudden Stop, Growth Collapse, and BOP Crisis: The Case of Distortionary Output Taxes," IMF Staff Papers, vol. 50, 2003), the term "sudden stop" was coined by the MIT economist Rudi Dornmusch in 1995 (Rudiger Dornbusch, Ilan Golfajn, and Rodrigo O. Valdes, "Currency Crises and Collapses," Brookings Papers on Economic Activity, 1995). It was popularized by Calvo in the context of the emerging market crises of the 1990s.
- - -
Transformations: Inherently Tricky

Transformations are not easy to recognize or navigate, especially when they are initially unanticipated and evolve rapidly. By challenging conventional wisdom and historic entitlements, transformations feed a dynamic that is inevitably uneven and, at times, unpredictable. Indeed, the phenomena accentuate in an important manner the difficulties that people face in the run-up to the more familiar long-term (i.e., secular) turns. Here, the issues tend to revolve essentially around the timing and the orderliness of the turn as opposed to the secondary considerations that pertain to time and system consistency.

To some of us, the financial market turmoil that started in the summer of 2007 reflects the secular transformation of the global economy. There are now economic and financial forces in play whose impacts are of great consequence but that cannot as yet be adequately sustained by the world’s current policy and market infrastructures. As such, the efficiency gains that they bring are associated with higher risks of short term disruptions. Indeed, one of the important messages of this book is that the present turmoil is neither the beginning nor the end of the transformation phase.
- - -
The New Secular Reality

The reaction of some observers in the recent past—in particular, the once-eager supporters of financial globalization who are now willing to ditch it—reminds me of the way five- to seven-year-olds play soccer: Players on both teams tend to chase the ball in the manner of a noisy herd. They are, in effect, totally data dependent. Their approach stands in sharp contrast to the behavior of older kids. Anchored by a better understanding of the game and more of a strategic mindset, the older players seek to maintain positions on the field and rely more on letting the ball do the work.
- - -
Plumbing Problems Arise Out of the New Reality

Due to the difficulties in being able to rapidly identify and adapt to multiple structural changes, it is inevitable that some investors (including previously successful investors) will trip, some firms will fail, some admired policy makers will be slow in reacting, and some international institutions will lose relevance. As long as the numbers remain contained, they will constitute only “flesh wounds” for a generally robust secular transformation. But if few become many, the world faces the prospect of a disorderly adjustment characterized by disappointing economic growth, higher unemployment, greater poverty, trade wars, capital controls, and financial market instability.
- - -
A Framework for Understanding the New Reality

Against this background, the purpose of this book is to document and detail the fundamental structural changes that are now in play—both their individual impacts and the manner in which they come together in defining a new secular destination. In doing so, the book also sheds light on the journey. This combination offers the readers analytical anchors—mental models, if you will—that can help in the formulation and implementation of strategies for an age of economic and financial change. I would view this book as meeting its objective if it helps readers better understand the nature and implications of the emerging global secular realities. To this end, it details the challenges that face market participants and suggests ways to address them. The focus is on the ability to address both the most likely secular results (that is, the results that anchor the belly of the distribution of outcomes) and potential major disruptions (that is, the fat left tail of the distribution).

Cyclonopedia: Complicity with Anonymous Materials
Reza Negarestani - August 2008

BACTERIAL ARCHEOLOGY: NETHER, SUB-SOIL AND XENO-CHEMICAL INSIDERS

{p16}

X: The contemporary war machine (the grasping of war as a machine) does not correspond easily to the Deleuze-Guattarian model because (1) it includes Abrahamic or monotheistic escalation and monotheism as stimulating components; (2) it has war as an object, or — more exactly — a product; (3) it consummates the technocapitalist oecumenon through synthesis with Islamic monotheistic enthusiasm (subtracting the supposed potential for 'secularization' as an Abrahamic teleology).

Z: This is precisely the Gog-Magog Axis: 'Consummating the technocapitalist oecumenon through synthesis with Islamic monotheistic enthusiasm (subtracting the supposed potential for 'secularization' as an Abrahamic teleology).' However, the Gog-Magog axis eventually crosses technocapitalism with something else.

A Secular Age
Charles Taylor - September 2007
Harvard University Press

An insider's view of a secular age

4. Self Another central idea of Charles Taylor (above) is that the medieval self was porous; the contemporary self is buffered – though we still have a sense of porousness in, say, the experience of realising that your emotional self exists somewhere in between yourself and the people you love. However, because the buffered self is ideally conceived of as autonomous, lonely solipsism is another characteristic of the age.

The History of Secularization

In Charles Taylor’s latest work – the massive A Secular Age – the recent recipient of the $1.4 million US Templeton Prize proposes to look at the history of increasing secularism through a rather unique lens. Secularization, as Taylor sees it, has tended to focus on two aspects. On the one hand, secularization refers to the increasing distance between socio-political institutions and their foundation in a transcendent authority – the secularization of the public sphere, in other words. On the other hand, lies the notion of secularization as the decline of participation in religious ceremonies, rituals and institutions - the secularization of the private realm. It is obvious that the two types of secularism, while capable of being intertwined, need not be. Within the first type of secularism, private beliefs in a transcendent world (which is how Taylor roughly defines religion) can still thrive, but are barred from being the basis of public institutions. The United States, of course, is the most obvious example of a society whose political organizations are ostensibly secular, while still retaining a vast majority of non-secular private individuals. The intermingling of the two (witness the debate over Mitt Romney’s Mormonism, for example) and the indiscernibility between public and private makes the distinction between the two types of secularism only relative, but the point nevertheless stands. The increasing secularization of the Western world has largely been seen in terms of these two meanings.

The buffered self and the battle of ideas

I organized the book in sections, and the main thrust of my account comes in the first half. Crucial to my view is a Foucault-influenced notion of Reform as both feeding on and further potentiating certain disciplines, which become woven into our family, work, schooling and professional lives and hence continue to define us. What I call the “buffered self” is one facet of what results.

A Secular Age: Buffered and porous selves

Almost everyone can agree that one of the big differences between us and our ancestors of five hundred years ago is that they lived in an “enchanted” world, and we do not; at the very least, we live in a much less “enchanted” world. We might think of this as our having “lost” a number of beliefs and the practices which they made possible. But more, the enchanted world was one in which these forces could cross a porous boundary and shape our lives, psychic and physical. One of the big differences between us and them is that we live with a much firmer sense of the boundary between self and other. We are “buffered” selves. We have changed.

This is not a mere “subtraction” story, for it thinks not only of loss but of remaking. With the subtraction story, there can be no epistemic loss involved in the transition; we have just shucked off some false beliefs, some fears of imagined objects. Looked at my way, the process of disenchantment involves a change in sensibility; one is open to different things. One has lost a way in which people used to experience the world.

Disenchantment in my use (and partly in Weber’s) really translates Weber’s term “Entzauberung,” where the key kernel concept is “Zauber,” magic. In a sense, moderns constructed their own concept of magic from and through the process of disenchantment. Carried out first under Reforming Christian auspices, the condemned practices all involved using spiritual force against or at least independently of our relation to God. The worst examples were things like saying a black mass for the dead to kill off your enemy or using the host as a love charm. But in the more exigent modes of Reform, the distinction between white and black magic tended to disappear, and all independent recourse to forces independent of God was seen as culpable. The category “magic” was constituted through this rejection, and this distinction was then handed on to post-Enlightenment anthropology, as with Frazer’s distinction between “magic” and “religion.”

The process of disenchantment, involving a change in us, can be seen as a loss of a certain sensibility that is really an impoverishment (as against simply the shedding of irrational feelings). And there have been frequent attempts to “re-enchant” the world, or at least admonitions and invitations to do so.

argh, more setup stuffies. wake up in the morning & read read read. nummy nummy nummy. anyway, trying to "navigate the journey" (El-Erian) to "Parsani's Cross of Akht… had all the answers" (p21, Negarestani). backtracking bread crumbs: [1] Charles Taylor (March 15, 2007); [sidebar] the James Bond villian-esque Viktor Bout (11.15.06) - Lord of War; [2] Cyclonopedia (31 August 2008); [3] The Power of De (Sep 07, 2008); [4] Mohamed El-Erian & some suggestions to help the economy (18-Sep-2008) - AQ-474 NO COUNTERPARTY TRUST.

backtrack is when i first heard of blah blah. The Krug posted The international finance multiplier on 05-Oct & he was probably already thinking of Calvo. yesterday, around noon, CNBC quoted El-Erian about "counterparty trust". couldn't find the video right away, but found Pimco.com link to El-Erian's book (which also mentions Calvo) that i didn't get to until this morning. what made me check it was a brief mention today of necessary and sufficient. think he said tick the four boxes, which meant i should get a fourth thingy for this Calvo nexus, found googling secularization+hyperstition: #1. the accursed share: The History of Secularization.

AQ 438 = NECESSARY AND SUFFICIENT (Pimco's El-Erian on the Markets :: Tues. Oct. 7 2008 | 05:05 AM[09:17] :: Insight on the economy, with Mohamed El-Erian, Pimco co-chief investment officer/co-CEO :: [04:08] +++ El-Erian asked if he could sense "the feeling better mode" today; he wanted it to last longer than a day & thought there should be simultaneous movement across sectors; also discussed payments and settlements system & something acting like a lubricant (which someone else also picked up) +++ Joe: So there is something that is both necessary and sufficient. And you know what it is but it just hasn't been done yet. But did you just outline everything where you'd actually — would ever come on and say that was necessary and sufficient, Mohamed? [04:25] Mohamed: At Pimco we're very clear: we have what we think constitutes necessary and sufficient. It's the outcome of hours and hours of discussion of our investment committee and with our colleagues around the world. We're looking to see whether we can tick these four boxes, and as yet we're not able to tick the four boxes; AQ-622 NECESSARY AND SUFFICIENT CONDITION, AQ-1128) = THE CENTRE OF A SPIDER'S WEB (AQ-193 LORD OF WAR) = THE COLLISION OF MARKETS (AQ-359 WHEN MARKETS COLLIDE).

AQ 1320 = CAPITAL MARKET CONTAGION AND RECESSION: AN EXPLANATION OF THE RUSSIAN VIRUS (AQ-660 AN EXPLANATION OF THE RUSSIAN VIRUS, AQ-660 CAPITAL MARKET CONTAGION AND RECESSION, AQ-669 THE INTERNATIONAL FINANCE MULTIPLIER) = CAN A 100 MW FUSION REACTOR BE BUILT FOR LESS THAN GOOGLE'S ANNUAL ELECTRICITY BILL? = INNOVATIVE IN CREATING NEW CAPABILITIES AND OVERCOMING SECURITY OBSTACLES (AQ-262 KEY JUDGMENTS, AQ-55 NIE).

AQ-1320... i love it when a writer expresses intention at the kabbalistic level. got several examples, meant to discuss it, never got around to it. Krugman's Calvo reference has a 660{main title} + 660{sub title} = 1320{full title} structure. it's an interesting barometer. 660 ~ sum of four consecutive primes (157 + 163 + 167 + 173), sum of six consecutive primes (101 + 103 + 107 + 109 + 113 + 127), sum of eight consecutive primes (67 + 71 + 73 + 79 + 83 + 89 + 97 + 101), sparsely totient number, Harshad number.

added note about psychic ability as the reason (i think Blatty gives) for Regan's possession. i'd buy the book just for Cyclonopedia's note four. intriguing: St. Joseph medallion is "the real inorganic demon" (not the Pazuzu statue discovered at the same time). Pazuzu was used as an apotropaic character (Ancient Near East Digest V1 #82; Apotropaic magic) ~ Entzauberung [+][+][+].

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