fundaes – Page 38 – Pertinent Observations

Extending the studs and fighters theory

In a seminal post written over a year back, I had classified people into two, based on their working styles. I had called them “studs” and “fighters”. Studs, I had argued were people who had the knack of finding the easy way out. Who liked to work around corners, and find short cuts. And who would try to do things in as efficient a manner as possible.

Fighters, on the other hand, were supposed to be extremely meticulous, and process-oriented, and extremely hardworking. They would make up for their lack of natural talent by way of sheer hard work, and would be extremely determined in order to achieve their goals.

Today, thanks to a shared item on Google Reader by JP, I came across this article in The New Yorker. It talks about how humans get insights. The article talks about the process, or the lack of it, that leads to people getting insights. A large part of the article is a bit technical, and talks about a lot of biology. But if you can navigate through that, it offers a lot of insights on what goes into insights, and what might be needed in order to think in this sort of manner.

One major idea that is presented in this article is that insights are usually developed by the right half of the brain (for right-handed people), while most process-oriented stuff and calculation takes place in the left half. The article argues that in order to leave ourselves open to more insight, we need to take care not to focus too much of the problem. It also explains that you are likely to get your insights when you are least expecting them, such as when you are playing table tennis.

Ok, so going forward on these two lines of thought, I argue that “studs” and “fighters” can be extended to learning styles rather than as just working styles. It is the way in which the two categories of people understand things. Studs, I believe, are the people who tend to get most of their understanding by way of insights. People who are unable to put a finger on the process by which they learn a particular thing. Because of this, their thought is so unstructured that it is difficult for them to precisely and correctly follow processes.

Fighters, on the other hand, get their understanding incrementally, by following a process. They build up their understanding bit by bit. Slowly but surely. They are inherently left-brained people, and because their learning style is so processed and orderly, they thrive in orderly environments. Where all you need to do is to come together and go through a process. They are willing to work hard. They don’t mind if what they are doing is not insightful (partly because they experience insights so rarely). And thus lead low-volatility lives.

One other important insight from this article is that you are not consigned to a career in liberal arts or related fields if you are a right-brained person, as a number of people would like to convince you. Popular belief is that people who are good at math are inherently left-brained, and those good at languages are inherently right-brained. And that the paths for these people are disjoint. And they should stick to what they are good at.

However, what you might want to infer from this article is that all that it means by being right-brained is that you survive on insights. And that you are more likely to be a stud than being a fighter. The old school used to say that engineering is for the left-brained because they saw engineering as being process-oriented. And they saw the liberal arts as being insight-oriented. However, there are enough instances to show that the complementary skill is also important in both kinds of fields. You need studs in engineering, for if everyone would just follow the processes, there wouldn’t be anyone to think out of the box and come up with new stuff. You do need fighters in the arts, for on many occasions it’s a sheer execution game.

In any case, I would advise you to go read the article. It’s longish, but offers important insights. And if you think you are an insight-driven person, as I think I am, it might help to show this article to your bosses, and explain to them that making you focus may not exactly be the best thing to do in the interest of the firm.

On Cooking

For a little over a month, I’ve been living alone. And since Gurgaon doesn’t offer terrific variety of options in terms of cuisine, I’ve been cooking. Actually, I’ve been having a combination of cuisines every day – breakfast is continental (cereal with milk), lunch is north indian (eat it at the office cafeteria) and dinner at home is south indian. This arrangement will last for a couple of weeks, after which my mother will be joining me here.

I’ve often received queries as to how I can find so much time to cook. Others say that time can be managed, but how I can find the enthu to cook. A fwe others advise me to not bother with this and to employ a cook. The reason I don’t take the last bit of advice is because I’m usually fussy about what I eat. And then, one month of Gurgaon meant that I was bored of North Indian food, and needed something else for dinner (and how many cooks can you find in Gurgaon who can cook something else?). There is one really good South Indian restaurant here, but I can’t keep going there everyday, can I?

What I do in order to get the time and enthu to cook is to employ concepts such as economies of scale and law of conservation of willpower. I’ve talked about the former two posts back, when I gave a possible reason for only South India having a well-defined breakfast cuisine. The latter can be found in a NY Times article written in april which I’ve linked to several times from here, and now don’t have the enthu to find the link.

The basic unit of South Indian cooking is rice. It is extremely easy to make, and requires you to spend not more than a sum total of five minutes in the kitchen. Hence, it can be easily prepared in the evening following a long and tiring day at work. the next most important item, curd, can be purchased off the shelf. I have pickles which I’d ordered from Sri Vidyabharathi Home Products in SringerI (blogged about it but too lazy to put link). However, rice, curd and pickles doesn’t make a complete meal. You also need sambar or rasam to go with that. And making that is a non-trivial process.

This is where economies of scale comes in. The amount of effort to make five litres of Sambar is only marginally greater than the amount of time taken to make 1 litre (you need to cut more vegetables). My fridge works quite well, and Sambar or Rasam, when stored the right way, can last for about two weeks. So you know what is to be done (actually my grad student friends in the US tell me that this is what they’ve been practicing for ages). Whenever you get the enthu to cook (we’ll come to this in a bit), you make enough to last a week. Only thing is that you shouldn’t have qualms about eating stuff that has been inside a fridge (if you are a strict observer of the maDi-mYlge-musare-enjil practices, you may not be willing to do this).

Speaking of enthu, this is where the law of conservation of willpower comes in. Cooking is a fairly mechanical process, and there isn’t any scope for creativity, especially if you are making “vanilla” products such as rice, rasam, sambar and curry. Hence, for someone like me who is more idea-oriented and not execution-oriented, it can consume a lot of willpower. One attempt at cooking can be quite exhausting. So you better make sure you don’t spend all the energy that you get from eating in cooking the next meal.

My policy so far has been that I shouldn’t do any kind of major cooking more than once a day. By major cooking, I talk about processes that take more than 10 minutes of kitchen time (this excludes making rice, heating stuff, etc.) .I broke that rule today, and have ended up totally tired. However, as long as I follow that rule, I know that sometime or the ohter i’m going to feel enthu and go into the kitchen. This wya, I dont’ end up spending too much will power when im in the kitchen. And I get to eat good food every day.

The Problem with Amit Varma

Ok, at the outset I must admit that the title is misleading. There is no problem with Amit Varma. He is an excellent fellow, and great fun to hang out with. What I have been having a problem with is his blog, the ever-so-popular India Uncut. I’ve been reading it regularly for over two years, and now suddenly there seems to be something stale about it.

Amit’s method of writing is what I call as “reinforcement writing”. Other proponents of this style include Ajay Shah and Percy Mistry, and several commies whose writing I don’t care to read. The thing with these people is that they have one basic idea. And 60% (ok i made up that number) of all their essays talk about this one idea. The rest 40% (made up, once again) is used to present the same idea in a different context, or to paint it using a different colour. Maybe their hope is that when people read about the same idea several times, they will get convinced and buy the idea. The concept here is that every time people read about this idea, they would have forgotten that the last time they heard about this was from the same source, and their belief in this idea gets reinforced.

Amit’s chosen idea is one of liberty. Like classic libertarians define themselves – “free markets and free minds”. Go through all of Amit’s serious essays (basically discounting his essays on cows), and you will find this to be the unifying thread. Go back, and look at all the Thursday editions of Mint between Feb07 and Feb08. I haven’t kept count, but my sense is that at least 40 of those 50 odd columns had liberty as its underlying theme.

It may be the case that his mandate in that column was to write about liberty, but this concept has now become big in his normal blogging also, and maybe in all his thoughts. A few weeks ago, I wrote to a mailing list that Amit and I are both part of saying that I was planning to write an Economic Travelogue. And Amit’s quick suggestion was that I should write it from a liberty and freedom point of view.

The reason I’m writing this essay is that as a regualr and loyal reader of Amit’s blog, I feel cheated. I feel cheated that he isn’t adding much value by way of his posts. I’m not cribbing about the volume here, since I know that he is busy trying to get a novel published and doesn’t have much time to blog. I’m not cribbing about the quality of writing here – as always, it is excellent. What I am cribbing about is the content. That – for a regular reader – the marginal value of each of his posts is infinitesimal. And the danger is that the marginal value of looking at his posts might soon turn negative, which will result in my unsubscribing from his blog.

I know that Amit is really good about writing about liberty. He even won a Bastiat for that. However, he needs to realize that most of his audience is “repeat audience”. His essays might make a big impact for a new reader, but they do little to please existing ones. This is like a business that spends so much of its energy in acquiring new customers that it ends up pissing off the existing customers. Such a business model is never going to be sustainable.

Why Breakfast is an integral part of South Indian cuisine and not in North Indian

I suppose the more perceptive of you would have noticed this – that breakfast forms an integral part of South Indian cuisine, while it is totally absent (apart from parathas) in the North. The more inquisitive of you would have asked yourselves this question, and would have perhaps asked some friends and relatives and acquaintances also. The luckier among you would have found some answers. I think I belong to this category, too. And I hereby share my theory with you.

The fundamental concept here is that South Indian food is predominantly rice-based while North Indian food is roti-based. Yes, you have the accompaniments – sambar and dry curry in the south, and dal and sabji in the north. But let us focus on the staple component here. Let us think back a few generations, when large joint families were the norm. Division of labour meant that most women would spend most of their time cooking.

Now, those of you who have cooked, or even observed someone cooking, would have noticed that the process of cooking rice is “scalable”. On the part of the cook, cooking 10 kilos of rice takes only marginally greater effort compared to cooking 1 kilo of rice. On the other hand, rotis are non-scalable. There are minor economies of scale in terms of time taken to get the stove going, but the amount of effort involved in cooking is directly proportional to the number of rotis to be made. Roti-making is thus non-scalable. Also, observe that roti-making is high-involvement. It requires the undivided attention of a cook. On the other hand, you can just set rice to boil, and go sing a song while it gets cooked.

So the funda here is that given the non-scalable process of making rotis, whenever there were large families involved, North Indian women would have to spend a large part of their time making rotis. The long and tedious process meant that women had little time left over after cooking lunch and dinner. Contrast this with the rice-eating South, where due to the scalable process, women had a lot more free time compared to their Northern counterparts.

Another thing we need to remember here is that rice is more easily digestible than wheat, and hence doesn’t “last as long”. Hence, the rice-eater will need to eat at more regular intervals as compared to the wheat-eater. The wheat-eater can easily survive on two meals a day, but this is not the case for the rice-eater. There is the need for that one extra meal.

So, people, this is why breakfast, which is an integral part of South Indian cuisine, is practically absent in the North. There was demand – rice-eating south indians couldn’t survive on two meals a day. There was also the requirement for variety, for one couldn’t eat the same thing thrice a day. And there was supply – the free time the South Indian woman had, thanks to the scalable process she adopted for making lunch and dinner. This explains why South Indians evolved such an excellent breakfast cuisine, while people in the North eat bread.

Unifying the ladders

Following my post on Alonso and delta hedging, I’ve been involved in excellent conversations with a number of friends. I’ve got loads of advice, mostly solicited, on how I should go about the blading process. And there have been a number of other insights also, with a lot of theories having been generated on the Ladder Theory. Note that a working knowledge of this theory is a pre-requisite to your understanding the rest of the post. If you don’t know the theory yet, I request you to read the Wikipedia entry on the same right now, before you continue to read this.

I’ll start off with some insights from a few recent conversations

Anuroop says at the very top the two ladders converge.
Vyshnavi concurs. She says that one way of getting into a relationship is to climb the wrong ladder, and then hope that you get invited across the bridge.
I told this to Baada, who says that the funda of two separate ladders is not part of Indian culture, and that the ladder unification thing is true, and this is specific to India.
A while back, Nityag had told me that she would rather marry a friend rather marrying a raondom guy whom she met at the arranged marriage market
Earlier today, MC told me that she was scared about the arranged marriage market. That she was scared about committing to a stranger, scared of marrying someone she wasn’t in love with.
One of the rumours floating around regarding my cousin’s broken engagement is that she called it off after she got psyched out by the idea of marriage, and marrying someone whom she had met only a couple of times before.

Ok, now that the background has been set, here is the theory. What sets the scene in India apart from elsewhere is the presence of the arranged marriage market here. Here, if you have failed to find yourself a partner by a parental deadline, you are entered into the great arranged marriage market (in fact, occasionally you can be entered into this market even if you’ve found yourself a partner, but let’s not go into that). The thing about this market is that you need to make your decisions quickly, without giving or receiving much blade. It is likely that when you do commit, you are effectively committing to a stranger.

If you are a guy, you are in the arranged marriage market because no one who was sufficiently high up on your ladder (remember you have only one) was willing to marry you. Similarly, if you are a girl, you are in the arranged marriage market if no one who was sufficiently high up in your “good” ladder was willing to marry you. But what about your other ladder ?

Isn’t there a set of friends on your “friends ladder” who, if given a chance, would love to marry you? Isn’t there a subset of this set who are high enough on this ladder that you won’t mind sharing a house with them? Wouldn’t it be possible for you to convince yourself that you would be able to sleep with a subset of this subset? If this subset of a subset is non-null, then I think you are in luck. You do have hope.

Don’t you think it’s better for you to marry a friend rather than marry a stranger? Aren’t the odds of making the relationship work with a friend so much better than those of making things work with a stranger? That he is your good friend means that there is a certain basic minimum level of compatibility between you guys. Are you sure you can say that about the guy you meet in the market, after you’ve talked to him once, or maybe twice? If you are still reading, it is likely that you are going to accept the unified ladder theory.

So, my dear girls, what I’m saying now is not at all in my self-interest but I think it will be useful to you. Do enter the arranged marriage market by all means, but it would help if you could make a small list of boys high up on your friends ladder whom you won’t mind marrying, and who won’t mind marrying you. Use them as a benchmark while you evaluate the guys in the arranged market. And remember that you are more certain regarding compatibility with respect to your friends than the person you are meeting in your market.

Use your friend as a benchmark and all your doubts will melt away. If you do find a truly exceptional guy in the arranged marriage market (trust me there will be some; there will be at least one really exceptional in the market in a year or two) nothing like it. Else, you can think of “cultivating” the friends. Extend a ladder bridge to them. Convince yourself that it is ok to be in a relationship with them. And let them know the change in your stance, that you are willing to give them a bridge. Adn start this process early enough, so that even if all your friends ditch you, there is still the arranged marriage market to fall back on.

Anuroop, Vyshnavi, Baada – what you guys say is right. The ladders do converge at the top. But only in India. And I think i have the reason for that.

Kodhi, and all you others who consider yourselves to be master at being GBF* – there is still hope. This theory shows that there is still hope. Bless the arranged marriage concept for that. There is still a small chance that your GBF^(-1) might want to marry you. Keep up the good efforts. And never lose hope. There can be a bridge high up on the ladder.

*GBF: gay best friend. Refers to guys who are really really close to a girl, without any realistic chance of sleeping with them.

The ibank bailout

After the Fed bailed out Bear Stearns and arranged for its sale to JP Morgan, I blogged saying that the Fed hadn’t done the right thing, and was now creating a situation of moral hazard.
When Lehman was in trouble, I said that this was a good time for the Fed to make amends for not allowing Bear to fail. Reputed commentors such as Michael Lewis backed up my claims (sorry, i’m too lazy to find links). And the Fed seemed to take our suggestion. And Lehman was allowed to fail
Now, following Lehman’s collapse (and I’m not sure if there’s a causality here), the entire global financial system is in trouble. No one is lending to each other (remember that in my original post I had said that the point of removing the moral hazard is that no one will lend to bad banks. Based on that it’s like as if all banks are bad now). The remaining banks are going down one by one.
It seems like the Lehman collapse is just a small part of the larger picture, and if things continue to go bad the way they’ve been, it’s even likely that the impact of the Lehman collapse will not be major compared to the total size of the crisis.
So the real danger is that by the time the crisis is over and everyone has recovered (it’ll take a long time indeed for this to happen), people would’ve forgotten about Lehman. Forgotten that banks are not necessarily too big to fail (and given how bad things have got, the Fed cannot allow more banks to fail). Forgotten that no one will bail out the creditors if someone in the system tells jai. And people will go back to their old bad habits
Important question to ask here is the role of the Lehman collapse in the magnitude of the current crisis. There definitely has been some impact, but it would be interesting to see exactly how much. Would this collapse have been as bad had Bear been allowed to fail when it was about to fail? How much incremental damage was done to the system in the six months between the two major ibank failures?
In hindsight it seems like the Fed might have done better in letting Bear fail rather than letting Lehman fail; actually we aren’t even sure of this.
The question remains as to how discipline will be ensured in the system, without too many restrictions, once the system is back up on its feet (it’s going to take a long time, mind you). Maybe we will see smaller banks. Large networks of smaller banks, with none too big to fail. Yes, there will be continuous churn, wiht banks failing continuously and new banks coming up to replace them. Banks will be more ruthless in dealing with each other.
But how does one ensure that the system goes into this particular steady state, and not any other, once it’s back up?

On Alonso and Delta Hedging and Creating Positive Black Swans (and louvvu of course)

Yesterday, on the Twisted Shout blog, I had blogged about Xabi Alonso, and his methods for scoring goals. Complete with videos of a few of his goals, and incomplete because I couldn’t find a few other videos, I explained how he goes about the entire process. He takes long shots, I had explained. From a distance. Hoping to catch the goalkeeper off guard. And accurate enough to get the ball in the net most of the time.

Towards the end of The Black Swan, Nassim Taleb talks about how you can make black swans work for you. He talks about industries such as moviemaking and book publishing, and he says they traditionally thrive on positive black swans. They lose a little money on most projects – books or movies, but make significantly more money when one of them succeeds.

The book industry, Taleb argues, has now lost its traditional revenue model. Nowadays, the norm for publishers is to dole out huge advances to authors who will potentially write blockbusters. This, Taleb says, now exposes the publishers to huge negative black swans. The advances are so huge that if a book sells well they recover their investments. If not, they are prone to losing a huge amount.

I notice a similar problem in the romance industry. Suppose you have been hitting on, or even seeing, a girl for a long time, and it’s now time for measurement. By conducting the measurement experiment now, you are exposing yourself to a huge negative black swan. You have already made considerable investment in the relationship, mostly emotional but also monetary and temporal. And what if the measurement doesn’t go the way you want it to go? You are already in the D (desire) of Kotler’s AIDA. It will take a long time for you to recover from it, and this could even be career threatening, as I had discovered the hard way a couple of days years back.

Now, my theory with relationships (I don’t know how much you want to trust this – since I’ve never been in a relationship) is that in order to succeed, both parties should be at least in the I (interest) zone. And one of the parties has to be in D zone. This is a necessary but not sufficient condition for the relationship to go thorugh.

So, how about testing whether the other person is in the I zone when you are also in I zone? If she is, then well and good – you can start the process of figuring out if you want to get into D, etc. If she isn’t you can quickly cut your losses and move on. If she does admit to being interested in you, it’s great. It’s a positive black swan. And if she tells K, you haven’t really invested much in the relationship so it shouldn’t be hard. Right? So that’s how my mind ran when I thought about this problem yesterday.

I sent her a mail asking her for permission to put blade on her. I explained to her in the mail (i’ll probably blog the mail at a later date – I’m quite proud of my efforts on second thoughts I won’t blog the mail. I think she deserves exclusivity to that masterpiece) that I ever since I met her a few days back I have gotten really interested in her, and am considering the possibility of blading her. That if she is not interested in getting bladed by me, then there is no point in my continuing and wasting both our times and energies, and so she should tell me that right now. I sent this mail to her earlier this evening and I’m still awaiting her reply.

So where does delta hedging fit into this? It is like the road to Ithaca as this poem mentions. It is about the journey being more enjoyable than the destination. It is about the process of doing something being more enjoyable than the results. It is from the excitement you get just by doing something for the heck of it. These are all what I call as second order effects. They are, in effect, derivatives. First order derivatives of something you are doing, which is effectively the underlying.

As I had mentioned in my previous post, by going ahead with the blading, the only thing I had to lose was my confidence. My form. And if I had gone about blading the conventional way, poking and probing, and making small inroads, the process too would’ve been excruciating, and would’ve added to the pain of the blade not succeeding. So was there a way in which I could hedge out the loss of form and confidence?

I think I’ve been fairly ingenious in going for my long shot. I’m doing something unusual by going about it the unconventional way. Add to this the joy of sitting and drafting that letter to her (yes, it’s a masterpiece). And the possibility of the insights I might gain from this process. And of blogging it, as I am doing now. As soon as I had hit upon this method, i realized that the second order advantages from this were huge. And would easily hedge away any blues that failure in my attempt would bring. It was like getting a put option along with a stock. You knew that your losses were capped.

On the other hand – if she accepted – the returns would be huge. It would be a positive black swan. Capped losses and uncapped gains! Once I had figured this out it was a no brainer that I should go for it. And I have gone for it. A long shot a la Alonso. And I’m waiting for the result. Wish me luck.

Dear Lehman Employees

Or should I say ex-Lehman employees? Assuming that most of you haven’t been fired yet, I’ll drop the ex. I know that a couple of days back, I wished for your company’s demise. That had nothing to do with you. I wished for that because I thought that was the right thing to be done. And the right thing has been done.

I know that you are out of a job, or will soon be without one. And that there are millions of Lehman people out on the street now, looking for a job. You may soon be joined by some people from Merrill, so you may not be alone. However, this is not the kind of thing where one appreciates company – after all that would reduce your chances of getting a job early.

I’m told that a number of you are desperate to quickly get into other jobs. I even heard that some of you are willing to take fantastic pay cuts in order to get employed again. I also heard that some of you are planning to apply to jobs that have nothing remotely to do with banking. i would advise you against doing things like this.

I know some of you have mortgages to pay. Some of you have families to take care of. And by embracing the American culture, you don’t have enough stowed away to take care of this. Some of you may not be allowed to legally live where you are currently leaving unless you find another job soon. Yes, if you are in this kind of a situation, you would do well to find a job early. However, keep in mind that whenever you are looking out, all that matters is your last paycheque. I figured out the hard way a few months back that the job market is Markovian. It doesn’t care for what you used to do. So if you end up taking a pay cut now, you might have to live on a different salary scale for the rest of your life.

However, a large number of you may not belong to the above category. You might have some savings stashed away, or you wont’ have mortgages to repay, and you aren’t really desperate to retain your visa. If you fit this category, I would advise you to hold out. I know you are upset now, but don’t panic. Don’t be in a hurry to find a job. Don’t sell out. Unless there are more large-scale layoffs in the near future – with Merrill having been sold, the chances of this aren’t too high – the job situation is going to get better with time.

Remember that once you are in a job, you will never get a break. You might get your statutory three weeks of privileged leave, but you will never find an opportunity to take a longish break. You will never get an opportunity for a sabbatical. To take some time off and do what you want. Yes, personal experience tells me that it’s really tough to chill when you don’t know where your next cash flow will come from. But given your experience in what was considered to be the best bond house in the world, it shouldn’t be that tough to find another job, when the supply in the market isn’t as bad as it is now. I would still advise you to take a short break, and breathe, and introspect, and ask yourself all the questions you haven’t been able to ask because you didn’t have the time.

You might think I’m crazy to be telling you this, but I think this is what will work best for you. Yes, there is a small chance you might get a good enough job paying well enough soon enough. If you hit upon this, then, you must count yourself lucky, and take it. However, there is a good chance that you may not be able to do this. All I’m saying is that in that situation you shouldn’t panic.

Just one last thing. If you are from Lehman, and are interested in working for a quant-based algorithmic trading hedge fund trading in Indian equity and equity derivatives markets, and based out of in Gurgaon, let me know. Drop in a comment with your email ID. Look up on this page, and you find a tab saying “Contact”. Click on that and you’ll get a form. fill it up including your email id and submit it. You might find someone responding to you in a few days.

Thanks and reegards,

SKimpy

Sorry Vennai. Sorry MJ. Sorry Baal

But Lehman has to go. In the “larger interests” of continuing a vibrant, risktaking and efficient worldwide financial system, it is best that the Fed does not bail out Lehman.

I had written about this a few months back, in hindsight, after Bear was bailed out by Fed who arranged for a hurried takeover by JP Morgan. Given that Lehman is still alive, though just, I think it’s time to revisit the arguments that I had made there. Quoting from the earlier post:

However, I think the easiest method of regulating these banks would have been to convince them that they are not too big to fail. Yes, they allowed Bear to almost fail, and its shareholders almost got wiped out. However, my belief is that this episode will be quickly forgotten and people will be back to the same old risky practices once the current crisis is over.

Most wall street banks used to function under the assumption that they are “too big to fail” and that if they make huge losses, the US Taxpayer would somehow bail them out. This led to the oft-repeated unhealthy scenario of “private profits, socialized losses” and encouraged extremely risky behaviour. The Bear bailout has set a bad precedent in this regard, and might lead banks to go back to their bad habits once they are out of the current crisis.

Then, I had written that

What if Bear would have been allowed to fail? People with whom it transacted would have all lost tonnes of money. So how would that have helped? Basically, in future, banks would become more wary of counterparty risk. They would be continuously monitoring each other. If one guy behaved badly, other banks would stop talking to him. Which would push up the level of everyone’s behaviour. I think being boycotted by your friends is a bigger punishment by being caned by the teacher.

The near-failure of Lehman has presented the Fed with an opportunity of setting right the mistakes that it did when it arranged the Bear bailout. They are lucky that there is an investment bank, not too large, which is on the brink of failure, and whose complete failure can change the way wall street functions.

I hope Lehman doesn’t fail. I hope they manage to do something on their own, or arrange some sort of funding, to pick themselves up from this crisis. However, if these efforts fail, they should be allowed to fail, however ungracefully. A bailout can only worsen the way major investment banks function.

Law of conservation of willpower and other stories

Every time I think about this article in the New York Times, I find myself agreeing more with it. The basic premise of the article is that in the short run, one has a limited “supply” of willpower, and by every activity you do that consumes willpower, you are reducing your ability to do other similar activities. In the longer run, the article goes on to explain, you can increase your willpower over time. This you do by keeping on pushing yourself marginally on the willpower scale.

Back when I first read this article (it was written this April), I used it to justify to myself as to why a normal management consulting job requires heavy amount of willpower. The argument I put forth back then was that in a mgmt consulting job (the kind of stuff done by McKinsey, A T Kearney, etc) you have to work for long hours, mostly in the presence of members from the client team, and a large amount of work you do is mostly routine, and boring.

Given that the work is mostly boring, it consumes willpower to keep doing it. The long hours mean that you need to keep doing it for a long time, which means a high rate of willpower consumption for a long time – making your daily consumption of willpower really high. Typical work usually involves your exhausting close to your daily supply of willpower. One option would be to periodically recharge your willpower batteries – by indulging in activities that don’t require any willpower, and will also go into removing your frustration with the depleting willpower.

One of the most high-pressure jobs, one that consumes copious amounts of willpower, is trading. Though the hours aren’t too long, the rate of consumption is so high that you easily come close to the daily limit. However, traders usually manage by frequently recharging their willpower batteries. By indulging in activities such as shouting, screaming, throwing down the phone and breaking pencils. This way, they manage to survive until the time they get paid their bonuses (assuming they get a bonus – which is not the case with most traders this year).

The clincher with consulting is that you are usually based at the client’s location. This means that you must behave. And thus, a major source of recharging willpower batteries is gone! Hence, the only way you can survive in that profession is if you have an extremely large daily supply of willpower.

Every time I think about this NYTimes article, I also realize that my willpower is less than average. Though I must say that it’s been steadily increasing, it’s nowhere close to the average level. Initially, in school and college, I managed to get by because the amount of willpower demanded wasn’t very high, and within my limits. Then, I started working, and got exposed.

There was this guy called Yaso in my class at IIT who on one fine day started writing with his left hand (he is naturally righthanded). He explained that he was doing this to build up his willpower. I don’t know how successful his attempt was, but I clearly remember we’d made a hell of a lot of fun of him for this. Maybe I should check back with him. And start implementing some measures for improving long-run willpower that the article talks about.