Role-playing games and the Republic of Georgia

I embarked on a mission today to find a t-shirt shop I'd heard rumor of recently. I couldn't find its exact location from the web so I figured I'd wander around until I stumbled onto it. A friend compared this approach to the gameplay in an RPG, where you can operate pretty aimlessly, prompting locals for information that can help you in your quest. It's an apt comparison, and it's become an increasingly rare mode of experiencing a place, but that's how I've typically travelled.

A trip that stands out along those lines was the one I took to the Caucasus with my friend Anjali. We were living in Ukraine at the time and were both well-traveled and opted for no preparation other than our roundtrip tickets to Tbilisi. We mostly memorized the Georgian alphabet on the flight, dozed off some, and arrived in the early morning. We had no map and nowhere to stay so we made our way downtown and to the train station, thinking we'd be able to find an affordable hotel or a babushka offering a room for rent. The hotels turned out to be too expensive - a couple hundred dollars a night if I recall correctly, or about as much money as I had to my name at the time. The clerk assured us the rooms were "very nice." The train station was notedly absent of nice old ladies offering shelter, in contrast to our experiences in other formerly Soviet republics. The city at this time was host to a disruptive anti-NATO protest, so that may have had something to do with it.

By this point it had started raining, and Anjali had placed a scarf over her head. Our search for shelter was taking on a certain Mary and Joseph quality, as we asked a woman sweeping her doorstep if she knew of a nearby internet cafe. She gave us directions as she placed a hand on Anjali and offered a sympathetic smile. Now, the internet proved to be an information desert for basic housing in Tbilisi, except for one forum post that contained the building number of a couple who offered rooms to travelers. We set out for it, though we didn't have an apartment number, so I resolved to just start knocking on doors. A woman answered the first door I tried. I apologized for bothering her and explained what we'd read, and it turned out it was her and her husband who were running this hostel of sorts. They invited us into their apartment, which I remember as open and bright, with Judaica, and explained they were already housing a group of Swedes who'd come to the area for mountain climbing. They were, however, able to ask their neighbors to house us. Fortunately those neighbors - a family of artists and musicians - were able to take us in.

It turned out to be a great experience. The walls were covered with paintings - many of family members. The mother worked restoring art at the local museum, and in our downtime we'd hear the father listening to opera or the daughter practicing violin. The grandmother told us about the city and where to find what. She also recounted to us that before Georgia's civil war in the 90s different ethnicities and faiths had gotten on harmoniously. It was a particularly poignant observation since at the time Russian forces were passing through parts of the country, as part of Abkhazia and South Ossetia's effort to break away from Georgia.

Hank Paulson, the financial crisis, and remaining fault lines

I just finished watching the documentary Hank: 5 Years from the Brink and got motivated to flesh out my understanding of the 2008 financial crisis again. The film was largely focused on the response to the crisis, but I thought it interesting that the makers didn't highlight the increase in the interest rate undertaken by the Fed not long before the economy started crumbling. In keeping with typical operations of the Fed, that sort of rate hike would have been in response to a sense that the economy was overheating - in or entering a bubble - and needed to be reeled in before it got too carried away. At that point the rate had been low for years - an enduring response to the bursting of the Dotcom bubble - which fueled the housing boom.

In retrospect we can easily say that it would have been more appropriate had the Fed raised rates much sooner. That gets us into considerations of ego and other interests in Fed operations. Fed chairmen want to reign over a flourishing economy, as do other officials who have influence on them, not least the President. Even the desire to see one's own investments perform well constitutes a conflict of interest. I've actually never seen anyone speak to that, as though Washington decision-makers should be rich enough that their own financial livelihoods wouldn't enter into play in open market operations. It's this fallible discipline and at least potential conflict of interest that lends support to arguments for abolishing the Fed. At the same time, the cause of the crisis was multifactorial. A big issue in responding appropriately to any situation is information, and the way in which subprime mortgages were securitized made it difficult to divine the actual circumstances we faced.

The multifactorial nature of the crisis is covered well in Fault Lines, a book by Raghuram G. Rajan, a former IMF economist. He goes into the distortions in the financial industry, where banks are (still) too big to fail, and the incentives lopsided. Failure goes unpunished, not just at the level of the market, where institutions have been propped up, but within those institutions as well. However, success is, particularly at the higher levels, exorbitantly rewarded. At the same time, Rajan goes into other aspects of the financial system that predispose it to crisis. Freddie Mac and Fannie Mae, complicit in the crisis, are a response to a society with a weak social safety net where that's been compensated for in one of the only political viable ways: promotion of often unsustainable private home ownership. He also points to global aspects, notably the high savings right in China that translated to global capital looking for a place to nest with good returns, such as subprime mortgage-backed investments.

By the end of the documentary, former treasury secretary Hank Paulson asserts that eventually we'll have another financial crisis - this is the nature of markets - but that we now have better mechanisms in place to mitigate the effects. He points to higher capital requirements and Dodd-Frank. The former no doubt cushions the system from calamity but the latter has been described by The Economist as a convoluted piece of legislation -- over a thousand pages long. In keeping with that observation my impression is that it's introduced complexity and hasn't actually made the work of regulators easier or more empowered. That, the historically low interest rates we've had for approaching a decade, and the fact that the banks that were too big to fail are now only bigger fill me with concern. I wouldn't be surprised if the next turn of the market exhibits the same severity of effects as the last crisis. In examining the historical frequency and severity of financial crises, Elizabeth Warren has made a strong argument that the now expired Glass-Steagall Act, which separated commercial and investment banking, played a critical role in staving off disaster. Reinstating that sort of legislation is one of the only options I see available for minimizing the risk of cataclysmic crises in the future.