The Lighter Side Archives



 



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To celebrate the weekend, MBE digs up an interesting piece of finance trivia each Friday, looking at the lighter side of...

Christo

Economics… the gift economy that keeps on giving

26th June 2015

Did you know that an economy can function without exchanging goods for money or even exchanging goods for goods?  In contrast with a market economy or barter economy, a gift economy is a mode of exchange where valuables are not sold, but rather given without an explicit agreement for immediate or future rewards.

Research into gift economies began the Kula ring in the Trobriand Islands during World War I. The Kula trade appeared to be gift-like since Trobrianders would travel great distances over dangerous seas to give what were considered valuable objects without any guarantee of a return.

You don’t have to be an anthropologist to see examples of gift economies today if you know where to look: think of open-source software projects and “give-away” shops (which are like charity shops, but everything is free).  Even the Burning Man festival in Nevada not only encourages gifting, but even outlaws commerce (except for ice, coffee, and tickets to the event itself).  So if you have no use for your notes there, would this festival be a literal case of having money to burn?


Vibeke

Bartering… tricks of the North African 

12th June 2015

Thousands of years before Africa started to be exploited for its oil, diamonds and other mineral riches, the continent was already a hotbed of sophisticated trade and endeavour.  The Greek historian, Herodotus, in the fifth century BCE, recorded a fascinating system of barter between the Carthaginians and African tribes:

The Carthaginians also tell us that they trade with a race of men who live in a part of Libya [Africa] beyond the Pillars of Hercules.  On reaching this country, they unload their goods, arrange them tidily along the beach, and then, returning to their boats, raise a smoke.  Seeing the smoke, the natives come down to the beach, place on the ground a certain quantity of gold in exchange for the goods, and go off again to a distance.  The Carthaginians then come ashore and take a look at the gold; and if they think it represents a fair price for their wares, they collect it and go away; if, on the other hand, it seems too little, they go back aboard and wait, and the natives come and add to the gold until they are satisfied.  There is perfect honesty on both sides: the Carthaginians never touch the gold until it equals in value what they have offered for sale, and the natives never touch the goods until the gold has been taken away.

Not only are there examples of honesty and sophistication in ancient African trade, but these civilisations were often very progressive as well.  In ancient Egypt, for example, women held positions of power that, even today, are unheard of in some parts of the world – they became doctors, owned land and businesses, and some of them were even Pharaohs.  A story from long ago and far away that is still inspiring today!


Gorillas IV

Flexibility… from mining to Post-Its and other metamorphoses

12th June 2015
Having overseen many transformation projects, MBE has witnessed the perils of inflexibility.  Being open to adapting to a changing market or exploiting unexpected opportunities may take companies in an entirely different direction from what they might have planned, but sometimes that’s a good thing.  Here are just some examples of famous companies that started out doing something complete different:

Colgate: soap candles and starch manufacturer
3M: mining company
Tiffany & Co.: stationer
Nokia: paper producer
John Deere: blacksmith
Nintendo: playing cards
Avon: door-to-door book sales

The example closest to home is MBE itself!  What started as an actuarial consultancy metamorphosed to include operational excellence, and later, technology solutions.  As we developed with and responded to the market, we realised how well the three disciplines blended together and that the best approach was a holistic one.

Want to know more about the hidden costs of not being flexible?  Keep an eye out for an MBE publication coming out soon!


Criticality

Mathematics… the narcissistic inequality

5th June 2015

Mathematicians work very hard trying to reduce all kinds of problems to neat and elegant formulae.  These solutions bear a great responsibility - they are needed to help society in many ways, from engineering to health to finance.  So what does a mathematician do to relax a little?  Create a self-referential formula, of course!

Jeff Tupper defined a formula that, when graphed in two dimensions at a very specific location in the plane, can be "programmed" to visually reproduce the formula itself.  So if you plot each point which satisfies this inequality:



for values 0 ≤ x ≤ 106 and k ≤ y < k + 17, you should end up with a pattern that looks like the formula itself. There is a slight catch though. The value of k which makes this work is a 543 digit integer (you will need to scroll to the right for this one):



Q.E.Delightful.



Thanksgiven

Academic articles…and the serious side of Jane Austen

29th May 2015

Unsurprisingly, actuaries have not inspired the world’s greatest love stories, nor have they ever made it big in pop culture.  But every now and then, actuaries and their work do appear in movies, comics, and even the most unexpected pieces of literature.

An entire Wikipedia article exists about fictional actuaries in film, theatre, television, literature and even manga, with the links ranging from evil (Batman once faced a villain called “The Actuary”) to tenuous at best. Perhaps the most interesting references to actuarial work in literature are from Jane Austen, the pioneer of chick lit, who recognised in Sense and Sensibility that: “An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.”  In fact, there is an entire chapter in the novel dedicated to a technical discussion on the pros and cons of annuities; and various actuarial issues find their way into her other novels as well.

One actuary has gone as far as to write a series of academic articles on the portrayal of actuaries in literature, starting with Actuarial Issues in the Novels of Jane Austen, published in 2007.

If this story has inspired you, why not enter the Society of Actuaries’ Actuarial Speculative Fiction Contest? It is an annual writing competition aimed at encouraging creativity in the actuarial community. Just because actuaries have not yet made it big in the world of fiction, it does not mean that they cannot create their own…



Thanksgiven

Currency…if the buck stops here, where did it start?

22nd May 2015

Why do we refer to money, specifically dollars, as bucks?  It is probably a reference to deerskins, which were used as a medium of exchange long before the first US dollar was minted (in 1748, a cask of whiskey traded to Native Americans cost “5 bucks”). A “buck” didn’t simply mean one deerskin, but may have meant multiple skins, depending on quality. For instance, skins from deer killed in the winter were considered superior, due to the fur being thicker.

The highest quality skins were generally assigned a one to one value with one skin equalling one buck. In contrast, for lower quality skins, it might take several of them to be valued at a single buck. The specific value for given sets of skins was then set at trading.

This use of skins as a medium of exchange gradually died off over the next century. Once the US dollar was officially introduced in 1792 it quickly became the leading medium of exchange, but the term “buck” stuck around and by the mid-nineteenth century was being used as a slang term for the dollar. Dough, bread, dosh, moolah…whatever you like to call it, we hope that this edition of ‘Lighter Side’ made you feel like a million bucks!


Holistic solutions

…Derivatives – how a blossoming market caused a devastating crash

15th May 2015

Tulips are as synonymous with Holland as clogs and the colour orange.  So strong was the Dutch love affair with tulips during the Dutch Golden Age of the mid-1600s that a tulip bulb bubble or "Tulip Mania" occurred.  Considered to be the first recorded financial bubble, the Tulip Mania of 1636-1637 saw tulip bulb prices propelled by speculators to incredible heights before collapsing and plunging the Dutch economy into a crisis that lasted for many years.

Tulips only bloom for about one week each year, with bulbs appearing between June and September, thereby confining Dutch sales to that season. A rudimentary derivatives market, similar to modern-day options and futures contracts, eventually arose so that traders could trade in tulips all year round. Traders entered into tulip contracts by signing contracts for future tulip purchases before a notary. The very active tulip contract market eventually became an integral part of the overall booming Dutch tulip industry.

Tulip prices steadily rose with their growing popularity and bulbs were purchased at higher and higher prices by speculators who planned to sell them for a profit, similar to modern-day house "flippers." By the peak of Tulip Mania in February of 1637, a single tulip bulb was worth about ten times a craftsman’s annual income.
Like all bubbles, the Dutch tulip bulb bubble continued to inflate beyond wildest expectations until it "popped" in the winter of 1636-37. Within just a few days, tulip bulbs were worth only a hundredth of their former prices, resulting in a full-blown panic throughout Holland. Eventually, the government attempted to stem the tulip market meltdown by offering to honour contracts at 10% of their face value, which only caused the market to plunge even further. The brutal popping of the tulip bulb bubble ended the Dutch Golden Age and hurled the country into a mild economic depression that lasted for several years – all for some blooming tulips!


Origins

…Skirting the issue – fashionistas as market trend setters

8th May 2015

The Skirt Length (or Hemline) theory hypothesises that the current fashion trends in the lengths of skirts and dresses predict the direction of the stock market. According to the theory, as hemlines rise, so do markets; when skirts are longer, markets will fall.

The rationale behind the theory is that shorter, more frivolous skirts appear when consumer confidence is soaring, meaning that markets are bullish. On the other hand, in times of fear and gloom, when it is too expensive to buy silk stockings and markets are bearish, longer skirts are worn.

Although this idea is not new, a young Japanese musical group has made it current in a case of life-imitating-economic-theory. The ‘Street Corner Economists’ encourage consumer spending in the deflationary economy by allowing the stock exchange to dictate their wardrobe choices: when the Nikkei goes below 9,000 they wear long skirts; when it's between 10 and 11,000 they choose medium-length, and miniskirts when it goes higher. Now that’s what I call going to great (and short) lengths for one’s country!


history drachma

…Municipal bonds – whoops!

1st May 2015

A municipal bond, popular in the USA and usually thought to be quite a safe bet, is debt issued by a state, municipality or county to finance some capital expenditure.  They say everything’s bigger in the United States, and the Washington Public Power Supply System (WPPSS) proved that bond defaults are no exception.
During the 1970s and 1980s, WPPSS issued $2.25 billion of bonds which were to be used to finance the construction of some nuclear power plants in Washington State.

In 1983 WPPSS (or Whoops) declared that it would not be able to repay the billions of dollars of debt due to extremely poor project management, which had led to the cancellation of construction and abandonment of the power plants that had already been built.

This fiasco was (and still is) by far the biggest municipal bond default in history, which robbed thousands of members of the American public…Whoops!


Numbers

…Tax – the link between Tsarist Russia and modern hipsters

24th April 2015

Today’s lumberjack beard trend associated with the hipster generation is actually nothing new – and neither is the love-it-or-hate-it attitude that goes with it.  Tsar Peter the Great was firmly in the ‘hate it’ camp, and decided to do something about it by imposing a beard tax in 1698.

From the beginning of his reign, Peter I had been trying to Westernise the entire Russian way of life, society and culture; and this extended to fashion sensibilities as well.  He therefore set out to replace the traditional Russian long flowing beards with a clean-shaven European look.

He started by personally chopping off the beards of the bemused Russian nobles and then levied a heavy tax on those still attached to their facial hair.  Those who had paid the tax carried a ‘beard token’, which depicted a nose, mouth, moustache and beard, and was inscribed with the proclamation “The beard is a useless burden”. Furthermore, Peter ordered his nobles to wear fashionable German or English style dress instead of their traditional clothing, whilst French became the language of the court and the upper class.
Similar beard taxes were imposed in England by Henry VIII and Elizabeth I – so if history does turn out to repeat itself, British hipsters may have to pay for more than hair products to maintain their facial fuzz.


Procrastinate

...Corporate bonds – a sweet deal on a close shave

17th April 2015

Remember the chocolate ‘gold coins’ we used to relish as children? In 2010, luxury chocolate manufacturer, Hotel Chocolat, made this delicious concept grownup by issuing a three year bond whose coupons were paid in bi-monthly deliveries of chocolate.

The bond, which raised £3.7 million, was used to expand one of the company’s factories, open new retail outlets and build a sustainable factory at its plantation in Saint Lucia. It was only available to the 100 000 members of its ‘tasting club’ and came about as an idea to get customers more involved in the company. Gross annual returns would be 6.72% or 7.29% (depending on the initial investment), which were higher – and definitely tastier – than those offered by banks. The first return to bondholders was delivered in the form of a Hotel Chocolat ‘chocolate tasting box’ in August of that year.

The year before, King of Shaves similarly paid its coupons ‘in kind’, by issuing shaving products as returns on their ‘shaving bond’. They didn’t raise nearly as much money Hotel Chocolat did with its chocolate bonds…just goes to show, even razor sharp deals need sweeteners.