Wednesday, September 8, 2010

On the time dependance of Ethics

Imagine this, a village child is hungry and has a big chunk of cake kept next to her. But she is not havng it - because it does not belong to her. Thats seems like the right thing to do, right? Not taking something that does not belong to you seems correct.

Now, imagine if a few hours have gone by and still no one has come to claim it. Would you call it morally correct that she does not take the cake? Now consider if a day has passed and no one claims it. Would you now call her descision to not take it, moral? Now, if the cake is about to get spoilt and wasted, would you still call it moral correct to not take it?

The only thing that changes in this example is the time frame and it affects our sense of right and wrong.

This is not just a case with perishable goods, it goes for non-perishables as well. If a house is not being used for long enough, its ok to use it, right? But who decides long enough? Is one day enough to decide that the house owner is not going to come back? One month? One year? A decade? Fourteen years? Fifty years? A hundred years? The question is where do you draw the line. Time increases in continous fashion. And our sense of morally acceptable and not acceptable is dependant on two discreet (and ambiguisly defined) lengths of time - Long and Not-so-long.

Our inherent sense of right and wrong is based on our understanding of timeframes and it seems to change with it.

Stumble Upon Toolbar

On the ownership of Ethics

Arent there days when you really want to do some good to the society? When you feel the pain of the people around you and want to contribute to the society? I am sure everyone of us has been in such a state before.

Now, imagine yourself to be in such a situation. You see a hungry beggar sitting on the pavment, two steps from you. You offer him the sandwich that you were about to eat. Good deed done, right?

If you had paid for it, indeed. But consider if someone else had paid for it. Then, would it be morally correct for you to give away the sandwich? If you did not have a mandate to give off something you did not own, isnt that wrong on your part to transfer it to someone else?

If you think that its ok to give the sandwich even when you did not own it, think how this can be extended. I could give off anything to anyone even if I dont have a thing. So potentially I could transfer all of Mukesh Ambani's wealth and give it off to my friendly neighbourhood beggar and feel happy for myself that I did a good job today. Or, I could give off all his money to the poor guy that I am, and feel proud of myself.

Charity makes sense only when you can own it up to youself.

Btw, all this money transfers should statestically lead to an equilibrium where every member has the same amount of money. Though this would be extremely unstable as people will like to have a bit more than others which would give them some advantage. Hence to maintain that equilibrium, an external force has to be applied. And now it appears that I am talking about communist governments. Ah, the digressions mind takes, from charity to communism!

Stumble Upon Toolbar

Monday, September 6, 2010

Mandated - Too important to fail

Recently, I visited Scotland and the first thing that I noticed (apart from the breathtaking view, that is) was the fact that currency notes were guaranteed by the Royal Bank of Scotland. It was extremely surprising given the fact that most banks that guarantee the payments of the amounts denominated are central banks. And central banks do not operate as commercial or investment banks (which RBS does).

And the fact that RBS was indeed rescued by the British taxpayer during the last crisis, gives more weight to my suspicion that it is mandated by the government to be too important to fail. A vast majority of the notes in circulation in Scotland are RBS guaranteed and hence the government can just not afford it collapsing.

Some thing even more surprising was the fact that England was one of the first countries to have a central bank and almost all of world's central banks are based on its model. Central banks operate in accordance to the government's fiscal policy and since they do not have any financial arms, they are immune to shocks from market crashes. This typically gives more credibility to a country's economic system. So if tomorrow the markets crash down, and RBS looses so much money that people lose trust in RBS's promise to pay the bearer an amount equal to the denominated pound value, a run on the bank occurs and all of the country's financial system stops working. To me that is a very scary thought. The only was the government can stop a run on the bank is such a case, is by mandating that RBS is too big and important to fail. So whatever happens, government will have to provide assets to back up all the banks that issue notes on its behalf.

As I later realised, "Clydesdale Bank" also issues currency notes. Now what is not clear to me is if all banks in Scotland are mandated to issue notes on their own or not. Though entirely possible,  this does not strike me as particularly prudent. Essentially the government then risks having the credit rating of the worst credit rating of the bank issuing notes.

It is possible that the government has only allowed banks to issue notes in return of some highly under valued collateral so that it can withstand the shocks, but I am not sure about it. Anyone who can enlighten me on that? Also I would really like to know how such a sytem evolved in Scotland when England had a central bank system. Any guesses?

Stumble Upon Toolbar