Financial Markets, Risks, & Crises

What is the role of finance in society? Is finance necessary to build the good society? What are the risks of finance? Why do we have so many financial crises? What is the importance of morality and philanthropy in finance? What are financial markets?

These questions are inspired by the first two videos in 2013 Nobel Laureate Robert Shiller's exquisite free on-line course ECON 252: Financial Markets (2011) at Open Yale Courses (YouTube Playlist for Financial Markets (2011)).

• Introduction to Financial Markets:

My notes on Shiller's Introductory video.

• Risk and Financial Crises:

My notes on Shiller's video on risk and crises.

• Conclusion of the Risk Discussion is in the first 14 minutes of lecture 3

To supplement the videos, I recommend Shiller's award winning book "Finance and the Good Society". Follow this link to the New York Times' book review of "Finance and the Good Society". The book is a conversation starter and as such is full of ideas with which you are expected to grapple and (usually) disagree. As such it will stimulate a lot of good discussions.

The discussion will focus on these core subjects:

• The role of finance in society and its role in the Good Society, in particular

• The role of risk in finance

• The nature and cause of financial crises

This topic is a repeat from the one on the 8th of Dec.

Note: In February 2014, Robert Shiller will be presenting his course Financial Markets on the Coursera Platform. I prefer archived, at-your-own-pace courses and will only dabble a little in the Coursera edition of the course. But if you are interested in the material and want to go into it in more depth and if your schedule and mental state enjoy the excitement and community of deadline-driven courses, it will be a great experience, I'm sure.

Note: I am tentatively planning to run a series of discussions on the 2011 ECON 252 course with Shiller's book as an important supplement. I watched the 2008 edition of the course in[masked] and identified Shiller and his course as exquisite. I am looking forward to going into the subject in more depth, taking notes, and leading discussions on each of the fundamental topics which the course addresses. This is one of a handfull of free on-line courses with which everyone ought to be familiar: it is of profound importance to our everyday lives and the future of civilization! I look forward to engaging it with the Greater Philadelphia Thinking Society.

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  • CJ F.

    One big question that we did not discuss was how to finance the kind of technological innovation that is found in an iPhone so that our schools and other public infrastructure can reap profits (and possibly reduce the tax burden). Mariana Mazzucato proposes just such a financing scheme by leveraging the historically most innovative tool known to economics: government bureaucrats! Watch her fascinating TED Talk:

    But wait, where is my libertarian vein? I wonder if the scariness of entrepreneurial risk-taking (scary unless you already have billions you can afford to lose in a major undertaking) could be mitigated by Philanthropy providing the security of a government bureaucracy to private citizens. That is, could Philanthropy give multi-million dollar fellowships to bright prosocial people without the funds to risk entrepreneurship? Then maybe we could get real innovation. What do you think?

    December 22, 2013

  • Christine

    CJ is a great leader - prepared, thoughtful, but doesn't lecture. Nice diversity of thinking.

    December 21, 2013

  • CJ F.

    Tomorrow's discussion on "Financial Markets, Risks, & Crises" will also explore financial risk and crises with this 1⅙ hour video by Robert Shiller:

    The basis of finance is, according to the video, probability theory which is the mathematics of randomness. So it is all about risk. This mathematical foundation gives clues to the causes of financial crises. Shiller's discussion concludes in the first 15 minutes of lecture 3:

    To get a better handle on "risk and crises", I prepared some notes on lecture 2 which are here:

    If the assumptions of finance are so shaky, why do we trust our money to banks and stock markets and insurance firms? If the basis of finance is probability theory, why don't we study randomness with more diligence and attention?

    Watch the 70m video on YouTube:

    December 20, 2013

  • Will B.

    Holiday duties have come up! Merry Christmas!

    1 · December 20, 2013

  • Bob

    Last minute holiday issues...can't make this one!

    1 · December 20, 2013

  • CJ F.

    Saturday's discussion on "Financial Markets, Risks, & Crises" will start with some issues and questions raised by this 1¼ hour video by Robert Shiller:

    I wrote some notes on Shiller's video here:
    On Facebook the notes started some discussion on philanthropy:

    What is the role and purpose of finance in society? What is finance? How would you define the word?

    Does finance really serve the sunny aspirational and moral role Shiller assigns to it or is finance just a big casino with its greedy ogling of "lot's of money and things" which bites you in the end as Shania Twain suggests in "Ka-Ching!" ( )?

    Watch the 75m Shiller video on YouTube:

    December 19, 2013

  • Dana

    I work in financial services & have a background in economic theory, among other things.Practically speaking "waitlisted" is "no" ... I need to schedule babysitters. But if I'm off the waitlist w/in a reasonable amt of time I'd really like to participate.

    December 18, 2013

    • CJ F.

      Dana, it is very hard to know with this group. Sometimes the waitlist moves quickly, other times not so much. We try to encourage folks to change their RSVP as soon as their plans change. But given the way the human brain works, it is not always possible. I will try to create a slot for you by noon tomorrow (Friday). If a slot doesn't open by then, I understand that we may miss the opportunity to include you due to your babysitting scheduling.

      December 19, 2013

  • CJ F.

    As a counterpoint to Robert Shiller lectures, here is Shania Twain's "Ka-Ching!", a satirical ode to finance:

    Shiller's discussion on "Risk and Financial Crises" in lecture 2 (which I discussed yesterday) continues in the first 15 minutes of lecture 3: (YouTube: ).

    His conclusion about variables in finance at the end of that 15m segment is profound, so check it out. The rest of lecture 3 is a new topic (probably my topic for February), so save it.

    Here is a summary of the other background resources I consulted for Sunday's discussion on "Financial Markets, Risks, & Crises":

    Introductory course video:

    Video on Risk and Financial Crises:

    Shiller's book "Finance and the Good Society" (2 prefaces & Intro plus chapters 18, 21-23, 26, and 28)

    December 18, 2013

  • CJ F.

    In this 1⅙ hour video, Robert Shiller discusses the basics of finance and risk, and the causes of big financial crises such as the one that began in 2007:

    Apparently, the basis of our financial system is the theory of randomness, that is, probability theory. How do you feel about that? In this foundation, Shiller finds the two main causes of financial crises: failures of independence (probability and finance theory assume that events are independent when often they are not) and a tendency for too many outliers (finance theory assumes that most variables fit a normal distribution or a Bell curve when it seems that a Cauchy distribution may often be more correct).

    Shiller then goes on to describe the basics of finance. He defines return and many other technical terms. His explanations are high-level, but somewhat technical. Math is essential for finance! Fun!

    Watch the 70m video on YouTube:

    December 17, 2013

  • CJ F.

    In this 1¼ hour video, Robert Shiller introduces Finance, Financial Markets, and his free on-line course:

    As in his book "Finance and the Good Society", Shiller asserts things that are not always self-evident. For example, he says "Financial institutions are a pillar of civilized society, supporting people in their productive ventures and managing the economic risks they take on." Is finance a pillar of civilization? Does it help us do our projects by managing risk? Is that its function and purpose?

    Shiller also asserts that finance "is about making your purposes happen". Is finance a great moral philosophy helping us answer the deep moral question: how should I become? Does finance empower our lives?

    Shiller also examines the role of big money. Ought we have sumptuary (consumption) laws? Should philanthropy be the objective for making lots of money?

    Watch the 75m video on YouTube:

    December 16, 2013

  • Helen

    I would really like to come but could only stay an hour and it's not fair to take a space someone else might want. Been reading Schiller in the times etc and just found out about his course. I'll be around in time

    December 15, 2013

    • CJ F.

      Helen, please RSVP and come. It would be great to have someone who has read the book participate. I will overbook the event knowing that you will only stay for an hour and we will be less crowded when you leave (besides we have more no-shows on Saturdays, so I doubt attendance will be too crowded anyway).

      December 15, 2013

  • CJ F.

    Robert Shiller's book "Finance and the Good Society" is grist for our discussion on "Financial Markets, Risks, & Crises" this Sat Dec 21st. I wanted to highlight a few chapters that are particularly relevant for the three main topics to be discussed:

    1) The role of finance in society and its role in building the Good Society. The two prefaces (the paperback edition has a new preface that is very good) and the chapter "Introduction: Finance, Stewardship, and Our Goals". In the first video ( ), Shiller discusses philanthropy. So part of our discussion will address Chapter 18 "Philanthropists" (and maybe a little of chapter 28 "Problems with Philanthropy").

    2) The role of risk in finance. Review Chapters 21 "An Impulse for Risk Taking", 22 "An Impulse for Conventionality and Familiarity", and a bit of 23 "Debt and Leverage".

    3) The nature and cause of financial crises. Review Chapter 26 "Speculative Bubbles and Their Costs to Society".

    December 15, 2013

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