Well, these two concepts play heavily in economics, and finance, in several ways. So, they are worthy of some attention.
First, let's look at a couple of recent media offerings. On the print side, today, McClatchy Newspapers provided some words about how gambling laws might help dampen the effects of the games related to derivatives. Earlier, on the tele, I glimpsed an ad for an investing class where the theme was a clever take on the differences in risk taking, that was observed, between male and female students. Now, this latter has been discussed in several forums, but Laura's take is worth a read.
So, we are reminded that 'casino capitalism' has been allowed to become the basis for the economy, for reasons that we'll be looking at in depth. Too, those who may see that near-zero is the reality are pushed aside for several reasons, of which gender is only one.
Both of these topics are extremely important to our future, risk and rationality. About 'risk' we can say a lot, especially that it is inherent in life, to wit, the monies paid by the big boys to manage it. That the idea has been pushed to the limits of rationality needs some discussion.
Somehow, we hear this inane spiel about the rewards going to those who take the risk. Ah, yes (gains go to the pocket; failures are bailed out and mitigated). That nonsense goes back to the argument that getting out of bed is risky. Well, staying in bed is risky, too. Risk, in this sense, ought not be the focus as risk always is there. Okay, perhaps, some notion about managing risk's effects is appropriate, yet, a real accounting of the types of pain is what needs our attention. It has never been done right.
Oh, things are great? Millions are out of work and without any meaningful life? The fat cats bask in their bonuses, even thinking that these are appropriate? And, those working buy junk from China, assuming that they have money? Extremest luxury for the smallest few is accountable as progress in what sense? (a small sampling of thousands of possible questions, by the way)
Economics, in the classical sense, stressed 'rationality' from its beginning. Well, we can, and will, go into the etiology of that notion. For now, just be aware that economics getting biological (to wit, neuroeconomics) portends that some fundamental changes are coming. Too, we are only at the start of the computational influence. There is a whole lot we'll learn, even to the point of getting an appreciation for innumeracy (is not idiocy!).
When one considers ourselves, what is a rational view founded upon? That is, do we really know which neurotransmitter mix is optimal? Is that why we stress the mental IQ and associated performance (hey, isn't that what's behind the best-and-brightest labeling?) measures?
Or, is rationality tied to mathematical prowess (some economists seem to think so)? Well, can that be done on other than a quasi-empirical basis (think borgs)? Oh, are mathematics and its ilk (er, practitioners) any less subject to influences of the neuropeptidergic nature of ourselves than the rest of humanity (think mole hills)?
Well, to be fair, the argument is usually couched in terms of rational self-interest. However, underdetermined-ness is an important concept to consider in this context that is not easily tossed aside.
So much to discuss.
Sunday, November 29, 2009
Thursday, November 26, 2009
Financiers
This group has not been mentioned specifically, yet. So far, we've had posts about Labor, Economists, Quants (these work for the Financiers), Educators, Bankers (who can be confused for Financiers), and Investors.
Perhaps, it is time. We can start, slowly, with a look at related subjects, such as TARP, and then go into other matters. This topic will be more thoroughly covered, as time progresses.
Remarks:
11/29/2009 -- Risk and rationality.
Modified: 11/29/2009
Perhaps, it is time. We can start, slowly, with a look at related subjects, such as TARP, and then go into other matters. This topic will be more thoroughly covered, as time progresses.
- See The Baseline Scenario on testimony given to Congress, lately, about TARP. Notice, in particular, the reference to the April, 2009 article in The Atlantic. What is ironic is that some actions being pursued in the US would be frowned upon by the IMF (et al) if it were the action of a developing country.
- See Wall Street vs America (the Municipal Squeeze) in Business Week (11/30/09). Example. The issue cover had a rampaging bull running amok amongst the people. Their lesson, the Streeters, could be this: you guys aren't any different than the rest of us, except for some type of conscience disadvantage-ment. Somehow, filthy lucre smells wonderfully under your noses.
- Bookstaber is going with the SEC. Great! Let's get them money guys/gals in line. Or, can we? Rick was a participant but learned an unusual lesson (see prior bullet). He, at least, knows the issues related to computing.
- Why do these people think that their manipulations (supposedly innovative) help us? (yes, how have the physicist's (quants) helped these bozos?)
- Roubini on the coming unwinding. The doctor of doom says it right about Fred/Fan.
- Is this time different? Well, when will we put these players into their own sandbox to isolate their shenanigans from those of us who are more rational?
- How do economists figure into the mess?
- How markets fail. Like the concept of 'reality' economics; versus spitting in the wind.
- Do morals matter? Ah, way so, even beyond concerns relating to homo economicus.
Remarks:
11/29/2009 -- Risk and rationality.
Modified: 11/29/2009
Monday, November 23, 2009
Investors
The radio voice said this am, as I was driving to a meeting, that the market values were up since investors were happy about the housing sales numbers. Well, who are these investors? We keep hearing bearish opinions about the current state of the market and expect things to go down, at some point. Jumping on the train now will mean taking a certain bath; or a rational view may say that this decline is inevitable due to the nature of the markets now.
Investors? We could look at Wiki's definition which is nice. It does not include speculators, explicitly. Why bring up speculation? Well, Minsky's insights, for one thing. One cannot seem to have investments without the gaming aspect coming to play (casino capitalism).
Well, we know that these investors aren't the little mom and pop types. So, what gives?
Also, we know that there are efforts to put constraints on some of the worse enablers, namely OTC trades. To get some idea of the froth from speculation, Gensler estimated that a "$50 tank of gasoline can support $750 to $1,000 in derivatives contracts."
Ah, is this investment?
---
Well, today, the following day, the DOW bounced down then up and then down. Ah, so we have profit takers? Those are the epitome of investors?
One thing to note is that some investor types are really programs. Oh, I know, people are behind the programs, yet computation seems to take on a life of its own. Or, it will do so as time goes along; that is inevitable. And, on some days, there is a big push in volume right before the markets close.
Is that evidence of some move by program? So many questions. How can we build an economy on such gaming?
---
And, we're to the pre-holiday mindset. Tech Ticker has an interesting review of how we compare to a year ago.
So much to read, including a never-ending list of blogs.
Remarks:
11/27/2009 - Roubini on the coming unwinding.
Modified: 11/27/2009
Investors? We could look at Wiki's definition which is nice. It does not include speculators, explicitly. Why bring up speculation? Well, Minsky's insights, for one thing. One cannot seem to have investments without the gaming aspect coming to play (casino capitalism).
Well, we know that these investors aren't the little mom and pop types. So, what gives?
Also, we know that there are efforts to put constraints on some of the worse enablers, namely OTC trades. To get some idea of the froth from speculation, Gensler estimated that a "$50 tank of gasoline can support $750 to $1,000 in derivatives contracts."
Ah, is this investment?
---
Well, today, the following day, the DOW bounced down then up and then down. Ah, so we have profit takers? Those are the epitome of investors?
One thing to note is that some investor types are really programs. Oh, I know, people are behind the programs, yet computation seems to take on a life of its own. Or, it will do so as time goes along; that is inevitable. And, on some days, there is a big push in volume right before the markets close.
Is that evidence of some move by program? So many questions. How can we build an economy on such gaming?
---
And, we're to the pre-holiday mindset. Tech Ticker has an interesting review of how we compare to a year ago.
So much to read, including a never-ending list of blogs.
Remarks:
11/27/2009 - Roubini on the coming unwinding.
Modified: 11/27/2009
Friday, November 20, 2009
Econ blogs
There are many of these with a few being mentioned earlier (Miscellany). With something as important to our general welfare, and as non-simple, as economics, blogging may perform several roles, such as bulletin board, discussion center, library, and much more.
Of course, we mustn't forget Wikipedia's potential for supporting a live economic framework, in spite of the dismal nature of the subject.
The following is a list of blogs that will be updated regularly.
Economists.
Modified: 11/26/2009
Of course, we mustn't forget Wikipedia's potential for supporting a live economic framework, in spite of the dismal nature of the subject.
The following is a list of blogs that will be updated regularly.
Economists.
- Brad DeLong -- of UC Berkeley
- Mike Shedlock --
- Rick Bookstaber -- of the SEC (recent event)
- ...
- Becker-Posner -- of the judiciary
- Ordinary Gentlemen --
- James Kwak, et al -- The Baseline Scenario
- ...
Modified: 11/26/2009
Sunday, November 8, 2009
The big chimera
Foreword: This series is being done as an independent, and honest, assessment of the practices, based upon the usual market ideology, that we can observe without any inside information and that we can analyze because they use modern, computationally-supported frameworks that have had applicability in all the modern advances including the marvels behind ubiquitous computing and other major engineering systems.
As mentioned before, recent review of the changes that have occurred these past couple of decades shows mind-boggling improvements, yet many of the supposed advances that have been implemented, albeit there were probably many more hair-brained notions never put into place, were suspect, as recent un-foldings of the whole financial scenario have shown. We're in a situation where no one knows what is good and what might be bad in all these schemes just as we do not know how many, and of what possible pain, are the toxic assets that have been shoved under the table. Things froze because those who do the playing know just how suspect are their practices; we, the taxpayers, had to bail them out in order for the game of musical chairs to begin again.
That the FED threw oodles of money at the problem to loosen liquidity has only made the problem worse, and it is more than just an issue of moral hazards.
Of course, some financial schemes stunk to high heaven (Madoff gave us new definitions). Yet, there is no axiomatic basis from which to found a proper view on either side, even though finance did lure many trained engineers and scientists into the game that has been coined as casino capitalism. Methods, of a quasi-empirical nature, can be established and, in fact, are essential to the health and safety of our economy.
That we have time to explore these options must be emphasized, as no train of any substance has left the station. We need to take the time to get this right.
-----
We can proceed in discussing markets as the train the drives things. Or, so one ideology might go. The trouble is that we think of concrete things being sold when we think of the market. At one time, a share had some definition and value. But it is not true now that anything real is processed in the financial markets, for the most part. Just like the gab standard founds our money, these markets mainly push ephemeral entities whose value is a matter of resolving issues related to highly abstracted models and the interpretations of associated rules that are legal, operational, and strategic. And, all this is done under layers of algorithmic mishmash.
What has evolved in the markets is a chimera supported by high-speed computing and algorithms whose potential impact no one has a real handle on. Oh, of course, some are filling their pockets, but the game is near-zero (in fact, it has been nothing but negative for the US taxpayers). Trouble is, as well, that those with numeracy skills have the roles in keeping this chimera going. For some reasons, we don't have any notion of fiduciary duty or of ethics.
Given the fact of innumeracy (which is not idiocy, by the way), the whole population is not served by the methods that have evolved. No way. In fact, the whole claim of best-and-brightest is a form of hubris, suggesting that what we have now is incredibly fantastic.
No, it is not. Rather, it's a house of cards of the most flimsy manner that has been pushed upon the unsuspecting public through the failings of several, especially lawmakers who ought to know better. Proper analysis will show that the markets need to be dampened which action will have several looks.
That some are making money in the current scheme, actually many, yet it's only a small subset, may suggest that things are fine. Well, it is not; the extreme imbalances between Wall and Main Streets, about which there is much clamor, is real, folks. And, it has been greatly exacerbated by computational advances of the past couple of decades.
Since it's rather complicated, we'll amber about while trying to keep some coherence. We can use two players to juxtapose a balance. The first would be Goldman Sachs whose recent overview (of the market structure, pdf) needs to be discussed. Actually, it is nice that they were so open with itemizing the important financial concepts and in explaining their side.
We need to look at ECN, dark pools, alternative trading systems, and much more. As an aside, the definition of the dark pool raised flags immediately as being a means to thwart natural market purposes. We'll have to look at the history of this thing.
The second player will be BATS Trading of Lenexa, KS. Why? They are relatively new and are not located near any other of the major players. Also, they offer an alternative system that has been successfully applied by traders. BATS has their own index which will be interesting to watch in comparison to those updated every day in the media (DOW, et al).
We'll have an old firm and a new one. The latter can serve as an example of what an open economy allows, that is, new entities to enter with a new game plan.
The intent is not to be anti-market. Rather, that which is called casino capitalism must be deconstructed so that we can allow a better approach to the 'market' and its majesty. These things, by the way, ought to be run in a non-profit mode (ideally, by monks who took the vow of poverty - some of those have a lot of numeracy).
Note: This is an introduction. Next up will be the start of the analysis and discussion. However, some thought will need to be put to (this view of, pdf) liquidity. Here's the deal. Okay, using the metaphor of blood, we do want flow. Yet, there are other phases (gas, solid, ...). Besides, the blood carries things, such as nutrients, defense cells, etc. There is something amiss, as what we're seeing is large outflows to bonuses and to supporting lifestyles that are far removed from any ever seen by Main Street. Hang on, as we're going to look from the basis forward. Whose basis? Good question. But, consider this. Cash flow, real liquidity, is only one concern of management. Some type of imbalance has been allowed to come forward where money churning (and froth) is seen as of real value. 'Why?' and 'how?' are the questions. That 'liquid' state, desired by finance, seems to not have any natural analog (remember, we cannot get perpetual motion).
Remarks:
11/29/2009 -- Risk and rationality. As well, we'll need to go further into innumeracy.
11/27/2009 - Roubini on the coming unwinding.
11/20/2009 -- Societe Generale is getting negative?
11/10/2009 -- Glass-Steagall, again. Why not? Also, more on the gab standard.
11/10/2009 -- A floor guy (Chicago) reported on firstbusinessx today that GS was a big buyer yesterday. Was this on the behalf of? Or, is it to keep the boosting going? This type of buying, no doubt, has a floor to staunch any bleeding if things move downward which they are expected to do.
11/09/2009 - Forgot to mention securitization, which definitely requires computational support in its current form, as something to look at closely. It is more problematic than many think, and actually is more of an example of flim-flam than most. So, expect in depth analysis. Ah, structured finance, the bane of our existence, it seems.
Modified: 11/29/2009
As mentioned before, recent review of the changes that have occurred these past couple of decades shows mind-boggling improvements, yet many of the supposed advances that have been implemented, albeit there were probably many more hair-brained notions never put into place, were suspect, as recent un-foldings of the whole financial scenario have shown. We're in a situation where no one knows what is good and what might be bad in all these schemes just as we do not know how many, and of what possible pain, are the toxic assets that have been shoved under the table. Things froze because those who do the playing know just how suspect are their practices; we, the taxpayers, had to bail them out in order for the game of musical chairs to begin again.
That the FED threw oodles of money at the problem to loosen liquidity has only made the problem worse, and it is more than just an issue of moral hazards.
Of course, some financial schemes stunk to high heaven (Madoff gave us new definitions). Yet, there is no axiomatic basis from which to found a proper view on either side, even though finance did lure many trained engineers and scientists into the game that has been coined as casino capitalism. Methods, of a quasi-empirical nature, can be established and, in fact, are essential to the health and safety of our economy.
That we have time to explore these options must be emphasized, as no train of any substance has left the station. We need to take the time to get this right.
-----
We can proceed in discussing markets as the train the drives things. Or, so one ideology might go. The trouble is that we think of concrete things being sold when we think of the market. At one time, a share had some definition and value. But it is not true now that anything real is processed in the financial markets, for the most part. Just like the gab standard founds our money, these markets mainly push ephemeral entities whose value is a matter of resolving issues related to highly abstracted models and the interpretations of associated rules that are legal, operational, and strategic. And, all this is done under layers of algorithmic mishmash.
What has evolved in the markets is a chimera supported by high-speed computing and algorithms whose potential impact no one has a real handle on. Oh, of course, some are filling their pockets, but the game is near-zero (in fact, it has been nothing but negative for the US taxpayers). Trouble is, as well, that those with numeracy skills have the roles in keeping this chimera going. For some reasons, we don't have any notion of fiduciary duty or of ethics.
Given the fact of innumeracy (which is not idiocy, by the way), the whole population is not served by the methods that have evolved. No way. In fact, the whole claim of best-and-brightest is a form of hubris, suggesting that what we have now is incredibly fantastic.
No, it is not. Rather, it's a house of cards of the most flimsy manner that has been pushed upon the unsuspecting public through the failings of several, especially lawmakers who ought to know better. Proper analysis will show that the markets need to be dampened which action will have several looks.
That some are making money in the current scheme, actually many, yet it's only a small subset, may suggest that things are fine. Well, it is not; the extreme imbalances between Wall and Main Streets, about which there is much clamor, is real, folks. And, it has been greatly exacerbated by computational advances of the past couple of decades.
Since it's rather complicated, we'll amber about while trying to keep some coherence. We can use two players to juxtapose a balance. The first would be Goldman Sachs whose recent overview (of the market structure, pdf) needs to be discussed. Actually, it is nice that they were so open with itemizing the important financial concepts and in explaining their side.
We need to look at ECN, dark pools, alternative trading systems, and much more. As an aside, the definition of the dark pool raised flags immediately as being a means to thwart natural market purposes. We'll have to look at the history of this thing.
The second player will be BATS Trading of Lenexa, KS. Why? They are relatively new and are not located near any other of the major players. Also, they offer an alternative system that has been successfully applied by traders. BATS has their own index which will be interesting to watch in comparison to those updated every day in the media (DOW, et al).
We'll have an old firm and a new one. The latter can serve as an example of what an open economy allows, that is, new entities to enter with a new game plan.
The intent is not to be anti-market. Rather, that which is called casino capitalism must be deconstructed so that we can allow a better approach to the 'market' and its majesty. These things, by the way, ought to be run in a non-profit mode (ideally, by monks who took the vow of poverty - some of those have a lot of numeracy).
Note: This is an introduction. Next up will be the start of the analysis and discussion. However, some thought will need to be put to (this view of, pdf) liquidity. Here's the deal. Okay, using the metaphor of blood, we do want flow. Yet, there are other phases (gas, solid, ...). Besides, the blood carries things, such as nutrients, defense cells, etc. There is something amiss, as what we're seeing is large outflows to bonuses and to supporting lifestyles that are far removed from any ever seen by Main Street. Hang on, as we're going to look from the basis forward. Whose basis? Good question. But, consider this. Cash flow, real liquidity, is only one concern of management. Some type of imbalance has been allowed to come forward where money churning (and froth) is seen as of real value. 'Why?' and 'how?' are the questions. That 'liquid' state, desired by finance, seems to not have any natural analog (remember, we cannot get perpetual motion).
Remarks:
11/29/2009 -- Risk and rationality. As well, we'll need to go further into innumeracy.
11/27/2009 - Roubini on the coming unwinding.
11/20/2009 -- Societe Generale is getting negative?
11/10/2009 -- Glass-Steagall, again. Why not? Also, more on the gab standard.
11/10/2009 -- A floor guy (Chicago) reported on firstbusinessx today that GS was a big buyer yesterday. Was this on the behalf of? Or, is it to keep the boosting going? This type of buying, no doubt, has a floor to staunch any bleeding if things move downward which they are expected to do.
11/09/2009 - Forgot to mention securitization, which definitely requires computational support in its current form, as something to look at closely. It is more problematic than many think, and actually is more of an example of flim-flam than most. So, expect in depth analysis. Ah, structured finance, the bane of our existence, it seems.
Modified: 11/29/2009
Saturday, November 7, 2009
What? A train!
Yes, let's just suppose that there is a train. Actually, we can say there are many trains.
The problem? That, which those who tout that the train is leaving the station, is a train to nowhere, for most.
To follow further on the metaphor, as the train adds cars for those clambering aboard, dynamics work so that the value from the pockets of those in the rear cars moves up toward the front. We'll discuss how. Then, at some point, the front cars (fat-cats-ville) are kept while a whole slew of cars full of the valueless (supposed, as they've been sucked dry) is cut loose.
Now, given that we know that there is a train, actually many, we can start to define them. Meanwhile, we can also relax in the knowledge that no train, worth our attention, has left (or is going to leave) the station.
It would be better if we could get the sandbox defined and established. That would isolate the gamers from those who want to prepare for the future in a rational fashion. It would also allow means to not sack the savers.
Remarks:
11/27/2009 - Roubini on the coming unwinding.
11/20/2009 -- Societe Generale is getting negative?
11/08/2009 -- The gigantic chimera needs proper attention.
Modified: 11/27/2009
The problem? That, which those who tout that the train is leaving the station, is a train to nowhere, for most.
To follow further on the metaphor, as the train adds cars for those clambering aboard, dynamics work so that the value from the pockets of those in the rear cars moves up toward the front. We'll discuss how. Then, at some point, the front cars (fat-cats-ville) are kept while a whole slew of cars full of the valueless (supposed, as they've been sucked dry) is cut loose.
Now, given that we know that there is a train, actually many, we can start to define them. Meanwhile, we can also relax in the knowledge that no train, worth our attention, has left (or is going to leave) the station.
It would be better if we could get the sandbox defined and established. That would isolate the gamers from those who want to prepare for the future in a rational fashion. It would also allow means to not sack the savers.
Remarks:
11/27/2009 - Roubini on the coming unwinding.
11/20/2009 -- Societe Generale is getting negative?
11/08/2009 -- The gigantic chimera needs proper attention.
Modified: 11/27/2009
Friday, November 6, 2009
The markets II - There ain't no such train
Yes, see the second bullet below. There ain't no such a train, folks, just like there's no free lunch (TANSTAAFL); all this clambering otherwise is from those who stand to gain from picking our pockets if we board their train to nowhere.
Earlier, we had a brief introduction here to market ideology and its realization in casino capitalism. As we saw, there were many uses for a market, one of which is establishing value. Except, didn't we see this year the bankers, and others, arguing with the law makers to get a relaxation of marking to market? Ah, markets as the ultimate thing to manipulate seems to be the idea for these people.
Now, that we're at some type of crossroads, again, due to all the support after the failure from people like Big Ben, and more, it may be time to start a little review of the past year. This will be brief and continuing.
Also, what has not been explained is that, in some cases, one person's gain is another person's loss. And, in some cases, for the gain of one, many lose. There are difficult issues to address.
Remarks:
11/20/2009 -- Societe Generale is getting negative?
11/07/2009 -- Actually, there is a train, or, at least, we can use the train metaphor to discuss the economy's purpose and how finance has evolved into a problem (in medical parlance, not unlike a cancer) within that purpose. Bankers are too used to their funny money world (see Remarks). Ben, wake up!
Modified: 11/20/2009
Earlier, we had a brief introduction here to market ideology and its realization in casino capitalism. As we saw, there were many uses for a market, one of which is establishing value. Except, didn't we see this year the bankers, and others, arguing with the law makers to get a relaxation of marking to market? Ah, markets as the ultimate thing to manipulate seems to be the idea for these people.
Now, that we're at some type of crossroads, again, due to all the support after the failure from people like Big Ben, and more, it may be time to start a little review of the past year. This will be brief and continuing.
- The Liar's Poker author weighed in on the problem last year (11/11/2008). He telling the tales of those, like the culprits. Last year, who knew that the low would be seen in March to be followed by a bear, and perhaps sucker, rally. Granted some have made money (see next bullet), however the issues of near zero (actually less than zero for the most) remain to be look at in detail.
- So, some have made money in the market this year (see GS, for example). Many may be beginning to wonder if a train might be leaving (has already left) the station and if they ought to board (or have been left behind to forever rue the loss). Suckers beware is the topic of a Tech Ticker talk now that everyone wonders what to do. The message ought to be that we don't need this type of marketeer meddling (actually, racketeering), folks. We actually never did; it's a clever means for those who can to suck the essence from the pockets of us all.
- Now, given the wisdom of crowds, how can all this baloney keep recurring, folks? Oh, wait, hasn't the Fed, et al, made money easily available for bailout purposes for decades? That finance (heart) has to pump money (blood) is a given, but we have a body that is just covered with leeches.
Also, what has not been explained is that, in some cases, one person's gain is another person's loss. And, in some cases, for the gain of one, many lose. There are difficult issues to address.
Remarks:
11/20/2009 -- Societe Generale is getting negative?
11/07/2009 -- Actually, there is a train, or, at least, we can use the train metaphor to discuss the economy's purpose and how finance has evolved into a problem (in medical parlance, not unlike a cancer) within that purpose. Bankers are too used to their funny money world (see Remarks). Ben, wake up!
Modified: 11/20/2009
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