Saturday, March 20, 2010

The ideological errors of capitalism IV - Made offs

Moral: Wherein we consider that the ideological problems, namely shell games, unconscionable exploitation of Adam Smith, and the Ca-pital-sino, are not sufficient. We need others (as it is of detriment of the people).

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Which are? Let's take just one. That the Madoffs (made-offs), and the Ponzis, are the real representatives of capitalism. They promise riches, exhort us to labor for gains and glories, and pilfer the till.

Of yes, there are others. We get those captains of industry, too, with enormous pockets who seem to be at the edge of legality. Or, if they stay from that edge, they're near some ethical (moral) edge. But, who cares about that?

The underlying nature of the current scheme, especially as exhibited by the equity markets, is taking profit at the top from the loads of money brought in by new suckers. And, this is called 'profit' as if such gains could be considered reward for real effort.

It was interesting to watch the recent inflation of the market. Yes, thanks to Ben, and those he muscled, there was oodles of money allowed via low interest, special loans (oh yes, Ben, like the confessional, never known publicly), purchase of toxic waste from idiots, and more. This money went to the inflation of the market, not to building anything of substance.

At the same time, real prices have been deflating. Businesses couldn't get loans. The jobless remain such. There are a slew of things that aren't right, folks.

Now, the whole mechanism (from which comes the mania) is supported by a vast informational framework consisting of analysts, reporters, and naive administrators, like Timothy (little Timmy) and runs for 6 1/2 hours, in the use, on five days a week. Thankfully, we do get a respite from the mania for two days a week, and the occasional holiday. Yet, one could very well imagine that the gaming never ends for some.

No wonder things get frothy (thanks, Minsky, for showing us what Ben ought to look at).

Business Week recently reviewed a book detailed how Markopolos tried to get people to think correctly about Madoff's scheme. The book describes the hubris of expecting something for nothing. In fact, that some notion of in-crowd status (which was one of Madoff's lures) predominated shows just how deeply these pilfering mechanisms are within the capitalistic scheme.

So, 'fat cat' attainment is our primary goal, people?

Plenty have commented to the review. Some of the comments mention that there are plenty of such schemes, namely Ponzi, that we accept as normal.

One example, as we all know, is that Social Security has been taking money from workers for years in the guise of providing retirement funding to these same workers. These monies were then expropriated by the US in exchange for IOUs which are now coming due.

So, who is going to fund the IOUs needed by Social Security to handle the influx of the boomers?

The basic economic issue is that future payments are always expected to be based upon some current set of assumptions and an economic framework to build something that will pay. Then, we expect there to be sufficiently stability for the payout to come to fruition.

But, we've let a whole bit of notions, like leverage, to warp the model. At one time, loans were based upon collateral. If the loan could not be paid, at least, the lender could get something from the collateral. Yet, there is a premise there, to boot, about the collateral being of value sufficient to cover the loan. Leverage can allow speculative malfeasance of sorts.

Operational modes, related to proper valuation, due diligence, and the like, were learned by hard lessons. Yet, these always seem so easily forgotten in the heat of the equity frenzy.

One reason that the equity mania seems to take hold is that the ponzi-like nature is hidden. Rather than this (the market) being a mechanism to build for the future, it becomes a get-rich scheme. That is, we get to the Ponzi-like, almost by necessity.

Many see the problem, but any attempt at rectification gets bogged down in rhetoric which is probably a natural outcome, politically.

Too, there are other types of malefactors (bond big-rigging) out there.

So, what are the guys like Big Ben and Timmy supposed to do? We'll get to that.

Remarks:

02/28/2011 -- Bernie has lessons for us.

04/27/2010 -- Need to add the political set of truths, such as cat and mouse.

04/16/2010 -- Rotten to the core. Does not have to be!!

03/21/2010 -- Read about Timmy: Atlantic ("Would it have been better to have the stock market where it was in March, the economy still falling, and unemployment much higher?” -- huh?), New Yorker, ...

03/20/2010 -- Big Ben says that bailing out the big banks was (or is it is?) 'unconscionable' yet was this not what he did?

Modified: 02/28/2011

Wednesday, March 17, 2010

Indubitably

Moral: Wherein we consider that, in the long run, the little people pay. Has it ever been any different, since those same people seem to have an infinite capacity for victimization? Well, conversely, those who do the victimizing appear to demonstrate that lack of conscience is unfathomable.

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In terms of a recent series of events, we now see, after a media frenzy and a congressional pummeling, that the focus comes back to the user, in this case, the driver. Of course, the technical issues are not entirely laid to rest, yet. Plenty ask why Toyota thinks that they have 'indubitable' systems.

But, let us return to the macro matters, for which the micro problems are very much an example.

Aside: some are thinking about, and planning for, havoc that will come from solar storms.

You see, with the problems of the smaller domains, like the auto (see discussion about the cyber-physical systems), we can do it right. Mind you, that doesn't reduce error rates to zero, as some would have us believe. But, it would push it to a minimal level with caveats to be careful.

The same type of thinking can help the economy, but we cannot get our hands around the problems. Why? We have been led astray by the best-and-brightest, in many ways. Whereas, the Vienna School is correct to tout undecidability.

You see, the intellectual frameworks on this western side of the pond like to push control, as if quasi-empiricism means nothing and as if we have mathematics and the computational under our thumbs; is it not part of our manifest destiny? But, things are complicated, despite protestations otherwise; what are the protestations? Well, brayings of jackasses who would turn a perfectly expressed operational problem into a game of school boys (pissing contest, in other words - we know the type). They surely like to push blame and to effect punishment without regard to the fact that some things are beyond volition and our control. Okay, we do need accountability - people do play the role of bad guy.

These issues form a conundrum, essentially.

That is, we have the miscreants who use success as a shield (think Made-off, if you need a recent example) and threaten any who want the truth. So many examples could be used.

But, there too, many (ought I say most) want to contribute their part and to not ride on the coattails of others (to wit, not exhibit the lordly prince syndrome as a big factor).

We also have that the little people bail out those who do the jerk (third derivative, folks).

One thing that we need to learn is that even if everyone were perfectly rational and well-behaved (please, apply the most ideal notion that you can think of - but, don't spit out 'utopian' pejoratively - okay? - this is serious business), there would be problems. These problems are the ones that need our attention. Trouble is, the 'noise' from the miscreants keeps us from the proper viewpoint.

And, things get complicated, too, just by the nature of things. We left any idyllic world long ago, if it ever existed. So, we find reasonable people thinking of the issues and desiring to extend some recommendations (as if little Timmy would listen).

Here is an example that we'll be using for several posts.

Remarks:

02/08/2011 -- There was a report today concerning a study on the SUA problem that has been going on quietly. More news will be coming later when the report is technically analyzed.

01/27/2011 -- The chimera shines.

10/28/2010 -- Warning, train wreck ahead. What train, I had asked? Yes, there is already a wreck, despite the inflated market (those who lost big are still behind).

05/14/2010 -- Oh yes, smartest guys in the economy.

05/07/2010 -- Out of control, essentially, and not healthy for the backbone.

03/20/2010 -- The basic problem of capitalism is that the Made-offs are its chief representative.

03/19/2010 -- The little people never experience this: The floors were covered with plush Persian carpets; the walls were done in rich walnut and cherry woods, and hung on many of them were oil paintings; we were served only with sterling silver, and the fixtures were gold. From a recent book about Madoff.

Modified: 02/08/2011