Systemic risk

Moral: Wherein we continue the Quants series.

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We're not picking on these lowly workers; no, the intent is to get at the motivation behind the scene. What is that? Well, it's essentially a "license to steal" (concept has been used before) that seems to have become acceptable, if enough money is behind the thrust and if a market ideology is overlaid as a cloak.

James Fallows (Atlantic) says that Dr Doom (who has some good news) likes Timmy's work. After all, as the NY FED guy, he (Timmy) was talking systemic risk way back in 2003. Perhaps, now he has an opportunity to do something rather than just jaw bone.

Just to get the discussion started, one big piece of systemic risk is the rapid growth of types and kinds of computational resources being applied to support markets. Ah, you say, they could not work without the computer.

That is true. Yet, in many cases, those who provide the service hide behind a proprietary wall. Just remember how Madoff pulled off his feat. Too, that high-frequency trading (see Remarks: Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?) is seen with such glamor, with a hint of respectability, suggests something.

Where the heck has common sense gone?

Every day, there ought to be an accounting of the markets that has some meaning. No, not just some figure like the closing DOW. Actually, something like a SOX for the market is a good analogy, yet we all know the grief that that initiative spawned. And, did it prevent this current mess?

Who can do an accounting? Does the FED know its own balance sheet? How can they know the economy's?

Oh, too, the markets are 24/7, you might argue. Ah, is that so by necessity? If we use a biological metaphor, what complex entity does not sleep?

Actually, probably as much effort ought to go into accounting and scrutiny as it does into efforts as maximizing the sizes of some pockets. We can probably use those media who watch (another example) as an example, yet it needs to be a deeper look.

Well, it's obvious that the accounting will be computational. So, there is no reason to take this as the grumblings of one who is anti-progress.

The problem is that the computational is new, non-intuitive, and run by wizards. All of this allows lots of room for exploitation and mischief.

Did I mention mis-used mathematics and theoretical flim-flam? That, too. Of course, truth engineering suggests that there isn't an easy answer (see Remarks).

Or, let's look at it again: Some statements in this blog deal with the Philosophy of Science (here's another nice little rundown), in particular as it applies to one issue contended by mainstream economics against the Vienna school: Critics of the Austrian school contend that by rejecting mathematics and econometrics, it has failed to contribute significantly to modern economics. Additionally, they contend that its methods currently consist of post-hoc analysis and do not generate testable implications; therefore, they fail the test of falsifiability.^[5] Austrian economists contend that testability in economics is virtually impossible since it relies on human actors who cannot be placed in a lab setting without altering their would-be actions.

Ah, falsificationism, but what does that have to do with making oodles of money by the best-and-brightest (see Goldman's Town Hall)?

Well, we can start with lessons to learn. One is that some things are undecidable no matter how much computational power is thrown at them. Therefore, they need considered thought (and voting - ah, not necessarily by a market game!).

Somehow, the PDE aura allows some type of pass on reason (ah, fairy dusting).

Remarks:

01/15/2015 -- This week, this post is getting read. Great! Nice little piece of work (kidding, in part) so many years ago. ... At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation.

12/06/2013 -- If only Ben would put a shot across the bow. He's helped the chimera unfold in unhealthy ways. He could, at least, say a mea culpa.

01/27/2012 -- Ben will continue to sack the savers; he must love the ca-pital-sino.

10/10/2011 -- If the OWS wants specifics, there are plenty to list.

02/01/2011 -- The chimera shines.

10/07/2010 -- Several principles need to be explored, such as the ergodic one.

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

02/10/2010 -- We could probably use the auto (and recent events) as a way to characterize the concepts of the blog. Of course, we have the value versus quality mis-think as part of the problem. Business Week reports that Toyota was asking suppliers for a 10% cut. Well, such scrimping would have an effect, even if it was only in looks. However, cutting into the life of a system may appear smart but, actually, relies on the same unstable basis as does a lot of economic thinking.

01/03/2010 -- More news on Goldman Sachs as the uber example of 'not on the behalf' comes to fore regularly. It'll need to be a separate subject at some point. Thanks to McClatchy: Nov 1, 2009 & Jan 3, 2010 (update). Goldman has to respond, of course.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

12/03/2009 -- Rationality and risk. Need a new look.

10/05/2009 -- Ah, yes, on the behalf of.

09/15/2009 -- Lessons, one year after Lehman. Also, Time on culprits. Ben is happy-talking, again.

09/09/09 -- We'll need to look at UUUN, as a framework.

09/04/2009 -- It has been decided about Ben, the saver sacker. We still need to discuss the overarching metaphor for the economy. Quants are it!!

Modified: 01/15/2015

Quants, again

Moral: Wherein, we are reminded, well, that Ben, saver sacker that he is, is getting his job extension. So, we'll have several more posts on this theme of the quants.

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Why? Well, it stinks. Tell me. How does coming into finance with an indoctrination in the physical sciences and mathematics add to our knowledge? On what basis do these quants make their applications (scientism?) or is it just pure mathematical flim-flam to fool the populace?

Oh, those quants have to admit that they would be lost without computing.

Let's put it this way. The only motivation may be that fat cats have paid for the work since some of this type of modeling and computing does fill pockets. Oh, boy, does it ever. And, that is sufficient from a certain viewpoint since the status quo seems to be moving large amounts from the majority to the minority.

Oh, you see high-frequency trading as a level field for all of us? Ever notice how things like the 'flash' seem to be a natural consequence?

Also, the fact of near-zero says, hey wait a minute!!

One argument that you hear from the quant's view is that people are not like objects with which physics entertains itself. Oh, so this makes it difficult to predict the future. Yes, we are very hard to pin down with modeling as that thing called volition, and more, comes into play.

Hey, that the reality folks. If you would just read the insights from Vienna, then we could discuss what undecidable means in this context. But, that is not necessarily scary.

The view over here, this side of the pond, is that mathematics has the answers. That one thing is what we need to talk about.

The politicos (they who salivate when the buck is passed under their noses), management (the clueless, essentially), the hapless (hey, always getting screwed, even when the Democrats are in charge), and others need to hear about these issues so that we can all be better informed and dampen those crazies who are (you know who you are) pushing casino capitalism.

The world needs us to get our act in order.

Remarks:

11/15/2015 -- Quora coming into the scene.

03/03/2014 -- Acknowledgements, including math pedigree, will be expanded.

10/24/2012 -- Goldman skimming via Quants and their creative finance.

03/15/2012 -- Okay, might have used incomputability (see post on Alan M. Turing) but stand by the context, the issues, and the need for resolutions. Wake up, quants (you, too, Ben).

03/17/2011 -- On the rise of the professional politician (will there ever be the citizen polico? that is, those who do not salivate when a buck is passed beneath the nose) toward robber barony. The M & Ms are apropos. As well, need to bring in Schervish's viewpoint.

01/03/2010 -- More news on Goldman Sachs as the uber example of 'not on the behalf' comes to fore regularly. It'll need to be a separate subject at some point. Thanks to McClatchy: Nov 1, 2009 & Jan 3, 2010 (update). Goldman has to respond, of course.

09/09/09 -- We'll need to look at UUUN, as a framework.

09/02/2009 -- Such as, undecidability.

08/27/2009 -- Let's start talking computational issues and how they contribute to systemic risk.

08/26/2009 -- Some statements here deal with the Philosophy of Science (here's another nice little rundown), in particular as it applies to one issue contended by mainstream economics against the Vienna school: Critics of the Austrian school contend that by rejecting mathematics and econometrics, it has failed to contribute significantly to modern economics. Additionally, they contend that its methods currently consist of post-hoc analysis and do not generate testable implications; therefore, they fail the test of falsifiability.^[5] Austrian economists contend that testability in economics is virtually impossible since it relies on human actors who cannot be placed in a lab setting without altering their would-be actions.

Ah, falsificationism, but what does that have with making oodles of money by the best-and-brightest (see Goldman's Town Hall)?

Modified: 11/15/2015

Money 2

Moral: Wherein we go on now from the first look at money. What we did there was review earlier posts, one of which looked at definitional work by von Mises.

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We talked about fiat currency several times in prior posts. von Mises (and the Vienna School, love the use of undecidable) had opinions about this, too, that we ought to consider, as did other, of course.

One thing to consider is how the fiat situation (as does the theme described by Minsky's) exacerbates bubbles and inflation. Just look at this chart of inflation up to 2004. Notice that after 1950, there have been no deflationary periods, that is, 49 years without going below the line. Is that natural? Do we know how to run the economy (or do the past couple of years show this)?

Without stable money, what is there to establish the proper basis? Theoretics (ah, like Ben? He who has no 'mea culpa' to offer despite blinking and being desperate.)? Quantifications (meaning, of course, that the Quants' insights and programming will be the savior)?

You know what? During that same time, of no deflation, the consumer got increasingly under a debt load, as did the US economy as a whole (hello, China). There is a definite correlation to be looked at further.

Have you noticed that, of late, the emphasis is on credit (not its natural consequence which is debt)? Yes, some change of perception has taken hold. We need to look at this, folks, and tackle this beast now.

We are mortgaging future generations for no good reason other than mental laziness. Politicos who salivate when a buck is passed underneath their noses are no help either.

Remarks:

12/06/2013 -- If only Ben would put a shot across the bow. He's helped the chimera unfold in unhealthy ways. He could, at least, say a mea culpa.

03/17/2011 -- On the rise of the professional politician (will there ever be the citizen polico? that is, those who do not salivate when a buck is passed beneath the nose) toward robber barony. The M & Ms are apropos. As well, need to bring in Schervish's viewpoint.

11/02/2010 -- Over a year later, the message is the same, except some changes have occurred. But Big Ben continues in his ways. Of real note is that the jobless rate is high; out-housing really set up for that. Also, we need to re-look at that learned from the 'vons' guys, Ludwig and Friedrich. See Near Zero.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

09/09/09 -- We'll need to look at UUUN, as a framework.

08/24/2009 -- Liquidity trap is the operative concept. Various 'helicopter money' schemes have been tried but have they gone mostly to the fat cats?

Also, we have seen the CPI fall in the past 12 months. How low can this go?

Modified: 12/06/2013

Continuous and Discrete

Moral: Wherein we use: Say what? Well, think of the title as a headline aimed at an attention-grabbing.

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Of course, any implied reference to the dualities addressed (example) by physics is intended, however tenuous they may be at this point. But we'll get into that later, as are not many Quants from backgrounds in the hard sciences (see Remarks 08/20/2009)?

The idea is to start to address some issues in finance. It'll be slow, as there is a whole lot to cover.

Not that I'm an entire newbie, but it was nice to see that the notion of discrete and continuous has already come up in finance. Note, for instance, this bit in Wikipedia that compares binomial and the Black-Scholes models makes that distinction.

Having mentioned B-S does not mean that we'll get into the Greeks just yet. We have to start much more basically. Consider that the approach is both fundamental and foundational (f&f).

Now, doesn't our intuition tell us that some things are smooth and others are not? And, even if we don't use that particular word, could not any of us make this choice in a situation like sorting some set of objects? Even blindfolded?

But, being technical, we know that smoothness involves differentiability. As we all know, non-smooth, from noise or error, is difficult to handle, in fact causes very bad behavior. The advances in finance that we are to address came from several directions, but two major ones are the means to handle problematic mathematical objects, like the non-smooth (via Ito's and others' work), and to have computational means for this (hey, it would not have worked otherwise - get used to quasi-empirical as a concept, as it'll be used a lot).

As we know, it was a major step to realize that we could have continuous and non-differentiable functions (Bolzano, old KW, et al). Yet, there are other steps forward, like this one out of France (Levy process). Actually, there are too many to cover in brief posts like this.

At any time, various hints at background are all that we can do in order to state some theme. In this case, a whole lot of work has gone into handling randomness and high variability. Some attempts at bringing to fore some intuitive views can be seen, yet they also bear the danger of being problematic (thanks, Hail the Quants!). Actually, the intuitive is no more apt for this downside than is the most polished, theoretically-grounded construct.

The current excuse is that overlays that have people underneath are by definition too difficult, as opposed to physics and its particular entities that are mindless. Yet, consider, please. All that says is that derivatives (see Note 1) placed upon humans, or things that are highly influenced by human activity, have value derivation problems.

Yes, I know, plenty have made money. You know, of course, that the multitude lost out. Call it near-zero, if you must. If you look at overviews, like this one from the WSJ (Reagan's Bull Market), yes, things are a lot different than 1982 (gosh, some of the Quants may not even have been born). But, look at the median income line over that period (if that were a log chart, it would be flat lined).

The intent is not criticism. Rather, let me suggest that there are ways to do this modeling, that is, overlay people with more insightful structures, however, the concept of smoothness will be imperative. How can this be? Ah, that is what we'll be going over through time. But, start to think about boundedness as more than a limiting abstraction.

Hopefully, the discussions will come to code and test sooner than later; actually, that is the goal, though f&f will continue to be of major focus for now.

Remarks:

03/15/2012 -- Okay, might have used incomputability (see post on Alan M. Turing) but stand by the context, the issues, and the need for resolutions. Wake up, quants (you, too, Ben).

01/13/2012 -- A re-look at this. 

10/08/2011 -- The link is more than tenuous. In fact, numeracy (see Reflections on the work of Steve Jobs) ties right into support of the discrete model. Why? For now, we have to transform from continuous space to the not-continuous in order to obtain solutions. One has to wonder if there is some way that 'analog' views might help us grasp better the ways of the continuous (we all know that we're a whole that is much more than the sum of parts -- yes, we do).

02/10/2010 -- We could probably use the auto (and recent events) as a way to characterize the concepts of the blog. Of course, we have the value versus quality mis-think as part of the problem. Business Week reports that Toyota was asking suppliers for a 10% cut. Well, such scrimping would have an effect, even if it was only in looks. However, cutting into the life of a system may appear smart but, actually, relies on the same unstable basis as does a lot of economic thinking.

09/02/2009 -- Let's put undecidability on the table, please.

09/01/2009 -- Oh, one might ask, why do I pick on Quants? A good question that we'll expand upon over time. They're like explorers in a new territory who mainly pillage and exploit when we, the human race, need more those who can map and help us learn. Learn as in real knowledge not just moving monies to certain pockets. Yes, indeed, a map-territory issue here among many others.

08/25/2009 -- Overlays, yes, needing insights from across the pond.

08/20/2009 -- Note 1: 'Derivative(s)' has been used a few times in the posts. The context may imply the usage, hopefully. But, in general, we're talking two types: 1) from finance, where 'derived from' is the proper interpretation (or as one may surmise from posts here and elsewhere, something from nothing), 2) the usual mathematical variety.

Modified: 03/15/2012

Quants

Moral: Wherein we consider that Quants are several things. For instance, there are they who bring training in science and engineering into finance thereby raising the level of fairy dusting and elevating financial engineering (see IAFE).

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Well, we are told, better handling of finance is possible through these means; however, consider that the non-profit approach might be of more importance than has been allowed.

IEEE Spectrum had an overview (The rise and fall of the quants) in the August, 2009 edition which describes the experiences of a few. It's interesting that some of them fell into the best-and-brightest role, namely a youngster who helps fat cats fill their pockets thereby earning outrageous amounts themselves.

Not that there is anything against making a living, or getting filthy rich (if done fairly and legally), yet the techniques related to the quants can (ought to) be heavily research flavored (The Physics of Money, What they need to learn, In his own words). And, guess what? Some win. Others lose. That's the way life is.

Yet, the influence on either side goes beyond those playing the game. Yes, these shenanigans leave ramifications. What? Yes, it's true.

Old Ben is too busy keeping things afloat to look at this. However, he cannot expect to have a stable economy without these influences being under control.

Merton suggests that perhaps only 2 out of 100 bright ideas pan out. Think of all those side-effects that come from applying tests, uncontrolled except for measurements oriented toward how big the pockets get, on the fly (see Wired's view).

Outrageous! Where the hell is the outrage or is everyone running after those dollars being thrown out by Ben, the pied-piper?

Why is this allowed? Some type of cultural blindness that relates to the economy and money? Somehow, the Lords prevail even though they monkey the works (Mother Jones' view).

Ah, yes, the pay consultant says that the high CEO pay (or any) is due to the small cardinality of the set of those who have the right qualities. Crap!

On a final note, mathematics' role will be covered here. Remember, though, that our success hinges upon economics becoming less 'dismal' as a science; yes, too, notions related to people not being understandable are suspect as they're an excuse for covering up pocket picking.

Remarks:

11/15/2015 -- Quora coming into the scene.

03/15/2015 -- Finally, getting around to the pending business.

03/03/2014 -- Acknowledgements, including math pedigree, will be expanded.

10/24/2012 -- Goldman skimming via Quants and their creative finance.

03/15/2012 -- Okay, might have used incomputability (see post on Alan M. Turing) but stand by the context, the issues, and the need for resolutions. Wake up, quants (you, too, Ben).

10/07/2010 -- Several principles need to be explored, such as the ergodic one.

12/10/2009 -- More roles include the consumer and the economy.

09/01/2009 -- Oh, one might ask, why do I pick on Quants? A good question that we'll expand upon over time. They're like explorers in a new territory who mainly pillage and exploit when we, the human race, need more those who can map and help us learn. Learn as in real knowledge not just moving monies to certain pockets. Yes, indeed, a map-territory issue here among many others.

08/27/2009 -- Let's start talking computational issues and how they contribute to systemic risk.

08/24/2009 -- Further message to the Quants. Have you looked at the Vienna School's discussion of undecidable which applies, big time, to your milieu (even with the numeric overlay)?

08/21/2009 -- Need to start a list of technical things to discuss: ergodic hypothesis, sojourn time, ...

08/20/2009 -- Note 1: 'Derivative(s)' has been used a few times in the posts. The context may imply the usage, hopefully. But, in general, we're talking two types: 1) from finance, where 'derived from' is the proper interpretation (or as one may surmise from posts here and elsewhere, something from nothing), 2) the usual mathematical variety.

08/20/2009 -- So, Quants have their following, as evidenced by this 'hero' worshipping text from Wikipedia (hey, I'm a contributor and believe in what it foretells) that we find int the Slang Section: Rocket scientist, a financial consultant at the zenith of mathematical and computer programming skill. They are able to invent derivatives of frightening complexity and construct sophisticated pricing models. They generally handle the most advanced computing techniques adopted by the financial markets since the early 1980s. Typically, they are physicists and engineers by training; rocket scientists do not necessarily build rockets for a living.
Of course, that could have been written by a self-absorbed Quant. But, 'frightening' is the right word; yes, they may have been adapted, yet at what grief? At least, a real 'rocket' can be tested in a natural setting. These models? One purpose for our discussions here.

08/19/2009 -- I said earlier that, after some jawboning, I would get serious. Well, it's time. Why now (after all, I wrote that in October of 2008)? Well, hasn't the past year just been full of 'say what?' moments as things unthought of appeared without much clamor. Also, it's good to see the enthusiasm of those who have gone through MFE courses (yes, we do have to divert from the MBA mentality), plus the fact that blogsphere (like, Hail the Quants!) has allowed these students to share their thoughts is inspiring.

But, first, a couple of messages.

• To the non-Quants: not everyone has to run after the martingales, folks, in fact, the world needs those who can counter the quantitive bias. That is, we'll have computers. But, we'll also need to truth engineer these beasties, and those who are their keepers, using means that are analog and intutitive.
• To the Quants: if you take exception to this post, accept my apologies, but the intent is to riddle any who runs after money using insights provided by our mathematical talents. What we need is a collective approach to found the basis for the dismal science in a more positive approach (notice the absence of the 'istic'). Guess what? The framework will be computational with humans in the loop. So, there will be plenty work available for Quants.

Modified: 11/15/2015

Macro and Micro

Moral: Where we look, as said in the beginning, at both sides.

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Macro deals with issues in the large. Micro deals with the small stuff; but, guess what, in the details is where truth lies.

Economics covers a whole lot of ground. The IMF gets to play on the Macro side a whole lot as it deals with developing economies. Hence, getting a viewpoint from experiences there, as we do from Delano S. Villanueva, can make for interesting reading (see TOC). Chapter 1 is available online and is apropos to the current mess.

Please note that he goes into the influence of moral hazards which we haven't heard about of late, whereas last fall it was being dropped all over. What? Once the government opens the tide of monies, no one cares?

Well, as said before, we can run finance using non-profit techniques with people who don't salivate when a buck is passed beneath their nose.

On the Micro side, it comes back to labor/consumers and corporate decisions, assuming that Macro does not interfere with too much exogenous influence.

Both of these will figure in the discussions.

Remarks:

01/06/2010 -- Poor Ben, getting grief and criticism.

12/29/2009 -- Time calls Ben an uber-Nerd.

12/28/2009 -- Ben was named the Time Person of the Year. Nice. We can't call him 'King' as we saw with Alan's 'cult of personality' reign.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

09/04/2009 -- We still need to discuss the overarching metaphor for the economy. Quants are it!!

Modified: 01/06/2010

Savers, who the heck are they?

Moral: Wherein we consider various folks.

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Of the folks, there are those who play the game, as desired by Ben and his bunch, but the game is stacked against the common folk. You see, the mechanism pulls money out with a giant sucking mechanism from the hapless to the fat cats.

Ben, you ought to know better. You sack the savers in order to keep the New York crowd happy. Tsk! Tsk!

Who are the savers? Those who spend less than they make; they don't belly up to your debt window (oh wait, that's for fat cats only); they expect some semblance of return that is more beyond zero than what we see now; in other words, they don't want much; guess what? You have succeeded in seeing that they get NOTHING.

So, you are allowing the fat cat bankers to run over their savers; the banks are making oodles, albeit some of this is purely contrived, yet these folk think that your policy gives them leeway to pay next to nothing.

Last year, you blinked early. Then, you kept driving down interest so as to bolster the 'market' (that sacrosanct entity that is the be-all, in your mind and the mind of others). Too, you just lavished credit as if there were no tomorrow.

Ah, poor Ben, worrying about the economy day and night.

Now, you're talking as if there is no need to exit. Oh, you say, we can do that at any time. Give me a break. Rhetoric is easy.

Why this emphasis on equity and its associated theatrics of casino capitalism? The banks all want to push their savers through some financial planner who is selling nothing more than the chance to lose because of irrational movements in the 'market' (that chimera). The New Yorkers can like their game; it allows big bonuses (not without contrived ways, as said, such as high-frequency trading - and peeks and such -- ah, such ethical practices). But, the FED ought to care for the lowly savers, to boot. In fact, your legacy probably relies more on that than with the fat cats.

You know, Ben, your buddies, the bankers, froze in their tracks, thereby creating the credit problem, for one reason. They knew that their accumulative tricks stacking moral hazard on moral hazard had come home to roost. And, they knew their ilk; yes, untrustworthy is the major attribute; so, with whom could they play? Their sand box was messy.

Guess what? Just as they hoped, you stepped in, big daddy that you are, and cleaned up their little diapers and their sand boxes (at our cost, by the way). Now, they're off and running down the same old greased paths to perdition.

Sheesh, is there ever any learning here that is more than how to maximize the sucking activity?

By the way, you could turn the table just a little. Raise the rate to, at least, 1.0. You know which one.
Also, this message is not a rant. How did this messy state of affairs come to be? Well, we know how. Who can clean up the mess beyond just changing the poopy diapers?

Ben, you need to leave your mathematical brain behind in order to deal with these cats who have led the economy astray. You know that you can do it. Reach down deep for some insight that is grounded on reality, not abstract nonsense. Our poor world needs this.

Out of bullets

Too, then, bound up those supposed best-and-brightest who are really mis-applying what is a beautiful tool. Their only motivation is to increase sucking motion; the hapless stand no chance. As one of them bragged, he does not play any game where he does not have an advantage.

Ah! Poor loser indeed. No wonder the whole thing has been warped to reward only the few.

However, unlike the Marines, who put their lives on the line for the likes of these diapered folk, there is no honor in Wall Street.

Ben, the insight? Talk to Main Streeters, please, and not just in a forum. Go to where they are.

Remarks:

02/11/2015 -- Wikipedia: Zero interest rate policy.

12/05/2014 -- We mentioned "unwind" in August of 2009. Okay, Ben did the opposite and started his QE infinities. But, Janet came along and has tapered a little. Guess what? The DOW is approaching 18K. Who would have thunk it? But, Ben and Janet, who of Main Street (beyond a few - we can talk how many at any time) can eat what comes out of the ca-pital-sino (mostly a game to allow huge bonuses this time of year to the Wall Street (and its ilk) crowd). We addressed the unwind, again, after four years of waiting (Jan 2013), but the doves were too plentiful. Too, when Ben did mention taper, there was a tantrum (all sorts of fits). So, he, and now Janet and her folks, had to talk coo-coo/goo-goo to the investors (say what?) so that they would settle down and not fear the removal of the spiked bowl. In the meantime, savers just sloughed along with no friends in higher places (we can go on about the Lord/Serf dynamics, ad infinitum, and may given that the Magna Charta's 800th is coming up). ... And, to think that we thought that Ben was out of bullets (saw this fact referred to recently; want to know the context? what the heck will get us out of the coming/looming downturn? -- oh yes, the general populace, and taxpayers, cleaning up the poopy diapers without any thanks).

12/05/2013 -- If only Ben would put a shot across the bow.

10/03/2013 -- Oh, yes, two posts (Fed-aerated and 7oops7), but no mention of savers being slapped silly. Notice in the savers post that an image says no bullets left. Ah, yes, Ben panicked and used up his ammo. But, has he not shown all of us (and the world) that there was a whole lot of other maneuvering possible? But, too, does he know that he's cowboy'ed us into a corner?

06/11/2013 -- CDOs and tranching, once again.

02/26/2013 -- What? Ben doesn't have any influence with his put?

12/13/2012 -- Don't know how long this page will be there, Daily Ticker. But, when I looked, 69% had said 'no' (hurt rather than helped) as to whether Ben has helped.

09/13/2012 -- Ben, and his cronies, continue to sack the savers.

03/23/2012 -- Ben is doing a series of four lectures on his, and the FED's, role.

01/27/2012 -- Ben will continue to sack the savers; he must love the ca-pital-sino.

05/09/2011 -- Savers are suckers?

04/03/2011 -- Need to look at some background. Too, tranche and trash.

03/22/2011 -- It's spring, and the garble uses gambling metaphors.

01/27/2011 -- The chimera shines (be careful, folks).

01/19/2011 -- For the most, things are dire, not by necessity.

11/02/2010 -- Over a year later, the message is the same, except some changes have occurred. But Big Ben continues in his ways. Of real note is that the jobless rate is high; out-housing really set up for that. Also, we need to re-look at that learned from the 'vons' guys, Ludwig and Friedrich. See Near Zero.

10/14/2010 -- Capitalism, as known now, requires an endless supply of suckers.

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

01/06/2010 -- Poor Ben, getting grief and criticism.

12/29/2009 -- Time calls Ben an uber-Nerd.

12/28/2009 -- Ben was named the Time Person of the Year. Nice. We can't call him 'King' as we saw with Alan's 'cult of personality' reign.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

12/09/2009 -- The Street loves Ben who loves 'em back: The Street utterly loves the Fed's largess, earning massive profits from trading unstable currencies, the carry trade (borrow short-term dollars near zero, buy longer-term assets abroad), and the high-margin process of transferring America's capital abroad.

12/01/2009 -- The consumer as focus.

11/25/2009 -- The Economist weighs in.

10/16/2009 -- 201K <-- 401K --> 25601K, this denotes the current financial gaming.

10/05/2009 -- Who is Big Ben, really, besides being a happy-talker?

09/15/2009 -- Lessons, one year after Lehman. Also, Time on culprits. Ben is happy-talking, again.

09/09/2009 -- To look at some issues addressed here, we'll need to consider Alan's reign.

09/09/09 -- We'll need to look at UUUN, as a framework.

08/25/2009 -- Well, Ben, congratulations. The President likes your work. But, guess what you need to consider? In the next four years, please look at the Vienna school's framework as it applies to the rampant computational misuse that needs to be controlled in order for us to have stability. Are you ready to unwind? Oh, wait until January. Then, please, rise to the occasion. Your role is more than just being big daddy to the buck muckers.

08/24/2009 -- Ben offers no mea culpa; oh, he blinked and then panicked (not what one would expect of a General). Ben unwind now. The Vienna School's view that these things are undecidable (which is a computational issue) is right on.

08/21/2009 -- In his own words.

08/20/2009 -- NYT says that Ben can't shake his critics.

Modified: 02/11/2015

Economists, of course

Moral: Wherein we look at an important class, as least, they are so in their own eyes. Kidding.

---

This blog deals with things economic. And, those who study those same things offer us a science that is dismal, at best, and positively dire, at worst.

But, the discussions are always of interest. Take The Economist (please). Kidding, again, as I love the Brit humor. Buttonwood (Tied to the mast) covers some important issues, such as taxes.

Who pays for what is always a problem. What we've seen of late is a diminishing income for the majority of the people, while the giant sucking machines filled the pockets of the few. It's been said many times.

And, that mass movement of wealth was due to an economic ideology. Let us just say, that the best description is characterized by the old refrain: privatization of any gain, socialization of all loss. And we, the taxpayers, are put into the position of being the buyer of last resort, even with our minimal means (and beans). Too, one main property of the markets under this ideology is that any constraint related to 'moral hazard-ness' is relaxed.

Ah, that ideology, according to some, is now hiding in the corner. If only.

Methinks that it can be better. How to accomplish this will require that economists agree on a few things. What are those?

We can name a few with more promised at some future point.

• Labor is the core. How else will we get consumer spending? Thievery? Oh wait, that is essentially what the 'giant sucking' mentioned above consisted of.
• Knowledge, and capital, related to persons is key to stability. Adam Smith can (must) be updated; his times, of course, were enthralled with machinery.
• Markets are a means, not the end (see the above bullet for the end).
• Corporations are not persons, at least not totally. Nor does the Corporation over-extend the political will of the people. Oh, what is that?
• Money is another means. Our maturity can be best reflected in an economy using something beyond a gab standard.

This incomplete list is only a starting point.

Remarks:

03/15/2015 -- Finally, getting around to the pending business.

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

01/07/2010 -- We need to look at capitalism, closely.

01/06/2010 -- Poor Ben, getting grief and criticism.

12/29/2009 -- Time calls Ben an uber-Nerd.

12/28/2009 -- Ben was named the Time Person of the Year. Nice. We can't call him 'King' as we saw with Alan's 'cult of personality' reign.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

12/10/2009 -- More roles include the consumer and the economy.

10/29/2009 -- Bankers, Lawyers, Corporatists, Economists, and more. Roles abound.

09/09/2009 -- To look at some issues addressed here, we'll need to consider Alan's reign.

09/09/09 -- We'll need to look at UUUN, as a framework.

09/04/2009 -- It has been decided about Ben, the saver sacker. We still need to discuss the overarching metaphor for the economy. Quants are it!!

Modified: 03/15/2015

Beans and accounting thereof

Moral: Where we continuing talking money and will go into securities soon. But, first there needs to be a reminder that we're talking beans (ours, to boot) when we talking economy.

---

Well, we have to track our beans which is the role of accounting. But, accounting consists of a set of rules, some of them seemingly arbitrary (as opposed to the axiomatic, and natural, flavor found in mathematics). We hear about the shenanigans of Mac and Mae (you know, oodles have lost money with these two?); there is the issue of a recent rule relaxation that resulted in 'golden sacks' of money going to some banks.

Now, 'accounting' can be used several ways. In the context of a household, which might be the most simple sense, there can even be issues. Just look at the differences between income, say median for an individual compared to that of a household. In terms of the latter, how many individuals are involved is a major factor. Even with the most careful household, there will be things that are heavily influenced by outside factors (to wit, how many have lost expected retirement income through no fault of their own?).

In the context of business, one might have a particular view which deals with value related to a specific entity. Yet, these entities interrelate. Therein, arises some problems. Take the markets, for instance, which imply an economy, though it is by no means limited to just one political entity bringing up issues of foreign exchange.

Given all this, how can there be any strict accounting at any time? SOX, and its dream, doesn't really help. We do need to wake up to the fact that we need principles cognizant of relativity and uncertainty. Oh yes, risk management reigns there, as does the arbitrage crowd.

Perhaps, a big piece is missing. Why? On top of this, we have put gaming (casino capitalism) and extracting manipulators. That latter set sucks from the pockets of the hapless into their own. Example: high-frequency trading (sheer idiocy, on the face of it).

So, accounting will get more attention as we weave our way through all things touched by economics.

Remarks:

01/15/2015 -- This week, this post is getting read. Great! Nice little piece of work (kidding, in part) so many years ago. ... At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation.

10/29/2011 -- The OWS is partly about accounting. How was a vast accumulation accomplished? Given near-zero, obviously by unsustainable means.

03/22/2011 -- It's spring, and the garble uses gambling metaphors.

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

01/03/2010 -- More news on Goldman Sachs as the uber example of 'not on the behalf' comes to fore regularly. It'll need to be a separate subject at some point. Thanks to McClatchy: Nov 1, 2009 & Jan 3, 2010 (update). Goldman has to respond, of course.

10/05/2009 -- Ah, yes, on the behalf of.

08/25/2009 -- With structures favored by quants, accounting goes way off. Of course, it's a money issue, to boot.

08/21/2009 -- Some have more than others, by quite a lot as we're reminded by the NYT.

Modified: 01/15/2015

Money 1

Moral: Wherein we consider money.

---

We'll eventually get to a Money 101, however let's start to collect some background information using prior post from the related blogs.

• from 7oops7
• from Truth Engineering

From these, a few are listed that need more discussion.

• Where is the money? -- this is in the context of the losses of the past few months. To where did the money go. Well, many explanations confound the issue. You see, these views do not separate money from its use. So, we have a fiat situation with money where wizards set value. Yet, 'intrinsic' value comes into play in more ways than finance allows.
  
• I M F -- as we all know, there are those who work in the realm of money. Too, we know that those with more have greater power than those without. What is it exactly that allows money to accrue power (and I mean more than the salivating of the politicos as bucks are passed beneath their noses)?
  
• Stable money vs Gab standard -- not an easy issue as we can see from looking at the history of these arguments. Yet, engineering of money would allow more science than we get with just the dismal variety. What would be the motivation? Well, just as the financials froze when they woke up to the fact that they were only playing against others like them (the whole playing field of advantages changed) -- they not only froze, they quit playing -- ah, feel sorry for them? -- well, we must have, as we allowed a bail out of the fat cats (question - who in Main street is enjoying any benefit of all those bucks thrown to the fat cats?).
  
• Fresh look & What the hell happened -- many choices led to the recent downturn and its dire consequences for the most. These all can be looked at more closely. Those who were to show, at least, some modicum of fiscal responsibility only cared for the size of their own pockets.
  
• Truth about money -- there are people who do not salivate when confronted with piles of money or gold. Are they smart? Yes, in many ways smarter than the best and brightest (what a sickening concept! created by fat cats to describe those who activities filled the fat cats' pockets maximally - of course, the fat cats would allow some bonus -- albeit, of outrageous magnitude to those with any sense of decency).
  
• What is money? -- by the way. Be sure to look at von Mises work. One side of the confounded answers (see first bullet) deals with this question. Money has a long history. Its most recent manifestation, as an abstraction, can never be audited truly (despite SOX, et al) because it is an open topology. You do have to give a slight nod to those who saw the silly game's advantages for siphoning off boatloads of bucks; yet, money and ethics ought to get acquainted.
• Money and Being -- as quaint as this may appear, it is seriously offered.

This list covers some of the basics. Next up, we'll look at securities and related.

Remarks:

05/24/2011 -- Lemons problem, dark pools, ... Oh, so much to look at!

03/17/2011 -- On the rise of the professional politician (will there ever be the citizen polico? that is, those who do not salivate when a buck is passed beneath the nose) toward robber barony. The M & Ms are apropos. As well, need to bring in Schervish's viewpoint.

01/27/2011 -- The chimera shines.

11/02/2010 -- Over a year later, the message is the same, except some changes have occurred. But Big Ben continues in his ways. Of real note is that the jobless rate is high; out-housing really set up for that. Also, we need to re-look at that learned from the 'vons' guys, Ludwig and Friedrich. See Near Zero.

12/15/2009 -- Requiem for the dollar (WSJ) and responses.

08/24/2009 -- Money 2. Gosh, now we see credit as an asset?

08/21/2009 -- Banks handle our money. Many have failed. Most have done so by bad loans rather than by screwy financial instruments, says the NYT. Ah, but they're the best (in their own minds). Do they need to be scrutinized further?

08/17/2009 -- Books on the credit crunch. This crunch involved "macroeconomic imbalances, greedy and incompetent bankers, and fraudulent American homebuyers."

08/17/2009 -- We'll get into value, too, in the sense of money having two roles (perhaps, more). One is a medium of exchange. The other is a measurement of wealth. Joseph Lazzaro estimates that the US's total value of wealth is $50,000,000,000,000 in the context of do we have enough money to fix up the economy. Of course, $2,000,000,000,000 is from China.

Modified: 08/24/2011

The Law

Moral: Wherein we look at the law.

---

Gosh, had not expected to get to this area so soon, but posting on something new requires a little study which can lead to interesting paths. For instance, from first principles, these first posts are foundational. So far, we've looked at the markets, labor and laborers, and corporations.

Guess what? Due to some readings of the 14th Amendment of the US Constitution, corporations can claim rights, just like do we people. Say what?

Yes, but there are several differences. For one, they do not have 'being' in the same sense of humans. We'll address that at some point.

Too, they have more money and clout which can mean that, they, through hubris, can think that they are above law; well, don't some (many) politicos just salivate when the buck is passed under their noses?

And, they've been pretty good about knocking down labor, both dis-organized and organized, except that labor, as core, is a foundational, and fundamental, truism which needs more attention. Though we can anticipate that this applies to individuals for the most part.

Note, we have not said that corporations do not have some 'person' equivalents, as that same logic is what allows a collective of labor to argue their rights. Guess what? Some overlay of these might be expected, though one would very much think that labor, as core, might be more fundamental. It has not worked out that way, as of yet.

So, this post is only introductory but shows that Law is a major player in the economy. It sets the tone and the milieu. During times of rampant Rand-ism, those at the upper end of the talent scale are allowed to screw over the rest of the mix. What does this mean? Well, the right-hand side of the probability distribution function (curve called the pdf) covers a few, who, given the right mix of culture and such, can gather for themselves a whole bunch.

Given the reality of near-zero, this, then, comes from those who trail in the pdf who are massively more in cardinality. You also get events like the recent one where it is obvious that accumulations come about through privatization of gain (by necessity, there is socialization of loss).

This most recent downturn, where financial types froze as they know their own kind very well (and didn't want to play without the usual advantage), one sees the mess of legal code and almost indecipherable readings and interpretations.

Bailouts went to the fat cats, for the most part. That is, Wall Street's siphons were very effective in their function. What did Main Street get? Ah, not much. Well, the sacking of savers is one thing (gosh, Ben, wake the heck up).

Yet, it's not hopeless, folks. Given that current choices are lighting the fires of the next bubbles (the FED is aerating to the max), we'll have crashes sooner than later.

So, the issues will continue to require attention.

Remarks:

12/05/2012 -- Nice to know that Coase's view agrees with mine, somewhat.

03/17/2011 -- On the rise of the professional politician (will there ever be the citizen polico? that is, those who do not salivate when a buck is passed beneath the nose) toward robber barony. The M & Ms are apropos. As well, need to bring in Schervish's viewpoint.

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

12/10/2009 -- More roles include the consumer and the economy.

10/29/2009 -- Bankers, Lawyers, Corporatists, Economists, and more. Roles abound.

Modified: 12/05/2012

The Corporation

Moral: Wherein we take a foundational approach here, in the beginning, having now touched, albeit briefly, on markets and labor (the core).

---

There are many other things to consider which we will from a first principles viewpoint. One question is, whose first principles?

Well, let's now take the Corporation (please). What exactly is this? Well, folks, please remember that this thing is new to us (relatively speaking) and that it has been more problematic than not. How? Well, bloating fat cats, polluting the environment, desiccating the population (you know, collective leeches), running amok amongst the hapless, and much more. Oh, someone may argue, they're for profit; well, there is such a thing as a non-profit corporation; too, we can run the economy with those who are not money addicts (see Comments: The idea is that we could drive finance (liquidity, et al) using a non-profit framework and volunteers. Yes, we'll discuss that further. Are the Grassos, et al essential (not talking function, talking the notion of entitlement to the beans)?).

We'll address each of these.

You see, the Corporation is an entity and, as such, acts which implies behavior. We know that some can claim to be good 'corporate citizens' or is that debatable?

The fact is that some type of rules of mature corporate behavior needs to be established. Ethics has failed in this regard.

Why focus on behavior? Well, Miss Manners might be interested or we can expect a new Emily Post.

Another fact, corporations are largely infantile (see the Labor and laborers post). How can I say this? Well, has not the modus operandi been to find a teat, suck it dry, and then find another, seemingly ad infinitum?

Okay, some might be more of an adolescent in their motives and means. Yet, the world needs mature corporations, if they are to play the positive role.

That is, they need to get away from those attributes best exemplified by Alexander the Great or by the prevailing view of science fiction. Destruction is fast and easy; it's construction and positive embellishments that the world desperately needs.

Now, our problem is that the monies have drained the way of the corporation and its cronies, like into an aneurysm. Then, we have public officials who cannot refrain from being enticed by the buck.

Sorry state of affairs, except that we could probably find little green shoots (thanks, Ben?) that point toward a better way. At least, the web can allow the necessary discussion and a gathering place for ideas related to maturing.

Oh wait, has anything on the web really done more than just encourage sophomoric ways? Ah, that's not fair. Just look at this forum, provided for and funded by Google, as an example of which there are many.

Well, let's switch to another context, dealing with the law that allows corporations to think that they are given the rights of a person. Actually, this personhood thing coming up just validates the metaphor used above; yes, immature behavior and worse is what we real persons have to endure from those in fat-cat-ville.

Remarks:

12/05/2012 -- Nice to know that Coase's view agrees with mine, somewhat.

09/21/2011 -- On Wealth and the CEO MVP.

04/03/2011 -- Need to look at some background. Too, tranche and trash

01/03/2011 -- Ah yes, now there are demands. The question remains: what growth other than the pockets of these types?

11/01/2010 -- von Mises' thinking applies here.

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

01/27/2010 -- The matter is now settled. We can treat Corporations as citizens!!

01/07/2010 -- We need to look at capitalism, closely.

12/19/2009 -- Dead peasant, indeed.

12/10/2009 -- More roles include the consumer and the economy.

12/08/2009 -- Consider current CEOs in relation to Paul. Not fair? Well, these guys/gals have set themselves upon some supposed plane that is above the rest of us.

10/29/2009 -- Bankers, Lawyers, Corporatists, Economists, and more. Roles abound.

09/07/2009 -- Labor Day.

08/17/2009 -- We also have to consider roles for the corporation: money pile generator, ...

08/16/2009 -- The list of corporation types is large. We'll have a continuing list here: the press, ...

08/15/2009 -- The discussion needs to differentiate types of corporations. Some are problematic by definition (financial, banking, ...). Others try hard, like some, but not all, of the legal. Also, realize that Corporations do not encompass the heroic: military, police, fire, medical, ..., even when they're the out-sourcee. This really remains to be seen, folks.

Modified: 12/05/2012