Transitions

Moral: Wherein we consider the cosmology of business, further, as things are going to be fundamentally changing which gives us some leeway to explore major issues.

Tetons

Ben did not grace the Tetons with his presence this year. But, the bankers are there this weekend. Not all of those there have some solid notion about their influence on the world and their particular roles (including shades of them being irreplaceable - ego thing). And, they have that self-image despite dealing with fiat monies, crooked markets, and much more that ought not raise any hubris (except for accumulation comparison) especially given that their existence is oppressive, to the max, to we the people.

Before going on, let's review posts dealing with Ben's visits to the Tetons.

• Chimera II (Aug 2010) -- These guys, along with Ben, have pushed equity as the prime focal area. One has to wonder why when the reality has a strong flavor of ca-pital-sino which we know from the gaming industry means the house always wins (via leeching) and there are no fair deals. Plenty have talked about the myths related to equities, yet these types persist in their ways. Why? Well, all sorts of benefits come with their positions. Where is there any basic science (with regard to the issues of finance, in general) talked that isn't watered down for the management idiocies?  -- Note: we didn't know of the coming run-up in equity markets that waffles when Ben talks tapering. At the same time, savers are reeling from being slapped silly.   
• Financial piracy (Aug 2011) -- These guys traipse through one another's company as if they're the giants who rule the world. Ah, Pharaohs, indeed. Well, they do have major influence on how money impacts our lives. Yet, the way things have evolved are not sustainable. Little regard is given to "main" versus "wall" street issues. Though, lots of ink has been used on discussions of these matters, we'll attempt to add a missing viewpoint. -- Note: yes, we were still, at this point, removed from the maniacal bulge that fattened the pockets of the selected few. Then, we see jobs coming about that are not much more than indentured servitude as all eyes are directed to the chimera. 
• Ben, da man (Nov 2011) -- Provider of the largest teat that we've seen. And, those who suckled have turned out to be the fattest cats possible (addicts to the max). At the same time, the takings from the savers were never calculated, as they ought to have been. -- Note: Unwinding? Ah, cold turkey ought to have been the mode; have we passed that point? It's going to be painful for all of us. Thanks Ben (slapped silly for years, now we have to clean up the mess after the addicts mess up the world).  
• After all these years (Sep 2012) -- Yes, Ben's been slapping savers silly for several years now. And, he tells them to man up and continue to take it on the chin. Nice guy. -- Note: In the meantime, he has been worried about his little addicted equity investors who need coddling. He wanted an inflated equity market. Sure enough, it happened. At the same time, he's built up a large balance sheet (for which we are responsible) in proportions never seen before. Perhaps, we ought to thank Ben for giving us an situation from which we'll have to extract ourselves and by which we'll have to learn something (isn't forced education a wonderful thing?).  

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Earlier, we started to talk about the cosmology of business. Well, we'll get back to that. And, since we're looking a things from a "cosmology" view, we start by looking at origins. Origins? Yes, from the beginning, so that the resulting viewpoint will be constructively built from a firm basis using a reasonable framework for expansion.

You see, we're doing that purposely since we have made the claim of bastardized mathematics causing too much influence with abstractions. Yes, indeed. In fact, too many manager types (without proper understanding of foundation issues) are running amok with applied mathematics. It's frightening. But, worse, it's sickening (and the academics are pushing this - making them pushers as much as is Ben).

Once, we get past origins, we'll have players, roles, and much more. Of course, as one would expect, bankers will come into view. And, investors, of course.

Again, are there timelines and outlines with this? Let's put it this way. We'll start at the beginning; we'll get side-tracked with current events (have to mouth off about those); there might be fits-and-starts since the exposition cannot be linear (chicken-egg thing -- found everywhere in economics - the one truism? Ego gets itself in there, perennially. We're going to try to thwart that tendency during this discussion.).

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You see, as a look ahead, I've mentioned singularities, in a related context. That concept's use has several motivations, but the major one is to suggest that Black Swan thinking does not go far enough. In computation, we're talking entanglements that are unexpected (actually, they could be by design if the idea is to enhance the giant sucking capability) which have similarities to knotted manifolds (only possible in unreal worlds - hey, what is money in its current form?). However, Wikipedia has several connotations covered. In a computational situation, I've used vertigo (but that is more a reaction - behavioral view - a description of the underlying factors -- not talking causal, necessarily).

Remarks:

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

09/18/2013-- Pop, fizz, ... Ben had to show largess because of idiots who ran the economy to the ground (rogues all around). Ben is going. What do we have to look forward to? Businessweek has a review issue (of the past five years). Several articles are especially interesting. Too, phrasing shines: spin dross into gold (in relation to mortgage bonds). Perhaps, we'll get back to some of the more pertinent ones, at some point. If we do, it would be to bring forward what has been said here, from the beginning. To wit? Tranche and trash (WSJ has a good take on that). Securitization? This article brings on weeping (one example of the misuse of mathematics and computing that has been harped about). Adoption, and improved understanding, of lazy evaluation let loose the powers that resulted in the wild web and its little children, namely social media and more. To grasp the problem, we have to go back to computing that is in some type of responsible area. Avionics comes to mind. If what is couched as software in looser domains (financial engineering? -- looser?, yes bailouts are the norm despite all of the protestations of the ruling elite; or the whole cadre of the poorer folk can just suck it up when there are problems in order to relieve the fat cats' loss) were to used in flight controls, would we not have planes falling out of the sky? We'll get back to the simple issues that seem to not be seen by the elites chasing after the bucks that Ben has been throwing out of his helicopter.

08/27/2013 -- We'll start it here. Let's look to an American logician for awhile. Bayes has had his run, okay? He was Brit. Non-conformist, which is nice. Charles Sander Peirce has more to say to the changes that need to be made. ... By the way, we've talked to the true cost of putting out financial software; we'll try to get a handle on that. You see, the cowboy way is prevalent in finance and web apps (under the guise of agility (ah, so nice to misuse that) or entrepreneurial freedom). Of course, in the former case (finance, of course), the game is to fill the pockets of the favored few.

08/27/2013 -- You hear a lot about liquidity in terms of capital and markets. Ah, keep the wheels greased, too. However, liquid is only one of several phases. In fact, solid was mentioned above which brings up a few connotations to consider. ... The gist of the matter is "liquidity" is really used to cover the fool's game that they have us wrapped into. How did Ben fall into the trap pulling us with him? Well, in the future, we'll have his explanations ad infinitum. In the meantime, the prominence of equity (oh yes, it has greatly enriched the few -- while impoverishing the world, essentially) will decline toward a more balanced view. In fact, we can think of "capital" markets not yet conceived which will come about from computational creativity (bitcoin might be an example, but it's a metaphor (now) as is Facebook thusly so in another area).

08/27/2013 -- Steve Ballmer of Microsoft is retiring. On the announcement, MSFT went up so that Steve's holding increased by nearly $1B (billion). In one day! We'll have to put Warren and Ben aside for awhile and look at Steve as some type of example. How to characterize this is a puzzle (not archetype, exactly). Of course, that increase is in an environment that was aerated by Ben (so he cannot be forgotten, for long). Steve's overall worth is in the range of $15B. I don't know where that ranks him, however the whole set of issues related to that crooked game can be analyzed using SB along with WB and BB. It'll be fun, but, firstly, there has to be the cosmology post dealing with origins.

08/25/2013 -- Some are talking the plumbing aspects, such as the conduits needed to move thing around; this type of talking is supposed to reinforce the notion of liquidity (which is bosh). Bankers have warped the space (over the decades - abetted by politicos). Who knows the truth? So, our look will be from basics which might get some perturbed since they deal with intricacies and complexities (yes, I know, the sandbox would be where these types ought to play so that we mature folks could have an economy that is worthy of our attention). You see, no one seems to talk want to talk the fundaments (used purposefully). But, just as our ideal is a government of the people (Constitutionally established, supposedly), so, too, is the economy for the people and not for those in the upper strata (higher ups) who seem to think that the rest are peons (little resources) for their beck and call. Gosh, the hubris that Wall Street brings out!

08/24/2013 -- A professor said that the systems are too complex, in respect to the market issue of Aug 22, 2013 (three hours of thumb twiddling). He said that these things are not tested. In a sense, the cowboy approach has been prevalent. The people push out changes as if we're to marvel at their talent and brains. We are to adopt the changes and adapt ourselves and our lives (sound like the internet?). We'll consider the computer, its advent, use, and future, in our discussion of cosmology.

Modified: 12/05/2013

Investors II

Moral: Wherein we will look at the mortgage thing using our own method.

Financial Engineering applies here, however let's look firstly from the viewpoint of those who need money (borrowers) and those who have money to lend (investors).

Note how the second group is categorized; we had an earlier look at investors. There we were dealing with equity markets which is where Ben wants people to go now. That is, people need to run after risky ploys in order to find some type of illusive gain.

Ben has made it difficult for the simple saver (of course, many have no alternative but to let him slap them silly and say "thank you, Ben").

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The thrust of the Fed has been to keep borrowing costs low. For what reason? Why is it that he would expect someone to tie themselves into being a long-term loaner, at a low cost?

Aside: Of course, it's relative. People bought long-term government bonds at rates that were not stellar. No, risk-free wants only a little reward. But, sacking savers at less than 1% (that's outrageous and has been from the beginning). Why is there no outcry? Because the idiots running the game think that they are on the mark with their thinking.

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CDO in the mortgage context

As we proceed, say from the beginning, we'll come from the past to now. But, we'll have to show what the level of idiocy is now in a type of juxtaposition. The image comes from a nice Wikipedia page about CDOs which were troublesome five years ago, and still are.

On the Wiki page, there is another image that shows how tranches are overlaid on a pool (see early remarks about tranche and trash). Please note how there are levels of ratings from AAA down. Notice, too, the range of returns that are expected (by what type of thinking? ).

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So, investors? Yes, those who are to buy securities based upon this type of scheme. You know what's silly? Some of these toxic things were sold as cash equivalent. And, the SEC has been trying to bring the idiots selling these things (and similar things) to some reckoning. But, you know, it's not illegal to be stupid. Okay?

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As we look at the history, we will note the advance of this type of thing with computational improvements. So, it's like the argument that goes: because they can. That is, without some type of oversight (and, idiots are doing this, to boot) or, gasp, some notion of ethics (forget anything related to conscience, for now) things unfold as described by Minsky (note the timestamp; this and related posts will be updated).

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So, we see changes over the past decades. One large one was post WWII. You see, we had to provide rewards to the veterans. The VA house policy (and similar) needed money. How do you get money out of the air? Securitization. There have been all sorts of problems over the years.

The one constant is that with each tick of the clock, technology came more into vogue. Along with it came exploitation (Made-off is only one little glimmer, folks).

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Fannie and Freddie are rolling the dough, now. How much of that is real (to be discussed)? Obama knows how these two went astray (along with Sallie); but, going entirely private ought to cause an adult to shudder (so many things to discuss here).

Aside: The only way to go private is to have things run by those who take a vow of poverty similar to what we see with the enlisted in the military (yes, Officers rake it in; not so the lower classes). We have people putting their lives and limbs at risk for a system that favors the fat cats. Things could take a step in the right direction if there were a national service. That is, all would share in the burden implied by common weal.

Remarks:

08/23/2013 -- Another example. Jon has it right: high-frequency to blame. Of course, there are several reasons for the market being out of control.

08/16/2013 -- 30-year mortgage needs taxpayer assistance (or guarantee).

08/15/2013 -- Nice viewpoint. Farce, indeed (chimera).

Modified: 08/23/2013

Investors I

Moral: Wherein we slip in a look at investors before taking on additions to Financial Engineering I.

Aside: Still can't get over the temerity behind naming the discipline "engineering" when it deals with chimeras, a lot (money, as an illusion). Too, we'll be back to explaining chimera further.

So, what is an investor? Well, one who invests. Now, before going further, let's talk a little motivation. Everyday, business day, that is, there are talking heads, and charts and graphs (in fancy colors and fonts) galore, hyping what is seen as the core of busyness (or the economy, even). And, they're always talking that the investors did this or did that.

Now, if you put these peoples' feet to the fire, they could not pinpoint an investor by definition. They would probably punt to Investopedia (nice little site). Or, waffle while trying to find some expert (read, consultant) to answer the question.

But, really, who are investors and why do we care about those who are inflating the DOW (actually, Ben's little, actually big, largess is a major factor)?

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Actually, there is another motivation. Yesterday, I ran across this little bit on the DOW 36,000 thinking. You see, twice within recent memory of most beyond 25 years of age have been events where mania looked upward to the sky while the ground beneath those ones was falling. Evidently, their senses were out of whack, as some denied the fall until they hit (including our wonderful guy, Ben).

But, there is a little different tone to this article. The thing is that the returns that are expected (something that investors desire, namely some gain) requires, over the long haul, that the DOW inflate grandly. We'll get back to that, as gains can be ill-begotten (note, please, that this is three-years old and will be updated), are beyond the normal view (say, you investing in your kids' future - note, please, did not say "for" - rather this is a "being" issue - hint, more than just being a parent, okay?), and more.

Aside:  Gain from others lining up with their money (Ponzi, or Made-off, comes to mind)? You know, this paper-gain hysteria is as non-being as one could get. Of course, some get rich (some; most cannot - thinking that everyone gains is delusional). Folks, let's get the discussion back to real gains and the necessity thereof.

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Actually, Wikipedia does a nice little job; their article lists some types of investors. However, their list is not complete: where is the labor of the farmer? the daily upkeep of a child? ... Those are not investments? Why not? ... Hey, what about shoring up infrastructure (we have let this slide far too long - by using the Harvard- driven, short-term view that glorifies the idiots with high IQs (yes, savants, in a real sense) who have no morals and rape the world and all of us for their pleasure (want me to name some names?)?

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It's probably fortunate that MIT took the financial engineering route as that view can help balance out the misshaped views that resulted from the indoctrination fostered by their Cambridge mates. You could say that the quants provided by MIT (yes, those who run the technology that allows the giant sucking daily) enable, via these platforms, the grandiosity of the worldviews that rape and take (as in, auto engineers versus drivers). Yes, building market systems is part of computational finance which is one of the aspects of financial engineering.

Aside: Some things to look at thoroughly are those that lead to (or reinforce the notion of) the ca-pital-sino. High-frequency trading has some much stench attached to it that I can smell it from where I am now, long way from the markets. The whole idea of what might be called fishing is atrocious. Silly, really. What is that? Essentially, fictitious (ah, Karl would love that) trades to test the waters (rather, to lure dumb asses into a position of losing their shirts, okay?). Futures, anyone? Part of the problem accelerated when these were enabled with advanced computing. Just because they can is no reason to let loose things like this. That is, futures, themselves, are not a bad idea. It's the morphed processing (and worldviews) that are troublesome. But, market ideology, and big money, make a good case (actually, snow job); why else are they allowed such shenanigans (greasing politicos' palms?)?  

Allah                                        Moolah

One missing aspect, though I saw it mentioned in one MIT article, is what gets labelled "ethics" (but, is actually much more); a closer tie between Harvard Divinity and Business might be an interesting notion to discuss.

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The MIT site had a couple of articles with nice leanings: curing cancer support, large-scale biomedical funding. These discuss how innovative means could improve on-going fiscal concerns. That type of thing is what we really want to see.

As opposed to what? Say, consider the mere gaming thrust supported by the current markets. The current bubbles (there even if Ben cannot see them) are of this type. We can't blame the guy; where is the sound worldview that ought to have a solid research basis and lead to stability (away from the perdition-laden path that seems to be so normal)?

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Investopedia's look stresses capital and trading thereof. One would expect that. Wikipedia has more variety. For instance, they mention sweat equity which would cover the above farmer (say, small, private owner-operator). So, investing is what we all do when we get out of the bed each morning. Those who look ahead invest prior to retiring for the day. Lives well spent invest and enjoy results during the whole span.

Then, we get all sorts of examples. Most recent? Detroit? Prior to that, companies that rooked workers out of their pensions (no repercussion to the business - brief headline flash, then it's forgotten; except, those who lost their future -- actually, Ben has slapped savers silly and wants to continue to do so).

One expectation from wise investment would be future payout. As well, no one raking off the top is another. Yet, these issues are buried beneath the hyperbola related to the daily show (S&P 1700, for instance).

We'll get back to FE. How could it be used to establish a better notion of investor and risk management (remember how there could not be another downturn -- about six years ago -- according to the experts?)? These are not rhetorical questions; rather, the urgency needs to be lifted to awareness (daily and more).

Remarks:

08/15/2013 -- Nice viewpoint. Farce, indeed (chimera).

08/13/2013 -- Yesterday, we mentioned that President Obama wants to change the mortgage arena.This seems like a good opportunity to start a look back. One would hope that those who are in charge of the changes know the intricacies of why we have idiots running things now. If not, we'll attempt such an analysis here. Idiots? Yes, such inconsistencies of tying up money for 30 years, at a low interest (without acknowledging that taxpayers allowed this to occur in the first place, early on for veterans coming back from WWII). There are others things like this that seem so like chasing after the perpetual-motion machine. Finance, built upon bogus money, has no way to ground itself, essentially. So, let's start with Investors II.

08/12/2013 -- The President of the US is talking about changing the mortgage game. For one, Fannie and Freddie would change dramatically. The WSJ reported that these ones are making oodles of money (if so, it's due to Ben's free money). We'll have to weigh in here, at our speed, of course. For one, we'll lay out the progression that got us to use of the CDO in the mortgage context. Fancy, creative finance is what drove these things. Too, we'll consider what ought things look like (look, there have been many changes for the past 100 years or so; a look at these issues from a temporally unbiased manner is imperative.

08/08/2013 -- Obama is talking inconsistency (but, perhaps, Emerson applies). He cannot have 30 year mortgages, with low interest, and expect there to be loads of housing. Fannie and Freddie had a purpose (by the way, Obama ought to have someone explain to him that these two were right there with the phony finance - yes, they were heavy players in the structured game -- and, some of their people made oodles -- oh, perhaps not to the level of private equity -- yet, F&F, with a proper bit of ethics and such, would be the way to go). They did not have to become pushers to the addicts (see prior parens). I guess the suited thing (dealing with the Wall Street types rubbed off). We need more practical minds that will withstand the sirens (the WSJ has it wrong -- it's not the sell-off siren that is the problem; it's the one that leads to greed and perdition -- those of the expensive suits are not heroes -- never have been). ... What really needs to be looked at is the morphing to gaming of all of these markets (it's a shame -- no where to go to really have a capitalistic experience -- was there ever? or is it that Adam had a fantasy?).

08/08/2013 -- We'll be doing another Investor post (probably a series). This one had a limited view, mainly equities. Let's forget the DOW (and its ilk, which are stacked games in place to fleece investors) and look at where the money is (private equity, hedge funds, etc.). Take private equity. The WSJ recently reported that many of these are pushing out bonds (another post needs to look at this option) for the sole purpose of paying themselves, and their like, huge dividends. Mind you. By doing this, they're loading their companies with debt. Guess who pays? You see, these bonds are supposed to pay huge interest (7.5%). Of course, with the big guys taking their cut (an analyst of a large fund says that this is like taking a huge home equity loan and going on vacation - recall, if you would, that we saw this with some home owners prior to the downturn -- then, some of these owners just walked away from their debt), the workers will have to make up to pay interest (recall, Hawker, which came from Raytheon's push out of Beech (highly indebted); Hawker could not service their huge debt, went bankrupt, thousands out of work, ...). Now, those buying the bonds know that the ratings are low, the risks are high, but Ben set this stage. The bond buyers may lose their money; but, they can also hope for an IPO that would bail them out (in this inflated market?). Recall, Spr, too. Same players as with Hawker, They got a partial IPO, yet those who bought were under water for a long time (some still are). Long time means years. ... You see, finance is creative when it ought to be utilitarian, many times. Ben is playing a losing game; but, he knew that (the siren's lure - face blasted everywhere -  must have been too strong; King Alan morphed to Bennie -- poor guy).

08/07/2013 -- Investors? After the last taper talk (more than a month ago), things jiggled a bit. Some lost money. Some gnashed their teeth (but, for someone, like my ilk, who has been slapped silly for several years now, what comfort ought we give to those who don't know how to wean themselves from their addiction? --- in the meantime, Ben, we, the savers (saviors?), continue to be good citizens despite the Fed's attempt to trample us under the dirt). At that time, Ben had his Doves talk goo-goo. So, the mania began again. Yesterday, there was a slight downturn supposedly as some Hawk (or two) said, perhaps, next month there might be some fiddling with the taper (the talk wasn't that the investor would get reamed - forgive me, I was in the U.S.Army at 17 and learned some good lessons -- also, I was a medic so I know of orifices, to boot). Ben's problem is that he's in a fog (who isn't?). Yet, he runs around with the elite like an oracle (he ought to consider some of the Prophets about which he knows, perhaps), strokes the addicts, bends in to the money'd, and more. And, he looks for signs (omen analyzer -- ah, age-old behavior). And, he misses the obvious. For instance, what they're calling jobs (related to his triggers) are really just glorified indentured servancy roles. In fact, these things are to drive a consumer-oriented economy? ...

08/05/2013 -- The comment at the Motley Fool (by the way, congrats on your anniversary) noted that all couldn't sell out at the high mark. The corollary: some point (price) determines losers (in fact, the loser set is of larger cardinality in terms of membership), by necessity. In fact, the way the game is run now (assisted by financial engineering), the markets will die. ... Now, there is a way that all could sell out at a price. Government, meaning taxpayers, as buyer of last resort. To whom would the government sell? Well, what Ben has been doing is a type of last-resort buyer. Of course, he's working in the bond area, yet the money that he is freeing up has to go somewhere. It's not going into creating an economy, with good jobs, that we need for the future. Actually, he's been quoted as wanting people to go after risk. Right now, that games seems to lead to the equity side of things. Hence, we see a big bubble. What is the real basis upon which this bubble (multiply faceted) is building?

08/03/2013 -- The Motley Fool asks how high can the DOW go. The comment from Nitty Gritty Truth is mine.

08/03/2013 -- Forgot to point to (or use) the early notion of doers vs speculators. All sorts of things are awry with respect to this problem. For one, even having those who have never performed a particular driving those who do have to perform through models and other computational assists (classic split of white/blue). Boeing merged all sorts into teams; think of them as design-build, in focus. There can be this idiocy where the white side makes decisions about what the colored (blue) side is doing. Design example? Having something in the plans that is not realizable (do not laugh; this can be a major problem). For another, we see that the capital/labor split allow those who held the former to exploit the latter (continues to be assumed as proper). Actually, labor is capital in the sense of the one providing the labor. So, that capital needs its rewards, to boot (what I find funny is how these upper crusts talk about their efforts and how hard they work; crap, with capitals; let me take those arses down to real jobs (the blogger has had oodles - far beyond normal - perhaps, I need to document the variety) and put them through the paces (now, I'm 70+, but I could still outwork some of those arses that I read about -- would have, easily, in my younger days). ... This is not complete; we'll do a post to bring the thinking up to date.

08/02/2013 -- The Atlantic had a recent opinion piece that deserves attention. Did that focus on fat-cat shareholders coincide with the drop in corporate liability (remember? when plane makers, for instance, got off the hook for accidental liability -- buyer beware, in other words?). If corporations are persons, how do they get jailed (put into solitary)? 40 lashes, anyone?

Modified: 08/15/2013

Financial engineering I

Moral: Wherein we take a long, deep look at what is behind the drive to financial engineering (see, an early opinion).

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This re-consideration is long overdue. Notice that the opinion mentioned in the above Moral dates from 2008. At that time, there were glimmers of problems to come. Many potential causes for the problem seemed to go back to misuse of mathematics and computation, from what I read. Of course, it turns out that these mainly caused things to be worse. That is, the problems date back to age-old human issues, such as greed, sheer stupidity, behavior and thinking that bordered on sociopath'y, and more.

Turns out that we had no perp walks (the abundance of rogues, notwithstanding). Of course, we also had all sorts of side-lines. Made-off took off some of the edge. He was punished as his type of shenanigan was easy to grasp. Not so much for those who used financial engineering as an umbrella.

Then Ben coddled the market'eers. But, we'll get back to all that.

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We are going to use MIT as a focal point for discussing financial engineering (see their blog). Evidently, in terms of academia, the Polytechnic Institute of New York University was the first to have a department certified by The International Association of Financial Engineers (wiki page). Notice that they got started in 1992. That's new, relatively.

However, they are affiliated with something that I'm associated with: SIAM (Society for Industrial and Applied Mathematics). Note that SIAM dates from 1951.

Aside: Comparing organizations by their time of inception can be interesting. IEEE dates to 1963, however it's predecessors dated from 1884 and 1912. SAE dates from 1905. IChemE formed in 1922. The older societies are by-products of the evolution of industry, its tools and practices. Later groups, many of them, have a heavy emphasis on computational approaches (my bailiwick, foks). So, the IAFE is new; too, what they're proposing, and doing, is very much dependent upon advanced computing.

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Before talking more on motivations (both for me and the IAFErs and in general), let's look at what can be read on Wikipedia: Financial Engineering, Computational finance, ..., Criticisms, ..., Securitization, ..., Risk (say of tranching), ...

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Motivations? Whatever money is we can agree that having enough is a worry for a lot of folks. Then, some folks seems to have too much. A sensible person, with a lot of dough, would want to use it for good purposes. All sorts of things come to mind: take care of the poor, help make a better future, etc. An example is this paper at the MIT site: Commercializing biomedical research through securitization techniques (see the paper).

That sounds like a good idea, right? It's far removed from some who seem to want to just make more money, in greater and greater heaps.

Recently, the WSJ had an article about Blackstone's plan (the Comments are interesting) to use financial engineering. In this case, they have bought 10s of thousands of houses (foreclosures, probably obtained on a dime). These will be rented. Okay. They want to be a landlord. That's nice (as long as they're more than the slum landlords that seem to crop up here and there). But, then, that's not enough (property management); they, Blackstone, want to package this whole thing so that they can sell bonds. Ah. Well, it's clever. Too, they might find buyers even if they cannot get ratings.

Aside: as we saw before, this type of thing was sold as cash-equivalent with ratings that were sky-high -- AAA, even. Many ate losses; some [were of] large, [staggering amounts] (some may not have unwound, yet, thanks to Ben). Can they, [this approach and these bonds], get ratings now?

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The thought about tranching holds but is under review. Though there seems to be a lot of silliness involved, there actually may be something of value to these ideas. So, we'll look at that, next. [Recall, the early characterization was that it looked liked searching for something from nothing (as in, perpetual motion).]

Remarks:

11/24/2013 -- The ACM has a review article on algorithmic trading that everyone ought to read. Essentially, if we use a plane as an example (consider what Boeing has had to do to get the 787 out and about), we would say that the financial folks are putting passengers on experimental aircraft with little regard to their safety and comfort. The whole notion is atrocious. How does it happen? They've coached things in mathematics and computerese, plus they've bastardized Adam Smith's ideas. Where is our sandbox, and where is the stable economic system that we can build?

09/18/2013-- Pop, fizz, ... Ben had to show largess because of idiots who ran the economy to the ground (rogues all around). Ben is going. What do we have to look forward to? Businessweek has a review issue (of the past five years). Several articles are especially interesting. Too, phrasing shines: spin dross into gold (in relation to mortgage bonds). Perhaps, we'll get back to some of the more pertinent ones, at some point. If we do, it would be to bring forward what has been said here, from the beginning. To wit? Tranche and trash (WSJ has a good take on that). Securitization? This article brings on weeping (one example of the misuse of mathematics and computing that has been harped about). Adoption, and improved understanding, of lazy evaluation let loose the powers that resulted in the wild web and its little children, namely social media and more. To grasp the problem, we have to go back to computing that is in some type of responsible area. Avionics comes to mind. If what is couched as software in looser domains (financial engineering? -- looser?, yes bailouts are the norm despite all of the protestations of the ruling elite; or the whole cadre of the poorer folk can just suck it up when there are problems in order to relieve the fat cats' loss) were to used in flight controls, would we not have planes falling out of the sky? We'll get back to the simple issues that seem to not be seen by the elites chasing after the bucks that Ben has been throwing out of his helicopter.

08/23/2013 -- Another example. Jon has it right: high-frequency to blame. Of course, there are several reasons for the market being out of control.

08/12/2013 -- The President of the US is talking about changing the mortgage game. For one, Fannie and Freddie would change dramatically. The WSJ reported that these ones are making oodles of money (if so, it's due to Ben's free money). We'll have to weigh in here, at our speed, of course. For one, we'll lay out the progression that got us to use of the CDO in the mortgage context. Fancy, creative finance is what drove these things. Too, we'll consider what ought things look like (look, there have been many changes for the past 100 years or so; a look at these issues from a temporally unbiased manner is imperative.

08/08/2013 -- The comment at MIT (as in, Massachusetts Institute of Technology) was rejected. It can be found below (08/02/2014). Over the years, I've lost a lot of comments that way as I didn't record the material prior to submit. By the way, MIT, one of my academic advisers during my studies did his graduate work at, and was degree'd from, your place. Of course, there are plenty of other institutions in the Boston area (however, the Cambridge pair (disclosure: I have more than a passing interest in New England -- all aspects -- due to its historical significance in the supposed dream of mankind) make an interesting couple).

08/05/2013 -- If things continue as they are going, in finance, the markets will die. They'll become warped caricatures of themselves which cannot attain long-term viability. The contributions of Financial Engineering are pushing, in many cases, to this type of unhealthy status. Yet, what else is there? So, people are piling into the equity chimera. It is guaranteed, that most will be losers. In fact, over the long term, we can show that no height of miscreant gain can offset the depths into which the majority are being trampled. Hopefully, this time around, we will learn something. Frankly, I wasn't aware enough to know what was going on last time. It took awhile for my head to accept that the idiots had us tied up. I've been slapped silly since and expect this to go on. Doves have the power, right now. And, you know that the peace twig is only for the Wall Street types. One would hope that something like FE would bring in the proper ethical view. We'll see. In the meantime, I'm going to get more into the misuse of mathematics. You would not expect this from MIT (wait! have not engineers been behind some of the largest banes of mankind as well as providing their wonderful boons? -- we'll venture, audaciously, into reviewing the balance there - as in, which is the larger set: boon, bane?). ... Age-old issues continue to plague us (more than the royal we). One would think that, perhaps, we could learn at some point (why not now?).

08/02/2013 -- Put the following comment, here, at MIT: I appreciate that you have this blog that I could run across (“what took me so long?,” I wonder – as I first ran into FE (as in, became aware of it) in the 2008 time frame with a reaction of incredulity – more below). Perhaps, the blog can be used to lead consideration of those things that cause us to build upon “sand (financial and otherwise)” when we ought to know better.

But, such a discussion would go beyond mere emphasis on the analytic frameworks, as even with modern computational assistance, such views are incomplete. That, of course, is arguable, especially when FE has been used to pad pockets (near-zero reality spreading that gain across the multitudes as losses). One thing that we all know is that money has its power. Finance needs more than ethics (see below) as a counter-balance.

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Now, FE is what? If it is “engineering” as a discipline, upon what science is the endeavor based? I have not seen a good definition. Please point me to one.

I hope that the response is not economics (which we all know is dismal). But, if it is, then one would hope that there would be an experimental basis with which to evaluate long-term consequences of decisions made within this domain’s purview. And, that basis would have well-defined ways and means to handle the inherent complexity (suggesting, of course, core issues with computing).

Now, if the basis is purely computational mathematics, then we must even more stress the need for a “scientific” mindset, abetted with liberal doses of proper consideration for quasi-empirical notions. From what I’ve been seeing (observer), the current focusing on “algos” leaves a lot to be desired (say, as compared to the discipline found with product engineering). Especially does this seem to be true with FE (again, looking in as an outsider).

This past downturn has been followed with all sorts of changes (some from the FED’s actions) that have not been tested in any reasonable sense (except, perhaps, for their ability to pull money from pockets). In fact, if FE has a strong computational finance flavor, where is your test bed and laboratory? And, before that, the necessary methods and their metrics (broad sense assumed)?

This comment is not looking for flip answers. MIT has a strong presence in FE, from what I’ve seen via search results. A good start would be to lay out something that we could agree upon as the basis for discussion.

I’m not talking FE 101 as the deep philosophical issues (well beyond ethics) would come to the fore, immediately. Such is the importance of the discipline. It is where advanced computation (with the whole gamut of connotations) and what we value and use, as money, intersect.

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Everywhere I look, there is void (absence of ethics and more?) except for silly notions of game theoretic concepts as the foundation for our future. GT is no more than one of the tools that need to be applied (from whence [is] its use as an over-arching worldview?).

Is it [not] true that Finance, and its engineering, would need to build more than chimeras for us to expect (yes, uncertainty and risk cannot be avoided) a sustainable future for ourselves and our progeny?

Modified: 11/24/2013

Hawks and Doves

Moral: Wherein we claim that we are not knocking Ben (and his ilk) and that we are interested in the future of economics.

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Or, we're interested in the economics of the future. More on that below. We'll add a new twist and look at Ben's ilk (well a subset defined by participation in the FED's bumbling ways). Why? He may be leaving; too, he has not been a lone player all along, though it's his face that we see when the FED has to talk to us, Congress, and the press.

You know, it's more of the last. But, what could the FED say to someone that it's torturing daily?

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Right now, we have to report that the WSJ did an analysis which showed that the Doves were better at prediction (at least within this time frame) than the Hawks. The WSJ also talked to a few experts who made various observations. Let us add one: does self-fulfilling prophecy come to mind?

Aside: the image shows the table with results from the WSJ study.

Dove? Yes, those who coo-coo, while Ben goes goo-goo, after which the market'rs (more than addicts, ..., bordering on criminality) go gaga (again, apologies to the Lady). That is, those who don't want to taper (heck, they ought to unwind).

Hawk? Supposedly, someone who says to take off the training wheels (sheesh). These don't seem to have much say.

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Now, about the future. Of course, predictions need to be done. Call them forecasts so as to bring in something a little more sane, weather prediction. By definition, these are look-aheads. Who has 20/20 foresight? Heck, we do not have 20/20 hindsight (all sorts of issues, such as our underdetermined basis). So, look-aheads would be based upon good methods, but they need to be updated, to boot.

You know what? The push to book cooking comes from a serious idiocy that has been allowed to manifest itself as smarts in the business world related to look aheads and meeting them (monthly dance of the CEO/Kings, the new royalty). And, we claim science and engineering as examples of our progress? Wait! I did use busyness, did I not? STEM has some applicability there; yet, busyness will need a whole lot more.

Aside: Remember about six years ago, thereabouts, when all we heard was that risk was solved and that would not be another downturn of a serious nature. Well, if you do not remember, we'll have to pull that idiocy to the fore in our argument for the necessity to be aware of singularities (to be defined further). The mess now is even worse than before things fell apart from thinking problems that are very much analogous (even related) to the risk fantasy (fair dusting, indeed).

Too, we need to re-look at money. Right now, it's some cosmic (comic) bit of crap that is managed by a set of wizards (recent books and articles discuss this whole issue). Yet, there are those who have reaped the rewards (raped the economy, at the same time). So, we can see what money can do. We cannot see all of the downsides (evidently, otherwise we would wake up and do right, yes?) for which the near-zero concept will be important.

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Ah, so much to look at. Thanks, WSJ, for the study.

Remarks:

07/25/2015 -- We're about six weeks after the June look back at 800 years ago (Magna Carta). Too, though, poster boys have popped out of the woodwork, including Zweig.

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

09/17/2014 -- The coo-coo, goo-goo goes on. The landscape is strewn with the lifeless bodies of the savers. Thanks, Janet.

12/19/2013 -- Ben did his parting shot (whimper that it was); they're going to taper slowly, less than a 1/8th on the bond buy, starting next month. And, he's going to torture savers for another year or so. We'll have to see how the pieces fall. The markets got heavily seeded today in hopes of luring in the idiots and moms/pops (who cannot afford the pending losses). So, it's pop, fizz, ..., again. Too, we'll see more goo-goo talk to the immature markets and the addicted investors thereof. One of many technical issues that we'll have to get into: Nanex's view.

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?

09/18/2013 -- Pop, fizz, ... Ben had to show largess because of idiots who ran the economy to the ground (rogues all around). Ben is going. What do we have to look forward to? Businessweek has a review issue (of the past five years). Several articles are especially interesting. Too, phrasing shines: spin dross into gold (in relation to mortgage bonds). Perhaps, we'll get back to some of the more pertinent ones, at some point. If we do, it would be to bring forward what has been said here, from the beginning. To wit? Tranche and trash (WSJ has a good take on that). Securitization? This article brings on weeping (one example of the misuse of mathematics and computing that has been harped about). Adoption, and improved understanding, of lazy evaluation let loose the powers that resulted in the wild web and its little children, namely social media and more. To grasp the problem, we have to go back to computing that is in some type of responsible area. Avionics comes to mind. If what is couched as software in looser domains (financial engineering? -- looser?, yes bailouts are the norm despite all of the protestations of the ruling elite; or the whole cadre of the poorer folk can just suck it up when there are problems in order to relieve the fat cats' loss) were to used in flight controls, would we not have planes falling out of the sky? We'll get back to the simple issues that seem to not be seen by the elites chasing after the bucks that Ben has been throwing out of his helicopter.

08/21/2013 -- I was wrong. I thought that Ben would go goo-goo, again, as his doves want him to do. But, there is talk of a taper, albeit slowly. Sheesh. No one does "cold turkey" anymore? That's how I quit smoking. Why is it that the FED feeds addiction (that's a monetary policy?)? Now, when does the slapping the face silly quit?

08/15/2013 -- FED site, FEDofNY: Pre-FOMC Announcement "drift"

08/07/2013 -- Investors? After the last taper talk (more than a month ago), things jiggled a bit. Some lost money. Some gnashed their teeth (but, for someone, like my ilk, who has been slapped silly for several years now, what comfort ought we give to those who don't know how to wean themselves from their addiction? --- in the meantime, Ben, we, the savers (saviors?), continue to be good citizens despite the Fed's attempt to trample us under the dirt). At that time, Ben had his Doves talk goo-goo. So, the mania began again. Yesterday, there was a slight downturn supposedly as some Hawk (or two) said, perhaps, next month there might be some fiddling with the taper (the talk wasn't that the investor would get reamed - forgive me, I was in the U.S.Army at 17 and learned some good lessons -- also, I was a medic so I know of orifices, to boot). Ben's problem is that he's in a fog (who isn't?). Yet, he runs around with the elite like an oracle (he ought to consider some of the Prophets about which he knows, perhaps), strokes the addicts, bends in to the money'd, and more. And, he looks for signs (omen analyzer -- ah, age-old behavior). And, he misses the obvious. For instance, what they're calling jobs (related to his triggers) are really just glorified indentured servancy roles. In fact, these things are to drive a consumer-oriented economy? ...

08/05/2013 -- Let's see. Financial Engineering needs some attention. Perhaps, with the likes of MIT involved, this discipline can learn to lead the way out of the morass. Expect more on this topic. If things continue as they are, markets will be pure chimera (as in, ca-pital-sinos). Investors? We'll go on about that, too. It's guaranteed that most in the equity markets will lose. Why is that not talked about by those heads we see daily yakking on TV and newer media? No, they would rather go gaga (apologies to the Lady). So, we'll have to address this issue: the point (price) at which loss outweighs any gains to date. All cannot sell to make a profit. Now, there is a way that all could sell high (government as the buyer of last resort - Ben has been doing this, albeit with bonds - yet, it frees up money that can go to equities -- government? of course, taxpayers). We'll have to look at the misuse of mathematics; plus, doers need to be brought back to a respectful position.

07/31/2013 -- We'll have to address the take that Ben has applied to savers so that he could put it elsewhere (mainly, into the chimera of the ca-pital-sino). That is, make its magnitude known (very large). How can Ben sleep at night with the growling tummies of all of the savers whose dinner he gave away to the fat cats?

Modified: 07/25/2015