Readings

Moral: Wherein we see that the current mess has generated many opinions which are interesting to read, such as WSJ, Economist, Forbes, and more.

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The recent Business Week had several articles that we ought to look at. A couple of these will require further attention.

• -- Financial Innovation Under Fire covers three views about the needed regulation. Namely, the best-and-brightest need a leash to reign them in prior to bad consequences. The article characterizes as "beneficial ideas" and those that "are self-serving or dangerous" the types. Who knew beforehand? Or were we just to marvel at the creativity? One piece of news is that MIT has a Laboratory for Financial Engineering. Despite that opinions about financial engineering have already been offered, the blogger is willing to entertain the increasing role of computation. We do need what the virtual world offers and will look at this more thoroughly on a regular basis. After all, he spent his working life in advanced computing. Hence, he knows our main task, to prevent the wizards from their self-serving ways.
  
• -- In the future after the mess, what will be the consumer footprint? After all, we cannot expect people to live under a regime of increasing debt with no limits in size or extent, meaning, of course, that related to the rights of the progeny. Okay, some, like Fisher, see debt as an asset which it is. For instance, being able to borrow, that is, having a good credit rating, is important. That's not the same as debt on the balance sheet. The issue is that the consumer part of the economic equation is large. Some say 70% since $10 trillion of the $14 trillion of the US GDP is "personal consumption expenditures" according to Bus Week's Michael Mandel (Reconsidering Consumers' Impact On The U.S. Economy - Sep 28, 2009). However, splitting the number so as to isolate "out-of-pocket" spending, then the impact falls to 40%. Still large.
  
• -- There was an ad for Fisher's book, Smelling a Rat. He also has a website.This sounds like something that Whose Nose Knows will need to look at.

Note: Opinions range across the board. The new day will have influence on how the discussions unfold into action. Yet, one would think that there is some underlying 'truth' that would come to the fore. Except, where humans are involved, is it ever easy?

Remarks:

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

Modified: 12/24/2009

Miscellany

Moral: Where we recognize that these things are not easy, otherwise it would be a piece of cake.

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And, we don't even need to bring in undecidability. It's complicated enough by itself.

• -- Phony economy -- Tech Ticker talks to Peter Schiff. He says it right. Gosh, Ben, wake up. Unwind, please; take your equity hit (see Remarks 7/30/2009).
  
• -- Tracking the pulse -- USA Today provides a nice interactive chart to see the numbers. This type of display exemplifies technology's role. Markets ought to be involved with determining alternatives and then choosing. That requires computation. The down side is how people like Madoff (and a whole lot of other best-and-brightest) can game the system (jump out to 1:30).
  
• -- Health care -- USA Today compares US with other countries.
• -- Other econblogs -- We'll collect some of these: The Baseline Scenario, Global Economic Trend Analysis (link not meant to endorse Schiff), ...,
• -- Debt -- In love with it (and rebuttal), ...,
• -- Finance -- Too many people, too much pay, ...

Note: As mentioned before, several blogs have been offering views which run the gamut. Those at The Baseline Scenario seem particularly apropos to the time. The image at right (See Slide 15) shows better the more detail what was discussed in Remuneration, finance style back in May of this year. The finance industry, much larger than it ought to be, claimed a large portion of wage. Now, some of this might be rent seeking, yet of what practical use of moving money from one pocket to another?

Remarks:

09/26/2009 -- More readings.

Modified: 12/24/2009

Making money

Moral: Wherein we consider that money has a lot of meaning which we'll be looking at. Of course, there is the economic sense.

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One way to make money is to print it or wish it out of the air (extractions can be of several types). However, let's change the subject slightly to talk about making a living (money as bread).

He who orders the printing doesn't make too much, in terms of pay, as one would expect with a government job. Nor do those who actually run the printing pressess as they are of those who toil. Others have flows that are outrageous, such as the head of a major health agency whose income is on the order of 1000s of bucks per minute.

While many today, it was said on the tube, live from paycheck to paycheck. Well, that's not new. As we know, many others are without a paycheck. Some try to make money from financial manipulations.

Is profiting from the financial casino, which some see as making money, really so? What, profit comes about from mere winning in a shell game?

Or, is this thing that has been allowed to develop and to take most of the economic energy just some allowed manipulation of near-zero situations because we don't understand yet how to model the full impacts? Is it that accounting always lags in its political maneuverings? Ah, perhaps, we'll have some type of mathematically based approach someday - albeit, even with undecidability and quasi-empiricism, it would be a step up.

An Atlantic article mentioned the IPO rage that persisted for some time, with some making oodles. Others not. That is profit? Those who had the ka-ching in those deals were the consultants, such as those of the golden sacks.

Then, we have things like someone from another health organization saying, on the tube, that a return of 25% is desired. Mind you, that is after all expenses! Sheesh, where did that notion come from? Even the nun-based seem to have been influenced by the lure of bucks. As we know, many patients don't (or didn't) get the care that they need so that the health provider could profit more. Like the one organization (same as above) where the head went out to the pasture with almost a billion (yes, billion) of bucks.

Huh? And, we can't afford general health care?

Note: We can go back and see the history behind the current state, with the increasing trend toward the vacuous financial state. Sort of going backward, we are now where a very small percentage holds a very large part of the wealth. For the past couple of decades, the middle class essentially has become paupers. Oh, I know, they have goods up the wazoo out there for them to buy and to contend themselves with. Ah yes, all of it quality stuff. On the upper end, we have the ever-increasing houses (way beyond McMansions) and boats (football field in length) and planes (personal flying apartments). And more. Of course, there is the Madoff type (who may be more prevalent than we think) working hard for illegit gains. Also, we had the computer come along of late causing lots of things to change, including the financial game's basis. At some point, let's say early 70s, there was probably some rational link between capitalism as an ideology and the reality as practiced. That has all been lost. The best-and-brightest, who are to be our saviors, have for the most part been lured into greed and egoistic assuages (read that, CEOs). Methinks that Adam Smith is turning over in his grave from all this disarray that has been promulgated under his name. Things, folks, are way off base. Of course, the game continues daily, or, at least, five days a week. Thankfully, there are the two days of the weekend. How long would it take, and under what circumstances, for the realizations of things being awry to take hold and for the steps to get it on a better platform to start? That, folks, is one goal of this blog, to bring this discussion to fore.

Remarks:

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

05/17/2011 -- Golden sacks (leftmost mug of the rogue table), by Rolling Stone and Daily Ticker.

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.

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

11/08/2009 -- The gigantic chimera needs proper attention.

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

Modified: 09/21/2011

Engineering economics

Moral: Wherein we look at the engineering of economics. This post's motivation comes from seeing the FT review of Rick Bookstaber's and Nassim Taleb's testimony before the US House of Representatives' Committee on Science & Technology.

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As mentioned last post (see Remarks), having recently run into Rick's blog is cause for a pause to catch up, since I have been paying only cursory attention to the use of technology in the markets since other technology was so fascinating.

Like what? Well, technology such as engineering computing that allows complex systems like an airplane to be designed and tested. The modern processes and materials are vastly different from what they were 20 years ago, as are the computers.

From looking at Rick's recent posts on high frequency and algorithmic trading, which go into some technical detail, I can see some of the parallels that I had expected (see Econ/Eng). For one, both have a problem with determining value, albeit it's 'fair' in finance and 'earned' in engineering. There is more than a tenuous link here which I intend to show as this is a problem that has been exacerbated by technology, not helped.

But, what can we do? For one, we can define and put into place an economic sandbox. Ah, what might this thing and why now? That is the work that we have to do.

Perhaps an aside is in order. I may have spent a large part of my career in engineering computing, but my degrees are in Economics with a mathematical focus. During the other times, the focus of my work was operations, and management, research. Hence, I'll have to admit some affinity with those worrying about risk management. Too, I spent a lot of time working issues related to knowledge and computational modeling (KBE).

Both engineering and finance have been a focus in this blog, albeit seeing a lot of fiction in finance (Rick says stranger than fiction). One thing about finance's use of technology is that the game aspect dominates any science for several reasons. Well, engineering companies like to make money to boot. Yet, in engineering, we go up against nature.

Which, by the way, the quants bemoan, that they have to deal with unpredictable humans. Hence my having up close exposure to the underpinnings, and problems, of our house-of-cards led me to look for causes to problems that are, well, cyclical. The trouble is that we don't seem to be learning the right lessons.

For instance, I started a list related to finance earlier this year. Engineering does learn, just witness the marvels all around.

One first lesson might be to accept that striving and gaming will not resolve intractable, essentially undecidable, issues. That applies almost everywhere. In finance, near zero is real, folks.

There will be more posts related to Rick's work.

Remarks:

05/28/2011 -- Lemons problem, dark pools, ... Oh, so much to look at! Avatars, too.

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

05/25/2010 -- Who will (or can) lead out of the morass?

11/30/2009 -- From 'Our basis' can grow a whole bunch.

11/29/2009 -- Rick is now with the SEC.

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

09/21/2009 -- Yahoo Finance talks about the decline in youngsters going into finance. That sector, finance, grew faster than any other for a couple of decades. How useful was that?

Modified: 05/28/2011

Economic sandbox

Moral: Wherein we consider a sandbox. In several posts (see below list), 'sandbox' has been used to either characterize gaming that is risky (sandboxy) for more than just the players or to denote a better process, using as an analog the role that labs play for the test engineer. That is, filter out the toxic from the secure instruments.

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Think of it this way. A new plane is seriously tested before people fly the thing. Even the test pilots don't just jump in and take off. Where is there some correspondence to this notion in economics?

What we've seen is creative spawning of instruments as if by necessity. Then, in the past year, we've seen 'shooting from the hip' by some cowboys (right and left, there have been processes changed and adopted, seemingly without caution); too, those in the position to rake in the dough are doing just that; the taxpayers, and savers, are being sacked.

One motivation: describe and establish a mechanism to put the game players where their impact is limited. We do not need this supposed 'creativity' of the best-and-brightest that seems to persist in creating dire consequences for the majority.

So, for starters, let's look at the posts that used 'sandbox' and start this necessary discussion. The following are three groups of links to post with some comment about how it relates to the sandbox imperative. The post are listed from latest to earliest in time.

• Educational Institutions (Sep 09) -- As with engineering and science, these institutions ought to be where sandboxes evolve, not in the for-profit side of business.
• Computation, finance and engineering (Sep 09) -- Even Nobel winners were amiss, big time.
• Spitting in the wind (Sep 09) -- The sandbox would isolate effects until something is proven.

• Roles for schools (Sep 09) -- As mentioned earlier, labs are an accepted fact in institutes of higher learning.
• Modern finance (Oct 08) -- Where did the notion arise that people could play games with other people's money using what are essentially untested processes? Does fiduciary duty mean anything?
• Easy steps (Oct 08) -- Definitely derivatives (other usage) ought to be wrapped with some type of testing constraint. Minsky's notion of speculation leading to ponzi applies here.
• Swarm proof (Sep 08) -- This type of proof, applying the wisdom of the crowd concept, would be interesting in several contexts.
• The times (Sep 08) -- We need to accept our quasi-empirical limits as we apply some notion of testing. How do we agree on these is something to discuss.
• Loops and truth (Feb 08) -- Getting an agreement on limits would help us to try to resolve issues related to the thrill of gaming where consequences go far beyond the player's own health and wealth.

• Cult of me (Jul 09) -- We may already have some sandboxes that are being misused by the 300 lb bullies.
• New type of colonialism (Sep 08) -- Sandboxes could help reduce the large influxes to some pockets, albeit that some of these come about from making bets that pay off (note, near zero allows us to know that the pay off was from pockets that diminish correspondingly).
• Oops as poop (Sep 08) -- Not handling moral hazards leads to an increase in sandboxy ways (where the whole economy is seen as someone's sandbox).
• Oops and more oops (Sep 08) -- We could show that hedging and speculation are natural control mechanisms to some point beyond which the game then is sandboxy and ought to be handled as such.
• Miscellany (Jul 08) -- The sandbox notion applies to control of risky behavior, except that there has not appeared to be an easy way to resolve the issues. However, has any tried the sandbox? Oh yes! Engineering!
• People matters (Mar 08) -- This was the first mention of the sandbox needed to control use of methods that have more potential than their current role of moving monies into a few pockets. After all, how people use their monies can be a type of voting. Allowing such a thing to evolve can be thwarted by the massive flows from the giants (un-level field).

Note: these posts paralleled the unfolding of the madness with several reactions, including from incredulity.

Note: 'sandbox' has found usage in computer security and software development. This usage is apropos to the discussion of an economic sandbox.

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.

12/22/2014 -- Nice to see the WSJ article use "sandboxed" in relation to the absence of "predict or control" within the context of computation (in a sense, we are already out of control). The issues raised in the article are central to truth engineering's core focus.

10/30/2014 -- Where are we?

10/16/2014 -- Need to get back to this, as the days of the downturn loom. No matter how much the Fed feeds the panhandlers, they will succumb to health issues at some point (when?, how long?, actually, for me, it does not matter, as I am an observer, only, who is one of those interested in building a better pie). The tragedy to all of this? Oodles of hapless folk will be drawn down with the players as their ca-pital-sino sinks. ... Does not have to be. There are better ways.

01/20/2013 -- Perhaps, the sandbox ought to be for play, dirty and otherwise. Which means, of course, outside of the mainstreams that handles things for the folks who care about their economic well-being.

09/14/2012 -- Ben just gave them, the runner amok'ers, the store. 

05/28/2011 -- Lemons problem, dark pools, ... Oh, so much to look at! Avatars, too.

04/03/2011 -- Need to look at some background issues. Sandbox, again.

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

01/27/2011 -- The chimera shines.

05/25/2010 -- Who will (or can) lead out of the morass?

12/24/2009 -- What would Samuelson think of the concept?

11/29/2009 -- Rick is now with the SEC. Who will engineer (verb)?

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

09/13/2009 -- Need to pause for a bit, to look at Bookstaber's work.

Modified: 01/15/2015

Educational institutions

Moral: Wherein we move beyond picking on the quants and companies. We have also talked a little about money and the intractable nature of problems. Now, we need to consider schools and their economic influence.

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Let's restrict the type, for now, to those institutions of higher learning that offer so much, yet seem out of the loop, to boot, which isn't a bad thing.

We've said that we need a sandbox in order to separate out the gamers from the savers. The latter group gets sacked while the former blaze out their glories. And, the gamers get their gains; we bail out the failures with no provisions for claw back. Oh yes, we could do that with the proper accounting.

So, why can't universities provide the sandboxing? That they are open about their endowments, to some extent, allows us to see gains and losses. That some have bled through the nose this year is something to look at closely. Did those who led toward risk do any payback?

Note: Much more can be said on this subject. In engineering, one sees collaborative work between school labs and business. In fact, it's almost an accepted way of life. What happens in finance that is similar? It's not analogous to export out mathematical quasi-geniuses whose shenanigans put the rest of us in some type of situation where we need to bail them and their fat cat bosses out of trouble. No, we need more than that. Computation has helped screw up the world; schools are a major factor in this unleashing of the beast; they have the duty to help us get things balanced.

Remarks:

10/17/2011 -- If we're to challenge Harvard on its duty, then we'll need to beef this up. For one, is education only operationally important, measured in bucks? Ah, so much to discuss.

05/25/2010 -- Who will (or can) lead out of the morass?

09/12/2009 -- Forgot to mention Economists in the list. As well, sandbox was used without definition. Let's discuss that concept.

Modified: 10/17/2011

Alan's reign

Moral: Wherein we look at King Alan, as he did reign for many years, probably too many. Everyone seemed to hang off of his words, as they do now with Ben, the saver sacker.

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Alan comes up now since he was holding the rein for so long, and he appears to be unapologetic. Except, he did admit that his worldview was shaken (in particular, his belief in banks doing their own self-policing); that was earlier this year. Now, he's back with his message (see Tech Ticker).

So, before any discussion, let's start by reviewing the references that we have made to Alan. We thought of him early on as this mess unfolded.

• Time goes on (Jan 08) -- At this time, the analysts were trying to describe all the types of financial instruments that had been spawned in the Greenspan era. It was quite a bucket of acronyms, many of which turned out to be toxic, and still are of concern. Oh yes, Alan was consulting with the quants.
• What can we know (Jan 08) -- Gosh, Ben renewed our suspicions that the Greenspan put was still alive and kicking. Sheesh. Yes, finance as fiction through gaming (later known as casino capitalism).
• Economic groundwork (Aug 08) -- Going back to the foundations would allow us to tell Alan and Ben that it's crap that we cannot see bubbles when they are there. Much of the opaqueness comes from efforts to keep the playing field unlevel.
• Savers sacked (Oct 08) -- Yes, Ben did us in by going even lower than Alan.
• Fairy dust (Oct 08) -- One affect of the gab standard is that the FED's aerating words cause market reactions. One thing to analyze, did Alan's dust impact his own view?
• Who's to blame for the economy (Dec 08) -- Alan is on the list.
• More on culprits (Mar 09) -- Alan said, don't blame me.
• Minsky anew (Apr 09) -- Can this gaming be controlled? Essentially, yes. We need to get a better handle on the computational issues. They have run a muck, essentially.

Well, as Alan is saying, it's true that capitalism's take on the market does allow human characteristics to emerge, some of which may not be desirable. Near zero, when shown, will suggest that there are better ways for us to go.

Note: That finance could be run by those who do not salivate when money is passed beneath their noses is still to be considered. Of course, with the devaluation of the dollar, thanks Ben, we might get to the stage where our beloved buck is only play money in the US. All sorts of things to consider here, with Alan's reign as one factor.

Remarks:

10/21/2013 -- Alan has a book coming out. Ben still slaps savers silly; a new day is coming.

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

02/01/2011 -- The chimera shines.

11/26/2010 -- On the Greenspan Put (Rolling Stone).

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.

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

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.

12/29/2009 -- 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.

11/20/2009 -- To quote: Abjuration and Recantation. Yet, Alan and Ben, at best, can just spit in the wind, as long as the standard is gab. Our trust? We want to put those inclined to malefaction in a sandbox.

10/06/2009 -- Ah, yes, on the behalf of. It is clear that Alan and Ben act on our behalf, though one has to wonder what 'our' means as it sure is not the little guy. Finance, people, can be (probably ought to be) run as a non-profit affair. AND, the CEO (or whatever the titles at the top) would not make $1M! That is absurd. We have people who put their lives on the line for this country and its ideals for pittance. As said before, we really need a national service (Remarks 09/03/09) experience for the young'uns, especially for those of the privileged classes.

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

09/10/2009 -- We'll tell this tale further. The trader guy on firstbusinessx says that it's hard for a trader to make money in this market. Yes, indeed. There is a whole industry that rakes off the fat from the labors of others. It's like this, folks, a gallon of milk (the cow did the labor) has only so much fat that is easy to skim off (cream - ah, that's the role of golden sacks). Then, with a little more labor (secondary), fat can be extracted through modern technology. Eventually, the residue is colored water which may even need some boost by added nutrients to be considered food. Well, the economy is a lot like that. We've had a generation or two of the best and brightest go apply their brains to gaming, essentially. Some of this was encouraged by Alan and the FED. That will be part of the analysis. What's left is the watchword; not much of value, under the current scheme of things, is the answer.

Modified: 10/21/2013