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

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

Quants ignore complexity

Moral: Wherein we note that the title may not be strictly true, but we could rephrase as follows. Quants find interesting solutions to money seeking problems, in doing so they skirt the boundaries of undecidable regions, and, then, they tell an improper tale.

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Starting from the rear, the successes, when if looked at closely would probably be a small subset of tried approaches (we have Merton as source for such a criticism). And, given the reality, that the solution was 'magical', is not told since the fat cat paying the quant doesn't want to hear such.

Continuing to step back, the undecidable argument comes out of studying Vienna school thinking about the economy. We, on the western edge of the big pond, like to continue our 'manifest destiny' ways in the realms of the virtual and digital. Ah, only if it were to be. On the eastern side, their longer history leads to some insight about how easily we can be misled by statistical mechanics and, especially, game theory as it may be exploited via better handling of differential equations (namely, the partial types).

Look, folks, near zero is real.

The use of undecidable here is fairly broad (to be discussed, including the specific use within mathematics of independence).

Now, for the first point, that fat cat approaches to money making would include computational advances, and flim-flaming mathematics, is to be expected; exploit all avenues to maximize pocket size structure and fill. Yet, they need to be called for this. Why else do the hedge funds want rules that allow them to cloak what the hell that they do? If they were so smart, they would show what their shorts cover with the knowledge that no one else could figure it out.

Too, we see high-frequency trading leading to very smelly tactics; ah, intellectual cesspooling that it is.

That Madoff got away with his shenanigans for so long is directly related to his computational authority (access, support, etc.) and his ability to keep away proper scrutiny.

We'll look at this type of thing further.

Remarks:

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).

05/25/2011 -- Are lemons the norm in finance?

05/17/2011 -- Hedge funds need some of our attention.

11/21/2010 -- Three years ago, it was said: Computational foci raise miraculous need. Still applies.

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

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

02/10/2010 -- Recent auto events have a similar basis, folks, to the mismash out of 'quant' thinking.

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

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

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

09/01/2009 -- Not just picking on Quants here, as we see product and process people making similar errors. Though, it's hard to talk error when money is rolling in the door.

Modified: 10/24/2012

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

The ideological errors of capitalism, VIII -- disingenuity

Moral: Wherein we continue the "ideological errors" with another post; ever wonder how economics, in terms of our beans (money), has gone so far awry?

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Ideological errors:

I - Casino, II - Adam Smith, III - Shell games, IV - Made-offs, V - Culture, VI - Classism, VII - Wealth, VIII - Disingenuity, IX - ... (list does not end)

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Did we not just look at illegality or mere stupidity as the motivator for errant-ness?

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There is much to look at, as a whole bunch of theory has been proposed the past century or so. We need to look at that; the idea is to not demean the old masters. That their followers idiotically mis-use great ideas is not a bad reflection on the master. If the master is not here to intervene, then who will? Besides, all of these ideas have a context that ought to be kept in mind.

Take Markov, for instance. His ideas are central to a whole lot of modern (such as, that of the quants) worldviews. He also plays heavily into decision processes in unknown ways which we'll bring out into the light. For one, we can ask: do we need to know how we got to our current dilemma in order to get things corrected and on their way again?

Say what?

Well, the answer would be no, but then yes. For the types of thinking that would say no, we could point to Andrey's ideas and extensions thereof. How many instances do we see now where decisions are made as if we can just cast off what has happened to date?

In fact, the illegal versus stupid thing says that we can use the latter for the bosses, in many cases. As in, stupidity is hard to legislate away (this is not cynicism, by the way). And, in many cases, the notion of 'to err is human' is applied, such as noone goes to jail. But, harming oneself through stupidity is one thing; bringing hard times to the multitudes is another.

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Aside: there have been subtle changes over the times since the 60s. We can talk two things. Take general aviation. I remember the arguments about dropping liability concerns which then opened up the field; have not many more planes been out and about on a daily basis? In fact, some wonder if that area just might be the one open to mis-deed at some point. Take computing. How many have had angst (more, measurable results from failures -- how many zeros after the $1 could one accumulate for all of the business costs related to software failure (no particular company in mind, I might add)?

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Of course, Andrey's take only works for particular decision types where we have information sufficient to build, and maintain, the decision chain. Now, overlaying human characteristics is where one type of issue comes to fore. The quants (mentioned above) bewail that people are not like particles whose states (though they may have unbounded properties) are far easier to handle by system thinking.

Take the modern corporate environment, for example, suppression of individuality is key to success; for all those, except for a favored few. In fact, off-shoring, in many cases, was motivated by the willingness (actually, their suitability for being exploited) of poor workers (in oppressive societies) to be amenable to doing unconscionable amounts of work for little to nothing (yes, Steve, what say you?). This suppression goes to the quick; talk to the top guy, he would love to have mindless automatons who follow orders (actually, they need to adore the guy or gal at the top).

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Economics goes wrong from loving abstraction too much, we have said. So, why is this dis-ingenuous? After all, how else does one get a Nobel?

Well, that love has led to a computational framework as if by necessity; then, that which is considered sufficient to "believe" the results of having this framework has been doctored such that we do not know what is what anymore. Yes, folks. But, we have to ask if it was any better before? Or, to put it another way, has it ever been what it ought to be? Well, no.

In fact, what is the 'it' being referred to here? What we need is a re-look that is constructive from an almost elemental sense. Some posts here have tried to do this, albeit somewhat cursorily (imperatives, knowledge, technology). The trouble is that we can't stop the world (as Buckley would have liked us to do, several times).

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Then, we'll need to show how the basis ought to be people. That is somewhat implied with the emphasis on the consumer (I, II, III) in the basic equation, however we need more (see rank and file).

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Expect more on this theme.

Remarks:

01/08/2019 -- Added in the index of posts on this subject.

12/15/2012 -- Coase, on the subject.

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

02/04/2012 -- This trait adds to the potential fraud power.

Modified: 01/08/2019

The quant-ificational view, again

Moral: Wherein we take up the technical slack with a re-look at Quants and their work.

Quants? Yes, there have been references in this and the related blogs to work that is highly mathematical, in scope, but is computational in practice and need. In other words, lots of things are done under various names (technology, progress) that are ripe for review by other than the players. As in, technical folks who might have a different perspective on these matters.

So, to date (search on quants): FEDaerated, truth engineering, 7oops7. In truth? My view more than differs; I am from an older set who has had a technical focus for several decades now. However, given the discussion, below, you will see that the issue is open.

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What changed? Well, despite the cheeky prose, there never was any "luddite" tendency or leaning. Rather, think of the position as more quasi-empirical (to be discussed further) and as being of a small set compared to those rushing off after the genies and demons related to the ramifications of the philoabstract'd.

Now, recall that my recent thrust is asking us to think about normative mathematics (to be discussed further). Say what? Is there even any definition? Yes, in my mind (which is sufficient for me to keep going). Somehow (to be explained at some point), Galois' work was apropos to my ponderings, and I was doing searches (one benefit of technology has been the increasing set of material that seems to be endlessly emerging). Many times, this type of activity turns of questionable material.

But, I ran across this blog: fermatslastspreadsheet.com. In particular, I landed on what is called a "Leanpost" and looks like a very good idea. How many publications have I seen where people are copying on-line material that is far from complete? Plagiarism seems to have become a norm. I like this; perhaps, bloggers ought to use PDF (or similar) for things that are further along (with the default being that a post is sketchy, at best).

Now, the leanpost that I landed on was this one: Galois Theory for dummies. Great. It is a very good explanation. Too, I remember several years ago that a computational expert (applied mathematics) was using Galois as defense against some venturous approaches (some of these I can recount since I was close enough to know the details; others I need to look at in a deeper fashion as companies using proprietary cloaks covers a whole lot of mischief - and those who role it is to audit/review do not have the proper approach - too, getting down and dirty is beneath a whole lot of folks --- actually, for those of the younger set, I don't castigate yo'all as a group; rather, I would ask that you pay attention to potential, down-the-road ramifications from your current actions and choices that seem so brilliant and creative at the time of spawning).  

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Enuf of that, for now. With the FED running amok like cowboys in the real-time experimentation on the whole of the economy and the world, how can we expect the computer/software people to have any other framework with which to work?

Well, we have ways to weigh in there.

Needless to say, it was good to run across this blogger who has dabbled in the arts and languages as well as in the numerical worlds. Nice.

Remarks:  Modified: 03/22/2015

01/17/2015 -- Two pages that represent good web material: one older (love this site), one newer (see 6 Further Reading - nice).

03/22/2015 -- Jealous? No way, Jose. FED gives Wall Street what it wishes.

Golden sacks

Moral: Wherein we consider that the ideological problems, which might be exemplified by a firm of note, must be resolved so that we can redirect Adam Smith's baby from the shell game'd playground, the unconscionable exploitation via the Ca-pital-sino, and a ponzi'ed framework to something more amenable to the health and welfare of the people, by getting beyond 'cat and mouse' thinking.

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GS, in other words, who might think that it represents the epitome and who ought to know that the 'real backbone' is far removed from its heighten'd views.

We'll get more into all this, through time. Look at the cartoon on this Tech Ticker page. The Wall Street firms just don't get it.

One theme will be to look a peerage, and royalty, and observe how the 'new royals' (at least, in their own estimation, as money can have its privileges) obtained their status through milking the 'market' situations under the guise of following Adam (poor guy, he's rolling around in his grave).

How do we train our brains to get above that muck generated over the past couple of decades?

One solution, as mentioned before, might be a type of 'national service' experience (for the youngsters) that could work wonders, especially for those who are overly privileged. Mind you, it's not necessary that this be militarily oriented. No, the purpose would be to introduce those from various cultures (yes, American is full of a very many) into a framework of service that has an uplifting theme, hopefully one beyond mere nationalism.

Another aspect would be to isolate various gaming efforts by regulating such to a sandbox. Then, quants would need fencing into the sandbox. You see, numeracy (and computational support thereof) lies behind a bunch of problems (again, we'll continue to get into that).

Something for all of us to note, please: many of these instruments of finance, that purport to be advanced and necessary, are neither. They exploit modern technology and knowledge, sure. But, it's in a blind-folded way. For those that may be necessary, a sandbox would allow a test environment. For the unnecessary, a sandbox would allow ad infinitum play (without the bonuses).

The question? Who owns what and why? Wall Street owns finance? Hah!!

Remarks:

07/22/2015 -- Some of these are, now, poster boys.

08/24/2013 -- Why do I think of golden sacks? Well, they represent the worse of the rogues, though I know that there are some good people working there who are doing the right thing. However, I have personal knowledge of two deals in which they were prime players in the role of experts in the matter. In both cases, workers lost their economic lives, some lost their pensions, both firms struggled. One actually went bankrupt due to the debt left by those golden players as they took off with bulging pockets. The incidents were within the past decade just prior to the downturn. Of course, golden boys/girls couldn't see that things would crash. But, any reasonable stance (based upon integrity, okay?) wold have foreseen that certain types of risks were not adequately handled. But, no, the context of the gaming rushes after reward (greedy accumulation) without proper regard to things related to the reality of near-zero. ... Much more can, and will, be said, in due time. In the meantime, the golden sack'ers (search) are archetypal in the world of economic misdeeds.

06/16/2011 -- Golden sack'd scandals.

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

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

04/27/2010 -- Goldman's young guy as hero? See remarks earlier about fat cats and quants (look, defining these financial instruments and then modeling the payback are quantitatively flavored, through computation and mathematics). Fat cats do not know what the quants are doing and thereby let the young 'uns run amok. Why? 'Conceptual bliss' and 'abstraction' as Tourre suggested. Mainly using mathematics, and its modern selves, to create a whole lot of nothing, to make money doing so, and to then not accept responsibility for the fall out.

04/25/2010 -- Cartoonists ought to be having fun: Regulate the Banks? You'll Spoil the Fun.

04/24/2010 -- If it quacks like a duck, then ... Or, is it, in this case, if it waddles like a fat cat, ...? Those who run finance ought to not love money; that which these bankers are to provide is a utility, pure and simple.

Modified: 07/22/2015

HFT and other riggings

Moral: Are the markets rigged? Let's stop and re-look at high-frequency trading (list of posts that used the term).

First of all, think of the Cheshire Multiple which guarantees that early sellers get the pie (the rest get crumbs). Yet, we have based peoples' future on this. These HFT types get gains on both sides. We will explain.

However, when the HFT types pulls their gains, it has a real impact on the size of the pie and the potential crumbs. In short, think leeches and parasites rather than anything positive.

So, are they necessary for liquidity? We'll get to that, too.

Below are pointers to additional material, for now. We will get back to our arguments about silly games and fiction in regard to things financial.

• WSJ Book Review: Flash Boys 
• WSJ Five things to know 
• ...
• Edgar Perez argues for HFT 
• ... 

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The image is from the first bullet, the book review by Philip Delves Broughton. These are the last two paragraphs. Granted Mr. Lewis loudly shouts out about a lot of stuff. However, he does have some merit in the current situation.

I have ranted about quants and HFTs since the beginning of this blog. Being an outsider, though, I'm only applying a smell test based upon years of mathematical computational experience, degrees in Economics, long years in the American economy, and a basis in grappling with foundational issues.

My early take on quants was that they were youngsters let loose by old guys with money for the sole purpose of filling pockets (taking from the hapless). That notion has not changed.

The argument for liquidity and efficiency are bogus. The near zero (search in this blog) notion is the proper argument. Those who dance with the money angels not only accumulate bad karma for the rest of us via systemic risk, they enjoy a "mirage " (yes, Mr. Broughton) of gains that are not real (upon the backs of others).

You see, to be truthful to ourselves, any high-order computational system would be redundantly viewed (yes, even those offered by the webbers), verified often, kept within reasonable bounds (and a lot more). Why? Sustainability, in short. Human dignity, for the longer view.

Let me propose to the HFT people that I, and others, could help them define these bound. The fact that these people think their type of front-running is legal indicates serious moral failings. Did we just hear that bankers want to get moral?

To be brief, as we have been at this several years now and it's nice to see something like Mr. Lewis' view crop up, HFT is a symptom of a serious disease. That computers allowed this (were the enabling factor) ought to give us pause.

PhDs? Yes, more likely, moral cretins. Actually, they do not have much grasp on how we have progressed.

You see, the natural sciences can run off a little further and faster since Nature will knock them down. Take a physicist into the realm of the dismal science and watch out. That reaction was predictable. I could smell it back in 2007 when I woke up to the fact that the financial types had taken the perdition-laden path. With finance and economics, we have harder problems. That some want to fill their pockets at the expense of others (ah yes, out-housing to exploit) needs attention.

I said it before. The markets ought to be run by a different order of people: those who do not salivate at the sight of a buck (dollar, if you must ask).

Remarks:  Modified: 04/14/2014

04/14/2014 -- Several quandaries lay about, for one, the "cheshire multiple" ought to give pause, especially for those looking through the fancy glass at future takings. With a crooked game, we know where the real value goes through a leeching effect. But, what of thinking of "tainted" (or did we forget the toxic assets of a short while ago?)? Yes, what are called earnings (gains) in  many cases, with the equity gaming, is really dirty money? Clean money? Oxymoron? Not really, as a sustainable economy would about with such. To be discussed.

04/14/2014 -- Steven Pearlstein of Washington Post weighs in.

Money and value

Moral: Wherein we consider some of the consequences of using fiat money.

--- Foreword:

These consequences are strange, indeed. But, first, why is our money fiat? Well, consider that we have a system that is based on hot-air; that is, it looks to one guy's words as having meaning whose value considered by some as coming from an oracle. Talk about irrationality. So, what we see is that this gab standard leads to strangeness, a mindless form of gaming.

And, the notion of casino capitalism came about to depict the current state of affairs where daily a lot of energy, and money, goes into playing the 'market' game, for the most part for no real consequence, except the visceral reactions of the participants, whether as a winner or loser. We know that there are winners and losers since near zero is the actual situational outcome, folks.

--- Word:

Since we're after the year's cusp, let's look at three stories, of the past year.

• Mr. Woods allows us some data to consider. It is reported that shareholders of his sponsors have lost $12B (thereabouts) in the past month or so.
• Marilyn and Investopedia, and probably others, tried to explain to people where the value went that was absent from the markets, as they are defined currently, at the bottom which was the March, 2009 timeframe. Ah, it vanished, they claim. Well, if they are right, the hot air came back quickly.
• The AP reports that 150 (thereabouts) schemes (Made-off type) were uncovered in 2009 which is about four times the usual. Ah, why are these so easy to pull off?

Taking the first and second stories, we have to know that there is value behind those trades. That $12B did not disappear but went over to over assets. How does that movement, with those few (comparatively, that is, not across the board), differ from other downturns?

One thing missing is any type of accounting that would tie trades to something real which is due to the nature of the system. That is problems of a systemic nature.

We'll be going into this further later.

Now, that third story tells us about schemes which only reflect the large problems of the financial system (happy talking and its ilk).

Only part of the problem can be attributed to options, and similar, trading (CBOE can be partly justified), as there can be a basis determined for some speculation. That is, the type related to the originator of a commodity (the producer) has real value (as long as it isn't done by a jerk).

Also, some of the problem can be attributed to people who want the quick bucks, the greedy and the perpetual marks. But, just as we saw with the old guy, now in jail, it is more than that. As, computation, and accounting, allow these easy manipulations which ought to tell us something.

One thing to consider is Markov's contribution, though he is not to blame. Andrey showed us how we can ditch the past. That is, we can apply a pseudo-Now framework, yet it's not Zen. Andrey didn't show us that we can ignore value (especially the inherent and intrinsic (traditional connotations, mostly) as only that which someone will pay.

We'll go into this further, too. It's nice that the Quants ran after their attempt at taming stochastic (or supposed) entities. As said earlier: That the quants have run off after their stochastic taming attempts we'll be looking at further. That CAE folks have broken the rules of map/territory differentiation is another variation of mis-handling of that which this sequence denotes.

--- Afterword:

Error'd ways can be found on all sides as we'll continue to see. Who is without error?

Actually, we mainly, it seems, can just minimize pain since these issues rest on an undecidable foundation which means that the best that we can due is be quasi-empirical.

But, that is no excuse to allow the 'fat cats' and 'greedy' of each generation to run rampant over the innumerant, the sickly, and the frail.

Remarks:

01/26/2013 -- Updated stale pointers. Too, the subject is still of interest.

02/01/2011 -- The chimera shines.

05/03/2010 -- NYT article on the subject. Paper on wealth and savings.

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

Modified: 01/26/2013

Illegal or just stupid

Moral: Wherein we look at some modern quandaries.

---

Without pointing fingers, one has to ask whether it's the idiots who ascend in our modern society? Oh, let's point a couple. There was a headline that got my attention, today. It's a firm that recently went bankrupt. And, just a few days before, the head guy (extreme over-achiever (ah, don't those types just make you sick - barf, barf, ...?), Senator, Governor, etc. probably an Eagle Scout) was telling people that things were okay.

The talk today was about the size of the missing money. Well, it was more than a billion (1 with 9 zeros following). I didn't read the whole thing (too depressing) but saw someone saying that the actions within this company may not have been illegal but that the head guy definitely was not a good manager.

Say what?

---

Wait! There are those who text and drive and who, thereby, create increasing likelihoods of harming someone, perhaps even themselves. I know; these idiots almost run me over every day as I walk on a sidewalk or in a marked crossing. Business is run like this; that, folks, is what we get from the best and brighest?

---

We'll forego more than only a few words about this other guy who wants to continue to stiff the savers for another couple years. Gosh. I wonder if he puts on special garb in order to kiss up (worship) that big chimera who plays with him (Sirens).

---

Then,we're in an election year that is taking unprecedented steps because of bench decisions the past few years. Like someone said, we'll all hold our noses and vote when it's time.

---

So, back to the title. Someone took a big company to task telling management that they could not drive things solely with rules. You need a proper mental outlook for the workers to follow. It's not like you lay down the code and a dumb machine executes these.

A company needs a spirit and some ethical sense (I'll start to use moral as soon as I work out how the secularist think that this ought to go); management is supposed to bring this out; ah, those guys/gals are after their own rewards, is that not so?

---

The larger economy has the same issue. Yet, money has become the sole thing of value; all sorts of decisions the past couple of decades have resulted in our current mess almost by definition. Were we all just stupid?

---

What was the article from a year ago or so? Oh, yes, we'll dumb ourselves down to make our machines look good. Evidently, this applies, as well, to management and leadership. Yes, leaders seem to have the worse case of lead feet; why is that?

Remarks:

01/20/2013 -- The bad spirit of the thing.

05/11/2012 -- Featuring Jamie.

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

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

02/03/2012 -- Stockman on Ben.

02/01/2012 -- Their risk officer (the first example, above) said tsk, tsk. He was shown the door. Ah, way to go, Governor!

Modified: 01/20/2013

Out of control

Moral: Wherein we consider that the big chimera has many underlying problems. That is, the shell game gets out of control, now and then. No wonder the backbone of the economy breaks under such nonsense.

-------------

Or, as Mean Street says, the computers get to 'making ugly, messy love' while our money hangs in the balance. You see, the computers are driving the economy due to its increasing roles, and there will be side-effects not unlike we will continue to see with cars.

That requires a new type of thinking, folks.

Given that the streeters, such as golden sacks, seem to deal with 'truth derivatives' (see cartoon) of their own liking, upon what can we build trust required for a market economy? It seems obvious that ill-begotten gains are the norm as how can large bonuses be so usual without some sort of fiddling?

---

On another note, where does the money go? That is, when things roll downward. Today, many lost, yet others gained. That's called near-zero, folks.

Some argue that we can move away from near-zero, with upbeat outlooks, and such. Yet, there has to be a certain amount of accounting (and accountability) and auditing that stands up to scrutiny. That we're fiat'd in terms of money (aerated by the FED, in other words) sets the stage for all the bad stuff from the beginning.

Yet, even in the gold years, there were issues, as Big Ben can tell us.

It may be that the only way out of the muck is with computer systems and a proper playing field. Somehow, we need to get insights from improvements in engineering, such as cyber-physical notions, involved.

Smith and Samuelson would probably agree.

Remarks:

06/11/2015 -- Computers? Out of control, in more ways than one. Adam rolls over (again and again and ...).

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 very much in need of an economic sandbox). The issues raised in the article are central to truth engineering's core focus.

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.

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

05/30/2013 -- We're being driven by systems and developers into a type of hell.

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

02/11/2012 -- Example of the senselessness of the ca-pital-sino give to us by the best-and-brightest. 

01/13/2012 -- We'll be coherent and thorough as we discuss issues (out of control) related to this theme. 

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

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

11/21/2010 -- Three years ago, it was said: Computational foci raise miraculous need. Still applies.

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.

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

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

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

05/14/2010 -- NYT's opinion points toward algorithms which nowadays seem to have a panache that seems to need some scrutiny.

05/13/2010 -- Some of the 'out of control' is intentionally inserted, as that helps some make money. See Time article from 12 years ago in which it is suggested that a lot of 'high' finance is motivated by attempts to circumvent accounting rules. As a reminder, folks, the issue of 'moral hazard' consists of this: playing with other peoples' money (many of which are moms and pops just trying to survive their later years), not handling risk properly (hubris of mathematical prowess), taking off the top (privatization of the profits), expecting bailouts from the general populace (socialization of gain) when things go awry, gloating about being right (again, hubris, but this time it's probably male egotism). It's been said here before: we need people running finance who do not salivate when a buck is passed beneath their nose. Now, that set would not be exclusively female.

05/10/2010 -- Commentary, and cartoon, via USA Today is right on.

05/07/2010 -- Another opinion on the influence of computers in the market.

05/07/2010 -- As said before, politocos seem to be those who salivate at the sight of a buck. I should add that the thought of the buck might cause the glands to activate, too. Especially, it seems, according to this report, that it's worse than I could have imagined. Why expect more from these people? That ethics might come into politics approaches zero in likelihood?

05/07/2010 -- Basically, the whole model stinks and is very unstable. How did we get to where our lives are dependent upon this type of thinking? And, this is how 'capital' ought to be handled? On no. Have to consider that Grasso was right. Like they say, right message, wrong messenger.

Modified: 06/11/2015

Financiers

Moral: Wherein this group has not been mentioned specifically, yet. So far, we've had posts about Labor, Economists, Quants (these work for the Financiers), Educators, Bankers (who can be confused for Financiers), and Investors.

---

Perhaps, it is time. We can start, slowly, with a look at related subjects, such as TARP, and then go into other matters. This topic will be more thoroughly covered, as time progresses.

• See The Baseline Scenario on testimony given to Congress, lately, about TARP. Notice, in particular, the reference to the April, 2009 article in The Atlantic. What is ironic is that some actions being pursued in the US would be frowned upon by the IMF (et al) if it were the action of a developing country.
• See Wall Street vs America (the Municipal Squeeze) in Business Week (11/30/09). Example. The issue cover had a rampaging bull running amok amongst the people. Their lesson, the Streeters, could be this: you guys aren't any different than the rest of us, except for some type of conscience disadvantage-ment. Somehow, filthy lucre smells wonderfully under your noses.
• Bookstaber is going with the SEC. Great! Let's get them money guys/gals in line. Or, can we? Rick was a participant but learned an unusual lesson (see prior bullet). He, at least, knows the issues related to computing.
• Why do these people think that their manipulations (supposedly innovative) help us? (yes, how have the physicist's (quants) helped these bozos?)
• Roubini on the coming unwinding. The doctor of doom says it right about Fred/Fan.
• Is this time different? Well, when will we put these players into their own sandbox to isolate their shenanigans from those of us who are more rational?
• How do economists figure into the mess?
• How markets fail. Like the concept of 'reality' economics; versus spitting in the wind.
• Do morals matter? Ah, way so, even beyond concerns relating to homo economicus.

The list is shortened, but the topic will recur.

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.

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

11/29/2009 -- Risk and rationality.

Modified: 12/06/2013

Computation, finance and engineering

Moral: Wherein we consider the American dream and success which can have many definitions, most of which would include money which then brings in finance. In engineering, it has to do with coming up with new things that will marvel the world.

---

The ACM Communication editor-in-chief (Moshe Y. Vardi) reminds us (The Financial Meltdown and Computing) that the current state of affairs in the economy has been heavily influenced by computation. That is, we could not have the 'markets' as they are now without computer and network assistance. Where would high-frequency trading be without the resources they are exploiting?

Moshe mentions a series of shocks that we've seen the past 25 years, starting with October, 1987. That black monday was caused, some say, by program trading gone awry. Since then, various control mechanisms have been put into place to limit decline. Why isn't there one on the upside? Of late, especially with the higher speeds and derivative trading, do we know the effects? By the way, that is not rhetorically meant, as we'll dive into the guts as we go along here.

Then, Moshe mentions the LTCM mis-deal. This could be funny except we did not seem to learn from the situation. That Nobel winners were involved is something to look at, in depth (gosh, we need a sandbox for the heavy players). Needless to say, 'moral hazard' was bailed out.

Now, of course, we have the current mess. There are many culprits and factors. And, we have to add quants to the list, those who ignore complexity and ought to know better.

We can use the ACM Communication to look at a couple of the issues related to the theme. Computation is not the only problem, as we have seen malfeasance, ignorance and other bad traits come into play. Yet, there is a lot to learn by applying the metaphors involved.

-- The Status of the P versus NP Problem (P not equal to NP)

The discussion about this started as a Computer Science problem but now is on the Mathematics prize list. The gist of the concept is that a solution to a problem is easier to check than to find. That is, you can tell if something will work by trying it. Now, if you don't know the something that is needed, how do you find it? Of course, others may have worked out the problem. That is what true pioneers do.

Yet, what if the something doesn't quite work. You see, any change to the situation related to the problem could invalidate the solution that you have plus put you back into facing the hard issues again. Hence, people do not like change; one motivation for small perturbations is the hope that small changes do not make things worse.

These blogs have used undecidable several times as the means to denote not knowing until after the fact whether something can be done. It's the heart of problems with earned value and of many of the harder problems that are part of our daily existence.

The usage of undecidable can be waved off as academic (see reaction to Vienna School), yet, it is more than that. Also, that the quants run off after solutions that gather money solely while arguing that their measure spaces are well-behave enough to ignore these issues only means that they do not care about the wider effects which have some impact on us all.

Many system problems (including the numerically based) are of the same ilk in terms of difficulty. The mere act of bringing in computational support opens up the related can of worms.

-- AI and hive mentality

Ah, as Jaron says, we see humans "bending over backward, sometimes making ourselves significantly stupider, to make an algorithm seem smart." Just like we have seen in the current mess, he says. I ask, is that which the quant focus takes similarly myopic?

As we've said, leveraging is almost a perpetual motion analog (which is something from nothing), and we know how physicists react to such proposals. Why then is it allowed with money? Like the tranche idiocy?

Same, too, the thing called lean has undecidable states. Management handles these issues by scrapping people, whereas one would hope that we could take a more mature approach (to be defined).

So, how will we ever know if we obtain collective intelligence? In making that determination (underdetermination is the operative concept here), would we have "collectively become idiots?"

Remarks:

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

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.

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

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.

08/07/2013 -- Over the weekend, Motley Fool had an article that asked how high could the DOW go to which we made comment (post that was precipitated by the article). So, here are a couple of things to discuss, especially since there seems to be some worry of the taper, of late. First. How do we determine the price at which loss is guaranteed? You see, losses like we've see with the two recent swoons (May/June/July, and the one of the past couple of days) are not shared by all sellers. That is, losses that are not paper only, since losing ill-begotten gains is not a real loss. The loss manifests when you sell. So, as a market tumbles down, those who can still make a profit can bail out to a certain point. That is, they can sell before they lose what the put in. Again, ignore ill-begotten gains, please. If we look closely, that price is not as low as we might think. In a sense, equity holdings will lose money. All the talk about the equity markets rising, over time, do not consider the accumulative losses during the period, nor do they look at the side-effects of inflation (and structural changes like we see now where most jobs are essentially glorified indentured slavery). I know, the trick is to use constant dollars; yet, the total picture is not painted. How do we do that? In short, this problem applies to bond markets, too. Second. For anyone to sell there has to be a buyer. But, to buy, there has to be a seller. Prices goes up as buyers try to get in the game. As we saw with FB recently, prices can jump quite a bit (leaping for the stars - usually without a tether). As markets, like  the DOW, go up and up, there has to be some implosion point (as in, the thing collapses due to the unnatural states that accumulate). Let's say that you run out of buyers. Well, that was handled, in the older times, by the specialist who was the buyer of last resort. Guess what? With these modern schemes, we have seen where there was not a buyer (as in, the game runners want it one way: their continual gain - loses go to the public). So, with no buyer of last resort (and, Ben is being just that for bonds), how long can the market just sit there and churn? Now, there are many ways that people might decide to sell. The fall in price, like the going up, will be faster if there are no buyers to catch the thing. How far can we fall? Guess what? Now, they stop the stupid market. Why not let the stupid thing go down to some low number, say what it was in 1990? No, the thing has to ratchet down. Supposedly, that would remove insanity and allow jaw-boning time (by all of the idiotic heads that yap every day) to bolster people's confidence to get back in to the game (which, we know, as ca-pital-sino, is a loser's game). Or some such. ... Now, we could bring in a third (and more) thing related to the churning caused by all of the algos (errant computation) and other crap (greedy worldviews). Stock would increase in value with real accumulation of wealth (whatever that is) over time. However, how can we see such with the dark pools (idiocy) and other murkiness (just the whole thing of perturbing trades that are meant to lure the foolish to their financial death)? Ben, address that, please.

07/30/2013 -- The future: economy and technology.

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

05/14/2013 -- Still the most-read article (post). Ought to bring this up to date. Those who play the games are into computation, heavily. Why not? It seems easy; too, they're allowed to fill their pockets. Congress doesn't understand, evidently. Do auditors? Of course, I've not made it explicitly clear what is the problem (will be working on that). So, we're May, 2013. Ben has a 15K DOW as an accomplishment (congratulations are in order). And, he has not unwound, though we've asked for this for years now. Guess what? We're back to the heavy leveraging idiocy.

10/13/2012 -- Homo heuristicus.

03/23/2012 -- Renewal of the idea (and related energies) via Cooper and CiE.

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).

09/20/2011 -- This will be used in our constructive effort.

04/03/2011 -- Tis tranche and trash.

02/26/2011 -- Technology will be important. But, for the benefit of people.

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

11/21/2010 -- Three years ago, it was said: Computational foci raise miraculous need. Still applies.

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

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

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

09/03/2009 -- Jaron asks: How far back in history toward the stone age will people have to devolve in order to find a way to make a living when fabricating robots are that good? Will people be forced by the market-place to work the fields, as academics did under various Maoist-type regimes? Well, hard, manual work can be good for the soul. Actually, some of the imbalances that we see from abstractionism and gamism would diminish if we had requirements, such as mandatory civil service, of the hands-on kind. that expanded experience.

By the way, it turns out that determining value, either fair or earned, is NP which leads to essentially undecidable states.

Modified: 03/15/2015