Leverage, again

We went on before about leverage, which tranching leads to: 7oops7, Truth engineering, FED-aerated.

So, QE3? Sheesh. See The Daily Ticker (about 3:30 into the video). How many Americans are pointing fingers at the Greeks?

Leveraging: something from nothing, folks. The eternal, fruitless wish. Oh yes, it can work when there is a cadre of suckers to exploit (like, out-housing).

Where is the 'mature' capitalism being developed? We'll have to get back to exploring the real basis so overlooked in the interest of the best-and-brightest.

Remarks:

06/01/2011 -- In the writeup accompanying the above video, there is a brief discussion of 30-1 leverage giving people some pause. Only idiots ran after that as a good idea. Big Ben has, in his books, a leverage of 51-1. Very smart, big guy. In the trashy tranche post, I used an example of $7 find $93 so that we could have $100. Big Ben's status is $2 finding $98 (whatever, it's absurd to any but the mind of the best-and-brightest).

Modified: 06/01/2011

Leveraging and more

Yes, as we did with fiction and finance, we can also look at the oops related to leveraging. At one time, leveraging was consider not smart. Think of it, would you offer a large loan without any collateral (that you could verify in value) for some hair-brained scheme (how do you know how to evaluate the scheme? well, this is where skeptical thinking and experience come in).

So, in trying to catch up with the madness (having left school 30+ years ago and frankly not paying attention to the activities of idiots with money), reading like mad, watching results being analyzed (usually, the analysis was trifling and without substance), and considering how all this madness got started (related to age old issue, I know), on several occasions it was necessary to look at what it means to pile up debt.

As an aside, in Wichita, Hawker Beechcraft is loaded with debt from their split from Raytheon. The step of going IPO in order to spread the hurt, in little pieces, to others has not happened, yet. That whole game needs to be looked at, too. Hawker has a maintenance cost of 0.2B yearly; that must smart. No amount of belt-tightening or smart maneuvers can retire that level of debt. No, it requires the facilities of a market (who would want to buy?).

Leverage and truth -- March 25 . Looked at the underlying theoretics, which are usually fairly dismal in economics (the name fits perfectly). Ah, reinsurance is mentioned. Yes, didn't everyone think that risk was spread ad infinitum (Berkeley would love it!). And, then we have AIG, do we not?

Leverage and truth II -- March 31. Ah yes, the market dogma. It is touted by those whose pockets get lined immensely. Then, we have those who argue not zero-sum (hah!). What we'll have to do here is show that the best that we can do is near zero-sum.

Leverage and truth III -- May 19. Even by this time, I wasn't ready to accept all the idiotic changes to lessons from the 30s. We need to somehow make it clear that the CitiBank guy was wrong (Weill - well, he has his money) - Marx actually has a better take. Oh well.

Leveraging and oops -- May 19. So, we know that the financial community went out on the limb with leveraging. Do we not know that outsourcing (of certain varieties) is a type of leveraging? One problem with the engineering outsource is that of keeping it real (oops of this nature were coincidental to the start of this blog) and avoiding happy thinking. (Note 11/01/2008 - Well, now, Boeing is claiming insights about the possible banes of outsourcing.)

To the hilt -- August 19. Yes, like any addiction, the thing of going out on a limb grabs and does not allow one to let go. Evidently, to look at how smart people start to look like idiots. Of course, we really need to look at some physical binding (not gabbing) for money, that is other than a precious metal.

The idea here is to not just gab (that is the current basis) but to get technical and specific. After all, engineering computing handles similar issues, including the need to resolve several types of issues related to modeling, verification, and validation.

Oh, yes, the economy seems to be run like a real-time game. How do we get some notion of rigor applied? Well, it's not by chasing money.

Remarks:

05/30/2012 -- As covered by flightblogger.

05/04/2012 -- A recent filing relates to this theme.

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

03/17/2011 -- Politicos might actually be compounding the issues.

12/23/2010 -- Do oops continue to emerge?

07/23/2009 -- After the bust and the rebound, toxic assets are still a problem due to tranche realities.

12/18/2008 -- Leveraging, in and of itself, is not bad.

Modified: 05/30/2012

Our economy

Yes, the economy belongs to us, though some seem to think that the economy belongs to the fat cats or to the gamers or to those in power, where the majority are just mere resources to be exploited at the will of those who think that they own the economy.

Ah, there have already been several posts related to these themes.

Well, there were some fundamental changes that have appeared since Reagan and probably from before. Some of these are theoretically sound; many others are only an extension of the gaming ontology. So, expect that changing back to something reasonable ought to be on the plate.

For instance, there is much more emphasis on stock ownership as a means to wealth. Hah!! That is a near-zero game, folks. For every example of success that we can hold up, we'll have 100 (probably 1000 or a much larger multiple) or more examples of the down side. Think of it this way; every billionaire has associated with him or her oodles of those who lost. Okay, to be fair, many would have ridden the coat tails and obtained success. But, we need to look at the other side as it is a much larger number, almost a type of leverage.

Actually, that is a leverage number that we need to describe as part of the argument against 'the market' of the idealogues (mostly rogues wanting enrichment at the expense of others - yes). One question is how can we ever get the needed accounting; that hedge funds, and some others, want no oversight (or regulation) confound the issue.

Two articles this week touch upon the problem. In one, the question is raised: how good is the market in the long run (Business Week) for wealth building? Well, it's good in a very long run. For the individual investor, we must really look at better ways (we'll have to go further into issues of casino capitalism and more).

For another example (WSJ) of the problems that we face, consider this. Take an insurance company that wants to offer reasonably priced and benefited annuities. Well, the mathematics is fairly plain. How leveraging of the negative sort became so wide-spread is just indicative of our continual wishing for the easy way (quick bucks, etc.). Now, how is the insurance company supposed to found the annuities that it has to sell competitively since there are others making similar offers?

One current means is via stock. Okay. Now, the market supporting the stock has become more gamed by casino capitalism than by real concern for the future. Annuities are long term instruments. How are they to be covered with short-term wealth goals? What does the company do if it needs to pay out when the market is down?

The answer to that question wasn't clear yet needs some consideration.

Well, expect more of this same type of thing. We'll get technical, too, in order to show how the claims seen here in this blog, that mathematics has been mis-used, developed.

Remarks:

10/13/2011 -- Finally, something like OWS.

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

01/27/2010 -- It's really ca-pital-sino.

10/11/2009 -- Discussion has gone over to FED-aerated. Note the 10/11/2009 Remarks about the Business Week article on India's progress' inhibitors. 'Near zero' recognizes that some always suffer more than others, especially in win-win situations, as the whole notion of characterization minimizes visceral reactions by diminishing the real in favor of the abstracted (ah, the modern world, you say?).

08/18/2009 -- As promised, FEDaerated is here.

03/30/2009 -- Near-zero will be looked at more closely.

01/18/2009 - We even need to look at why we need finance.

12/01/2008 -- We need to learn what we might be taught about money by Islamic Finance.

11/12/2008 - a few more words and links were added to this important subject.

Modified: 10/13/2011

December, 2007

The blog started with a project management focus. By the end of 2007 and the next year, it seemed that finance had really gone down the drain. Why? Too much gaming and misuse of mathematics (all because of an environment that relaxed oversight and that allowed young ones to play games without constraint as long as it filled the pockets of those who were funding the game -- at the same time, the real engineers had followed their improvements with an increasing amount of power at a reduced cost).

We had people thinking that trashy stuff, like the tranche, was high-powered finance. Wishful thinking, in some cases. Definitely, unrealistic in scope (there is no perpetual motion machine (something from nothing -- Ben, Ben, you can't just keep printing money -- oh, you're developing an economy to be like a game board -- funny money), yet there are many ways for people to gather more than they deserve).

--

Then, there was this role that had been created in which a wizard had a couple of buttons to control the economy via monetary schemes. Back in 2007, we had not realized how far he could take it in applying changes, and schemes, without any real data with which to know the impacts.

So far, does he look like gold? We don't have the final accounting; in other words, it's too early.

--

We jawboned a lot about moral hazards. It seemed that the FED was rewarding this a lot in its prancing upon the world's stage. Is that not still the case? Later, it was obvious that Ben liked to dance around strewing his fairy dust.

Too, the FED made happy talk.

---

The whole structure was shaky due to an overabundance of leverage. This was one consequence of the bastardized mathematics mentioned earlier. In fact, much of the machinations of financial engineering would not have been possible without the advances in computational modeling (this I know about deeply).

---

So, it's been four years of major oops, with all sorts of people suffering. Of course, the system risk is still there and understated. We can look back and try to see what happened. That will happen in the academic environment.

In the meantime, people are trying to move forward. As the OWS shows, we cannot sustain ourselves using the methods that led to the failure. What would help improve things? Do we not need to reconsider the deleterious effects of colonization and exploitation, for one thing?

Remarks:

12/07/2011 -- Jim Rogers sees saver sacking, too.

12/06/2011 -- Congress wants to clean up its act.

Modified: 12/07/2011

Last post for 2008

Another year has passed with changes happening (probably more idiotic than not) far beyond what we thought last December.

In terms of finance, many knew that things were going downward. Yet, as failures occurred (Bear Stearns, et al), some kept thinking that we will go up from here. All the way to September, when we finally knew that the Wall Street (including the golden boys) of the casino capitalism, and of the huge payouts to their supposedly best and brightest, was no more. The bill that the taxpayer will end up with is still unknown (will it ever be figured?); the truth is that no claw-back has attempted to get back the 100s of millions paid out over the years to these smarties.

In terms of engineering, at the same time a year ago, we were waiting for 1st quarter reports and schedule changes to determine EIS for the 787. That timeframe changed a few times to the currently held view of 2010 as an appropriate (looking-forward) guess.

So, we had a couple of questions in works about finance before the side-bar of who might be to blame for the mess. And, we were going to ask some about engineering. As, there are parallels that are really strong (highly correlative relationship).

The thing about engineering is how to keep 'Murphy' away and, especially, to avoid the 'perfect storm' situation. Well, one thing might be to avoid hubris which ought to be easier for engineering than for finance. The former needs to test in the real world using certifiable measures; the latter mainly games and then privatizes profit and socializes loss as the means to get back into balance.

So, the questions on the engineering side would include things like determining earned value, how to know a contractor's status, what indicators would 'measure' leverage in outsourcing, when is computer modeling pushed too far (cannot proxy nature, except within limits), and much more. The seeds will be updated with some of these and, perhaps, will be rewritten in another format.

Remarks:

08/01/2013 -- Ben cannot unwind or taper down; he has too many Doves. We'll have to get back to the king thing (yes, the divine rights of the CEO, new royalty, in other words) and dampening of these types by a new outlook (Magna-Carta'ísh).

12/29/2012 -- Summary - 2012.

01/01/2011 -- We have four last posts of December under our belt.

05/18/2009 -- Testing in flight is within sight.

01/22/2009 -- Now a new day and way to consider these matters.

Modified: 08/01/2013

Reasonable effectiveness

The steps to a new product can be long and arduous. The computer has helped improve the situation on many fronts, such as design and analysis, enhanced products through embedded systems, and efficient processes, to name a few.

In short, effectiveness may be a measurable property. So, one might ask a question about the reasonable effectiveness of analytics such as those reported recently where physical tests help confirm analytics and product properties. Learning to balance between the sufficiency of model and any necessity of the physical foundation is still an art; this has historically been less troublesome overall in engineering than in finance.

Remarks:

06/11/2015 -- There will be a rework here and a rework there.

09/02/2009 -- Lets face it, folks, undecidability needs to be discussed and adopted in any complex situational setting, especially if computers are involved. Only hubris pushes us to make loud exclamations about what we're going to do in the future.

06/30/2009 -- Another delay (is the project out on a limb?).

01/22/2009 -- Questions to ponder include how does engineering handle hype? We all rely on, and must trust, that discipline's prowess.

11/26/2008 -- Boon and bust, the way of fairy dust.

10/27/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.

09/11/2007 -- On another note, a summary of the vote: Date, Total (I think so, Praying for, Maybe not, Nope)

• 9/5/2007, 47 (3, 5, 9, 27)
• 9/9/2007, 75 (13, 8, 11, 43)

Modified: 06/11/2015

Bank failures

They're dropping like flies, one might say. The prior post went on about Mac and Mae being symbols of the times.

Well, bankers and other financial types, what did you think would happen without rules being followed? What rules? Well, some of these are even natural, such as you don't leverage to the hilt and consider it safe.

Sheesh, what idiocy all around!!! NYSE, Chicago, et all all need to have stamped on their foreheads this, Las Vegas. Yes, it's gaming at the core; quicksand is the basis; or, using the gaming metaphor would have us say that it's a house of cards.

How does one build toward a retirement with such mis-management?

Oh, by the way, these oops hurt people. Except, Grasso is sitting pretty; he will be used as another symbol in future posts.

But, engineering will still be a focus, too, as it has spilled its ways into the financial realm.

Remarks:

12/05/2008 -- It got so bad that even in a Republican time socialization of loss was allowed to bail out the privatization of profit.

Modified: 12/05/2008

The times

Just cannot stay away from the financial mess, it's so pervasive today. But, today's events relate to several issues, such as leverage, that have been discussed in this blog and in truth engineering.

For one, Reuters reports that Lehman has assets of $600B that are leveraged off of $30B of equity. The fact is that a 5% decline in asset value eats up the equity. So, then what have we? Froth!

The trouble is, folks, that everyone is wrapped up in this idiocy that seems to get credence that the players are from the top-notch schools and are supposedly of the highest caliber. Well, it's really an addiction that we've allowed to persist. And, a stable economy cannot rest upon this type of madness.

Too, Reuters reports a special trading session today to allow those whose derivatives involvement is shaky due to the pending Lehman failure to get themselves unburdened. Or, eat some known loss rather than face even more of a hole. Emergency, it says, indeed!!

All of this was preventable; a more sane set of practices is definitely possible.

Remarks:

01/18/2009 - We even need to look at why we need finance.

Modified: 01/18/2009

From small beginnings

An earlier post suggested that Minsky's model might help motivate some discussion related to 'oops, loops, and oops. The WSJ couched the discussion in terms of lies told by economists. We could probably talk about untruths (not to imply lies, rather those things that are meant to overcome uncertainty and are bolstered by optimism) told by suppliers.

But, let's use a couple of economic notions from Minsky and see if there might be a program / project parallel.

For one, in terms of borrowers and a cycle, he described three levels. These are the hedge borrowers (where something of value might be thought of as collateral - existing as a real thing at the moment), speculative borrowers (where leverage starts to raise its head), and Ponzi borrowers (yes, this concept can be applied to the multi-layering found in an extreme outsourcing arrangement).

The movement through these types (and, there are probably many more levels that one could differentiate) goes from the more real to the abstract (I'm being nice here and pointing more to ignorant manipulations rather than explicit malfeasance).

That one needs to hedge has become clear, and this can make financial sense. Can one 'hedge' in engineering? That is a question we must ask and discuss. Some related issues are earned-value analysis, clarity, and the like.

Well, one could definitely talk about 'speculative' use (and, perhaps, even 'ponzi') in terms of some analytics and their assumptions. The main question is how to guard against this; good people, in short.

Now, in terms, of a product, testing is a key convergent phenomenon that has to have higher priority than we saw in one instance.

Too, Minsky talked about some other attributes associated with a cycle, using displacement, boom, euphoria, profit taking, and panic, from early on to late. Without going into detail, it's not hard to map this same type of thing with projects. What denotes more about 'panic' than sending oodles of people out to a project? The mythical man-month applies to more than software.

Well, control is an operative word as a means to dampen instability. And, the old watchwords come to play, such as measurement, vigilance, and, I might add, attitudes that are anti-hubris.

Remarks:

08/01/2013 -- Ben cannot unwind or taper down; he has too many Doves. We'll have to get back to the king thing (yes, the divine rights of the CEO, new royalty, in other words) and dampening of these types by a new outlook (Magna-Carta'ísh).

12/17/2008 -- We'll use made-off in lieu of ponzi, henceforth.

Modified: 08/01/2013

Another oops generator

One 7'oops7 thread, related to finance, uses gaming as a metaphor with 'fiction' being a major element. Types of trading as have evolved in the commodities markets are problematic. Why? Well, there are several reasons, but chief ones would be the spread of the computational flavor with its complexity and no accountable resource except for the poor suckers who lose.

William F. Buckley was right. "Stop!"

A recent WSJ article on the problem quoted research results and used the example of wheat. It is estimated that for a particular crop (future crop, mind you), there are twice as many holders of contracts for this crop than can be met.

Got that? Let's say the crop is going to be 100 bushels, and we have 1 bushel per contract. Well, there are 200 contracts that think that they own the crop, collectively.

How has such idiocy come about? Such spiraling is a natural consequence of taking speculation too far (see Minsky's ideas about this).

And, we do not know how wide-spread is this type of foolishness. You see, it goes way beyond those physical things we deal with as commodities.

In finance, thankfully, we had SOX to address this type of fictional book cooking. That the underlying mechanisms are supposedly founded on advanced mathematics does not remove the fiction, actually it exacerbates the problem.

One irrationality involved here is that when the crop does come about, what we will have will be higher prices due to the shortage of supply. Oh yes, the market works it out is the tenet.

Folks, those who like to line their pockets play the same sort of game with leverage. That is, from a finite collection of items with value (and these can be many types), they blow up to states that claim to be hyper-values and that are essentially hot-air. Perhaps, those who use the adage that the 'whole is greater than the sum of its parts' understand.

By the way, a physical product, and its development, can have similar problems; yet, engineering, hopefully, can keep things more grounded.

The financial folk can be similarly reined in, given that we apply the proper insights.

Remarks:

11/04/2010 -- Big Ben is still putting us at risk and trashing the savers.

01/27/2009 -- Lessons to be learned (as opposed to learnt), including, by necessity, Ponzi.

11/26/2008 -- The mess grew and grew, fairy dusting indeed.

08/24/2008 -- An example where we saw a 9 to 1 increase off of $100K was equivalent to a reserve ration of 10% which can be considered a historically low figure for the reserve or a high multiplier. This notion is related to leveraging in the sense of creating something out of nothing from one view. Of course, as argued before, the lowering of the reserve ration goes hand in hand with increasing use of mathematics through growing computational prowess which can exacerbate the Minsky ponzi tendencies, as we've seen of late. If we're going to model the economy via computation, why not base it on some physical analog, like energy (no endorsement intended)?

Modified: 11/04/2010

Testing Finance

That financial engineering can be problematic, for several reasons, has been a theme here. The Econ/Eng focus is to look at this.

In his WSJ op-ed (In Finance, Too, Learning Entails Risk), L. Gordon Crovitz makes some valid comparisons using Merton's talk at MIT (Why The Financial Train Went Off the Rails).

However, in Engineering, we don't find live tests, like the following: a new airplane, such as the 787, being tested with a bunch of passengers aboard. No.

It's nice that Crowitz brings in the test metaphor, yet the reality is that the testing mainly is how effective the instrument is in providing opaque cover for extracting money out of the pockets of the hapless into the funnel leading to gigantic bonuses. These guys haven't begun to understand their fudiciary duties or have they?

Oh, that isn't fair, I know. Yet, what tests do we see in finance other than that which rates the instruments power in generating leverage and the accompanying fees? Oh, yes, we have those who provide ratings. Ah, what science do we find there?

Such a test does not exist now, except, perhaps, in some academic framework.

But, having said that, truth engineering will continue to be making an effort to deal with just this requirement.

Remarks:

08/31/2009 -- We're going to look at this, again, from the finance view as we expand theoretics and technicals via an econoblog.

04/24/2009 -- More on Merton's stance.

From the rest of the Merton talk at MIT, he claims that financial engineering is here to stay. MIT claims some influence there. No doing these types of structures is like saying that we don't need cars. But, we need people who understand, at all levels. Too, these things progress, like any artifact. We need a NTSB type of oversight. Also, perhaps, a SWF to be the ultimate liquidator to manage the 'realness' of assets. Interesting thoughts.

On risk, yes, it can be passed around. Merton thinks that collateralizing is better than rating (well, yes, realness versus some hyped review). We also need to have clearing of these things (like swaps, via OTC) when financial firms are involved.

At some point, things come to roost. And, it's not just badboys, like those doing the Ninja loans, etc., who are to blame.

Merton says that the alpha that looks good for all (or about all) hedge funds don't consider liquidity shocks.

04/21/2009 -- On the Merton talk at MIT, and after stopping at the 53:14 point, some comments about his message:

Sounds like Merton is proposing an extension to the Modigliani theorem to lessen some of the stench from innovations like the CDS which, like other derivatives, were supposed to not needing any oversight. These issues are still open. Yes, only 1 or 2 of many innovations may work; yet, those who are proposing these things take big payouts while the rest pay up.

As many have said (see the comments), using 'science' (well, it is a social science that is involved) does not make the 'engineering' any more sound than gaming.

Merton is right to talk down complexity in one sense, yet the innovative thrust seemed to optimize opaqness thereby allowing payouts that were not justifiable or sustainable.

Modified: 08/31/2009

Leveraging and oops

Earlier posts here and on another blog (TE's look at Truth, fiction and finance) suggested that gaming was the basis for a lot of modern finance as people tried to line their pockets, for whatever reason.

This theme will continue along with reviewing all the ways that oops can arise. The Calculated Risk blog provided an overview of leveraging (and tranching - can this be other than sleight-of-hand movement of monies to the bigger pockets, or how do we get something from nothing?) in the context of the recent sub-prime problem. Essentially, leveraging will accentuate movement on either side; if it's positive, then the Streeters (and their others) enjoy big bonuses and maintain their growing distance on the wealth disparity line; if it's negative, then the small guys (usually) lose more relatively than do the bigger pockets.

Except that all this gaming has been the result of Fed foolishness. What happened to the lessons from the 'big crash' with regard to leveraging? So, we have our work cut out for us in regard to the financial shenanigans and related.

On another note, this week Boeing is hosting the world's eyes (both traditional and new, meaning bloggers, of course) in an update of the Dreamliner status. That, no doubt, will spawn off more need to talk about insights, issues, and, especially, the imaginative.

In reference to the Dreamliner program, outsourcing is a type of leverage, especially if expertise is assumed. In terms of that particular program, there were several aspects that will be of continued interest as things unfold, if only for lessons learned.

Remarks:

08/01/2013 -- Ben cannot unwind or taper down; he has too many Doves. We'll have to get back to the king thing (yes, the divine rights of the CEO, new royalty, in other words) and dampening of these types by a new outlook (Magna-Carta'ísh).

03/17/2011 -- Politicos might actually be compounding the issues.

12/18/2008 -- Leveraging, in and of itself, is not bad.

11/01/2008 -- Recently, Boeing announced having obtained insights from analyzing problems with outsourcing. Well, the company has been a success from applying its lessons learned over a number of decades. Here's one for it to consider: Wichita would have been a marvelous grounding asset - in terms of well-founded knowledge about the 787 status, plus more. Oh, of course, letting it go helped line oodles of pockets which would have not have happened if it had been retained within Boeing.

10/26/2008 -- Leveraging is a fairy dust operation, or as Marx would say, fictitious capital creation is the game. We ought to be looking at what has gone wrong, in more ways than being looked at Paulson, Bernanke, and crew.

Modified: 08/01/2013

Big oops

Today, the DOW went down another 600+ in a continuing slide that has us in the 8,500 range which has not been seen for several years. The old comment of 201K rather than 401K is apropos again. It does not have to be this way.

But, for someone who is trying to build for the future, huge returns are not required. Gosh. There are adages up the wazoo about these things. The old story about the grasshopper and the ant comes to mind.

Okay, we all want the freedom of the hopper; who wants to be wrapped in the mantle of working for a large firm? Oh yes, the ant (worker) gets stepped on by the fat cat, usually.

Why the focus on the stock (equity) side of the market which has been allowed to 'derivative' itself into almost oblivion (oh, too extreme as we haven't reached the levels of the early 90s yet - is that where we ought to be?) when more stable approaches are available (albeit humdrum)?

Well, idiocy, for one thing.

We really do need to get away from the gab standard (and Ben and his pals trying to manipulate things) that is behind economics and put in a more realistic basis for money.

What? Yes, this can be defined.

Remarks:

11/20/2008 -- Boon and bust, the way of fairy dust.

10/27/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.

Modified: 11/20/2008

The soul of a new airplane

Yesterday, in his 'Week Ahead' post, flightblogger included a video about the 787 development project (a remarkable project from several angles) in which Al Miller of Boeing gives us some details. Al's talk is followed up by the Chair of the Mechanical Engineering Department of UWash.

It was a great video and well worth watching; having access to details like this will be important; no doubt, there are many more (who has a bibliography?); as well, as the project goes along, we can expect more.

Now, this video is great since it is from the engineering view and not a sales pitch, though one can see the influence of management's footprint in several places. That is, there is a lot not mentioned and a lot that is glossed over; okay, according to the rules, we probably aren't allowed access; I just hope that the company does not think it beyond us or that we are not interested.

Anything other than openness brings on suspicions.

So, why the title of this post? Well, it does allude to Tracy Kidder's book. As we know, there are always interesting interplays between the management and engineering sides of anything.

This is not an in-depth commentary on the video's messages, rather it is just an attempt at characterizing my reaction. Methinks that the focus on the composite breakthroughs allowed too much emphasis to be placed upon the success of getting the thing together. But, a whole machine was not rolled out on 7/8/07; no, it was a lifeless shell, that was some distance from being functional. Just how far that distance was, we do not know yet. But, like any empirical problem, we'll know in time.

Another problem was the headiness (ego trip, or hubris) of the large project, where most of the work was being done elsewhere. Talk about setting up illusory situations; what better framework from which to do this? As well, the sales and marketing pitches just went mad. As said before, a bodyless head is not what we need for success in the world (even the foundational issues suggest that - how can the process people be so unrealistic?).

As mentioned before, Minsky's model of hedge, speculation, and ponziness come into play here in engineering and production (remember, out-sourcing is an analog of leverage in financing), as they do in the financial misery-ness. We'll continue to look at that.

Al's overview was great, especially his talk about the use of equations (the arguments about the abstraction-phile apply here) and testing. We all know that engineering has made great strides in changing the world through applied mathematics and science. What we all need to be cautious about is letting the abstract stand for reality. In this case, usages of models as data being fed into other models is very much dangerous, as we'll all learn as we go toward the future.

But, that brings up testing, covered here, to boot. Any mathematics itself is subject to the same problems as reality (or ought to be), that is the quasi-empirical issue. But, business is top-down and thereby unrealistic (witness what? wake up and look at the Street and the idiots that populate the thing!!). Boeing did create a technical force; where are they? Well, having Al speak does not count, as he is management.

Other points that we ought to consider is that Boeing pushed the envelope on many fronts here, which is really a no-no. So, it's the biggest project, Al says. Well, then, belly up and pay the price for creating it (well, that'll happen anyway). It brings in new technology; well, congratulations. But, don't bring out your cigars yet, your baby still needs to get out of the crib. And, it needs to show its soul beyond all those marketing and industrial views that have been spread around the world (in some cases, mocked up as if the thing were really there - meaning, of course, a photo - see the truth engineering counterpart of this blog - the computer, and its network, can be more problematic than not).

The UWash chair showed the future of composites and current usages. Well, what stood out, is what was asked 4 years ago, where is the precedence for the 787? None, essentially. So, everyone, including Airbus, is going to learn from this experiment.

Thankfully, due to the fact that it deals with reality (as opposed to the dismal science behind the market), the technical issues of the 787 can be worked. Now, the process issues are still open; hopefully, the IAM and SPEEA issues can be resolved in a wise fashion; how many case studies will come from this project?

By the way, at the 7/8/07 rollout, it was said that the 787 was not your father's plane. Oh, indeed it is not! This project has deep signs of the 'game' generation's facility with and belief in the computational. That is not bad; that generation just has to learn that 'reality' rules. Boeing knows this.

Cannot we observe one factor in just about all the bubbles of late? That is, elements of the youth, just recently schooled in new technology, are given free reign to explore. Well, in the computational, the influence can be minimal (though, how many billions have been lost to business through Windows failures?) and reversible. Nature is full of irreversibles (ah, bringing good philosophical arguments to business - is that possible?).

Remarks:

06/25/2009 -- Ah, issues continue to arise.

05/27/2009 -- People need to be rewarded about how smartly they plan for, and handle, uncertainty (it's more than just risk -- topsy-turvy needs to be addressed more fully in both an epistemologic and an operational sense).

05/18/2009 -- Testing in flight is within sight.

Modified: 06/25/2009

Hype and hypothesis

This is a dichotomy (both bane and boon) that we'll look at in depth over several posts augmented by truth engineering discussions. Unfortunately, many times we can look at this with two other disparate, but not by necessity, things: talkers and doers. Would not any reasonable mindset recognize that we need balances?

Hype has several connotations and does not need to have a pejorative flavor; it is just that some roles deal with hype more than hypothesis. Who faults a team fan for cheering both before and during a game? Now, whether the fan is cheering after the game is another story. Perennial winners and losers in games may bring up interesting psychology; but, it's the in-between (our needed balance) where it is even more so. Modern technology has not made this balance any easier.

Does anyone think that if two teams play, the one with the greater number of fans will win? Okay. Granted there are advantages, such as the home field and targeted noise that could be major factors. At some point, we'll get back to this in terms of advanced sales being any indication of realness (after the fact, not a priori expectations)?

An extreme positive view is not all bad; we want a surgeon to be positive before surgery, yet read carefully the caveats that are presented to you prior to the event.

Granted we need vision and motivation in order to grasp for the higher rungs, yet progress also requires that advances in science and engineering be applied to project, and earned-value, management without the burden of too much hype. Part of the on-going discussion will deal with balances that need to be re-adjusted, it seems.

Now, hypothesis too has several uses. For now, we're taking a more informal approach that hopefully has some intuitive appeal. Do we all know that our expectations are not the reality? And, that the more complicated the future event the more care needs to go into details (while, at the same time, fall-back positions become important)?

One problem has been that advanced mathematics has shown tremendous use and potential beyond imagination. In actuality, we have probably only begun to harvest the fruit. We can easily, though, place more reliance than may be prudent; how can we know?

Essentially, our best bet is to use modern techniques, such as risk management; however, these techniques rely, as well, on the mathematics. Too, we need to compute; but, we need to be very careful about computation as a proxy for things (depending upon several factors including what things we're talking about).

And, we need to learn how this lesson from the market (which has a lot of prominence in the minds of deciders) applies more generally (say, with technology or products): past success does not guarantee future success.

Now, it may be easier to see why that lesson applies to the market than to our products (after all, we see successful engineering efforts everyday). It is true that many feats of prowess have been accumulated under the belt which can very well lead to certain types of confidence which may or may not be sustained. Does any amount of success warrant excessive hype (meant rhetorically, but only in part)?

Remarks:

03/25/2013 -- The Atlantic had an article about King Abdullah II. Now, he is an example of a doer, from several angles. What I liked when I read it was that while being educated in Massachusetts, he bussed tables. What that means for those who don't know is clean up dirty dishes and such. When I, as a young man, was in the US Army, we had still had KP duty which included such types of things. Another task that ought to be tried once by everyone: cleaning the grease pit.

09/02/2009 -- Lets face it, folks, undecidability needs to be discussed and adopted in any complex situational setting, especially if computers are involved. Only hubris pushes us to make loud exclamations about what we're going to do in the future.

06/25/2009 -- Yes, this is one of 5 issues.

01/22/2009 -- We'll be looking more at hype in this new day.

11/26/2008 -- Problems continued to arise in 2008. As of now, some static tests have been done. But, issues with supply management were troublesome. Of course, an IAM strike caused a little delay. But, there has been no test flight, as of yet, so functional issues remain more unknown than not. See Polls for an idea of opinion at various points.

10/26/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.

10/04/2008 -- Wall Street unraveled here of late. The new plane is on hold. Much analysis is going on to describe what went wrong and why so fast on several fronts. Yes, happy talk is one factor.

Modified: 03/25/2013

To the hilt

This blog started by looking at a particular development project's status with the intent to comment on a few modern predicaments that have been exacerbated by computational confusion. Well, in engineering, as said before, we have a real world that comes into play.

The same world influences the market, and things financial, but in an entirely different way that cannot seem to get its head out of gaming (apologies to the Olympic athletes, as gaming can have an honorable connotation or two).

In the 08/18/08 WSJ, Ethan Penner describes one aspect of the current problem in his op-ed ("How Low Interest Rates Contributed to the Credit Crisis"). Penner has one example that we can expand upon and comment about here. The following analysis will just be a small beginning.

Penner says that a key factor is that some retirement fund techniques will require a huge return in order to pay up as they promised (by the way, the use of entitlement applies here on several sides - who is more 'entitlement' laden in thought than some CEOs and some financial types?) . How many times have we heard 20% returns plus?

So, if the going rate for some real investment type is 6.5%, how does one get more? Well, the tranche method (Penner also has some thoughts on securitization's future) played that game, too. But, let's use a little story.

Supposing we had 100K bucks (later in the story, we'll multiply that by several 10s; as well, dampen any notion of rationality for a few sentences). Well, in the easy money and high liquidity times, we could have found someone who would have loaned us 900K bucks which would have given us a cool 1M bucks in total. Now, if we could get the money (900K bucks) at 5%, then we would make 1.5% for each of the nine 100Ks. The accumulation of return would give us the 20% on our original 100K bucks.

Get it? Smart or not?

Now, apply your multiple of 10s to the 100K bucks. Lots of people were making money this way; of course, what we saw, or read about, were the big winners. Then, we also heard about big losers.

Hah! Is this how an economy ought to work? Actually, a whole industry has been set up the past 20 years to foster this time of gaming which, by necessity, moves money from the pockets of the multitude of hapless to the golden (and more) purses of the favored few (those who have infinite entitlement - versus those who are only looking for some food and shelter).

By the way, this little example can be applied many ways to what goes on daily in the markets. We'll be getting back to that.

But, we'll also pose, and try to answer, some questions. Like, who would put $900K upon $100K (9 to 1 if you're counting)? In the old days, this type of number would have been a fraction (think the multiplier effect in macroeconomics). Why would I as a rational holder of $900K let you get the 1.5%?

If this type of leveraging was then extended (almost recursively), what value is there (of course, we see with unwinding that things do dissipate)? This brings up another side. If the one with the 100K bucks gets 900K bucks more and then has a -5% return, that would reduce the 100K bucks by half. But wait, the 5% would still be payable, so the 100K bucks would be even less.

Gosh, ought we to get the financial thing on some natural basis, not unlike using thermodynamics (no endorsement is intended, implicitly or otherwise) as some economists argue?

So, where is the accounting for all this? Some seem to think that the 'risk' ontology is sufficient; these need to look closely at quasi-empirical issues.

Remarks:

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

03/17/2011 -- Politicos might actually be compounding the issues.

08/24/2009 -- Last year, Ben blinked and panicked. He frantically pulled out all stops as if with no thought for tomorrow. Now, he has no use for 'mea culpa' big daddy that he is. Ben, start to unwind now. The Vienna School's view that these things are undecidable (which is a computational issue) is right on.

07/23/2009 -- After the bust and the rebound, toxic assets are still a problem due to tranche realities.

06/07/2009 -- Say what?

12/17/2008 -- We'll use made-off in lieu of ponzi, henceforth.

10/27/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.

10/11/2008 -- It keeps getting more interesting.

08/24/2008 -- This example where we see a 9 to 1 increase off of $100K is equivalent to a reserve ration of 10% which can be considered a historically low figure for the reserve or a high multiplier. This notion is related to leveraging in the sense of creating something out of nothing from one view. Of course, as argued before, the lowering of the reserve ration goes hand in hand with increasing use of mathematics through growing computational prowess which can exacerbate the Minsky ponzi tendencies, as we've seen of late. If we're going to model the economy via computation, why not base it on some physical analog, like energy (no endorsement intended)?

Modified: 04/03/2011