Idiots managing finance? Joking! No, the IMF, as in International Monetary Fund.
These people oversee the global financial system and just picked up $.75T (thereabouts) at the recent G-20 for them to do globally something similar to the financial bailouts that we've seen in the US and EU.
Who are these guys, and gals, beyond a bunch of harpers who can go into a country and attempt to tell them how to run their economy? Many times these efforts had very unpleasant consequences for the citizenship. Must be nice to know so much as to run the world.
Note that the US is not a client. No, the US is a founder.
Well, Shelton (Gab Standard, et al) sees some issues (WSJ 04/27/2009) that bear to be noted. There is some pressure for another international currency, like a Euro for the world.
How would this be valued? That is, what new insights and knowledge would prevent those same types of things we see with the dollar and the American economy?
In terms of gold, the IMF has 12.9M ounces. How much is in Fort Knox? 147M ounces, or so.
What other approaches are there besides gold?
Remarks:
08/17/2009 -- As promised, FEDaerated is here.
08/10/2009 -- Near-zero will be looked at more closely.
Modified: 08/17/2009
Monday, April 27, 2009
Monday, April 20, 2009
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
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
Saturday, April 18, 2009
Two sides
A recent opinion in the WSJ (Europe is No Model for Our Banks) looks at two sides of the issues as they relate to the political views covered by the Democratic Party. If other party views are brought in, there will be even more sides.
So, the split mentioned in the opinion is between Krugman, a Nobel winner, who is supposedly of the staid side and Summers who is for innovation. Of course, posts here may appear to be more in line with Krugman's view for good reasons.
Minsky's view would warn that financial innovation can be mostly ponzi-like, almost by nature.
As well, one could argue that innovation ought to go against problems of real contextual substance and not to mere gaming for financial gains.
It's nice that we can have these two sides to discuss as a good balance between these two sides would be workable. So, expect such a theme to recurr here.
Remarks:
04/20/2009 -- Summers' view notes that some financial instruments have been shown to be of importance to risk management, hence they ought to be allowed. The main issue is what control is necessary plus how to test finance in the many ways that will be necessary
Modified 04/20/2009
So, the split mentioned in the opinion is between Krugman, a Nobel winner, who is supposedly of the staid side and Summers who is for innovation. Of course, posts here may appear to be more in line with Krugman's view for good reasons.
Minsky's view would warn that financial innovation can be mostly ponzi-like, almost by nature.
As well, one could argue that innovation ought to go against problems of real contextual substance and not to mere gaming for financial gains.
It's nice that we can have these two sides to discuss as a good balance between these two sides would be workable. So, expect such a theme to recurr here.
Remarks:
04/20/2009 -- Summers' view notes that some financial instruments have been shown to be of importance to risk management, hence they ought to be allowed. The main issue is what control is necessary plus how to test finance in the many ways that will be necessary
Modified 04/20/2009
Friday, April 17, 2009
Minsky anew
There have been several references to Minsky in the posts concerning finance; there will be more.
Today, the USA Today reports on the many Ponzi schemes that have been uncovered since the Madoff revelation. One prime cause for the exposures is the downturn that some compare to the depression.
These (see USA Today's list) are out-and-out fraud, perhaps. But, as finance is a game, we ought to keep Minsky's ideas in mind that Ponzi comes about by necessity.
The Economist, recently, had a report on the growth of the pockets of the rich, the supposedly best-and-brightest, to where a very small percentage of the populace held the vast majority of the combined value. An article (titled Minsky's Moment) in this report reviews a book that uses Minsky's ideas.
We need to, and will, take the discussion further.
The label of 'best-and-brightest' has had several uses. Of late, it applied to those who were smart enough to pull the wool over our eyes enough to riffle through our pockets (and to do so with gigantic bonuses). An earlier application of the concept was to those techies who gave us the OS's that fail with the BSOD; this state of affairs resulting from the techies seemingly rushing after features (for showing off) without due consideration for security or safety or stability or other important properties.
Remarks:
08/27/2009 -- Madoff exemplifies (albeit somewhat indirectly) systemic risk.
Modified 08/27/2009
Today, the USA Today reports on the many Ponzi schemes that have been uncovered since the Madoff revelation. One prime cause for the exposures is the downturn that some compare to the depression.
These (see USA Today's list) are out-and-out fraud, perhaps. But, as finance is a game, we ought to keep Minsky's ideas in mind that Ponzi comes about by necessity.
The Economist, recently, had a report on the growth of the pockets of the rich, the supposedly best-and-brightest, to where a very small percentage of the populace held the vast majority of the combined value. An article (titled Minsky's Moment) in this report reviews a book that uses Minsky's ideas.
We need to, and will, take the discussion further.
The label of 'best-and-brightest' has had several uses. Of late, it applied to those who were smart enough to pull the wool over our eyes enough to riffle through our pockets (and to do so with gigantic bonuses). An earlier application of the concept was to those techies who gave us the OS's that fail with the BSOD; this state of affairs resulting from the techies seemingly rushing after features (for showing off) without due consideration for security or safety or stability or other important properties.
Remarks:
08/27/2009 -- Madoff exemplifies (albeit somewhat indirectly) systemic risk.
Modified 08/27/2009
Friday, April 3, 2009
Valuing assets
How does this subject apply to oops ? Well, measuring progress is similar to determining value.
Too, plenty have argued that 'mark to market' has exacerbated the downturn.
We'll get back to this problem as one thing to do will be to document the effects of the recent relaxation of the rule.
Remarks:
08/17/2009 -- As promised, FEDaerated is here.
07/30/2009 -- Well, all of the bailouts from Ben and friends plus account rule changes sort of motivates the need for an econoblog that looks at things like what is necessary to support savers, those perpetually sacked ones. Where does the money go? Indeed.
04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.
Modified 08/17/2009
Too, plenty have argued that 'mark to market' has exacerbated the downturn.
We'll get back to this problem as one thing to do will be to document the effects of the recent relaxation of the rule.
Remarks:
08/17/2009 -- As promised, FEDaerated is here.
07/30/2009 -- Well, all of the bailouts from Ben and friends plus account rule changes sort of motivates the need for an econoblog that looks at things like what is necessary to support savers, those perpetually sacked ones. Where does the money go? Indeed.
04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.
Modified 08/17/2009
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