Cracking or fracking

Rick has a post titled: A Crack in the Foundations of Economics. Essentially, the ergodic thought is less strong than was considered.

We suggested that, somewhat, a couple of years ago.

---

We do not need the Santa Fe Institute to know that the dismal science (and some of its practitioners?) stinks. We are to think of mathematization, with its computational buddy, as the means out of the morass? The recent downturn's effect, and the continued reign of the quants, speak otherwise. They, principally, are the reason for the mess.

Too, we have other cracks awaiting discovery.

I don't have to go far to find something to the effect that the Vienna thinkers have cautioned against the over-reliance on the so-called "algorithmic" approaches. But, then, what is the alternative?

We'll get to that, at some point.

---

The only sure thing is that the payout won't be there, for many. How do we get a more fair situation? Well, neuroscience might provide a means, especially when enlightened by the likes of Baruch.

Remarks:


12/13/2012 -- Don't know how long this page will be there, Daily Ticker. But, when I looked, 69% had said 'no' (hurt rather than helped) as to whether Ben has helped.

Modified: 12/13/2012

Accounting's failure

As we watch the markets bounce (volatility is up) around, some might think that it's possible to get a handle on this thing. Why?

Well, there are long periods with little volatility in which the trend has usually been up. Yet, not always, as we can have sideways movement. The chart covers 70 years of the DOW.

The blue line is the overall trend line from 1939 to yesterday. As such, it has little variability due to assumptions (note, accounting is full of special rules and assumptions that then imply choices -- it's not mathematics, folks), since it is a mere straight-line fit (however, all the largess of late is very visible).

Now, those with a certain view like this line. In fact, viewpoints that talk a 30K DOW use this line as their basis for argument. This viewpoint might argue that it has a lot of history behind it, but, as well, we need to consider what has happened the past 30 years that has influenced the rise (inflation, general economic growth, foreign investors, ..., largess).

---

In fact, we have a whole generation or two of financial planners who believe this line. Look at the FED's goals. They love equity, even though their moves sack the savers and those who are retired (QEs, low rate, other bits of largess - will they ever end?).

Now, consider the green line. It is as if weighting out extraneous issues, such as those related to the recent bubbles, would allow for a better fit. What it shows is that we ought to be hovering around 9K or so. How could that be?

---

One fact is that it would not be easy to see this happen given all of the loose money floating around. Or, to where would the money go?

---

One means for control is suspect from the beginning. Remember all of the arguments about accounting and special rules that you heard a couple of years ago? One of the more controversial (but correct) rules was relaxed, by order of Congress; hence, the surge of the DOW the past couple of years. Add to that the largess of the FED as a big factor.

Well, a recent report talks about an even worse problem (Pentagon can't put their thumb on trillions). The truth is that no one can do an accurate accounting (to be discussed) of any of these financial things in our modern, complex economic world. It's about time that we recognized that and took the proper action.

---

There are several things involved. Just like some European countries are restricting use of 'short' positions, we need to put a damper on derivatives, except for a playground where we can let these 'children' play to their hearts content.

Warren may call these things WMD, but he's making money on them, too. Warren, my challenge to you would be to put you money where your mouth is. Help me show how this whole bunch of supposed advanced techniques are bad, will always be, and need serious control. Too, take the vow of no derivatives (or only those of a type that can be shown to have necessity).

---

Analog: taking the vow of not being an idiot and texting (or anything of that ilk) while driving.

---

Secondly, we need to stop the markets every day and take an accounting. How would this look? Well, anyone know? I propose that we look at it seriously. You know, it'll go against the grain as the big money wants their 'black pools' and other questionable tools.

Thirdly, we will tame the stochastic beasts rather than en-flame them in an attempt for non-chaotic progress.

---

The goal is a sustainable economy. Too, moderation of the ca-pital-sino. All of this bears, and will get, more attention.

---

Finally, why pick on accounting as this problem is larger than that discipline? Well, you guys and gals, have you not been implicated in every bit of mischief that has come down the pike? Or, at least, has not one of your kind been involved?

Has there been a successful establishment of ethical practices? If so, let me know where I can see this. From where I sit, computation has just increased the avenues toward perdition. This is outside of your domain? True. Hey, IEs! What are you doing in this regard?

Remarks:

08/15/2011 -- Let's give Warren some credit.

Modified: 08/24/2011

Econoblog

The new blog (examples - A Reader's Guide to Econoblogs) will start soon with an emphasis on things economic, including basic things like money, the markets, capitalism, people, et al. The current leaning is toward naming the thing FEDaerated (started 8/10/09).

That is, we need to find something other than the gab standard (and Ben's vigilance - see Remarks, yes, Ben was watching out for his own pocket - why sack the savers, Ben?) as the basis for the economy. There are physical analogs (look for heterodox) that have been proposed. What is missing is the rationale and motivation. Well, we can discuss that.

Some of the posts related to money here and at truth engineering might suggests the basis of the approach and opinion. The delivery will be more circumspect and coherent.

But, having Goldman Sachs (Surviving the end of civilization) offered as the ideal grates. Hah! Too, that the stars get to grab excessively needs some scrutiny. Examples, like China, will be very important (Rich China, Poor Peasants).

Then, the current mess from which we haven't taken the right lessons will play a large role. We have to worry about how bad things might be (The Economy Is Even Worse Than You Think) or will be (The Economy Has Hit Bottom).

Of course, the FED sacking the savers is another grate. But, Ben gets his say (The Fed's Exit Strategy) and, perhaps, keeps his job (The Fed Can Lead on Financial Supervision).

Remarks:

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

11/05/2010 -- Big Ben is still putting us at risk and trashing the savers.

09/08/2009 -- See Econoblog II.

08/02/2009 -- WSJ's headline writer seems to think that this leeching is all the rage. The technique, and its motivation, reeks with a terrible stench.

07/31/2009 -- Let's see, 5,000 got over $1M for services rendered. Well, that's probably a sign of being a best-and-brightest, at least to certain eyes; it's called rolling-in-the-dough.

Now, this can be used to illustrate how the game it to fill the pockets of a small set to an exorbitant amount. Does the game need to be that way? Hell no. We'll look at that some more.

Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?

07/30/2009 -- Well, I suppose that we couldn't expect Bernanke to work for nothing. But, he's far from the ideal of non-profit handling of our money and economy (though, I'm not calling for his head). Turns out that Ben raced to support the market, probably, in order to keep his own wealth bolstered. Okay, one could argue that he's got his money where his mouth is (gab standard), but it has not been shown that we need the market to the extent of gaming and moral hazards.

So, Ben's not a saver; sack us again, Ben, please. Oh yes, in one sense, he has built wealth. Yet, he's got the majority of his wealth in the game. This needs to be discussed more. Casino (fictitious) capitalism, indeed. Yes, Ben, the savers are the heart of the economy, not the spendthrifts.

Hey, wait, does he even know that the dollar will be permanently trashed with the actions of the past few months?

On another note, the DOW is up. Finance equity is booming. Banks, some, are rolling in the dough. One factor: change in accounting rules. We'll need to look at valuation issues more thoroughly.

03/23/2012

Sides of the story

Earlier, there was some talk about culprits. We can take that a little further and put a face on positions that will be cursory, for now, with more to come. Sort of like looking at sides of a story.

• - We have to start with Grasso whose tenure at the Street got him some $140M and more. He did not work any harder than many, in the same period, who were paid essentially nothing in comparison to Grasso's take.
  
• - Weill, of Citi, got things started in the sense, as the King of Capital. His efforts to heat up things really got the fictitious capital urn to bubble.
  
• - Rubin, of Citi, was an absent overseer. Thomas Friedman had a piece in the New York Times in November (2008) that discussed how Rubin's role, or his gig on the booard, got in some $115M or so. Also, see WSJ Editorial, December 3, 2008. The WSJ asks, what did Rubin do for his pay? Both Rubin and Weill pushed Citi toward its disastrous dealings.
  
• - Silverman of Cendant. See Roben Farzad's article in the Business Week of December 8, 2008, titled "Heads They Win, Tails You Lose," in which we see investors' red ink provide a take out of $100Ms for Silverman's pocket.
  
• - Ben's, he of the blink, role was covered by John Cassidy, in the New Yorker, December 1, 2008, "Anatomy of a Meltdown," where Ben is depicted as persisting in not wanting to call a bubble a bubble. No, we have to deal with poop oops, he says.
• - Owner of Chrysler who jointly was owner of Mervyn's who recently declared bankruptcy and destroyed the lives (and fortunes) of oodles of workers while the private equity investors got their large mint.
  

Remarks:

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

09/15/2009 -- Lessons, one year after Lehman. Also, Time on culprits.

06/17/2009 -- Notice the absence of Milken.

12/17/2008 -- USA Today had their list of culprits.

12/06/2008 -- So, as well as players, we can list things to discuss further.

Modified: 04/03/2011

Savers sacked

There's talk that the Fed is considering lowering its rate to 0.75. Gosh, Ben, you blinked before. Now, you're desperate? [Note, originally pointed to Yahoo Finance page which has expired]

Look, Ben. That market and game that gets your attention is not worth its salt beyond being a field for fraud and froth.

So, you're going to throw more pixie dust at those who you want to put their money in stock. Well, Alan's low rate is considered a factor in the mess. Why should you follow suit with the equity bias (yes, keep those gamers on the Street and at the CBOE satisfied)?

In fact, it looks as if we need to bolster the models that are driving decisions; as well, why not start to consider getting beyond the gab standard, to start to remove the fiction (Marx' view, 7'oops7 view) out of finance?

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).

06/23/2013 -- Ben sure has talked up (gabbed to) the investors; a recent downturn offers a lot to think about.

03/15/2011 -- The M & Ms are apropos.

09/09/2009 -- Alan's reign will be looked at, in time.

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.

08/10/2009 -- As promised, FEDaerated is here.

07/31/2009 -- Let's see, 5,000 got over $1M for services rendered. Well, that's probably a sign of being a best-and-brightest, at least to certain eyes; it's called rolling-in-the-dough.

Now, this can be used to illustrate how the game it to fill the pockets of a small set to an exorbitant amount. Does the game need to be that way? Hell no. We'll look at that some more.

07/30/2009 -- The WSJ reports that Ben lost last year, despite his best efforts to keep the equity market afloat. Gosh, was there not a time when those guys had to forgo personal gain? Well, it's obvious from his portfolio that Ben's not on the savers' side. Nice to know. You see, Ben, some of us aren't looking to put our hands into the pockets of others (as do the best and brightest). No, we're looking for a little gain with preserved principle. Get it?

07/16/2009 -- Well, effects from several months of meddling (big Ben's economy) can be analyzed. Yet, the main questions is where is all this going? Systemic issues are still there.

04/25/2009 -- People matter.

12/18/2008 -- Savers still take it on the nose. We need to address inherent differences between debt and equity (Modigliani notwithstanding).

10/30/2008 -- A more robust basis is possible, but it would require better behavior on the part of those involved.

Modified: 08/01/2013

It would be funny ...

Yes, funny indeed. The recent event at the Société Générale. That has all the elements about which we ought to be more familiar. So, we'll be going into this thing further.

This blog is not only just about railing on things related to 'oops, loops, and oops or financial gaming. It's about learning in conjunction with grappling with the truth in these high-flowing times. We cannot learn except through experience; our wisdom is supposed to mitigate the down side.

When will we learn that the financial realm needs sand-boxes? Well, it might be an uphill trek.

Actually, putting some controls on the thing is of essence, too. It cannot be like trying to fly from one place to another via a plane without the proper control surfaces. All to be defined further, in time.

It is funny that Ben blinked. Or was old Ben thinking that he was doing a Zeus-like move as he threw his lightening rod of the rate cut out on the market? Was he to know that the SocGen was unwinding some mega-Euro positions? Over here, would there may be some culpability to not reporting sooner? Dump the evidence prior to reporting to authorities?

From recent analysis, the perpetrator at SocGen was supposedly not motivated by personal greed which is more than we can say for most players. No, it was simple ambition which we Americans like.

In fact, there has been growing world-wide support (the Robin Hood thing); it's understandable; especially as we see the high-flyers taking 99% of the income leaving the rest to 'eat cake'; or we see a company (who was in ethical thralls yet who was supposedly trying - that was the message to the underlings who were forced to go to mandatory ethics training) causing a 52 year old to lose a significant portion of his pension while another in the same subdivision put millions into his (and his cronies') pockets.

On the other hand, there were supposedly the higher-order players at Soc Gen (Quants, in short), who supposedly had the jewels of the kingdom in their mathematical hands, who worried the managers. Yet, they weren't the source this time. But, the gaming aspect of finance will continue to be a problem (more on this, of course).

Soc Gen does have some 'Social Responsibility' awareness, though, according to their site.

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).

05/22/2012 -- FB will be a focus for discussion.

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.

08/10/2009 -- As promised, FEDaerated is here.

07/16/2009 -- Well, effects from several months of meddling (big Ben's economy) can be analyzed. Yet, the main questions is where is all this going? Systemic issues are still there.

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

11/12/2008 -- Well, things feel apart fairly quickly, starting in September of 2008. By N0vember, there was general spooking. Starting in September, movements toward nationalization sped so fast that it was easy to forget that a Republican administration was still in the White House. Talk about rewarding hubris and moral hazardness!!!!

07/31/2008 -- It's not enough to rant and spout off. So, let's start something constructive by looking a money and what it is.

06/12/2008 -- Of course, these things are not funny.

05/27/2008 -- Related to this, and the links can be found, Alan went on, at one point, about what the Fed can do to dampen the enthusiasm of the frothy market. Well, he is right in a sense about ex post facto being the better glasses, sometimes (better than 20-20 foresight). Yet, we all, as mature adults, know how to evaluate risks and act accordingly, even throwing caution to the wind sometimes.

However, when the playing-field is so un-level as we see (muddied waters), risk assessment is difficult. One would think that lessons from physics would help identify froth and that this would result in removing some of the 'dismal' from the science of economics.

Modified: 08/01/2013

What can we know?

Well, the Fed has done it again, with an unusual twist. 'Emergency' save of the morally hazardous? Gosh, the Greenspan put lives.

Well, the Fed deals with a system that can only be described as 'dismal' to now (the system can change for the better). So, they have to experiment as they go along. We can allow a little leeway for error since the heart seems to be in the right place.

One might argue that this 'moral lack' is not unlike an OEM who might try to 'change' along almost all decision axises simultaneously with consequences that become more apparent through time though one could also argue that any new apparency might be forced rather than insightful in terms of real 'earned value' analysis.

An OEM can plan to have a test period that is sufficient to prove both product and process, and our learning how really is of the essence. With the economy, where is the test bed? In a sense, what we see is the old problem of knowing what is real versus expected.

The economy could have a test bed, or sand box might be a better concept. Why is this needed and how to do we do it?

Well, with the growing opaqueness of the financial instruments, all are exposed to the playings of the financial gamesters. The computer and applied mathematics enabled all sorts of variations on creativity.

But, 'hey you guys, get your hands off our money' is something that they need to hear more.

Mind you, the opaqueness does not imply malfeasance necessarily (rather, it's an issue related to the quasi-empirical). What has happened, folks, is that what we learned from studying nature has migrated over to the money area. Finance has given big bucks for physicists and mathematicians to come play games.

Well, in science, nature knocks people down when they are wrong. In the economy what happens? Well, the fat cats land on their blubber; those who suffer are the poor unfortunates who have been leaned to the bone.

Just as an OEM cannot control through a wide-expanse of time toward 'real' earned-value, and we see many instances of this, we cannot expect anyone to control that which is studied via the 'dismal' sciences.

But, we can be thoughtful and control risk. In the OEM arena, that implies heavy focus on testing and process proving through 'real' experience rather than too much reliance on analysis and parametrics (or, we might add, letting the other guy handle the difficulties while basking in anticipated glory).

In finance, we need to think of how to put out the sand box. Then, the gamesters can play to their hearts content. We might even throw in more money as needed. Or, extract, to boot.

Stay tuned, as truth engineering involves many things, but one of the consequences will be knowing how such a 'sand box' might look and work.

One new factor?

Well, the baby boomers are going to get to where they don't want games played with their hard-won assets. That might be enough motivation for a slight start toward the right direction. After all, we are not all gaming teens forever, though some might like to think thusly.

The Fed needs to show more maturity. Of course, that whole position covers only one (monetary) of many aspects of a difficult issue.

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).

09/09/2009 -- Alan's reign will be looked at, in time.

09/02/2009 -- Lean assumes a current framework which can be improved. That the process is still effective during the change can be checked easily. However, if it is not still effective or we do not have a stable framework, then we were, by necessity, in the undecidable state.

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.

Modified: 08/01/2013