The lessons of Bernie

What are these? Well, there are several that Bernie wants us to know.

To recap, this post (By necessity, Ponzi) is dated 12/15/2008. We even proposed that Made-off be used rather than the name of that guy from the olden times.

Remember those times, a couple of years ago? Even after the new day, things appeared to be dire. They still are, for most folks, despite the shining chimera.

We'll have to re-look at this since our monetary basis is a 'gab standard' that is weak. How can we make it real? Not an easy subject, folks. The motivation? Look at Minsky's (7oops7, Truth Engineering, FEDaerated) take on the matter.

As further refreshing of memory, here is 'Made-off' in the three blogs.

• 7oops7
• Truth Engineering
• FEDaerated

Bernie exploited our unstable computational ontology, meaning, of course, more than just the platforms, technology, and mathematics. He was able to 'pull the wool' for a very long time. And, he did this on very smart people.

Much to learn there.

Remarks:

04/12/2011 -- Now, we hear that Harvard wants Bernie to teach ethics to the best and brightest! It is obvious that he ought to be a case study and a specimen of what not to do. That is, analyze him to the core. His motivations would be included. The biggest lesson? How we have dumbed down ourselves in order to make the system, and its artifacts (see comments on hive mentality), work.

04/01/2011 -- The last man wants the old days back.

Modified: 04/12/2011

Rent seeking

Too bad, we don't see heroes (oops, wrong, see Remarks below about Michael Milken. I'll, most likely, find more on proper search.) in finance. We get a lot of negativity with a little back-slapping (enough to bring on hubris, such as this graphic depicts).

The Economist, recently, had a special report on business in America which included some discussion of the future for the financial types that we have all come to just love so much, of late. Figure 6 above shows the big pay increase that was associated with the madness before the crash.

But, we need finance as a means to facilitate the flows of the economy (several aspects to this that will be re-addressed). But, this discipline need not think that they are it (rather, they're mechanics). Gosh, where did that type of hubris arise?

So, as an opinion in the WSJ ("There Is No Upside to a Down Economy") discusses, we have progress when people strive whether they do it in a mature way or in the adrenaline enhancing manner. Progress can be described, partly, by wealth creation which makes the game non-zero sum, yet, closer to near-zero [to be updated]. Supposedly, everyone benefits in this game.

Why near-zero? With a nod to Adam Smith, we can describe it as some partaking in 'rent seeking' which tends (it will be shown) to have the Minsky property which leads to states of undue speculation and ponzi/madoff, almost as if by necessity. There are ways to measure this, such as the efficacy of moving monies into the pockets of the few from scores of hapless.

Consider that this concept will be added to the basics on money and truth.

Remarks:


02/05/2012 -- Time to update the theme of the best and brightest.

11/27/2011 -- Labor, and those who do it, have much more value than has been allowed.

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

12/02/2010 -- Banking is a utility (but we also need plumbers - a few, not an army).

11/30/2010 -- Finance and pay, always problematic.

12/01/2009 -- Some rent is okay.

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

09/24/2009 -- Things looking up for those who churn.

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

07/22/2009 -- We need to look at economic causes and their consequences.

06/17/2009 -- We may not have heroes in a general sense, but we have people who are idolized (and more), such as Milken whom we'll use as a focal point to discuss several things. Milken, evidently, is not a fan of Modigliani's opinion. Mike says that structure counts (see WSJ article). By the way, Mike's comments on myths about him will be part of the discussion. His comment #13 makes him out almost to be stockholders' Robin Hood.

Remember, the theme here is that a lot of securitization is bunk, many times. Sheesh, talk about a perpetual motion machine, always moving monies from the pockets of the hapless to that of the fat cats. We need a fresh look.

Modified: 02/05/2012

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

Hedge Funds

As the Fed repairs the economy and the political leaders put out stimulants to get us all ga-ga again, we can look at particular financial areas more closely. Hedge funds, and the related oops (of which there are several types), will be an interesting start.

Yesterday, the WSJ reported how "ponzi" reportings seem to have proliferated after Madoff's revelations. Several factors can be thought of as contributors toward these being discovered. For example, people asking for their money can put strains on the scheme.

We could actually do the determination sooner, using techniques like truth engines. Actually, in Madoff's case, just asking the right questions would have worked; that is, following through further than just taking the guy's word. Collusion (story of an Irish hot dog banker, another poster boy) does come to mind as apropos.

In a sense, the madeoff/ponzi is the poor (non-rich, ok?) man's hedge fund. That is, the hedge funds screen out by the client's pocket's abundance and offer huge returns. So, that they get away with this (a future post will deal with the ethics and legitimacy of that whole game), including some outrageous practices (see below), sort of lets the non-rich person think that someone claiming to know how to get major returns (say, 48%) has to be legit. Didn't they hear similar about a hedge fund (ah, even Harvard bragging)?

Folks, do the hedge funds make any sense only in a culture of excess (other than helping the managers gather bucks)? That is, do we not have too many presses printing too much money? These funds were originally a method for those with an excess of accumulations (again, near-zero sum game, any big pocket, by necessity, is the result of milking oodles of the hapless -- It is encouraging to see empirical studies being done, such as UMass - Amherst).

Some of the characteristics of the hedge funds are bothersome. Take the opaque nature (please). Supposedly, it's to cloud their strategy. How many of these have been studied (see Hedge Fund Center)? I'm not talking just comparative results; that's a silly game. Too, these funds' public flogging of companies makes them like the taliban of business. For this, think about the video of a street in a city near Iran (you know the country) where some sharia law enforcers are holding down a guy in the street and going at it on his back for some infraction (judge, jury and executioner all rolled up into a roving band of thugs).

So, some have argued that hedge funds keep companies in line, the short-sell argument, in short. Oh, they're the conscience (dealing in rumours, see below) of the economy, so to speak? Sheesh, it would be more like a plague in a sense; what can these guys do that is constructive?

Consider this, the farmer helps us with eatables, the factory person provides us cars and planes, the landscaper cuts our grass, the doctor gives us our daily pills, ..., oh wait, those last two are services. In a sense, the hedge funds do provide a service but ought this be allowed in wild-west framework that they expect.

Again, consider this. We have social and legal constraints on various types of abuses. We are not allowed to exploit some person just because they are without power to stop us.

Well, hedge funds, in a sense, exploit little quirks in the economy (which is our body). If they were pure bottom-feeders, it would be okay (picking up exfoliates, etc.). But, no, their intent is to drive things. And, can we honestly say that, as a whole, they do any more than drive things into the ground?

As said, this is only a start of a series. And, I might add, that if some positive notion can be identified by this technique, I'll say so. What are the chances that the collection of things positive about hedge funds would outweigh their problematics? Well, that is one motivation here.

Remarks:

01/20/2013 -- Busyness (where is the sandbox?). The recent Business Week had something interesting article (Steven Cohen, of SAC Capital). Some employed in the business have misgivings about their ways of doing things. One talker, under questioning, was asked if he knew of any hedge fund that was clean, or above reproach using the old concept (as in, no shady dealings). No, he said. They could not survive, otherwise. It's like doping.

11/29/2011 -- Ah, Big Ben helped his friends more than he said, at the time.

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

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?).

09/11/2009 -- Win and lose. Everyone wants the former. The latter actually is what balances the equation.

08/17/2009 -- As promised, FEDaerated is here.

04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.

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

01/30/2009 -- Hedge funds are about risk management, according to sanitized views, and may very well have a rational basis. Yet, various motives, which probably come out of the lack of control, seem to demonstrate that which Minsky tried to describe as the inevitable descent to a stench.

Modified: 01/20/2013

By necessity, Ponzi

We've seen it before; Minsky suggested it as so. Financial gaming is always ponzi-like with the inevitable suckers.

The question is how to control this. Well, there are several ways, but they require some toning down of the aura of money and related luxury. That is, are the richest the smartest?

Gains in equity are not 'real' profit, even though the government likes to tax these supposed gains. Or, it used to tax them more; lately, the tax takings have been reduced. No, the supposed gains in equity are nothing than more money coming into a game, not unlike what Madoff was doing, except it's a little more subtle and considered smart.

Is there not a major industry set up just to handle money going in and out of the equity market? And, is there not a whole lot of technology devoted to tracking this money and to allowing almost infinite gaming on slight differences (derivatives)? Yes, the whole industry is suspect from its very foundation.

But, 'real' profit determination would require putting money on something other than a gab standard, plus a few other things. That implies people doing things other than just moving around virtual bucks, such things as making food or being involved with other essentials.

So, to get it right will require some hard choices.

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).

08/27/2009 -- Madoff exemplifies (albeit somewhat indirectly) systemic risk.

04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.

01/26/2009 -- We need to consider 'derivatives' in various connotations.

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

12/16/2008 -- Shoes continue to drop, but they are of several types.

Modified: 08/01/2013

Crooked games

Well, it has been said here that there's not too fine of a line between finance and fiction. Usually, that was meant in the context of stupidity as manifested in leveraging or in computing idiocy.

Well, folks, there is a mathematical view that uses fiction in a serious manner. All of our views of life and things rest upon a perceptual and conceptual foundation. Whose nose really knows?

So, now we have this guy, on the Street for years, saying that he's pulled a ponzi. Now, his ponzi is not the hapless type that Minsky talked about: to wit, hedging leads to speculation leads to 'ponzi' almost by necessity.

No, the recent revelation showed a game that was out and out fraud (see "Is the Madoff Scandal the Story of the Year?"). Notice that many financial types thought that there was some sort of illicit stuff going on, yet they did not look into it or they invested (well, what are spoils for if not for the taking?).

So, we have to ask: how much of the market structure is now fraudulent or what other shoes will drop? Well, we asked before, but initiatives like SOX were supposed to help matters.

By the way, up close and personal, the blogger's friend, this year, showed a bank that their 'finger on the scale' calculations resulted in underpaying customers (this has been going on for a couple of years). The bank threw the blogger's friend out the door (Madoff threw out those who questioned his returns), granted with checks covering all his accounts but some of the instruments had not matured.

Appeal to the governments (state and national, oh yes, the OCC - see regulators in the USA Today list) showed that the regulatory agencies are essentially complicit with perpetrators, basically through not following up. Of course, they do have an excuse of having been decimated over the years. Too, the current administration carried on the theme of screwing the public so that the fat cats' pockets can balloon without bounds.

Finance, as a metaphor, is like the circulation system where it moves monetary value (the blood). Yet, we have allowed it in the western world to be the playground of those who cannot keep their fingers out of the pot.

Let's automate the thing and have oversight from everyone. Technology can allow this; truth engineering would be one facilitator of scrutiny. How else to remove the crooked games?

So, we'll have to list things: opaque wishes (like the hedge funds), elitism (as shown by Madoff's crowd of pushers), derivatives (using calculus to show the silliness), ...

Remarks:

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

08/27/2009 -- Madoff exemplifies (albeit somewhat indirectly) systemic risk.

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.

04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.

03/11/2009 -- We also need to look at accounting's role messing up affairs.

01/26/2009 -- We need to ask, why finance?

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

12/16/2008 -- Shoes continue to drop, but they are of several types.

Modified: 05/17/2011

We know better

Not only do we know better, we can make the choice to do better.

A year ago, many knew that the market was over-priced. Heck, it was visible even before that.

So, what caused the reality that it took a year for this thing to unwind? Well, that we will look at, but a variant on Minsky's thinking is apropos.

But, words that come to mind are gaming, malfeasance, entitlement (of the rich, CEO, etc. - not so much the lowly work, folks), sheer stupidity, denial (wishful thinking), ...

Yes, there are culprits all around.

Remarks:

08/01/2013 -- We're relook at this as we consider the good side (as if there is one) of financial engineering.

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

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.

07/17/2009 -- China has eaten our lunch (and dinner). Shows how silly our games are. Yet, finance can be run by people who can be non-profit in scope and who have an impeccable (oh, what quaintness!) un-interest in money.

11/24/2008 -- In the last two days, the DOW (and other indexes) were up 11% which is a record or close to one. With this type of volatility, how does one plan? Well, that's one problem to be considered.

10/15/2008 -- That the market jumped back with a large increase after more governmental meddling indicates the level of interest in the gaming approach. All sorts of infrastructure has been built to support this gaming (the casinos of the Street - and Chicago and ...). That we pay attention and cheer is another sign.

So, it's time to go back to the basics and start over in the analysis with comments, such as: now that we the taxpayers are involved, we know that it is absolutely true that the fat cats want their privatization of profit (rolling into their pockets) and their socialization of loss (rolling out of our pockets).

Too, if the government is going to be involved, then we need oversight. It is possible despite the protestations otherwise of Alan and Ben.

Modified: 08/01/2013

Fraud power I

Fraud power? Yes!!! This, from a former SEC head; he's looking at derivatives and other modern instruments and shaking his head, as has 7'oops7er. We'll go more into all this through time while we look at finance and products.

Let's pause and look at some coming titles:

• - Fraud power - ah, we can look at how finance, as says Minsky, always goes astray. We can start from the problems with the gab standard and work our way up to those who have pilfered more than their share. Rhetoric and market would be synonymous, except it does always come down to money (the taxpayers as contributors). Ah, but as engineers know, you cannot fool mother nature.
• - Captains of industry - yes, we could split all captains into types: military, political, industry, medical, charity, ..., church, ... Well, of late, some politicians (who may have been business leads) have argued that 'captains of industry' (the CEO as the new king) are who ought to run the country. What? They have no morals in their equation; at least, the political realm is not moral-less yet. Industry hasn't even solved its ethical problems yet. Things like the current strike can be tied (even if some think these are loose ties) to ethics. We'll get to that later. Military leads, at least, have some national ethics, as would the political leads. That some church leaders lead lives of material sickness (as in over indulgence in abundance) is not the norm.
• - Globalization - huh? Does not everyone know that being differentiated is one attribute of the mature? Thanks to Jung's fine analysis. So, what's this about dropping national borders in the interest of lining pockets? The 'pure' theory of international trade is just that (intellectual flimflam).
• - Best and brightest - oh yes, if you guys who want to exercise your 'fraud power' would put your mind on a better problem, perhaps the world would improve. Say, how about studying why each generation seems to bring forward more 'fraudulent' methods (enabled by the progress of technology)?
• - Silly games - some of the current problem can be traced to mortgage issues; yet, that is only part of the story. As, the whole notion of 'intrinsic' value has been pushed into the mud of the 'fraudulent' muck. We have, and will continue to, address that.
• - New model - when you look at the disparity between the views of management (who, you know, are divinely ordained) and labor (mere commodities, slavishly utilized and then trashed), you wonder what we might have learned by this 21st century. Well, Boeing has experimented with new ways, namely the technical fellowship, that can help bridge the gap. Where are they and their insights? Oh, buried under management's cloak?

Well, the work load is set; hopefully, time will allow fruition (no, not a slam against that fine plane that will one day fly).

Remarks:

01/15/2012 -- Changed the title. See updated post.

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.

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.

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.

06/15/2009 -- Globalization, and capitalism, now a dirty word, according to one in private equity.

12/13/2008 -- Well, another fraud type is the real ponzi. Who would have thought? What other shoes?

12/02/2008 -- The main topics include financial engineering, globalization as colonialism, panaceas such as outsourcing, and much more.

Modified: 01/15/2012

Last shoe?

Last shoe? Probably not, but it is significant that the golden boys (Goldman Sachs -GS) have come to the Fed (and to us) with their hat in hand. The comments on CNBC were that GS was 'coming in out of the cold' in this case; plus, it was said that the Wall Street model of the past 20 years is being shown to be faulty.

What about Chicago and their contribution to the frothiness (like truthiness, but more troublesome when value is concerned)?

Just a mere three years ago, GS and BA combined to create SPR while trashing many peoples' lives; this has been mentioned before; GS's asking for help opens the door for more explicit analysis and expositions.

That event was only one of many. Of course, we could talk about Blackstone's (taking China for a billion or two) problem. We could talk about how Minsky's ideas apply.

You know, the real kicker is that student loan handling was screwed up, that mortgage handling allowed many to get $10M windfalls based upon mere illusion, that some CEOs even expected their big payouts while that under their command was severely ill, that ...

We can go on and on about this, intend to explore it to the depths, and to discuss alternatives that are better. It'll take time.

Remarks:

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.

12/13/2008 -- Much water has passed under the bridge. But, new types of revelations continue to arise. Must admit that I hadn't consider this depth of fraud, both in the duration of the scam or extent.

Modified: 08/24/2009

Oops as poop

Yes, the title sort of sets the tone here. Business week, recently, had an op-ed that said that the Fed (and Treasury and others of the ilk) are spitting in the eye of those who have made good economic decisions the past few years; too, they're stiffing the savers and those working for their own future.

What does that mean? Well, lets talk first about those who fail, get bailed out, and then come back for another day. How long do we have to deal with this type of thing? Like AIG who floated in dough for years; when it's time to pay out (that is, put the money where the mouth is), they disappear. Oh, floated how? Well, many mansions and a high life, essentially.

There has to be a growth rate for the less risky that is a good basis (what? 4%? name it!). That those dealing in the stock market can show an increase over the years in value has been made problematic by the 'gaming' that the computer has allowed. What value can be ascertained anywhere? The reason for the unwinding results that we see show us that the 'froth' is essential to the churning rate. That is probably a poor metaphor, yet looking at Minsky's idea ought to give us pause (hedge to speculate then ponzi/pyrimid [oh, don't tell me that some hedge funds (perhaps many) have not had huge returns just because their basis is expanding due to more money] as an inevitable sequence).

Well, poop will have to now be added to the 'oops, loops, oops, and nooop group. I could not see how that pejorative word would apply to product management or engineering (perhaps too close to that to see it - other than the normal joke of going around with a shovel after certain types - the saving grace there is that nature and testing will iron out the truth). But, it does deal with the financial crowd who has run rampant the past few years, fostering on us all sorts of idiotic schemes, yet at the same time getting press due to the wow factor.

So, there have been many, who have worked hard, accumulated assets (like through savings and other mature economic moves), and tried to keep from all those silly shell games being offered by the supposedly smarter.

Yet, who gets bailed out? Those who are basically economically immature and who crap all over those who are economically mature and more sane.

It may be that a lot of this 'bailing' is to help influence the election; on the positive side, much may be learned from this; unfortunately, those who play games will only be more emboldened to continue their sandboxy ways.

Remarks:

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

09/12/2009 -- Sandbox was used without definition. Let's discuss that concept.

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.

07/31/2009 -- 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.

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

12/05/2008 -- Not to be gross, but we can be biological and talk about a cycle. We have an eating phase and an elimination phase. A good article to read in regard to recent boom/busts is Harry Blodget in the December 2008 Atlantic ("Why Wall Street Always Blows It").

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

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

Modified: 03/22/2011

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

Oops and more oops

As said before, ooops are everywhere and seem to abound. Ah, but we need to consider the other side, namely the Nooop and aah.

So, to keep it short, lets just look at a couple.

- Fannie and Freddie - this example (reactions by blogs) is almost archetypal for economics, with a core issue of free or fee. You see, these are close (one letter difference). But, they differ by a wide-range; the spectrum is as large as that of the open-source and proprietary stances (we need both). The real tragedy (see Remarks, for a greater tragedy) of the latest step is that common shareholders may lose (in fact, those that have already sold at a loss have ate it) while the 'fat cat' preferred holders will roll in the dough. Plus, former managers who ran these quasi-governmental entities to the ground have their monies and gigantic bonuses. As said before, that 'game' called the market is neither free or wise; and, those whose colored glasses argue for such need to look at quasi-empiricism and ponder a few things in regard to engineering mishaps (finance has taken technology and mathematics as the basis to build us a house-of-cards, essentially). The results of some newer methods are coming home to roost.

- Boeing stumbles again - at least, in terms of knowing how to relate to labor, if not categorically, then in particular instances (we'll go into this further at some point). How this will play out with the 787 will be of interest as the critical step of flying and testing in the air will be delayed, though we don't know if some other delay may have been lurking (so, there is a silver lining of sorts) and was about to reveal itself. The fact is that a whole lot of new technologies need to be proven. As comparison, the new Cessna program is planning for a 3-year period between first flight and first delivery. Boeing's truncated schedule looked suspicious from the beginning, to certain ontological views, that is. For some reason, an aura from high technology and applied mathematics distorted the sight of those who ought to have known better (again, more on this at some point, but for now, look at the early seeds and subsequent posts).

Remarks:

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

09/12/2009 -- Sandbox was used without definition. Let's discuss that concept.

09/11/2009 -- Win and lose. Everyone wants the former. The latter actually is what balances the equation.

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.

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

01/26/2009 -- Now a new day and way to consider these matters.

09/14/2008 -- Minsky's hierarchy has been invoked on several occasions on the finance side of the blog's focus. It has been suggested that we could use this as a guide. For instance, proper hedging and some types of speculation ought to be consider okay. But, then after that, things become playground/sandbox in nature and ought to be handled that way.

And, despite the use of 'hedge' by some funds, such as Harvard's fund that has grown immensely, the types of returns that they have enjoyed come by either malfeasance (let us see what you're doing so that we can make our own assessment) or they're beyond speculation (it's near-zero sum, folks, despite our wish that we can justify huge returns). That is, exhorbitant gains come out of the pockets of the hapless, even if the public face might be that of a competitor, such as another hedge fund.

The real tragedy is that the Harvard's wins (and similar examples) lure folks like the CALPERS to think that they need to do the same thing. Even municipals are getting lured into the game.

But, here, via this blog, we're arguing for 'intrinsics' as necessary (my challenge to Harvard is to get back to your heritage - the Puritans); and, we'll get to defining what we mean.

In the meantime, what Buffett shows, with his involvement in his investments, is just one type of intrinsic relationship. There are others.

By the way, folks, all this silliness is only a few decades old; it has no real theoretical substance behind it; and, we can nip the bud now to create a better financial world for us all.

Modified: 11/04/2010

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

Miscellany

The Truth Engineering blog started first (July 24, 2007) with severalfold motivations but without a specific focus which does allow a more general viewpoint. Then, with the rumblings on the web in regard to the 787 missing its fly date starting to increase, this blog started with that focus but then took on a larger scope (these seeds are being updated).

In that larger scope, the idiocy of the financial world will be analyzed much more deeply than can be the 787 program. Why? It is supposed to be open, much more so than can be some proprietary program. Yet, we've seen privatization of mechanism (it allows Grasso keep his take). Not that the engineering/program topic won't be used in the future, after all engineering touches everything and has some blame for the current messes that we see. Of course, the 'real' engineering viewpoint will say that management forced decisions that ultimately screw things up.

As an aside, one task for each blog will be to have a name for reference to 'self' to inhibit the use of the royal 'we' as may have happened now and then. So, we'll use 7oops7 for now.

Of late, 7oops7 has been getting more deeply into what has happened in financial and economic theory (and practice) the past couple of decades than was thought wise before. You see, many have gone mad thinking about these things. How else can we (oops) account for the growing idiocy and all around growth of hapless victims? These are dismal sciences, indeed.

Engineering comes out with something real, such as an airplane which can be tested against its goals. Finance is for the most part a game, as has been said before. 7oops7 has been incredulously poking at shenanigans that the lemmings (from the top, I might add you) have allowed, pursued, and pondered (as it creates holes in the pockets of the many). Gosh, some of these things don't even make sense to most (understanding requires initiation into the brotherhood) and really border on unethical practices (are we in a global blindness here?).

As said before, quoting the recently-departed William F. Buckley, Jr, 'stop' (the madness). Just because the computer and mathematics allow the gaming of the market does not give it any more truth than what it is. What is it? A very shaking system based upon what several metaphors could describe: sand, cards, ...

There have been sane voices, such as Minsky (the economist, not the perceptronist) which is encouraging. Methinks that the genie is out of the bottle, yet putting the more risky in a sandbox is not impossible. All it would take, to start, would be a good explanation about why we have all the instability. Perhaps, 7oops7 could attempt such, knowing, of course, that the myth of Sisyphus is apropos. Let's see, how much time do we have?

Remarks:

09/12/2009 -- Sandbox was used without definition. Let's discuss that concept.

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: 09/12/2009

Mac and Mae

These can be used to distinguish between two mind sets in order to examine the basis for the current financial problems in which we, the taxpayers, are bailing out the stupid and the greedy (who are thought to be smart due to their money grabbing successes -that, of late, are being shown to have been more of ponzi than of substance [thanks, Minsky]).

Okay, Ben's blink, as mentioned earlier, is a factor, but he was only carrying on the Fed's history of fostering moral hazards. Yes.

How did this mess happen? Let's look at how Mac and Mae are perfect foil for analysis. Also, we can look at the creation of firms that screwed workers and feathered managers' bed (earlier posts have dealt with one instance).

Well, Mac and Mae were oriented toward public service in the beginning, in a sense. The notion was good in that it offered the opportunity of home ownership to a growing middle class.

At some point, and we'll not point fingers yet, those whose idea is to match their ego sizes with a larger wallet came to fore. Privatization reared its head and seduced the lot of us.

Well, not the blogger, since it is obvious to any who think and know that self is good, yet service is better. Naturally, the watered down version is the golden rule which is important to ethics which is related to a sister blog.

Anyway, a gaming scheme has become the current vogue with an enormous amount of money going to foster the daily bread aspect, with the markets, the analysts, the TV and other media, and the computational support.

Where is the humanity? Oh yes, teeming masses all after their own glory.

So, Mac and Mae (and dear old Sallie - gosh, using both profiteering and pirating to wrap students into unending debt) were twisted and screwed; managers started to reap large rewards (criminally, given the pay backs - oh yes, Grasso's take torques too since the market at the time of his leadership was supposedly a public service); the underlying ideas were lost.

Let's grieve and then clean house here. 'how' will be an area to look at. 'why' is apropos, too, as is a whole bunch of other topics.

But, keep in mind that there are those who step above self. In the sense of one current affair. those who risk life and limb far exceed in stature the PhD with the smirk, in particular, and that whole class.

God bless American and help it lead with a proper balance between public service and profiteering (this latter ought to be controlled just as we do gaming - as said before, a sand box is necessary).

Remarks:

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

08/17/2009 -- As promised, FEDaerated is here.

04/17/2009 -- Minsky and the facts of ephemeral value are a couple of topics on the list.

01/26/2009 -- Still asking for money from our, the taxpayer, pockets. Also, on the culprit list.

10/04/2008 -- Well, these are now folded into the arms of the government.

07/30/2008 -- The SEC sees gaming in stock for these; if this is obvious, then rules would be in order; don't you think?

07/17/2008 -- In the Denver area, of those within the coverage of the electric company (which, mind you, was at one time public service), there are 47,000 that are without arrears. The fat cats have gotten fatter; the mosts have thinned, quite a bit; are we to have people then suffer immensely due to improper management (from the highest level)?

07/16/2008 -- Leaders don't ask people to do things that they cannot or will not do (that's more in the realm of serfdom - what larger master is there than interminable debtor-ship).

How is public service learned? Well, it starts in the home. But, having the universal service time for youth would help, too. Remember, the WWII strategy of the draft cut across the board socio-economically. That this gaming mess may be the result of a 'computer game' generation and did not arise out of those who were GI-bill educated will be looked at in depth.

The original focus of the blog harped about consequences of misuse of mathematics and computers. That quasi-empirical issue still stands as important.

Modified: 03/23/2012

Counting oops

David Wessel, of the WSJ, writes in Fannie, Freddie's Risks Exposed about the balance needed between privatization and nationalization. These two are examples of the abstractions that we love so much. If you would, these are 'dreams' that are problematic for realization, not like those things in engineering where actual production is possible.

So, what happened in the past decade is that a very much ideal approach to supporting home ownership was opened (but, not as a level playing field) to those who could not keep themselves from profiteering (which is related to Minsky's ponzi-ness). Along with this, another thing of beauty was besmirched, namely good old Sallie Mae. Several students who took loans found themselves wrapped by the python let loose by the privateers. These things are partly apropos in that Barack's vetting chief was one of those who interloped upon that space.

But, back to Wessel's comments, which are usually resonant with themes of 7oops7. The recent looks at Fannie and Freddie have resulted in recognition of their usefulness and in some appreciation for what might be done to control the Minsky inevitables.

So, how many oops are there to count in this regard? Well, those related to the program of initial interest pale by comparison.

Another example involves the Auction-Rate Security (ARS, see Wikipedia) which has trapped a few people. Again, from the WSJ (Holders of Auction-Rate Debt Have Choices, but Few Solutions), we can see some specific cases. One person asked where to part $375K for a few months in order to sort things out. Well, this investment idiot (UBS? you would think better of them) spouted that the ARS (was there some notion about the ARS being a cash equivalent?) was the place; essentially, the person has lost half the value. Naturally, claims for some type of damages are forthcoming. The article has a few other examples.

A lot of these things are understandable as many made oodles of money with problematic instruments for awhile and got lured in. It is very much true that proper accounting was not done; meaning, of course, accounting that would have shown the losers over this time (near zero-sum, folks - oh, that would be a God-eye's view? you might ask).

Gosh, the rating agencies adding junk on junk and getting something that didn't smell (or so they thought) just shows that mathematics has been mis-applied and reason pirated.

In this case, short-term CDs, even with the diminished rate due to Ben (thank you, guy), would have been preferred. But, various traditions of finance and mottled thinking says not.

Remarks:

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

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?).

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

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

Modified: 11/04/2010

It is not funny

Earlier, we talked about financial decisions that would be funny, such as leveraging, as being a cause of oops as it provokes gaming which can have very much non-funny results. Minsky's notion of the inevitability of the ponzi following speculation seems to fit.

Well, we see financial issues everywhere, from the Fed opening up discounts to junk'ies (a view in the WSJ asks, Why Is the 'Discount' Free?) to workers being screwed out of their pensions that are comparatively small to what the fattest of the cats may get (also, see recent WSJ article on CEOs posthumous pay -- millions and millions).

An example of a problem, that has lurked but is very illustrative, is the dilemma of workers. For instance, we see pension robbing, where one would expect that after all this time we could support the future for workers with more than just gab. We see little respect for workers from management as the latter go about their profiteering ways.

Of course, many of these issues would be hard for an angel to resolve, that we have greed involved to the equation just complicates things more. Perhaps, getting the dismal areas to be less so would be a good step forward starting with currency that has 'real' value.

Remarks:

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.

08/17/2009 -- As promised, FEDaerated is here.

01/26/2009 -- Lessons to be learned (as opposed to learnt), including, by necessity, Ponzi.

07/31/2008 -- For a little bit, we'll be looking at money and why there is so much problem handling things. The oops part results from our letting computationally-framed methods run amok, just because we could. Lawmakers and lawmen, essentially, have let this happen either due to wanting the benefits to accrue for their friends (and, boy, has this happened) or just due to the complexity of the situation (which is real, but that does not mean that we ought to let those opportunists who play and win to not see beyond their mountains of dollars [or any other currency]).

That these issues are not simple is due to the very foundational nature of the related problems.

Modified: 08/24/2009

Creativeness and oops

Of course, that one does 'oops and loops by necessity leads to oops. Our task is to try to control the risks which implies a whole lot of stuff. We can look to both engineering and financial examples to study this further.

But, in looking at finance, does anyone remember that about 18 months ago or so some experts were claiming that the tranche, and its ilk, spread risks such that we would not, ever, have any type of financial meltdown? Was there not some type of meltdown of late? If you don't think so, go talk to the Bear Stearns people, meaning, of course, those who lived and strove for the company and not those cats, of the fat variety, at top.

So, along with tranching, leveraging, and other creative things, we see another bit of activity that was verboten in the 80s, namely "brokered deposits." One quote in the article mentions that we need to manage these things; yet, are we not always faced with the problem described by Minsky, namely froth?

Not to stand in the way of progress, but it seems that a whole lot of financial experimenting has gone on the past couple of decades without much oversight, for several reasons. Of course, as old Alan said, the Fed doesn't have any better forward-looking glasses than do the rest of us. They would better focus on bail-outs, as we have seen in abundance, of late.

Yet, one would expect that we would have some core of mature insight with which to apply our prowess in mathematics and computing.

Remarks:

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

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

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

06/12/2008 -- Turns out to be worse in several senses. It raises uncertainty for the bank since they have other than the traditional relationship with customers. At the same time, gaming types can come in and make trouble for the customers, through various types of malfeasance.

One lesson may be that if you have the money, do your own work in laddering, etc. Ah, but that goes against the grain of having other people do the work.

Modified: 07/23/2009

One year later

7oops7 isn't quite a year old as the first post was almost September of 2007. The precipitating event is one year. As mentioned earlier, the interests are varied, including truth (as in lack of hubris, for one), engineering, finance, and many others.

On the engineering side, we get this from flightblogger, a Happy Birthday.

Now might be a time to review the past year in terms of releases, forums, and all the discussion. Of course, such analysis will take some time.

The anchor point would be the Release one year ago which talked about rolling out (ostensibly to fly) in seven weeks. Then, one can delta forward and backward from that point and look at who knew what or how (too, who is a cheerleader versus an analyst) there was so much confusion (Some seeds, posted 08/31/07; these have not been looked at since November of 2007 but expect an update).

On the finance side, the intent is still to explain that 'gaming' does not sustain an economy and that any scheme that indentures (as in debt to the fat cats) the populace to the nth generation as we see now is not sustainable.

Earlier, Minsky's ideas were used. Also, tie ins between engineering and finance were mentioned, even to the extent of comparing outsourcing to leveraging. We'll get into that more.

Too, we'll need to look at personal finance which lessons apply as well to smaller business, and perhaps broader.

If we look at E_S_T_A_T_E like this brief overview, we can go a long way toward a better framework. We will look more closely at: Earning, Saving, Tithing, Alms giving, Tax paying, Enjoying the fruits.

One might even say, in that order, as we are allowed to do in the USA. That second activity (Saving) is antithetical to what some have seen as a necessary part of the modern economy. "Alms giving" covers a lot of bases including the current encouragements to volunteer. The final action does not imply in any way that debt is required (beyond some reasonable amount - hey, mortgages were real nice before the madness of the past 10 years) nor does it make judgments about extents of spending, such as McMansions, et al, which will be as much controlled by wisdom (which is a growing set - even with the propensity toward greed) as by resources.

Remarks:

04/07/2012 -- Flightblogger ends, as least, Jon's watch. Some issues raised five years ago are still apropos. The context may have changed a little, yet, perhaps now is time to re-address the themes.

Modified: 04/07/2012