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

The times

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

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

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

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

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

Remarks:

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

Modified: 01/18/2009

Sixth poll series

Note: Poll completion.
The first five polls have been complete for some time; this blog has been taking a greater look at financial engineering than at product engineering; but, recent developments suggest that there ought to be a better balance and that another poll might be in order.

There are several questions to raise this time around.

• Is the 787 program too scattered to be effective?
• Is the IAM strike convenient to the 787 program?
• When will the 787 deliver?
• Will delays cause reversal of 787 orders?

One wonders why there are arguments for the process when the product has not been tested fully; does not that seem backward? The IAM's beefs (who are more doers than not) deal with the future as it is represented by 787 decisions; is it a convenient strike for Boeing (Bell's attitude seems to suggest so)? The delivery date has to be largely unknown; the product still needs to run through its ropes; is it wrong to ponder failure of this program? Flightglobal asked, in a poll, whether 1000 sold would occur before first delivery; well, what are the chances of retractions of orders?

Lessons learned: we'll have to attempt this at some time.
Remember to support bet2give; their poll is Test flight in 2008. See the list of Flightglobal polls related to the 787; the latest asks about the IAM strike (53% agreeing with the strike).

Disclaimer:
Usual poll etiquette assumed; polls are oriented toward information and not mis / dis-information.
- A casual user cannot double vote on any poll. But, there is no guard against intentional duplicate votes by those who know how.
- There is no consistency checking between polls.
- There is no meta-information about who votes or why.
- There is no current correlation between the polls, however the 'role' poll allows some indication of interest.

Remarks:

01/20/2013 -- Change link for bet2give.

Modified: 01/20/2013

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

TANSTAAFL

We can use the TANSTAAFL adage from economics more widely. Basically, it says that someone always pays; an analog might be that entropy increases.

So, this can apply to engineering in a manner that would remind us that the supply-chain model has many assumptions about which we need to be careful. To the managers of any project: you cannot get anything better (assuming that you can - another adage deals with the greener grass syndrome) without paying (that is, your AAHs (NoooPs) are not free, and, as we see, you pay in many ways other than money and time - remember that reputation and good can also in the list of payables). But, let's defer this discussion to a later date.

There is too much on the financial plate to cover yet. Airplanes and other physical products can be tested in the real world; progress there comes with sweat that is measurable. In the market, we have all sorts of uses of 'free' which is very problematic.

Like, free market (start with the criticisms) or free trade or ... It's rather ironic to hear a market type (for example, those who are CBOE-ing) say that there's no free lunch, yet arguing at the same time for a free market. Sometimes one wonders if 'free' in this context means to be unburdened by any type of constraint that would enhance transparency.

Sheesh, nothing is 'free' ought to be the adage.

Except we see this: some one thing may be 'free' to some party, yet a proper accounting will show that someone, somewhere pays. In the market, we see the greased slide of monies from the pockets of the hapless to the pockets of those who are 'free' to exploit the situation. Even that 'greased slide' is not free; by the way, the hapless pay more for it than do others.

As a reminder, this blog deals with how 'oops and loops lead to oops. Well, how many oops have we seen in the financial realm of late? And, proper analysis will show a steady movement toward instability through decisions of the past few decades.

We can go back all the way to 1973 and CBOE's introduction of the option market; yet, we can go back further. But, that may be immaterial, as understanding what the basic issue is so as to know how to cope can take a message from Markov. In short, it doesn't matter how we got to where we are, future states and decisions are based on what we know and do now.

Remarks:

10/26/2010 -- Adam knew the failings of 'free markets' quite well.

11/20/2009 -- It's near-zero.

11/06/2009 -- There ain't no train, just like there ain't no free lunch (TANSTAAFL).

09/09/2009 -- To look at some issues addressed here, we'll need to consider Alan's reign.

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

12/18/2008 -- Fairy dusting continues with made-off results. But, we can construct with robust methods, including leveraging.

Modified: 10/26/2010

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