More on culprits

Earlier post identified poster boys and other culprits who might be behind the toxicity of our beans. Well, the former probably thought that they would put Obama in his place ; but everyone made nice at the meeting. We still don't know if they learned any lessons. The latter (those responsible) consists of a long list that will be reviewed from time to time. Everyone seems to have forgotten Grasso who is a poster boy for lots of that era just past.

Another issue relates to value assessment, especially the imposition of mark-to-market rules. We'll be looking at that in an economic/engineering framework since the tie has been tightened twixt technology and finance.

For now, let's look at the Fed of he who blinked. The WSJ published an opinion by Greenspan (former head) in which he tried to show that he was not at fault for the housing bubble. You see, plenty have him on the culprit list as the sub-prime thing showed the first quaking which brought down the house of cards.

Yesterday, there were replies to Greenspan's argument. All are insightful. Shelton's ("Loose Money and the Derivative Bubble") take is right on as the gab standard is of prime importance here. Shelton talks about derivatives and their influence. Well, as 7oops7 has argued, this whole discipline has a basis of faulty mathematics. We'll be looking more at that.

Remarks:

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

02/01/2011 -- The chimera shines.

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

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

03/30/2009 -- Philip Greenspun reviews Greenspan's The age of Turbulence and references Alan's March 11, 2009 article in the WSJ. Greenspun has a proposed economic recovery plan that we'll discuss at some point.

Modified: 11/29/2011

Toxic assets

A WSJ opinion, titled "Toxic Assets Were Hidden Assets" by Hernando de Soto, covers some of the issues related to the financial mess. We can rant about the culprits (who are many), opine on causes, belittle the greedy, and such. We can harp at those who are trying to fix things up.

But, the core issue is securitization gone wild. As said before, in this blog, the problem stems from the misuse of modern methods, the lack of appreciation of quasi-empiricism's message, and from outright exploitation of (and profiteering on) the confusions caused by the insertion, into finance, of unsuitable methods.

de Soto mentions that many things were largely off-the-books which breaks trust. Too, as said here, the argument from CBOE'ers and hedge fund'ers was that they required opacity to cover their strategies (ah, the best-and-brightest knew that they could more easily pilfer with the lesser scrutiny). And, the risk people thought that they had a stable grasp of things. Hah!

Well, it's time to get past the rhetoric and to get back to talking turkey. Hence, future posts will get more serious, except an occasional poke at the madness cannot be denied.

Remarks:

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

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

02/01/2011 -- The chimera shines, though the toxic still underlie Big Ben's balance sheet.

11/02/2010 -- Over a year later, the message is the same, except some changes have occurred. But Big Ben continues in his ways. Of real note is that the jobless rate is high; out-housing really set up for that. Also, we need to re-look at that learned from the 'vons' guys, Ludwig and Friedrich. See Near Zero.

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

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

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

06/17/2009 -- Michael Milken says that structure counts (see WSJ article). 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.

Modified: 08/01/2013

Predicting idiocy

We may not know what is smart, but we can identify idiocy by its pain, especially that imposed upon the hapless.

So, we have 2 trillion (bucks) of toxic waste (so-called assets) from the latest idiocy which was brought on us by the best-and-brightest. This was predictable. How?

Well, a few years ago, congruent in time with the tech bubble, the smart kids were going into computing. What happened there where a new world was supposedly being put into place (web-oriented, for those who don't recall)? Bust city.

Then, people wondered why the exflux (opposite of influx) of people out of computing (note that we can enumerate the associated academic disciplines). The kids were going into finance. What? That's a silly discipline. Oh wait, the bonuses were beyond anyone's imagination. And, as we see, especially with AIG, very addictive to those who get on that teat.

And, what happened with finance and fiction? Bust city.

So, a survey of the academic disciplines will help pinpoint the next boom and bust. You see, we can go back in time and, generation by generation, identify idiocy in action. And, the older folk just get out of the way; Hawker has put an old guy in charge now (isn't that apropos?). Some of this is not unlike cleaning up messy diapers from those who never grew up, perhaps like those in the rogue gallery.

What is the new intellectual fad to watch?

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).

05/07/2013 Case of the sucking of life out of a firm?

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

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

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

09/02/2009 -- The supposedly best-and-brightest have led us on a perdition-directed path through mis-using mathematics and computation.

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.

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

03/30/2009 -- Renewable energy is getting a lot of interest. Let's hope that more young people being involved there will get us some more progress and increase potentials for careers.

03/25/2009 -- All the involved generations are culpable here. We'll get into that with depth, including technicalities, as we go along here.

Modified: 08/01/2013

Silly games

Earlier, crooked games was used for the thing called finance and business. What you have are the Madoffs and others who pilfer outside of legal boundaries; then, there is a larger amount of effort going into keeping the game going so that legal pilfering can occur.

Say, like we see with the AIG bonuses (except, multiplied countless times) which don't make sense since the company could have been bankrupt without taxpayer help. From whence, then, would have come the payout.

Then, you got those arguing for unregulated manipulations via derivatives and other types of mechanics. That is, their casino capitalism is in favor of their pocket bulging extracts. Give us a break.

That is, there are many players, some are on the floors of all those market sites, such as The Street, CBOE, and the like. Too many, don't you think?

But, the silliness goes further.

Ben talks; Pandit talks; someone else talks; what do we get? Little blips in the indexes, and people go crazy. Money pours into the game. Ah, the poor retiree; what gives with all these financially errant fund managers?

We're in the situation where the loss is 10-12 years deep. Many have had their lives ruined.

Yet, the gaming continues. The headline says that Obama wants more control over fianance. Well, kudos to him if he can get it. Some feel that we can't regulate the best-and-brightest. No, let's just let all of us reasonable people go down with the ship because of their failings.

But, why the use of 'silly' in the title? Well, certain illegal activities require real brain power. We all appreciate that, yet what a waste. Being led around zombie-like by the comings and goings of the financial market is just that, silly.

The fact that we'll have to address? It's near-zero sum, folks. Any who makes some gain takes it from others. And, as we have seen many times, the few take from the many.

Does it have to be that way? No.

Remarks:

05/28/2015 -- Perhaps, we'll get back to this (does it or doesn't it?) before the downturn comes about. Too, near zero needs attention.

01/15/2015 -- One of the most-read, of late, as things do look unsettling. Did we learn anything?

10/16/2014 -- We are now five-plus years past the time of this posts. A lot has changed; more has not (will it ever?). We are now to the point where the years of largess, and seat-of-the-pants flying by the Fed, will come home to roost. Now, just because there have been a string of down days does not mean that we have hit the point where descent trumps ascent (in other words, no timing of the market can be implied here). But, the WSJ has an article about one high frequency group. They talk their benefits provided, namely, liquidity, efficiency, etc. However, the whole bit behind the ca-pital-sino needs serious examination. And, silliness keeps coming to mind. ... And, we are not being anti-computation. However, if we are going to use advanced computing, let's do something real: like, track all sales (daily and longitudinally) - yes, openness. Why? Remove the cheshire multiple, for one. Remove the cream scrapers and pocket pickers from the game. ...  So much to discuss.

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

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

10/13/2011 -- This needs to be updated due to an emerging phenomenon: OWS.

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

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

11/02/2010 -- Two years later, the message is the same, except some changes have occurred. Of real note is that the jobless rate is high; out-housing really set up for that. Also, we need to re-look at that learned from the 'vons' guys, Ludwig and Friedrich. See Near Zero.

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

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

08/24/2009 -- 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.

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

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.

06/17/2009 -- A fresh look will be needed.

05/18/2009 -- Oh yes, got us in a mess and still wants the bonus.

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

03/25/2009 -- Rhetoric can be fun, but we have to get into these issues with depth and technicalities.

Modified: 05/18/2015

Our beans

Madoff confessed. Consider how long it may have taken to catch him otherwise. Then, he's been living in luxury as some people scramble to see what is what and as others suffer the consequences. It's been awhile, and he is still not charged. Why?

Oh, is it a reward for fessin' up?

Well, these things can get complicated. There is a reason that the world of business requires trust. Some, perhaps many, take advantage of the situation (below). So, consider that the whole business game has evolved into a stinky mess. We do need more insightful oversight which we'll define.

But, first, quoting Morrill Goddard (an editor of a rag) from 1935 (see Note 1): The truth, which the public has never been told, is that no practical institution can be thoroughly checked so that every transaction is verified, except at prohibitive time and cost.

That quote was found in a 1967 book on Cost Accounting (Chapter on Internal Control). What is the modern view?

Well, we have SOX. What did that do for the current bubble? And, now we hear that there will be a regulatory overhaul. That is good; yet, what chance is there of getting it right?

This is an interesting subject that will be to the forefront for awhile due to its importance. The solution lies with truth engines; as well, techniques like an analog of random drug testing will be required.

Now, Goddard used 'prohibitive' which we all know is relative to many things. Granted, some of these problems will be intractable. But, assessing the market is not such. Rather, it is a matter of choices; of these, one approach would put ethics on a higher plane of relevance.

Yes, the old hat of greed and the other supposed traits of the best-and-brightest do not cut it.

---

Note 1: Goddard, Morrill. What Interests People and Why NY, Published Privately, 1935, 1st Edition, Hardcover. 6.75"X 9.5", 179pp, Fine. Full leather cover with bright gilt design and lettering, top edge gilt. No jacket as issued. Six addresses by the former. editor of the American Weekly, revealing the workings of his editorial formula and technique that built the greatest circulation in the world. Clean, crisp pages, bright and tight. Excellent condition! Journalism, Psychology, Human Interest (#004456).

Remarks:

01/19/2011 -- The quirks of capitalism are rank, not by necessity.

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

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.

06/17/2009 -- Michael Milken says that structure counts (see WSJ article). 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.

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

03/30/2009 -- The WSJ today looks at the Future of Finance. The idea is that finance is like the cardiovascular system. Okay. So leeches are a good metaphor for the sucking out that we see. Like the AIG guy who was central to the losses that we the taxpayers are paying and who left with $300M. We'll be referring back to this discussion.

03/19/2009 -- How do we get the silliness out of the disciplines?

03/12/2009 -- Of course, Madoff finally went to jail today. Also, USA Today said it right in an editorial today. The SEC went from a watchdog to a lapdog. When a watchdog, accumulation of wealth would tip off the SEC of a need for an audit. One can make a claim, which we'll attempt here soon, that too much building of the pocket contents is a characteristic of fraud. As a lapdog, the SEC seemed to salivate and wag its tail at mass accumulators.

Modified: 04/03/2011

More on New Day

Well, it's been long enough for the wags to start their summaries, such as this WSJ perspective (and more). Too, the rhetoric is settling down. We have a new budget that will set the stage for changing the future. The pundits will keep themselves, and some of us, busy.

It is interesting that Mr. Obama spent time, and worked, in Chicago but does not seem to have been taken in by the notions out of that town, such as casino capitalism (CBOE, in particular, if you wonder).

The issue of equity or not is still open to discussion. So what that there had been growth in the market, for some (and, I might add, exorbitantly so); too, there had been the growing of the gaming ways, as if that were necessary.

Remarks:

10/10/2013 -- Ben is leaving (did he get called out?); Janet is stepping up to the plate. Will Janet bring a new game?

01/07/2010 -- Ah, the ideologies of capitalism.

09/26/2009 -- Lots of opinion and uncertainty.

03/25/2009 -- Rhetoric can be fun, but we have to get into these issues with depth and technicalities.

03/01/2009 -- Poster boys, et al, motivate.

Modified: 10/10/2013

Securitization

One might describe this whole discipline of securitization as wanting 'something from nothing' (not unlike efforts at perpetual motion) as the absence of a basis to understand the essential control issues leads to gaming and messes, much like we see now. The natural metaphors, that are founded in the sciences, only have a tenuous use. The computer? It's mainly led us down a path to perdition.

This whole game starts with money (in more than the modern senses) which can be stable but, by choice, is not. The physical basis for money does not have to be something of historic value. That we have not explored these other techniques more fully is because of entrenchment, not unlike the Big 3's delay in considering options for other types of vehicles.

Then, there is a whole series of instabilities added in modern finance via derivatives and processes that do not allow the full amount of bookkeeping that is required. That the current mess was precipitated by the sub-prime problem is basically coincidental. The house of cards would have fallen for some other reason eventually.

We'll be looking at all this more fully.

Remarks:

08/01/2013 -- We'll be looking at financial engineering, more closely.

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

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

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

06/17/2009 -- Michael Milken says that structure counts (see WSJ article). 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.

05/27/2009 -- That we have topsy-turvy needs to be addressed more fully in both an epistemologic and an operational sense.

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

03/30/2009 -- The WSJ today looks at the Future of Finance. The idea is that finance is like the cardiovascular system. Okay. So leeches are a good metaphor for the sucking out that we see. Like the AIG guy who was central to the losses that we the taxpayers are paying and who left with $300M. We'll be referring back to this discussion.

03/25/2009 -- Rhetoric can be fun, but we have to get into these issues with depth and technicalities.

02/27/2009 -- There are many aspects and viewpoints and issues related to finance. It's too bad that the experimentation must be done on the fly. Many lessons are still to be learned.

02/18/2009 -- Actually, that financial engineering looks to the real engineering and the sciences is right on. That is, there are natural analogs for the market and other activity; yet, the work is half-way, at best; it is not sufficient to try to use physics, or even biology. Why? It's a topsy-turvy thing that will require us to establish and use a mathematics (to be discussed further). Of course, bayesian and other adaptive methods are not a bad start or a waste of effort. Yes, the computer will be central. See Truth Engineering.

Modified: 08/01/2013

The times

The WSJ has been good about offering analysis about the current mess, its etiology, and the ways and means for resolving such. The opinion articles are open to public view and worthy of comment.

• -- Wall Street Mocked American Values, 2/11/2009. We have to appreciate Frank's overview here, reminding us that Goldman Sachs had a very high payout in 2006. A few months later (okay, a couple of years), they were at our door (taxpayers) looking for bailouts. Sheesh. Too, we're reminded that Thain took home $6M for running one of the markets. Poster boy, indeed.
• --- Capitalism Needs a Sound-Money Foundation, 2/12/2009. A continuation of Shelton's arguments against the gab-standard and for stable money. This is so foundational that it'll continue to be of interest.
• -- How Government Created the Financial Crisis, 2/9/2009. Taylor's look at the mess and how Ben and others exacerbated the problems.

Rogue table (from WSJ) and poster boys.



Remarks:

08/26/2023 -- Image wander off. Got it back. 

07/22/2015 -- Some of these are, now, poster boys.

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

10/22/2012 -- Finally, we hear from 60 minutes. There is a bigger issue: are these binding shut-up policies (always in favor of the employer) constitutional?

08/13/2011 -- Banks still struggling. We could have taken them over.

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

01/03/2011 -- Ah yes, now there are demands. The question remains: what growth other than the pockets of these types?

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

Modified 08/26/2023

The debates

The debates (example) about capitalism (here, the libertarian ideology seems to come to fore, though, note that libertarianism can be enlightened) and socialism (here, the purported autocratic , or perhaps only authoritarian, tendency arises) rage forever in the western mind. Yet, we find ourselves now bailing out the socialistic fat cats of capitalism (Thain, another poster boy -- who would have believed that on the Republican watch, such largess with taxpayer money would ensue?). What gives in all this mess?

Well, it's time to look at something that can change the perspective, such as looking more closely at the Islamic take on these matters. Some insight might come from looking at Iran. It's Islamic but sufficiently away from Arabia to have interesting twists. A recent New Yorker article introduces the ideas of an economist in Teheran, Mohammad Tabibian. He talks of going to Qom to talk to the spiritual leaders who, by the way, are humble in characters, poor in acquisitions, and consideration of their human fellows. They are not inhabiting gold palaces as we see in some western situations.

But, they, from a spiritual sense as there is more attention to the 'other' world, don't really have an economic plan there in Qom. Hence, post the 1979 change-over in Teheran, the regimes have had to expend efforts to develop the necessary economic prowess. It would be interesting to see some more in-depth analysis, comparative to our stumblings over the past 200 years.

But, Tabibian, who is not favored in Iran due to his free market leanings, sees the need to encourage innovation as one thing that capitalism can do (yes, wouldn't it be nice to be able to do this with exhorbitant pocket linings - reminder, any pocket that fills, empties others - usually a many to one phenomenon). Why is not the socialist (at least, the communist experiment) view useful? Well, Tabibian was able to look closely at East Germany's economy, and, as a fellow revolutionary, could do so without censure. However, note that he had already been influenced by the western view.

As, he did study here in the west before he went back to Iran. So he can talk about the problems with the command economy (see the Trabant and much more) in comparative terms that are more meaningful than not. For example, he can talk about the problematics of the top-down specification of things versus the markets' approach that is, supposedly, bottom-up.

Isn't it the case that companies are more top-down now than ever before? What happened to worker empowerment? What we see is that people don't really matter here (western economy) except as resources to be exploited); one reason is that the 'other' influence has been filtered out.

Our recent turmoils from the disintegration of that Wall Street hubris show us the problems related to the 'free' ideology. In the western world, the reward for innovation has been seen as allowing enormous pocket filling to the detriment of the many. That is, smart means rich. But, do not the best-and-brightest (ah, yes, the favored) essentially corrupt the market's paradigm? Too, do they not screw it up for the rest of us?

One solution: monks as CEOs (who needs the preening of the elites?).

Yes, the suggestion is that the CEOs work from a vow of poverty (see Remarks) relative to their current expectation that they are the best and, divinely, chosen. It's the function that we want; these egos may have arisen to their positions by some talent that seems to hide under their avarice; let's propose that they just floated to the top (scum?) in the irrationalities that have run amok the past couple of decades.

So, our task? Define what might be the qualities that would be truly beneficial to all concerned (isn't that the ideal - meaning, of course, shareholders, customers, employees - what can BofA show its customer? no much, according to some). Among these attributes would not be the excessive drive for accumulation (those socialpathic tendencies ought to cause a filtering - are boards mere sustainers of elitism?).

This theme will re-occur.

Remarks:

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.

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

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

02/05/2009 -- Of course, Iran is only one of many Islamic examples that we can (ought to) study; especially, as on this side of the world, the likes of the poster boys, who want their big pay and fast jets, even when they are on the dole, seem to prevail. Why do we allow such idiocy?

Too, Iran can be thought of as being about 30 years old. So, they've stumbled. The USA has been perfect over 200 years (e.g. Mining in Colorado)? Obama says that we do not disparage wealth on this side of the planet. Well, no wealth has been accumulated without others (the endless hapless) being diminished. Near-zero is the reality, folks.

Also, equity and debt are not equivalent when looked at correctly. The former's mechanisms have evolved, unreasonably, into gambling. Some wanted the latter to be so influenced, to boot. But, these both could be tempered, by various means that are rationally, and naturally, supported.

Economics and finance have erred to the extent that they've abstracted, meaning misused mathematics. Let's get back to being real and more stable.

Modified: 07/17/2009