Friday, September 26, 2008

Game Theory

The Financial Ninja strikes again with an absolutely great post regarding Game Theory and the Bailout. (The quote seen below comes from Econompic Data but the insight about it comes from the Ninja.)
“Lets assume for the time being that there are only two banks; Bank A and Bank B.

The media / political pundits would have you believe the likely outcome of the bailout is the top-left box in which both Bank A and B sell risk assets to the Treasury. In this case, the result is a more regulated banking industry, with imposed limits to salary, but importantly markets clear.

HOWEVER, it is in BOTH banks interest to deviate from that.

Why? Simple. If Bank A (or B) believe the other is selling their risk assets to the Treasury; they will each be better off holding on to theirs.

Why? If the other bank sells and they hold, markets will still clear (in theory) and the bank that holds onto their risk assets can sell at the new market prices. This results in increased market share as they:

*Can pay more for talent
*Are less regulated
*Don’t have the stigma of selling to the Treasury (think of what selling portrays to the market)

This is even worse in the “real world” as all banks have the incentive to wait for other banks to sell risk assets to the Treasury to clear markets.

The likely result? The bottom right box in which no bank sells voluntarily and markets remain frozen. While there were many problems with the initial plan, at least there was a 100% incentive to sell the assets.”

The Ninja's also right about Econompic Data, an eye candy blog with brains behind the imagery.

Last but not least, a few other qualified folks have doubts too.

World Fact Book: Rank Order - Current account balance (2007) (of nations)

Game Theory - "Game theory attempts to mathematically capture behavior in strategic situations, in which an individual's success in making choices depends on the choices of others."

Bud Fox: Why do you need to wreck this company?
Gordon Gecco:
Because it's wreckable, all right?

Sunday, September 21, 2008

No Morality

"It's not just how we use the technology that concerns us. We're also concerned about what kind of people we become when we use it." Anonymous Amish Man "There are no technological solutions to social problems." Douglas Merrill Google

These quotes comprise the signature Murry C uses in his emails. Every time I get a missive from MC, I read these (I wish I had them, dammit!) as they point out the fact there is no morality in tech. In Terminator I, the cyborg was bad, in T2, he was good. The difference, programming. The same thing applies to algorithms and money as money now has become bits, able to to moved, manipulated and distributed along the same lines 0's and 1's are manipulated in every non-quantum computer system in the world. Viewed in that light, it's easy to see how computer tech changed the notion of money forever.

The financial machines that placed the trades that bankrupted A.I.G. were programmed by financial managers to act with the speed of light in conducting electronic trades often lasting only a few seconds each, millions of times a day. Only a machine could calculate mathematical probabilities factored in regarding the squiggles up and down of interest rates, exchange rates and stock and bonds prices - and prices for packaged mortgages...

A hedge fund does not make money by producing goods and services. It does not advance funds to buy real assets or even lend money. It borrows huge sums to leverage its bet with nearly free credit. Its managers are not industrial engineers but mathematicians who program computers to make cross-bets or "straddles" on which way interest rates, currency exchange rates, stock or bond prices may move - or the prices for packaged bank mortgages. The packaged loans may be sound or they may be junk. It doesn't matter. All that matters is making money in a marketplace where most trades last only a few seconds. What creates the gains is the price fibrillation - volatility.

Today, the financial system has crashed but not the tech driving it. Why? Because the kind of people using the tech to make the money (based on vapor) allowed greed to replace intelligence, thus creating a toxic wasteland that we, the people, are supposed to bailout.

There's something happening here
What it is ain't exactly clear - For What's It's Worth
Buffalo Springfield

Friday, September 19, 2008

The Creature from Jekyll Island

The title sounds like one of the dozens of cheesy Z thrillers we used to watch (and laugh at) in the local theater on rainy Saturday afternoons and maybe, in a strange way, it is. As everyone now knows, the Fed owns the US economy, something somewhat unsettling to yours truly given just how secretive and powerful the privately owned Fed is. To learn more about this potentate of America, read G. Edward Griffin's tome as it's a most interesting history lesson in high finance and death grip politics. Who knows, it may well be true the fox is guarding what's left in the hen house and nothing can be done about it. Check out another review from Powell's about this most unusual creature created on Christmas Day, 1913 by Woodrow Wilson, one year after he instituted the IRS.

Another book on the Fed is Secrets of the Temple: How the Federal Reserve Runs the Country by William Grieder. It too discusses the enormous power this entity has over all things financial.

"The Federal Reserve System was the crucial anomaly at the very core of representative democracy, an uncomfortable contradiction with the civic mythology of self-government. Yet the American system accepted the inconsistency. The community of elected politicians acquiesced to its power. The private economy responded to its direction. Private capital depended on it for protection. The governors of the Federal Reserve decided the largest questions of the political economy, including who shall prosper and who shall fail, yet their role remained opaque and mysterious. The Federal Reserve was shielded from scrutiny partly by its own official secrecy, but also by the curious ignorance of the American public."

Factoid: Andrew Jackson's greatest accomplishment according to Jackson..."I killed the bank."

Factoid II: Lincoln's Greenback Dollar..."The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers..... The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity."

Factoid III: The Fed now has that power.

Factoid IV: Is this a sound policy? Ron Paul thinks not and for good reason. Ditto Ralph Nader, Mike Whitney and some significant others.

Question: Should the Fed be abolished?
Answer: It's a thought.

Last but not least: Read about JFK vs. The Fed and Executive Order 11110.
Fascinating to be sure.

Wednesday, September 17, 2008

A Real Debate

I saw this great ad in the NY Times stating the obvious about the real issues needing to be addressed as the nation moves toward Decision 2008. No question this is NOT what we're getting in the most dreadful presidential campaign I have ever seen in 40 years of being alive as we move toward the abyss trapped inside a slow moving bus with nowhere else to go. BRT has discussed what is needed to get back on track and now the Institute for America's Future has ratified it with a powerful message showing that these two candidates are either too afraid to get down and tell it like it is or they simply don't "get it" as Obama so often says but seems not to follow through when people need to know just how serious this situation truly is.

If the tech industry operated like the US Financial system, there would be no technology at all because generating something out of nothing (which banks routinely do via fractional reserve banking) is not possible. This fundamental requirement of transaction (outside of the financial system) applies to everything man does without exception except for the actions of Congress and Wall Street in repeating the meaningless platitudes that the financial system remains strong in spite of the crash and America is great because it is great while the wealth of this once great nation disappears into the black hole of bankruptcy.

We are running out of time. You Can't Handle the Truth, The Long Emergency, Q & A and State of Affairs substantiate the claim we are in trouble and that strong, courageous and visionary decisions must be made if we are to successfully deal with the crisis facing us.

The question we must ask ourselves now is, When do we take back America?

Tuesday, September 16, 2008

Slow Motion Express

A Must Read about the economy from Larry Reinhart.

"But what was most extraordinary, to me, was how long it seemed to take. How time slowed while we slid forward and sideways, heading onto the shoulder, then past seemed as if we had all the time in the world, yet there was nothing we could do to get off the ice, alter the trajectory, slow down...nothing...until we crashed.

As I read the economics news, I'm having that exact same sensation, that we're in a slow motion crash. Each week, sometimes daily, we slide by a new warning sign, by another wreck that's already off the road. The new one is Lehman Brothers. Before that Fannie Mae and Freddie Mac. Before that Bear Stearns. In August, "one in every 416 U.S. households entered the foreclosure process." In spite of a 2005 law that made personal bankruptcies more difficult and that allows creditors to squeeze money out of people even after they've gone bankrupt, personal bankruptcy rates are soaring. General Motors stock has been trading at 1950s prices. Like GM, Ford is laying off thousands of workers. Both of them are asking for federal assistance to survive. Pension funds are routinely failing.

Then there are my personal experiences."

Bullet Time writ large.

Patents "R" Us

It's about time the patent process enters the 21st century particularly when DRM (Digital Rights Management) transgressions rears it's ugly head to impede the advancement of technology in ways only lawyers can appreciate. The reason for hope lies with the web and peer review of pending patents, something that could end the abuses that plague any industry producing anything worthy of a patent.

"Peer-to-Patent, is straightforward: Publish patent applications on the Web for all to see and let anyone with relevant expertise -- academics, colleagues, even potential rivals -- offer input to be passed along to the Patent Office."

Now if only this process could be applied to politics (& copyright) where open source input becomes the way government does business. Who knows, maybe the system might actually work for a change. Hey, it's worth a shot given just how bad things have gotten in the good old US of A.

Sunday, September 07, 2008


Nature is economical. For example, Red, Green & Blue (the three primary/additive colors - light) generate all the colors of the rainbow in TVs, projectors & computer displays while Cyan, Magenta & Yellow (three subtractive colors - ink/paint) do the same thing on paper, canvas or anything else that reflects color. (Black is added to the mix as subtractive colors cannot interact with each other as precisely as additive i.e. CYMK/4 Color Process Color Model.)

In additive color models such as RGB, white is the “additive” combination of all primary colored lights, while black is the absence of light. In the CMYK model, it is just the opposite: white is the natural color of the paper or other background, while black results from a full combination of colored inks.

This kind of elegant economy is also expressed in chemistry with the Periodic Table of Elements, a brilliant concept invented by Dmitry I. Mendeleyev in 1869 to show how the elements relate to one another.

In viewing how the elements work as a system, researchers are now questioning if 68 molecules hold the key to all disease, a finding, if found to be true, could be the breakthrough scientists have been looking for since the beginning of time.

Reviewing findings from multiple disciplines, Jamey Marth, Ph.D., UC San Diego Professor of Cellular and Molecular Medicine and Investigator with the Howard Hughes Medical Institute, realized that only 68 molecular building blocks are used to construct these four fundamental components of cells: the nucleic acids (DNA and RNA), proteins, glycans and lipids. His work, which illustrates the primary composition of all cells, is published in the September issue of Nature Cell Biology.

Like the periodic table of elements, first published in 1869 by Russian chemist Dmitri Mendeleev, is to chemistry, Marth’s visual metaphor offers a new framework for biologists.

Tuesday, September 02, 2008


Introducing Google's new browser Chrome via a comic book approach is, I hate to say it, a stroke of genius because Google's strip explains, in clear concise fashion, what's needed for browsers to take full advantage of the net. Will Chrome succeed? Only time will tell but Google's first foray into the browser wars looks pretty good to me.

Addendum: Bets are on that the emergent tech in Chrome will eventually wind up in Firefox as Google is the main financier for Mozilla and both companies reupped their relationship extending through 2011.

Addendum II: Chrome doesn't look hot but this bad boy is very fast thanks to the optimized J Script running inside the app.

You Can't Handle the Truth!

Jack Nicholson's climatic speech in Rob Reiner's masterpiece, A Few Good Men sums up, in indirect fashion, the complete lack of truth being expressed by Obama or McCain in stating just how dire the situation is for the US (and the world). For starters:

1. The Forth Amendment is dead courtesy of the 2008 FISA bill.
2. The end of oil is nigh.
3. The Credit Card bomb is primed to explode.
4. Inflation is moving toward double digits.
5. Britain's economic crisis is the worst in 60 years.
6. Global Warming is accelerating beyond all predictions.
7. The Fannie Mae/Mac debacle will impact US Taxpayers big time.
7a. For more info, read Chapter II on the FM disaster.
7b. It gets better, the boys at Fannie Mae/Mac get golden parachutes for doing such good work.
8. The Next Banking Crisis is coming.
9. The U.S. government is on a ‘burning platform’ of unsustainable policies
10. The US Trade imbalance averages about 750 billion/year.
11. The 3 Trillion dollar war needs no explanation.
12. The 650 billion dollar defense budget.
13. Health Care costs will amount to 20% of the GDP (Gross Domestic Product) or 4.2 trillion dollars by 2016.
14. Baby boomer retirement & the impact it will have on Social Security is another great unknown.
15. Coherent US Foreign policy - there isn't any.
16. Climate Change is here, the full ramifications of same, unknown.
& last but not least...

David Walker is the canary no one in power listens to but maybe, just maybe the two presidential candidates should if they want the US to survive this perfect storm given to us courtesy of Congress, the BA and the Military- Industrial Complex.