Tuesday, December 30, 2008

Last post for 2008

Context: See Tru'eng anewfocus going forwardmathematics.


The posts have gone on long enough that they serve a basis for the necessary expositions (recent example). As mentioned before, there will be some posts that integrate within a theme from time to time. Examples are leveraging and fiction, in terms of the financial area (mainly, fairy dusting).

Then, through time, the posts will be, hopefully, coherent (as far as can be done with the temporal disparity of the web blog), and the integration posts will allow a better view than can come from categorizing.

Needless to say, those who think that the best and brightest offer what cannot be understood, by necessity, are way off base and probably deserve to lose THEIR money, but definitely these smarties ought to not have access to other peoples' money in many cases.

On the engineering side, there will be things to harp at, too.

But, the view, hopefully, will be balanced. Engineering needs money to do its thing. Perhaps, the money side of things could learn from engineering and science. In that latter note, the work would go far beyond game theory to include a more broad philosophy.

Look to more discussion, and use, of arguments about being.


01/05/2015 -- Renewal, see Context line.

12/31/2013 -- A popular post.

12/29/2012 --  Summary - 2012.

01/01/2011 -- We have four last posts of December under our belt.

Modified: 01/05/2015

Thursday, December 18, 2008

Leveraging anew

With a new year looming and with a coming change to the political and economic landscapes, the tone of the blog will need to adapt. All things are not by nature fraudulent (made-off shows the need for due diligence, but some people are trustworthy - yes, Boy Scouts, for one). Too, some know how to handle the map/territory problem.

So, let's start with leveraging (and its associated fiction). Earlier posts seem like diatribes in some cases, as they were not complete. As an aside, that is one drawback of the blogging paradigm; as, even with extensive linking, coherence is not as readily attained as it can be in sequential text.

Leveraging is not bad, in itself. After all, we have used the lever since Archimedes explained the principle and use. But, financial types went overboard with leveraging many times, including in the great market drop of 1929. Laws were put into place to limit using debt for things that were highly risky. These laws seem to have been forgotten, of late, as fairy dusting allowed magical returns to become realistically expected. Then, we had a mess; made-offing was the most recent example.

Friedman, in a recent article, noted that we need an ethical as well as a financial bailout. He used "I'll be gone" to describe a syndrome related to leveraging. In short, we had people thinking that someone else would have to clean up their mess. Why care about it when the perpetrator was long gone? (Yes, CEOs as diaper messers (we've said it before)). Friedman said that Madoff was the "cherry" on this cake of ours.

By the way, the article notes that we were not walking our talk. We were trying to shovel the 'casino' of capitalism under the rug while telling everyone else that we're the best.

One could probably argue that leveraging went awry due to misunderstandings. A common theme here is that computational and mathematical ideas have been interloped and used to screw things up. Take what we learned from the Modigliani-Miller theorem in which a type of equivalence is shown between debt and equity (to put it loosely). Gosh, folks, just look at the list of assumptions. A whole bunch of economists have built careers just looking at implications of this list.

One that we'll quibble about is the efficient market bit of fairy dust. Too, MM deals with a firm, yet who is usually a large holder of equity. The public, consumers all!! Yet, we counsel them to not indebted themselves in order to play the market (or used to, as a lesson from the Great Depression).

In short, there are intrinsic differences twixt equity and debt that MM does not eliminate. The discussion here would ask how anything wrong for those behind the firm could not hold in the collective. You see, look at the tranche mess (where crap was gathered, sliced/diced, then rated to not smell).

Okay, now, to look at an example of leveraging financially, consider the mortgage. Some of the older folks like to pay cash, for whatever reason, for their houses. Or, we saw movement of monies this way from sales in high-valued (using the term advisedly) area to a buy in a low-valued area (think CA to AZ, if you would). But, let's consider a normal situation.

If you want to buy a house with some form of down payment and then make periodic payments, that loan is a type of leverage. You will have some equity, with a lien, of course, and enjoy current benefits based upon future payment. One assumes that the future payment requirements will be met. Also, various risks are handled with things like home-owners insurance. All in all, this model has worked well for millions over the years. One could think of several examples like this. Perhaps, an enumeration of these would be a good thing to do here.

But, there are many things that went wrong. Such as, allowing leverages to be built (almost ad nauseum) upon leverages which is very suspect, just by definition. As well, some were put into mortgages without having the means to pay. We'll look at all of these at some point.


04/03/2011 -- Tis tranche and trash.

11/22/2010 -- Tranching, under the guise of securitization? Silly games.

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.

03/03/2010 -- Applies to the debate about MM and equity/debt.

10/14/2009 -- Knowledge can, and ought to, be leveraged.

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

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

Modified: 04/03/2011

Wednesday, December 17, 2008

Madoff (made-off)

We can thank Bernard Madoff for providing a means to update the 'ponzi' idea. After all, Ponzi lived long before the computer era.

Henceforth, when discussing things related to the Minsky idea of the necessity of crap, we'll use 'made-off' in order to be more modern. That is, Minsky suggested that financial matters always lead to froth (control in financial engineering would start with making money real).

So, expect some definition, plus itemization of examples around the various pieces of infrastructure built to sustain the gaming. Too, how do we ferret out all those 'made-offs' that are now in operation?

Actually, the whole argument that we're not dealing with near-zero sum is bogus. Why? Because the accounting is not extensive enough to show all the necessary relationships. Will we get there?

Well, 'when?' might be a good question. It's easy enough, via a mind game, to see how any of the richest got there through a giant sucking-out of multitudes and multitudes of pockets who, in many cases, were more hapless than not.

Hapless how? Look at those who took the direct hit from Madoff's games to see examples.


04/04/2011 -- The M & Ms are apropos. Need to look at some background.

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?).

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

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

12/18/2008 -- One thing to note in the Minsky hierarchy is a movement from the more concrete to the more abstract. Getting away from the gab standard would put a better basis on this, however any extrapolation goes awry (except in the special case of a linear extension - but even there we get to leveraging issues). All sorts of metaphors could apply, such as out-on-the-limb, bleeding-edge, ...

Modified: 04/04/2011

Tuesday, December 16, 2008

Two more shoes

Earlier, 7oops7 asked if there would be another shoe to drop. Well, there have been a couple: Madoff (made off, with the money) and the Fed Fund rate drop to 0.25%.

Now, the former is pure crap; the WSJ opinion that this type of thing cannot be avoided (Editorial, 12/15/2008) is other than smart (yes, you guys are showing your biases). The WSJ said that cops cannot prevent buglary. Well, true in a sense. But, we sure in hell can reduce to a very low level the likelihood that a buglar can work his trade (security, being smart, ...).

The second shoe brings up another bit of silliness supported by the Fed and Chicago. It's the Fed's Funds Rate futures market from which many spend valuable hours trying to discern Fed movements. Hah! Talk about reading tea-leaves. And, we think that the western culture is so smart with its mathematics. This will be important due to the emphasis in this blog on the issues of quasi-empiricism. It's bad enough that we have the gab standard, now we have gaming (ah yes, derivatives) on top of that.

The blogger has to admit that some of the rantings about malfeasance due to computation and mathematics were based upon a set that did not include these two; yet, having these two as examples strengthens the set and provides a better case for discussing solutions.

As, both of these shoes deal more closely with the motivations of truth engineering than did things like those related to the golden boys (ah, count 'em: GS, BS, ..., almost interminable list).


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.

01/27/2009 -- Now a new day and way to consider these matters.

Modified: 08/27/2009

Thursday, December 11, 2008

Truth and all

There are many sides to truth which can prove to be troublesome in various situations.

Past truth is definitely different from future truth, as we might learn in some of cases. That is, much of now is a replay of before, yet how many times do we get into situations that were supposedly just a simple matter but things got complicated?

We will point to several of these, including the Boeing 787 which is now planned to fly in the second quarter of 2009 and be delivered in the first quarter of 2010. This latest round of estimates follows several which we'll itemize.

Can the plane go through its truth check, which is essentially what the flight test period stands for, in the short time that is now planned? Well, opinions differ. You know what? Those opinions don't amount to a hill of beans, usually.

Why? Well, with something real, like the plane, it has to actually work in a real setting. Now, we can evaluate whether it passed the tests in an ex post facto sense, but we cannot say that it will do so in a forward sense.

Boeing knows this as it has caveats posted about not having 20-20 foresight. Who does? The issue is whether we ought to continue to have the game where the future is predicted, then we all sit around and determine how close the prediction was?

Oh, wait!! That is what science claims for itself, does it not? But, is business and program management a matter of science? Well, that depends upon to whom you talk. Being frank, I'll say no.

What it is, and folks just look at the golden boys of the Street to see what I am talking about (did we not have to bail them out? And 'it is' means business playing like it's a science), is silly misuse of mathematics and computation.

No amount of computer modeling can stand in for nature or the real world. We'll always be getting back to that. Boeing ought to already know that risk management failed so far, in the large that is. No doubt, there are points where the plan worked. Some might say Spirit, except it's just a little Boeing, in a sense.

So, this plane is only one of several 'models' that we'll need to look at as we talk about why truth engineering is a necessary part of the future landscape, virtual and otherwise.


12/13/2008 -- Just when the financial matters looked to be under control.

Modified: 12/13/2008