Where is the money?

Some of this may seem moot now, what with Goldman making oodles (the WSJ counsels us to not 'hate' them for it - I say, yes, it's more evidence of near-zero) and with the increasing levels of the equity markets though they are still below the 2007 peak. But, we need to look at money in its various senses and existences. Even the Pope knows of its importance.

The post is precipitated by Marilyn's answer in the Sunday Parade to a subject that had been handled earlier by Investopedia.

• Marilyn: Where did the stock money go? -- if she were not so smart, I would worry about her being disingenuous. Sounds more like she has been taken in by those who want to perpetuate what is essentially the big pocket picking scheme.
• When Stock Prices Drop, Where's The Money? -- no doubt, these guys are into financial engineering which seems to always move toward pocket picking. But, then, so too does government action seem to run this way. The little guys cannot seem to get a break. (italics added on 8/2/2009 - see Remarks, same date)

Both viewpoints are a little misleading. Why? Several reasons described below.

For one, they do not consider nuances of 'intrinsic' as it applies to value that have been thrown out as not necessary (gaming can be partly to blame). Let's call it Okkam for convenience of the favored. Then, there are some temporal issues that are not addressed. First, a little background is necessary.

What we have is a bunch of people passing along the same few bucks. We can take any number as the basis though the Fed tries to really pin this down. Remember that the Fed can print as many virtual bucks as it want in the fiat situation within which we find ourselves.

These bucks pass at a high rate of speed to where some illusion rises that makes us think that there is more than those basic bucks. Ah, yes, delusion at its best. The illusion is, in part, due to the leveraging notions that have gotten out of hand, but, too, it relates to the casino effect (ca-pital-sino) that has grown to underlay things monetary.

A proper audit (to be defined), from time to time, would allow us to see just how few bucks there really are. We do not have to have the shaky times like we're seeing now where real people get hurt in order to do this audit. Of course, we do know that some of those who are richer (by definition of some, smarter) find themselves in a bind, too.

Now another way that the two articles are misleading is that they do not consider the leech effect. As well, through time monies go into the pockets of the several along the way who sold for more than they bought in the past. Some of it definitely would be in the pockets of those running the game. So, you see, there is a temporal issue that seems to be missing.

Today, the markets are up sharply. Of course, the interest rate is low, but who is lending for speculative buying? Supposedly, liquidity is still not what it was. Some say we're heading to a 15,000 DJIA (who is to know?).

There is definitely more to consider here, as we go along, than just a simple metaphor.

Remarks:

03/06/2014 -- An update of this theme.

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

08/27/2009 -- I need to add that the explanations by these two emphasizes the multiplier effect of a fiat currency scheme. However, as the arguments against marking to market tell us, the additional effect is not, by necessity, ponzi or just hot air. (links pending)

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

08/02/2009 -- Wait! More exposures: "computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else's expense." To anyone who isn't at Goldman Sachs or the like, does that appeal to you as the way that we ought to be handling our beans?

So, is this what financial engineering is all about? Sounds more like leeching. We'll look further as part of an econoblog. Where is the money indeed?

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.

07/30/2009 -- Note, everyone, the run up of the DOW lately. I'll agree that a lot of this may be fictitious capital, that is, gained through gaming means. Yet, the movement is real. So, where does the money go when equity tanks? It moves to another look, morphs, if you will (money, no better shape changer exists).

07/29/2009 -- The use of intrinsic will need some discussion, as we don't have to go to the level of t-issues. Rather, there is a broader notion that gets lost in the finance's watered-down abstraction. This theme will be central to the new econoblog (leaning toward FEDaerated).

03/06/2014

Minsky anew

Everyone ought to know that a lot of what is claimed to be the value that is represented in the market (NYSE, et al) is a hyped bit of nothing for all but a few. Why? Those who get big pockets happen to sell at the top which syphons money to their pocket from the pockets of scores of others. There is no way that all who own stock can get the topmost value. Why? As selling progresses, the price (basis for value) drops.

It's a simple mathematical principle. Yet, oodles of effort and resource go into keeping the game going. Why? Well, so that the few can continue their bonuses and spendthrift ways at the expense of the most.

Need it be that way? No. Can this gaming be controlled? Yes, we can do this despite Alan's grand claim (supposedly now dropped by the grand master) that we can only clean up the poopy diapers and not squelch those who like the bubbles. It will require will and better thinking.

Any who is only after a fatter pocket is not the best and brightest, folks. That is truism one which ought to be learned by poster boys.

Minsky is important to the control effort. We'll look at that further.

The powers that be, of the past few years, wanted us to believe that value was truth and vice versa. Large companies touted this to their employees. Of course, shareholders are important. Answer this? In this downturn, how many shareholders of umpteen institutions lost a whole bunch? Lots, right? Even Fannie and Freddie investors were slaughtered.

So, truth is more than value; the markets are going to require truth engineering. The task is to demonstrate how.

Remarks:

10/17/2011 -- If we're to challenge Harvard on its duty, then we'll need to beef this up. For one, is education only operationally important, measured in bucks? Ah, so much to discuss.

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

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

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

04/21/2009 -- The above is partly hyperbole that will be contained henceforth. A clarification is necessary in that equity is capital from the view that would relate share ownership to the workings of the firm. This is pretty clear. What is problematic is the abstractionists' add-ons that lead to leverage and froth. They can argue risk management, but it looks more to be just gaming with the intent to foster casino capitalism. Using Minsky again, and numbering the levels, regularized capitalism would go to 2+ (hedge and a little speculative). After that, and especially in the third level, we get Ponzi by necessity.

Modified: 10/17/2011

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.

Remarks:

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

Leverage and truth III

A recent post on 7oops7 was motivated by finding a blog related to finance. That the topic is leverage tells a lot. Two earlier posts on Truth Engineering looked at this method and how it has become a central idea (Leverage and truth, Leverage and truth II).

You see, leverage (other people's money, in short) can produce wild returns. At the same time, it can kill everyone. That gaming has been accepted at the core of finance is something to ponder and to argue about. Hopefully, a more true economy can emerge.

This reliance upon wild risks would not have even come about without advances in mathematics, modeling, and computation. All of these, and related themes, are what this blog is about. The above-mentioned blog struck a chord; for one thing, the blog author is retired and not in the game; for another, the roles played by that author were business focused.

See Remarks below for some info about the Truth Engineering motivation. This will be incorporated, at some point, back into the Mission and method. In the beginning of this blog, there was no 7oops7 or WhoseNoseKnows; these developed as a means to cover the necessary bases.

Remarks:

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.

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

12/18/2008 -- Leveraging, in and of itself, is not bad.

10/26/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.

05/31/2008 -- Let's suppose that a blogging viewpoint can be based upon advanced educational efforts from 30+ years ago, where there was continuing education over the years in terms of specifics of modeling improvements and of the basis for mathematical advancements.

If we go back 30+ years, the 'gaming' metaphor was not so prominent, except in theory. Also, finance was the game of the few who were on the floor of the Street and at auxiliary sites, though this is not to imply that only a small set was involved.

Crashes were still possible, as history shows. However, things were different.

How different? Here is one example. In the beginning of the 401K times, companies had experts involved with the management of the assets. And, they predicted that the rewards of participation would be nice - not stating, of course, that there was a growing use of risky methods.

So, how was this handled? Well, it was in the mid-1990s when companies started to remove themselves from responsibility of handling these bucks and threw those in the plans to the wolves. So, one cannot argue that everyone ought not to know about their monies; yet, opening up a game that is not a level playing field has an impact just like we have seen evolve (growing inequity in wealth - wolves and sharks win).

Too, leverage was more verboten than not; evidently, it came back into a much greater play than was allowed after the big Crash. Betting with other people's money has always had some moral smell; how did it get to be thought of as a nice scent? By the way, that the higher-educational institutes (who are of superior membership) play the game is by no means any moral support.

Now, supposing the above-mentioned educational foci were economics and related modeling as well as the necessary mathematical frameworks. That experience, including PhD level work in Economics, involved computation (albeit, of that time) and culminated in a Master's. So that, right there, provides a comparative basis that will be explored.

Let's say the work since then of the blogger had an increasing focus on computation as it provides the basis for management decision, for science, and for engineering that operated on all platforms to within the past three years and that covered over 40 languages and related environments. As well, let's say that there was involvement in the whole notion related to artificial means for doing the above which is at the center of issues to explore.

Given the particular demands of the work, the drive over time would be oriented toward empirical prowess, with finance playing a minor role.

So, would not one with such a world view say "what the heck happened?" upon reviewing recent problems (tranching and trenching, for one) and would attempt a quick re-education especially in those realms that have been active since Chicago opened up the door to the over-the-counter madness.

So, what do we see? A scheme has emerged where brilliant moves that are lucky make oodles of money, while, at the same time, brilliant moves that are not so lucky (and this may be a factor of timing, for instance) kill the hopes of literally millions.

Considering the first, well, perhaps we ought to give those people a playpen where they can exalt in their big pockets. Considering the second, well, we cannot build the sustainable world (as we see with problems on every front) that we humans need with such techniques.

So, that brings us to the current situation where we see people making decisions that impact everyone yet they are mostly shots-in-the-dark, it would seem to some views.

That is, economics (and finance) are both dismal sciences, though some have tried to apply physical insights to these two.

But, guess what? Even the exalted realms of physics and engineering have their problems. The basis for these can be understood partly by knowing about quasi-empirical issues.

We'll be looking further at that. Too, we'll bounce around the ideas, hopefully retaining some coherence.

Modified: 04/03/2011

Wall Street and more

Recently, a Fortune article by Shawn Tully asked "what's wrong with Wall Street - and how to fix it" and dealt with one current problem. Another type of problem deals with product development and delivery. These problems do have similar characteristics as has been discussed here.

Looking at Wall Street (and its cohorts) and the financial gaming involved, one has to ask a few questions. Tully suggests three major factors to resolve: ethics and gaming, leverage, and pay.

For the first factor we need to remember that Wall Street and gaming are almost a necessary partner; hopefully, oversight, such as that being suggested by Paulson now, will help. To support their gaming addiction, the Wall Streeters like to leverage big time; let's just say that banks are not allowed to approach what Wall Street takes for granted; again, Paulson needs to reign them in. Now, of course, the main motivation is to line pockets. And this is done short term. Why not make those guys/gals wait?

Why? In one case, a company made oodles (10s billions) the past few years; then, lost big (even more 10s billions) last year. However, pay and bonuses took a bunch of the profits, which were not paid back when things tanked.

We can see similar things with product development with some adjustments. Naturally, we hope that ethics apply to announcement, yet earned-value assessments are very hard to do. Besides, doing things lead to oops, by necessity. So, adjusting and reporting ought to be a normal part of things, not just a game of hide-and-seek. Too, Wall Street might like leverage, but product people like to outsource.

You see, leverage allows grand earnings on the up side; on the downside, it eats the cake and more. The same holds for farming out; you hope that you get magic and rewards. It's not a given, as Boeing has learned of late.

Finally, on the pay, one reason to outsource is to cut cost; that is, one can hope that the supplier can work their magic despite limits. Swamping suppliers with your own experts must be costly; where's the saving?

One can see how finance and marketing might lead to gaming; engineering a plane or any other type of crucial product as a game? Not!

Remarks:

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

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

11/26/2008 -- The mess grew and grew, fairy dusting indeed.

10/26/2008 --

That the gaming is insane goes without mention, except many expect otherwise (old Marx had it somewhat right, fictitious capital). So, not only is there the Minsky issue, we have abuse of mathematics. Very interesting, indeed.

08/01/2008 --

It's not enough to rant and spout off. So, let's start something constructive by looking at money and what it is.

Modified: 11/04/2010

Leverage and truth II

Context: See Tru'eng anew, focus going forward, mathematics.

--

There are several connotations of leverage, but one that pertains to discussion here deals with a multiplier effect that is almost recursive (see "mathematization", below). In his book, the 'Trillion Dollar Meltdown', Charles R. Morris considers that the current crisis that may be facing the financial sector may be just an indication of more things to come.

But, of interest here, are his thoughts about why things are in such disarray. Well, Morris names three developments of the past 20 or 30 years that have been touched upon here in various posts. These are, namely, according to Morris: structured finance, expansion of derivative markets, and mathematization of trading.

All three of these relate to the issue of the appeal and problems of abstractions which have led us a jumbled up state of affairs. One has to wonder how computational froth is of any more substance than the natural type. One thing that Morris mentions is the AAA problem which rating appeared out of the air though the underlying instruments were no more than junk.

Effectiveness in capitalism and the market ontology evidently became associated with how well the Street people (gigantic bonuses) and their management (immense wealth) did. Of course, how could we blame just the finance folk who are, necessarily, removed from reality when similar problems crop up in engineering when the issues of quasi-empiricism are ignored?

Except that there is one difference. In areas where engineering deals with the critical, there are processes and policies that help ensure the general public's safety and means to support those who experience accidents.

In the financial world, there is no such science; there is motivation and creativity, where the measure seems to be greed (can "market dogmatism" ever get away from this?).

Some claim that the financial game is more a prisoner dilemma rather than zero-sum (see Fedaerated). Yet, analysis may lead one to see it more of the latter due to the advantages on the financial side (unless, there is oversight such as that being suggested recently by Paulson).

Remarks:

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

12/31/2013 -- A popular post.

05/02/2013 -- This has been a popular post (third most popular), of late. Perhaps, it's the growing awareness of the ever-increasing gap twixt the haves and those without. The post ought to be re-done using insights gained over the past six years. It seems like a life-time ago. Well, the theme of the blog needs to look at lessons from the past (such as, we not learning Anselm's message). Too, money does not solve existential problems. Never has. And, one does not need a pot load to figure that out. Too, playing games with other people's money and lives ought to be a given (ah, smarts or not - the most popular post).

09/29/2011 -- The question remains. Even with 'financial engineering' what is the science behind finance? Gaming, only? Who has the basic ontology (other than wealth for the few)?

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

02/26/2011 -- When this was written, I was still incredulous (shocked) at the idiocy (which abounded beyond limit, and was held by supposedly smart people) that we can just wish 'value' out of nothing. Of course, that value did come from something: the sacrifice of the people by fat cats (need to think of a more appropriate characterization).

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.

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?).

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.

12/18/2008 -- Leveraging, in and of itself, is not bad.

10/26/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.

Modified: 01/05/2015

Leverage and truth

Context: See Tru'eng anew, focus going forward, mathematics.

--

As said before, some of the financial methods lead to fiction, and leveraging is one of these. Let's look at the problem.

According to the Modigliani-Miller theorem, capital structure is immaterial given certain conditions, such as the presence of an efficient market and absence of information asymmetry. There are other factors but notice how the two stated conditions are extremely abstract and wishful. In terms of the first, efficient market, computation is thought to be key. But, too, we need things like Sarbanes-Oxley for the second.

So, what is the point? Well, a lot of the recent problems came from the use of leverage. It used to be that there was caution about margin trading. Using Bill Buckley's concept, 'Stop', that is, don't borrow to speculate. And, the issues have not all been resolved; many are concerned about amount of margin trading that is extant in the current market.

The point is not to argue against modern trading schemes, such as the futures market, much of this goes back to something real; rather, some realism needs to be imposed. The arguments would probably follow closely those related to monetary standard (for example, gold) that is other than the current illusory one (the Fed can print at will).

Taking one recent example, the Fed's low rate allowed cheap short-term borrowing. Many borrowed to create long-term instruments which were inflated via 'magic' from their native junk state.

Well, some fundamental change is required. Supposing someone's hot idea needs funding with cheap money (will that become a rare commodity?). The original source of the funds ought to share in the take, to boot. What about risk? Well, in some cases, the original loaner lost when risk, that was supposedly filtered out, came down the line.

Reinsurance (ah, yes, AIG comes to mind; we had all the risks handled, didn't we guys? 10/26/2008) is supposed to help with some of this. But, how often of late have we seen people puzzled that the model broke down under severe stress such that what was supposedly good showed its junk-ness.

The discussion will continue.

Remarks:

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

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.

10/06/2009 -- Near zero applies to this discussion.

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.

03/01/2009 -- Sufficient time has elapsed to allow things to unfold in ways that are of interest to our analysis.

12/18/2008 -- Leveraging, in and of itself, is not bad.

10/26/2008 -- Yes, things fell apart for several reasons: fiction, leverage, and more.

03/31/08 -- This post took little steps in looking at problems related to leveraging, somewhat feeling the way. However, the concepts of leveraging and de-leveraging are found used more often now in books and articles that look at current financial problems.

Modified: 01/05/2015

Truth, fiction, and finance II

The lack of activity on this blog resulted from downtime to catch up with the world's craziness, especially as it deals with those aspects for which we would like to see a stronger 'truth' (finance, for instance).

Well, the Fed is bailing out a failure with our money, again. The other day, one financial writer mentioned all the new instruments that have come about, creatively, the past few years. Well, let's hope that our choking on these help us learn some lesson.

The trouble is that we don't seem to, as a group. Those who get burned may learn something; for the most part, some idiot is always waiting in the wing to try a new trick. It has gotten worse, of late, due to the computer's availability to leverage and multiply gains. But, there is a risk involved which we need to understand better.

For those who fail in the financial world, if they are large enough, they don't have to accept the consequences of their risky behavior, as we get to bail them out of their stupidity.

As one looks at what is seen as progress, one can get baffled. Of course, those who create these new instruments, and line their pockets thereby, enjoy the game. In many cases, value is created out of nothingness by acclaimed wizards. Of course, this is age-old, it's just that the computer, and the globalization fostered by the computer, spread the hurt.

And, there is usually no payback of outrageous bonuses.

Something is awry. We will slowly be arguing for, and looking to build, a stronger foundation through truth engineering.

Remarks:

01/14/2015 -- Chimera and charade? One example.

04/19/2011 -- We have to get back to the basics.

10/21/2008 -- Yes, it's time to re-look at this theme.

Modified: 01/14/2015

Tranche and truth

The financial types like to be creative in ways that move money between different pockets. The year-end festivities rely on such movement happening consistently. This year though, reality has caused fewer pockets to balloon than we saw in 2006.

One such scheme is the 'tranche' which essentially looks to add value to certain parts of an asset while hoping that the diminishing of value in other parts is kept to the future. We'll look at this more closely.

Oh, Lord, how do we escape such machinations that have so many holes?

And, yes, the rewards go to those who accept the risk (yet, one would think that more effort would go into getting a better calibration than we've seen). One would think that any scheme like this is not unlike spinning a top (another bane - that old magic called spin) which cannot stay in motion forever (let's count the ways that this can fail). It is not that risk is bad; the problem is assessing the thing appropriately. Oh, we'll look at the many games there, to boot.

One wonders if such types of thinking haven't infiltrated project management. Well, they have in the sense that earned value is still an art wishing to become more substantial.

Remarks:

12/05/2011 -- It's interesting how idiotic the supposedly smart can be. The real issue: the failings of an idiot have a small influence; the failings of the 'real idiots' has wide impact (and, in so many ways). Somehow, we muddle through.

05/25/2011 -- Lemons problem, dark pools, ... Oh, so much to look at!

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

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

11/04/2010 -- Big Ben is still putting us at risk and trashing the savers. This topic will be given more attention under the context of proper capitalism.

08/18/2009 -- As promised, FEDaerated is here. Ah, the tranche, a perpetual motion machine, indeed.

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

06/17/2009 -- A fresh look will be needed, especially at things like securitization.

12/18/2008 -- Have we seen anything more silly or more representative of fairy dusting in the great realms of financial engineering? It makes leveraging look to be quite reasonable.

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

08/19/08 -- As things unwind from the recent craziness, some analysis can be thoughtful.

05/27/08 -- We must really look at how this is getting something from nothing which we know from physics is not a mature notion. Except, there may be some delta out of the junk status that is reasonable; however how could one get AAA except for perhaps some minor aspect?

05/20/08 -- When I first read about this technique, supposedly thought of by highly intelligent minds, I thought 'Huh?". Of course, something from nothing is what the wizardry of the computer has been reinforcing on many fronts.

Further study has only increased the bafflement at the problems. Thankfully, others are looking at this type of thing, to boot.

Modified: 12/05/2011