Fraud and truth

Minsky's ideas seem to indicate that fraud was inevitable.

It goes like this. We have something of substance (which money, currently, is not) about which we want to establish trade (in a general sense). Then, through progressive means, we turn out to have a market system that is highfalutin and computer driven.

Well, one natural outcome is hedging which plays on marginal changes, that is, hedging is related to something as is acceleration to velocity. So, then we get speculation as the next step. Well, using the geometric metaphor, we get to the change in acceleration. Guess what this is called? Jerk! (see Note 1, 3rd derivative related to motion)

Ah, that is rich!! The speculator as a potential jerk; you see, we cannot disallow this necessary practice; we can make it more insightful, honest, and of real power. But, speculation ought to be linked to hypothesis testing, a necessary component of advanced thinking (not happy talking).

Anyway, we have then a natural leap to higher dimensional entities, of which 'ponzi-ness' can be attributed to the first step. Except, there is a better concept which we'll get to (in time).

The argument is that there is an inherent instability involved, so the consequence would be our expectation of bubbles. Well, that is only partly true, as plenty of folks do not partake in mania.

Somehow, we've let a favored few (supposed the best and brightest -sheesh, give me a break) monkey about and screw up the works for the rest of us.

We'll be following this argument further is search of possible damping means.

Remarks:

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

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

03/22/2011 -- It's spring, and the garble uses gambling metaphors.

09/13/2009 -- Will look further into the necessity of the sandbox.

08/20/2009 -- Note 1: 'Derivative(s)' has been used a few times in the posts. The context may imply the usage, hopefully. But, in general, we're talking two types. 1) from finance, where 'derived from' is the proper interpretation (or as one may surmise from posts here and elsewhere, something from nothing). 2) the usual mathematical variety.

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

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

12/13/2008 -- Recent revelations suggest that fraud types are of several types.

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.

Modified: 05/25/2011

Nose again

Well, Goldman Sachs latest move changes the game for us, too. You see, the financial world has been selling gold-plated crap for awhile. But, then, that game has been going on for awhile.

So, with GS asking us (the American taxpayer) for help, we can no longer sit idle. Not that we've been idle, it's just that it is very hard to argue with success. And, GS was the golden boy of the era that just past.

What Nose is needed for the future? That'll unfold here. How many years? Not important, as we're talking the basis for the coming generations.

So, expect Nose to be more active.

Remarks:

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

Modified: 01/27/2009

Swarm proof

We can probably see that the computer has added a certain type of proof to the list. That is, operationally, we do not have to go all the way to a formal mathematical proof, in many cases. We had this in the past, but modern methods speed things up, allow greater access to data, and enable lightening fast calculations.

Though, we'll also see the continuing upward pace of papers dealing with specific proofs.

What does the title mean? Well, the web business model has spawned all sorts of uses of mathematics that goes against the grain. That is, marketers use methods to raise sales. Well, if it works, then that's nice. Try to explain things, though, and that is more difficult.

One consequence for the marketer would be angry users who don' t like being targeted.

But, that misuse pales in comparison to some others, like too heavy use of modeling for systems and their components versus real testing (to be defined further).

• Aside: Actually, the worse case is some minds, like those at Harvard Business School, making such intense use of regression. What? Teach managers a little mathematics, and they're Einsteins? Yes, a whole generation of supposedly bright people have led us down the path to 'perdition' while at the same time making oodles of bucks. Oh, Lord!!! Deliver us!! (We intend to go on about this at length as the financial types are visible nowadays; yet, engineers, you too have been amiss; perhaps, the first part of the 21st century can shore up 20th century failings).

But, we can call the operational proof that is suggested by the marketeers (of all sorts, on the web) a 'swarm' proof bowing to the work related to the wisdom of crowds (put link here).

In a sense, one could use the concept for analyzing current events. For instance, could one ask if a modern program was 'swarm' related (both in the interest of the airlines (who are those who put their earned bucks out) and the public (whose initial bucks, albeit smaller by entity, are in the game, too)? This is only partly related to the internet (mind you, discussion of the program goes way back on the web, only, of late, accelerating to break-neck speed).

Now, truth engineering is to help define proof types, their use, and their risks. Not to tread on creativity but to foster proper use. 'Risk' and its management is a new science; that those there may have hubris (or is it just the manager's interpretation that is at fault?) ought to give them, and us, some pause (nods to old William F. Buckley).

Remarks:

04/03/2011 -- Need to look at some background issues.

09/12/2009 -- Sandbox was used without definition. Let's discuss that concept.

09/11/2009 -- We have an Econoblog. Also, schools ought to have better roles in financial engineering. Where else to have the necessary sandboxes?

06/06/2009 -- Concept will be re-addressed in terms of the basics.

05/27/2009 -- Even behavioral methods as this need that topsy-turvy be addressed more fully in both an epistemologic and an operational sense.

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

Modified: 04/04/2011

The times

Reuters reports on Sunday dealt very closely with what we have been discussing.

Then, yesterday's news had it splattered everywhere. The failures continue.

Well, the causes are varied, but the culpability of the Fed (and the economic community) cannot be denied. Alan says that we can't see crap until it happens. Ben continues in that vein. So, then, the taxpayers have to clean up the mess, ex post facto.

Look, it's not that difficult, folks.

- put money on some real basis (remove the gab standard) and minimize the political aspect (yes, this is possible)
- financial instruments need to be scrutinized (including testing in a sandbox) in a worldview that understands why we have, and can know our, limits (quasi-empirical arguments are apropos)
- rearrange the thinking about the (supposed) mathematical support for this craziness (it's pseudo-math running amok)
- oh, by the way, tie computational modeling into truth engineering (I'm not after riches, folks)
- the basis for the future ought to prime in the economy, even over-lording what leads to greed, namely private profit maximization (Minsky's hierarchy is apropos). Besides, it's near-zero sum. Those whose arguments are for non-zero sum need to get their heads out of their illusion.
- establish some means to ensure that financials are tied to intrinsics (to be defined, but Buffet's attitude toward what he invests in is, in part, an example)

Remarks:

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?).

09/12/2009 -- Sandbox was used without definition. Let's discuss that concept.

09/25/2008 -- A concept that can bridge the waters and allow a larger set of associations is 'fraud power' in reference to modern financial methods.

Modified: 10/11/2009

Doers and speculators

There are probably other ways to partition this thing, however we'll start with what the title says, as promised. You see, we're looking at what has gone down the past few decades such that we see larger accumulations of wealth in the hand of a smaller set than before. At the same time, the set of those without has grown substantially. So, we may start with one partition and move around to others as needed for the discussion.

What is a doer? Well, there was an earlier example of grain futures. The 'doer' class would cover a spectrum, from those providing seed, to the grower, to those who make use of the grain; even those who eat the grain would be in the class. Now, within the class there may be a way to measure the extent of membership (this extent may have some intrinsic value - that we will consider - yes, even in this day and age). The doer is trying to make his daily bread.

The speculator deals only with abstractions and the monetary associations thereof. We have to be careful here, as the doers will have their set of abstractions too. For instance, a grower (even as a doer, using acceptable levels of hedging) would deal with an abstract model related to decisions when trying to discern some choice in a 'futures' situation. Perhaps, there ought to be a different term used here; we'll consider that a research topic. But, the speculator has his daily bread; he's after the whole pie.

In the meantime, the use of 'abstraction' (probably in the extreme sense of 'abstract' nonsense - apologies to the category theorists) is apropos. The speculator has no intrinsic interest in the grain against which he or she may be gaming; this applies across the board as grain is only being used for example here; any other commodity would come into play.

And, the speculator would not have to be easily characterized by some prototypical notions, such as we see with the day trader. In general, it would be some 'big pocket' position; yet, what we have seen is that the 'gaming' allows privileges to the speculator that prevent in-the-large maximization across the whole. Oh, what the hell does that mean?

We'll look at that further next time; but, for now, let's just consider that the doers work with things that improve our lives through direct effort or through their efforts with others. What do the speculators bring except grief?

Remarks:

03/25/2013 -- The Atlantic had an article about King Abdullah II. Now, he is an example of a doer, from several angles. What I liked when I read it was that while being educated in Massachusetts, he bussed tables. What that means for those who don't know is clean up dirty dishes and such. When I, as a young man, was in the US Army, we had still had KP duty which included such types of things. Another task that ought to be tried once by everyone: cleaning the grease pit.

05/05/2011 -- Another round.

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

01/22/2009 -- This topic is related to people matters which can get more attention now.

10/04/2008 -- One differentiating feature might be that speculators get bailed out. The doers get trampled.

Modified: 03/25/2013

Free and fee

This post, as said last time , was going to look at doers and speculators (next post), but let's delay that to look at the subject of free or not. As with all subjects related to t-issues, there is a lot that can be said.

However, we ought to look at how close free is to fee (both are old english), namely one letter. But, let's just limit things to that observation, for now.

Basically, we have those who claim that 'free' is what we're after in several regards, such as market, trade, and what have you. Well, many say that thing that we're looking for with 'free' is an illusion that needs to be tempered and to be seen as the ideal that it is.

But, wait, one can use doers (and not) in this context. In actuality, doers always use energy and resources, even though it may be that many doers seem to make things appear to be effortless. Actually, that magical touch is one characteristic of excellence. Yet, no amount of easy accomplishment happens without some expenditure.

And, fee is only being used facetiously, as fees, hidden or otherwise, are always there. We all know, though (and learn), to watch that those 'greased slides' referred to in another post don't move monies from our pockets; that is, who wants to be included among the hapless? What is the adage: once burned, twice shy?

Another type of basis for these things could easily bring in better means to look at what happens in economical terms; as an example, perhaps energy processing, as a metaphor, would be stronger than has been allowed.

So, we'll need to look further at doers, as promised; too, a better characterization of non-doer (oh, perhaps free may apply here, as in something for nothing) might be in order.

Remarks:

03/25/2013 -- The Atlantic had an article about King Abdullah II. Now, he is an example of a doer, from several angles. What I liked when I read it was that while being educated in Massachusetts, he bussed tables. What that means for those who don't know is clean up dirty dishes and such. When I, as a young man, was in the US Army, we had still had KP duty which included such types of things. Another task that ought to be tried once by everyone: cleaning the grease pit.

05/09/2011 -- Doers, reconsidered.

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.

11/12/2008 --

Well, things feel apart fairly quickly, starting in September of 2008. By N0vember, there was general spooking. Starting in September, movements toward nationalization sped so fast that it was easy to forget that a Republican administration was still in the White House. Talk about rewarding hubris and moral hazardness!!!!

Modified: 03/25/2013

Economic groundwork

In order to establish where things may have gone awry and why it will be necessary to look at what has gone on and from when. That is, there have been claims here of a gaming-centric ontology going bad; well, let's see what that might mean.

So, at the bottom, let's suppose that we can look at two classes of people, doers and speculators (next post). Now, the doers are those who keep the world going with their efforts; for many of these, life is a drudge with very little payback; for others who are the real cream of life (by aptitude, attitude and application), their talents get used however without sufficient reward; we could characterize this useful set (the old adage of the ant works) for a long time and with a whole bunch of words (but let's not, yet).

Those other type abounds, too, yet, the world has continued despite their machinations (speaking of the old adage, we're talking the grasshopper). You know, financiers might fall within this realm. Back at some point, one thought of financing as being involved in production or transportation or something else real. But, guess what. Around 1973, the fact that the mathematics was understood (having been created by doers, mind you) and that there were sufficient advances in the computational led to what was done at the CBOE and to provide the means to enable financial gaming to a maximum extent.

What happened? Well, option processing, essentially. Options are only one of several types of derivatives. Yet, they are a good example to analyze their problems to attempt to lay out a better framework for financial economics that would somehow inhibit forthiness and other problems.

Too, a proper viewpoint might help balance that mindset that glorifies riches (gosh, even a premier Ivy League school which started for the glorification of God [early motto: For Christ and the Church] is a player and raker) and allows the pockets of the hapless to be picked with impunity.

The exercising of an 'option' is a type of leverage; we will need to enumerate types of leverage, such as silly game 1, silly game 2, etc.

The whole notion is that economics (financial and otherwise) can get divorced from reality. Fortunately, engineering does not have this problem so much. But, when we apply engineering to finance, watch out! As Buckley, stop and think. How do we get back some realness for several reasons (such as, allowing the boomers to have a reasonable retirement)?

Remarks:

03/25/2013 -- The Atlantic had an article about King Abdullah II. Now, he is an example of a doer, from several angles. What I liked when I read it was that while being educated in Massachusetts, he bussed tables. What that means for those who don't know is clean up dirty dishes and such. When I, as a young man, was in the US Army, we had still had KP duty which included such types of things. Another task that ought to be tried once by everyone: cleaning the grease pit.

05/09/2011 -- Doers, reconsidered.

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

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

12/18/2008 -- Things were going along so fast (the meltdown, made-off, ...) that the basic message got lost. We'll start again with a new look at leveraging.

09/14/2008 -- Minsky's hierarchy is very much apropos, here, among other things. Probably, anything beyond hedging (which is respectful, if done right) and part of speculation (perhaps, halfway along some spectrum that could very well be defined) would be consider suspect and definitely ponzi-like.

Alan's and Ben's (you guys need to rethink your position) position that we cannot see crap when it is happening (oh no, says Alan, we can only clean up after the fact) is very much indicative of how blind is their sight. The proper tools are there, folks.

Modified: 03/25/2013