The contribution of mathematical models to the present crisis has been vastly overblown. The breast-beating and mea culpas from the likes of Derman and Wilmott are self-flattering: after all, if you caused the problem, you must be important! In reality, the quant is at the bottom of the pecking order on most trading floors. The people who trafficked in securitized garbage did so not because they were fooled by their models, but because they were paid to. You can't tell me that the guy who lent $750,000 to a strawberry picker with $14,000 income would have thought it a good idea if he was lending his own money.
Contrast this to LCTM, which really is an example of quants gone wrong: those guys had so much faith in their models that they not only put their own money in the game, they borrowed money to invest in themselves! They were doing the same things they had done at Salomon but they failed to appreciate the importance of being able to lean on Solly's balance sheet in times of trouble.
As for Taleb... puh-lease. The guy is a self-promoting windbag and his two most recent books are a waste of time. That's a shame, because he has written at least one interesting book I am aware of: Dynamic Hedging. Unfortuntely, the flaws that were present in embryo in that book - exaggerated self-regard, exaggerated criticism of others, deliberately cryptic statements meant to make the author seem clever - have grown like a tumour to consume 100% of his writing. All of Taleb's points have been made more clearly and more intelligently by other, better people. A recent example is Rebonato's Plight of the Fortune Tellers, but there are many others.
An equilibrium price doesn't mean that everyone agrees what the price should be, just that there is a balance between those who think the price too high and those who think it too low. If you restrict the supply of a given financial instrument, you chase out people at the margin who think the price is reasonable and are left with just the irrationally exuberant. Conversely, as you flood the market with new supply you are chasing progressively more bearish investors in the quest to find a buyer. Both of these effects are liable to dynamic positive feedback: as a price rises, the exuberant feel justified in their optimism and become ever more irrational. Likewise, as a price falls, bearish investors assume that the market is in possession of some negative information hidden from them and become ever more bearish - who wants to catch a falling knife?
The "types" of companies (and governments) directly affected by this bubble are in this case extremely narrow: banks (and none) respectively. In short, it is a classic financial bubble. Naturally, trouble for the banks spells trouble for everyone else, just as a cardiac arrest spells trouble for your little pinkie. Yes, it is always possible to view such a bubble as a "monetary" effect if money is defined sufficiently broadly - securitization is money creation, of a sort. But it is not money creation in the form of bank credit or manipulated interest rates and the Austrians and their Chicago students are of no use to you here.
Not to mention: third, the initial cost of an item is often proportional to the initial externalities of polution and energy consumption. I don't happen to know whether this is true of plasma and LCD TVs, but it is true in many real-life examples. For instance, most of us instinctively dislike disposable styrofoam coffee cups - we can see and feel in our hands plastic that we will immediately throw away. But one requires many hundreds of styrofoam cups to equal the energy and polution costs of one ceramic mug. True, there are costs associated with disposing of the cups, but there are also costs required to clean mugs for reuse.
Paper cups are often preferred over styrofoam on the grounds that they are biodegradeable, but the advantages of paper over reusable mugs are doubtful. Compared to styrofoam, paper requires truly exorbitant amounts of energy to manufacture.
First, you need to understand that it is not just the banks that are the problem; the reason banks exist is that they have customers who need their services. In order to match reality, we have to add another piece to your analogy: suppose that you have to pay $2,000 in rent at the start of the month, but don't get paid until the end. You don't have a solvency problem - you are paying your debts completely on a monthly basis, just using credit to time-shift your cashflows. But when that credit is taken away, you are thrown out on the street.
In this case, of course, you would just keep a few months rent on hand to solve the problem. But that is not how businesses function; their cash requirements are vastly greater as a fraction of their capital than yours are. A company that has an order for widgets at $1.01 may be quite profitable if the cost of production is $1.00 provided that they don't have to fund production before delivery. They are still using credit to manage their cashflows, but it would be extremely expensive to dispense with this credit by the solution of keeping the requisite cash on hand. So expensive that they would be put out of business by more efficient competitors. The trouble now is that it has become very expensive or impossible for non-bank corporations to use credit in this way.
Insured retail deposits are not at risk, but all other creditors are. That is why banks will not lend money to each other: if their counterparty fails, they will lose it. Unfortunately, this lack of interbank lending has a knock-on effect that causes more banks to fail. Well, the depositors at those banks are still protected! But the FDIC has only a finite amount of money with which to make depositors whole. That amount now seems certain to be exhausted, with the deficit to be made up by tax dollars. In other words, Joe Sixpack's deposit is safe in the sense that it is backed up with his own taxes.
If you are wondering why banks need to lend each other money, the trouble is that this is necessary for an efficient financial system (that is, a financial system that doesn't cost you personally a lot of money.) The ability to borrow freely from each other allows banks to "even out" the supply of cash in the system; those with a temporary surplus can earn a return on it, those with a temporary need for cash need not dispose of assets to raise it. Without this ability, money would be a much rarer and more expensive commodity than it is. You would find it difficult to borrow a mortgage even if you were a "good" borrower and you or your company would find it difficult to stay in business without access to credit.
A. A huge government intervention B. No government intervention
I favor B. I think it will be fine if all the businesses and individuals that did stupid, risky things end in total ruin.
We (as represented by Andrew Carnegie) tried that already; the result was what we call the Great Depression. The problem is that it is not just (or even primarily) the "Republican fat cats" who "did stupid, risky things" who will suffer. Most have them have stupidly and riskily amassed large fortunes in safe assets like US treasuries. The people who will suffer most are everybody else - i.e. you. If the government waits to act until its constituency figures this out (because tens of millions of them are out of work), the resulting depression will be much worse than it need have been.
I'd settle for a regulation saying businesses may not enter into financial negotiations they do not, at that time, have sufficient verifiable assets to support.
The failed businesses did have sufficient verifiable assets to support their transactions at the time they were made. The problem is with another regulation that says they are insolvent if they don't have sufficient assets to support these transactions at a later time when the market decides they are worth less - even if they can meet all of their contractually required payments.
So what are you advocating, exactly? That businesses should carry sufficient cash to have positive net worth even if the value of all other assets falls to zero? The practical effect of your plan is that you would have no house, no job, and not very much food. But probably you wouldn't care because odds are you would have died by age five.
Your comments about house prices are spot on - as anyone could see if they took the trouble to examine a graph of real-dollar house prices since 1970. That graph also illustrates the fallacy of assertions that the problem could have been avoided had we only taken action in, say 2005. From about 1999 on we were doomed to a painful correction, and every year of delay just stored up more pain.
I can't agree with the following opinion, though:
Sure, the governement needed to intervene to avoid a market panic, but really it just needed to "make a market" in these mortgage-backed securities, to allow them to trade at a value not absurdly depressed by that panic. That's not a $700B bailout, that's just splitting the difference between buyer and seller.
The difference between "a value not absurdly depressed" and current market prices is so huge that it would eat the 700bn in any case. Unloading the positions immediately would just have the effect of realizing a loss immediately for the taxpayer instead of retaining the upside. With the actual proposal, there was a strong probability that the taxpayer would utimately profit. It certainly seems that the government is earning an enormous carry on the AIG bailout with relatively little risk.
That legislation repealed the part of the Glass-Steagall act of 1933 that prevented a bank holding company from owning other financial companies, allowing an entity to engage in banking and investment banking simulataneously. Since none of the traditional investment banks were particularly interested in commercial or consumer banking, the practical effect was to allow large, well-capitalized, diversified institutions like B of A, JP Morgan and Citi to enter the investment banking industry.
It is precisely the new entrants to investment banking that have survived the crisis, whereas the victims have been either old-fashioned investment banks (Bear, Lehman, Morgan-Stanley... all of them, really) or old-fashioned banks (Countrywide, WaMu, Wachovia.) So on the evidence, the Financial Services Modernization Act has made the situation better, not worse.
That is not to say regulation could not have prevented the problem. One obvious possibility would have been to make it illegal to lend mortgages that don't meet minimum downpayment and income requirements. The only problem is that such a regulation would have been just as unpopular with voters as the bailout package; the politicians who voted for it would probably be out of office now ("why do you want to stop Americans from owning their own homes?!")
Another problem is that it is not enough to invent regulations; one must also enforce them. AIG would never have failed, for instance, if they had not been allowed to circumvent existing insurance industry regulation in a rather crude and obvious way by guaranteeing captive subsidiaries.
In any case, the general difficulty in preventing a financial crisis is to know what the right regulation is before the problem, not afterwards. Just randomly making up rules always makes things worse because the ratio of harmful to helpful regulations is infinite.
1. As I recall (oh, google it yourself!) various classical games included judged competitions such as poetry composition and playing musical instruments. 2. Can anyone seriously claim that gymnastics is a less athletic endeavour than a cut-and-dried competition like, say, trap shooting? 3. Despite the shock and outrage expressed in many comments, I am pretty sure that gymnastics really does appeal to more female than male TV viewers. 4. I can't see what is wrong with that - are women not more than half the population? Are there not other Olympic sports such as boxing that appeal to more men than women? 5. Please don't tell me that this TV viewing situation is a problem that desperately requires fixing via social engineering, because I might laugh in your face and that's not polite. 6. For those who are shocked and outraged by the assumption that more men than women read slashdot, rather than (or in addition to) assumptions about their TV viewing habits, yes, I concede you have a point, on the grounds that it might "promote an environment in which women disengage from technical disciplines."
Exactly. The procedure suggested by the researchers is:
1. Start with the day you will arrive in your final time zone. 2. Count back 16 hours from your normal breakfast time on that day, and stop eating from that point. 3. At your normal breakfast time on the final day, eat a substantial, nutritious, meal
Note that this means you may have to eat your breakfast on a plane or in an airport, and it may not be your normal breakfast time in the local timezone when you eat breakfast. You are supposed to eat substantial real food, not coffee and a pastry, so you may have to expend some effort and foresight to ensure that such food is available when you are supposed to eat it.
They are not blaming the coding error for every wrong rating they have ever issued, just for the CPDO products (a kind of leveraged portfolio strategy involving broad credit indexes.) The instruments in question depended on the credit quality of a broad index of European industrial companies. They have no direct connection to mortgages or to America at all; the link is just through the general decline in liquidity and increase in credit spreads.
It is true, though, that most independent observers were extremely skeptical about CPDOs when they were introduced by ABN: they promised a AAA rating for paper yielding 200 bp over LIBOR! Magic! Gold from dross! The "sanity check" would be that when something is to good to be true...
Actually, Feynman said something even more apposite to the topic. I don't have the quotation handy, so I'll have to paraphrase. He observed that so long as you treated space as a continuum, then you needed an infinite amount of information to describe what is going on in any finite volume, no matter how small. He considered that counterintuitive - why should you need an infinite amount of information to describe something arbitrarily small? Gregory Chaitin put it another way, when he said that he didn't believe in real numbers. He wasn't disputing the numbers, of course, but rather that real numbers could be applied to anything real, such as space, time, mass, or energy.
Most people find their intuition works the opposite way - why should there be a limit on how finely you can chop up space? And if there is a limit, why is it one size and not another?
When Morgan Chase was able to buy Bear Stearns with the 29 billion that the government gave them, it was one of the biggest handouts in US history.
Not exactly. The government is at risk for as much as 29bn should the losses on the Bear assets acquired by JP Morgan (not Morgan Chase, a different company) reach 30bn. However, 1) losses are calculated against a price that is already substantially marked down, not the face price, and 2) JP Morgan absorbs the first 1bn of losses. Since they don't really want to lose another billion, they have a strong interest in preserving the government's money too.
And last week the Fed announced plans to loan money to banks (which include brokerages that are not banks) at 2.5 percent, and then turn around and allow those banks to loan OUR money back to us at 30 percent credit card rates
Since these Fed loans are collateralized, they are not lending YOUR money but the bank's money, in more liquid form. The purpose of this is to allow the bank to lend YOU money. You know, just in case you wanted to own a house or have a job?
This idea that people who have some sort of mathematical or technical skill must be "socially maladapted" is wildly oversold. It draws its appeal from a kind of theory of compensation - or put more crudely, "there must be some reason why I'm better than you." If you are beautiful, you must be stupid; if you are intelligent, you must be weak; and if you are knowledgeable, you must be "maladapted."
In my observation, although highly charismatic people are everywhere rare, they are at least as common among, say, MIT graduates as anywhere else. Sorry to disappoint you, but just because someone is tall and good-looking does not mean he is not a genius.
Regarding the liberal arts college, my advice would be to follow your own judgement: do what you yourself want to do. You will feel more regret over a desired course not followed than by following your inclinations, even if you don't realize all of your hopes and dreams. Aside from the general advantages of liberal arts, any small program benefits from more attention and a less impersonal feel. But you seem to be asking whether it will be harder to find a job. The answer to this is yes, at first. As an employer I will visit schools with large pools of candidates available. There is more bang for my buck. So you will have to find me, rather than the other way around. But that is not the end of the world.
Evolution is not random - that is the entire basis of the theory! Perhaps you were thinking of mutations, the raw material of evolution. Mutations are not necessarily random - some are favoured for chemical reasons - but it is true that they are not directed by their evolutionary consequences.
In general, phenotypical features - height, strength, brain size, immune system, or whatever - bear a cost. Whatever resources are invested in such a feature are not available to be invested in something else, like reproduction. Therefore features are selected against unless their costs can be supported by a net increase in reproductive success.
This has got nothing to do with "complexity", and in fact is easiest to see in simple cases. For instance, a certain type of liver fluke lives part of its life cycle in a certain type of snail. The snail is protected by a hard shell; the snail invests resources in the shell because without it, its life expectency would be reduced to the point that it would produce fewer new snails, even though it would be able to spend its shell resources on making more snails. When infected by liver flukes, the snail's shell grows thicker! Its life expectency then increases, but its reproductive success declines because the marginal benefit of the thicker shell does not pay for the marginal reduction in rate of offspring. However, the reproductive success of the liver fluke increases - it cares more about the survival of this particular snail than its offspring. This is what Dawkins calls the "extended phenotype", action on the snail's body by the liver fluke's genes. But the problem is not that evolution is "random" and just happened not to come up with a thick-shelled snail; the snail already has the potential for thicker shells and the thickness is determined by reproductive success, not chance.
Now, back to the supposed advantages of opposable thumbs and big brains that you tout. It is easy to believe that now, looking at a world that currently has 6 billion people in it. But humans (genus Homo) with big brains and opposable thumbs have been around for a long time, over a million years. Almost all of them have left no descendents on the face of the earth. Sapiens itself has been around over 100,000 years, but needed an unusually mild and stable interglacial to fulfill its potential; it has really only been unusually successful in the Holocene. This, and the lack of any surviving collateral lineages, demonstrate that big brains and opposable thumbs have generally not been very advantageous; they've really only worked well in the context of sapiens during the Holocene.
Military people are naturally predisposed to favour attack over defense. That is because armies select their leaders for initiative and aggression, not sloth and complacency. Sloth and complacency creep into the war room all the same, and the reality is that attack is sometimes a very poor defense.
The second world war offers famous examples of this. The most obvious is submarine warfare. Neither the navy nor the merchant marine officers liked convoy; the navy preferred to aggressively chase after submarines rather than tie themselves to a slow convoy, and individual merchant captains were generally convinced that they stood a better chance on their own than as part of a fat juicy target. But in fact, any ship, even a fast one, had a much better chance of survival in convoy than on its own, even with no armed escort! Any escort, even a tin can corvette, raised these odds even higher. Meanwhile, sending expensive destroyers to chase phantoms over leagues of empty ocean achieved nothing.
The interesting thing is that this lesson was not learned but relearned: exactly the same process happened in the first world war. That lesson in turn was relearned from convoy against surface raiders in the Napoleonic wars; in those wars, convoy was rediscovered from even earlier eras dating back to the middle ages. It is just hard for most military minds to accept the value of a defensive procedure - it runs against their training.
Another example is bombing - before the war, people thought that interceptors were pointless - "the bomber will always get through." This belief was based on a rational calculation of flight speeds, climbing times, and geometry. But it didn't take into account the invention of radar.
Did those people say December 8, by any chance? If they were Japanese, and thinking in terms of their own time instead of the local time of the event, that would be correct.
By the way, those English settlers were attempting to settle Roanoke Island, which is possibly the reason that the colony is often referred to as "The Roanoke Colony" rather than "The Lost Colony":-) That is in "modern day" North Carolina, though it was contemporarily called the Virginia Colony.
However, I think I have implicitly conceded your main point about memory!
Well, if that's what PZ Myers had to say, why on earth do you bother to read him or her? That is an absurd contention.
Evolution, meaning the process by which one species arises from another, is a theory in the technical sense. That means that it is a widely understood mechanism supported by empirical observations that makes useful empirical predictions. It is possible to actually observe evolution in progress in organisms that reproduce quickly, like bacteria.
Proposed scientific mechanisms for the origin of life are conjectures. There is no firm evidence to favour one over another and nobody has ever succeeded in creating life by one of the conjectured mechanisms. People cannot even agree whether life began as DNA, RNA, clay, or entered the solar system from space. It is true that people tend to imagine mechanisms, such as clay catalysts, that "have an evolutionary flavour" or are analogous to evolution in that they propose some sort of progression in complexity, from simple non-life through more complicated non-life to - ta da! - life. But so what? If we can't support any of the conjectures with evidence, it doesn't matter how "evolutionary" they are. The correct mechanism could be one we have not imagined.
I am not claiming that there is anything mystical about the problem, or even that we have not already stumbled across the correct conjecture. It's just that whatever happened, happened a long time ago and has left little evidence behind.
The parent post is currently moderated -1, Troll. That doesn't seem quite fair to me. It is true that the post has drawn several responses, but I don't think it was written with cynical intent. It strikes me as an expression of a genuinely held point of view. The post expresses several self-flattering delusions - the assumptions that opponents are unfamiliar with the bible or the arguments of creationists - but does not seem egregious.
Now if you want to mod him -1, misuse of "forensic", I'm with you all the way.
Certainly, in the case of the American revolution, it was an open war.
So what? Islamic terrorists haven't exactly made a secret of their war on America, Israel, and western countries generally.
It was, if I may use the two terms in the same sentence, a somewhat honorable war in this: the US (not exactly the "US" at that time) declared that they were independent of Britain [...]
That is a wishful sanitization of history. Roughly as many Americans were opposed to independence as in favor, so that it was not America that declared independence but one political faction. History has vindicated the revolutionaries, but as always it was necessary to break a few eggs to make the omelete. America went on to host a terrorist organization, the Fenian Brotherhood, and benignly tolerated its attacks on Canada (then a part of Britain) in ways not very different from the ways that Iran and Syria host and tolerate Islamic terrorists today.
I see from your signature that you have a chip on your shoulder about this. Or maybe, judging by your post, you are well-balanced and are carrying a chip on both shoulders. Every human group thinks it's superior to other groups - it's the way we are wired. And most people in every country, even very poor ones, enjoy their lives. Beyond ordinary xenophobia, what makes you think America is so special? And how would you know so much about other countries anyway? You don't live there and apparently most of what you know you get through the media or Slashdot. For that matter, what do you know about America? You don't live in every state, let alone every county. America is a big place - bigger than your imagination.
The Bank did the right thing in extending credit (albeit at an uncompetitive rate), but the Government did the wrong thing in guaranteeing saver's deposits. They would probably have survived anyway and given the entire industry a harsh lesson in the realities of financing. As soon as they did that the nationalisation genie was out the bottle, and once it's out it is very difficult to put back.
This statement is completely wrong: the governemnt did (and is doing) the wrong thing in failing to guarantee deposits until it was too late, but attempting to bail out equity holders with a loan. All countries with developed banking systems guarantee deposits, up to some maximum, the purpose being to forestall bank runs. In return for the guarantee, banks must abide by regulations intended to ensure prudent business practices. The problem in the UK is that the maximum for 100% guarantee is absurdly low, just 2,000 pounds. The next 33,000 are 90% guaranteed, but since nobody wants to lose 10% of their savings, this guarantee is useless for preventing bank runs - it really is just a waste of money.
Had the full guarantee been in place for 35,000, the Northern Rock run might never have happened. Even if it did happen, the governement would have been in a politically viable position to allow the bank to fail, thus teaching "the entire industry a harsh lesson in the realities of financing." As it is, they have managed to combine a bank run, a bailout, and a non-viable bank.
The need to nationalize is a consequence of the bank bailout, not the deposit guarantee. The reason that nationalization will probably necessary is essentially the same as the reason the bank got into trouble in the first place: decline in interbank lending, and consequently, lending generally. Although, as others have mentioned, the Rock engaged in some doubtful lending, their real sub-prime difficulties lie on the liability side of the book, not the asset side (they funded their mortgage book by a combination of securitization and borrowing on the international money market.) Although the value of their assets appears to exceed the value of their liabilities by at least a few hundred million pounds (a couple of billion claim RAB et al), the government cannot find a buyer because nobody can borrow the 25 billion needed to pay back the B of E loan. Another bank would be the natural buyer, but these are frantically seeking to raise more capital, not looking for places to spend it. That is another consequence of the sub-prime crisis.
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The contribution of mathematical models to the present crisis has been vastly overblown. The breast-beating and mea culpas from the likes of Derman and Wilmott are self-flattering: after all, if you caused the problem, you must be important! In reality, the quant is at the bottom of the pecking order on most trading floors. The people who trafficked in securitized garbage did so not because they were fooled by their models, but because they were paid to. You can't tell me that the guy who lent $750,000 to a strawberry picker with $14,000 income would have thought it a good idea if he was lending his own money.
Contrast this to LCTM, which really is an example of quants gone wrong: those guys had so much faith in their models that they not only put their own money in the game, they borrowed money to invest in themselves! They were doing the same things they had done at Salomon but they failed to appreciate the importance of being able to lean on Solly's balance sheet in times of trouble.
As for Taleb ... puh-lease. The guy is a self-promoting windbag and his two most recent books are a waste of time. That's a shame, because he has written at least one interesting book I am aware of: Dynamic Hedging. Unfortuntely, the flaws that were present in embryo in that book - exaggerated self-regard, exaggerated criticism of others, deliberately cryptic statements meant to make the author seem clever - have grown like a tumour to consume 100% of his writing. All of Taleb's points have been made more clearly and more intelligently by other, better people. A recent example is Rebonato's Plight of the Fortune Tellers, but there are many others.
An equilibrium price doesn't mean that everyone agrees what the price should be, just that there is a balance between those who think the price too high and those who think it too low. If you restrict the supply of a given financial instrument, you chase out people at the margin who think the price is reasonable and are left with just the irrationally exuberant. Conversely, as you flood the market with new supply you are chasing progressively more bearish investors in the quest to find a buyer. Both of these effects are liable to dynamic positive feedback: as a price rises, the exuberant feel justified in their optimism and become ever more irrational. Likewise, as a price falls, bearish investors assume that the market is in possession of some negative information hidden from them and become ever more bearish - who wants to catch a falling knife?
The "types" of companies (and governments) directly affected by this bubble are in this case extremely narrow: banks (and none) respectively. In short, it is a classic financial bubble. Naturally, trouble for the banks spells trouble for everyone else, just as a cardiac arrest spells trouble for your little pinkie. Yes, it is always possible to view such a bubble as a "monetary" effect if money is defined sufficiently broadly - securitization is money creation, of a sort. But it is not money creation in the form of bank credit or manipulated interest rates and the Austrians and their Chicago students are of no use to you here.
Not to mention: third, the initial cost of an item is often proportional to the initial externalities of polution and energy consumption. I don't happen to know whether this is true of plasma and LCD TVs, but it is true in many real-life examples. For instance, most of us instinctively dislike disposable styrofoam coffee cups - we can see and feel in our hands plastic that we will immediately throw away. But one requires many hundreds of styrofoam cups to equal the energy and polution costs of one ceramic mug. True, there are costs associated with disposing of the cups, but there are also costs required to clean mugs for reuse.
Paper cups are often preferred over styrofoam on the grounds that they are biodegradeable, but the advantages of paper over reusable mugs are doubtful. Compared to styrofoam, paper requires truly exorbitant amounts of energy to manufacture.
Your wish is my command!
First, you need to understand that it is not just the banks that are the problem; the reason banks exist is that they have customers who need their services. In order to match reality, we have to add another piece to your analogy: suppose that you have to pay $2,000 in rent at the start of the month, but don't get paid until the end. You don't have a solvency problem - you are paying your debts completely on a monthly basis, just using credit to time-shift your cashflows. But when that credit is taken away, you are thrown out on the street.
In this case, of course, you would just keep a few months rent on hand to solve the problem. But that is not how businesses function; their cash requirements are vastly greater as a fraction of their capital than yours are. A company that has an order for widgets at $1.01 may be quite profitable if the cost of production is $1.00 provided that they don't have to fund production before delivery. They are still using credit to manage their cashflows, but it would be extremely expensive to dispense with this credit by the solution of keeping the requisite cash on hand. So expensive that they would be put out of business by more efficient competitors. The trouble now is that it has become very expensive or impossible for non-bank corporations to use credit in this way.
Insured retail deposits are not at risk, but all other creditors are. That is why banks will not lend money to each other: if their counterparty fails, they will lose it. Unfortunately, this lack of interbank lending has a knock-on effect that causes more banks to fail. Well, the depositors at those banks are still protected! But the FDIC has only a finite amount of money with which to make depositors whole. That amount now seems certain to be exhausted, with the deficit to be made up by tax dollars. In other words, Joe Sixpack's deposit is safe in the sense that it is backed up with his own taxes.
If you are wondering why banks need to lend each other money, the trouble is that this is necessary for an efficient financial system (that is, a financial system that doesn't cost you personally a lot of money.) The ability to borrow freely from each other allows banks to "even out" the supply of cash in the system; those with a temporary surplus can earn a return on it, those with a temporary need for cash need not dispose of assets to raise it. Without this ability, money would be a much rarer and more expensive commodity than it is. You would find it difficult to borrow a mortgage even if you were a "good" borrower and you or your company would find it difficult to stay in business without access to credit.
We (as represented by Andrew Carnegie) tried that already; the result was what we call the Great Depression. The problem is that it is not just (or even primarily) the "Republican fat cats" who "did stupid, risky things" who will suffer. Most have them have stupidly and riskily amassed large fortunes in safe assets like US treasuries. The people who will suffer most are everybody else - i.e. you. If the government waits to act until its constituency figures this out (because tens of millions of them are out of work), the resulting depression will be much worse than it need have been.
The failed businesses did have sufficient verifiable assets to support their transactions at the time they were made. The problem is with another regulation that says they are insolvent if they don't have sufficient assets to support these transactions at a later time when the market decides they are worth less - even if they can meet all of their contractually required payments.
So what are you advocating, exactly? That businesses should carry sufficient cash to have positive net worth even if the value of all other assets falls to zero? The practical effect of your plan is that you would have no house, no job, and not very much food. But probably you wouldn't care because odds are you would have died by age five.
Your comments about house prices are spot on - as anyone could see if they took the trouble to examine a graph of real-dollar house prices since 1970. That graph also illustrates the fallacy of assertions that the problem could have been avoided had we only taken action in, say 2005. From about 1999 on we were doomed to a painful correction, and every year of delay just stored up more pain.
I can't agree with the following opinion, though:
The difference between "a value not absurdly depressed" and current market prices is so huge that it would eat the 700bn in any case. Unloading the positions immediately would just have the effect of realizing a loss immediately for the taxpayer instead of retaining the upside. With the actual proposal, there was a strong probability that the taxpayer would utimately profit. It certainly seems that the government is earning an enormous carry on the AIG bailout with relatively little risk.
That legislation repealed the part of the Glass-Steagall act of 1933 that prevented a bank holding company from owning other financial companies, allowing an entity to engage in banking and investment banking simulataneously. Since none of the traditional investment banks were particularly interested in commercial or consumer banking, the practical effect was to allow large, well-capitalized, diversified institutions like B of A, JP Morgan and Citi to enter the investment banking industry.
It is precisely the new entrants to investment banking that have survived the crisis, whereas the victims have been either old-fashioned investment banks (Bear, Lehman, Morgan-Stanley ... all of them, really) or old-fashioned banks (Countrywide, WaMu, Wachovia.) So on the evidence, the Financial Services Modernization Act has made the situation better, not worse.
That is not to say regulation could not have prevented the problem. One obvious possibility would have been to make it illegal to lend mortgages that don't meet minimum downpayment and income requirements. The only problem is that such a regulation would have been just as unpopular with voters as the bailout package; the politicians who voted for it would probably be out of office now ("why do you want to stop Americans from owning their own homes?!")
Another problem is that it is not enough to invent regulations; one must also enforce them. AIG would never have failed, for instance, if they had not been allowed to circumvent existing insurance industry regulation in a rather crude and obvious way by guaranteeing captive subsidiaries.
In any case, the general difficulty in preventing a financial crisis is to know what the right regulation is before the problem, not afterwards. Just randomly making up rules always makes things worse because the ratio of harmful to helpful regulations is infinite.
1. As I recall (oh, google it yourself!) various classical games included judged competitions such as poetry composition and playing musical instruments.
2. Can anyone seriously claim that gymnastics is a less athletic endeavour than a cut-and-dried competition like, say, trap shooting?
3. Despite the shock and outrage expressed in many comments, I am pretty sure that gymnastics really does appeal to more female than male TV viewers.
4. I can't see what is wrong with that - are women not more than half the population? Are there not other Olympic sports such as boxing that appeal to more men than women?
5. Please don't tell me that this TV viewing situation is a problem that desperately requires fixing via social engineering, because I might laugh in your face and that's not polite.
6. For those who are shocked and outraged by the assumption that more men than women read slashdot, rather than (or in addition to) assumptions about their TV viewing habits, yes, I concede you have a point, on the grounds that it might "promote an environment in which women disengage from technical disciplines."
Exactly. The procedure suggested by the researchers is:
1. Start with the day you will arrive in your final time zone.
2. Count back 16 hours from your normal breakfast time on that day, and stop eating from that point.
3. At your normal breakfast time on the final day, eat a substantial, nutritious, meal
Note that this means you may have to eat your breakfast on a plane or in an airport, and it may not be your normal breakfast time in the local timezone when you eat breakfast. You are supposed to eat substantial real food, not coffee and a pastry, so you may have to expend some effort and foresight to ensure that such food is available when you are supposed to eat it.
They are not blaming the coding error for every wrong rating they have ever issued, just for the CPDO products (a kind of leveraged portfolio strategy involving broad credit indexes.) The instruments in question depended on the credit quality of a broad index of European industrial companies. They have no direct connection to mortgages or to America at all; the link is just through the general decline in liquidity and increase in credit spreads.
...
It is true, though, that most independent observers were extremely skeptical about CPDOs when they were introduced by ABN: they promised a AAA rating for paper yielding 200 bp over LIBOR! Magic! Gold from dross! The "sanity check" would be that when something is to good to be true
Actually, Feynman said something even more apposite to the topic. I don't have the quotation handy, so I'll have to paraphrase. He observed that so long as you treated space as a continuum, then you needed an infinite amount of information to describe what is going on in any finite volume, no matter how small. He considered that counterintuitive - why should you need an infinite amount of information to describe something arbitrarily small? Gregory Chaitin put it another way, when he said that he didn't believe in real numbers. He wasn't disputing the numbers, of course, but rather that real numbers could be applied to anything real, such as space, time, mass, or energy.
Most people find their intuition works the opposite way - why should there be a limit on how finely you can chop up space? And if there is a limit, why is it one size and not another?
Good grief! Show a little imagination. I would have hoped at least for "Grouse".
Not exactly. The government is at risk for as much as 29bn should the losses on the Bear assets acquired by JP Morgan (not Morgan Chase, a different company) reach 30bn. However, 1) losses are calculated against a price that is already substantially marked down, not the face price, and 2) JP Morgan absorbs the first 1bn of losses. Since they don't really want to lose another billion, they have a strong interest in preserving the government's money too.
Since these Fed loans are collateralized, they are not lending YOUR money but the bank's money, in more liquid form. The purpose of this is to allow the bank to lend YOU money. You know, just in case you wanted to own a house or have a job?
This idea that people who have some sort of mathematical or technical skill must be "socially maladapted" is wildly oversold. It draws its appeal from a kind of theory of compensation - or put more crudely, "there must be some reason why I'm better than you." If you are beautiful, you must be stupid; if you are intelligent, you must be weak; and if you are knowledgeable, you must be "maladapted."
In my observation, although highly charismatic people are everywhere rare, they are at least as common among, say, MIT graduates as anywhere else. Sorry to disappoint you, but just because someone is tall and good-looking does not mean he is not a genius.
Regarding the liberal arts college, my advice would be to follow your own judgement: do what you yourself want to do. You will feel more regret over a desired course not followed than by following your inclinations, even if you don't realize all of your hopes and dreams. Aside from the general advantages of liberal arts, any small program benefits from more attention and a less impersonal feel. But you seem to be asking whether it will be harder to find a job. The answer to this is yes, at first. As an employer I will visit schools with large pools of candidates available. There is more bang for my buck. So you will have to find me, rather than the other way around. But that is not the end of the world.
Evolution is not random - that is the entire basis of the theory! Perhaps you were thinking of mutations, the raw material of evolution. Mutations are not necessarily random - some are favoured for chemical reasons - but it is true that they are not directed by their evolutionary consequences.
In general, phenotypical features - height, strength, brain size, immune system, or whatever - bear a cost. Whatever resources are invested in such a feature are not available to be invested in something else, like reproduction. Therefore features are selected against unless their costs can be supported by a net increase in reproductive success.
This has got nothing to do with "complexity", and in fact is easiest to see in simple cases. For instance, a certain type of liver fluke lives part of its life cycle in a certain type of snail. The snail is protected by a hard shell; the snail invests resources in the shell because without it, its life expectency would be reduced to the point that it would produce fewer new snails, even though it would be able to spend its shell resources on making more snails. When infected by liver flukes, the snail's shell grows thicker! Its life expectency then increases, but its reproductive success declines because the marginal benefit of the thicker shell does not pay for the marginal reduction in rate of offspring. However, the reproductive success of the liver fluke increases - it cares more about the survival of this particular snail than its offspring. This is what Dawkins calls the "extended phenotype", action on the snail's body by the liver fluke's genes. But the problem is not that evolution is "random" and just happened not to come up with a thick-shelled snail; the snail already has the potential for thicker shells and the thickness is determined by reproductive success, not chance.
Now, back to the supposed advantages of opposable thumbs and big brains that you tout. It is easy to believe that now, looking at a world that currently has 6 billion people in it. But humans (genus Homo) with big brains and opposable thumbs have been around for a long time, over a million years. Almost all of them have left no descendents on the face of the earth. Sapiens itself has been around over 100,000 years, but needed an unusually mild and stable interglacial to fulfill its potential; it has really only been unusually successful in the Holocene. This, and the lack of any surviving collateral lineages, demonstrate that big brains and opposable thumbs have generally not been very advantageous; they've really only worked well in the context of sapiens during the Holocene.
Military people are naturally predisposed to favour attack over defense. That is because armies select their leaders for initiative and aggression, not sloth and complacency. Sloth and complacency creep into the war room all the same, and the reality is that attack is sometimes a very poor defense.
The second world war offers famous examples of this. The most obvious is submarine warfare. Neither the navy nor the merchant marine officers liked convoy; the navy preferred to aggressively chase after submarines rather than tie themselves to a slow convoy, and individual merchant captains were generally convinced that they stood a better chance on their own than as part of a fat juicy target. But in fact, any ship, even a fast one, had a much better chance of survival in convoy than on its own, even with no armed escort! Any escort, even a tin can corvette, raised these odds even higher. Meanwhile, sending expensive destroyers to chase phantoms over leagues of empty ocean achieved nothing.
The interesting thing is that this lesson was not learned but relearned: exactly the same process happened in the first world war. That lesson in turn was relearned from convoy against surface raiders in the Napoleonic wars; in those wars, convoy was rediscovered from even earlier eras dating back to the middle ages. It is just hard for most military minds to accept the value of a defensive procedure - it runs against their training.
Another example is bombing - before the war, people thought that interceptors were pointless - "the bomber will always get through." This belief was based on a rational calculation of flight speeds, climbing times, and geometry. But it didn't take into account the invention of radar.
Did those people say December 8, by any chance? If they were Japanese, and thinking in terms of their own time instead of the local time of the event, that would be correct.
:-) That is in "modern day" North Carolina, though it was contemporarily called the Virginia Colony.
By the way, those English settlers were attempting to settle Roanoke Island, which is possibly the reason that the colony is often referred to as "The Roanoke Colony" rather than "The Lost Colony"
However, I think I have implicitly conceded your main point about memory!
Well, if that's what PZ Myers had to say, why on earth do you bother to read him or her? That is an absurd contention.
Evolution, meaning the process by which one species arises from another, is a theory in the technical sense. That means that it is a widely understood mechanism supported by empirical observations that makes useful empirical predictions. It is possible to actually observe evolution in progress in organisms that reproduce quickly, like bacteria.
Proposed scientific mechanisms for the origin of life are conjectures. There is no firm evidence to favour one over another and nobody has ever succeeded in creating life by one of the conjectured mechanisms. People cannot even agree whether life began as DNA, RNA, clay, or entered the solar system from space. It is true that people tend to imagine mechanisms, such as clay catalysts, that "have an evolutionary flavour" or are analogous to evolution in that they propose some sort of progression in complexity, from simple non-life through more complicated non-life to - ta da! - life. But so what? If we can't support any of the conjectures with evidence, it doesn't matter how "evolutionary" they are. The correct mechanism could be one we have not imagined.
I am not claiming that there is anything mystical about the problem, or even that we have not already stumbled across the correct conjecture. It's just that whatever happened, happened a long time ago and has left little evidence behind.
The parent post is currently moderated -1, Troll. That doesn't seem quite fair to me. It is true that the post has drawn several responses, but I don't think it was written with cynical intent. It strikes me as an expression of a genuinely held point of view. The post expresses several self-flattering delusions - the assumptions that opponents are unfamiliar with the bible or the arguments of creationists - but does not seem egregious.
Now if you want to mod him -1, misuse of "forensic", I'm with you all the way.
That's because they're spelled yatch but pronounced throat-warbler mangrove.
So what? Islamic terrorists haven't exactly made a secret of their war on America, Israel, and western countries generally.
That is a wishful sanitization of history. Roughly as many Americans were opposed to independence as in favor, so that it was not America that declared independence but one political faction. History has vindicated the revolutionaries, but as always it was necessary to break a few eggs to make the omelete. America went on to host a terrorist organization, the Fenian Brotherhood, and benignly tolerated its attacks on Canada (then a part of Britain) in ways not very different from the ways that Iran and Syria host and tolerate Islamic terrorists today.
I see from your signature that you have a chip on your shoulder about this. Or maybe, judging by your post, you are well-balanced and are carrying a chip on both shoulders. Every human group thinks it's superior to other groups - it's the way we are wired. And most people in every country, even very poor ones, enjoy their lives. Beyond ordinary xenophobia, what makes you think America is so special? And how would you know so much about other countries anyway? You don't live there and apparently most of what you know you get through the media or Slashdot. For that matter, what do you know about America? You don't live in every state, let alone every county. America is a big place - bigger than your imagination.
This statement is completely wrong: the governemnt did (and is doing) the wrong thing in failing to guarantee deposits until it was too late, but attempting to bail out equity holders with a loan. All countries with developed banking systems guarantee deposits, up to some maximum, the purpose being to forestall bank runs. In return for the guarantee, banks must abide by regulations intended to ensure prudent business practices. The problem in the UK is that the maximum for 100% guarantee is absurdly low, just 2,000 pounds. The next 33,000 are 90% guaranteed, but since nobody wants to lose 10% of their savings, this guarantee is useless for preventing bank runs - it really is just a waste of money.
Had the full guarantee been in place for 35,000, the Northern Rock run might never have happened. Even if it did happen, the governement would have been in a politically viable position to allow the bank to fail, thus teaching "the entire industry a harsh lesson in the realities of financing." As it is, they have managed to combine a bank run, a bailout, and a non-viable bank.
The need to nationalize is a consequence of the bank bailout, not the deposit guarantee. The reason that nationalization will probably necessary is essentially the same as the reason the bank got into trouble in the first place: decline in interbank lending, and consequently, lending generally. Although, as others have mentioned, the Rock engaged in some doubtful lending, their real sub-prime difficulties lie on the liability side of the book, not the asset side (they funded their mortgage book by a combination of securitization and borrowing on the international money market.) Although the value of their assets appears to exceed the value of their liabilities by at least a few hundred million pounds (a couple of billion claim RAB et al), the government cannot find a buyer because nobody can borrow the 25 billion needed to pay back the B of E loan. Another bank would be the natural buyer, but these are frantically seeking to raise more capital, not looking for places to spend it. That is another consequence of the sub-prime crisis.