Pretending, And The Financial Crisis

It’s become clear that I should share my thoughts on what caused The Financial Crisis (tm/2008). I make fun of so many other peoples’ stupid ideas of what caused it, that I may as well put forth my own. Besides, well…the people clamor for my opinions, and I listen.

So, without further ado, here’s my brilliant diagnosis of what caused The Financial Crisis: our pyramid scheme finally collapsed. Oops! Didn’t know they could do that!

Speaking of The Financial Crisis as some sort of event that befell us, which had exogenous ’causes’ (causes that, it’s implied, could have been averted), strikes me as a mistake. When you strap feathers on a fat man’s back and shoot him out of a cannon up into the sky, you don’t later scratch your head at the resulting flattened corpse and ask ‘Golly, what made him come down? Next time we gotta figure out how to make him not come down.’ Sorry. He was gonna come down, the question is, and should be: how the heck did he even get up there in the first place?

Because you put him in a cannon and lit the fuse, numbskull. Did you really think the fat man could fly? No, of course not. You were just pretending.

Due to many factors, our economy, our financial system, has turned itself into the most sophisticated pyramid scheme in human history. So, therefore, the bubble burst. To paraphrase Keanu Reeves to Joaquin Leaf Phoenix in Parenthood, “That’s what little pyramid-scheme dudes do.” Given that we had a pyramid scheme, the collapse wasn’t avoidable, it didn’t have some mysterious ’cause’, it wasn’t avertable with just the right clever genius Smart People regulations, generally speaking it just wasn’t not going to happen. Not-happening wasn’t something that was in the cards. On the contrary, it was going to happen and the only question was when. Why not summer ’07? You got a better ‘when’? When then?

To cite the most notorious pyramid scheme, everyone has heard of Madoff and everyone has heard of CDOs but few seem to have made the link. So, let me. What Madoff is accused of having done involves taking money (from ‘investors’), giving the investors a Thing, and printing up paper statements showing that the Thing they bought increased in value, which attracted new investors. He did this for a while, and for a while it was fine because new investors kept showing up (so, in particular, he could cash out the old ones who wanted out), but then he couldn’t, as the fiction was unsustainable, and the pyramid scheme collapsed. That’s what pyramid-schemes do.

The tragedy of CDOs actually involves a precisely-analogous story arc. When analyzed responsibly, there’s nothing magical or mysterious about a CDO that makes it different from any other debt instrument. It’s far more levered, and it’s the debt of a synthetic company instead of a real one, but if you take the leverage, the hedging costs, and the uncertainty into account correctly, you can price a CDO appropriately like any other bond, and everything will be fine. CDOs valued appropriately would never have contributed to The Financial Crisis, because no one (including rating agencies) would have pretended their value was much higher in the first place.

The problem though is that CDOs are complex things whose value is calculated with formulas and simulations, and while there are formulas that in responsible hands are basically fine, ultimately it seems they can also be manipulated/tuned to make them come out however you want, and due to the complexity, this is hard to stop or catch. And so, this is what (some) people did. Thus, just as the Madoff crime intimately involved the pretense of value, so did the creation and issuance of CDOs. The mechanisms were different (all Madoff needed, it seems, was some word processing software and a printer, whereas CDO sellers needed a team of quants, a library of algorithms, and a cozy relationship with a rating agency) but the end result was the same: make up some numbers showing the Thing has more value than it really has, sell it, keep marking it there (or higher), sell some more, repeat.

The commonality here is making up value out of thin air – or, to put it more neutrally, inflating value.

This takes me to my real diagnosis. The crisis was the popping of a pyramid scheme. Any discussion of the crisis is therefore incomplete without addressing and diagnosing the pyramid scheme. The real question, in essence, is: what caused the pyramid scheme?

To cut an already-boringly-long story short, we may as well just go straight to the source: housing. Our government poured money into housing and artificially propped up the housing market with easy-money it didn’t have and market-distorting regulations and incentives. Basically, loans were given to people who weren’t good for them. The loans were guaranteed by ‘government-sponsored entities’ that weren’t actually solvent on their own. And that’s how houses were given to people who couldn’t afford them. Lo and behold, at the root of this we see the same factor present as in Madoff’s scheme, and as in banks’ CDOs: the pretense of value. Let’s all pretend that this two-bedroom house on the outskirts of a Phoenix suburb is worth $900k. Let’s all pretend that this modest-salaried person can and will pay back the loan. On these pretenses, a flimsy pyramid was indeed built. And then it collapsed. Duh. That’s what pyramid schemes do.

The motives for the housing make-believe varied a bit (in the Clinton years the handwringing over ‘redlining’ was probably ideological, a sop to ‘diversity’ and race equality; in the Bush years it was, I suspect, more of an approval-rating/electoral strategy) but the result was the same: borrowing money from future levels of the pyramid sceme generations in order to artificially-boost everyone’s home values and make them feel in-the-money. To create the illusion of wealth, of value. And for a while, it worked, and then the bubble burst, so it didn’t.

But this is the arc of every single pyramid scheme. All perfectly normal and natural. None of it unexplainable or mysterious. What is there to talk about that won’t just be depressing? Any further questions or can we all just end class early and head down to the Rathskeller for a pint, and talk about something else, like cars, and girls? In fact, can we just pretend I never even brought it up…please?

Egypt: The Porn Revolution

I have no in-depth knowledge of the goings-on in Egypt and as far as commentary goes my reaction is essentially no different than I wrote in response to the events in Iran a couple of years ago, in a post that with hindsight actually appears to have been spot-on. (Once again, when I wonder to myself ‘have I already written something about this?’, the answer is ‘yes’, and I go find the post, and it’s good. Why isn’t this like one of the main blogs?)

In this case I’m following events even less closely than usual. Oh sure, I’ve seen snippets on the TVs at work in between Jim Cramer rants and the various ‘Sonorous’ ™ Obama speeches that pepper our newcast. But at best, I’m a half-informed half-wit on this subject. What little I have picked up, between Mohammed El Baradei (there’s a name I recognize – from where?), and the shutting down of the internet, and Obama ‘monitoring’ the situation, and our State Dept. calling for the policemen not to be violent with the rioters – all of this jumble has fermented in my brain and led to the following stunning thought:

This is the “Porn Revolution” (tm/2011 Sonic Charmer all rights reserved).

Somehow, some way, all these Egyptian Muslim-Brotherhood rioters, can be traced back to internet porn. I don’t have an argument for let alone actual objective facts to back this up yet; it’s just something my mind seems to be intuiting, a raw, reactive thought. And (as perhaps you can see from some of my recent, er, provocative posts), my new thing here at RWCG is just to get the thoughts out as they come, with little attempt at self-editing.

What would an argument for calling it the “Porn Revolution” consist of? Well, to take a stab in the dark, I suppose it might start with the observation of these young idle men all over the streets, young men with (evidently) nothing to do, and yet (I imagine) with as much knowledge of the decadent, wonderful West as the rest of us, through the globalized media (as symbolized in particular by – that’s right – the internet porn that (I assume) they surf), men who are unmarried and unmarryable due to the inequality of their society, who there suffer and seethe at the dishonor and indignity of being under the Mubarak yoke, etc etc etc. And so, they riot, inchoately.

Yes, the argument might go something like that. I really wouldn’t know as my knowledge of Egypt comes 10% from a big book on The Pyramids that I perused but never actually got around to doing an Oral Report on during 3rd-grade ‘Gifted And Talented’ sessions, 20% from the Brendan Fraser The Mummy movie franchise, and the other 70% or so from perusing that cool kids’ activity book Egyptology: Search for the Tomb of Osiris while waiting for this or that kid to finish playing with the Thomas trains in the children’s section of Barnes & Noble.

However, lack of a supporting argument or evidence is not going to stop me from clever branding and self-promotion. So that’s why I’ve decided the imperative is just to get it out there and then let the chips fall where they may: this mess in Egypt, this is The Porn Revolution.

And now, there’s no denying that if that moniker actually catches on, you can honestly say, you heard it here first.

Let’s Create Real, Not Made-Up, Jobs For Women

Been seeing a lot of chatter recently about the intersection of feminism, the sexual marketplace and progressivism. The basic pattern being observed is a cycle (whether virtuous or vicious depends on your POV) that resonates between female independence from men, female pursuit of alpha males, and female support for big government.

To describe the cycle (starting arbitrarily somewhere in the middle of it – it has no beginning or end):

The more women pursue and indulge alpha-male-exclusive fantasies, the less they have (stable, monogamous) relationships with men in their lives. The less monogamy and stability, the more big government women support. The more that government involves itself in and arrogates to itself the right to control, suckle, and nanny every aspect of human existence, the less pressure women will feel to have stable, monogamous relationships with men, and the more inclined they are to join alpha-male harems. The more they join alpha-male harems, the more they’ll need big government to be their husbands…

Compounding all this is a little-commented but not-unimportant side effect: as government gets bigger and power/money more concentrated, the few alpha males who come out on top of the game become that much more alpha. There’s far more ‘spoils’ accruing to a President, or Senator, or CEO of a firm tied to/dependent on government – which, increasingly, means virtually all firms – in a big-government world than in a small-government world; there’s far more in 2010 than there was in 1910. That makes those alphas that much more alpha, which makes alpha-pursuing women want them more, which only helps further the sort of society that creates these mega-alphas.

The end goal sought is, as stated brilliantly in the comment unearthed by Vox Day in the post linked above,

…a polyandryous society that still maintains a “Sex and the City” civilization. They somehow expect to limit sexual access to the five percent of men they find attractive while the rest toil away to make life easier and more comfortable for them.

It’s not clear how to halt or even slow down the progress of this development before it leads to real disaster.

So, as has happened before, the only thing I can really think of is ridicule. To that end, I need to observe that the key development enabling this cycle is that women, having been liberated and having (as they do) equal rights, now have jobs – in fact they seem to be doing better in the workforce than men. And don’t get me wrong; women being able to work, by itself, is obviously a good thing. But it is what allows women to be independent, and marry later, and date (or just sleep with) a lot of alpha guys with no real concern for eventual settling down. In other words their jobs are the fuel for the feminism/alpha-chasing/big-government cycle.

Here’s where the ridicule comes in: a disproportionate number of those ‘jobs’ (when compared with the jobs men do) wouldn’t exist without the government. Essentially, they are made-up, cushy, silly jobs that were basically invented, often by women, to give women something to do. Because otherwise, there’d be nothing for all these women, who want all these jobs for their independence, to actually do. Nobody would pay them to do (non-sexual) things, out of their own volition; they needed to harness the power of the government – men with guns – to take money away from others and create (directly or indirectly) ‘jobs’ for women to do. By definition, such ‘jobs’ aren’t – can’t be – contributing anything to society. They didn’t arise out of genuine need, they arose out of nagging and campaigning, or nannying and worrywartism, or something other than genuine economic need.

The ‘jobs’ held by Marge Simpson’s sisters on The Simpsons (chain-smoking unpleasant trolls of the DMV) are the canonical example. The reason The Simpsons has been so funny for so long is because much of its humor rings so true; it is closely-observed, and Marge’s sisters are no exception. I have seen, and you have too, real-live DMV employees exactly like that: Large, unpleasant, heavy-set middle-aged women grudgingly shuffling over to the copy machine at a snail’s pace to grab the printout of the form you had to stand in line for 75 minutes to pick up. The details vary but a lot of womens’ “jobs” are pretty much just like that. They work in an office somewhere. They work with a lot of paper. There are some government rules or regulations and they have to comply with them. They have to have, or set up, weekly meetings about this and that. They have to fill out forms about this and that. People are required to go see them, or make an appointment with them, or ask them to schedule an appointment with someone else, or call them, all of it because of some rule, or regulation, created by the government. They don’t produce or create or sell something. In one way or another they are basically glorified day-care workers tasked with keeping an eye on this or that aspect of society – this or that ‘classroom’ – so that real stuff can get done elsewhere.

I’m painting with a broad-brush here, obviously. I have to, for maximal ridicule. Obviously I’m not describing all jobs held by women, or even (necessarily) a majority of them. There are female scientists and saleswomen and engineers and writers and doctors (to name some non-made-up jobs that come to mind). Of course there are. And there are jobs held disproportionately by men (soldier, for example) that wouldn’t exist without the government.

But let me just try this:

(a) would the job Diversity Coordinator exist without the government?
(b) if I told you someone was a Diversity Coordinator, and you had to guess their sex, what would your guess be?

How about: the HR person who explains your health care plan to you when you start a new job, or an HR anything really. Same questions, (a) and (b). Or, someone works in compliance at a corporation. (a) and (b). Someone who works at a nonprofit that campaigns for government ‘clean-energy’ funds, or a nonprofit anything, really. (a) and (b).

Now, to sober up a bit here, I admit it’s not like there are no men in these sorts of jobs. There are. But what is true is that (a) these jobs wouldn’t really exist, or would exist in lesser numbers at least, without government priming or politicizing of one sort or another, and (b) they are disproportionately female (I think).

MIWBIIN*, why would that be? Why are made-up jobs disproportionately held by women? Why can’t oh-so-independent women cut it in the real world – make real economic contributions – without the embarrassing and belittling crutch of government either artificially spawning endlessly larger bureaucracies for them to run, or needlessly writing endlessly intrusive regulations for them to nanny?

Once I praised The Office as my favorite conservative show, particularly for its portrayal of salesmen. (Have you noticed how often I link to myself by the way? I have! That’s because my blog is so awesome that it has lots of good posts on everything.) More recently I pointed out that it’s gone downhill. One small but notable development I hadn’t mentioned was that Pam, who had long aspired to be an artist, and then more recently wanted to be in sales, has now become the ‘Office Manager’, which was a job she made-up. A non-job. A job that didn’t really exist, and which has no observable tangible duties that I can see. (In one episode she decided to make a ‘My New Year’s Resolutions’ bulletin board; okay so that’s 0.25 hours, what is she doing for the remaining 39.75 hours of the week? You got me.) Why, you might ask, do they even keep her on? Well basically (to combine the TV logic & the intrinsic logic on the show), because even though she wasn’t a good saleswoman and generates no revenue for the firm, she’s pretty, and people like her, and people would get mad if she weren’t on the show, and would feel sorry if she got laid off or fired or something. So, let’s give her something to do and keep giving her a paycheck. And then pat her on the back, because look, she’s ‘independent’!

This is what I’m talking about, in microcosm.

Let me try to end this post on a positive, optimistic note by stating my observations as a challenge: if women have equal rights (and, surely they do), and have equal potential (as I believe they do, if in different dimensions), there should be plenty of work for them to contribute to the private sector – without the direct or indirect prompting of government, nannyism, phoniness, style over substance, etc. So maybe that’s the key to ending or at least interrupting the feminism/big-government cycle: create real, genuine jobs for women to do, jobs that help to create actual profits, jobs that make actual positive economic contributions to society – instead of the jobs that so many of them, all too many, actually do have. And the great news is, feminists should be totally on my side here – because they, like me, believe women are equally capable of making economic contributions as men (right?) – thus they should be totally on board with what I’m saying.

So who’s with me – no more ‘nonprofit’ or bureaucratic paper-pushing work for women – so demeaning! They’re better than that! (Right?) I say, it’s time to put women to work in generating actual things, goods, and profits – just like men. There’s gotta be something meaningful and profitable they can do.

Any ideas?

[*MIWBIIN=Maybe I'm wrong but if I'm not]

Useless Messages

I like (and by ‘like’, I mean ‘dislike’) how when you install a program or do something else time-consuming on your computer a message usually pops up that says ‘Please wait’. Do I have a choice? What else am I gonna do? I guess I could pull out a hammer and smash the computer thing. That’s kinda-sorta the opposite of ‘waiting’ in this context. But really, the message just makes no sense.

Blogging The State Of The Union Address**

Well, President Obama really hit one out of the park last night. The soaring rhetoric, the renewed call for unity of purpose, the inspiring anecdotes. I especially appreciated the commitment he expressed to strongly supporting good things (of which he gave examples, that are too numerous to list in this space) with government funds.

All in all, this was precisely what he needed to give himself a bounce in the polls, Clinton-style, and set the stage for a triumphant re-election in 2012. Obama’s back!

**note: I didn’t actually watch or read any part of the State Of The Union Address. And actually, I wrote the above 3 weeks ago. Nevertheless, I’m certain the preceding comments apply, regardless and independently of what he actually said or didn’t say or what transpired last night. This can be easily confirmed by, for example, reading any mainstream-media pundit commentary on it, none of which will differ markedly from the above nor have any more basis in substance for the conclusions drawn.

Scams For Me But Not For Thee

Matthew Yglesias has a good post on AOL and the economics of scams whose content I am happy to endorse.

…as the economic pie grows bigger and bigger, the number of hours in the day doesn’t grow. So in many cases the opportunity cost of taking the time to really check things out is rising. That means more and more often it’ll be the case for consumers to be rationally ignorant about what exactly they’re doing, and it’ll more and more make sense for firms to exploit that.

Indeed, and (like most things) I’ve even written about this sort of thing before:

I don’t have the time to do that analysis. So I’m probably getting ripped off on my cell phone service. I don’t have the time to do much about it. See, I have a life. People who don’t have a life, or who don’t value their free time as highly as I do, probably do indeed dig into their phone contracts, shop around, look for deals and coupons and tricks to save money. Some people (unlike me) don’t mind doing stuff like that with their free time (or at least, they have far more free time than I do). These are the coupon-clippers, the fine-print readers, the people who call the 1-800 number. They do these things, they save money, and they’re presumably ok with the status quo, which in part involves me subsidizing the fact that they save money, because I end up paying what amounts to an “I-have-a-life” tax.

So Matthew and I nominally agree that it’s increasingly a problem when complexity of this sort leads to a free-time tax. Yglesias even goes farther than I did, because he says business conducted in this way is literally a scam.

Yet what I find fascinating is that, however much they understand this and see it as a problem, it’s also the Matthew Yglesiaseses of the world who are all in favor of the government doing exactly the same thing to people – for example, when it comes to taxes, or health care. After all, can any mortal human make an informed, intelligent calculation as to his tax exposure, or whether what he’s being charged for health care makes sense? Whether he’s getting a ‘good deal’? Of course not. And that’s the way the left likes it. In fact, by supporting single-payer with implied government rationing, they want us to not even have any choice in the matter, have the decision handed to us by other people, and have no means or ability of doing any calculation or evaluation at all. Surely by Yglesias’s criteria this is scam multipled tenfold.

So does Matthew Yglesias only oppose ‘scams’ when not perpetrated by the government?

Our Straw Wrappers Have Been Illegitimately Replaced

I’ve noticed something sinister about our society recently that seems to have gone largely and insidiously unnoticed:

Drinking straws are ridiculously hard to unwrap nowadays.

Everyone knows that you’re supposed to be able to take the paper off a drinking straw by grasping it gently by its sides, banging it briskly on the table in one clean vertical motion until the top of it pops out of the paper, grabbing that top, and then sliding the paper off easily in one piece.

For some reason, this no longer works.

Whether it’s McDonald’s or other fast food or generic cafeteria straws, the paper just no longer cooperates: it won’t slide off easily, and the more likely outcome of banging the straw vertically is that a fracture forms in its side, meaning that as you drink, liquid leaks out. Thereby rendering the entire drinking experience unsatisfying if not unrecognizable. So, to avoid this and get the straw out, you have to unpeel the paper off carefully, in several pieces, in several steps. Like an idiot. Like a sucker.

What has happened to our nation’s straws? Am I the only one to have noticed this? That’s the creepiest thing of all. I searched diligently on the Internet for over 80 seconds, but it appears nobody has noticed that our straw wrappers have been silently replaced by these pale impostors of their former glory.

Naturally, I blame communists. Or more specifically, greenies. Namely, I’m guessing that the straw wrappers are now made out of ‘recycled’ paper or some such nonsense, and everyone decided that would be ok to do, and no one would notice. Well what about ME dammit. Nobody asked ME whether I’D be ok with it.

AND I AM NOT.

Just another example of how, rather than progress, what we are actually getting is regress. Every day, all the time, little by little. When our grandchildren are drowning in tears with frustration and thirst as they fumble with hopelessly unwieldy straw wrappers over their so-close yet unattainable 64 oz drink of Brawndo, will they be able to forgive us? More to the point, can we rightly expect them to?

My Oh My

Posted at Lookout Landing. Neither a Mariners nor a rap fan but what I am is a sucker for this sort of thing.

What The House Obamacare Repeal Means

It means it will be more difficult to repeal Obamacare and one should revise upward one’s estimate of its survival chances.

What has happened is that (R) House members had the opportunity to go on record casting a vote for something their base wanted in a situation they knew to be meaningless. Now that they have done so they can go back to their supporters and claim that they kept the faith, they tried their best. Thus, the meaningless vote has neutered and defused the possibility of any meaningful vote.

Politically, from the (R) point of view Obamacare need not actually be repealed or even challenged/modified any further, because the (R)s can (and, more to the point, will) just claim that the deck was stacked against them here and they did all they could do. Their calculation will be that the typical right-of-center voter will read the situation as one in which actual repeal is impossible, thus won’t punish them at the ballot box for having failed to do so. Then, time will go by and the impetus/urgency to oppose Obamacare will fade.

This calculation is, most likely, correct.

At some point, the (R)s will have the Presidency and Congress again. At that time there will be no appetite for any (R)s in power to challenge Obamacare.

So basically, get good and used to Obamacare. Whatever the hell it is exactly.

Links

• Katja Grace disputes some boilerplate feminist thinking on femininity.
  

  Another possibility is that femininity is debasing for men, and awesome for women. [...] …it seems that men are the ones who lose out here, just like women lose out in cultures where dressing or acting like a man is considered disgusting for them.

  It’s always amusing to me, the irony that one of the great ‘accomplishments’ of feminism has been to enshrine masculine things as superior in peoples’ minds. A small but telling example are these women in acting who insist on being called ‘actors’ rather than actresses. The subtext being? That ‘actress’ is somehow a demeaning word, because it’s associated with femaleness, and maleness is better! And so as a result that’s subconsciously what everyone thinks. Good job feminists!

• Aretae’s great health care primer.

  …

• You would not have thought these two films had much in common so read OneSTDV on what Forrest Gump and Fight Club have to say about success.

  …

• I’d only add one thing to mkfreeberg’s James Bond wish list, and it’s a complaint I’ve had about the Bond films for a while now: It’s time for the Bond films to become period pieces.

  These are stories of the ’50s and ’60s. They were written in the ’50s and ’60s and take place in the ’50s and ’60s. Set them in those time periods for crying out loud. They don’t try to set ‘Three Musketeers’ stories in modern-day France; having James Bond, WWII veteran, running around fighting cybervillains in the ’10s for a female M. and ‘Cool Britannia’ is just ridiculous. Is he 90 years old? This isn’t merely a matter of slavish devotion to historical verisimilitude on my part or anything. Part and parcel of what makes Bond interesting is the Cold War mise en scene (even if at times it’s masked by having him fight made-up villains like SPECTRE). Terrorism notwithstanding, we simply don’t have that atmosphere now. But they did then. So that’s when they should take place. In my ideal Bond movie there should be vintage ’50s era cars, East Germany should exist, Bond (and all other adult males) should wear a suit and hat everywhere they go, his watch should have a radium dial that glows, the women should smoke cigarettes with filters, trains should be glamorous and mysterious, there should be secret codes or stolen plans on microfilm, his key field equipment should be a trick leather briefcase. Et cetera. Come on, you have to admit this sounds good! But none of those things would work in a movie set today; it only works if you set them in that time.

  Bond is the longest-running movie franchise ever. MGM just got out of bankruptcy and Bond 23 is the first thing they announce. It is clearly a cash cow, and will never die. Which just means that at some point the anachronism will become too obvious and unworkable; thus, if you think about it freezing him back in his actual time period is something that has got to happen sooner or later. So why not now? I’ll keep watching the Daniel Craig Bond films and I appreciate the ‘reboot’ effort they’ve represented, but what I’m really waiting for is a real reboot back to real Bond stories – the ones that haven’t really been made since, maybe, On Her Majesty’s Secret Service.

• David Henderson’s observations on New York are largely in accord with my own.

  …

• Also see OneSTDV’s take on that ‘Chinese mother’ article. And this one by The Last Psychiatrist for, I think, a definitive takedown.

  Which reminds me, that Chinese mother article is emblematic of modern media to me. Let me just point out that I haven’t read that article and never will. But, I have seen a zillion reactions to it on blogs. That’s the only reason I knew it existed. So when someone at work brought it up and I was amused to see that he was talking about the actual article. How quaint! I struggled to explain to him that No, I hadn’t actually seen the article, but I’d ‘heard about’ it. From who? Did I really ‘hear’ about it? What then? In the 21st century we don’t really yet have good words to describe how we consume what we call ‘news’ (but which is, I think, re-approaching and converging upon its less hifalutin but in some sense more natural and honest predecessor – gossip).

• The words of Dr. Frank:
  

  Every time there is a big, off-kilter, culture-war partisan blow-up of the kind we’ve had in the aftermath of the Tuscon massacre, my first thought is: wow, everyone’s gone completely mad. [...] it all makes much more sense if you strip away the layers of rationalization, the crude with the sophisticated, and recognize “the discourse” as a fairly simple matter of group dynamics.

  The dread of being left out of the reference group; the the thrill of being in a mob; the substitution of in-group signaling for genuine analysis and discussion and the inability to tell the difference between the two. Such is our politics. I suppose it’s always been the case, but the internet makes it far more visible, reveals its rather distressing breadth and depth. I’m not, at all, saying I’m immune to it; no one is. It’s one reason why the Christian message “love one another” (cf. the President’s funeral oration) really is as radical as they always say it is, so rarely heeded, and so impossible to put into practice.

• Dusk in Autumn catches academics missing the totally obvious explanation for a recently-discovered effect of crying. Hilarious and telling.

The Rescuers Of Our Civil Discourse

So to summarize the Smart Person logic,

1. A madman assassinated a politician at a rally, and killed several in the crowd.

2. The politician has a (D) after her name.

3. The madman wasn’t black or Arab or Hispanic (in which case a different narrative entirely would have had to be constructed),

THEREFORE,

4. It follows that the madman was motivated by rhetorical expression of right-wing opinions in popular media. And in particular, by Sarah Palin.

QED

Wow, that’s fucking brilliant. All y’all are fucking geniuses for that logical chain. I’m blown away by the sheer intellect you on the left’ve paraded for the rest of us in the past week or two. Truly, with such a deft command Facts And Science And Argument, y’all should be my masters. And I join you in sadly shaking your heads in lament at the loss of civility in our political discourse. High, reasoned, rational, respectably civil political discourse such as, oh I don’t know, MAKING UP ALL THAT SHIT ABOVE OUT OF YOUR BUTTS, AND BLAMING SARAH PALIN FOR SOME LOONEY MADMAN IN ARIZONA.

Nevermind that if you look at the guy’s actual politics they sound like they resemble nothing so much as, say, LaRouche-ism, and that he appears to have been mostly inspired by some kind of anti-religious, 9/11-truther, all-around crackpot film. IGNORE SUCH FACTS. They just get in the way of a lazy sloppy narrative. It’s Obama’s OKC!

I hear he made a great speech about it and everything.

The Great Purell Revolt

I’m not a fan of Purell in general. Future sociobiological historians will note that one of the great parenting revolutions of the 2000′s was that they slathered their kids’ hands in Purell upon any contact whatsoever with, um, like, well, anything. The 2000′s generation is going to grow up with suppressed, stunted immune systems as a result.

My sincere prediction is that this generation will feel a deep-seated, diffuse bitterness at the world and at their parents’ generation in response, but they won’t even realize why. Can revolution be far behind? Twenty years from now as nihilstic masked marauders roam torch-lit streets looking for anyone over 40 to humiliate, torture and maim, in a Western echo of the Cultural Revolution, don’t say I didn’t warn you.

One Sign That You’re Old

When an internet fad completely passes you by and you only find out about it because you were reading Time Magazine’s (of all things) Top 10 Everything lists and it showed up as the #2 ‘Viral Video’ of 2010.

All of which is a long-winded way of saying I enjoyed this guy and marvel at his talent:

But I know what you’re gonna say – ‘that’s soooo early 2010′.

The Restatement

If there’s one thing Smart People can’t stand, it’s being made to feel non-smart. The ultimate root of the Smart People mentality is a deep insecurity. This is why they clamor for rules, traditions and social structures according to which they will get automatically branded and enshrined as Smart, based on having ticked all the correct prescribed boxes: went to the correct college, works in the correct field, voices the correct opinions, etc. If they could just fully set up a society which celebrated and honored them automatically, then they could relax.

As everyone knows, a good cure for deep insecurity is to pick a punching-bag to look down on. This is the role Sarah Palin fills perfectly. Hence, Smart People can give themselves the needed and regular endorphin boosts of self-esteem by calling Sarah Palin stupid. And though this sort of thing is fundamentally an emotional outburst, the phenomenon of Smart People calling Sarah Palin stupid plays out in the political dimension as a quasi-political argument that conservatives will instinctively feel the need to counter.

So here’s how I think they can do that: when a leftist calls Sarah Palin stupid, say that you don’t think she’s measurably stupider than most other politicians. When the leftist retorts by saying Yes she is, just say:

“Well, I guess I’m just not as impressed by the intelligence of most politicians as you are.”

I’ve tried this and it works, because it catches the Smart Person off guard. They did not expect this, and have to stop to think about it. Are they being called dumb? Because of course, is it smart to be impressed by the intelligence of a huge number of politicians? Not really. It takes a really, really dumb person to be impressed by the intelligence of a Joe Biden or a Nancy Pelosi, after all. Do they really want to go on record as saying all those people seem intelligent to them?

I think conservatives can and should look for ways to turn around leftist Smart arguments like this whenever they can. Take their self-aggrandizing and alogical statements seriously at face value, and then restate them in equivalent terms, just in a less flattering way. In principle, this should always be possible.

Wall Street And Carmela Soprano

One of the recurrent themes of The Sopranos was that the mobster Tony’s wife Carmela was living in denial about what was paying for her swank, upper-middle-class New Jersey suburb existence, and what kind of man she married. Although dramatically necessary, this made the character rather irritating much of the time, as sometimes it seemed as if she was always whining and yelling at Tony about this and that. Often it was just about his cheating and so on, but when their conflicts touched on his job and their finances, that’s when it became interesting. How much did she know? How much did she let herself know? Fundamentally, there’s something paradoxical and hypocritical about a mobster’s wife constantly angry that her mobster husband, who has ensconced her in privilege, doesn’t have job security, or keeps guns in the house, or whatever she was going on about. What did she expect?

My earlier post on finance has gotten some pretty thoughtful responses and I’m grateful for that. But the ensuing discussion has reminded me of one more disagreement I seem to have with conventional wisdom.

Conventional wisdom, I gather, sees the financial crisis as something almost random, like a storm or an asteroid, that came along and interrupted a good thing that (supposedly) could have and should have just kept right on going. Prior to late 2007, I guess, the U.S. and the world economy was humming along nicely, so the story goes. Then, along came finance, and it blew everything up, with CDOs and CDS. Or something. (Well, I don’t pretend to find the story all that coherent.) Anyway, this made everything bad, unemployment high, and so: our goal going forward needs to be to prevent finance from blowing stuff up. This is what most people now think. If only we could rein in finance, there would be no blowups to interrupt our good times anymore.

I actually disagree with all of this.

I see the role of finance in the crisis rather differently. I see finance as having essentially created a pyramid-scheme in disguise that we were all benefitting from. Pre-2007 wasn’t some natural, stable, prosperous state of affairs. It was people feeling flush because they were participating in and leeching off an unsustainable pyramid scheme.

In fact, it may be that this is part of a recurrent pattern in finance – maybe part of what finance does is simply to create and sustain sub-rosa pyramid schemes for as long as possible. Maybe innovation in finance (e.g. CDOs) consists of mainly trickeries that enable the pyramid scheme to go on for longer than the previous one. Under my hypothesis, note that as finance gets better and more technical, and learns from its past mistakes and adapts to changing environments, one would naturally expect both longer-lasting pyramid schemes and more spectacular blowups. Well hey now. Check, and check. Right?

So what does this have to do with The Sopranos?

The reformists and the technocrats have a villain in this story, and that villain is finance. Finance was ‘unchecked’! And caused a crisis that destroyed our prosperity! But if my explanation is the correct one, then finance is the only reason so many thought they had so much prosperity – prosperity that was an illusion, built on a house of cards, balanced on the top of a bubble – in the first place. So, it was destined to crash sooner or later. In fact, I would argue that it’s rather a miracle the housing market sustained a bubble for as long as it did. Who do we have to thank for that? Wall Street, I reckon. It was only Wall Street’s genius which made that possible. Hell, if you sold a house prior to 2007, you should get down on your fucking knees and thank Wall Street, for funneling a giant wad of cash to you that you didn’t fucking earn or deserve. Capisce?

You see, finance, in this analogy, is Tony Soprano. And the rest of America are a bunch of Carmela Sopranos. Living high on the hog, leeching off the risky prosperity fueled by their husband’s activities, but living in denial and carrying on the pretense of respectability and merit. So Tony’s lifestyle meant a risk of blowup – of prosecution and jail, or worse – of getting shot and buried in a shallow grave. Yes, that’s true. But that was always part of the deal.

It makes no more sense for people to get angry at and whine about ‘finance’ than it did for Carmela to yell and whine at Tony. Nor is it any more attractive. Without Tony, Carmela would have never, ever been living in that house, with anything resembling that lifestyle, in the first place. And deep down, she knows it. Maybe that’s the real reason for her bitterness.

Lefty Static Economics

Matthew Yglesias links to a post from the even-less-bearable Kevin Drum that is mostly-useless in illustrating the declining marginal utility of money, but quite useful in illustrating the leftist attitude towards income. You are meant to imagine yourself “in your 30s, married, two children, and you make $100,000 per year”, and then to contemplate this offer:

* Heads: You will be stripped of most of your assets and will earn $30,000 per year for the rest of your life. That’s all you get, and neither friends nor family can top it up for you.
* Tails: You will earn $1 million per year for the rest of your life.

The take-away is supposed to be that most people wouldn’t take this offer, because they treat the drop from 100k to 30k as far more significant than the increase from 100k to 1000k, i.e. money has less marginal value at the top. Which, in itself, is true enough (but obvious, and well-known).

But these are my take-aways:

First of all there is the idea that income is something you ‘get’, i.e. are assigned to, as if by a central committee of income-deciders.

But the more important embedded assumption here is that income-level is permanent. Once you’re at a certain income-level, that’s it, ‘that’s all you get’, there is no moving up (or down), for life. In particular, if someone makes $30k/year, there’s no possible way they could ever increase that. Hence: a drop to a $30k/year income level should be thought of as permanent and unchangeable. Notice that Drum had to artificially make the bet asymmetric: on tails, you just get a nice extra (guaranteed) income of $1mm, but on heads, your assets are stripped from you (why?) and nobody’s ever allowed to give you anything (!).

Basically, the assumption here is that people of lower-middle-class incomes and below are permanently stuck on those incomes, and there is no possibility – they intrinsically and metaphysically do not have the capability – of earning more.

It’s true that this this what (i.e., how fundamentally little) many lefties think of poor people. But not everyone thinks this way about income, or people with low incomes. As I wrote in Matthew’s comments thread, I think would take that bet. For one thing, I don’t get how the person offering to give me that bet would forever and permanently prevent not only people from giving me stuff, but prevent me from doing work in exchange for it. And on top of that, I’d be getting a $30k/year annuity, permanently! Not bad. Not bad at all.

Urban Vs. Suburban: Either Is Ok, In-Between Is Not

As I hunted around the house for batteries for a long-unused children’s toy, it occurred to me that one of the advantages of living in a house, in my mind, is that it then becomes cost-effective to keep stocks of batteries around. Well, batteries are a bad example (because they are small anyway), but stay with me.

Urbanite cosmopolitans in the Important cities look down on and fundamentally do not understand the ‘big-box’, suburban way of life. That is because they live lives characterized by the fact that, whatever they need, they can always just hop to the corner store and carry it home in their arms, or have it delivered cheaply. Thus they feel no need to stock up on much of anything or always have things on hand around the house (apartment). They don’t know the frustration and annoyance of needing something and not having it around the house. Or rather: they can imagine this frustration, and are deathly afraid of it, thus they disdain suburban life ‘far away from everything’. Their lives are characterized by a reliance on an everpresent network of local shops (and indeed restaurants) within walking/delivery distance. In effect, they are outsourcing this part of their homes.

Suburban life meanwhile is characterized by building up and maintaining a home with stocks of things, relying on auto transport. The point that urbanites, who basically are in a store of some sort every single day of their lives, fundamentally don’t seem get is that the reason people buy those ‘big-box’ items is because they won’t have to go back to the store again for three weeks. Or for some items (such as batteries), for years. In a larger suburban home, in the suburbs, it becomes feasible and in fact cost-effective to buy those things you simply wouldn’t have space for in an Importantly-located apartment: giant pallets of toilet paper, multi rolls of duct tape, extra sized boxes of detergent. When you have the storage space, and don’t have to carry everything you buy in your arms in one trip, a crossover-point of efficiency occurs and all sorts of things become feasible.

But the interesting part is that this sets up an either/or, bimodal setup. Either you can live like an urbanite or you can live like a suburban. The urbanites don’t understand the suburbans (‘there’s nothing close by’) and the suburbans don’t understand the urbanites (‘there’s no space for anything’) but in reality, in their own terms both ways of life are perfectly acceptable. The real problem is the in-between: the cramped lifestyle of the urbanite (meaning outsourced storage) but without the walkable locations (meaning driving). The Semi-urban.

Classic examples of Semi-urban settings occur wherever you see ‘housing projects’ on the outskirts of the classic urban cities, the type Jane Jacobs complained about: giant apartment buildings, set at angles on giant lots well back from streets and anything else, meaning cramped apartment life but necessitating long treks for the daily necessities. But Semi-urban living also seems to be the setup of most modern-day, yuppie-style condo/town-house developments – attractive (if cheaply built), slightly smaller housing sort of in decent areas but not really within walking distance of much of anything.

Urbanites who are fans of encouraging more densely-packed living communities through subsidies, gasoline taxes, or whatever, may have a point that urban living – as they get to experience it – is misunderstood by the suburbans, and can be just fine. But they may also do well to consider that although their urban upbringings and lifestyles may have been perfectly fine and convenient, what gets actually created, in places like these condo developments, has very little in common with any of that, because it is Semi-urban, and in its worst incarnations can come to more closely resemble Cabrini-Green than the Upper East Side.

Headline WTF of the Day

Fox News: Arizona Congresswoman Shot, Married to Astronaut

What…in that order?

I shouldn’t joke given the seriousness of the situation, but that is a ridiculous headline. Who the hell cares that she’s married to an astronaut. Is that the news?

True Grit: The First Hacker Western

Most commentary on the Coens’ version of True Grit focuses on the Coen-esque use of language in both the original book and movie (I am familiar with neither) and how tailor-made they seem for Coen-izing. I think there’s a more fundamental reason the story seems so oddly postmodern and appealing to our modern sensibilities, and that is, True Grit is basically a hacker movie.

In particular, it’s about a girl with the preternatural ability to ‘hack’ the honor code of the world she lives in.

14-year-old Mattie Ross is one of those characters who seems to only exist in movies: she is given extraordinary powers and insights into the other characters and the absurd rules of the world she lives in, she is given an inhumanly-singleminded motivation, then she is dropped into the story to bounce against the other characters and we get a kick out of seeing what happens. It is the same basic story as that of Neo in The Matrix. Or to give a less vaunted example, it’s the same thing that happens in one of those schlocky ‘fish out of water’ time-travel comedies which have Chris Rock, or Bill ‘n Ted, or some other wisecracker(s) going back in time to a world with different (and, silly to us; and, hackable) mores and sensibilities.

There are at least three ways Mattie’s hacking ability spurs on the plot and leads to her ultimate success: first, the scenes with her trading with the shop owner and (absurdly) threatening him with legal action; second, the way she handles Rooster Cogburn and the Texas Ranger LaBoeuf, at times playing them off against each other by insulting their honor, at other times mollifying their antipathy towards each other by playing the den-mother; and finally, when the grumpy and usually-antiheroic Cogburn returns, playing the hero to fight off the bad guy and then rescue her from certain death.

In all of these situations one is supposed to marvel that this is all being accomplished by a seemingly naive if not reckless little girl, when (in reality) she would probably not be taken seriously by anyone involved (and would have probably gotten herself hurt far earlier in the adventure). The commonality here is that all the men in her world have a concept of ‘honor’ in their heads (even if they violate it), and this essentially acts as a virus or back-door that can be taken advantage of by someone who knows how it works. The fact that it’s a little girl who fearlessly does so only serves to heighten the dramatic impact of her hacking successes.

The basic ingredients of a good fish-out-of-water hacker story is to set up an artificial world with comprehensible (but in some way, absurd or overly-rigid) rules, send a knowing character into that world who (by normal standards) shouldn’t survive it, and then have him/her navigate the world’s rules – by taking them seriously – in surprising and successful ways. When done right this is both entertaining and helps to illustrate the absurdities and boundaries of the world’s rules. It’s basically a thought experiment, in this case: ‘What if the honor code of the Old West was real?’. This is what the Coens’ True Grit does well, and I would guess that ‘showing the absurdity of the cowboy notion of honor’ was one of their main goals in making it. I cannot say whether this was also the intent of the author of the original novel, but it does appear the seeds of such a ‘deconstructionist’ approach to the Western were there in the basic story.

The saving grace is that it’s still a Western, and that even heroism done as play-acting can still have heroic results. The final scenes with Cogburn’s heroics are well done, and to some extent, moving. This places True Grit a cut above the Coens’ previous nihilism-extravaganza, No Country For Old Men, so let’s give it 7 out of 10 Lebowskis on the Lebowski Scale.

My Unspeakable Observations On Finance

Lots of people have a lot of ideas regarding the financial system, what went wrong, and how it should be fixed. For example, Dodd-Frank, or ‘let’s cap leverage’, or my personal favorite, ‘what if we just banned all derivatives?’

In case it might help advance the discussion, let me lay out some principles of finance/banking that I have observed and amassed:

1. The primary endeavor of finance is to try to extract maximum value from capital within the letter of the law. One corollary is that ‘let’s make better regulations’ is never the solution to any problem. Okay, make your regulations, revise them, etc. Big deal. The finance world will read them, analyze them, and then figure out how best to push, stretch, and route around them. That is precisely what they do. I honestly don’t know what the ‘better/more regulation’ dreamers and fetishists think they’re accomplishing. Ever. In fact, more regulations just means that the task of ‘figuring out how to extract value within the regulations’ gets that much more technical and difficult, requiring that much more skill and added-value – in other words, it practically guarantees ever-increasingly obscene compensation in finance. If this is the outcome you seek, lefty, then fine, but don’t kid yourself about what you’re doing.
2. (Relatedly) A large and largely-unnoticed effect of ‘regulations’ is to create pointless, zero-productivity jobs for overeducated people who want and demand six-figure incomes doing something, and to guarantee similar lifestyles for their kids. The more regulations you write, the more people will get jobs in ‘compliance’. Or as the ‘chief operating officer’ (which, as far as I can tell, is something like a ‘corporate mommy’). Or ‘reporting’. Or ‘consulting’. This means plenty of jobs for people in cufflinks or pants-suits, having meetings with each other and making Important reports about how the banks are compliant with this and that, or collating numbers together to prove that banks are measuring their risk appropriately, and then submitting their Important findings to the government (to be filed away in Important file cabinets), and then doing it again next quarter, and so on, for a lifetime of reasonably well-paid (or in some cases perhaps even ridiculously-well-paid) pathetic make-work. They will live middle- to upper-middle-class lives, many will send their kids to private schools, and those kids will grow up to be bond traders. If this is the outcome you seek, oh so egalitarian lefties – creating, maintaining, and paying a permanent technocratic overclass that produces no product of any value (not even just pure PnL!) – then fine. But don’t kid yourself that you’re doing it to help out Iowa truck drivers or Louisiana fisherman. You’re effectively doing it to help out your classmates from Brown.
3. The supposed bright line between ‘market making’ and ‘prop trading’ is a complete fiction. Often people toss out these ideas to ‘ban prop trading’, or to better wall off prop trading, or ban certain sorts of trades ‘unless they are purely hedges’. This is all nonsense, much of it incomprehensible, as if made up by someone with no knowledge of the subject. To be sure there is this nice polite fiction, or fantasy, among some – and nurtured by the banks themselves obviously – that there is such a thing as a pure market-maker role that takes no risk, and so if we could somehow confine banks to doing only that, all will be well. But market-making without ever taking a position is unrealistic, and there is no logical way I have ever heard anyone articulate of circumscribing what constitutes ‘prop trading’ and what doesn’t (nor can you, in finite time, ever hope to work out which positions constitute ‘hedges’ vs naked positioning – for starters, at which level of aggregation?). If a market maker, seeing customer flows and anticipating the direction of the market, positions himself ahead of the flow, makes PnL from smart positioning, then exits the position a bit later at a profit, was that a ‘prop trade’? Why or why not? Show your work. I honestly don’t know, because it’s a phony distinction. Some (market-maker) traders will tell you that they make most of their PnL from doing what is essentially prop trading (and, which is typically trading the risk/control groups try to prevent them from doing), and the market-making side is small potatoes, if not an outright burden to have to provide liquidity for clients. Taken seriously, this means that what banks get most profit out of doing, they have to pretend (even to the point of hiring teams of people to try to stop it) not to be doing it. This is a schizophrenic situation and it’s not clear why the whole kabuki dance is even necessary.
4. The lack of knowledge of would-be regulators/controllers is inevitable and insurmountable. A lot of regulation and thinking about control/management is tacitly premised on a superhuman amount of ground-level knowledge about the detailed trades and positioning at the desk level, knowledge that simply can and will never obtain in the real world. For much the same reason that Communist central-planning fails, the technocratic/regulatory mindset fails: the technocrats don’t and can’t know what they’re doing or talking about. Often/usually not even the head of the actual desk inside the bank itself will have much trade-level detail about what’s going on in one of his trader’s books; the head of a division will only have a vague idea; the head of the investment bank will only know some very gross and aggregate (in some cases, e.g. VaR, mostly meaningless) numbers prepared lovingly for him by others. A recent seemingly-desperate, grasping response to this problem is to just demand that banks throw an ever-increasing amount of data (risk metrics and such) at regulators, in what is either a shotgun approach (‘let’s just ask for everything and maybe that will help’) or an attempt at CYA (‘we couldn’t have possibly asked for more’). What the regulators, or the Fed, or whoever, think they are going to do with all these terabytes of data from all the banks is beyond me. Besides employ a bunch of IT and techie people to try read/interpret them. (See above re: make-work jobs.) Even if they were capable of dealing with it and analyzing it (which they’re not) what would they actually do. The point is that as the financial system gets geometrically complex and globalized, central planners regulators naturally have less % of the information they’d need to achieve their aspirations, not more, and this only gets worse over time, not better, and asking for a geometrically-increasing amount of data you can’t possibly do anything with is no solution. Regulatory approaches that don’t take this issue into account are retarded.
5. The concept/crime of ‘insider trading’ is incoherent and it should just be legalized. A lot of stuff takes place legally every day that to me is logically indistinguishable from ‘insider trading’. This rule and rules like it seem more image than substance; the aim is plainly to instill ‘confidence’ in the market so that people will play in it. So if that’s why it’s needed, then fine, but let’s not kid ourselves that such measures (and other, more Puritanical rules about markets and what their participants can/can’t do) have anything to do with protecting the common person or are in any way ‘progressive’. ‘Confidence’ is of course the etymological root of the word ‘con’. Keeping up appearances so that people stay fooled and the con game can go on is not an egalitarian, populist aim.

I could go on but my opinions/assertions would just get more heterodox and unmentionable from here. The point is, these views of mine, formed by observation, are at such variance with conventional wisdom, such a 180-degrees rotation from what most people think, that for me to follow news, commentary and debate on finance, regulation, and related issues practically causes me physical pain.

The saving grace is that maybe I am wrong about some/all of these things so if you have reason to believe that is the case then feel free to speak up (you’d be doing me a favor), but as of now I’ve seen no reason to think that I am wrong or that the chattering classes know what the hell they’re talking about regarding any of this – unless of course they continue to pursue this retardedly technocratic approach to regulation in full knowledge that they are self-servingly supporting the upper class, their own salaries, and their gifted childrens’ futures as bond traders in doing so.