Maison Fleury

Why I support SOPA

2012-01-18T06:19:00.000-08:00

Mostly because I am a troll and because the extreme positions taken in this debate annoy me. So I take a bit of the "avocat du diable" (devils lawyer in french) position on this one. But let me clarify.

I spent a good part of my professional life in the world of Free and Open Source Software (aka FLOSS). There as a producer of content I helped pioneer a model to make money off a free software product. We operated in the application layer of the internet and distributed our wares for free. In the FLOSS community, people are actually fairly educated when it comes to IP, licenses, trademarks, copyrights, patents etc. Lately I spend a lot of time in writing music and have got to see first hand who is impacted by the net.

The goals of SOPA
The goal is rather straightforward. Online piracy and counter-feit are rampant. Most people do not see "downloading a song, a movie, buying counter-feit products" as theft, it is perceived as innocuous. What is more technology has contributed to enabling this. P2P, social sites, torrents, powerful search have all enabled easy access to pirated content.

Respect of IP is key to our economic future
Increasingly the western world relies on IP to make a living. Since we produce less "real world" goods and more "digital world" goods we open ourselves to piracy. If we are to move to an information based economy there needs to be a limit to the infringement of IP. In music for example instead of releasing VST plugins, people prefer to tie them to hardware or the iPad to make sure they monetize their creations. I for one welcome the innovation in music instruments on the ipad and realize it is because a/ the platform lends itself to it b/ the platform helps monetize.

The implementation of SOPA
Essentially what is new in SOPA is that it supersedes "safe harbor" provisions of DMCA, the previous legislation around digital based IP. The onus is on a content provider to monitor and censor their own content. Failure to do so will result in DNS blocking. This is important and is worth a bit of explanation. Say you upload pirated content to youtube. Essentially today you will receive a notice on youtube saying "we detect that this is not your content please remove bla bla bla". If you don't do so, then it is all kosher, it just goes on. With SOPA, youtube would have to shut you down, if they don't they can be blocked. DNS is essentially what maps meaningful names like www.piratebay.com to more esoteric IP addresses like 123.234.53.94. This would require that top DNS domains comply with the law.

This is a cost to content providers
Of course this is cumbersome for content providers and will add cost to their operation as well as complexity. In reality crowd sourcing of content monitoring is implementable and what is required is that providers then act on the information. This is work and in my opinion the gist of the opposition against the bill. Filtering of IP is already implemented in most corporate firewalls and used for censorship in China for example. I am not endorsing censorship just making a technical point. Google does censor when the Chinese government tells them so. The internet continues to function at a DNS level. Surely DNS modifications like the one hinted here is no "undermining the core infrastructure" of domain naming.

This is an opportunity cost to providers
Remember the Apple iPod original adds? "Rip/listen"? the truth is that most providers turn a blind eye to these activities because it constitutes traffic and they like traffic first and foremost.

Criticism: abuse of SOPA
From what I can tell, the central criticism is in the abuse of SOPA. People are fretting that this broad legislation will be abused by corporations effectively giving them censorship power. Obviously this is a hysteric generalization not helped by the fact that, according to wikipedia, some RIAA companies already have lists including their own artists and competing (but legal) sites. But truly nothing in the law says this is what will result, to see it as a risk is a valid concern, but an over-reaching one. If someone uses this to kill competition then that someone should be prosecuted. Abuse of this law should be punished, from what I can tell there are provisions in the bill to do just that.

Free Speech, censorship
A more excited fringe says this is a violation of free speech. How we got to free speech is baffling to me. There is a world of difference between theft of digital IP and free speech. If the law is used by abusing corporations to shut down dissent or competition again those corporations should be heavily punished. If the US government uses this to enforce chinese style censorship, I would be the first one buying servers in the cayman islands to put TOR on it. This is not china. The people who argue 'free speech' come across as an excited fringe to me.

It will create jobs
Another baffling argument comes from the valley, that this will essentially destroy jobs. Au contraire a strong IP approach will create jobs and it is a necessary step towards assuring a monetary economy on the net. That various chambers of commerce or the AFL-CIO support this bill speaks volumes. The US industry increasingly produces digital goods. Protect them.

Corp vs the people, government vs the people
A lot of the debate stems from a mistrust of corporations to do the right thing. I get it. But the potentials for abuse, which should be monitored and punished, do not validate piracy, which I consider outright theft. A related argument stems from a distrust of government and legislation. What do those clowns in Washington know? The fact that so many VCs threatened to stop investing, when the first question you usually get is how many patents are protecting your IP, is disingenuous. I say call their bluff, you think they will stop investing? huh, huh, the days pigs fly.

It won't stop piracy
For sure it will not stop piracy entirely, those that want to put the IP address will always do so, those that want to circumvent DNS will do so . But it will seriously curb piracy.

It will stifle innovation
This one again baffles me. How can this legislation be used to kill startups? If it is, whomever is doing it should be prosecuted.

It will place unlimited liability on new companies
This argument is usually put out by the software investors. Again I find this linked to the cost of implementing the law. But I doubt it will create an infinite liability. This is the kind of argument from my friends in silicon valley that sounds as honest as the record companies already planning to shut down their own artists.

But my music does not need that
As a nod to my musician friends, a lot of what I hear is "but you know the real way to make music is through live shows, not your music". As someone who doesn't do live shows I think the internet really has killed the music business, before you could make money with you records AND the shows. Today only shows and some licensing if you are lucky. I don't mind the majors but don't care if they live or die, I just do not consume their products by and large. I can see that things like "bandcamp", "itunes" or "beatport" allow one to make a living, today meager and insufficient in most cases. However it is obvious to me that piracy is the single most important factor in the decline of the monetization of music. Why should one be content with piracy as a "matter of fact" is baffling. You can distribute your music for free but that is your choice (certainly mine in some instances).

The internet as the last bastion of libertarianism
Look, I get it. I was once called a "bearded freak of the sandal brigade", referring to the die hard "freedom or death" ethos of the old UNIX/Internet folks. I personally sported crew cut, shave regularly and yes, I did wear smelly sandals in my PhD years. But I think that on the part of a lot of my friends and acquaintances in the software world, there is a strong emotional response to "censorship on the net". The webs is one of the last bastions of libertarianism, at least in ethos. We are far from china and protecting that freedom does mean cracking down on piracy. I view with mild cynicism the countless corporations that are anti-SOPA, mostly the content providers, who wrapped themselves in the flag of freedom when we are just balking at regulation that will cost to them and talk of Armageddon to the US industry.

This is not the way
An interesting point made by many people is that in fact the solution may be in new business models to circumvent piracy, think Itunes/bandcamp/spotify etc etc, Surely these are welcome additions and successful but it doesn't make up for piracy.

A flawed implemenation
By and large, I welcome the controversy as it puts in light a lot of the question around digital IP. I can sit here and argue why the software patent system is fundamentally broken in the US as well as argue for SOPA. I can also discuss the finer points of DNS filtering and IP fire-walling, but that to me is largely irrelevant. The truth is that technology has not been able to police the abuses of the net and it doesn't really want to either. But if the implementation of SOPA is ripe for abuse that means that anyone that abuses it should be sternly punished. Police the police, doesn't mean there is no police. There is "social contract" that is needed in the internet, one that today is not in existence for those who claim to "first do no evil". Traffic at all cost, "rip/listen".

and hope
I do think that a proper SOPA needs to see the light of day, it is worth the wait to get it right and get every corporation sensitized to what "abuse" will mean, since some RIAA people are already running wild with this. They should know better. But the fact remains, that in a strict view of property, which included digital intellectual property, what is going on in the internet today is out of control. It is worth the wait and getting it right.

QE in EZ: a war of necessity

2011-11-11T02:07:00.000-08:00

I was reading an article in the FT this morning as to how the UK government bonds were being rewarded as "safe haven" status with ultra low yield. I kind of lost it in the comment sections out of disgust.

Of course the tone of article and commentary was all self congratulatory, about, really, how the superior management and responsibility paid off.

What a joke.

Ain't nothing going on but QE
All there is to it is a lot of money printing. Buy enough of your own debt (aka monetizing debt, QE, Printing money) and your yields will go dramatically lower. It is not because they are better or better run or safer it is just the mathematics of demand/offer when one of the players has infinite liquidity at his disposal.

QE as a stabilizer
QE1 in the US has backstopped the negative spiral of depression. Let the records show that much. It can be an effective stabilizer. Those that fret about inflation confuse flow and stock. Yes, printing is of course an inflationary contribution but if your background is one of debt deflation (as is going on massively in the western world since 2007) then you are counteracting the main trend. You have a big negative monetary flow (debt deflation) countered by a positive flow (QE) for a net result that may still be negative (stock). QE1 was started in the midst of financial panic in March 08 when the DOW was at 6,666. (yup)

QE2 as a financial weapon
While I can easily rationalize QE1, I must admit I was taken by surprise when Bernanke announced QE2, even though we were in the midst of a summer panik in 2010. I rationalize it as a competitive devaluation of the money vis a vis trading partners and a further stimulus to your economy via depressed yield curves and low cost of financing.

Financial war
I am growing increasingly convinced we are in the midst of an all out financial war, with QE as the main nuclear weapon in use. Naked CDS are weapons of mass destruction (really folks? you want to be paid 10x what a sovereign is defaulting on?). Again low cost of financing for a govt in times of crisis is a god sent (minus the tea-party clownery on the debt ceiling it is all blue sky for the US cost of financing compared to the 7% italy is paying). Devaluing your currency is the simplest way to go back to growth.

Maastricht constraints, German attitudes
By constitution, the ECB cannot, in theory, print all the money it needs to buy a targeted sovereign (no preference clause, no bail out clause). This is partly due the germans ingrained distrust of money printing given their history and partly due to the hawkish stance of Mr Trichet and the technocrats in general.

The QE pedal will be pressed
So Miss Market is throwing her weakly tantrum, getting governments toppled and demanding her pound of flesh in fresh money. The moment a sovereign cannot fund itself in the face of sound fundamentals is when the QE pedal must be pressed. I do not buy for a second that Italy is fundamentally insolvent (and not just in the MMT sense that one can print, but in the accounting sense), this is a liquidity crisis that is quickly turning into a solvency one but with reverse causality.

EFSF and QE
Mechanisms like the one in the post below with the put/cds EFSF structure also naturally put QE where and when it is needed, not too soon and not too late. The moment it is put in action, the euro will slid which will help everyone including the germans, the euro stocks will rally, competitiveness will be regained using the same weapon the US/UK are using. The cost of funding governments will go down and this whole non-sense driven by hedge funds will evaporate.

Miss Markets gets her way

Of course, the paranoid analysis (which has been profitable for me in the short term) is that there is a concerted attack by hedge funds on sovereign, picking them one by one as if a sniper, all the while harping on the moral defaults of the greeks and Berlusconi. But what Miss Market wants is 1/ volatility 2/ FREE MONEY. It is about to get free money as she has succeeded in bringing about panic dynamics on Italy. The irony of it all.

A best of both worlds?
In fact I am hoping that the germans come to this view but keep a stiff back. This is not a bailout for profligate governments. While I watched in horror the tea-party debt ceiling self inflicted fiasco, and with contempt the self congratulatory comments in the FT about "low cost of funding is a safe haven status" I do think the EZ is overly socialist and that it cannot continue. France is a point in case, I consider france a proto-communist country in terms of the public employment trends, they always go up, never down.

That compromise will restructure of government through austerity, where a little bit goes a long way and too much will kill your economy in in a simple Keynesian way, while at the same time lowering the cost of funding for the remaining streamlined operations.

Comparing CDO and CDS-like solutions to EFSF leveraging

2011-11-11T01:30:00.000-08:00

The confusion is sky high, both in the markets and the officialdom in the EZ. The ideas on how to leverage the fund are rather straight forward but with different implications.

The CDO Structure: Protect the FIRST 20%
This one is floated by the german banks. The idea is to structure the EFSF rescue fund as a CDO where the reserves are essentially equity tranches so that the "FIRST LOSSES" are borne by the EFSF. This means that if the losses are less than say, 20%, then those losses are taken by the fund. For this to work you need to find the financing for the senior tranches upfront. This achieves "leverage" by committing the core capital to the equity tranche and looking for further financing outside for the higher tranches. This is derided by some critics (amongst them Roubini) as a mirror of the subprime debacle in the US. Of course the main difference is that in one you had REAL subprime bonds defaulting at 80%-100% in the second you have EuroZone sovereign. Not the same thing, but no matter.

The CDS-like structure: Protect the LAST 80%
This one is floated by the french banks. I call it CDS like because the idea (partly my projection I think) is that 80% of the value would be insured (100% CDS I find silly but that is just me). So if you lose 20% that is your loss, but if it goes beyond then it is the EFSF. Note that this is truly a PUT like structure but instead of being on the value of the stock it is on the nominal. It insures A PART of the default but not all. I don't know that such a structure is common place but I am probably wrong on that one. This effectively leverages the fund because the capital is committed as collateral, which is a fraction of the nominal.

why germans vs french?
So what is so hard about these 2 schemes? essentially I think it rests with the banks. The german banks, as of this writing, are off the radar of the markets. Whereas their french counterparts (BNP, SG, CALYON) are already deeply discounted (60% book value). So the french would of course like it if the first 20% was paid for but truly they care more about the downside. Also a 80% put would essentially give them 20% back just like CDO structure, so to them it is a wash on the downside but a minus on the upside. To the germans it is the reverse. The germans have not been discounted so they want protection for the FIRST 20%, the french have already been discounted and would rather see protection for the LAST 80%.

Funding differences
To me the main difference is in how the structure is funded. In case of the CDO structure it depends on outside funding for the senior tranches. The chinese and EM have already said "you can buy it all, if you don't why should we?". In other words it depends on the kindness/greed of strangers which can be complicated.
The CDS, however does not require funding until collateral is called. Collateral call will only happen when Miss Market has really killed the sovereigns and we are in +20% ACROSS THE BOARD discount, which, personally, I view as VERY UNLIKELY. Furthermore at that stage, you just fire up the printing presses, something the ECB has been reluctant to do under Trichet and German tutelage. It is however a necessity.

Market confusion
So in a nutshell the CDO is complicated to get funded (and needs to be funded 100% today). While the CDS is ALREADY funded and the funding would need to happen ONLY IF AND WHEN the shit hits the fan. At that stage QE will be palatable. To me this is a simple case but note that CDS/PUT structure I am talking about is rather exotic. It exists on stocks (put) and on bonds (100% CDS) but the 80% CDS has to be OTC.

Italy and Miss Market

2011-11-10T02:07:00.000-08:00

I call her miss market because she throws tantrums. The sad part is that she has been taught to throw tantrums and expects instant gratification. She is an impossible 6 years old.

Of course the official version is that she is called "Mr market", carries a big manly stick and that he has the wisdom of crowds. Theory of numbers says that truth will be found in the market vote, because it represents the opinions of the multitude where all information resides.

That is the theory. The practice is that in this media driven, internet delivered news world, hysteria and market sentiment fluctuate on a weekly basis. We have gone from despair to euphoria to despair again, in less that 10 days.

Ganging up

There has been various report of the infamous NYC hedge fund get together. This is where "money" gets together in a smoked filled room, sipping on whiskey and decides which target to pick on next. Apparently last year they decided Greece and the Eurozone. There is no end to greed. Of course reality is probably more prosaic, with boring lunches being planned and people just following the internet news cycle. No need for mafia style 1920 get togethers.

Choose your target
The FT of late likes to talk about "flaws' in the eurozone, mostly pointing out that people are different and that couldn't work. The reality is that it is BY DESIGN, that is the whole point, to bring together people that were slaughtering each other 70 years ago so, yeah, it is bound to be bumpy. The major flaw, imho, is not the disparate composition, but rather the fact that the bond mechanisms were open to snipers, essentially countries can fall one by one. First it was Greece (with reason probably) now it is italy. The problem in italy does not warrant the panic going on but no matter, the only thing that matters IS THE PANIC ITSELF. Hedge funds CAN create a panic by aligning.

Choose your weapon
The weapon of choice is the naked CDS, the hedge funds will run the cost of funding up by piling on on the buying side of the CDS. In parallel they are probably buying the cheap debt that less nimble actors are dumping and sit on it until the central banks intervene with liquidity. Central banks like the ECB cannot print money. This induces a negative spiral: higher cost of funding for sovereigns, means lower spending, means more recession, means less income, means higher cost of funding. The boat is capsizing with Italy above 7%. As soon as your cost of funding is more than your growth, you have a negative cash flow problem that can only get worse by this spiral.

Hold everyone hostage
The problem with Naked CDS is that it takes the nominal problem (the size of the debt) and multiplies by 10. So your little greek problem that was 300B is suddenly 3T. Size matters. A 3T transfer in cash WILL DESTABILIZE ANY MARKET. That was the reason for the Geithner trip to EU. That is the reason the ECB was a voluntary haircut. The size of the italian debt is supposedly 1.5T. So now we have a 10T hole? It makes NO SENSE. These are clearly weapons of mass destruction whose ONLY reason d'etre is speculation. BAN CDS.

QE is the pacifier
The reaction by the central banks in the US and UK: to print money. To print money in the face of deflation is not inflation as a result, just an inflationary contribution in the a deflationary background for a STILL deflationary (albeit less) result. Those who do not understand that point mistake stock and flow. We are talking about flows here. So QE is the way to stabilize the markets. The ECB cannot do that by constitution and the germans view this experience through their own historical Weimar lens. When free money is injected, the markets stabilize, the stocks rally etc etc.

Miss market throws a tantrum
So the italian government is toppled, the greeks are about to be thrown to the wolves of depression (how long it last depends on whether they stay or not in the euro, but default they will). Miss Market is having her way, everyone still deifies her and wants to appease her. She wants QE and QE she will get.

The Greek CDS tragedy

2011-11-02T05:35:00.000-07:00

I am trying to steady my thoughts on the EU saga following the gyrations in stock prices that are still going on. BNP the leading frech bank, gains 30% to lose 15% the next day. This is all scary price action. And amid it all I am not sure I completely understand what is going on yet.

Follow the CDS thread
The one point that really pricked my ears was the bit about asking for a voluntary haircut from bondholders. Since bondholders most likely have CDS this seems quixotic. A bondholder will WANT the default so as to trigger the CDS. Then of course the question is 1/ who sold the CDS 2/ how much of it is naked.

The numbers get big
If there is 350B oustanding greek debt and if we assume a 10 to 1 naked to covered ratio that means that a 350B default event really means 3T of cash settlement. That is a lot of money to be paying out to speculators. Of course that is what the EFSF wants to avoid. So they are trying to nationalize that market, according to what I have read by becoming the sole purveyor of CDS at least in europe.

Naked/non-naked a false dichotomy
This point is rather theoretical but it dawned on me that to an extent CDS are non useful. If the price of protection is less than the yield of the bond, then by buying the bond and the CDS you have a risk free flow. This of course is non-sensical and the price of protection HAS to be the yield (no arbitrage). Therefore a CDS is really a swap, not of the default but of the bond itself. You are out of the equation, at this stage you might as well sell the bond. CDS serve no purpose from that analysis but as a speculative instrument. Arguments that they 'provide' pricing, liquidity and information seem flimsy compared to their risk. They have to be banned, in the naked form. I question their non-naked utility altogether.

The Paulson shadow
Everyone has read 'the greatest trade' where a 250b subprime event was turned into a T level event through CDS (naked) and everyone thought that greece was the next puppy to provide that bonanza. I bet that trade is CROWDED with speculator licking their chops at the prospect of a sovereign default from which they profit.

Where does the chain stop
I have had a hard time tracing that. Some accounts say that it is greek banks that have sold the protection which feels flimsy at best. How can the banking system rescue the country when it is going down. Some say it is the european banks which would explain why the EFSF is destroying the sovereign CDS market. Some say it ends in the united states, specifically at Bank of America amongst others. I find that hard to believe but who knows. Whomever is holding that T level bag (even if distributed) is in big trouble as a T Level event of liquidity will simply crater the markets. This is why the G20 is busy trying to avert "default" by calling for voluntary haircuts.

how does it all end
Very simply put I don't think anyone can sustain a 1-2T liquidity event in the system at the moment. The subprime 250 chain was enough to create the mother of all liquidity crunches that brought about 2008. This time the numbers are bigger and the multiplier on the base even bigger, because everyone wants to be Paulson (the hedge fund). So voiding the CDS market seems like the rational thing to do.

Chain reaction
if this is the case, then the nominal yield on debt will rise to account for real default ex CDS (which it should anyway). So there is only one way out, it is not fiscal integration, it is not default, it is debt monetization. Let the printing presses begin.

The Animoog; a new type of synth of iPad

2011-10-17T23:36:00.001-07:00

A friend at Moog (thanks Amos) connected me with their latest creation, the Animoog. I have been playing with the RC for a bit over a week now. It is publicly available since yesterday. It is priced promo at 0.99 and will revert to 29.99 in a month. If you have an iPad go get this app, the sounds coming out of it are quite impressive.

Anyway, I will be dropping a first song built around the animoog very soon.

TL;DR: a very cool synth. New sounds and approach. A fantastic UI design, very functional and intuitive. It is a new instrument for me.

2D Wavetable synthesis
At the heart of the synth is an interesting synthesis concept, Moog calls is Anisotropic Synthesis Engine. A rather fancy name to describe what is a strack of wave tables or a 16x16 table. Each cell is a sound. Each row a wavetable. You select each row as a 'timbre'. Then you can move through that. If you move vertically, you move through those waves/timbres, if you move horizontally you move through the wavetable itself. This is rendered as a grid and occupies most of the screen. You can have 4 voices or dots going through the grid. The moving dots make for very pretty effects with colors and trails.

Orbits and Path
You can then easily program a path through that grid (and still use your fingers to modulate). You can sync to BPM for fraction of notes effect. If you have very different timbres then the change will be dramatic. If you have slowly evolving timbres then you will program evolution of your sound just through the path. At each dot of the path you can program an elipse (x-y parameters) with a frequency, further allowing you to automate variations through the grid.

poly-touch and after touch
The keyboard is rather nice. It is at the bottom of the screen and depending on where you put your finger on the key it will consider it pressure and aftertouch. This is very helpful as input for modulation and a very intuitive way to work with the surface.

Subtractive filter
The architecture is rather trivial as it features a simple subtractive module. (LP, HP, BP). It comes in a look that reminds one of the classic Moog hardware designs. It sounds nice but I have found the buttons hard to use in a 'live recording" way, my fingers being more occupied by modulation.

Modulation
This part of the arch is rather nice and impressive actually. You have 4 modulations you can set up. You can use any type of input (LFO, x position, y position, key, touch etc) and route that signal to pretty much any thing you want. I like the ones based on touch position on the keyboard as it gives you a very tactile way to generate rather rich sounds.

Effects
Rather straightforward reverb and chorus, nice sounding, no comment.

Midi connection and DAW
I have connected mine through the simple out mini-jack and that is good enough to record. I have bought the ioDock from Alesis but find it very disappointing for my needs. That will be collecting dust very soon. I have also gotten the camera IO adaptor for the iPad which exposes the coreMidi and (supposedly) get the IO sound out? I had to order a USB-USB cable so haven't tested it yet but that may be the right way to hook up my animoog.

No custom Wavetables
First thing I wanted to do was to load up my own wavetables, I just want to load up V-Synth GT timbres and use the Animoog as a fancy 2D wavetable sampler. I got in contact with Amos and the feedback was "not yet". The reason is that they want the instrument to sound nice. I can see that people would shoot themselves in the foot with the raw engine mixing timbres that really shouldn't be mixed together but I think this thing will find his rightful strides the moment people start building custom timbres and thus custom patches.

Overall: 9.5/10
All in all, what most impressed is the ASE engine and mostly the UI. The combination makes for a VERY rich sound and a VERY VERY intuitive use. I use a lot of evolving pads and textures in my music so this fits naturally in the way I work. For folks that love only drums this will not be helpful. It is a very melodious and evolving instrument and it is meant to be *played*. Moog drives the point home that even in this day and age of VSTs, an instrument is also the UI and the way you interact with it. While the ASE is a fantastic sounding idea (2D haptic movements) it is really the keyboard modulation and movement through grid that make it for me. A very intuitive way to get the sound to evolve. As a VST in a DAW, it just wouldn't be the same. It is the fact that it is an iPad that is interesting. I don't think they will release as VST due to piracy and they should stick to iPad since it almost guarantees them the sales. And at $30 I predict a grand slam. Moog's done it again.

Here is piece with the animoog. Root of Evil.

Root of Evil 3.2 by marc fleury

Leveraging the EFSF. TARP style

2011-09-27T14:14:00.000-07:00

So I receive a call from my friends at Goldman, the BNP just jumped + 15% intra day. I ask what happened, something about a leverage of the EFSF that would effectively backstop the bank meltdown. Then during an exchange with a friend who just testified in front of the US senate on the EU banking situation, he sends this link, attached with this money shot.

This is an idea building on elements of the U.S. Term Asset-Backed Securities Loan Facility from 2008.

The EFSF and/or ESM could use its funds to cover potential losses the ECB could incur on its purchases of bonds of countries under market stress -- up to a certain amount.

In this way the ECB would have a guarantee it would not lose money on the bonds it buys to smooth out market turbulence under its existing program aimed to improve the transmission mechanism of monetary policy.

Depending on the assumed loss, the money at EFSF disposal could guarantee bond purchases many times its size. Like an insurer, it would only pay out in case of a default -- an unlikely scenario for Spain or Italy.

For example, the EFSF could say it would cover the first 20 percent of losses that the bank could suffer in case of a default -- multiplying the EFSF's firepower fivefold.

The problem with this solution is that it would require the ECB to continue buying euro zone government bonds, which the bank does not want to do, as it can be perceived as helping finance government fiscal policies.

I am not sure I buy what is written above, because, very frankly it doesn't make a lot of sense. The part "ECB buys bonds, and then covers the first 20% loses in the bank" is very fuzzy. If you want to leverage the pot it is fairly easy and let me see if I can put the words back in order following the US example.

You sell a sort of CDS, at a preferred rate to the market rate.
1/ The bank is effectively backstopped, it could say pay the first 20% default but a steeper fall would fall on EFSF. So the book value would be discounted to 80c on eur much better than the current 60-50% haircut. Banks like that, markets like that because it puts a floor on the loses.
2/ The collateral you have to post is the EFSF. If it has 440B in capital and you assume a 20% prob of default you are leveraging 5X or 2Trillion effective coverage. Yep, THAT will do it.
3/ it may violate maastricht as it will target banks, maybe not, I don't know and in any case I don't expect the individual governments to block this.
4/ probability is that NOTHING will default (outside of greece), the EFSF gets the premium. Now, a premium like this has a price, a steep price let's say 5% (no idea), on 0.5T that is 25B, that is a small cost for the full protection.
5/ It is an effective way to take all the risk on public purse. Of course the 'Armageddon' scenario that all debt blows up will completely blow up the EFSF since it only has 20% of the collateral. But by then QE should be a palatable option for everyone involved.
6/ This effectively STOPS the greek contagion by creating a federal insurance for the banks.

In a previous post I had argued that they needed QE to leverage the EFSF but what they have done is leverage it via CDS like constructs with the banking system. Absolutely brilliant shock and awe without resorting to QE (if inspired by the Geithner trip I suppose).

Of course Greece will still default and what they do is still up in the air, but as far as 'contagion' goes this is over.

Why I am cheering for Opera

2011-09-27T00:51:00.000-07:00

Because I am biased anti-Special Relativity (SR).

I hate SR. From the first time I encountered it in high-school and all we were asked to do was apply the math, to the second time I encountered it in undergrad and we were asked to suspend disbelief (we are not smart enough to understand it you see? ) to my Ph.D where by that time, General Relativity (GR) was actually making sense. To 20 years forward and now where I decided to invest a full month and finally "understand" SR.

I did and it is now with conviction that I want to see SR replaced by something else.

The seemingly innocuous statement of “same laws of physics according to every observer” does lead to all the minkowski diagram machinery. There is NOTHING that will explain to you why you need to embrace ‘relativity of simultaneity’, curved space-time ( mixing time and space (different concepts)) and all the mental gymnastic the full SR picture requires.

I consider it, to this day, a monster.

It is important to remember that when people claim SR ‘has been fully tested’ it is not true. No one has ever tested the point of view of particle at close to C. The equipement doing the test is always 'earth bound'. Entrained aether theories for example strive to find models that are classical aether in essence. The ‘relativity of observers’ has never been tested, and until we get lab equipment going at the speed of light we will not test it. It does lead to all the philosophical monsters.

I am amused to see people seriously entertaining the idea that time travel backwards is possible, ‘what would it mean?”, the forums and blog are alit. And I want to yell "It doesn’t mean anything. Time travel backwards is a philosophical monster because it violates causality (receiving a message before it is sent etc)". Why backwards time travel is not dismissed out of hand is bizarre to me. Causality must remain whole.

Part of it has been the math diktat. Little girls of science get very impressed by complicated looking mathematics on a blackboard. I know I was in awe of 11th graders computing an integral, that symbol looked so hmmmm, sexy. Little did I know I would one day train in the dark arts of renormalization in field theory.

Unfortunately the physics profession, from my standpoint, has taken the "trust the math" ethos so far that it is ready to accept just about anything the math models tell it. I vividly remember deciding I would get out of the field of theoretical physics the day I swallowed without questioning that the universe had 23 dimension (string theory class at the ecole normale in Paris) and the teacher said “accepting un-seen dimensions can be problematic for a few folks”. I chuckled and wondered why. I turned around to my neighbor and asked him, he just rolled his eyes at pointed at the space around us, “what do you see?”. I felt silly, like I had lost all common sense. I had been brainwashed.

The truth is, while I was a stellar student of science, I did finish my PhD (as a visiting scientist at MIT) without any joy or conviction and just got out as fast as I could.

So it is with a certain glee that I hope the Opera results will hold. Until then I will gladly repeat what I consider fundamental philosophical truth, namely that causality is a deeper principle than SR. I don’t care what SR says, there are plenty theories that account for the phenomenology of SR without all the suspension of disbelief. Backward time travel doesn’t mean anything to a human brain and should not be entertained on the basis that ‘the math tells us so’ in violation of causality.

I want to see some sanity restored to the field of physics. Unfortunately the battle is going to bitter, already some theorists are running scared in 'extra dimensions' and wormholes and what not. I am not holding my breath, but I know who I am cheering for.

BIS paper calls for monetary revival.

2011-09-26T06:13:00.000-07:00

A rather long and thick paper by Claudio Borio and Piti Disyata. Sometimes simple ideas are better explained in one paragraph.

The central theme here being that the "excess savings" view of the crisis is fundamentally incomplete. The ES view states that the financial crisis is all Asia's fault because they keep their currencies under-valued, build vast reserves as a consequence and recycle them in our economy, depressing long term rates, inflating bubbles. Bad asians.

The narrative seems rather trivial and therefore true. It seems evident that the more savings there are the more investment there is, but the paper claims, rightfully in my opinion, that it is irrelevant because the total financing is detached from savings anyway. This is a theme that has been near and dear to my heart: financing was NOT regulated in fine. An example I liked was that in fact most of the financing for the US came from europe which runs a neutral balance. So ES is just part of the story, not the most important one and that 'elastic' financing (Aka too much credit) is the real culprit. Fair enough.

I did like the conclusion though:

Analytically, this paper is a plea for a more systematic inclusion of monetary and financial factors in current macroeconomic paradigms. The distinguishing characteristic of our economies is that they are monetary economies, in which credit creation plays a fundamental role. The financial system can endogenously generate financing means, regardless of the underlying real resources backing them. In other words, the system is highly elastic. And this elasticity can also result in the volume of financing expanding in ways that are disconnected from the underlying productive capacity of the economy. In macroeconomic models, the role of money and credit should be essential, not ancillary. This calls for a revival of an old and highly respected tradition in macroeconomics – one which, sadly, has been largely neglected in the current prevailing paradigm.

Causality, FTL (opera) and Special Relativity, choose 2

2011-09-25T13:59:00.000-07:00

I am very interested in good discussion and recently found this blog by a Cal Tech professor called Sean. He also is a theorist of Aether. Obviously he must be tickled pink with the recent Opera result. The comments are just as good and in there there #33 which points to a great demonstration of the fact FTL is incompatible with SR. This is what people refer to when they talk about "travelling back in time".

Essentially as soon as you have FTL, it is fairly easy (although you still go through all the minkowski transformation) to build a device that responds to a message before you send it. Of course this is profoundly absurd. In pop culture it is cast as killing your grandfather. A more 'philosophical' way to describing this is to say that it 'breaks causality'. "Causality" and the idea that if an event B, is a result of event A then B cannot happen after A. A rather trivial statement, really. I find causality profoundly engrained a deep and trivial statement, I could never say the same of SR (relativity of observers? I can see it in QM but not SR for some reason).

Now, essentially what the link above demonstrate if that only 2 of the following statements can be true

1/ FTL is possible (Opera HOLDS)
2/ SR is true
3/ Causality is true.

Obviously in the past, 1 was thought to be false, nothing travels faster than light. And here is the significance of Opera. If opera holds then 1 is true. I WILL NOT SACRIFICE CAUSALITY. So 2 is false. Special relativity falls. Gone all the machinery of minkowski diagrams, the "relativity of simultaneity" and other things that make my mind barfs. Personally, I can't wait.

Faster than light neutrinos, an ether explanation

2011-09-25T05:50:00.000-07:00

In looking for more discussion on the recently released paper, i came across this quote from Tesla.

"What is the ether and why is it so difficult to detect it? I reflected on this matter for a seriously long time and here are the outcomes I have been led to: I think that all the contradictions about whether the ether exists or not are the result of wrong interpretation of ether's properties. The ether has always been presented as an aeroform environment [gaseous]. That was the essential mistake. The ether has a very strong density. It is known that of more dense a substance, the higher is the speed of wave propagation within it. When comparing acoustic speed in the air and the light speed I have drawn a conclusion that ether density is several thousand times higher than air density. It is not the ether that is aeroform [gaseous] but the material world is an aeroform to the ether!" ~Nikola Tesla

Essentially when a media is compressed the speed of wave accelerates (need to double check but that is my recollection) it does also make intuitive sense, the closer the substrate is together the stronger the tension and the faster the propagation of waves in that media.

The blogsphere is pointing out that the result from CERN is in contradiction with observed deep space neutrinos from the so called 1987a supernova observation where the neutrinos and the photons arrived at the same time, contradicting that the neutrinos would be travelling faster than light.

The main difference is that in the CERN experiment, the neutrinos TRAVEL THROUGH THE EARTH CRUST. So here is the insight, a compressed media in my elastic mental model exhibits a faster speed of propagation for waves through it, so the neutrinos would be travelling faster. Does it mean that they would travel faster than light in that media, not necessarily. Of course light cannot travel through earth but neutrinos can without interaction with the "particles" but still through the media that is underlying those particles. In other words, if the speed of light THROUGH VACUUM is Cv then the hypothetical speed of light THROUGH COMPRESSED MEDIA is Cm. We may well have Cm>Cv trivially by the compressed wave propagation.

Simply stating that the speed of neutrinos in media is higher than the speed of light in vacuum.

If something like this is true then the implications that I can think of are ;

1/ This is strictly not speaking FTL. Nothing is FTL as light is the 'lighter' wave that can propagate and therefore the faster. This translates to 'in a give media the fastest speed is the speed of light. "

2/ The speed of light is in fact media dependent invalidating the second postulate of SR (independence of observer/emitter). Something that seems rather trivial to verify.

3/ It completely depends on a elastic media interpretation of sub-quark reality.

4/ east/west west/east experiments would show the same effect.

5/ It does mean faster than light IN VACUUM propagation. You can in fact beat "electromagnetic" propagation by running a parallel line with compressed media.

Things that still make me go hmmm are actually around why do neutrinos exhibit this behavior and not say electromagnetic waves through compressed media. My intuition guides me to the vibration modes.

I will be reading blog coverage of the interpretation of this experiment with glee over the next few weeks/months/years.

Watching “Mean Girls” with my 12-yr Old Daughter

2011-09-21T05:44:00.000-07:00

My husband felt that it was highly inappropriate that I watch this movie with my daughter.

“How can you think it might actually help her to watch this movie? You are just imposing your American neuroses about high school and coolness on somebody who has no relation to those neuroses whatsoever.”

Growing up in France shaped my husband’s perspective on high school and what it means to be a geek or cool. The most prestigious schools in France are public and those schools start to select students at age 16. The most nerdy kids are not only guaranteed the best jobs in the public and private sector, but higher pay than non-graduates of the Grandes Ecoles. They can also expect a fast-track career to the top of their chosen company or field. When you no longer interact with the subset of “cool” people in 11th grade and the reason for that is that most those people have been segregated into lesser tracks that prepare them for the second-tier opportunities they can expect in life…it’s easy not to be intimidated or impressed.

My fellow students in my private American preparatory school had other reasons to expect the choicer outcomes in Life.

“That’s alright. That’s ok, you’ll work for us one day,” they would cheer when we inevitably lost football games to the large county public schools. To the school’s chagrin, having the football team with the highest average SAT score in the state of Georgia did not translate into the winning-est football team in the state of Georgia.

Undoubtedly the “John Knox Institute” students behind that sour grapes cheer picked up the Class prejudice and un-sportsmanlike tone from their parents. Officially the school did everything to discourage such behavior. Along with the Protestant religious tenets underlying our education, the centerpiece of the school’s pride in producing morally upstanding young ladies and gentleman was the Honor Code – one of those pacts where you not only swear that you have not cheated on a test or assignment, you swear that you have no knowledge of such behavior on the part of your peers.

Well the TJKNI students weren’t perfect. Some of them did cheat. And, since time immemorial ratting out your peers (or “narking” as we called it) is about the surest path to social suicide -- it didn’t take long for your average student to figure out the Honor Code and the student Prefect System (basically a popularity contest) was a load of crap. If adults weren’t smart enough to figure to out the Honor Code wasn’t compatible with the emotional maturity of your average high school student, they were dumb.

Worse, if they did realize the flaws in these expectations, they were indoctrinating us in moral hypocrisy. The parents were often the administration’s willing partners. If TJKNI demanded that the students exhibit the same behavior off campus that they did on campus – basically don’t drink, do drugs, screw around and do the generally dumb-ass things teenagers do, the parents were often the first to lie on their child’s behalf.

The John Knox Institute kids not only felt superior to the children outside their school, many of them also felt superior to most of their classmates. My first introduction to the other students at The Institute, when I transferred in 7th grade, was a friendly “student ambassador”-type phone call from a girl I had vaguely seen around because her parents lived next door to my grandparents. She only had one question for me: “Are you popular?” My convoluted explanation of how, while I was not exactly popular, I did have a group of friends who didn’t think I was a loser didn’t convince her. I don’t think she ever said another word to me in the six years we went to school together.

Does that sum up my whole experience of TJKI? Of course not, I did make good friends in high school, I had some wonderful teachers and I received an excellent education. However, yes, I can definitely relate to the movie “Mean Girls.” Unlike the movie’s main character, the good girl played by Lindsay Lohan (how ironic is that) I never became close enough to these people for them to 1) notice me 2) think I was important enough to humiliate.

Regardless of how many times I watched “Sixteen Candles” in the hopes that I would come back in the fall and have it be my cool year or how many hours I babysat to buy that bitchin pair of acid-washed Guess jeans with the zipper on the ankles, I did not have what it took to be part of the cool group. They seemed to fall into two categories: DNA or attitude. Under DNA, appearance was most important for the girls and athletic ability was most important for the boys. Attitude was the trait that was more confusing for me to understand at the time. Self-confidence was central. Granted, it’s pretty easy to develop self-confidence as pretty girl or outstanding athlete in high school—people just naturally want to be around you. However, not all the girls in the group were that pretty and not all that boys were sports stars, yet they still managed to dominated people with their attitude. Sometimes, this was with good qualities –they might have had a great sense of humor or who were genuinely nice to everybody; sometimes they dominated with negative attitude.

“Queen Bees and Wannabes” explores the negative strategies girls use to intimidate their peers; often with the perverse outcome that the meaner the dominant individuals are, the more people want to be liked by them. This experience is not limited to high school and junior high girls. My work experience in the online mostly male-dominated, geeky software blogging world had its share Queen Bee and Wannabe behavior too. In "Sixteen Candles”, Anthony Michael Hall’s nerdy character isn’t any nicer to his geeky friends than the cool kids are to him. He humiliates and dominates them in his bid to be “King of the Dipshits” or, better yet, increase his social standing by leaving them behind.

Enough of me, I’ve gone way off course. How did this movie help me communicate with my pre-teen daughter?

She isn’t really acting like my friend.

No kidding. This girl constantly undermines you to make herself feel better. Her only interest in having you around is to have a courtier for her queenly presence.

But she can be so nice.

Yes, they can. It’s known as a “frenemy”. Or sometimes the nice girls in elementary school morph into little snots when they hit Junior high. In that case, she used to be your friend.

She’s so full of herself

Take a preteen girl and have enough adults tell her: “You should be a model” enough times. It’s a miracle if it doesn’t go to her head.

But she told me to do it.

Grow a spine. Evaluate the consequences of your actions. Learn to say no.

Everything about my appearance is wrong.

Let me spell out. There’s a downside to everything you claim you wish had.

Want be taller? Well, so and so is shorter than you and I’m also pretty sure that hasn’t stopped her from being a kick-ass dancer. Try finding a date in high school if most the boys are shorter than you.

Think your hair is too curly; well I’m sure plenty of girls complain that their straight hair is too limp and stringy. You want boobs? Do you really want “that” kind of attention from a bunch of Junior High boys? Want to be a well-endowed adult woman? For you, most the heterosexual “men” will morph back into good old Beavis and Butthead. Oh and do you really want to go jogging with two sports bras and have to worry about back pain?

You look just fine. And, anyway, its not like you can do anything about it, you got all that stuff before you were born, in your DNA. And, don’t dare think about blaming your father and me, because those same genes make you good at Math and a great runner. Stop worrying about how you look. You want people to look at you? Why don’t you DO something worthy of that attention?

The adults around me are less mature than I am.

Mean Girls don’t always happen in a vaccum. In the movie, the Queen Bee’s mother is portrayed as the “I Just Want to Be My Child’s Friend” archetype. We all know this type of woman. She is more invested in her daughter’s popularity than the girl is, herself. This is the kind of woman who boasts about a social life that involves partying like a 19-year old college freshman. Sorry Mrs. “She’s still pre-occupied with 1985,” the rest of us have left the snake-skin mini-skirt and the 80s behind us. You are your child’s parent. By definition you are not cool to them, the fact that you try just makes it worse. They may not be able to express it now, but your kid doesn’t want you to be their “friend” they want you to be their parent.

Some parents simply check out of the child-rearing process altogether or choose to remain willfully clueless. I call them Ostrich Parent. Their child or other parents may try to talk to them, but they just bury their heads in the sand. “Not my child” is their motto.

Thank you Amy Chua. If it hadn’t been for you, the rest of us wouldn’t have a name for the other kind of emotionally immature parent we find so obnoxious (as does your child) – Tiger Mom or Tiger Dad, also known as Helicopter Parent aka that rude parent at some run of the mill kids’ athletic competition who shouts coaching instructions to their child the whole time and then gives the child a 15-minute public critique of their performance…after they win! So often, the person shouting, “You gotta master that back-hand slice” to their child is the person who couldn’t hit a backhand slice if their life depended on it.

Things I didn’t like about “Mean Girls,” the movie:

I love Tina Fey to death, but sometimes the Saturday Night Live humor is out of place in a movie, destined to appeal to teens.

Lots of swearing. I’ve always been a fan of a creative and well-placed swear, but not when it doesn’t add anything, and not in a movie for my children. The girls in the movie call each other “bitch” and “slut” a lot. On one hand, girls really do say these things. On the other hand, the movie barely addresses whether they should and how this might just be reinforcing the images that boys, and later men, use to put them down. I think some women view the word “bitch” like rappers view the n word: it’s ok if we use it among ourselves, but wrong if a man calls us this.

The underlying connotation of “bitch” is a woman who stands up for herself – positive—but does it in an off-putting way – negative. I prefer bitch to slut. At least a bitch does. A slut is done to. The most negative thing about “slut” is not so much the sexual mores of the girl in question, but the fact that she doesn’t respect herself enough to make men respect her. It’s not just a question of her actions but the how and why, behind her actions. Boys in my high school were a lot more creative. They didn’t just call a girl a slut, they said things like “When X gives you a bj you have to pull the sheets out of your ass” or “She’d jump anything, even a whittled stick.”

The sad thing is I can remember those associations if I run into or hear about those girls years after high school.

Not only did the swearing not add anything, but the scene where the football coach gets caught having sex with two different high school girls did not add anything either. It wasn’t particularly funny. The most positive thing I can say is that I don’t think my daughter really caught what was going on, in that part.

Conclusion

In conclusion, did I use Mean Girls to exorcise some of my own memories of high school? My experience at The John Knox Institute did have an impact, even when I use it to define the things I don’t want for myself, or my children. I remember a conversation where The JKNI name came up as it inevitably would in a state where they are the academic reference – send more than 20 kids to the Ivy League a year, etc. My husband got tired of what calls “people gargling themselves with their moral imperatives” and summed it up: “Yeah, yeah I get it: your mission is for these kids to get a good education like TJKNI, but not be dicks!”

Wonky: Bill Gross on QE is credit destruction

2011-09-08T02:49:00.000-07:00

This piece is so wonky, I actually needed a full day to wrap my head around the concepts and only after a long discussion (more listening then talking) with someone who knows a lot more about the term structure of credit (as in is a professional) did I finally reach some sort of synthesis.

The piece is by Bill Gross, the head of Pimco, one of the largest buyers of credit and bonds out there. You can find the piece here. There are too many money shots but if I had to boil it down the claims are

1- QE flattens the yield curve and that is bad for investors

2- by removing the transformation of maturity premium, banks have little to no incentive to lend

3- Liquidity by the FED results in less liquidity by the banks because the banks lower their leverage.

4- what is supposed to stop a minsky negative dynamic in fact exacerbates it. By killing broader liquidity while expanding base liquidity.

Let me try and address the points in order see if I can steady my thoughts on these points.

On 1. It is clear that QE flattens the yield curve. That is the whole point. By using QE the FED effectively targets a very low interest rate in the broad economy to stimulate it. This is the intended and stated target. The conflict between offer wanting a higher rate of return in times of crisis and demand wanting lower is partly settled in the markets but mostly influenced by the FED cost of money to member banks which is now close to zero. This is a spread point, not a curve point.

Obviously the offer (capital holders) do not like this situation. In fact for the same or increased risk (there is recession, there will be default) you get less compensation so it goes counter to the mathematical logic of the buy side on bonds. Clearly Gross is talking up his book here and has already issued public calls "to boycott expensive bonds". As a personal aside I do relate to this having largely shunned the muni market for these very reasons. The risk/return doesn't look right to me (and I am pretty low in terms of risk profile). So the net-net is I pursue options strategies in broad equity markets.

And again, herein is also another justification of QE: to smoke investors out of cash and bonds and into risk asset. The flight to safety is really a risk tilting towards cash (cash preference) as opposed to bond/equities. The buy side of bonds may not like it but that is the point. So yeah investors don't like it but there it is.

So the primitive conclusion is that there is less offer on the buy side. Liquidity in the market because private investors don't like the risk profile. First paradox is "more liquidity by the FED imposes LESS liquidity by the private sector" a 'crowding out' argument as it were on the yield.

1'/ I am not sure the crowding out argument is valid. True I have moved up the risk profile, effectively being smoked out of my cash hole, but because that position in the market has been flooded with cheap FED money. The market is akin to electron orbitals around a nucleus: the lower orbits (more stable) get filled first and the 'bathtub" gets filled as all lower positions get filled. In other words, the effective rate in the market is still a MARKET rate and so the market has CLEARED it is not like there is no liquidity there. THERE IS CHEAP CASH, JUST NOT MINE OR PIMCOs. True the money that is sitting there is bank money sitting on top of high powered FED money and not private money but liquidity is still there by definition of a market clearance at that rate. In other words TOTAL liquidity has increased, at least in theory.

2/ but not so fast says Bill Gross, that is not the whole story. We have focuses on yield, you also need to focus on the yield CURVE. Banking theory tells you that maturity transformation by the banking system (what Gross alludes to in the beginning) is its raison d'etre. Essentially banks borrow short term (overnight) and lend long term to an econ that wants longer maturities to plan, the 8year 'compromise' bill alludes to in the beginning. Maturity transformation IS THE MAIN FUNCTION performed by the banking sector. Banks lever up and multiply the credit in the economy. So the first point is that banks will make less profit because the yield curve is flattened. In fact they would rather shorten their maturity since it doesn't pay more to go long and take more risk. This Bill says means there is less offer on longer maturities. I understand the point, which is essentially the same point as above (but around maturities, the slope of the curve as opposed to just the absolute return). The corrolary , that banks would lend less, seems iffy by the same clearing logic used in yield. Yeah you need to move out but the MARKET CLEARS. Again, I have this cash, it doesn't pay as well as before but what am I to do? sit on it? no, I lend it and take the return it gives me, again the bathtub will fill in order and markets will clear. I just make less because the whole "energy level" as it were has been lowered by QE: again the stated goal of QE for obvious macro economic reasons of stimulus and avoiding death spirals. So jumping to the conclusion that banks don't lend seems specious. They don't lend for other reasons, a prevalent view is that we may be witnessing depressed demand by the larger corporations who don't see the need to invest and that the smaller concerns are just not addressed by the banks because they shun that risk. This is orthogonal to the base levels of corporate bonds.

3/ Ah but that is STILL not the full story says Bill. The LEVERAGE in the banking system will also go down. I really have a tough time understanding that one. Basically it says that banks lower their leverage because the returns are so low. It seems counter intuitive on the surface of things. In case there is little return people in fact tend to lever to multiply their return on capital. That is the whole point of leverage. It seems that leverage would in fact be need in order to maintain profit levels at the banks. If not it says MMT will effectively screw the profit levels at the banks in direct contradiction with most MMT tenents that profits come out of investments. In fact the person I was talking to works for a bank in exactly these products and says that argument doesn't hold water on the surface of things, I must admit to not having followed that logic at this point.

4/ The link to minsky is tenuous by now but goes as such: if there less leverage we are cyclically contributing to the decrease of liquidity in the system. There is less debt available. In other words, if you have followed the logic so far the claim is a flat yield curve gives you this paradoxical result: MORE liquidity results in LESS liquidity (FED liquidity UP-> banks leverage DOWN-> econ in minsky/fisher spiral) THERE IS NO HELICOPTER. Because the banks reduce the liquidity as the FED increases its liquidity because QE flattens the yield curve.

That paradoxical result is very interesting

1- Gross may be simply talking his book and maybe full of it when he says "and banks, poor banks, lower their leverage".

2- in case he is not full of it, it may be an explanation of why more FED lending lowers bank lending. The usual arguments or "banks don't lend, econ doesn't borrow, pushing on a string etc" may in fact find some justification in the arcane logic of modern monetary theory.

3- a more likely picture, as with any complex system like the banking network, is that too much of one thing is bad. QE1 stabilized the fisher capsizing boat (smoke cash out). QE2 propped balance sheets and played currency wars, QE3 will be counter productive. Too much of a good thing?

I just don't know. Thoughts very welcome.

The solution to the EU-Greek tragedy

2011-09-06T00:01:00.001-07:00

I mean this tongue in cheek of course, but this morning there was a great series of articles outlining the different "views" on the greek/EU situation. It helps me crystalize my thoughts on the issue.

The three articles are here, here and here.

The money quote is from Wolfgang Schauble, federal finance minister of germancy.

The eurozone crisis unfolded after a decade during which economies with markedly different and, indeed, diverging fiscal profiles and competitiveness were all able to borrow at close to benchmark rates

Translation: the greeks are

1/ a bunch of tax evadors

2/ a bunch of lazy asses

at least according to the minister of finance, which to the diligent german means "no way jose" should they spend their hard earned euros saving these people. That is the hardline "fiscal" view, which is strong politics in germany and who can blame them.

The counterpoint to that is that not saving the greek is cutting your nose to spite your face. 1/ The EU is the biggest market for germany, a depression in EU will hurt germany 2/ the banking system is so exposed to greece that there is a negative spiral of government - bank.

This is mostly discussed in the 'save greece' article, which I suspect is a proxy for Ms Lagarde's view from IMF (ex french finance minister) who basically says that the EU should use the EFSF to recapitalize the banking system. And break the cycle of bank-sovereign spiral.

Personally I come out in a slightly different place. QE playing a central part, I see the play being

1/ kick greece out of the EU. I do relate to the fiscal points, the german WILL not accept the sacrifice for people that openly do NOT pay their taxes. That is just politically impossible even if it is economically dangerous.

2/ use the ESFS to recap banks that were exposed to the greek mess.

3/ USE QE TO BOOST EFSF. If there ever was a good use to QE this would be it.

4/ harmonize fiscal behavior. The greek example should chill spain and Italy and france.

For all the bad rep a QE program gets, it is the only way if you rule out fiscal solutions, which in this case are just too unpalatable. Modern monetary frameworks do have their advantages.

Don Raaaaamiiiiiiro

2011-06-15T10:14:00.000-07:00

As I wait for my child by the entrance of our apartment building, I notice Don Ramiro walking out. The eighty-year old man in his pressed suit and tie, heads off to whatever pretend job he goes to, the kind where the “girl” fetches him coffee while he does the crossword puzzles and plans his lunch dates with his Franco-era cronies.

Is the middle-aged man deferentially following Don Ramiro a new man-servant? Could the old codger be getting more feeble? I discuss it with my husband. He’s doubtful “Nah, the bad ones hang on forever. Their toxic personality acts as a preservative.” I have another theory. “Maybe they’re secretly afraid of Hell?”

Don Ramiro is a machista who thinks he’s a gentleman. He feels immensely superior to women and to foreigners. He hates children. He has neither manners, nor education, nor culture, nor any professional distinction that I’ve heard of. He did, however, have enough common sense to marry the daughter of a president of a national bank. This means that he manages his wife’s inheritance, which includes three apartments in our building. No self-respecting third world dictator presiding over his domains takes himself more seriously than Don Ramiro executing his responsibilities as head of the Building Association of Serrano XX.

In this capacity, he once dragged us to court and tried to kick us out of the building on the grounds that our uncivilized American habits caused us to wake up too early in the morning (7am) and our children made too much noise.

Don Ramiro, if we have to leave this building, I hope the next tenant is an Arab or African soccer player. If it’s a childless Spanish couple. I hope they have lots of parties, smoke crack and play really loud music. I hope the next renter decides to use the apartment as the locale for his thriving Casa Putas. Don Ramiro, when you get older and more infirm, I hope the poor third world woman taking care of you isn’t very nice. I hope she forgets to change your diapers and lets you sit in them. I hope you sit there powerless in your wheelchair while she watches her favorite telenovelas every time there’s a Clasico or Champion’s League soccer game on TV.

And when it’s your time, I hope the chasm of Hell opens up and the demons drag you down while the orchestra plays the finale of Mozart’s Don Giovanni.

BitCoin. Thoughts on QE

2011-06-07T00:59:00.001-07:00

A friend recently turned me on to the existence of bitcoin.

The gist of it is cypher solid peer-to-peer electronic cash system. The creation of money is fixed in its algorithm and is fixed to 21 million units in time. It has grown in visibility of late and the economy it represents is on the order of 6.5 million USD. It seems it used for 'official' purposes (mostly development) and of course many illicit activities such as the drug trade.

Peer-to-peer, CPU creation

The creation of money happens in random places by just 'running' your computer. yeah, it is 'free' money. However the algo is such that a regular computer will take a couple of years to create a unit, so the gold rush is passed essentially.

The peer to peer feature means there is no clearance, no banks, just a trusted network. The original paper by nakamoto is interesting in that it predicts that the system cannot be hacked unless 'a majority of CPUs' is in the hands of a malicious entity, making it, on the surface of things and for the time being, quite robust to hacking.

Fixed money amount: deflation

From an economic standpoint, the main feature of the system is that the amount of unit this system can create is capped at 21million units. This means that as the economy it represents grows, the nominal prices will go down. Kind of like a gold system. This is an NO-GO crippling feature as it induces deflation.

Deflation is bad mkey?

Deflation is bad, because it induces hoarding. Hoarding is simply, not buying things today because the things tomorrow will cost less in cash. This slows down economic activity. Inflation (when it is mild) has the opposite effect, people need to move their cash today as it will be worth less in real good tomorrow. This stimulates the economy and is the basis for most QE approaches. The deflation spiral is well documented from the great depression for example. The purpose of money is not money in and on itself but rather to get 'people working' so this is a monstrosity from a strict monetary standpoint and confines bitcoin to "nice toy model to learn from regarding features of electronic money".

More precisely, this means bitcoin, will thrive as a parallel system but cannot be the basis for a global system with the basic algo. There is always the possibility that the algo is changed I guess.

Debt-Deflation is worse

Of course this money is not born as debt, but rather as free lottery. Money as debt has many irking features, such as the fact that the banking system leverages a tax on money it creates out of thin air. However a debt deflation is worse because the burden of the debt, the debt payments, stay at a nominal value fixed in time while your income in real terms decreases. This is a double whammy that our system of 'fiat money as debt" have (ours). This system does not suffer from that.

Ponzi nature a plus for adoption

The ponzi nature of this scheme is evident: the early adopters will see the value of their 'cash' increase by doing nothing but recruiting other people into the network. The interesting bit is that it turns said early adopters into rabid evangelists as they are quite literally talking their wallet up. Many e-cash schemes suffer from a chicken and egg problem of getting the currency in usage in the first place. Governments collect taxes and that bypasses the problem. Here illicit activity, that wants to escape scrutiny, and the zeal of the early adopters help the promotion and distribution of this money.

Thoughts on QE

Here is the bit that tickles my fancy this morning. Why did they create a fixed amount in the first place. One can argue that the 'marketing' and adoption is working because of that. At the same time that 'fixed' feature is also what destroys the economic value of this system in the mid/short term. It will remain niche (and probably survive and thrive in that niche).

However the way money is created, as pointed out, is by wasting CPU cycles doing nothing. In a way this is VERY close to QE, where money is not created as debt by the banking system for the real economy but created by the FED as "free money".

Of course the discussion there can quickly become emotional. Essentially either you trust your government and you are of the view that this money was created for the good of everyone, reflecting the thought that a government is by and for the people. Or, as certain conservative fringes see it, the government is your enemy and the FED a cabal by private interest and therefore QE is theft.

In reality QE was applied to stabilize prices during crisis (QE1) and avoid the deadly deflation spiral from which bitcoin suffers so much. QE2 is more arguable (I do argue it) and can be seen in various lights, but its 'stimulus' component is evident.

Growing amount aka cypher QE

But the idea that money would be dropped into the system at random times is embraced by most modern economists. It is the 'helicopter' theory. Which was understood quite literally. This is a way to implement such thing. If the amount of money was proportional somehow to the economic activity it represents you would create price stability, a necessary component of a mass money system if it is to stimulate the economy as a whole. But the point remains, that some folks would argue that 'random' distribution of money (or in this case linked to your ability to run computers) is in fact more fair that traditional QE.

Conclusion: more than a nice hack with potential?

All in all I have mixed feelings about this thing. The genius is of course the marketing of it (smart money news flash: CURRENCY APPRECIATES 200,000%) so most people WANT IN. FREE MONEY. Its fixed nature is also its downfall, as a "mass" currency it will induce deflation in its economy which is sustainable as long as the system is niche and parasitical. By parasitical I mean that the activity in it is at the expense of the real economy by avoiding taxes.

Of course there is NO VALUE creation in creating bits of money, running computers is in fact a waste of energy, but that is another topic. I see a nice 'niche/cult' status for such a currency. The capped amount being both its strength and weakness.

Open Source implementation

As an OSS software developer I find the community aspect fascinating, for the good and wrong reasons. That a group of hackers would create such a system under OSS licenses (MIT license in this case) is a testimony to the hacker/cypher world creativity. The greed in the adoption scheme, resembling a ponzi can be a turn off.

I may want to reach out to these kids and see if they have any plan going forward and whether there system is set in stone. Heck! I may want to invest. A new model with monetary base growth, now that the chicken and egg problem has been solved, would go a long way. Very interesting to say the least, it may remain as a 'thought experiment' with real world applications and warrants study as is.

Growing corn: Science for the busy dad

2011-06-07T00:10:00.000-07:00

Elvira attends the "Lycee francais de Madrid" and in good french fashion gets turned on to all kinds of science at an early age.

I am sure most kids around the world have this "assignment" of growing plants to learn a few tricks, so here is quick review of what growing corn can teach you and your kids.

Start a popcorn seed

Just any regular popcorn seed will do. Put it in a wet cotton. It will sprout after a few days. Of note the sprouting happens with water only. You don't need light or nutrients, proving that the seed is a little self bootstrapping entity. To show this, grow 3 seeds. One with water and light, one with light only, another one with water only. The one with light only will not sprout. The only with water only will.

Expose the Sprout to light: Photosynthesis

In a little cup or glass, at this stage no need for fancy nutrient or anything. Put the plant in sunlight and it will start photosynthesis. At this stage you can compare with a sprout left in the dark. The one in the dark, that you have kept in the dark will not grow. Kids understand they need "light". However what is interesting, if you leave the plant in cotton is that the kids ask "where does the food come from". I struggled a bit, because frankly, I had never properly mapped photosynthesis.

Of course the food doesn't come from the soil (in this case cotton) but from the air as in C02 + sunlight = C + 02. The kids can see that the plant grows and it gets its carbon needs from the air. You would be amazed at the amount of adults that answer "the food comes from the soil".

Carbon cycle

Explaining the carbon cycle to the kids is then an easy mental step for them. Plants do C02 + energy = C + 02 and humans : C + 02= CO2. They intuitively understand this step. Leo asks "then pollution is good for plants". Explain that plants indeed offset carbon emissions, this is a good time to get into why C02 in surplus is not a good thing. Notion of 'ecosystem' can be touched upon.

Plant the sprout

Eventually the sprout needs to grow out of the cotton and needs to be planted. The root system grows and that goes better with real soil. The kids understand that the root is a way for the plant to get water. Keep it in sunlight and it will grow. At this stage the kids focus on "taking care" this took a couple of weeks in our household. They come every day and check the progress and "feed" the plant some water. They learn to care for living things.

Nutrients bigger pots

At some point, you need a bigger pot, the one you see in the picture is where we are at. At this stage, nutrients are helpful. The kids understand that water and light are good but you need something more.

Sexual reproduction

the magic start happening and the plant grows a daddy part (the wee-wee on top) and a mommy part the pink fluffy stuff. If you look closely you see 2 such fluffs, one to right still pink and one to the left at the same height, kind of crumpled and orangey. Explain mommy and daddy in absolute terms. It is freeing to discuss sexual reproduction in precise scientific terms without embarrassing everyone.

Google

Since we didn't know the first thing about corn, Elvira and I googled vast amounts, she was the one digging the information about the plants, including the interesting following bit.

Cross pollination

From google we understood that the mommy from one plant could not be pollinated by the daddy from the same plant. Explain the cousin thing from the South and why that is not a good thing (notions of DNA can be introduced). Elvira found the additional bit of information that in a field you need 10 plants to achieve cross pollination. That is because statistically the wind will take the seed and encounter another plant in its vicinity. At two plants the wind alone will not suffice.

Artificial insemination

Armed with this information, what we did was essentially to rub the daddy parts from one plant to the pink parts in another plant. The kids are very aware of the fact that they are MANUALLY moving the seeds around and are assisting the plant in getting pregnant. They took it so seriously that if you look closely you will see that the left plant is missing the daddy part. OUCH. Eventually we taped the daddy part to the left mommy part.

Natural selection

This last part is a bit abstract and went above the heads of the 8 year olds but I think the 11 year old got it. The question is "why is it a no-no to self pollinate"? re-explain the in-breeding cousin situation and marrying your sister. They get that. What they may not get is that 'natural selection' will select against that. Explain that diversity of genes yields strength by augmenting your capabilities. I talked in terms of nintendo DS game (see post on Trebuchet) the twins realize you need an army with various types, just one type, say infantry or siege weaponry, would be destroyed. Introduce the concept of 'fitness'. The final step is to get them to understand that plants that RANDOMLY develop this trait of cross-pollination will survive and thrive. This is an abstract thought in time (they need to imagine several generations and numbers game).

The plant is pregnant.

From the picture you can see that the left pink is shriveled and orangey (you can barely tell , but anyway). The cob is also there and the plant is 'pregnant', its 'belly' is growing and that is a source of immense joy for the kids.

They absolutely love it and are looking forward to eating the corn.

Priceless Good Clean Fun for the scientific dad.

Trebuchet

2011-05-27T05:01:00.000-07:00

Dear God,
When it comes time for my 8-yr old son to take the SATs, in about nine years from now, could you please do me a favor and make sure it includes the word “trebuchet”? He has not sat down at the piano willingly to practice at any time this year, except for 7:30 the morning…after his 12-year old sister’s sleep-over party…when the girls had gone to bed at 3 am. When this failed to impress the girls, he and his twin moved on to streaking.

However, he has a very impressive knowledge of medieval siege engines due to many school bus hours playing Age of Empires, Age of Kings on the Nintendo DS. I believe this is teaching him some basic notions of cash flow, as well. Recently, he learned that his feudal village rents were not bringing in enough income to support his war-mongering proclivities. He has an impressive smattering of Roman military knowledge (Thank you Astérix! ) and can describe the Siege of Gondor (Lord of the Rings) at length.

Sometimes we non-tiger mothers need a break.

Nathalie

Musing about Physics: Feynman and time dilation

2011-05-26T08:24:00.000-07:00

Special Relativity is one of those topics that looks simple on the surface of things but gets really really complicated once you get under the hood.

The math is simple, trivial even, but the meaning gives a normal person headaches. What are we to make of "slowing clocks, contracting length" and other oddities that come once you accept the basic premise that c is a constant for every inertial observer.

Of course I have time, and since I started thinking about "Spring Theory" I decided to revisit classics see if I could make progress. Working on the Feynman book, I rediscovered basic SR.

I still stumble somewhat at the Dingle paradox, which is a version of the twin paradoxes. For those initiated with the paradoxes, I am OK with twin paradoxes (which involve acceleration) but still struggle with inertial versions of the twin paradoxes. (2 clock in inertia with V relative intersect, what do they read, assuming they were synchronized at some point, what do they read?). So I went over to sci.physics.relativity. The old usenet group. Funnily the "simple question" generated about 200 answers, which you can read here .

The answers were confusing, some plain wrong, taken as a whole completely contradictory, some saying I got the result right but the interpretation wrong, some saying I got the result wrong and the interpration wrong, some just don't waste time and call me a motherfucker, most just say I am stupid for not understanding the basics and so the joke goes on with SR. What is "trivial, basic" concepts still generate this amount of controversy 100 years from the inception of theory. In all fairness there are also well meaning folks that actually provided real information.

Clocks and Clicks

I recently I a bit of a breakthrough thanks to the Feynman book. I could finally put my finger on a few things.

In his book "Feynman lecture" (vol 1, 15-6) Feynman covers basic SR. In typical Feynman fashion it is highly readable and entertaining. He clearly presents C constant for all observers as a postulate of the framework. Says that with C postulated this way one must adopt the Lorentz transformation of coordinates as the proper transformation. Shows Lorentz has the Galilean transformation as limit as v tends to 0.

In there he has a very interesting paragraph about Clocks that Tick. Basically he imagines a setup where the "clock" is keeping count of the number of "clicks" a light beam bouncing off parallel mirrors separated by a distance d, makes. See the scanned image straight from the book (that is a bad bad thing to do). Imagine a photon going back and forth and count every time it bounces at the source.

If the mirrors are moving, the photons are making a zig-zag between the mirrors. (the mirrors move while the photons travel). So the photons will take more time to go back and forth. If we admit that the speed of light is C in the rest frame then the time it takes for the photons is longer as we are doing a zigzag. The "moving time" corresponds to the time it takes for a photon to cover the zig-zag, as seen from the rest frame.

It is trivial to see that the distance travelled by the photon is the hypothenuse of a triangle that has d on one side and v*t-m/2 on the other. So the distance is longer. OK, then the time it takes is longer as well because the distance was longer. You work out the math, I will spare you the math, which is frankly boring and straightforward and you find that the time it takes for the photon in the moving framework to reach the mirror is t-rest(1/sqrt(1-v/c^2)). Meaning the EXACT FORM of lorentzian transform in this case.

Reflections on Ether and Muon decomposition

So what is very interesting is that this explanation by Feynman, does give us a sense of why a "clock" like this would show lorentzian contraction. He uses this to say "every clock behaves like this" (a bit of a non-sequitur, but whatever, great prop). Of note it depends on the orientation of the mirrors, if you rotate them by 90 degrees, then there is no zig-zag and we would show the same time than at rest. But it is essentially a very "classical" explanation. If fact you can almost picture an ether, where the ACTUAL distance has increased and where the speed is limited to C and you get actual time dilation. In other words, a muon moving at the speed of light would indeed take the proper SR time to decompose (more than at rest) as it falls to the earth. I find that absolutely fascinating because in fact MUON DECOMPOSITION IS COUNTED AS ONE OF THE BIG EXPERIMENTAL VALIDATIONS OF SR. But taken as is, it can also be accounted by simple "classical" views.

Of course a big difference is that unlike SR, this theory only works ONE way. SR posits that the result be true for any inertial movement. In other words, the muons travelling would see the muon at rest decomposing more slowly due to the symmetry. Otherwise the travelling muons would know they are travelling (they decompose more slowly) which is in violation of the SR postulate.

In short, while amusing and entertaining (at least to me) the above only replicates half the predictions of SR, but, as far as I know, we have not measured the point of view of the muon.

Musing about time

But the big shortcut I do in reasoning here, is assuming that "time" is defined by the number of clicks. I don't know why or how, but let's assume that the smallest of oscillations is used as a 'reference' for all other oscillations. In this case time is defined in a relative way with respect to this "basic oscillation". It is the "reference". Well then time is an emergent property. You count other events with reference to this basic event. And if your basic event shows "time dilation" then you time reference has just dilated.

So what is evolving is the 'philosophical' definition of time. Time, far from being an ontological reality, is just a highly localized entity that entirely depends on the movement of the particle in consideration. If the muon is moving, it bases it's "time" on the basic oscillation and that oscillation just showed "time dilation" due to movement to a relative "rest media".

Every point of matter will therefore have a time. Related to its speed relative to a resting media. If we imagine that for some reason the most basic oscillation is always perpendicular to the movement (something to do with less resistance in that direction compared to the direction of propagation, I guess) then it is straightforward to see that your "moving time" follows exactly a Lorentzian transform. I find that thought particularly amusing.

The problem with velocities

If it wasn't speculative enough, let me dive some more into this "time". There is no time. Time is an emergent construct. There is no time "dimension", we are just counting clicks, and if you are moving it takes more 'time' for your clicks to happen. Or more strictly for every 1 click of the main clock you will have a fraction of 1 click (gamma from relativity) for the moving clocks. Simple.

The problem with velocities is that it is defined as a ratio of "distance by time" but time itself is an emergent property and I suspect that the way we "intuitively" understand velocity is erroneous because we assume a universal "time". But is a locally emerging construct and every moving body has a different time.

At least muons agree :)

A word to the wise

Please do not take the above too seriously. I don't take it seriously at all, altho I must admit to being tickled pink. In essence it is a simple way to pass time and entertain myself. For example the lack of symmetry (it assumes a medium, ergo a privileged frame) is anathema to most modern science. I just find it amusing that one of the canonical experiments (mentioned by Feynman himself as "proof SR works!") the decomposition time of muons as seen here is in fact trivially explained by classical mechanics. It also implies things about what "time" really is. An emergent property of movement.

Dear Sexist Media,

2011-05-23T07:31:00.001-07:00

Can we please have more photos of these fellows shirtless please?

Cause when you look like this,

and you’re not as smart as him (Dial a hooker),
then maybe you have to stoop to assaulting the woman who cleans your toilet and changes your bed linens.

In the words of French electropop singer and sometime philosopher Yelle:

…Alors les filles on se promene
Ouais on va aux chippendales
On navait pas prevu de passer la soiree avec des rigolos
On voulait voir des pectoraux, des mecs montes comme des taureaux...
Yelle, Je Veux Te Voir

Difference in French, American Attitudes comes to forefront in DSK Arrest

2011-05-19T01:31:00.000-07:00

It's hard to miss the culture clash in the differing coverage the American, British and French press give the arrest of Dominique Strauss-Kahn (DSK), the French IMF-head who was arrested in New York city after allegedly sexually assaulting a hotel maid.

The French journalists and public are particularly upset about the perceived lack of dignity with which Strauss-Kahn is being treated. They feel the pictures of him, unshaven and unkempt and handcuffed after his night in jail, are degrading to his individual dignity. They proudly point to French laws that forbid photographing suspects before they have been formally convicted of a crime. They feel that allowing journalists in the courtroom, undermines the legal process and turns the proceedings into a media circus.

The Americans, and to a lesser degree the British, feel the French press is to blame for a so-called "conspiracy of silence" that protected a "sexual predator." The French respond that the private sex lives of public figures are not their concern unless this somehow unduly impacts the manner in which those public figures perform the jobs they were elected to fulfill. For instance, not interested that former French president, Mittérand had a long-standing mistress and a love-child. If he had been using public funds to maintain his mistress and love child it would have been another story.

Apparently, DSK's third wife, Anne Sinclair, is not bothered by her husband's reputation for running after women. In public, she proclaims that she is proud of it and that it is "important for a politician to be able to seduce." I agree with the French press' restraint in reporting on this aspect of politician's lives. However, they need to understand that if the US press seems to go too far in the other extreme, it is because American politicians, are held to a different standard. In the US, for better or worse, demonstrating an upstanding personal life is part of how many politicians, especially those of the conservative Republican stripe, sell themselves to the American people. So it does make sense, that if the politician has campaigned on a "family-values" platform, which, in the US, means marital fidelity, or supports a very anti-gay conservative platform, then is revealed in the act of picking up men in airport restrooms, it makes sense to expose them. Meanwhile in the case of US politicians who did not campaign on the conservative "family values" platform or pretend in anyway that their personal life was a mirror for their qualities in government, I feel we should leave their private lives alone. While I did not like his equivocation on a lot of other issues, I never felt Bill Clinton's relationship with Monica Lewinsky was a matter of interest for the American people and the American government. His election campaign was based on the economy, not his upstanding private life.

The conservative American argument is that a person's personal life is a reflection of their probable probity in public office. I disagree. While it would be nice to believe that having a reproach-free private life guarantees the ability to successfully govern, it's just impossible to demonstrate this correlation based on historical examples. Presidents like FDR and JFK were arguably successful presidents, and fidelity to their wives was not their strong point. Meanwhile, I have never heard any real reproach on Barack Obama's qualities as a husband and father, yet that doesn't stop American conservatives from lambasting his presidency. On the contrary, they supported John McCain, who emerged from his POW experience to find that his wife who had remained faithful and supported him the whole time of his imprisonment had become handicapped and aged badly. He promptly divorced her to marry a much younger heiress with a politically-connected father...yet this never seemed to bother the "family values" party.

Back to DSK, what does shock me from the French media analysis is their failure to differentiate from consensual sex and sexual aggression. They wash their hands of DSK's past, saying that they never investigated French journalist, Tristane Banon's account that DSK tried to rape her when she met him for an interview almost a decade ago because the alleged victim never formally denounced her aggressor. Apparently they all knew this was DSK, even though his name was deleted from the report. I disagree with their failure to investigate. The most most cursory glance at Miss Banon's profile would suggest that her mother's affiliation with the Socialist party, her family friendship with DSK's daughter, the fact that his second wife was her godmother and her position as a young journalist who did not want to be identified as "the woman who had a problem with a politician" explain why she did not denounce him. Her own mother counseled against it. However, the violence of Ms. Banon's account and the fact that she had so little personally to gain by making the accusation (rather the reverse) should have inspired them to look further into the story. One interesting contradiction I noted is that the American press and legal system is more solicitous in protecting the privacy of the alleged victim. They have not published her name; whereas the French press has.

As far as precedents go, most Americans are resentful that the French failed to extradite film director, Roman Polanski. Way to go France, glad you think the fact that he's a great film director and we're such Puritans who fail to "appreciate the pleasures of the flesh" excuses the fact that a 43-yr old man should have stood trial for drugging, raping and sodomizing a 13 year-old American girl.

Only one journalist I came across in yesterday's Libération suggested that there is something wrong when the entire press corp of a country knows that they cannot send female journalists alone to interview a certain politician. In the same issue of Libé, Anne Sugier, President of the International League of Women's Rights is the only person who seemed to express any sympathy for the alleged victim's dignity and status. Meanwhile, French lawyer, Matthieu Bouchier, says that the physical part of the process of being detained and charged with a crime and the prison conditions in France are very similar to those in the US. The difference is that the French are not aware of it, because the media is not allowed to show it.

Frankly I am not at all sympathetic to those who complain about the humiliation to France of showing DSK in handcuffs. Sufficient evidence compelled the New York police to detain him and investigate him for a crime in the US. There is nothing special about the way DSK is being treated, except for the degree of media interest in covering it. Maybe if this had happened to an American of similar stature in France he would have been given more special treatment. This could not happen in the US. The underpinning of the US democratic ethos is that we CANNOT show that one of the most powerful men in the world gets different treatment from a common perp charged with a sex crime (even if this is not really true, once the wealthy person's expensive legal defense kicks in). Welcome to "Law and Order SVU". Nowhere, do I see any French appreciation of a justice system where an immigrant woman with no friends who works as a hotel maid can charge a wealthy and powerful man of a crime and be taken seriously. In fact, in fact they might take a look at the special immunity they give their elected officials, and their privacy and libel laws because there are plenty of financial(not sexual!) misdeeds that occupants of France's highest elected offices seem to get away with over the years.

Meanwhile, I agree that the American legal system is too much of a media circus with judges, defense lawyers and the prosecution, displaying a rather disgusting theatricality and self-promotion. I also agree that the American press is pretty dismal in its reporting in general, with a hyper-local emphasis and that the more respectable press is chasing ratings by digging deeper and deeper down into the "People" magazine and "National Enquirer" territory.

The US public has an insatiable appetite for police and law and order television dramas, and the formula for success there depends on contrasting the high position of the suspected criminal (international banker, wealthy man, possible next president of France) with the lowly status of his victim (immigrant hotel maid, with few friends and no family in the US). The US loves to build people up, but it also loves to take them down. They are not alone in their appetite for schadenfreude. Regardless of his professional competence, long before this latest incident, Dominique Strauss-Kahn came across as a very arrogant man, with a predatory relationship towards women (even if no proven past of sexual violence - much of this would qualify as harassment), whose taste for the luxury life contrasted with his Socialist party political affiliation - he embodied "la gauche caviar" - the caviar left.

Some of this stuff just doesn't translated literally into English. My favorite lost-in-translation? "Hot rabbit" which comes from the French "chaud lapin". The more Classical allusion: satyr -- too educated a reference for everyday American idiom. Frisky animals in English? Common and low-class: "horn dog" or dated: "randy goat". Admiring French ajectival phrase "The Great Seducer". American, Clinton-years reference: "has a zipper problem". Looking at DSK's personal appearance, tempting to reflect on Kissinger's "Power is the greatest aphrodisiac!" What country does DSK wish this had happened in? Italy!

I grabbed the last copy of Le Canard Enchainé at my news-stand yesterday to see what France's premier satirical paper had to say about the Affair. Here are some sample headlines and clips: "Erection, piège a cons!"Les larmes de Sarko-codile". Cartoon on Sarko's UMP party's real reaction to the news: "We should respect a decent period of reserve (with regard to DSK news). At least until the champagne cools!" Week's featured quote: Bernard Henri-Lévy (rather pretentious media-philosopher), we have these too in the US but none of the mainstream public has heard of them. When was the last time somebody outside academia cared what Noam Chomsky had to say about current events? "Do you think for one moment I would be friends with this man if he was a sexual predator?" "Canard Enchainé" response: "Imagine that DSK's lawyer forgot to present this argument to the American judge.

Jeff Mills moves to Paris, a Translation

2011-05-10T04:14:00.000-07:00

Jeff Mills gave a great interview in "Le Parisien". It is full of insights and worth a translation from its french only roots.

You're welcome.

Original here.

Jeff Mills, the pope of techno, moves to Paris.
Jeff Mills, the american musician, and one of the inventors of techno has decided to move to Paris. He will be performing at the "Cite de la Musique" Tuesday night. Here is the full interview he gave us in a "cafe" of the 7th district.

By Sebastien Ramnoux.

The american Jeff Mills is one of the founders of techno music. Born in the mid 80s (sic) in Detroit. The artist is already booked at the cite de la musique, where he will perform live the movie score to the SciFi classic of the 60's "the fantastic voyage".

At 48 years, he is fascinated by the collision of arts and has decided to move to Paris.

Q: Why move to Paris when everything that has to do with electronic music happens either in Paris or Berlin?
Jeff Mills: because here I am not limited to techno. If I have a project linked to cinema or classical music here people listen to me. It is incredibly different, even from Berlin, where I lived: over there, électro is still a ghetto. If you want to do anything else you have to leave. During 2 years, I have tried to build a project with the philharmonic orchestra from East Berlin, to no avail!

In France, I was able to play with the Montpellier orchestra easily for the 2000 years of the "Pont du Gard". It is nice here, techno is just considered "club music", there are less limits. If I come with an idea, even a strange idea, often times the reaction will be positive.

Q: You also live in Chicago, where your production label is based. Could you have the same career in the US?
Not at all ! You can't imagine how present the problem of skin color is even after the election of Barack Obama. Segregation is worse in music and for black people, you need to be either a rapper or a clown to be recognized. We are denied the right to do "serious" music. Here, everything is simpler.. There, you have to be «good looking» or make vulgar videos with scantily dressed women. Or you have to be white, very simply! That is also why a whole wave of techno artists came to europe in the 90's. Nobody cared about us.

Q: You have chose to live in the 7th distrct (very posh, ed) not exactly a "techno ambiance"...

(Laugh) Right, I heard, I must admit to not knowing my way around, I have only been here for 6 months. In any case I want to be in peace to be able to focus on my music. I need a calm environment and moving to a more "lively" district is out of the question. I am starting to visit the city a bit: recently I have been to St-Germain des pres (big park in 6th ed), to the musuem of natural history and to the "big mosque", where I couldn't get a the there were so many people!

Q: Do you spend time with french artists?

I see Laurent Garnier from time to time, although mostly abroad, on tour! Other than that, I would like to meet french celebrities like Catherine Deneuve (actress ed) or Pierre Cardin (designer ed). The other day I saw him at a restaurant but I was too intimidated to talk to him.

Q: What do you like about Paris?
The restaurants! What joy, I guarantee you that food in the US makes you love french cooking. I also like the city a lot, the architecture: it is obvious that here everything is integrated, the monuments and the modern buildings. There is color. In the US we live in cubes with windows and a door and that's it.

Q: You plan on staying?
Yes, absolutely. I don't know how long but I like it here, I am free. I might even asking my 17 year old daughter to join me here from Germany.

Q: Do you still DJ parties?
Of course, I DJ 100 nights a year. I live in a airplane most of the time. But I am slowing down, must be the age! What is important to me is the music, I have decks at home to mix and I hate them (laugh). I spend my time in my little studio, composing tracks. I don't listen to music every day, one must go without it to have a fresh ear.

Q: You have already worked on scores, most notably "metropolis" or "2001". Isn't the "fantastic voyage" a bit weak?
In the US, it is very known and appreciated, genre defining. It is on TV every year. We all grew up with the "fantastic voyage". I find it fascinating: it asks many questions about man, what makes a man, the difference between body and spirit. And for a musician it is a challenge to find what sounds map to the insides of your body

Q: Are you obsessed with Scifi?
It is true, it is one of my sources of inspiration. I have always wanted to communicate that feeling through my music, I hope one can feel it. My next album, "singularity", draws inspiration from the merging of man and machine.

Musings about Physics: Spring Theory

2011-04-27T00:28:00.000-07:00

I have recently read "The trouble with physics" by Lee Smolin. An excellent book for the un-initiated. And an excellent book for the initiated but non practitioner.

I have a PhD in theoretical physics. Although I must admit my PhD was mostly bullshit. My masters, however, was a deep training in all things modern in theoretical physics. I spent a year studying field theory, string theory, the standard model and particle physics. I must admit, I didn't get it. I could do the math in string theory, it was actually quite easy, that was not the problem. The problem was that I could not understand what I was doing, the "meaning" of it all completely escaped me. I was and remain a 19th century type physicist, I was quite at ease with classical mechanics and electro-magnetism.

That EM waves would propagate through vacuum was to me such an absurdity that I never really believed it. Yes I could model particles with "fields" but fields of what, through what. That a mathematical model tells me that particles emerge from the wiggling of strings, is fine, but strings of what? It seemed philosophically imperative that there be a medium in which the waves propagate.

Ether
I first imagined spring based medias in college to account for gravity and light propagation, and my professor quickly educated me on so called "Ether" theories. These theories were in vogue in the late 19th century and dispelled by the Michelson-Morley experiments that showed that the speed of light was the same in any direction measured. If there is an ether, we should detect our movement through it.

Cosmology
Get the book, or ANY scientific american that talks about cosmology and you will get an earful about what is troubling physics these days: dark energy and dark matter. Observation of the movement of distant galaxies is explained with a new kind of matter and a new kind of energy that amounts to "negative gravity". Nothing in the standard model or general relativity explains this. Physics is in a profound state of flux as they are now positing gravity that pushes back and does not attract. Funny.

The standard model and general relativity explain the visible matter and that matter accounts for 20% of what makes up the universe. The rest we just don't know.

Conflict is good
This is all a good thing as it means observation is once again leading theory.

A new toy model: the universe as an elastic medium
I recently revisited those ideas, mostly for fun but it tickles my fancy as it actually plays into a lot of the current issues.
Imagine that the universe is a huge elastic ball. A spring in 3 dimensions. Touch the spring slightly and it will start an harmonic oscillator. Light could be the basic vibrations of this elastic "ball".

Baryons and Tachyons
Clumps of "compressed springs" are matter. Vibrations are light waves. mmkay?

Elastic tensor
See the generalized Tensor expression of Hooke's law . The tensor representing elasticity has 21 free dimensions, enough to recreate most of the standard model. String theory needs 11 spatial dimensions. That is disturbing we only observe 3.

Matter is Energy
The Einsteinian insight is trivially rebuilt here at an intuitive level. Matter is a compressed ball. It takes energy to compress the ball and the compressed ball has a higher density and is measured as "mass". So energy is mass. The calculation in one dimension is obviously false but yields interesting insights from a dimensional analysis. Energy of a 1D spring = kX^2. Velocity of a wave c = sqrt(k/density). So k is related to the square of c and while completely false, you can see Energy = mass x velocity of light squared terms appearing. I tried a more detailed calculation yesterday in 1D and it all falls apart, which is not surprising but again, E=mc2 could appear as is in higher dimensional springs.

2D spring theory is link to string theory
If you compress the medium in 2 direction you end up with "tiny strings" that will start vibrating. In essence and in theory, you could then recreate string theory. These theories have accounted for most of visible physics (minus dark energy and matter) and should therefore be recreated.

WIMPS and dark matter
if matter is 2D compression then 1D "lasers" (as a stable non-dissipating waveform) and stable 3D will create "matter" of an different nature. The model will include new "particles".

Gravity
If you compress the ball you stretch the outside of it. In essence a wave propagating through that stretched medium, will feel an acceleration towards the compressed part (mass). I think I can work the math out in 1D (since v=sqrt(k/dens) and dens is computable). I have no idea how to work the math in 2D and 3D. Each dimension will yield different results due to geometric concerns. One will hit the 1/r2 nature of EM and gravity. Gravity is the geometry of the stretched and compressed ball. Velocity of vibrations depends on density it would be interesting to carry the calculation of a longitudinal wave through a asymetrical spring and show an acceleration of the wave. Would be a good training.

Anti-matter
Assuming a compression is balanced by a stretch and that the stretch is in "matter" form (i.e. stable waveform) then that stretch also has energy (the same as the real matter). It is anti-matter.

Big bang and dark energy
Compress the spring to its maximum. Assume the springs have a compression quanta, beyond which you lose elasticity, you cannot go. These ideas are very close to "quantum loop theory" where the fabric of the universe is "matter balls" as unit quantas. Here we do not focus on matter but rather the spring nature of the fabric. Compress the fabric and release it. It is charged with energy and will expand rapidly. Eventually it will reach a point where it will compress back, it is an harmonic oscillator in 3D.

The speed of light
Light is vibrations INSIDE the expanding ball. The smallest vibration. So nothing can go faster than it inside the ball (bigger vibration have smaller speed). I am struggling massively with the ether syndrome. If one needs to account for the speed of light. It seems that the notions of time and speed need to be taken in their relativistic sense. In other words, a "unit" of time is the time it takes for light to travel, as a wave, through the medium in a "unit" spring. Velocity of light is a constant no matter what the length of the spring is because our perception of time stretches with the underlying. Or rather, we UNDERSTAND a unit time as the "time it takes" for light to travel along a unit of length, a tautological definition that starts from the notion of speed as a constant. We base all time measurements on the fastest movement in the medium.

Faster than light expansion
The universe is a spring ball that is still expanding. Light travels INSIDE the ball. The expansion of the ball is un-correlated to light and not subject to the speed limit of light. It is the expansion of the springs themselves. Light travels at constant speed (remember that time is what is defined from it) and the expansion of the ball can be anything.
Also in this model, it is trivial to see that the outer part of the ball expands exponentially faster than the inner parts. This is observed and in contradiction with general relativity.

Background radiation
If the universe seems fairly uniform in density, it may mean that we exist in the "middle" expansion in time. Take spring, compress, it will become an harmonic oscillator, we may be at the most relaxed part of the expansion (the middle of the oscillation) where the springs are "at rest". They will start stretching next, creating a "positive gravity" that will add to the gravity we know from general relativity.

Elastic domain
I assume the regime we are in is elastic. Meaning f=kx. There are no reason for this, just ease of use. It could be anything.

Unfortunately I am hampered in the math department, not as nimble as when I was young. I could carry the 1D calculation (to their non-sensical results) about energy and mass and the speed of light, modeling the compression of the spring. It did not require integration. I will continue doing this for 2D and 3D, which should be a lot more complicated and I couldn't find ready made results for the "energy of a compressed 3D elastic medium" although I am sure they exist.

Good clean intellectual fun.

Oracle and Open Source. NOT GOOD.

2011-01-25T12:05:00.000-08:00

If you have been following the java news lately there is one theme that keeps coming back. It seems Oracle has declared open season on Open Source java and is trying to bully its way.

There have been a few incidents of late. First there has been the Open Office/Libre Office fiasco, where Open Office was essentially forked by its own community. Then there was the Java/JCP tantrum thrown by Apache, where Apache noisily left the JCP over spats with OSS licenses for the JVM (Harmony). And lately there are more, notably one with NetBeans. But one that is closer to home (and my wallet) involves a project led by an employee of Cloudbees.

Basically, if I understand the situation correctly the lead developer was a Sun employee when he started Hudson. So Oracle claims they own IP and brand, which very frankly is completely irrelevant since the license is OSS and the guys at Cloudbees can continue their work un-encumbered. And there is one thing left to do, which is basically to fork the project. And so it is... a lot of the OSS community is flipping the bird to Oracle.

But this outburst of belligerence is a sign of a deeper malaise within Oracle/SUN. I have had my own issues with SUN back in the days, when they wouldn't allow us to get certified. But by and large the attitude from SUN was one of "laissez faire". SOMEONE at Oracle has woken up and declared that all java assets were to be monetized and therefore there seems to be crackdown going on in the java open source community.

There is also a large dose of ignorance of how "things work" on the part of Oracle in how it approaches these problems. At the end of the day, an OSS project is lead by a few individuals that truly drive the community. If Oracle feels it "owns" certain projects but the work is done outside the company, then Oracle doesn't own shit. Point in case when it gets down to it in Hudson, it seems to me that Kohsuke Kawaguchi, also known as KK, and his friends do all the work, while Oracle just waves their arms wildly. A community without its community of developers is an empty vessel, and Oracle is about to learn this lesson.

It saddens me in a way, I was hoping Oracle would continue the benevolent dictatorship style of SUN when it came to things java. It seems bent on dictatorship alone. I doubt few will follow.

In a way, I can understand where they are coming from, after all Java is in maintenance mode and it is therefore time to derive maintenance revenue. The execution however seems tone-deaf and frankly clumsy. I am glad I am not the one having to be the corporate pitbull.

FORK YOU ORACLE.

A Day in the Life of Nathalie Mason-Fleury

2011-01-15T01:07:00.000-08:00

Move over Juliet de Baubigny

In the midst of an immensely glamorous life where every minor acquaintance is some headlining Nobel Laureate, Titan of Industry, Famous Statesperson,

I’ve currently been stood up by my nemesis, Juan el Mecanico, who did NOT show up from 2-5pm to fix the currently broken blinds/washing machine/stove top. The scoundrel then had the gall to show up on another random day, fix absolutely nothing and charge me 300 euros.

I will take a moment to answer the question people most frequently ask me: “Nathalie, how DO you do it all?”

”Mamaaa….leche! Mamaaa….caca!”

What can I say, it’s the basic challenge facing every modern woman: how to balance a challenging career, personal and family time, with meaningful volunteer work. In my case, I try to make the world a better place through my foundation for rehabilitating the images of People Who Have Fallen Victim to Reality TV.

CV

In Delta Force, I received Airborne, Air Assault, Ranger and Special Forces training. Following distinguished military service, hired as senior operative with the Los Angeles Police Department's Special Weapons and Tactics unit and the Central Intelligence Agency as a case officer in the clandestine service, before joining the Counter Terrorist Unit…Proficiency with firearms, explosives, electronic devices, especially resistant to torture, fluent in Spanish, Serbian, Russian and Arabic, can pilot airplanes and helicopters.

Do I really need one of those to go to the grocery store, cook, scavenger hunt for the latest “must-bring” item at my kids schools, and clean up dog mess?

Exercise

Get up at 5:30 am. Run 10 miles.

Get up as late as I can get away with and still get kids to school-bus on time. “Me time” consists of briefly thinking about working out, before deciding I would rather read update from “Tom and Lorenzo” on Mad Men style. “In this episode Joan is wearing purple. Remember purple is her “vulnerable” color.”

Diet

Nutritious breakfast of egg-white omelet, sliced peppers and decaf coffee with sweetener and soy milk.

Lapsang Souchong tea, milk, 2 teaspoons sugar—cereal out of the box. On special mornings, pancakes and BACON!

Fashion

It’s there every week in the “best-dressed” pages.

The same non-cute, non-matching workout clothes I did not go to yoga, pilates, krav maga or running in.

Beauty

Ladies is it really my fault if your husbands can’t keep their eyes off my BJ-lips and gravity-defying tits?

If I ever had to compose a personal ad for the London Review of Books, it would run something like this: “She liked to think of herself as a MILF. The reality was closer to ‘under-40 (barely), multi-parous woman, with slight tendency to the plumpy side’ ”.

Organization Tips

See my patented spreadsheets covering every potential situation from “What to do if you find yourself accidentally wearing the same dress as Jennifer Aniston to the Oscars” to “How to handle a hostage situation.”

If it’s really important, they’ll call or email again, right?

Quality Time with the Offspring

Little Prudence and Prince are so cute when they play together.

I’m wearing ear-plugs and hiding from them right now.

ChromeOS and Android: there can be only one

2010-11-24T02:28:00.000-08:00

Since I dived into Android and started thinking about 'what it could be', it is obvious that a lot of what android does is supposed to be delivered by ChromeOS.

First, I had to freshen up on ChromeOS. The Google OS that is supposed to be a windows killer is a web-browser centric view of the world has 'cloud' written all over it. The net-centric PC has been in the making for 15 years. There is nothing earth-shattering in there but yet another Linux kernel. Of course, where google could really kill it, is if they replicated the success of MacOSX. After all the rebirth of apple included "leveraging" open source and providing a closed source UI on top it. And what a great job they have done at it. A part of me hopes Goog will deliver on the UI front. It could be enough for me to try it.

Android meanwhile is targeted at the mobile platform with touch as an input device. It seems to me that these "differences" are cosmetic. At heart we are talking about net-book class CPUs, with linux, a UI and development environment. This is stuff that retails in the 200-300 price range and costs about 50 to make.

So I am left wondering what kind of applications are developers left to develop. Obviously in the case of Chrome one would want to develop both native applications in C/C++ on linux, replicating the cocoa experience on mac as well as web based GWT applications. Both approaches have merit. And indeed the true difference lies in the development environment.

On Android, we have java applications as a native platform. Then of course we have we have web based applications. And then it should hit you. There isn't much difference in both approaches except one focuses on java native vs C++ native. And as a further cherry on top, it is also obvious that you will be able to code java on chrome and you are able to customize the Linux distribution (in C) on Android.

So there you have it, there really is no difference. So why the two products? I think it has to do with history. When the projects started (at least 4 years ago for android) the industry and technology looked a bit different. Different enough to warrant the separation. The hardware of net vs mobile hadn't converged yet. From a sales standpoint, they are also two different markets. Selling to "mobiles" is different than selling to "PC manufacturers". Also different teams of engineers like to do different things.

That being said, I read that Brin declared the two would "converge" eventually. I would argue that convergence has happened already, both hardware and business approach. And that in fact the last bastion of separation threatens to be the software environment ITSELF. Waiting for a winner to emerge is also a classic corporate move. In our case, Android has got a lot of wind behind it, with a tsunami of "mobile" class devices inundating the market and tablets coming right after. The convergence happened at Tablet. The rest needs to give.

Google should consolidate engineering and marketing. Bring some of the chrome team to work on the droid. Merge marketing teams to market both solutions under ONE NAME: ANDROID to two different market (net and mobile, which converge in tablet). Otherwise Google risks creating confusion in its developer following. A critical mistake, apple has avoided. Merge Chrome and Android under the DROID brand and move on.

Android and Java Portability and bloat.

2010-11-22T01:56:00.000-08:00

I have seriously gotten back into development. For the past 2 month, I have been toiling away on Open Remote's controller, porting the ORB (our java base controller) to android.

First I must admit to being profoundly amused and tickled. It is obvious to me that Android is way on the path to becoming the center of everything in home automation.

There is a simple reason for that, it is a standards based platform (linux+java) that ships with reference hardware at a unbeatable price. It is also sexy, at least if you are into that sort of fetichisme.

Google TV also promises to push Droids in your home, whether you like it or not. So what has been dogging the industry for so long, the lack of an available standard platform that is mass distributed and available everywhere, is about to be a non-issue.

At OpenRemote we also take a slightly different angle on the droid thing. Not only is it a cool panel, we also view it as a server. Whether with a panel or headless, it is a cool controller. Those things are ARM6 class CPUs and can run ORBs.

We are so convinced of this fact, that I am looking at what it takes to port from java6 to android. Ideally we would have a framework that works on both. So we develop on Android but also ship *the same binary* on java6.

And this is where the rubber meets the road. It is hard to "write once, run everywhere" in this brave new world. It is funny, because Android was largely influenced by two people I know: Bob Lee and Cedric Beust. Both respected Java old timers.

It is a stark reminder that java portability needs both languages and libraries. In the past when we refered to "java" we always mixes both, and why not? libraries were cheap to include. Today availability of libraries on android is vastly different than j6.

A bloated 100Meg binary is not something that goes down well in the android world. So you do extra work to remove dependencies and you ask yourself: do I really need this? tomcat? spring? logger? xquery?

In a way going to the Droid is like putting your app on a treadmill and sweating the fat off the hog. A lot of java's bloat is "scaffolding". Nice to haves but not must haves. Sometimes it is hard to see the building from the scaffolding.

And vice-versa, it is easy to create dependencies to android in your binary. Which would create non-portability to the java6 world. Many class libraries are present on the Droid Only. (Context anyone?)

To be fair to Bob, Cedrid and crew, it is obvious that "server" was not on their mind when they put this framework together and that the hardware has made leaps and bounds in the time since their started Android.

And with time we will be able to afford all the bloat in our smartphones/mini-servers, but for now, i actually enjoy the mental excercise of getting OR stronger and more fit because of it.

Shadow Banking Blueprint: thoughts on regulation/minsky

2010-11-19T00:00:00.001-08:00

This morning's FT comes with a very interesting article. The article itself recoils in horror at the graphic of the structure of the modern banking system, comparing to a "motherboard". It also references a paper by the NYFed which is the origin of the diagram. The paper is a lot more interesting (click to enlarge, and you still won't see anything :))

I have skimmed the 80 odd pages article. It is really a factual description of the "blueprint" of the shadown banking system. There is a little bit of analysis and that has captured my attention. Page 72, article 9:

(9) Regulation by function is a more potent style of regulation than regulation by institutional form. Regulation by function could have ““caught”” shadow banks earlier:

I find this statement both very interesting and somewhat immature. Basically what this says is that the standard regulation framework that of balance sheet of depositor banks, failed to effectively regulate liquidity levels. Why? because the risk is effectively spread over the whole motherboard and not just the balance sheet of the banks, which would be just one chip. In fact the existence of the shadow banking system was to a degree an arbitrage of existing regulation. By using off-balance sheet instruments, banks were avoiding balance sheet restrictions, in a almost tautological way. The bank "chip" was just a pass-through mechanism, it didn't accumulate debt. it therefore escaped regulation.

So an example of regulation by institution is "lets regulate the balance sheets of the banks". Modern Basel 3 is still based on this framework. And it is therefore insufficient.

The "functions" that this board describes are the classic functions of banking. a/Debt b/maturity transformation c/liquidity transformation. I like to think of "total level of debt" in the system. This system's raison d'etre is to finance the real economy needs.

As a side note, Glass Steagal did regulation by institution but because all of the risk in the system was accounted for in the banks, it effectively was functional regulation as well. The moment derivatives came in, institutional regulation was in effect separated from functional regulation and rendered void. Regulatory arbitrage was a big part of it.

Minsky Cycles

Why is that function of liquidity important? very simply put debt begets more debt as long as returns are positive. in fact returns increase with more debt until new debt is only chasing asset price appreciation. This is the last stage (ponzi in nature) of the minsky cycle. In layman terms "I buy housing, on a lot of debt with no capital down, because housing always increases". That simple NINJA narrative describes the essence of a minsky bubble.

Assuming one CAN regulate these cycles, it would require measuring the total levels of debt in the system and detecting "bubbling stage" which is of course complicated. At least this blueprint tells you where the "measuring" points are in the system so you could reconstruct a complete picture of the liquidity levels. Since some of this is in "the shadows" putting the exchange on public platforms would go a long way towards regulation.

There is also the question of whether we CAN regulate them. Minsky cycles, monetary cycles, take 20-30-40 years to unfold. Meaning you will run up during 20 years and then crash. With a press corp that by necessity, tries to make news out of the daily volatility of asset prices, 20 year trends do not feel like "trends" but like "facts of life". No company, with a 3 mo horizon, will stand up against this. Few politicians with a 4 year horizon, will stand up to this, and only the most committed regulators will stand up to movements that may not see a downturn during the professional careers. It is just professional suicide to do so. I have written about this in a tongue in cheek manner here.

Monetary creation and the private sector

Finally there are a couple of aspects of the blueprint that dominate the money creation process. These are the focus of regulation, they are also difficult to regulate.

1- Reserve requirements work in reverse. As many MMT'ers will tell you (Modern Monetary Theory), banks first issue loans and then go get reserves. So essentially the level of liquidity is never controlled by Basel type regulation.

2- The derivatives to the shadow essentially created infinite liquidity. Loans would recycle to cash and then to loans etc. The balance sheet of the banks never changed. Banks were just a passthrough of debt creation and thus the total level of risk in the system increased without checks. Again a failure of the Basel type regulation by institution.

3- Naked CDS. My pet-peeve. It is described under the "synthetic" section of the blue-print. The interesting part of this one is that it created future liquidity in the worse possible cases of meltdown. And it did so at a multiple of the face value of the principal of debt. In other words: bad debt was multiplied at the worst possible moment and realized in cash. I have written more extensively here on this topic.

All of this points to the fact that

A/ Macro-monetary levels play a direct role in minsky cycles

B/ Macro-monetary levels are under the control of the private sector

C/ Macro-monetary levels are going to be difficult to recapture

QE0:private QE2:keynesian

2010-11-10T01:07:00.001-08:00

At the risk of becoming a QE-bore, I want to write about current discussions on the topic. The topic of how money gets created is so counter intuitive to most people even confusing and sometimes so disgusting that it bears repeating.

Basically I grew up taking for granted the "store of value" component of modern fiat money. In a word, you work for your money and the money represents the value you have created and amassed. This is usually where people conflagrate morals with money.

But the truth is that fiat money is created out of thin-air. First by the monetary authority and second by the banking system. Basically the FED creates "high-powered" reserve money and then the bank create "credit" money on top of it.

The banks are not *really* constrained in how much money they can create. The fractional reserve mechanism has been turned on its head. First the banks create loans and then seek reserves to match them. And second the securitization mechanism has enabled them to distribute the loans into the system without restraint or legislative oversight. Derivatives have exploded the liquidity levels.

So QE0 can really be understood in terms of the banking system creating massive amounts of liquidity. As much as the system demanded while riding an asset bubble (equities, real estate).

QE1 was kicked in, by the FED during the crash following QE0. I have argued in the past and will repeat the point here, that the impact of QE1 has been on the dynamics of the crash. Simply put during a debt-deflation crash, the value of assets can fall faster than you can deleverage your debt, leading to the contradiction that TRYING to decrease your leverage in fact increases your leverage as you trash the asset markets in the middle of the equations. This is known as the Fisher moment. QE1 successfully stopped that dynamic.

QE2 is of a different nature. It is more akin to QE0. It is a pure inflationary contribution of the monetary mass. A monetary expansion. The net effect are

a/ prop asset prices. the attempt from QE2 is to shore up asset prices and therefore the balance sheets of the banks who still hold a lot of the assets from the bubble . It is a trickle down approach to economic stimulus.

b/ retire debt. By buying bonds with the newly minted money, the FED is decreasing the leverage while increasing asset prices, quite the opposite of the fisher moment.

The difference between QE0 and QE2 is in WHO is creating the money. QE0 was a private effort, decentralized and market based. In QE0 the dominant ethos was that markets would always do better. Let the market decide where to allocate the money, it will always decide best. Well, we know now, that while the market may be the best at sniffing out risk in the normal stages of bubbles, by the end of a minsky debt cycle, the money is allocated to the casino itself. Witness the fact that by 2007, 40% of corporate profits came from finance. So basically the bubble runs its course in a blaze of glory. In other words, the markets self-destruct in boom-bust cycles.

QE2 is the keynesian equivalent. Where the central authorities step in and maintain liquidity levels. Of course a centralized planning can suffer from corruption and non-effective allocations. It becomes a political allocation as opposed to a market based allocation. Think about how many schools, roads, hospitals, research, gasp *fighter planes*, $1T buys.... right now the FED is printing money and, unilaterally, giving it to bondholders (China and guys like me). In other words, one of the most impactful social programs is being conducted by the FED. Personally, I cannot help but think it would be better spent directly on mainstream america.

So there is a certain logic to the QE stream. Basically it says "keep on printing, keep on working". The main problem I have with QE2 as implemented now is a moral one as 1/ store of value 2/ who gets it.

PS: As I write this, Leo my 8 year old is sick at home and reading "asterix and the golden knife" and bursts out laughing... He comes and tells me "so they pay this artisan who makes golden knifes. They pay him with golden coins! and what does he do with the golden coins? he makes more golden knifes!!!" as he finds this absolutely hilarious. I still struggle to put my finger on nerve of this one. Something about a conflict between the store of value and the exchange value.

The new cold war: QE2 and the G20

2010-11-06T06:45:00.000-07:00

There is a post over at nakedcapitalism wondering about the timing of QE2 with respect to the upcoming G20 meetings. The conclusion is incompetence. That Bernanke cuts Geithner off at the knees.

I was wondering about the timing of the events myself. Why do it right before the G20? I do however make a slightly different assumption that Geithner and Bernanke coordinate. Then it follows that the attack and the timing is done on purpose and it then follows that this is an act of "financial war".

QE2 from a trading partner perspective creates

1/ De facto devaluation of the dollar

2/ De facto soft default on debt (repay debt with thin-air money)

3/ Carry trade, hot inflows

#1 and #2, i consider to be self evidently aggressive to trade partners. Why 3 is a threat may be a bit more indirect. A strong carry trade can induce inflation in already over-heating economies. This is already at work in CN. Most emerging countries are considering capital restrictions. There are many historical examples of warfare conducted through monetary debasement of the enemy currency (there was a movie if you recall, on germany trying to copy UK bank notes, to flood the system). The US is doing just that, printing massive amounts of dollars and flooding everyone's market.

In this case, a synchronized attack by US authorities on china debt holdings is the equivalent of modern day "pearl harbor".

I can imagine how the thinking went. The chinese are making a mockery of the US by refusing to budge on re-evaluating the Renminbi. They refuse to "cooperate" and do it the easy way. But the US knows it can do this without anyone's consent, it can do it the hard way by doing a new round of QE. And so it drops the bomb QE2 would find its justification purely as a foreign policy construct. An aggressive and defrauding one.

So the US attacks, unilaterally. The create a completely new dynamic days ahead of the G20. They de-stable-ize the meeting. Everyone is taken by surprise. Actually, forget the meeting, the talks, the Geithner proposals to limit imbalances at a percentage of GDP. It was all a head-fake. A decoy, while all along, and quite publicly, the US was planning its financial attack.

In that light, the ploy is actually quite brilliant. It is the official start of the currency wars, and by extension the new cold war, a war fought on the economic front with financial tools.

QE2, the good, the bad, the ugly

2010-11-04T05:18:00.000-07:00

QE2 is here. It was announced yesterday that the FED will print up to 1T of new money and buy all kinds of things with it but mostly bonds.

Couple more thoughts

1/ Social engineering

At a moment when politics in the US is at a standstill, the FED, unilaterally, is going to print 1T of money, without anyone's supervision, in order to restart the economy. Of course, the tax debate is irrelevant since this is brand new money out of thin air. The fact is that modern policy is conducted by the FED. It is also targeted at the haves, and will hurt the have-nots.

2/ China

QE2, at heart is a way for the US to default on its foreign obligations. The risk is a debt trap, where the interest on debt consumes GDP. This is a way to solve the foreign debt trap problem. If the US wanted to get back at China for currency manipulation, this is it.

3/ FOREX

In general, QE2 is just creating a massive carry trade where, people borrow in dollars and just spend it OUTSIDE the US. Meaning the growth will be felt elsewhere. This is rooted in the fact that few growth opportunities are perceived to be left in the US and the differential with emerging markets is too high. The net result of this may be curtailed by capital controls being put in place.

4/ Trickle down QE

QE2 is printing money to buy assets (preferably bonds). This creates speculation in assets. If you are a asset holder, let's say a house, then the price of your house will artificially increase. This makes housing harder for those that don't have it, the young most notably. The basis for this as acknowledged by Bernanke, is that it will kickstart spending by the wealth effect. This is pure trickle down economics, conducted by the FED. Theory is give to the rich, at the expense of the poor, hoping it will all trickle down quickly.

5/ pushing on a string

Many commentators have pointed out that adding to bank reserves is unlikely to spur lending. Lending is driven by perceived opportunities, and there aren't many perceived in the domestic US.

OpenRemote 2.0 and Android, first impressions

2010-10-15T09:30:00.000-07:00

it has been a while since I did any code, well... 2003 to be exact? so I was a little rusty this week. In any case, i have decided to look into what we call the "serverless" mode at OpenRemote.

Just a bit of background on OR. For most professional scenarios in OR you will want to use the controller, called the ORB. However one OR's product that has a lot of traction in our community is iKNX, a serverless KNX console. The console talks directly to the hardware through IP. This product alone has established our reputation in the european installer community as a defacto choice for iphone/KNX control. It is based on iphone. The reason for this success is rather simple: it is easier to install software that just involves the iphone and a gateway rather than iphone software, PC software and a gateway. The barrier to entry is low.

With the release of OR 2.0, we are looking to generalize this with all the protocols we support. As long as you have a IP gateway, we should be able to connect to it and talk to it. This means that for straightforward control scenarios you don't need an ORB upfront (for professional scenarios, you will but that is another topic). So the console has got to connect to the server and download its data.

This is where I come in. I decide to step in and take a look. After all, how complicated can it be? Well turns out that a simple task such as generating a MD5 hash, sticking it in a HTTP header with Base64 encoding and unzipping the resulting file has taken me a good 3 days. This is probably something that would have taken me 3 hours in the past. And along the way I have made the following observations.

1/ I am getting older and slower, but that is normal.

2/ API support and documentation in Android is still "early stage" with information sometimes hard to find. Compared to what SUN had done in the past it feels a bit sloppy.

3/ APIs sometimes behave a *little differently* which can drive you mad. For example MD5 needed padding, Base64 needed trimming, little things that break your code. I expect this to stabilize over time.

4/ The same "community" feel is palatable in android. Most of the question I had, I could find answers in forums.

5/ Android is very cool.

Of course I have rediscovered the joy of development, that moment of "happy" when the stuff works like it is supposed to.

Banking and foreclosure, a moral question?

2010-10-10T23:39:00.001-07:00

This episode of the daily show got me thinking again about the profound unfairness of our money system.

To me it is sad more than it is funny. Forget the obvious irony of their story, that the mortgage banker's association ITSELF defaulted on its own mortgage obligation while telling everyone else not to. You can choke on the irony. However, the writers at TDS don't really realize how amoral the whole money game is. I don't expect them to, they are hired for their funny bones, not their degrees in economics.

The problem is simply stated. You have taken a loan on a house. Your house has lost value. You walk away from your mortgage. It is the right financial decision to take, but is it moral.

A straightforward answer is that money is created by the banking system. If you deposit a dollar in the bank, it is really multiplied by 10 or more in loans. THIS is how money is created. Out of thin air. So when you default you are not returning money that didn't exist in the first place. And the bank ends up owning the asset.

Stop at that, reread this a couple of times. Wrap your head around that fact. Banks create money out of thin air and end up owning the asset. Banks own assets out of nothing. Brilliant. Period. Amoral.

move on

QE1 vs QE2

2010-10-07T01:15:00.000-07:00

Quantitative Easing, or QE, is a powerful monetary tool available to central agencies under fiat money systems. It is the art of "printing money" to buy assets. This creates asset inflation.

The FED has done a first round of QE in march of 08, stabilizing the markets and sparking a market rally the likes of which not seen since the great depression. The FED has recently hinted it would do QE2.

In my mind QE1 was a necessary stabilizing tool. A deflationary spiral can become entrenched and catastrophic in the sense that the system capsizes out of equilibrium (Fisher moment in economics, where decrease of asset/capital, leads to asset deflation, leads to lower asset/capital in a feedback loop). QE1 prevented these dynamics to become entrenched.

QE2 is a very different beast. At a moment of no volatility in the markets (VIX down), the FED wants to stimulate the economy by printing more money. Many commentators argue that this is pushing on a string. Namely that the economy is repairing its collective balance sheet and won't invest in a long time for lack of growth opportunities.

I have 2 comments,
1 is that it says that the so called "growth" opportunities were really ephemeral (why did growth disappear overnight?) and linked to housing. The housing bubble, instead of being accounted as inflation (which it was) counted towards growth and GDP. It was at heart a monetary phenomenon (QE0 by the banks). There was NO growth, just a monetary illusion of it.

2 QE2 is profoundly unfair, it keeps housing prices up leaving a whole generation (starting with mine) out in the cold when it comes to home ownership. Housing has to come down where young couples can afford starter houses, until it does, there is a fundamental imbalance in the market. I am not talking about "morals" but pure economics. The market is currently inflated and distorted.

QE1 was a necessity to stabilize a capsizing ship.
QE2 as a stimulus tool is profound market manipulation.

QE1 was good, QE2 is evil.

Basel III is out... who cares?

2010-09-13T00:54:00.000-07:00

So the new rules for banks out of the Basel committee are out this morning. There is a flurry of articles in the press. I will focus on 2 in the FT.

First an overview of the new rules here.

Global banking regulators on Sunday sealed a deal to effectively triple the size of the capital reserves that the world’s banks must hold against losses, in one of the most important reforms to emerge from the financial crisis.

And an early criticism here.

A recent paper by Samuel Hanson, Anil Kashyap and Jeremy Stein underlines a crucial point: to be any use, the regulatory minimum capital ratio in good times must substantially exceed the market-imposed standard in bad times: “Thus if the market-based standard for equity-to-assets in bad times is 8 per cent, and we want banks to be able to absorb losses on the order of, say, 4 per cent without pressure to shrink, then the regulatory minimum for equity-to-assets in good times would have to be at least 12 per cent.” The authors add that 4 per cent is a conservative estimate – cumulative credit losses at US banks between 2007 and 2010 were roughly 7 per cent of assets.

I do believe these are positive steps since they will make banks more resilient to shocks. Capital cushions are essentially tripled. Also note that with loss rates around 7% a 7% capital base should suffice. The banking system will not be bankrupt, as it is today, at least from a accounting standpoint. See here for a study on monetary levels in the face of losses. Basically money supply would NOT sharply contract at the current level of losses. That is a good thing.

However I am usually not one to wallow in criticism for the sake of criticism or pessimism but the whole effort while worthwhile and positive does ultimately fail to address one root cause of the modern credit crisis: securitization and the fact that debt levels are not REALLY regulated any more. The Basel type regulation focuses on accounting numbers relating to the banks: assets on their balance sheet vs capital cushions. But CDOs are designed to move assets off balance sheets. The banks get cash and most of the AAA assets move away. The more toxic tranches are hidden in special purpose vehicles and the regulator is none the wiser. So the real level of debt is really not captured on the balance sheet of the banking system. It has moved to the shadow banking system. In other words, Basel III makes banks more resilient in the face of a crisis but does not address the likeliness of the crisis.

In conclusion I suspect that is the way they want it. After all, as far as I can tell, Basel is a set of self-imposed rules by the banking system and their regulators and they are primarily concerned with their own survival, not the well being of the economy from a monetary standpoint. It should be no surprise that they avoid the larger question of systemic stability by monetary self-regulation. Beware of the invisible hand, it may be robbing your back pocket!.

The problem with economics

2010-09-08T01:51:00.000-07:00

Or "why monetary theory can unify austrians and keynesians"

The economics profession is deeply devided. Roughly speaking you have 2 camps, on the one hand the keynesians, who emphasize the contribution of government to the economy and the austrians who de-emphasize it. It leads to virulent discussions for an example of the genre see here (spoiler: it is dumb political bullshit that blames the government and obama).

That divide shows how different hard sciences are to economics. You don't really argue as much in hard science. There is a right and there is a wrong. In economics there is a network of things that interact. The effects of action through the network are diffuse, far reaching and mostly intractable. Furthermore the main fuel of the system, money, tends to exhibit non-linearity that acounts for minsky cycles. See here, for an exponential growth of the money supply.

Monetary theory seems to have fallen in disgrace. Very few academics actually focus on macro monetary theory as it is judged irrelevant. Austrians treat money as if it didn't exist. Keynesians barely scratch the subject. Ironically I had to read marxists to actually make sense of the banking system (critical eye I suppose). Yet the macro cycle, the minsky cycle, receives a huge contribution from monetary levels. As monetary mass increases (say subprime debt) the price of assets run-away in a positive feedback loop (more debt, more money, more expensive assets, better returns, more debt). This is why the initial phase of a monetary minsky cycle is such a political aphrodisiac. Open the money valves and watch your economy grow in nominal and real terms.

It is of note that the mechanism for fabricating money, takes root in the "power-money" emitted by the FED, but really is multiplied in the banking system. It is also of note that traditional, money multiplier models are false in practice. In practice the banking system emits debt and then balances books at the FED with reserves. By regulation, that level of debt should not exceed a certain ratio of capital and reserves. However with credit derivatives such as CDO, the banking system has avoided regulation enacted in the language of accounting of balance sheets by going "off-balance sheet" with derivatives. This in itself wouldn't be a problem, it is in fact a good thing, if it wasn't for the fact that macro monetary levels are out of anyones control. In that context, the private sector, responding to quarterly demands of performance will run the system amock on the way up, and the public sector, responding to 4-5 year terms, will not dare tamper with the system. The system runs unchecked, creating the macro minsky cycle.

So in a way, a monetary link appears between keynesians and austrians. A monetary expansion will create a minsky cycle. Within that minsky cycle (40 years), classical austrian cycles appear (4-5 years) and all the while the government is free to spend (reagan/bush:defense, obama: healthcare) acting both as a catalytic and a stabilizer to the private sector cycles.

The School of Life

2010-09-05T10:40:00.000-07:00

This week and next are back-to-school weeks for my children. They are spread out between two different schools. While the children haven’t changed schools, they have moved to different campuses—in both cases much larger ones. For me this means figuring out new areas of town, new buildings, new bus routes and stops, plus the usual parents’ meetings and the inevitable checklist/scavenger hunt for the items requested by their teachers.

My daughter, especially, is apprehensive about beginning middle school. She went from an elementary campus with two classes per grade to a preschool-through-12th grade facility with 5000 students. Last year she was one of 25 kids in “Valerie” ‘s class. This year, there are 11 homeroom classes in her grade and hers is simply designated by a letter and a number.

I asked her how the first day of school was. It seems she spends a lot of time trying not to get lost. She likes the novelty of having an electronic photo ID for the cafeteria and being able to choose what she eats, she says two out of her 6 teachers seem nice, one teacher is particularly concerned that the children display appropriate manners and respect for authority (which is fine by me, but the form this takes seems excessive to her), another teacher has berated her for fanning herself during class (it is very hot in Spain in September and none of the children’s schools has air conditioning—fans in Spain are a common and useful accessory for women), she describes being separated from friends by a plume of pushy 8th graders on the courtyard. I mentally picture the courtyard in “Prison Break”.

Already I have failed her. I rented her school books from the parents’ association, but did not pay attention to the last-call date for sign up and payment. Because I signed up late I could not pick up the books until the last day when half the books were missing and many of the ones left were in pretty sorry condition. She says her teachers will berate her for not being prepared and not taking care of her school material. Even though the parents’ association lady assures me the teachers are used to this situation and understanding, my daughter doesn’t believe it. I tend to agree with her. I remember my own experiences with secondary school teachers, especially those that reigned like absolute monarchs over their classrooms. Such teachers could be arbitrary and cruel.

One such pedagogue was my fourth grade parochial school teacher. Mr. G. was not unusual in arranging his students’ desks in alphabetical order; he was unusual in that he called his students by their last name. There was no Mr. or Miss in front of it either—simply “Mason” barked out military style, generally in a tone of voice indicating strong disapproval. Mr. G had military affectations—no doubt adopted to inspire terror in and consolidate his power over the child. Only now, as an adult, can I see how unsuited he would have been to any military environment involving interaction with grown-up peers or superiors.

These were the days when nobody seemed to care about children’s fragile egos. When I asked him once about a C grade I received on a science project, he responded with—“Oh, you’re the one who turned in that piece of crap.” If you had any particularity, you had better hide it from the watchful eye of Mr. G. One of his favorite sports was singling out those children for special humiliation. I remember one girl in our class who blushed easily. Mr. G used to stand her up in front of the class and he see how long it would take her to blush. The highlight of Mr. G’s year was a spring project he called “Real Life.” He introduced “Real Life” with gusto: “Now kiddies, you may think life is coming home from school and having your Mommy fix you cupcakes. Well I can assure you, it’s not. What we’re going to learn about next is ‘real life’.” He then explained that our project was to assume that we were getting out as enlisted personnel from the military and that we had no special job skills. We had to look at the want ads in the newspaper and find a job and apartment.”

Even now I have nightmares that I am back in middle or high school and the bell has rung for class and I can’t find the right classroom, or I get to the classroom and everybody else has started a test and I cannot even begin to answer the first question. I remember desperately looking for the familiar face of a friend amid the sea of people in the cafeteria. I remember the excitement of that special Friday in the month that would be “little round pizza day”. I remember the official rules—there is an honor code where you are obligated to report any transgression of your peers and I remember the unofficial rules—people cheat, they often get away with it, if you turn in your peers you might as well move to another school in another state because your name will be social poison. Your teacher may be a cruel, sadistic tyrant but God forbid you go above their head and complain about them to the administration or, worse yet, ask your parents to do this. Maybe receiving negative grades on their papers (according to a system where a certain number of points are deducted for every transgression against English grammar and composition—thus the end-game is limitless) is not very morale enhancing for children, but getting the class lecture afterward about “how little we respect certain students who must not be named who go whining to authority to complain about their teachers” is worse. Oh and those school elementary school projects, those aren’t projects for the children. Those are contests for the parents…not to mention the little girl who will dig up her dead and buried dog and label its bones in order to win an elementary school science fair--that’s the kind of person who will do anything to get ahead later in life.

Like most people, I had some truly wonderful teachers who believed in and nurtured my potential. I had others who prepared me for “real life”…

Frank-Dodd: public markets for derivatives

2010-08-31T14:45:00.000-07:00

So, see here for a modern explanation of why OTC (over the counter) derivatives are a bad idea (tm).

It is taking for ever to unwind the mess of derivative contracts within Lehman (remember?). So FD regulation does offer a standardized platform that is measured.

That would clearly enable a quick unwind of positions in the case of bankruptcy. And that is a good thing.

Quantitative Easing round 1.5

2010-08-27T10:17:00.000-07:00

There is a lot of talk and angst about QE lately. There is a long thread over at naked capitalism where I actually participate. See here. The gist is:

“QE will weaken the Fed’s balance sheet, and undermine confidence in the institution.”

QE in 08/09 has been applied. Basically the FED prints money and buys stuff. Note that this is no different from how the modern banking system works. Banks create money out of thin air (that is the money multiplier) and PEOPLE buy stuff with it. Market centric wisdom says that markets will allocate that money to the most productive use. SO let the banks create money, lend it and let the people make the smart decisions.

Problem is that lately the people have been buying mc-mansions, HDTVs and sports cars. And here we have a clear example where "markets" just fall flat on their faces. I hate to say this, but it was better when Reagan was spending money on defense or Obama was spending money on healthcare. Sometimes the people are just hedonistic retards.

QE 1.0 was a success in that it provided liquidity in markets that needed it most and avoided a death spiral of illiquid markets and plunging prices (what happened in the great depression). The FED have tried to get the markets off the QE and they are throwing a tantrum... we may be looking at QE 1.5

US Memorial Day, American and European approaches to patriotism

2010-06-01T07:13:00.000-07:00

My children asked me what Memorial Day commemorates. Like many Americans of my generation I never gave Memorial Day much thought beyond associating it with a day off work, barbecues and the beginning of summer. While I had a feeling it had something to do with honoring Americans who had died in wars, I didn’t know the exact answer so I looked it up in Wikipedia, where I learned that it was

« First enacted to honor Union soldiers of the American Civil War – it is celebrated near the day of reunification after the Civil War – it was extended after World War I to honor Americans who have died in all wars. »

The Civil War origin is interesting because, for Americans, this was the most devastating war we have ever fought in terms of American casualties ; the only war since American Independence to have been fought on our own soil and the only war to have significantly impacted American civilians.

I was touched to see many of my American friends on Facebook post pictures of tombstones of their parents or grandparents who had served in the US Armed Forces, kind of exotic too because, in Europe, I have not detected much patriotism or pride in military service among anybody of my generation (children of the Baby Boom). I wonder if this does not have to do with the shadow cast by World War I, World War II or the Spanish Civil War (not to mention the relatively recent independence struggles of many former European colonies). In my children’s British school, two of their required reading books have been about the Blitz and I spent yesterday evening helping my fifth-grade daughter study for a history test on World War I—and was struck by the total of 9 million dead.

I remember an argument with an American boss who was very critical of France’s quick surrender during WWII. I responded that I don’t think they had much will to fight after World War I. Contrary to Germany, the major WWI battles were fought on their own soil. My grandfather, who fought for France in WWII, spent most of the War in German prisoner of war camps, which got progressively worse each time he escaped, marking a progressive descent into Hell. In a perverse way he did not resent the Germans, despite the inhumane living conditions and sadistic practices of the guards in Rawa-Ruska camp in the Ukraine. He felt that they were « just doing their job », whereas he reserved his true ire for his fellow Frenchmen and prisoners of war for their lack of will to fight, for not trying to escape from the POW camps and most of all for turning him in every time he escaped, resulting in various punishments ranging from solitary confinement to having his eye lashes burned off. The most psychologically damaging element of this experience came from witnessing the treatment of people who were far worse off than he. This came about when he and fellow Belgian and French POWs were used to unload train cars, filled with the near-dead occupants being shipped to a nearby concentration camp.

The war ended, my grandfather married my grandmother and they moved to the US, but the memories of his POW experience stayed with him. My uncles describe how he would toss cigarette cartons to the prisoners working along the road in chain gangs in the Rural South of the 1950s. Having been a prisoner himself, he sympathized and knew that cigarettes are their universal currency. My maternal grandfather loved his adopted homeland (he had to reaquire American nationalilty even though his father was American, because he had spent most his life in France and served in the French army during WWII). He became quite the patriotic citizen, inspiring his two older sons to volunteer for military service during the Vietnam war.

To the extent that my grandfather chose to leave France after WWII and immigrate to America and had very ambivalent feelings about his experiences in the French army during WWII, I can see why my experience of patriotism differ drastically from European counterparts whose grandparents lived through World War II or Spanish counterparts, whose grandparents grew up in the aftermath of the Spanish Civil War.

The European Union has always felt like a pragmatic union to me. Pragmatism works great when « the rising tide is lifting all ships » but is a hard rallying cry in tough times when people are asked to make sacrifices. Then it gets all to easy to focus on differences and who is not « sacrificing enough ».

It has always seemed to me that nationalistic identification with any one of the European countries is something you are or aren’t born into. It has to do with the fact that your ancestors lived in the same place for many hundreds of years, alongside other people who share a common culture and ethnicity (Although this is changing with more recent waves of immigration…)—a real challenge when you try to build a union among countries, who were fighting each other and themselves 70 and 80 years ago.

As far as a pan-European « identity » among people my age, if it exists, I’d be hardpressed to define it. Patriotism is seen as sort of an embarrassing relic of and painful memory from their grandparents’ generations. The social welfare mentality leads to a lot entitlement regarding what the state should be giving them, but (like many of their generational American counterparts) not so much interest when it comes to giving back. Compulsory military service has mostly been abolished and I don’t see any real respect for voluntary military service here—the general idea seems to be that if you are smart, you choose to earn a lot more money in the private sector. On the other hand, in Europe, going into politics and public administration is seen as a more prestigious career choice than in the US…

One way I do not see a major difference with Europe is my (Gen X) and the following, Boomlet (1980 and later), US generations’ tendency to feel like JFK’s « Ask not what your country can do for you, but what you can do for your country » failed, along with a lot of the other social ideals of the 1960s—and to full-heartedly embrace a much more 1980s Boomer ethos of individualism and consumerism. However, when I see the Memorial Day Facebook posts I can’t help but wonder if the US, as a much younger country whose inhabitants may or may not share a common ethnicity or past cultural heritage, does benefit from the fact that we have a national identity that is based on choosing and being taught to reaffirm a common set of values. As for the economic crisis, having a strong, federal government definitely makes it easier for the US--a federal government whose structure and integrity we had to fight a Civil War to preserve…so all in all, interesting for me to learn that the origin of Memorial Day was US reunification.

Facebook "friendbore"?

2010-05-14T10:37:00.000-07:00

It could be you!

As a frequent offender in this category, and parent of a 'tween child and all the drama that entails, I was telling my husband how schools, or preferably parents, ought to introduce their children to the finer points of "How Not to be a Cad on the Internet".

My husband said: That makes me think of something. I used to have 405 Facebook friends two days ago and today I only have 403.

Maybe they really weren't your "friends" in the first place.

Yeah, but to get unfriend-ed by two people in the space of two days?

Well, didn't you accidentally befriend that person who mortally betrayed us in business because you used the Facebook Email Addresses Ap (and you had forgotten they were still there)? They agreed to friend you and then you "unfriended" them within a space of minutes. That was pretty cold.

(Distracted) I'm still wondering what I might have done recently.

Maybe you're one of "those" people.

What people?

"Friedbores," you know the number one most boring person in your Facebook "news" page. The one whose posting frequency is only matched by the inanity of their subject matter.

Noooh!

Who knows. Maybe you tweeted a few floaters recently and that was it. Problem solved, instant erasure! And like that, you're gone.

Of course, I only thought about this because I worried that the same thing was going to happen to me after a few of my status updates...

Ah the age of technology, when you can go from friendwhore to friendbore in a matter of seconds.

Trichet in Greek Squad ECB

2010-05-10T07:10:00.000-07:00

So the inevitable happened, Trichet punched the nuclear option and went all QE on the problem of Greece.

For those of you who have real jobs and want the "here is what you missed last week", Greece has been living high off the hog for a long time, their tax bases evades, and they are about to default on their sovereign debt, because the cost of rolling over is too high.

You can either default, adopt a fiscal solution (raises taxes spend less) or go for a monetary stimulus. Fiscal solutions are tough politically. On one hand you have germany and my wife who state that it is their own damn fault because they are pigs. And on the other other you have the grownups, like france and myself, that think that losing the euro over 2 bit wishy-washy philosophy show a remarkable lack of understanding of how modern money works. Meanwhile the cameras focus on the burnt cars, the rioting in the streets of greece, the banks on fire to the shout of "thieves", the dead.

The monetary solution went something like this in the US: print money to buy CDO debt. Get markets out of negative feedback loops. In europe this means "buy govt debt". Except if you do you must buy everyone, to not show preference to any one country. My guess is that the package is so big (T size) because you have to buy everyone. Also, if push comes to shove, I think it will be the greek problem that will be targeted at lower cost to the community. A wall of liquidity is stabilizing this market, yet again. The hope from the ECB of course is that "shock and awe" will calm everybody down. By showing a 1T commitment out of the gates, it is saying very clearly "don't fuck with us". And so the vultures back down.

meanwhile the euro gains 2% on the news. Like the USD, it rallied in spite of its QE... it was good for the economy. Go figure...

In the meantime a bunch of "arbitrageurs" have made a killing. A market panic can be an engineered thing and this is how I heard the official communication that they were looking into how the trades were originated. Some equities and debt were trading on the cheap late last week and as of this morning there is a monster rally. Equities are untractable. Bonds however may have been manipulated. A blocade on a sovereign for example is enough to trigger the meltdown we have seen on greece. Who's next? Will there be a next with this intervention...

Keep the "crazy" under control

2010-04-26T03:51:00.000-07:00

I have an (almost) eleven-year old girl and three boys, twins aged 7 and a 3-yr old. Honestly, most the time, I feel like Lynette from Desperate Housewives. Hearing my 3-yr old son sing “I love my mudder” at breakfast in the morning or the evening cuddle and prayers with the children—the one moment of the day when they resemble anything close to angelic--are all too brief. Mostly my day is like this:

Go onto the Internet to see if the crusty raised bumps in a circle on Twin A’s arm are ringworm. Educate myself on what ringworm is and how do you get rid of this. It turns out ringworm is a fungus and an over-the-counter antifungal cream at the pharmacy will take care of this. Of course you have to remember to put it on every morning and night for about 2 weeks to get results, in the meantime, he’s developed a new “ringworm” on his leg. Crap! More weeks of remembering to put the ringworm cream on Twin A, especially now that we are in later Spring, and I have to remember to put sunscreen on my fair-skinned children’s faces, arms and necks every morning.

Two years ago, when I had to take my daughter to the dermatologist to get rid of some pesky warts (that cream had to be applied morning and night for two months!), the posters of little baby with wrinkled granny face and melanomas or the toddler walking on the beach in swim trunks—with a header like “That tan he got at the beach when he was two is something he’ll keep with him for the rest of his life” made a real impression on me. The dermatologist explained to me that the “freckles” on the kids arms and faces are sun damage. My half-Spanish husband thinks my sunscreen obsession is complete horseshit. His mother and sister have never used a drop of sunscreen in their life and laugh about the British tourists in Mallorca—“Look, they come in two colors: Just arrived and just burned!” I would have loved it if our children had come out with more of a Mediterranean complexion, but considering three of them are as Melanin-deprived as I am, there must be some recessive fair skinned Galician Celt or Vosgeian French genes in the woodpile from his side of the family—so I wish he would be more supportive.

Back to the Internet to do more research, this time on impacted splinters. The 3-yr old got a splinter 6 weeks ago and I don’t think we got all the wood out. Meanwhile, he has a thick callous with a pinprick-sized hole on the bottom of his foot. The suggested remedies run the gamut from “put a piece of bacon on this under a Bandaid and leave it overnight. In the morning it will come out.” To a recommended intervention, cutting the callous out with a sterilized exacto knife. A lot of input from professional carpenters on the different reactions you get based on different types of wood splinters. None of this seems relevant or within my skillset. I talk to my husband about the splinter and the fact that my hairdresser almost died from a staph aurea infection he got in his foot and I guess I should probably call the pediatrician to get it out and he says: “You’re not seriously going to bother the pediatrician to remove a splinter. I had a splinter once for three years.” I retort: “You’ll regret this lack of concern when the baby gets deadly ill with a staph infection,” to which he replies: “Do me a favor keep the crazy under control.” Wickedly, I think how low I can go to win the argument: “How do you know you’re not crazy. I mean, truly crazy people never think they are?”

Why Can’t I be More Like…?

Alpha Catholic Mom: The woman at mass with her six beautifully behaved, children in coordinating outfits, politely listening to the sermon. This is the woman with the beautiful embroidered First Communion banner that looks like it was handmade by Belgian nuns, but of course she did it herself, not to mention she’s actually got her hair-brushed and looks well put-together, herself. Meanwhile, I’ve pulled my wet hair back because I haven’t had time to dry it, have screamed at the children three times that morning to get them dressed and out the door to church on-time, overcome the challenge of getting them past my anti-clerical, unreligious husband who asks them if they’d rather play video games Sunday Morning than talk to “Dear Baby Jesus”—ensues “Talladega Nights” Ricky Bobby impersonation. Once in church, my daughter gets up once to go to the bathroom, the boys making paper airplanes out of the hand-outs, tell me they’re thirsty and ask when it will be over at various points.

Or

The Stepford Wife. The Stepford Wife is tall blond, slender and attractive. It would be easy to hate her, but she is also smart, has a cool sense of self-deprecating humor, and is absolutely nice to everybody. The Stepford Wife is very stylish. I bet she never spend the whole day in work out clothes…and then doesn’t even work out. She may have 3 or more children, but they do not seem to stress her out overly much. I never hear her complaining about the children, or if they do, it’s in a light-hearted way. I bet the Stepford Wife is never riding in a minivan (she’d rather be seen dead) and turns to her children who are fighting in the back seat and says something like: “If you don’t stop fighting with your brother right now, I will a) take away your TV and video-gaming privileges for the week b) no dessert or sugary snacks today c) I will slap you! The Stepford Wife is still pinching herself to verify her good luck at being married to her husband—the dear man. I’m sure she’s never screamed at him with vocabulary that would shame a fishwife from the top of a ski slope or had conversations that revolve around whose turn it is to clean up the dog vomit. My husband wonders a la “Jesse’s Girl:” “Why can’t I find a wife like that!”

I think of a Facebook cartoon that somebody once posted:

Male Prostitute (for women!)

You see a housewife driving by in a stationwagon and a man soliciting her: “For $50 I’ll listen to you all night.” Ha, ha, funny in a disturbing way, because it’s so true. The retort would be the old saw about:

The Woman Who Goes to a Fairy Godmother

…and says: “I don’t want to cook any more; I don’t want to grocery shop; I don’t want to be the one who always has to remember the children’s schedules and drive them to doctors, dentists, birthday parties any more, I don’t want to do the dishes or clean house, I want more pay for the same work…” And then the fairy godmother waved her magic arm and the woman turned into a man.

Like everything, this is a gross over-simplification, because I have other Facebook friends who are stay at home dads, who do every task I listed in the fairy godmother joke and others who clearly are doing a lot to participate in running the house and looking after the kids. I think the difference is being the person who has to organize everything in their head and make sure it gets done, even if other people are helping out and the person who can check out of most these responsibilities, confident that everything to run the household and take care of the children will get done, and if you have something to do, someone will remind you to do it, so you can whole-mindedly devote yourself to some creative or professional endeavor for hours at end without having to stop and write a post-it-note saying something like:

“Remember to call the orthodontist” because the dog ate the daughter’s retainer. “Call the drycleaners and schedule a pick-up”. The clothes are piling up and you need to make sure they haven’t fired you as a client because you can never be there in the exact moment in the 4 hour time window they actually show up to pick up the clothes, “Buy birthday present for Twin B’s friend.”

I finally decided to be “cool mom,” which means buying other children the toys they want, but you wouldn’t think of buying for your own children--for very good reason. I was interrupted from whatever I was doing this weekend by Twin B hyperventilating and wailing like a stuck pig because he had taken down the Lego creator set I bought for his best friends’ birthday party from it’s high, safe perch to “look at it.” Then, his baby brother found it and wreaked destruction. Now, for the uninitiated, Lego Creator is your basic parental nightmare. It is a creative toy and if Twin B ever goes to Caltech or MIT, I can feel a touch of pride that he ultimately, inadvertently got the Lego Creator set he always wanted. Why do I hate Lego Creator? It is because the sets come with a quadrillion tiny, unique pieces that a) your child loses within minutes b) the baby brother steals c) the dog eats (hopefully you don’t have take the dog to the vet for the $1000 operation to unblock his intestinal tract afterwards—thankfully baby brother is 3 now and doesn’t try to eat the tiny pieces)…and then you child comes wailing to you: “Waaaaaaaaaah, I cannot build General Grievous because I’m missing blah, blah (miniscule and indescribable) connector piece.”

Deep Thought: Since when do first graders have 2 hours of homework on the weekends? That is such a drag to supervise. It’s like your 38 and back in school. When I was a kid I didn’t have real homework until third grade; I didn’t put any serious effort into “remembering” to do it until fifth grade; and my parents role was limited to occasionally asking if I had done my homework.

These days when your first-grader has homework: “It’s your homework!” Of course you could leave it to the child to take initiative (at age 7) and remember to do it himself—which if you have a normal child--you can forget about. Take into account, that everybody else’s parent is helping them with their homework, so if you just left it up to the child to “learn a lesson in responsibility”—the teacher is clearly going to think your kid is a loser, with slacker, loser parents who will be really sorry when their child graduates from high school without even being able to get into community college.

Mother-of-Four Children-Under-the-Age-of-12 Fantasy

Sleep away Obedience Camp for Children: I see this as a sort of military themed spend-the-night camp run by former army sergeants, with beneficial activities like 6 AM forced marches and runs to wear the little buggers out, and other group activities to teach them the value of team work and discourage whining tendencies. If only there was a place where you could send your kids off for a month and have them shipped back to you as responsible, considerate, self-motivated, empathetic human beings—future responsible citizens, progeny who will do you proud! This is no doubt a Heinlein “Starship Troopers”-inspired fantasy that highlights my inner, Southern conservative, militarist streak.

GS and systemic instability: monetary theory.

2010-04-21T02:14:00.000-07:00

One of the fallouts I expect from the ongoing GS vs the rest of the world saga, is a huge inquiry in the mechanisms of modern debt creation and a revival of modern monetary theory.

Naked CDS or the collapse of the quantum wave

In theory you can price a CDS by knowing the probability distribution of the underlying security. It can be a bell curve or standard distribution or it can be anything. The point is that we have historical data to generate a distribution, however sparse, and in retrospect incorrect. One of the academic criticisms to the current pricing techniques is that they assumed distribution curves that did not account for fat tails. A spot price accounts for the future rate of defaults, your premium has got to cover that and your profit.

But essentially you are still speculating about the future by assigning probabilities to differents "states". Paulson knew that the weight assigned to "meltdown" was too low, he could see it coming. The discounted weighted average of future cash flows can vary wildly based on your assumptions. The current "un-observed" cash flow in present value form reflects the average you put in. This lingo, though familiar to investors is mathematical in nature, captured in the formal framework of Banach and Hilbert spaces and differential geometry. It is also common place in quantum mechanics.

Quantum mechanics makes use of this framework in a very intuitive way. Essentially "reality", or the state a system finds itself in is a sum of possible states. This is not some wishy washy religious non-sense this is hardcore observed photon reality for example. While un-observed a system remains in 'super-position" or "coherence". For those familiar with the Schrodinger cat, now is the time to remember him, the cat is in "super-imposed dead/alive state" until observed, by you. The act of observation, triggers a wave collapse, where "reality" as *we* understand it is essential is essentially one classical wave. This *wave collapse* onto reality is triggered by observation and is a catastrophic, one-way event. This is decoherence.

The study of decoherence is a topic of quirky research and a frontier in modern physics.

Collateral positions on CDS track decoherence.

One of the assumptions that many frameworks do is that you can alway rebalance a collateral position fluidly and continuously. I will show how this assumption fails in the case of large naked CDS.

A CDS is a quantum mechanics state in that it is the sum of future possible worlds in cash flow form. We may model a 15% default rate in a bond. That means, for the payer, a model that says 15 are out in cash flow, on average. But "average" is not reality, in the event of default it is a 100 that needs to be raised, not 15. This is decoherence.... you may read 15 but the contract, when realized or triggered says 100. How do we manage the transition in real life? from 15 to 100? through the use of collateral requirements.

As the bond gets downgraded to default, the collateral requirements are raised so that by the time "one wave reality" hits, it is 100% of the cash needs that have been posted. In this way, the process of decoherence (collapsing from a superposition to a single position in wave space) is continuously observed and MANAGED in contract.

Naked CDS decoherence as a catastrophic monetary event
By catastrophic, we mean "out of equilibrium", "one-way" (serious entropy reduction), non-continuous event, as opposed to a smooth event that is always in equilibrium or semi-equilibrium. Violent phase changes for example are out of equilibrium. A tower falling. Some of these run-away processes exhibit feedback loops, that is one way to get non-linear and unstable.

I noted in the previous post that regular CDS's are transparent from a monetary standpoint. A regular CDS is transfer of existing debt and risk between parties. It is a zero debt creation operation. A naked CDS however amounts to net new money creation in the system, in the most liquid form: cash. Because it is a CDS and indexed on bonds, it can also get quite big.

So back to our collateral. AIG is on the hook with GS. GS demands collateral because the sub-prime is going to shit. ACA is on the hook in front of Paulson. In a declining market they got to come up with cash, lots of it. But the problem is this: the numbers are getting really big. Raising that kind of cash to cover your bonds means trashing the equity markets. You unwind, you barf...

We are reaching a classic fisher moment, when "the boat capsizes instead of righting itself". ACA has got to go in a down market and liquidate, thereby creating pricing pressure and more demands on its collateral side. It is a vicious loop. A fisher moment. The fisher moment in monetary theory is in collateral dynamics of naked CDS. The monetary framework captures the difference between CDS and naked CDS. The monetary levels and liquidity requirements cannot be ignored.

A liquidity drain
The first sympton is a SEVERE liquidity crisis. As someone said in August 2007 in Barron', "no quant modelled the evaporation of liquidity in their models". But liquidity did evaporate following a forced unwind in the public markets. We had gone from shadow bonds to very public equity problems. It was just the beginning. The authorities were right to treat this as a liquidity problem in the beginning. It quickly morphed into a solvency crisis, where "if observed" the whole financial system would appear bankrupt. Of course the discussion went onto NOT OBSERVING the losses. This was the accounting wars around FAS 157 or the "mark to market" practices in reporting numbers: why sell? hold on to it! the market will recover!. A liquidity drain did trigger a wave of defaults, just like in the old times. The shadow banking system was under severe stress. Wholesale monetary funds broke the buck.

It was decoherence of the housing bets, that triggered liquidity demands that proved far too heavy for the international financial system. Ban naked CDS!

SEC vs Goldman, the saga begins

2010-04-19T02:34:00.000-07:00

It is of course all over the news. The US has decided to sue Goldman over the Abacus deals. I had predicted that one for a long time. The Abacus series was a bunch of naked CDS, they are finally attracting the spotlight as the nefarious instruments they are.

A primer on naked CDS and CDS

A CDS is an insurance contract on debt. If you have emitted debt (you are a bank or a particular lending by buying bonds) you can protect against the default of the payer by buying a CDS. If default occurs then your counterparty owes you the amount of the debt, usually to be settled in cash.

The Credit Default Swap or CDS is used everywhere in the economy. It is used as a way for companies to manage their operations. Risk transfer through CDS is a valid and useful economic tool. It has it's uses in everyday economic activity. It transfers risk. That is a good thing. So in the case of housing and sub-prime this reads that a banks can protect, dollar for dollar, its capital exposure to sub-prime".... we have not created debt just protected our existing capital. CDS transfers existing debt but does not create it. From a macro monetary perspective it does not count.

Naked CDS however creates debt, lots of it, of the bad kind. From a monetary perspective, it counts and a lot. As documented in the greatest trade ever book, Paulson, the hedge fund, not the treasury head, wanted to bet against sub-prime. The instrument he used to achieve this was the naked CDS.

Basically for a naked CDS, first you create a giant synthetic mortgage and second you buy protection on that. So they created baskets that REPLICATED existing mortgages, preferentially in the shitty sub-prime category. For every mortgage out there, they replicated it many times in these shadow mortgages. So on the one hand someone is long sub-prime (ACA), and someone is short subprime (Paulson). So when subprime defaulted, for every dollar that defaulted, the speculator made a multiple..

Not only did we create debt, we MULTIPLIED IT.

We have realized a debt that is many times the size of the original capital committed, in cash. We have created debt. In fact we have created bad debt. This is an instrument that takes a bad debt and magnifies, leverages, its effects. Are you sure you want that around in your economic system? The naked CDS is a bad debt multiplier. It shows up as a big red alert in monetary analysis.

The impact is a liquidity implosion in theory. Aug 2007 has been attributed by academics (Lo at MIT) by a large unwinding of a proprietary desk. Such unwinding can be triggered by a cash call settlement by Paulson et al. And the bottom line is that someone made a killing at the cost of the taxpayer, we have a massive recession on our hands and the beauty of it is that it wasn't even illegal. That may change very soon.

Enter Obama
Our super-president is emboldened by his recent cosmic achievements and has decided to take on the case. It may be a populist move, but it is a good one and a necessary one. The case against GS is simply made by publishing the email of the young frenchman in charge of selling the product. It clearly shows that "Fabulous Fab" as he refers to himself in the 3rd person, had not a single clue what he was doing. He understands the product enough to state that "we are creating massive amounts of toxic debt" in the system. He realizes the danger of the instrument claiming he will be the only survivor, hence the "fab fab". He stops short of wondering why it is even legal in the first place. Nice... punk-rock in a way! Here is some advice for the fab fab: RUN! RUN!

So this jack-ass makes for an easy scapegoat.... My guess is that GS will come out of this un-scathed. They did not do anything illegal. GS was a middleman in the deal and in fact claims to have lost money on the deal. They were slightly on the long end. There are other deals where GS was aligned with Paulson in the very abacus series that is being brought under the spotlight. Meaning they made a killing on the short side of subprime and every one knows it. They made a killing in fees by pushing toxic instruments. But it wasn't illegal. The case is clear.

I hope naked CDS will be banned.... but the case is juicy.

Thoughts on Health Care--In Between the Extremes

2010-03-22T08:27:00.001-07:00

I haven’t been following the recent health care debate very closely, but I’m glad that Health Care Reform has passed. I’m surprised to hear so many staunch Republicans complaining about “the way it was passed” considering their tactics, since the Clinton years, of filibustering everything; and then complaining about how this was not done with more consensus…

Living abroad, I am often treated to people’s uninformed opinions about the way “they”—we Americans--all are—overweight, ignorant, gun-toting, polluting, violators of other countries’ national sovereignty--extremists. What is most amusing, or distressing is the way people have of saying these things in front of you, as if you weren’t one of Them and might be insulted or disagree with your interlocutors. It’s not that there isn’t any truth in any of these assertions, it’s that such statements often reflect uninformed (or minimally informed) truth, issued from a very smug outsider perspective.

Let’s take the least polarizing and most personal accusation: “Americans are fat.” Maybe it’s our Anglo-Saxon hypocrisy, but if we have something negative to say about other people, minimal good manners dictate not saying this until “They” are at least out of ear’s reach. I was once told by an otherwise educated-seeming, middle-class French person that “Americans do not eat vegetables.” “Really, I said, have you ever been in the PRODUCE section of a Publix or a Safeway because they happen to be loaded with vegetables, which would be surprising if there was no market for them…”

Sometimes when people do travel abroad, a very curious thing happens: they have preconceived stereotypes of the “other” place they will be visiting (preferably exotic and different from their place, otherwise what’s the interest of traveling), so the purpose of the trip is to confirm these preconceived notions. The international traveler, with such an agenda, can be surprisingly successful. The person who is convinced that the US is a violent and lawless place will inevitably walk into a random Burger King in Los Angeles and witness a shootout. Meanwhile I, the American, have been to Burger King and other fast food joints in my life (and no I don’t and didn’t eat this food on a regular basis) and have never witnessed one gun or shooting.

I don’t know where this foreign visitor went (I’m not familiar with LA), but I assume it was a bad neighborhood. It wouldn’t occur to me to wander around the rougher Parisian “banlieues” (suburbs) as a blithe tourist. And, if I did such a thing, I would be honest enough to qualify where I was instead of identifying this as the “quinetessential French experience.” As for the weight issue, I do recognize and am saddened by the fact that, statistically Americans are overweight. However, the conversation is more interesting when people say something like—“weight and making healthy food choices are often a function of education and economics, and weight gain typically accompanies the rise of processed foods and the practice of working outside the house. Society-wide weight gain, while at a more advanced stage in the US, is a phenomenon currently affecting Most developed nations…”

Now back to social security and health care. I am always surprised to hear so many Americans proclaim: “We have the best health care system in the world.” Most of these people have never lived Anywhere Else in the world. They often rely on statistics and articles that support how bad it is Everywhere Else. This is no substitute for actually having lived Somewhere Else and being able to compare.

I am not a statistics person, and I don’t have any political agenda. These are some simple points that have impressed me living both in the US and abroad:

Spain—

We have private health care insurance here that was very easy to sign up for. The only reason its cost is comparable to private (non-employer affiliated) PPO health insurance in the US is because it is a world-wide policy and will reimburse us 80% of any health care expenses incurred elsewhere, but what makes it expensive is the US portion of the coverage….If this policy were limited to Spain, it would be a Whole Lot cheaper. To obtain this policy, I did not have to fill out any questionnaire on pre-existing conditions or list all the medical or hospital visits my family have had in the past five years.

When my children are sick and I go to the children’s emergency room, I give the receptionist my insurance card and my child’s name—punto y basta. I do not need to call up the insurance company to get any approvals if the emergency room doctor recommends the child stay in the hospital.

My children’s pediatrician gives me his cell phone number That He Will Answer and will visit our house (non-emergency house visits by non-network providers are reimbursed up to 80% by the health insurance) when the children are sick.

I haven’t tried this, but my American friends have. You can also get a family practice doctor to visit you at your house if you are sick and don’t feel well enough to go outside. They said the cost of this was around 100 euros and also reimbursable at 80% by their insurance.

We are not eligible for Seguridad Social (social security) because we do not work for a salary in Spain. Illegal immigrants are, however, eligible for Seguridad Social. They are given a card and affiliated doctor and hospitals and can use the system for non-emergency related health-care. Most Spanish people I know, who can afford it, have private health care insurance, either through their employer or for which they pay, privately.

Yes, they all complain about Seguridad Social—the waits and the difficulty of seeing a specialist or getting very individualized attention, but the key point is that it is there. I am sympathetic to the Spaniards’ complaints about Seguridad Social, not so much to the complaints from illegal and recently legalized immigrants. I don’t say it, but what I am thinking is: “You come from a country that could care less if you die in the street like a dog. So no, I don’t give a damn if you had to wait a long time in line behind a bunch of old Spaniards to get your health care. Those people have been paying into this system for years…Suck it up and be grateful for what you get because in my country, nobody gives you shit for free.”

US

Most aspects of healthcare visits take place with the nurses. Any contact with the doctor is very brief. Some practices have an emergency call number where you will first talk with a call center employee or a nurse. If they deem it necessary a doctor may call you back.

Any stay in the hospital involves and lengthy and often complex pre-approval process with the insurer. You want to make sure you correctly understood this process or you may get stuck with the bill.

If you are checking into the hospital or need to go to the emergency room and are not spewing blood on the spot (in which case the friend or family member who brought you will be doing this), expect to spend 45 minutes just filling out forms explaining who your Primary and Secondary insurers are and all their contact information and absolving the hospital and its personnel of all blame if they should accidentally feed you into a wood chipper and cut you to a million pieces. If you have insurance, expect a bill that can range from the hundreds to thousands of dollars, depending on your co-pay and deductible. If you do not have insurance and should need emergency hospitalization and advanced medical care in the US, you can wind up with a bill in the hundreds of thousands of dollars. To add insult to injury, considering you or your family member is in whatever stressful condition that sent you to the emergency room in the first place, and you have just spent close to an hour filling out forms before you can even receive treatment, there is one last step. You must then interact with their “patient care consultant” to “make sure that your hospital processing is going as smoothly as possible.”

Getting Health Insurance when you are self-employed

If you do not have access to insurance through an employer or professional organization, expect to fill out a very lengthy questionnaire and answer questions about every doctor’s visit, hospital-visit and surgical procedure every person in your family has had in the past five years. If they deem that you are too high-risk, they can refuse to insure you and you will find yourself without insurance in the country with the highest cost of health care in the world (see above for the hundred thousand dollar bill).

When we were just starting JBoss, we had family health coverage through my former employer’s COBRA insurance (much higher than what we paid when this was subsidized by my employer—probably about $900 a month for two adults and a child). Three months away from end of the 18-month obligatory COBRA coverage period, I decided to shop around for a health plan that would cover our small company (just my husband and myself at that point). In the meantime, I became pregnant with twins (and no, this was not the result of any fertility treatments for you crack-pots that think that this was interfering with God’s Plan). I was not just a pregnant woman, I was a pregnant woman with twins, which put me into the High Risk pregnancy category because twins are very often born early and can require very expensive NICU (newborn intensive care unit) hospitalization for a few days to several weeks. The insurance broker was doubtful about finding anybody who would cover us.

At that point, I wondered where I had gone wrong in life. I had gotten a higher education; I worked hard. I considered myself a responsible person, I hadn’t even really waited to the last minute to obtain new insurance coverage and here I was--at risk for falling through the (in the US, practically non-existent) mattress that cushions your fall to the bottom of society—potentially with no health insurance or exorbitantly priced health insurance and the possibility of tens of thousands of dollars worth of medical debt. Things worked out for the best and we did find an HMO program that would accept us and the twins were born at a healthy 8 months, with only one of them requiring a two-day stay at NICU…but there were no guarantees things would turn out this way.

I consider the US to be a very favorable place to become an entrepreneur. Until recently, this did not apply to anybody who (they or their immediate family members) may have an existing medical condition that makes you undesirable to private health care insurers. I know talented people who could not ever work for small start-ups for this reason.

The procedure

This is how the free-market health care system works. Two years ago, I had to have a medically necessary procedure. I had private PPO insurance for which we paid quite a bit, I was sure this wasn’t going to be a problem. The first thing I learned is that Those Doctors Who Can Afford It—which is often to say the good ones—do not choose to affiliate with Cigna or Aetna or Blue Cross or whoever your “premium” health insurance provider is. These doctors may not necessarily have gone to medical school and become surgeons just so they could be driving Maseratis and living in multi-million dollar houses. On the other hand, they want do not want a health insurance bureaucrat, who is not a doctor, telling them how much they can charge or dictating what kind of treatment they should be giving to their patients.

The procedure was quite expensive and Cigna paid for far less than 80% of it. When you sign a contract with a US health insurance provider, what that “80% out of network coverage” really means is we will pay "80% of what we think your procedure should have cost" out of network. Expect to get lots of bills later down the road from the doctor and hospital when they get lesser reimbursement. What I learned? Cigna and I’m sure they are not the only health insurance company that does this, automatically doesn’t pay a chunk of your bill—on principle. I don’t know what the statistics are on this, but I’m sure 50 to 60% people will stop there and not appeal. If you are successful in your appeal, as I was, at that point they will pay half of what they didn’t pay before, but still a lot less than the 80% you were counting on. Maybe more intrepid people successfully go on to a second appeal; I stopped there.

If you think that a lot of doctors don’t want to affiliate with your health insurance carrier, guess what? Many of the good ones, or at least the ones who seemed to have taken the “bedside manner,” course in medical school—Really don’t want to affiliate with Medicare…which you will find out if you happen to have parents.

If you need private health insurance and have had any surgery in the past few years for something they considered a risk, even if whatever they operated for turned out to be benign—expect to automatically be denied health coverage.

So don’t tell me that health care reform is going to “break” our marvelous system. As far as I’m concerned—it isn’t exactly that marvelous and it’s already broken….Yes, I know that other systems aren’t perfect and have their faults as well and that there are a million different technical points you can argue. However, considering that the current free-market American system does not provide all my family members with health coverage, and, for most of my life, I was in the position of this being a Major Problem, I’m going to suck it up pay for this.

For all of you people whingeing about the way this bill was passed, you know what? The rest of us are stuck paying for the Iraq war, which we entered under false pretences, and the ongoing Afghanistan war, which looks like it’s going to be another Vietnam. We’re stuck paying for the bail-out of the financial system, when most of us had nothing to do with the abuses or obscene payouts going on there…so welcome to our world.

Novell turns down $2B offer...to be continued

2010-03-22T03:04:00.000-07:00

So let's see if I can summarize the Novell thing as i understand it.

a/ The offer is from a hedge fund
b/ the offer is 50% above EV
c/ the offer was turned down

c/ can be written off as a mere negotiation step. The board is rejecting the first offer on the table. What else do you expect them to do? There is nothing to see here and I would still put the odds very high on Novell is a sell.

I have met Hovsepian, the CEO. He is a decent enough guy and the last time I saw him, he was quite serious about growing the novell franchise. And what a base they had, about $1B in cash. The market value of that company has been drastically undervalued for years. It is so bad that the part together are worth less than the individual parts sold off. So a 50% hike from EV is nothing to sneer at but it is not as generous as it first may seem. By definition of a first offer.

Then there is the a/ part, namely that the offer is coming from a hedge fund. That is interesting, at least to me, from several angles. Ask yourselves why hasn't this company been taken out by now? Why a HF, why not an LBO private equity firm? Does the HF believe it can do a better job at breaking up and selling the parts? Does the HF have a long term plan?

It could go both ways... certainly if the EV is so under-appreciated, then breaking up the parts, is simple market arbitrage. HFs are notorious in arbitraging remote opportunities. Then the HF is turning a $300 profit or fee... An investment banker would make a 2% fee, the HF is going to collect 6%. This is a HF so it may be 2x leveraged... if the subsequent deals happen within the year then the return on capital would be 12%.... Fine, makes *some* sense.

If the HF is in the business of restructuring NVL and actually going for a long term play then that is interesting too. And more durable. Also the upside is much bigger imho. Novell was a public company. That constrains what it can and can't do under the tyranny of the quaterly reporting system. So fine, the company goes private, that is the whole basis of the PE industry. Behind the private curtain many good things can happen. Sell off the bad ducks, focus on OSS, go on a "small cap" (<$50M each) acquisition spree in the OSS landscape and try it again with a PR blitz... but that is just me, and I have no part of the deal, unfortunately.

Somehow, I wish I did... Whether what is in the cards for novell is a "wall street" movie ending where they get dismantled and the middle man collects the fee or whether it is to be grown again to come back roaring after what needs to be done, remains to be seen and is largely in this private equity firm hands. Part of me wishes it would be the second... we will see. In any case, I will be following the fate of this once great company with interest.

The Reluctant Skiier--Part II "Le Club"

2010-03-19T03:15:00.000-07:00

So many of our friends raved about their vacations at Le Club, that we had to try it out. First of all, an important distinction: there are two kinds of Club Meds. The swinging singles type—“Gala Swinga” memorialized in the cult French movies “Les Bronzes” (the tan ones) and “Les Bronzes font du Ski” (The Tan ones go skiing) and the family club med (basically like an all-in-one-vacation with built-in day-camp for your children). Note: Family Club Med is Not the place to meet somebody unless you are a GO, a GM in the market for nice divorce/es with two or three children, or the teenage children of a GM.

Both versions of Le Club have their own lingo, which seems contrived to my American sensibilities (and hey, we’re the people who gave the world Disney)…or maybe it’s because interacting with complete strangers in a vacation camp environment is not my experience of what the French generally like to do; however, considering Le Club is a cultural phenomenon in France, it must respond to some something they like. The main vocabulary you need to know is that the members are called GM (“gentil membres”, nice members) and the counselors (for lack of better translation) are called GO (gentils organisateurs). The head of the vacation village is called the “Chef de Village”—village chief. The club features dress theme nights and a musical every night after dinner (performed by the GOs). At Family Club, the musical the last evening stars Your Kids.

The genius of Singles Club Med hardly merits explaining. It is perfectly captured in the Gala Swinga theme song from “Les Bronzes” (“Bienvenue a Gala Swinga, il ya du soleil et des nanas, on va s’en fourrer jusque la…” Welcome to Gala Swinga, there is sun and there are chicks, we’re going to stuff ourselves up to here…” This is a parody of the actual club med theme song, which the GMs are invited to sing and line dance to in the evenings after the musical or in the disco. You wouldn’t think grown adults, perfect strangers up until a few days earlier, would want to break into a hokey camp-type song and dance, but a couple of potent “free” cocktails at the club Med bar, and the ambiance of the Club Med Disco can change your perspective there.

The genius of Family Club Med is the realization that vacation with Your Kids, is not always a vacation. This is even more true with a family ski vacation, where the convenience of an all-included formula for ski lift tickets, hotel, meals, entertainment, adult- and kids-group ski classes and onsite equipment rental are a real selling point. You drop your kids off at Le Mini-Club at 8:30 am and don’t need to pick them up until 5 in the evening. Two hours later, you can also drop them off for dinner and after-dinner activities with their friends.

La Bouffe

There is a hierarchy of Club Meds, ranging from 3 to 5 tridents and the meals are all served buffet style, with many options to choose from (including a hamburger, fries, pizza and pasta kids buffet). The French habitués complain that the quality of the food has declined in recent years. The quality does vary according to the individual dishes. I'm not a big fan of their sushi or the buttered??? bacon at breakfast - habitually undercooked slabs of congealed fat. However to your Anglo-Saxon palate (see kids’ buffet), an après-ski snack of oysters and champagne, and foie gras at dinner is a tremendous improvement over cheesy fries. The cheese, for that matter, tends to be melting slabs of Raclette. To the uninitiated, this might smell like fermented gym sock; however after a long day skiing, accompanying potatoes and viande des grisons, it tastes like Heaven. Another note: Unless your are gifted with super-human self-control, reminiscent of Jane Fonda in her anorexic period, Le Club is not the place to go to lose weight.

Another word about dinner: as an American, packing for a ski trip, features two types of clothing—items made with lycra and items made with polartec. At Le Club, French women still dress for dinner, so unless you want to be stuck recycling your one good blouse and sweater over yoga pants like I did every night, pack a few nicer things.

Les Francais

The biggest shock, as an American in French ski resorts, is the different cultural perception about waiting in line. For the American, the ability to form an orderly line and wait your turn is a Basic Underpinning of Society. The French very simply don’t like to do this and don’t consider it rude to cut in front of you. This seems to cut across all social classes. A good friend of mine, whom I consider the epitome of BCBG (bon chic bon genre) manners and elegance told me that from an early age she was socialized into this practice by her very proper mother: “Now you go ahead of me and cut. Nobody will say anything because you’re a child, and then I’ll slip in.” This can only end in frustration. Since Anglo-Saxon good manners consist in being pathologically non-confrontational, I was reduced to seething in silence as everybody nonchalantly cut in front of me to drop off their children at Mini-Club or in the ski line.

My half-French, half-Spanish husband has no such compunctions. When women cut in front of him at the Mini-Club, he tapped them on the shoulder and pointed out: “Excuse me, Madam, but I am in front of you, as is this gentleman over here and that woman over there.” He even got into an altercation with an elderly, handicapped woman. The Anglo-Saxon perspective would be that advanced age and physical infirmity automatically confer a halo of goodness, worthy of respect. The French aren’t past admitting that these conditions occasionally coincide with your basic cantankerous, trouble-making old acid-vat.

Marc at Club Med

Grandmother-aged woman on crutches cuts in front of Marc in the après-ski buffet line.

Marc: Excuse me, Madam, but I was in front of you.
Older Woman: I’m handicapped.
Marc: Well, I have four children

Woman watches in horror as Marc starts to generously fill his plate with the remaining merguez sausages.

Older Woman: Il y en a qui se servent comme des porcs. (Some people help themselves like pigs.)

Marc: You’re rude. Calm down, there’ll be enough for everyone.

The next day, Marc is having lunch with his ski group and tells them the story of his altercation with the “vielle peau” (old acid vat). One of the women says. That sounds like my mother.

Marc replies: That’s impossible.
Ski group companion: Oh no, it’s not. She’s handicapped. Oh look, there she is.

The acid vat approaches the lunch table and smiles wickedly at Marc.

Lessons Learned with a different kind of ski instructor

When I was seventeen, I spent a lot of time with a very dear great aunt and great uncle. The bonds of kinship--beginning with the return of Rene Madec to France from his illustrious and profitable career as a mercenary in 18th century India--in Brittany, like the American South, would take several minutes to explain. Suffice it to say that these Breton relations were “cousins a la mode de Bretagne” and referred to as Mon Oncle and Ma Tante—My Uncle and My Aunt.

Mon Oncle, while retired from his job as a lawyer, spent a lot of time traveling to Paris for various post-professional and non-profit activities explained to me that occasional separation was the secret to a long and happy marriage. “Otherwise, you shall have nothing to talk about but the fact that the dog is losing his hairs and Le Service is getting insolent and senile…” Mon Oncle also cautioned against the vice of gambling. “I view it this way. If I spent all my money gambling, how would I be able to afford to see les danseuses (exotic dancers)?”

Ever since my husband and I have decided to spend most our time skiing with groups or friends who share our level of ability (see The Reluctant Skiier Part One l), ski vacations have worked out a lot better for us.

Group 2’s ski instructor was definitely older, but in very good physical condition so I assumed he must be in his early sixties. As opposed to previous group ski lessons with a modus operandi of “keep up and make it down the next slope alive,” Paul spent a lot of time on calisthenics and technique. He had us balancing on one ski, hopping in the air and skiing (waltz-style) in circles with a partner, holding each other’s poles as we went down the some of the easier slopes. Paul executed these plies, releves and little leaps with grace. While we barely approximated these movements, the inconceivable happened, we started to get better.

Paul also enjoyed logic (math and verbal) puzzles and complex “jeux de mots” (puns) that he would share with us as we waited in line or as he downed one of multiple glasses of wine at our one-hour lunch break. He had also recently discovered the joys of being on the receiving end of a group humor list, facilitated by the new and marvelous invention of the Internet. He shared these stories with us, as well as his opinion of the Swiss, from the point of view of a French-man who has lived there for many years (“a nation of denouncers”).

When Paul learned I was American. He said. “Oh les Americains! I remember the GIs well. They taught me to drive. I was only fourteen, but I accompanied them and they let me drive the jeeps as they were advancing through France.”

At this point, the group and I calculate, with amazement, that Paul must be 80 years old.

He has one son, of whom he is very proud, who brings him some of the finer vintages from Nestle’s private dining room for higher level executives—Chateau Petrus, Cheval Blanc, Haut Brion…

I asked Paul if he has any other children. “No, only one,” he replied. “But I have many siblings. I’m one of thirteen children.”

“Wow, that’s a lot.”

“Well they had to repopulate France after the First World War.”

I remark that I can’t imagine how his mother did it. I find myself exhausted and over-whelmed with four children.

“Oh, it wasn’t that hard. Children weren’t as needy back then as they are today. We had a farm (can’t remember the region, somewhere in Eastern France near Nancy). When we got home from school, we all had our chores. I was in charge of the chickens, another brother was in charge of the cows, another one took care of the rabbits…”

We discuss diet. Paul is a vegetarian. He explains that growing up on a French farm in the 30s, you only ate meat once a week, the rest of the time it was legumes and vegetables. I complain of the difficulty of losing weight. Paul mentions that he managed to lose 40 kilos in the last year. I ask how he did it.

“Oh, it’s not difficult. You just stop eating for a while (ensues a description of some fast of biblical proportions and the importance of slowly returning to eating, just an apple the first day), “but make sure you continue to exercise. It’s always important to exercise, regardless of what you do.” It’s clear, that at 80, Paul is in better physical shape than anybody in our group.

After the second day of skiing I feel like hell. All the muscles in my legs hurt. I can only go down the stairs sideways.

I go to meet Paul at the start of ski group and tell him I won’t be making it that day. He looks disappointed.

“Just give it a try, your muscles will warm up.”

Sheepishly, I explain that I’m out of my medicine. I have ibuprofen (for arthritis in my hands) but can’t take it at the recommended doses unless I also buy my omeprazol stomach protector.

He looks at me in amazement. “You have to take a pill to take another pill? No wonder the pharmacists are so rich!”

He feels sorry for me. Clearly, I come from weaker stock.

Some thoughts on European vs. American attitudes towards childrearing

2010-03-17T08:11:00.000-07:00

In Spain or France, it is perfectly acceptable to outsource your children. In the US, it’s not even acceptable to admit you might (occasionally) “want” to outsource your child. In fact, if you are an American mother and haven’t breast fed your child until age three and home-schooled them for the duration of their secondary education, and aren’t out there driving yourself ragged taking your children to all kinds of enriching extra-curricular activities and tutors, muffins for mom, doughnuts for dad, volunteering to be class parent, field trip parent, co-ordinating class parties, birthday parties and playdates -- completely terrorized by the possibility that you are failing to give them every advantage in life and Your Child Might Fall Behind…you’re probably falling short as a parent.

When I sent my children to an International school, I learned of such old-fashioned and quaint practices as “cocktail play-dates” -- your children play, while you nurse a drinky-poo and chat with your friends. At the end of such playdates, it might be acceptable to briefly lose your children and wonder out-loud: “I wonder where the little horrors are now?” The first thing I noticed about school in Spain was the schools’ failure to send me a directory with the names of my children’s classmates and the contact information for their parents. Somebody explained that this would be considered an un-acceptable breach of privacy here.

When my then 6-yr old sons each made two best friends, being an intrepid American sort, I went and bought some nice “I am not a psycho” stationary and set out to writing:

“Hello, I am X’s mother. X and Y are friends. My son would be very happy to invite Y over to play some day at your convenience. Here is my contact information.”

Some of the mothers responded relatively quickly and graciously. However, others took weeks to respond and gently re-buffed me. I was crushed. I had gone out of my way to make an overture to these people and they made it clear that I was wasting their time. I did not understand. I wasn’t asking for their friendship or any real social interaction with them, I was simply looking for a way for our children (who were already friends) to play together outside school. Another friend explained to me that the idea of a play-date was completely non-existent in Spanish culture and the idea of going out of one’s way to drive across town to facilitate your child’s social life was simply preposterous.

Well my move and the lack of need to co-ordinate playdates left me with more free time. I didn’t have a job. Meanwhile, the children’s schools hadn’t sent me any notices about muffins for mom or doughnuts for dad, reminders about bringing food for friendship salads or snack weeks, or asked to help with science day or field day, so I figured I might as well do the civic thing and volunteer. Once again I sent a hand-written note to my children’s teachers in their correspondence folder…and never heard back. Only later, did a woman who had grown up in the US, and understood my confusion, explain. She told me “Oh the schools are afraid if the parents get too involved they will start telling them how to run things, so they don’t want the parents around.”

No need to worry about school fund-raising auctions, either. My sons’ school is a for-profit entity and my daughter’s school is a joint effort of France’s Education Nationale and Foreign Affairs. Her teachers have been wonderful but you can forget trying to communicate with the administration or (more likely) the secretaries in the administration. My experience of the Lycee Francais administration’s attitude towards the parents is: “The parent has the right to fuck off at any time.”

And, you know what? I’m getting used to it. I take Pilates now; I have a museum-visiting group; I take more lunches with my friends.

We hope they're good at Math...

2010-03-11T06:17:00.001-08:00

Parochial School PE and Mardi Gras in the 80s

Among my worst memories growing up, PE (physical education) at Christ the King parochial school features prominently. I am naturally clumsy with poor eye-hand coordination (and this is not in an endearing Bella Swan of Twilight kind of way). PE in the 1980s featured lots of team sports involving throwing, catching and dodging balls as well as the (now) incomprehensible practice of letting the kids pick the teams. Needless to say the team captains were always the most popular and athletic boys and girls. I remember listening to them go down the names of my classmates hoping to avoid the impossible--the humiliation of being picked last or (occasionally) second to last. By fifth grade, I discovered an escape hatch from the disapproving screams of "Way to Go Mason!" as they rolled the ball towards me in kickball...and I tripped over it, or my prayers went unanswered and the baseball came my way in the outfield. I volunteered to be the teacher's grading assistant. I couldn't believe my luck. As my class-mates tromped off to the hated PE, I stayed in the cloistered quiet of the class-room, in the all-powerful role of grader.

By high school, I attended a different school and PE had expanded to include something I was actually good at that required little grace or eye-hand coordination--running. My torment took another form--Mardi Gras--an annual play, dance and float competition among the four years of Girls High School. If you had no discernible dramatic talents and didn't happen to be pretty or popular enough to be elected float queen, you automatically got shuffled into one of the three class dances. Did I mention these dances involved costumes, usually not very flattering ones? With the exception of my Junior Year (where I escaped by going Abroad) I danced as a bat to Michael Jackson's "Thriller," a chipmunk to Steppenwolf's "Magic Carpet Ride" and an "Egyptian" (I think this was to the Bangle's "Walk like an Egyptian"). Inevitably the dance captain was some bossy little girl who had been taking ballet or tap since she was two, who did not appreciate my poor execution of her steps and inability to stay on beat, thus interfering with her moment to shine.

You would think this experience would have made me sympathetic to my own children's potential to have inherited this lack of athletic ability. My husband requests that I point out that this defect does not come his side of the gene pool and that he was a very respectable athlete in his day. Nevertheless, I have decided that part of the children's education in Spain should involve their participation in a locally popular extra-curricular activity.

The Royal Conservatory

As a resourceful American woman with access to the Internet, and ideas about her daughter learning grace, deportment and discipline. I found about something called the Conservatory. Note: my daughter also took karate for many years. This was in my "Crouching Tiger, Hidden Dragon" phase when I decided "I will have a girl with skin as fair as snow, hair like spun gold, who can kick butt" (alas no Asian ancestry since Gatins' forebear Rene Madec left Quimper as a cabin boy with the French East India Company in the 18th century, had many adventures, became a Nabob and eventually married a descendant of Genghis Khan). "This girl-child will excel at school, dance like an angel and, if necessary, deliver blows like a killer." My daughter actually has rhythm and grace. She passed the auditions and now we're sucking off the teat of socialism as she learns classical ballet, Spanish dance and music theory for 6 hours a week (the hours go up after the first year), at the ridiculous cost of 120 euros a year--roughly one months's tuition, plus the cost of the recital costume in the US. One thing that is nice about state sponsorhip of the arts is that while ballet is a cliche of the aspirant middle and upper-middle class in the US, my daughter's companions at Spanish conservatory come from all walks of life. This program turns professional after 4 years and, for many of these children, it's their ticket to a career as a dancer.

Fundacion Real Madrid Futbol

Meanwhile, what could be more Spanish or even more international than "futbol" (soccer for you Americans). Nothing less than a Real Madrid youth team (haven't noticed that any girls play in the league, but didn't ask either) in a working class suburb would do for my boys' "education." My boys are average height and, while they have respectable gross motor skills, they are up against boys who started playing a lot earlier than they did. The US soccer team for their age was run by a church-league and usually coached by a parent or grand-parent, with one hour-long practice and one game a week, played at a local park or elementary school. On the other hand, the pre-benjamin (7 and under) futbol team for Fundacion Real Madrid has one and a half hour practices twice a week, professional coaches and a ginormous brand-new 10-field stadium near Barajas airport. Oh, and did I mention that they don't cancel games for weather here. Madrid is at 800 meters altitude can get quite cold and wet in the winter. I, wrongly, assumed they could wear their team sweatpants and jacket during the game, but instead they had to strip down to thin nylon shirts and shorts to play in sleet. Recently, their team got beat 8-2 by a bunch of 5 and 6 year-old boys from another Madrid barrio where they take futbol even more seriously.

One of my boys actually likes the game, has a sense of defense and is competitive. The other one couldn't care less. He's the kind that does flips on the goal during practice or looks for four leaf clover while the action passes him by. Both boys get shouted at and made fun of by their more advanced Spanish team-mates. The only saving grace is that they get some popularity points for being exotic twin, Americans. One day at practice, when the less-motivated twin wasn't paying attention and let the goal in, a bulky team-mate kicked his butt. When the little one showed some backbone, ran after the bully and kicked him in the tail-bone, my husband was so proud. The kids all laughed. This was the sort of "education" I was hoping for when I signed them up.

Mathletics

This brings me to my children's latest passion--Mathletics. We discovered this when the boys' school sent home a note saying that all the children would be participating in something called World Maths Day on March 2nd, and gave us their logon and password so they could practice at home. Mathletics educational software, by Australian company 3P Learning, does a very clever job of promoting themselves and successfully bridging the gap between the free, often-school-sponsored competition, World Math Day, and their subscription, for-pay product.

Now for a note of reassurance. The Fleury children are completely normal kids, which is to say that they would rather be watching cartoons and playing video games than doing anything remotely education-related in their free time. In fact it takes a kick in the butt to make sure they do their homework in their free time. We have tried other things to "trick" our children into thinking math was a game, but it never works--they always realize that math is work.

The genius of World Math Day is it flies in the face of current educational trends--don't stress the child out, don't give them time trials, teach them that "we are all winners"--and takes a page out of the book of Game Theory (how can I convince people to play hours of an online or video game, not the Math and Econ Nobel prize-winning kind). I haven't read this, but my husband, who has spent many an hour playing video games, says that the successful games involve competition, time-trials, levels, and "rewards." In World Math Day and Mathletics the children compete in 1-minute speed challenges to answer the greatest number of math questions (addition, subtraction, multipication and division) against children across the world. World Math Day truly was international--in any random game, depending on world time zones my children might be competing against "Jill" from Great Britain, "Mohammed" from Qatar and "Jesus" from Guatemala. Predictably, given the subscription cost, the players in the for-pay game seem to come mostly from Great Britain, the US, Canada and Australia. The child's first name, last initial, country flag, country and school name (if the school participates) will show up when they compete in both games. The children can see how they measure up real-time as a horizontal bar graph tracks the number of questions answered correctly by each child. In Mathletics, the children use the points to go shopping for virtual crap on the Mathletics site. One of my sons learned a lesson about spending his "money" when he lost 200 hard-earned points, accidentally purchasing a hair upgrade for his avatar, he thought he was just trying out. It's amazing how feverishly hard my children are working to purchase things that don't even exist! This business model is genius.

The children's new hero, is World Maths Day Champion Kaya G, a scrawny 11-year old from Australia. One child is an outright admirer and two of them are haterz, who complain that Kaya G was allowed to compete again 2010 and win again, thinking he should have been forced to give other people a turn and share the glory. They watch his video, note that he can go faster because he has a special numeric keypad, and that his avatar "has the most expensive background" on Mathletics.

The interesting lesson in this game is that 1) math is truly an international language and 2) no matter how good you think you are, there is some kid half-way around the world waiting to kick your butt. For some reason, this makes me think of the French News Parody show with puppets, "Les Guignols de L'info". They used to have this parody of a multinational company called "La World Company" with a Sylvester Stallone/Rambo type executive who used to always spout the pompous truism "Le Monde est Mondial": The World is Worldwide. Get used to it baby.

TRAPPED

2010-03-04T02:23:00.000-08:00

Someone come save me...

So this morning the lights went out. How did I first notice? The lights on my router were off! I mean completely off! I immediately knew it was no good.

I also grew to realize how dependent on electricity my whole life has become. See, I barely leave the house. Nathalie, she likes it outside. Me too, however, I can go on for 3 days without leaving the house.

I panicked a little when I realized all my computers where down. Yes even my PS3s. Argh! What to do? I decide to go make some coffee only to find that it too, of course is out of commission as it works purely from the main source. I realize I can't use gas because I don't have gas.

I feel a big empty void inside... I can't use my laptop as I don't have the music I need on it and anyway, the fucking Internet is down!

I take a shower. At least that works for now with the reserve of hot water that electricity has already heated... I start thinking about the fact that our lives have completely evolved since this great invention. I realize I may have to step outside as there is nothing else to do but walk the dog.

I decide it is the right thing to do. I can visit a second degree aunt that works around the corner. Anyway i need to buy a new Iberico ham. The cinco jotas gets me out of the house. I call joy, the live-in helper we have and she doesn't respond, she must work off electricity as well.

So I step outside. We live on the 6th. As I call the elevator I realize, horror, the it too works off of main. I stare down the dark shaft. It looks like a matrix movie shot. I give up.

I come back home. I remember
my iPod. God bless the iPod. I can't wait for the Jesus tablet. I type this blog entry on the iPhone.

FT: time to ban naked CDS

2010-03-01T00:06:00.000-08:00

In all the studying I have done of the financial crisis, one instrument stood out as nefarious: the naked CDS. I have long been convinced that they need to be banned.

Last week Bernanke said they would investigate their use in the Greek crisis. This morning Munchau, pens an article calling for their outlawing.

I generally do not like to propose bans. But I cannot understand why we are still allowing the trade in credit default swaps without ownership of the underlying securities. Especially in the eurozone, currently subject to a series of speculative attacks, a generalised ban on so-called naked CDSs should be a no-brainer.

Naked CDSs are the instrument of choice for those who take large bets against European governments, most recently in Greece. Ben Bernanke, the chairman of the Federal Reserve, said last week that the Fed was investigating “a number of questions relating to Goldman Sachs and other companies in their derivatives arrangements with Greece”. Using CDSs to destabilise a government was “counter-productive”, he said. Unfortunately, it is legal.

Greece CDS is quoted at 350 bips this morning and accusing fingers are pointing to hedge funds. So it seems Paulson and GS went one CDS too far by shorting government debt and are now attracting the political ire of regulators.

I find the article doesn't go far enough in analysis and just skims the reasons why they are nefarious. The biggest one being that when a CDS triggers they are a liquidity drain. You have to come up with a cash settlement for large sums of money. I remain convinced that the panic of aug 2007 can be directly linked to a liquidity drain triggered by naked CDS on subprime. There was a 4:1 naked to non-naked ratio...

Of note, Goldman Sachs (GS) and many others were in the business of selling the short side of these securities to speculators (and themselves) and marketing the long side to investors with AAA ratings. "Abacus", for example, was built from naked CDS. When subprime blew up those CDS blew up and with a lever of 4:1. AIG was at the end of the line, meaning the government... Ouch... GS will be investigated in conjunction with AIG and these securities is my guess.

In the meantime, I feel rather good about myself. It just makes me feel good to know I was on the right track in analyzing the mess. Go me.

The Greek tragedy

2010-02-17T02:53:00.000-08:00

In many ways the greek tragedy is a play about modern monetarism theory or MMT and its relation to politics.

For those that don't have the time or inclination to follow the details, it appears the pied piper has finally caught up with the hellenians.

A debt crisis threatens the ability of Greece to raise cash and sell its EU bonds. Some cry foul, calling it mounted attacks by hedge-funds, other see a proverbial justice in having socialist countries pay for their profligal sins. Deficits don't matter?

So when the rubber meets the road, the EU politically backs the debt of its participants fearing a debt contagion to the rest of the member countries. But in practice no nation wants to fund the greek bill. Germany knows re-unification and the prospect of paying through the nose for socialists in the south that are not even grateful is un-appealing. In holland they have passed a bill that they would provide no help.

And here the reality of the Euro hits home. It is a monetary authority without the fiscal authority. The EU is no US. Political authorities are still local and can be at odds with the unified monetary system. There is no central treasury. Someone wrote, you can have any 2 amongst these 3: democracy, monetary union, sovereignty. Europe wants all 3. Either regional sovereignty gives or the EMU gives. That's an interesting one and a good test of democracy (assuming that one stays :).

The FT this morning has a great article calling for a "leave of absence" from the EU for greece. The technicality says they would re-enter with a devalued exchange. This is akin to a monetary policy effect by printing money. How easy it is to do it within the US.

Consider California, it is waaay bigger than greece and it too is in bad financial shape. A fiscal crisis looms, can CA sell new bonds? Does anyone care? I haven't seen the muni market implode yet.... the implied assumption is that the federal government would fly to the rescue of the states and they would get their bailout monies just like the rest of them.

Do you hear Texas threatening to secede because they are tired of paying for those pretty boys socialists over there on the west coast? The political landscape is very different and the FED has been doing massive printings of money to rescue its economy and the world financial system. Ironically, the dollar is rallying, the US assets being a refuge value when the shit hits the fan. Go figure.

On that note, I was told to trade the EUR/DOL in the 1.35-1.55 range by a trusted advisor. I was holding at 1.53 and rode it to 1.43 where I sold some and it is now at 1.36... time to buy back?

Mad About "Mad Men"

2010-02-04T05:25:00.001-08:00

My new television show passion is Mad Men—am about ½ way through Season 3. Although, the pacing has its occasional doldrums, watching this show is a guilty pleasure. Part of the show’s entertainment is the situational irony highlighting all the differences between “then” (late 50s early 60s) and “now.”

Then

Parents are always telling their children to “Go watch television.”

Children attend a birthday and one boy acts unruly. It’s not just his parent who disciplines him. It’s a friend of his parents who gives him a slap.

8-year old Sally Draper puts a plastic dry cleaning bag over her mouth and breathes it in. Her mother gets upset at her for messing up the dry cleaning.

The Draper family goes on a picnic and leaves all their trash on the grass without thinking twice.

Grampa Gene lets his 8-year old daughter drive his Lincoln town car.

Betty Draper brings her baby home in her arms, seated in the passenger seat of the car.

You could say the word stewardess. They were young, cute, flirty and happy to serve.

Roger Sterling worries about an ulcer and “does everything the doctors told him” drinking a daily glass of cream…and winds up getting a heart attack.

The cocktail bar is a central fixture in the Sterling Cooper office. Everybody drinks and chain smokes.

Pre-civil rights: with one unusual exception all the women at the office are secretaries. Plenty of sexually suggestive banter at the office, if any of the women are offended, their job security depends on not showing it. Women aren’t the only outsiders: “Negroes,” “Homos” and “Let’s go talk to some Retail Jews.”

People really dressed up when they went to work or out of the house.

The Cold War: Cuban Missile Crisis and fear that the Russians “Will drop the bomb any day.”

The characters have interesting discussions and interactions with the social issues of their time—integration, the arms race, civil rights, the Surgeon General’s warning about cigarette smoking. It might have been a world filled with danger and uncertainty, but there was also a sense of optimism and excitement about the “Future.” Traveling on airplanes was exotic and exciting, television is the medium of the future, Kennedy has just been elected, Bob Dylan is hot, Space is the new frontier!

Like many of the children of the children of the 60s, I resent that all the fun, excitement and sense of expectation regarding the future disappeared long before I could experience it. We got the aftermath of the Vietnam War and Watergate, followed by the oil shock, economic stagflation, the Iranian hostage crisis, US manufacturing decline and the flower children became yuppies. Instead of optimistically engaging the world around us, we have been taught to stand at a cynical arm's length.

The fictional characters in Mad Men can say and do things that we, in 2010, publicly cannot. While the progressive legislation of the 60s paved the way for a (relatively) more open and inclusive society, the downside is that interesting public dialogue in America today is practically non-existent. You get two ends of the spectrum: the people who are happy not to think, and thus grateful for whatever one-size-fits-all ideology relieves them of this burden, while bestowing on them a corresponding sense of identity and purpose aka imposing their ideology on everybody else or--the equally annoying wishy washy contingent who are so terrorized by what other people think of them--that the prospect of saying anything at all is quite terrifying to them. Such a definitive utterance might be construed as a “value judgment” and, thus expose them as the frauds to post-modernism that they really are.

Since I’m particularly immune to drama with gratuitous Social Message ("Dislike my work at your own risk, I'll accuse you of being unsympathetic to the issues I write about!"), I wouldn’t enjoy Mad Men if it didn’t have some great characters and a compelling plot.

The More Interesting Characters

“Don Draper”
At first couldn’t stand him, but have grown to appreciate the good looking, strong-but-silent type ad exec with a painful past—information about which they dribble out to us as the show progresses. They’ve even managed to convince me that the frequent pans on his blank stare reveal some sort of reflective thought process going on in there. However, the one thing that bothers me the most about him though is the way he constantly cheats on his wife. None of these extra-marital relationships are particularly meaningful; he’s just a serial philanderer. Maybe it’s the female perspective here, I wouldn’t have a problem with this attitude or lifestyle if he were single or he had some arrangement by which his wife were ok with this: it’s the dishonesty that bothers me. Yes, his wife is rather neurotic, but she loves him. Ironically she looks better than almost every single woman he cheats on her with.

Possible writers’ notes on Don Draper’s “sex addiction”

1) This is what most men are genetically programmed to have, but unless they are living in one of your more progressive communes, possessed of extraordinary good looks, financial and/or professional success and strong sense of moral relativity aka Tiger Woods, are rarely able to act on this in a very satisfactory manner.

2) Don Draper, growing up as the abandoned son of a whore, who died upon his birth and left him to be raised by his no-good, alcoholic father who beat and demoralized him and his long-suffering “step” mother, with no love or acceptance from either “parent” or any figure in his life for that matter, lacks a sense of identity and looks for acceptance/affirmation of his masculinity in a stream of meaningless sexual relationships

Betty Draper
Cold, beautiful, ice-princess, Grace Kelly look-a-alike. While I feel somewhat sorry for her, Betty gets on my nerves. Hard not to realize how privileged her situation is when you have the more sympathetic Carla, the black housekeeper, doing most the work to raise Betty’s kids and not complaining about her life…Betty’s constant sulking does not engender much sympathy, wish she would get off the “dime” and actually do something about her unhappiness. Show strays into familiar “Madame Bovary” “Anna Karenina” territory where the only proactive thing, chance at happiness Betty seems to be able to imagine is having an affair, possibly with an older man who will act as a father substitute.

Peggy Olson
Moves out of the secretarial pool to become Sterling Cooper’s first female copywriter “since the war.” Her ambition combines spunk and seeming guilelessness. She might be the only “nice” character if you could forget that she abandoned her infant son…I do have to say Peggy’s mixture of innocence/goodness, her empathy for other people and mostly non-judgmental attitude combined with her desire to go a little wild (and mishaps along the way) make her the most interesting character after Don.

Joan Holloway/Harris
Very curvy office manager who dresses to kill. She initially appears bitchy but then becomes more sympathetic as the show progresses. Her sweetly poisonous lines as she offers advice/tries to undermine the girls are great. "Work hard and well you really won't even have to work will you? You'll be married and living in the suburbs" "He's a doctor, and he's good looking!" Mad Men producers thank you for casting Christina Hendricks in this role and showing that you can be pale, have curves (real curves, not the model look with the boys' backside and the blow-up pneumatic chest) and still be hot.

Pete Campbell
The scheming account exec. who will stop at nothing to get ahead. He occasionally is revealed to be vulnerable and does the occasional good deed, which renders him a little more multi-dimensional. Also sleeps around, no doubt because his father didn’t love and approve of him either.

Burt Cooper
Relatively minor character but entertaining none the less. The exec who no longer does any real work, but plays the “older sage” role. Has an affinity for Eastern philosophy and modern art. Relatively subdued compared to everybody else in the office--his risqué Japanese print of the Octopus and Geisha is hilarious.

Roger Sterling
In his mid-fifties realizes he hasn’t loved his wife for years and fulfills his dream to marry attractive 20-year old secretary. Any woman will do. He is in “in love.” Ironic exchange where Roger tells Don: “I realize that people are envious of me because of how happy I am” to which Don replies: “People don’t think you’re happy; they think you’re foolish.”

An Education

2010-01-30T10:06:00.000-08:00

Caveat: My children are surfing the Internet playing with virtual fish as I write this.

Just finished reading Nick Hornby’s screenplay for “An Education”. As an aspiring playwright, I especially enjoyed the introductory section where Hornby tells the story of making this movie based on Lynn Barber’s autobiographical essay about her affair with a shady older man at the beginning of the 1960s.

Hornby points out the challenge in rewriting a memoir where a woman in her sixties writes about her sixteen year-old self. The point of a memoir is to be as smart as possible about one’s younger self. Meanwhile, “in a screenplay, you have to deny the character that insight otherwise there’s no drama, just a character understanding herself and avoiding mistakes.”

This made me think about episodes in my life that contributed to my “Education,” and the distance between the woman I am today and the naïve girl I was when I graduated from college. As I raise my own children, I wonder how to impart some of this acquired knowledge to them, so they can avoid the painful mistakes I made.

Children Interrupt: “Mommy can I make my bed and fold my pajamas for the rest of the year so I can earn $29 to buy some virtual fish and pearls?

Me: “No, but what you can do is think about ways to get a bunch of children around the world to ask their parents for money to buy things that don’t even exist. That’s a smart person who came up with that idea.”

Situation upon graduating from college
Graduated Phi Beta Kappa, Magna Cum Laude from Wellesley with honors degree in English literature.

Applicability and use of this degree in finding real world employment (in my particular case): None.

Sales and Trading job in Global Derivatives:
Failed this recruiting interview at a major international bank based on not being able to tell the department head a convincing story about how “street smart” I was. Not knowing what a derivative was probably didn’t help either, especially after lying about how “motivated I was” to get the job/find gainful employment/not go back home and live with my parents. Apparently I wasn’t the only person who didn’t know what a derivative was…

Thereafter, became extremely preoccupied with how to remedy the street smart situation, or more practically, convince other people I had remedied it.

Fundraising consultant/geisha:
Had to rely on family connections to get this job…was fired after 3 months for, among other failings: “talking while stuffing envelopes” and “forgetting the Xerox color-coding scheme for hand-outs.” The ambiance was straight out of the 1960s Mad Men secretarial pool, staffed by young girls from good families biding their time before marriage and housewives bored with the Junior League. Legendary was the Milf who dressed to emphasize her legs and décolletage as she leaned towards male chief executives at the moment of the crucial ask, imploring them to “think of the children.”

Most useful piece of information learned there—“always send hand-written envelopes with real stamps, girls, when you want to look classy and have strangers read your mail.” Whilst your vulgar (or more honest) operator might actually sleep with the client, a society lady, with well-honed skills, plays on your narcissism, vanity and social ambitions to clean you out. Hopefully it’s for a good cause. Least useful piece of information learned there: listening to The Head talk about all the fun things she did with her friend, The Billionaire. “The very rich are very different.”

Even then, I knew: no they’re not. They just don’t give a shit. Lots of very poor people don’t give a shit either and are “very different” too. The middle class, however, are most definitely not “very different” because they’re typically obsessed with what people think of them and studying the mores of their superiors in hopes of moving up the social ladder.

Temp:
After disastrous fund-raising geisha experience, temped as actual replacement secretary for partners at (what was then) Big Six Accounting and Consulting. Was a big hit because I did not talk to my boyfriend on the phone, smack gum or put my feet on the desk. One Managing Partner of Tax was particularly impressed with me because I came up with the brilliant idea of sorting his mail. Also had to listen to him ask me if “my parents could spell” because my name had an “h” in it. Did not feel it was worth my time to explain that my maternal grandparents grew up in France or that other languages and cultures have other ways of spelling things.

What I learned: If I ever wanted to find out the real dirt on what is going on at a company or what certain people are like, I would definitely ask the secretaries.

Mutual Fund Report Writer:
First real job I got was as a writer for a financial company, editing the annual reports for their mutual funds. The department head who hired me was straight out of Mad Men/had been the head of creative for a major SF ad agency at an earlier point in his life. He hired me because I could write, read books, liked to discuss literature and because he had fond memories of dating Wellesley girls when he got his (never-to-be-used) degree at Harvard Law.

Memorable moment in job: telling billion dollar fund manager that Humpty Dumpty was perhaps not the best metaphor for the currently depressed stock that he expected to rebound because “All the King’s horses and all the King’s men never could put Humpty back together again.”

Grateful for: fun colleagues and wonderful second boss, former school teacher and published poet who showed me that women don't have to undermine each other in the workplace, and that you can be an effective boss without being a total hardass.

Realization: Unless you’re J.K Rowling, writing ability and familiarity with children’s stories are relatively low paying skills. On the other hand, managing OPM (other people’s money) is a great paying job, but only a fool would pay me to do that.

JBoss Years

1998: Possibility: Marc would probably have happily built JBoss at Sun Microsystems for a 40% increase in his Pre-Sales Engineer salary and conferral of “Distinguished Engineer” title. Reality: It was impossible to build JBoss at Sun at that time, even more so for a low-level employee with non-established credentials.

Marc meets founders of WebLogic at JavaOne. They ask him if Sun is still the same fucked up company it used to be. He interviews for job at WebLogic, but this goes nowhere because they are bought by BEA and their hiring is frozen.

Our discussion about Marc leaving his job to become an entrepreneur:

“You’re going to leave a secure job with health care and benefits to write free software? If you are going to put all those hours into something, why not something that will enhance our future and pay for the baby’s college education?”

Ultimately, it was quit his job or go to therapy and pay somebody else to listen to how much he hated his job.

Realization: You have to really suck to not be able to find an equivalent, non-fulfilling job a year later if things don’t work out. In that case, you’re no worse off than you were before, but at least you’ve gotten the “coulda, woulda, shoulda” thing out of your system.

1999: Marc leaves to work on JBoss and receives a 300% salary increase for non-JBoss related software consulting in that period. Comment from a friend and former colleague about his desire to work as a software developer: “You’re moving down the food chain.”

2000: “This is not just a bad business plan, this is a horrible business plan:” Doug Leone, Sequoia Capital.

2001: Marc’s first start-up attempting to commercialize JBoss fails. My husband and I, along with our child and dog, move in with my parents. Marc comments to our lawyer at the time: “We’re the original garage company.” Lawyer replies: No you’re not. You’re the original in-law’s garage company.”

I decide to help him until he gets his feet off the ground, but wind up staying because the momentum really picks up.

2002: Twins are born, home office gets small. We look for office space as part of Georgia Tech’s ATDC Incubator program. ATDC’s response: “JBoss is a consulting company. VC’s don’t invest in consulting companies’ ergo a VC will never invest in you, so you’re not a fit for us.” We get outside office space elsewhere.

2004: We’re still not sure we want them, but top VC firms, attracted by JBoss’s user community and growing business, compete to invest in us. No VC would touch us with a 10-foot pole in 2000 when we had an early stage product and a company that was bleeding overhead. If they had, they would have bought us for pennies on the dollar and we ultimately would have gotten very little equity.

We built JBoss on our own because we have no other option and because it’s “fun to blow shit up” and beat down a billion dollar industry, especially if you can figure out how to get people to pay you to do this and make money that is good for you, whilst laughably small for your fat, established competitors.

Lesson learned: “banks only lend to the rich. Them that has ‘gits.”

Education

David Mamet’s definition of street smart (referring to his Hollywood screenwriting work): “the moment when you’ve been seduced and abandoned sufficiently to tire of it.”

Am I more street smart now? Yes, this is because I’m older and I’ve actually been on the metaphorical “street”.

It occurs to me that the only people who are sufficiently sharp to be street smart without painful experiences are the motherfuckers who are always dreaming up ways to screw over other people first, so they’re super savvy at anticipating how other people plan to screw them.

When you are nobody, with no money and no connections and want to break into an established industry and do things differently you can expect to hear two things: “Who the fuck do you think you are. Piss off.”

Interested in being an entrepreneur? Re-read, the children’s story: The Little Red Hen. The only point anybody wants to “help” you is when it’s time to eat the bread.

Painful Learning Experience: The first partnership contract we signed at JBoss paid us on the basis of production sales of the partners’ software with clients of theirs who also ran JBoss. After several months without getting a check, we looked up their sales structure and realized this particular company didn’t sell production licenses; they sold development licenses.

Realization: Otherwise smart people are particularly prone to falling for low-level cons because it never occurs them that people would take advantage of them in such an obvious way. To this day, I still wonder what advantage these people thought they would obtain by pretending to pay us something as opposed to the ill-will they were going to generate when we figured out what they were up to. The irony: we weren’t even expecting money at that point, we were just were happy to be seen with them…

Growing up/getting more savvy: Being excluded from giving talks at JavaOne, realizing Sun had locked down all the conference space in San Francisco that week, realizing that it never occurred/was not feasible for them to lock down the bar across the street and holding our first alternative JBoss One conference at the Thirsty Bear. Handing out flyers for our conference at Moscone center and being treated like unwanted panhandlers/agitators by Sun’s Key 3 Media lackeys.

Realizing that a normal pass to get into JavaOne cost $1000, but press passes are free: Finding sympathetic editors and becoming the “boat people” of J2EE article publishing the three months before the conference—with multiple authors per article.

Possible advice to children? Per Neal Stephenson’s marine-raider and all-round badass Bobby Shaftoe in Cryptonomicon: “Display Adaptability.”

Ability to effectively transmit the benefits of my experiences to children without them actually experiencing any of this for themselves? Unresolved.

Advice My Mother Gave Me

Most useless advice (transmitted from her mother's memories of house parties in the French countryside in the post-war years): "When you stay at other people's houses make sure you scrub out the bathtub, sink and toilet after you have used them. Don't assume the servants are there to do this for you. They will be reporting any negligence in your personal hygiene back to Madame. Oh, and always tip the servants.

Advice I use most frequently: (my mother worked for many years as a chef and restaurant manager): Always angle your knuckles, on the hand that you are holding the food with, away from the knife when you're slicing. Always serve things that you can re-heat at the last minute when you have large numbers of guests.

Advice my mother gave me that I'm still trying to figure out: An object should either be beautiful or useful.

TF22: Refried Beans 2009

2010-01-18T10:24:00.000-08:00

Sometimes I like to cook something with what is left in the fridge. And sometimes it is even yummy. This time I do it with 2009 music, music I have been listening continuously in a loop on my ipod but haven't mixed in yet. Hence "refried beans".

TF22- Refried beans 09 by marc fleury

I keep my ear close to the speaker for good music, or rather "music I like". I have a lot of time, so there is a lot of it. Not everything is brand spanking new in there, in fact some stuff in there is downright old, early 80's and such. But everything has caught my ear in one way. The melody, the pads, the drums, the mood, the pace, the bass, the vocals, the memories, whatever.

The resulting mood is ironically down-tempo (ironical because I don't particularly like down-tempo) it starts at a sluggish 100BPM and lazily climbs up to 120ish... and it is definitely melancholic, in the off-tones. It has hip-hop, house, electronic, techno, some rock (gasp!). Like I said, it plays like an ipod shuffle on a partied out sunday morning.

Tracklist:

1/ Find me in the World, DSL, Ed Banger.
Most excellent french hip-hop... this track actually has some pedigree in it, the manager of the head banger label, Pedro Winter, has been a stable fixture of the parisian electro night. I also think he was the manager of the Daft Punk for a long time. The lyrics are great, I like the way the french rapping sounds.

"Te faire ramasser par le samu social, c'a te rend bestial,
je te dis ca avec passion mais je me peterai pas une corde vocale,
je dis pas ca mais je rhyme que sur ma boite vocale".

"Being picked up by the homeless service turns you into a beast."
You just can't make up stuff like that, very french in its social angst about money and people.

2/ Footprints, Stratus.
I like the pad line at the end, the swirling melody and synth pad sound that seems to spiral out of control in slow mo. I like the continuous transform whaaa-whaaa sound. It is a good light track very chill and space in a way.

3/ Same Sun, Bazoo Bajoo, Prins Thomas Diskomiks
I really like what the nordic disco invasion guys are doing. These have been putting out killer track after killer track and they do it with style. They DJ'ing also superb. I recommend Todd Terje and Prins Thomas, they crack me up every time. A certain insouciance about it all and a dead-on ear. It apparently started as an teenage underground love affair with space-disco and turned into this most excellent style. Again a dubbed out, chill, slow and downtempo track. It has some heaviness, in the step drums, to it. Be patient with this track and it will grow on you. I like the break, the hypnotic voice and the drum re-uptake, the electronic finish.

4/ The Swamp waltz, Steve Moore remix, Arnaud Rebotini
Another Parisian artist. Arnaud Rebotini was unknown to me until I heard this track on a Joe Goddard Resident Advisor mix a couple of month ago. It was an instant ear catcher for me. The original is quite good. I also listened to all the other remixes of the swamp waltz and, well, I really find this one stands out. Steve moore has produced an inspired remix, check out his production on soundcloud, the guy has talent. I love everything about this track. The progression, the pad line (from the original) very spooky, the 808 clear bell, and the melody, the way it builds up, the messiness. This one is extremely slow, for a modern track, clocking at 112BMP, when it fact it is quite rich in texture. And it feels that way, it stands out in modern production. And here I thought clubs couldn't clock below 130bips due to the widespread chemical abuse? There is nothing laid back about the track, it in fact manages to be quite overwhelming...

5/ The bottle, C.O.D
Ok, I cheat here. For those that have listened to the Goddard RA podcast, the waltz is song number 4, and this is number 3, in other words I play them in reverse order he does. Pity is that I couldn't find the same exact original on itunes. Goddard must have the original vinyls....You can hear the limits of sound production in the 80's... The stuff still sounds good but the sound production quality is frankly sub-par in this particular cut. Whatever, the melody on this one is so good. One of those catchy urban tunes. It brinks back memories. I even drop the mix at "here is another one" like Goddard does :). I am such a copy-cat.

6/ Single girl, Knight Action.
Another song from another RA compilation. Resident advisor has been a steady source of tunes for me. I can't remember which one, just that instantly liked the first line of lyrics on first hearing and went and bought it. It is funny to think that this one was a big chicago club hit in 1984, possibly a floor filler of the day, today it sounds very down-tempo at 110 BPM. You can see on the wave form how that 80's production is essentially maxed out at least on the itunes version :) and the sound levels are off. I like the off-key melody and the key change, I also like the lyrics even with all the cheese. I also love this picture of the author Duanne Hamm.

7/ Torch, Margot, Extrawelt remix.
I must admit that the entry of the modern production sound with the woosh and waaaash is soothing to my ears after the harshness of the 80's production. It is a relief to go back to modern sound texture, it is fuller, calming. For me the processed voice does this track. I like this warped sound, very spacey. I like the fact that I can't understand a SINGLE word of what they are saying. You must understand that growing up in france, to us, ALL songs sounded like this "whaaa hahahaha", so maybe I like the throwback to a simpler time when I could focus on electronic sound and melody and not what they were saying... of course if you like country music for the lyrics and the stories they tell (like my in-laws from Georgia) then your experience was vastly different. I sort of feel sorry for "native americans", understanding the lyrics in songs must have been a distracting curse. he he.

8/ In and out of my life, Adeva, Pridz remix.
The original was a late 80's hit. I remember buying the album with adeva face on it and thinking the vocals were floating far above the record and begging to be sampled out of what was a mediocre surrounding and remixed. I close my mind's eye and ear, wait 20 years and voila! and a Pridz remix at that, no less!
I love the original singing by Adeva, just powerful diva delivery. The remix is inspired. The bassline is just what the doctor recommended for that sampling. A very classic line gets a princely modern treatment. Definitely more "big-room" than the rest of the mix.

9/ Spaghetti Circus, Still Going.
Still in the vocal house vein. I love the "deep south" soul sounding vocal in the beginning. I love the piano line over the guitar, very housey in a sense. Then the spacey guitar is quite good, I like that sound, the reverb treatment makes it landscapish. This is an all around barn burner. I dovetail back into in and out just for the mixing fun of it and the fact that I couldn't get Manila to stick on the Spaghetti stuff :).

10/ Manila, Seelenluft, Ewan Parson mix.
This is a CATCHY tune. Period. It is one of those songs where you hear it once and you think you have known this track for ever. I like the lyrics, "then my seat started rattling, sure that wasn't part of the show, so I started to dance, without wearing no seat belt, so I started to dance without wearing no life vest". The little bleepy melody. It also has an innocence in the sound, probably the voice of the kid. Whatever it is, I like it.
It also has an interesting property, it works and goes with everything in mix... few tunes show this chameleon ability (I call it musical chicken, everything tastes like it) I think it is something about the harmonics they adopt and how they decompose.

11/ Any Day Now, Scott Ferguson, ElectroVox remix.
I love the deep south soul vocal and feel in this house gem. It is otherwise a down-tempo house track but it has this soul vibe. I am also quite happy with how this mixes with manila. I stretch the vocals to the max. I only use the first part because that is the part I like. The second one frankly sucks balls. Never seen a track so asymetric. A for the first part, F for the second. Go figure.

12/ 7 nites, 7 days, Jori Hulkonnen, Muzique Tropique's Love the Bass Remix
Jori Hulkonnen is a finnish genius. Period. Ever since he published "when we was attached" (was it 8 years ago already) on F communication, Garnier's french electro label, I have been a follower of his production. I think him a complete musical genius. His ALBUMS are totally worth it btw. On this track, I love the deep south voice, this is not the first time he uses the soul voice, and it totally works for me. As I continue my love affair with Jori H...

13/ Cereal Killaz, 3773, A23P's distension mix
Speaking of geniuses... I have gotten to know Al Nesby a.k.a A23P a bit through facebook and a common friend. This particular track, a remix of his, is a gem. I am not sure he himself realizes it. It hits all the right notes for me on drums, sound production, the originality of the result and the hard driving pattern. In find the drum pattern after the break to be epic. Very driven. IN fact I like it so much that I kind of extend it here from the skimpy minute Al gives us to about 3 minutes. For some reason the track made me think of a film score for a matrix style sci-fi movie, a chase scene to be precise... after thinking about it I think it is one of the first scenes in the club where trinity talks to neo for the first time... this is unreleased material directly from Al. Just superior electronic music.

14/ Found a place, Tony Lionni.
Finally some techno. Of course the vocals work here and are the only ones I could really super-impose on the sonic chaos that al summons up for us. You will notice that I keep it to the bare minimum. This track is a great techno sounding minimal inspired production. It appears on a Berghain club compilation (the mythical hard minimal techno Berlin club). Vocals, piano, cool sound production. The extent of the loop must be 2 bars, but who cares when you are blown out of your mind?

15/ One moment, Cari Lekebusch.
So let's take the same formula and repeat. Take a loop (the vocals in this case) a nasty high-hat drums pattern, a simple base, sprinkle a few pad notes here and there, tweak the hell out of the sound and VOILA another mind-blowing killer techno track. The last two tracks are about as close as I get to minimal, more minimal and I fall asleep :) they sound full. It does wash, rinse and clears your mind doesn't it?

16/ Obsession for the disco freaks, Robotnick, Rory phillips.
I love Robotnick. Robotnick is an italian old-timer. He is a superb electro producer and DJ. To see him DJ is a trip. He must be 50, smokes like a chimney, dances to his own dope, and drops killer tune after killer tune. All with an edgy and underground vibe. Speaking of tune this one is a beauty. In 3 solid parts, "obsession" sports an alien sound in the middle. The first time I listened to this I wondered how the hell he made that transition... just superb sound and a great melody. Excellent electro track.

17/ Dead Souls, Mlle Caro and Franck Garcia, Long distance remix.
Another parisian track. This one is a marathon WMC remix of a track, coming in at 11 minutes long. It takes for ever to build so I just key in on the melody and vocals. I immediately liked the french sounding voice "what a greeeaaat live, melanchoooly is my wife" of mademoiselle caroline garcia, just so cool. Then the second part with the spacey guitar has a very hypnotic quality to it. Maybe it is the 10 minutes of bleep bleep that does it. However, while remixing this I went online and check them out and then...

18/ Dead Souls, Mlle Caro and Franck Garcia. Original mix.
I found this video of them singing dead souls in the Rex club in Paris. I first thought it was a new version and then realized it was the original. I find the original a thousand times better than the WMC remix. I think this song is fantastic. The video has a joy division feel to it. The lyrics and melody are just great. The vocals are superb and the french accent really adds to it. Also the delivery is different than the remix. You have to watch the video and see Caro dance while she sings, I love it. She defines geek cool.

I hope you enjoy these songs as much as I have.

Save MySQL?

2010-01-17T01:50:00.000-08:00

There is a call to "save MySQL". Here is the gist of the "worry"

If Oracle buys MySQL as part of Sun, database customers will pay the bill.

In April 2009, Oracle announced that it had agreed to acquire Sun. Since Sun had acquired MySQL the previous year, this would mean that Oracle, the market leader for closed source databases, would get to own MySQL, the most popular open source database.

If Oracle acquired MySQL on that basis, it would have as much control over MySQL as money can possibly buy over an open source project. In fact, for most open source projects (such as Linux or Apache) there isn't any comparable way for a competitor to buy even one tenth as much influence. But MySQL's success has always depended on the company behind it that develops, sells and promotes it. That company (initially MySQL AB, then Sun) has always owned the important intellectual property rights (IPRs), most notably the trademark, copyright and (so far only for defensive purposes) patents. It has used the IPRs to produce income and has reinvested a large part of those revenues in development, getting not only bigger but also better with time.

If those IPRs fall into the hands of MySQL's primary competitor, then MySQL immediately ceases to be an alternative to Oracle's own high-priced products. So far, customers had the choice to use MySQL in new projects instead of Oracle's products. Some large companies even migrated (switched) from Oracle to MySQL for existing software solutions. And every one could credibly threaten Oracle's salespeople with using MySQL unless a major discount was granted. If Oracle owns MySQL, it will only laugh when customers try this. Getting rid of this problem is easily worth one billion dollars a year to Oracle, if not more.

This call is made by Monty, one of the founders of MySQL. I got to say that the boys at MySQL have made a huge hash of things. After selling $1B to SUN, they want their cake and eat it too. So they leave, fork and otherwise raise a huge stink.

The only schadenfraude I have in this is with Ponytail boy a.k.a Jonathan Scwhartz, he went very publicly in PR saying that there was no way MySQL would do a JBoss because "the personalities were very different". It was a direct put-down of yours truly. Irony... JBoss looks like a boy-scout integration in comparison. Good job, Jonathan, just genius.

As for me, the bottom line is kind of straight forward, I don't get Monty. Or rather, I "get him" but completely disagree. MYSQL WAS SOLD FOR $1B FOR GADSAKES!!! IT WAS SOLD! IT'S OVER! At least for the corporate part. Of course, Monty is free to fork mySQL and rename it. If he is unhappy he should. But boy! doing a public campaign trying to block the acquisition, will only add to the public fire of EU scrutiny, possibly shutting down the acquisition and will only hurt SUN and SUN employees.

But here is the part that really bothers me: this is making OSS acquisitions look very dangerous and dicey. JBoss is finally making a ton of money for RedHat (>100MUSD/yr) but after 3 years, a few false starts and fumbles. It was a steep learning curve on both sides. But, so far the MySQL situation is a disgrace and just looks like a huge mistake. Hopefully the VMWare crew does a better and more discreet job of successfully integrating an OSS company.

Conversations Between My Boys

2010-01-15T07:06:00.000-08:00

Tw1: I do "this"...

Tw2: Oh no you can't, because my tanks have nano protection...

Tw1: But then my guards come and they have a neutralizer for nano-protection and they arrest you...

Tw2: Yes, but then my samurais have a weapon against your box and they free me...

Tw1: Ok, my tanks, the best of the world come, and they kill you...

Tw2: Well, then my planes come and they kill your tanks...

Tw1: That's not fair, you can't do that!

Tw2: Sure I can, and I kill you!...

Tw1: Whatever...

Author's Note: Twin 1 and Twin 2 are 7-yr old boys

Bankruptcy could be good for america?

2010-01-12T04:36:00.000-08:00

Wow, that ought to spook a bunch of people including myself. The FT is rallying the excitable fringe with a well written piece on the virtue of sovereign default.

In Winnie-the-Pooh, there is a significant moment when the bear is asked whether he wants honey or condensed milk with his bread. He replies “both”. You can get away with this sort of thing if you are a much loved character in children’s literature. But it is more problematic when great nations start behaving in a childish fashion. When Americans are asked what they want – lower taxes, more lavish social spending or the world’s best-funded military machine – their collective answer tends to be “all of the above”.

The result is that the US is piling up debt. A budget deficit of about 12 per cent of gross domestic product is understandable as a short-term reaction to a huge financial crisis. What should worry Americans is that, with entitlement spending set to surge, there is no credible plan to bring the budget deficit under control over the medium term.

The US has formidable strengths that will allow its government to be profligate for far longer than other nations could get away with. But if the US keeps running huge deficits, sooner or later the country will start flirting with bankruptcy. Oddly, it might be best if the crisis came sooner rather than later. For a surprising number of countries, running out of money has been the prelude to national renewal.

At a moral and individual level, I agree with the sentiment expressed in the article, namely that deleveraging is a good thing, don't buy more than you can afford is the basic tenet of sound personal finance. It is already under way.

However, in analyzing this passage, one must remember that when it comes to balancing a budget, what applies to individuals does not apply to the world economy. Basically a government that issues debt in its own currency can print money. Most of the examples Gideon gives in his article are about countries that emit debt in foreign currency. They will default if they can't meet payments in that foreign currency. This is not the case of the US. The US IS printing massive amounts of money.

The USD is still the currency of choice for world trade. It is also the reserve currency for the world. This is unlikely to change in the short term. China is printing tit for tat to peg its currency to the USD and the EU will have no choice but to follow suit if it wants to stay competitive. This all means we are in the midst of a massive world experiment in quantitative easing. Everyone is printing money.

Now, printing money is an inflationary force but when it is countering large deflationary forces like the current post-crisis deleveraging, you sum it all up and the sum is still negative or deflationary. This is what is happening in the US and what has happened for the past 2 decades in Japan.

China can force a default by nuking the dollar. It can do so (hypothetical) by doing a "pearl harbor" on ITS OWN reserves. A serious case of cutting your nose to spite your face. What they would do is first they would buy up all HARD ASSETS (commodity raid) in USD and then stop accepting USD as payment for exports. This will sink the USD and their own exports. And the net result of that is anyone's guess. It would be the first global economic war. I don't buy it. But then I am an optimist.

"This time it is different"
-- famous last words

The Reluctant Skiier

2010-01-07T13:17:00.000-08:00

Skiing, like golf, was not one of those activities that strengthened the marital bond. Nothing like being tricked onto a descent that is beyond one’s ability, concentrating desperately on making it to the next turn, while spouse cheerfully schusses down slope offering annoying advice, or worse still abandoning you to catapult down and land face forward, backside and legs up…like a sprawling cockroach. Might have screamed from top of slope with vocabulary that would shame a fishwife.

Advice from random man in the gondola: “It’s better to look good than be good.”

Children: the three that are old enough to ski or snowboard are all better than me now. They’re not even teenagers and already patronizing. Every dollar spent on ski or snowboard school is well worth it. Can I keep them in those programs until they are 18?

This feeling was compounded by experience riding in lifts with Other People’s Children, especially their surly teenagers. One sixteen year old girl whined: “Mo’om, I can’t believe you got me this grody sunscreen,” before flicking it off in disgust towards her father. My sister and I had couldn’t resist having fun with this one.

“It’s so hard to be your age, isn’t it?”
“Believe me, you don’t want to get to our age with fair skin like that and no sunscreen. Sun damage! All those unsightly wrinkles.”
“Not to mention the cost of laser treatment to get rid of those liver spots.”

Might be a bad mother: on another gondola ride, proudly explained to a woman that my advanced snowboarder daughter is still in classes so she can do things like the terrain park, where she needs more professional instruction. She replies: “Oh, in the local ER where I work, we call that the trauma park.”

Vocabulary: Seriously cannot imagine myself picking up the jargon. Am I the only one who thinks “Got a face shot in Pow!” sounds like manga porn? On the other hand, did find myself learning useful words like “white out”, for skiing in extreme low visibility and “graupel”, for the precipitation that’s somewhere between freezing rain and snow, and generally flays your face.

Skiing powder: Um…vastly overrated for people of my ability. More like sliding over ice patches and into snow drifts. Hubby’s advice: “Just go faster and you’ll glide over it” not particularly easy to apply when you’re already scared out of your mind.

Must be lacking in adrenaline response because don’t feel need for speed. Can’t get image of people who ski better than me and come home from vacation in various casts out of my mind. It’s hard keeping up with four children as it is; can’t imagine what that would be like if I were in need of massive physical rehabilitation.

Ski boots are: an instrument of torture.

Ski equipment is: a pain to keep up with when you have four children--all those face masks, goggles, mittens, helmets, boots, poles, skis. Not to mention complications when child utters most dreaded word in skiing vocabulary: “I need to pee.”

Ski food: $60 to feed family of five on junk food at the top of the mountain, anybody?

Best part of skiing: kids are fully occupied, ditching afternoon skiing (am tired by then anyway) to sip hot chocolate by the fire and read a book or bake Nestle Toll House cookies and watch the classic movie channel!

The "entrecote" sauce is revealed-- english translation

2010-01-07T09:47:00.000-08:00

This must be one of the best kept culinary secrets in France. "L'entrecote" is known internationally for its one dish: "steak frites" with a fantastic sauce. My family has been going there for 20 years, twice a week when in paris. My parents know the waiters and show them grand kid pictures and we have collectively tried to find out the secret of the sauce.

The restaurant is situated in the west "porte" of Paris, the Porte Maillot. I grew up in the neighborhoods next to it, both "Neuilly sur Seine" and the more "prolo" "Courbevoie/La defense" when I was a kid. The restaurant has opened branches in London, Geneva, and I read in the Le monde article, in Barcelona.

A family feud between the sisters running the shop has led to new restaurants in Paris, one in the 16th arrondissement and one in montparnasse. Today the french magazine "Le monde" is running is piece divulging the secret sauce. I have no idea how they got it but I sure hope it is kosher...

So, here it is in french and then in english

Ses ingrédients sont le foie de volaille, le thym frais et la fleur de thym, la crème fleurette, la moutarde blanche, le beurre et l'eau, le sel, le poivre. Ustensiles : une casserole, un mixer, un chinois.

En voici la progression. D'une part, faire blondir doucement les foies de volaille avec du thym frais et les faire légèrement colorer. D'autre part, faire réduire à feu doux la crème liquide (fleurette) avec la moutarde blanche de Dijon et parfumer à la fleur de thym fraîche. Mixer finement les foies de volaille, puis les passer au chinois dans la crème réduite. Attention à l'évolution de la sauce : lorsqu'elle épaissit, incorporer le beurre ferme et un peu d'eau. Rectifier, sel et poivre du moulin. Rien de plus simple, en apparence. Cette recette exige cependant un certain tour de main, c'est-à-dire plus d'application que d'inspiration. Elle doit moins au génie d'un grand cuisinier qu'aux mille inconnus modestes qui, depuis des générations, ont tourné la spatule de bois dans la casserole.

In english it means

The ingredients are: poultry liver, fresh thyme, thyme flower, whip cream,, white mustard, butter, water, salt, pepper.

Here is the process: first, slowly brown the poultry liver with fresh thyme. Then reduce on low heat the whip cream with the white mustard and add some flower of thyme. Finely cut the poultry livers and strain them through a "filter" (chinois) in the cream reduction. Be careful with how the sauce evolves when it gets a bit thicker, put in butter and a bit of water. Add salt and pepper to taste.

It sounds simple in writing but in fact this recipe requires a lot of trial and error. It owes less to the culinary genius of a great chef than the thousand anonymous cooks that have beat in casseroles for generations.

The BIG SURPRISE for me is the absence of garlic. I would have sworn there was garlic in this sauce, I would still swore today, but apparently there isn't.... I thought it was a curled bearnaise sauce with garlic... I have to try to replicate this recipe. I have no idea if this is a prank by the "le monde".

AIG CFO resigns over pay

2009-12-30T15:55:00.000-08:00

In what is the most ridiculous move yet in this ongoing saga, the CFO of AIG is resigning over pay. That dumb thing thinks she is not paid enough? For presiding over the GS fiasco? For being the turkey of the industry? the laughing stock of a generation?

It is a national embarrassment to begin with. These people have no shame.

I think she, and most of the AIG staff, should be trialled and sentenced to reimburse their W2 gains. What arrogance and incompetence. She should be tarred, feathered up and leave town without making noise. She is a poster boy (or girl as it were) for the mediocrity that makes up a lot of corporate america today. Weak, stupid, despicable, aberrant and somehow feeling entitled to the good life. Good riddance, I can't wait for the whole lot of them to leave.

Synthetic CDO's: weapons of mass destruction

2009-12-26T08:08:00.000-08:00

There is a good Christmas piece over at the NYT. It goes into the role Goldman had in creating these opaque securities, designing them knowing they would blow up and then shorting them, for fun and gain, making a killing when the markets tanked. One of the problems was that the damage got multiplied. The article mentions a 6x on these instruments (naked to non?)

Synthetic CDO's
Regular CDO's are a just a way to package debt securities and market them in tranches. The senior tranches will carry a AAA rating, by design. Synthetic CDO's are CDO made of exotic "assets". Such asset can be the BBB tranche left from a previous CDO deal or a naked CDS. A CDS is an insurance against default, it will pay a yearly premium to the holder of the contract and oblige him to pay out the notional value of the bond on default. A naked CDS is when you buy the protection without owning the underlying asset, effectively speculating on its default.

By packaging these contracts in CDO, the banks were able to find buyers to the long end of its exposure, while it, itself was short. It effectively marketed its long risk as AAA securities. The demand was strong.

Liquidity drain
One aspect should be regulated which is the amount of notional these instruments effectively emitted. When debt default it is the notional that must materialize, most of the time in cash reserves. This was a massive liquidity hold-up and a source of systemic instability. It spread and mutated the disease in the financial system.

Tarnished reputation
Clearly setting up securities to blow up, knowing they will blow up, marketing and selling them, no matter how transparently, while holding onto the short end, represents a huge conflict of interest. GS had privileged information it used first to offload the risk it had and then to speculate against markets. Clearly their clients interest was second to greed. This in and on itself is not illegal, but should be, in a Glass Steagal way. A business that willingly screws its own customers is a dead business anyway, no? The GS CEO gets lionized.

Broken models, broken markets
At a pure analytical level this also says that pricing in these securities got ahead of everyone. These securities were in fact impossible to price and the underlying default models (gaussian distributions) proved wrong. There will be models with fat distribution used in pricing these derivatives etc but I believe trust is gone from these markets and until it returns, securitization is effectively dead. This is a deflationary force.

AIG connection
For sure, AIG is worth mentioning in this context as most of the long exposure ended up there. At this stage, as it came to pass, it was the US Taxpayer that was on the hook for the liquidity needs of AIG. All these shenanigans allowed a few smart desks to speculate and unload risk on the US Taxpayer.

Yello Bostich, Remix contest at Beatport

2009-11-26T23:42:00.000-08:00

What does a guy like me, with way too much time on his hands do for fun? Well those that follow the production on this blog know I have a passion for mixing electronic music. Getting familiar with the tool Live by Ableton, has been a ton of fun over the past 2 years.
Yello Bostich -- Strange Creatures Remix by marc fleury
Recently Beatport (one of the biggest DJ download sites) has been running an open Yello contest to remix Bostich and Oh Yeah! (Oh Yeah was their biggest cross-over hit in the 80's). I have picked up Bostich because it was typical Yello for me, crazy fast music with moments of lyrical/chorus genius. I try to key on those elements and stretch them out, replay them in a different order. Besides the drum beat, that I had to redo, everything else is from the original with just sound work. Interesting how the resulting sound is techno.

KNOWLEDGEABLE FEEDBACK APPRECIATED ON SOUNDCLOUD ENTRY.

Exponential Monetary Growth under Basel 2

2009-11-20T10:36:00.000-08:00

I have been reading this working paper by Trond Andresen.

ABSTRACT: A Basel-type bank regulation regime has the side effect of endogenous money growth. The growth rate turns out to be inversely proportional to the required minimum capital/asset ratio. This money growth contributes to avoiding debt crises, as opposed to non-bank lending which increases debt but not money stock, and is therefore dangerous in the long run. Banks often prefer to sell loans onwards. It is shown that this doesn't only decrease the bank's risk, it may also imply faster asset growth for the selling bank by allowing an increase in the flow of new extended loans.

I will try and present the equations of the first part, offer a generalization of the framework, and briefly discuss the results.

The papers look at the balance sheet of an idealized bank, it has assets, and liabilities. Double entry accounting states:

Assets + Cash = Debt + Equity. (0)

Which can be read as all assets and cash need to be coming from debt or paid-in equity. This equations holds in time as the bank starts earning money. Equity is then defined as liquidation value, where you liquidate all assets, add cash, pay debt and what is left is distributed to equity.

The quantities studied are:

A, the amount of assets the bank holds. This is the amount of loans that are extended. A loan is something that pays ia*A to the banks (think of your mortgage, a 7%). It cost you ia*A ($/YR). This model captures bad debt in the form of lambda*A. Lambda is the rate of default on debt. Think about sub-prime, lambda was assumed to be 15%, it turned out to be 30%. It also models repayments as r*A, r being the portion of loans repaid per year. The assets also grow at the rate of new loans which we call l.

The equation of growth of A (noted A') is straightforward

A' = l - r*A -lamda*A (1)

And reads "The rate of growth of the assets is the amount of new loans minus the loans that are repaid minus the loans that default". If you can read the above equation as the sentence, nothing more complicated will be coming your way.

The equation for the growth (rate of change) of Liabilities is the following

L' = l -r*A - beta*(ia*A-il*L) - ec (2)

The first element is l is the same the new loans. The reason they show up here as well is that all cash that is lent by the banks is deposited back in the banks.

r*A is the amount of loans that are repaid. To repay a loan you pay with money from your deposit. So it is substracted here.

The bank makes money on the difference between the rates in and out. It gets paid a flow ia*A (think your mortgage at 7%). In turn, it pays, il*L to you on your deposits (think 3%). That is captured by the flow (ia*A-il*L). The flow from operation is the profit margin of this flow, which we call beta. Hence the beta*(ia*A-il*L).

Here, compared to the Andresen original, we have introduced a new variable ec as the amount of paid-in capital raised during the period. This is a flow of new equity issued.

We define C as the amount of cash the bank has on hand. Cash grows as the company makes it from operations per the rate above or it is raised on the markets. Cash in turn is drained as it is loaned out, we call this flow lc. This is captured by the following equation on the first derivative, or rate of growth of C which we note C':

C' = beta*(ia*A-il*L) + ec -lc (3)

new loans are created all the time, this is where debt money is lent into existence we call this flow ln. The total amount of loans at each period is:

l = lc+ln (4)

These five equations define a banking sector that emits debt money, raises capital, generates earnings.

As a further requirement we impose a Basel 2 constraint on the system. It is defined with the capital ratio, where capital/assets is not to go below a threshold we call k.
C/A = k (5)

Equations (1-4,5) define a simple model of a bank under Basel rules.

To study it, we can at this stage run computer simulations without loosing generality. However we can introduce further simplifications to find the Andresen equations.

Specifically if we impose C'= 0 and C=0

(5) <=> (A-L+C)/A = k <=> A(1-k)=L

Or a hard linear relation between assets and liabilities, expressed by k.

and

(3)<=> lc = beta*(ia*A-il*L) + ec

Which simply states that all cash-flow from profits and paid-in equity are recycled as loans in this assumption.

Then (1) resolves to

A' = (beta*i-lambda)/k*A + ec/k (6)

With i = beta*(ia-il*(1-k))

(6) is the slightly generalized form of the Andresen differential equation. ec is in practice a function of time, the amount of cash raised by the banks over a period of time but if we simplify by assuming ec=0 (no cash raised) then (6) resolves to the Andresen case which has the solution:

A = A0*exp(gt) (7)

defining

g = (beta*i-lambda)/k) (8)

Assuming all cash flow from operations is relent out, assets will grow exponentially with time under Basel 2. QED.

A comment on debt money growth rates

Look at equation (8)

If beta*i > lambda, then g > 0 and debt money grows exponentially.

If however bad debts spikes beyond the capacity of the business to generate free cash, then

lambda > beta*i <=> g<0

In this case, the debt-money supply needs to shrink exponentially to satisfy Basel. In other words, Basel compliance means a deflationary dynamic after a bad debt shock. A shrinking money supply can trigger a deflationary depression.

Equation (6) offers some relief but means new equity needs to be raised to satisfy A'>0.

Next we will look at central banks and how deficit spending can stabilize the money supply.

What is Thanksgiving?

2009-11-19T09:48:00.001-08:00

An English woman asked me this simple enough question today. Thanksgiving is the biggest American family holiday. It takes place on the last Thursday of November and is also the biggest air travel date in the US. As a family holiday, it is associated with all the things people usually conjure up when they think of family obligations, and people they only see once a year, with whom they may or may not get on well. My favorite movie about Thanksgiving and the modern American family is Home for the Holidays starring Holly Hunter.

In grade school, American children dress up as Pilgrims and Indians and are taught how the Pilgrims escaped religious persecution in England and gave thanks for their very first successful harvest in the New World, with a celebratory feast to which they invited their new friends, the Indians. Of course some of these escapees of religious persecution didn’t turn out to be the most tolerant people themselves. Then perhaps the Indians weren’t thankful when we later killed them and took their land, but only kill-joys bring that stuff up.

Thanksgiving also comes with various required dishes that many Americans hate, but prepare anyway because otherwise it wouldn’t feel like Thanksgiving—the chief ones are turkey, sweet potatoes, wild rice, cranberries and pumpkin pie. Depending on your individual tastes, the recipes you select, and your cooking ability, these dishes can either be mouth-watering or stomach-churning. In my case, having a Mother Who Could Cook turned me into the worst of both worlds--a judgmental eater, who never bothered to learn any of the basic holiday dishes because there was always somebody there willing and happy to cook them for me and everybody else.

Since I will be away from home and want to cook my own Thanksgiving dinner, my good friend has suggested I go to the Butterball website, which even has a turkey hotline. Whenever, I despair of my country, I am comforted to see this return to our roots and thoughtful marketing, aimed at me, the consumer. The Butterball website dispenses useful information like how long to bake your turkey based on its weight, how big a turkey you should get based on the number of people you are inviting and a recipe selection that caters to the two Americas—those whose lofty and unachievable ideals that lead them to attempt a demi-glace once a year, and those who happily grab the bouillon cube and water; those make their own pie crusts and those who grab the ready-made variety off the freezer shelf at the grocery store. In the US, there’s even a new option for centrists—the roll-out circle of pie crust that you can feel good about pressing into your pan, sometimes it’s even made with real butter.

A family member who once worked in Unilever’s baby foods division described the middle-ground consumer as the Holy Grail of Marketing. I asked her what Unilever thought about women like me who breast-fed for a year and made their own baby food? She said: “We don’t even bother to try and market to people like you. Our ideal consumer is the guilt-ridden mother who is willing to pay more to give her baby healthier off-the-shelf options.” After four children, whom I duly breastfed and made healthy home-made purees for, that woman is me! I’m glad to learn that I matter, that someone cares. Thank you for giving me those choices Butterball!

By the way, it was once brought to my attention in blog comments, some of you are offended by the fact I and other citizens of the US call ourselves Americans. Yes, some of us are aware that we are only one country in the continent of North America. However, if you can’t find any grossly more offensive use of imperialist, Euro-centric, US-centric linguistic manipulation to focus on, shame on you. Please devote your energies to finding and marketing a better alternative, preferably identifying with the struggle of indigenous native peoples…and not a16th century Italian mapmaker.

Book Review: The Hemingses of Monticello

2009-11-19T05:58:00.000-08:00

I picked this up as an impulse buy at the book store, and I'm glad I did. Like most Americans, I associated Monticello with Thomas Jefferson. Although I hadn’t read any Jefferson biographies, what I had read about him lead me to admire him as a Great Man of the Enlightenment—humanist, writer, builder of nations, universities, and of course, his own very lovely neoclassical house on a hill—Monticello—Italian for little mountain.

I wasn’t ignorant of the contradictions of the writer of “We hold these truths to be self-evident: that all men are created equal; that they are endowed by their Creator with certain unalienable rights; that among these are life, liberty, and the pursuit of happiness…” being a slave-owner, who had a long-term relationship and fathered multiple children with one of his slaves. I just didn’t see the interest of commenting on the obvious contradictions or indulging in historical “what if” fantasies. Thankfully, neither does Annette Gordon-Reed.

Her book is not about de-bunking Jefferson. She’s more interested in members of his family, about whom much less is known—the eponymous "Hemingses of Monticello". Gordon-Reed focuses on the Hemings for two convenient reasons: their connection to a well-known American historical figure, the fact that, due to this connection, there is somewhat more documentation about them than their peers in the plantation South.

What did this South look like? Gordon-Reed describes a pre-Revolutionary population of opportunistic frontier pioneers, living off tobacco as a cash crop. The English govt. gave the settlers land based on a head-count system—a certain number of acres for themselves and every other person whose passage they paid to the Colonies. Over time, the primary labor for the plantations evolved from English-born indentured servants to imported, enslaved Africans and their descendants. She explains that the typical Colonial plantation-owner was deeply indebted, usually to English trading firms and speculates that the self-interest in canceling that debt, as well as the Colonists’ desire to further encroach westward into the Indian lands (limited by Britain pre-Revolution) were less lofty ideals that may have accompanied “no taxation without representation.”

The story begins with Elizabeth Hemings, the daughter of an African-born woman and an English ship’s captain. There is some evidence to the effect that Hemings’ father recognized that he had a daughter and may have wanted to free her, but could not because her mother was the property of another man, who refused to sell her. She explains how, the word mulatto, for mixed-race people of African and European descent comes from the word mule, an animal that cannot reproduce itself—that the Colonies had laws against miscegenation but they were only applied to poor whites or situations where the mother was white and the father was black. When plantation-owners like Jefferson’s father-in-law, John Wayles, took slave mistresses, like Elizabeth Hemings, and fathered children with them, the law looked the other way.

The growing number of these mixed-race children and the constant fear of slave revolts, caused the colonists to significantly depart from English law. The English tradition would have granted the child the legal status of the father, which would have meant freedom. Instead the Colonies looked to Roman law as inspiration, basing a child’s legal status on that of its mother—thus the children of free fathers and enslaved mothers, would remain enslaved.

The Hemingses were Thomas Jefferson’s family in the literal sense, not just from a paternalistic plantation owner’s view. Many of Elizabeth Hemings’s children were his wife’s half-brothers and half-sisters. When he married Martha Wayles, Elizabeth and her children came with her to Monticello. One of these half-sisters was Sara (called Sally) Hemings, who became Jefferson’s mistress and the father of his children, after his wife’s death. Gordon-Reed explains how the Hemings family’s mixed-race status and blood connections to the Wayles/Jeffersons gave them a privileged status at Monticello—many of them were taught to read and write, they were given better clothes than their enslaved brethren, taught trades, exempted from field labor, given more freedom of movement. Some members of the Hemings family eventually received their freedom, something that would not be an option for the enslaved people of Monticello, outside that family. Gordon-Reed makes the point that house work, while physically less taxing than field labor, was certainly arduous enough and presented the stress of negotiating emotional and physical proximity to the plantation masters. It also cut them off from the more Afro-centric traditions/culture that the fieldworkers were able to maintain.

Gordon-Reed is careful about not generalizing or making assumptions where they cannot be made. She notes that an enslaved woman, like Elizabeth Hemings, could not refuse sex with a white man, whether the children that resulted from these relationships were the product of rape, or whether there existed some emotional attachment with the children’s father depended on individual circumstances, not documented for the historical researcher. She notes that the same was more or less true for white women and their husbands. While these women had a relationship that existed “in law,” they often did not necessarily choose or love these husbands.

One of the more striking facts that I learned about Jefferson is that his wife died from complications resulting from her frequent pregnancies and childbirth. Gordon-Reed points out that while he apparently loved his wife and was inconsolable at her death, he could not have been ignorant of his role in the circumstances causing her death. On her deathbed, Martha Jefferson made her husband promise never to take another wife, a promise Gordon-Reed speculates was likely motivated by her own experience with two stepmothers and the desire to protect her children. Jefferson kept his promise to his wife, and later when seeking another outlet for sexual companionship, looked no farther than with her enslaved half-sister, thus keeping it all in the family, with a woman who did not have a legal status and could never be a step-mother to his children in the eyes of the law.

I haven’t finished the book yet, but it does shine a not-very-comforting light on a not-so-distant era, a world where the children of the plantation owners would be given an enslaved child their own age to be a companion and later servant, a world where the house on the mountain is a symbol for the desire to aesthetically and morally distance oneself from the harsh realities of the plantation economy and the enslaved peoples that make it work; a house that was literally built and run by Jefferson’s own mixed-race family members; a reminder that the leisure to pursue the accomplishments achieved by Thomas Jefferson were underwritten by the enslaved labor of the people who tended to him, to his family, and his plantation. It also gives a face to those enslaved people, and looks at how they carved an identity for themselves, particularly, how a mixed-race family like Hemings both benefited from and paid a price for the different and ambiguous status they occupied within the Peculiar Institution.

The apology of Geithner: AIG

2009-11-18T08:21:00.000-08:00

Geithner was pewned like a noob. Yves Smith of naked capitalism wants Geithner lynched for how he handled the AIG situation. This was covered in another entry called "don't send a boy to do a man's job" namely that Geithner, could have negotiated a better deal than paying PAR on CDS.

It gets a bit technical but bear with me.

One first important fact is that in the CDS bucket AIG was holding there was a 4:1 naked to covered ratio. Why is this important? SocGen and reportedly Calyon and DB all held the CDOs. So these guys were taking serious REAL losses on subprime. But for each one taking a loss, there were 4 just SPECULATING, mostly worldwide Hedge Funds through primary dealers IB.

A first real shame, imho, is that these speculating HF clients would have taken NO LOSS on a default of the payments but the premium they paid, the notional was never put in play by these guys. NAKED CDS IS THE FIRST SPECULATING ABSURDITY. G-boy could have in principle said "you and you were speculating, not taking real losses so screw you, we are not paying jack shit, go fuck yourselves". Of course in real-life this means a bunch of law suits and contract breaking and is plain impractical because see below.

But to put things in perspective, guys like Paulson (not Hank, the hedge fund guy) were deified as the “geniuses that saw it coming and pocketed $2B out of it”. Top dogs indeed! I squarely put the blame at the feet of the instruments of mass destruction they used, NAKED CDS on synthetic and straight subprime CDOs to speculate. Run some numbers: if Paulson personally made $2B and assuming he gets 50% of a 20% performance fee that means the fund brought in $20B (at least, if he gets 10% it was 100B the fund brought in), well RIGHT THERE is your CDS mess money. And how do we pay for it? with hunger in the US! I am not even joking or being facetious on this one. The direct result of the massive speculating was an amplification of damage.

Second, I am trying to replay the picture in my head, I am not sure G-boy had much room to maneuver. It is the “fait accompli” theory. He had his back against the wall. Let me try and explain how I see it.

GS and most Investment Banks (IB) were just holding back-to-back agreements.

Case A: One hedge fund was long, the other short. IB has no beef holding 2 canceling swaps, one short one long with 2 HF. I will call this HF-HF

Case B: One hedge fund was short, bought from IB, IB re-insures with AIG, the final trade has a structure that looks like AIG-HF, as opposed to HF-HF.

It is speculated that panic of AUG 07 was triggered by the unwind of a large portfolio of HF-HF. Remember that naked CDS just created 4 times the volume of liquidity that was put in the first place through CDOs on subprime. This to me is a mind-boggling mistake since it created a LIQUIDITY IMPLOSION. Quants started barfing. If the subprime debacle was $250B of real losses, a 4x multiplier meant: on top of $250 of vanishing assets, the HF+IB system had to come up with $1000 (yep, 1 TRILLION) in ACTUAL liquidity over a relatively short period of time. This is assuming 100% of CDOs were covered. Adjust the numbers for the proportion of CDO that were covered (?10%, i am making up) and you still arrive at the pretty scary numbers of $100B of liquidity. This in my mind, is the suspect #1 catalyst for the 07 quant panic. (A liquidity implosion triggered by CDO subprimes and fueled by naked and covered CDS) So a few HF went POOF! and took the market with them, in a generalized LTCM panic moment.

But more importantly, in the second scenario AIG-HF, you see where the system fell down. Here is how the run plays out imho (pure speculation :) . The CDS goes nuclear as the subprime virus spreads, it triggers liquidity needs at the HF level then the IB level. This is where things get complicated. At this point, the liquidity is GONE from the IB and the velocity of the money is nil as the recipients are not putting it back in game. We got a liquidity drain followed by a liquidity desert. So the liquidity stops at the recipients who go cash amid imploding Bear and markets. So first of all any haircut on naked OR on covered would have resulted in a real liquidity loss at the IB level as the CDS horse had left the barn. Anything less than par would have in fact left holes in place AT THE IB level. Of course the real shame to me is that the HF level (or proprietary IB desk) that was speculating all along (naked) got paid in the first place AND triggered the liquidity crunch. The crisis of insolvency was driven and realized by a crisis of liquidity. In retrospect the authorities were right to first treat liquidity problems even in the face of insolvency.

Then the dynamics laid out in the referenced blog take over, namely, AIG is nationalized anyway, so there is no threat of a legal bankruptcy possible anyway, the french and the german, not only are facing real losses but also understand that the FED will NOT hamper the US IBs and just hide behind their counterparts.

A tell tale sign is that 2% cut UBS offers. Think about it, the underlying CDOs where 70-90 down? That tells you UBS was acting as a IB broker and had ALREADY paid par on their contracts.

And why did they pay par in the first place? because unlike their US govt, they had 1/ contractual obligations (IB-HF) that would have resulted in lawsuits bar bankruptcy negociations 2/ They KNEW uncle sam would ultimately FOLD when confronted with the FAIT ACCOMPLI described above.

G-boy was a tool, a pawn, there was NOTHING he could do. The FED has been put in place to prevent runs on the IB system in 1907, that is its charter, what it does. That is what it did. A/ Audit the FED B/ Ban naked CDS. The AIG/CDS payment was a systemic disgrace where no one bears the blame.

The free market, if left to its own devices, creates monsters. It is high time the pendulum swing back from "laissez faire" with some skull cracking force.

Google Wave for Scientific research

2009-11-17T17:20:00.000-08:00

As I dive into financial modeling and under the probing of a friend, I asked myself if google waves would lend themselves to scientific research and collaboration. After 30 minutes of late night browsing I must say I am blown away. Found a program called Latexy for Latex formulas, a program called igor for reference management, wolfram alpha has a robot, mathematica proper talks about doing one. Most important I think that the time feature will be killer to see how the research evolves and progresses... sort of a built in CVS.

But the thing that really blew me away was the mass of people. Within a couple of weeks (ok months if you were really early on the beta), some of the specialized discussions are really cool and it is the first time I really felt the "mass of people" right there in my face, 300 of them, discussing the topic I wanted to discuss (how to include LaTeX into waves).

I have started a wave on endogenous money growth in modern monetary system. I will share it as a public wave as soon as I have some meat in there :) I am excited, impressed and giggling like a little girl. New technology that I think I can use does that to me. Some aspects of it still puzzle me, when I first saw it as a forum replacement, i was not so excited, but for targeted applications like this, it could be killer. I want to believe. I want to believe it is not slideware and will be definitely giving it a serious ride.

State Capitalism

2009-11-11T06:05:00.000-08:00

On the 20th anniversary of the fall of Berlin Wall, Martin Wolf has a thought provoking commentary in the FT:

Similarly, at a global level, radical reforms must be made in the financial and monetary systems. To put it bluntly, the banking system has been gaming the taxpayer on an intolerable scale. This must end, in one of two ways: the sector must be made subject to the market or become a heavily regulated ward of the state. Again, the curbing of huge credit bubbles must be an integral element in the formation of regulatory and monetary policies. Finally, the dependence of the global monetary system on the currency of an over-indebted superpower is neither desirable nor sustainable.

Powerful words, that barely need translation. The basis is
1- The banking system HAS BECOME PARASITIC
2- They must be nationalized or allowed to fail. "Free Market" is an illusion.
3- The world reserve currency cannot be only the dollar since the FED will print away its over indebtedness.

I would go one step further, the FED may have stabilized the current mess but truth be told, the more I learn about "money" the more disturbed I am by what the FED is. A cartel of private interest with unlimited access to the public purse by way of controlling the printing presses. It is an alien scenario.

She's Still Not Preoccupied with 1985

2009-10-23T02:14:00.000-07:00

I first heard this song waiting for carpool pick-up in my Volvo SUV☺ Not very nice to mothers are you Bowling For Soup? In cheesy recent pop, we much prefer Fountains of Wayne’s “Stacy’s Mom (has got it going on)” thank you very much. While I did (and still do) enjoy a lot of 80s music, I was also happy to put that decade behind me—no snakeskin miniskirt, boyfriend, or Duran Duran concerts to wax nostalgic about there.

My memories of the high school in the 80s have a lot more in common with Curtis Sittenfeld’s Prep than “The Breakfast Club” or “Sixteen Candles.”

So it is not without irony that I find myself shopping for an 80’s theme party at H&M, where clothes from that decade seem to have made a comeback. They are playing “Blister in the Sun,” a female-vocalist, Euro-pop version that lacks all the angst of the Violent Femmes original. I score a pair of leatherette leggings, fuchsia satin top and black Members Only-style jacket. Paying for these clothes, wearing rather conservative and uninspired “bourge-y” sweater, slacks and Ferragamo handbag, I’m sure the register girl at H&M thinks I’m schizophrenic or have a whole alternative night-life as a street-walker.

After the H&M experience, I feel the need to explain to the 20-something sales-girl at Sephora the objective behind my request for shimmery fuchsia eye shadow: “I’m buying this for an 80s party” meaning “I don’t normally have this bad taste.” The sales girl with the dyed black hair and nose ring (who definitely was not born earlier than 1980) is impressed. “Una fiesta, anos ochenta, que guay!” She explains this to her gay male sales associate with the Clark Kent-style glasses. He’s impressed too. “Una fiesta ochentera! We wish we were going.” Are the 80s suddenly cool again, even for people too young to remember that decade?

Actual items of clothing or accessories worn by Nathalie MF in the 80s

1) Baggy sweater and leg warmers
2) Stirrup pants
3) Jellies shoes
4) Neon socks
5) Shirts with shoulder pads
6) Large hoop ear-rings
8) Stonewashed jeans with zippers at the bottom of the leg. I babysat many hours to save up the $50 for that pair of Guess jeans.
9) Overalls
10) Catholic school-girl plaid skirt, white shirt with Peter Pan collar, knee socks and penny loafers--until my transfer to “The John Knox Institute” which didn’t have a uniform, but did have a strict dress code
11) Lots of Laura Ashley floral skirts and dresses. Embarrassing but true. I spent a lot of time ironing yards of floral fabric to perfect this look.
12) Bermuda shorts and argyle knee socks.
13) Kelly green and electric blue eye-liner
7) Pouf-dress for prom
14) Total write-off year? 8th grade: braces, bad Farrah Fawcett haircut, put on a few pounds, but did not grow taller, had chicken pox the summer before, which was not good for skin, almost failed Algebra…

Then vs. Now

Favorite High School Reunion depiction—30 Rock Episode where Liz Lemon goes back to suburban Philadelphia for her 20th reunion: their private plane gets stranded in the bad weather and Jack accompanies her. She says nobody will believe he’s young enough to be their classmate and he counters: “Rich 50 is like middle-class 37.” She remembers being a nerdy outcast, but they all remember her as being mean, sarcastic and intimidating. She plays spin the bottle and winds up with Jack. They not only don’t kiss, he decides her classmates are right about her.

Sure I was: Nerdy and sarcastic, but most definitely not intimidating.

Happy I grew up then because….no cell phones, messaging or Internet. The stupid things you said and did were confined to throw-away notes or your high school yearbook--not broadcasted, mass-distributed and memorialized in the ether.

Moved on to the 90s for:

Curtis Sittenfeld “Prep” fame-whore/narrow-miss media humiliation

Graduated from college in 1994. Pitched my failure to find a job, combined with large number of interview opportunities to Rolling Stone writer for their “Gen X column—looking for the first job episode.” Used winning lines like “I discussed this with my grandmother and her friends and they said “Honey, we just don’t know what to tell you. When we graduated from college, we joined the Junior League and started playing bridge’;” “I used to write about Personality and Artistic Theory, now look at me, I’m writing about evaporators and batch digesters;” “I picked which college recruiting meetings to attend based on the quality of their buffet spread;” “I failed my interview for a derivatives sales and trading position at a large multi-national bank. I don’t think it mattered so much that I didn’t know what a derivative was…it was the moment I discussed my senior thesis on Samuel Johnson’s theories about being un-able to enjoy/live-in the present because we are constantly fixated on a past or future, which is either far worse or impossibly idealized compared to the ever-vanishing present…where The Head wrote me off as not possessing the driven, goal-oriented Derivatives personality.”

Almost (sort of, not) briefly Infamous

The article never got published and I got three good meals out of this (including one at an upscale restaurant!) on Rolling Stone’s tab.

Will never be representative of my generation because

I actually know most of the lyrics to Dr. Hook and the Medicine Show’s “Cover of the Rolling Stone”…

Open Source, a modern day Marxist Utopia?

2009-10-22T01:37:00.000-07:00

I have been palling around with Marxists. I know, I shouldn't. I feel like the odd duck... a multi-millionaire, reading modern marxist utopias. The Marxists underground still exists, it is even experiencing a bit of a revival. They feel even emboldened by the current soiled diaper mess western ultra-liberal capitalism has created.

Obviously choosing to be a Marxist economist wasn't a fast pace track to academic success. Truth be told, the main reason I relate, is that they are the only ones modeling banks and modern fiat money in a way that makes any sense to me.

(Main conclusions basically state that interest bearing instruments, a la bonds, are detrimental to a society's economy when said economy is not growing at a brisk pace)

But mostly I think some old Marxist conclusions, such as "Banks are pigs that are detrimental to society", are worth dusting off. They should be revisited in light of the current abuses of ultra-liberalism and the banking disgrace it has engendered, where those that caused the most pain, reap the most rewards. Free markets self-regulations, fairness and other bollocks.

Anyway... enough digressing. I was reading a paper by one of my favorite academics these days, Trond Andresen. You can find the paper on "Utopia/Dystopia" here. Handle with care, modern Marxist utopias are not for the faint of heart and mostly take root in science fiction ... The relevant passages to the OSS topic are

Another objection is “why should people at all work in/with factories and manufacturing plants when they instead can do all this more meaningful and/or entertaining stuff?” The answer to this is twofold:

• A minority of people is deeply fascinated by tinkering with technical processes, and gradually making them run even better. And they are not very interested in interacting with people as the central point of their job.

• Pride: The select few that control the utopia’s manufacturing plants and process industry are the persons enabling society as a whole to enjoy its very high living standard. They know it, and the others know it too

These factors have been already identified as driving forces behind Open Source. Open Source is done by geeks fascinated with infrastructure and plumbing. Yes, I did take pleasure in solving complex problems. There is a certain pride in being a alpha dog amongst alpha dogs. I always got off on that. Most of you also do. This need to create, even for free, for the sake of creating or showing off will always remain, in a monetary society or not. The profit motive isn't always the motive.

A final point in this section about a long-term utopian scenario, is “can we get there gradually”? Ignoring the controversies on the political left about “reform versus revolution”, I will here suggest that a modern market economy may (at least in theory, assuming that persons/parties with the political will for it is in power) be gradually changed in the direction of the utopia, by – among other things – carefully selecting activities that are “ripe” for being made public and cost-free for the users. Such selection can be done based on at least one of the following criteria being fulfilled for the product or service in question:

1. Limitless consumption is no problem, capacity- or environment-wise (example: local phone calls, Internet access). (This is the sole – and therefore unrealistic – premise of Marxian “higher-stage communism”.)

2. Consumption is due to its nature inherently limited or rationed (example: schools, hospitals, funeral services, local public transport but not long-distance travel).

3. Neither, but attitudes have changed, so that people voluntarily abstain from over-consumption of a certain good/service.

Hmmmm, are modern marxists completely underestimated? They have also laid out a clear reason why we were succesful in OSS. It was just a low hanging fruit. Is OSS's success, the clear first sign of a "higher-stage communism"? Afterall, limitless consumption of bits is harmless, production is low cost and work is play as per the first quotes. "From each according to his abilities, to each according to his needs" could definitely sum up how goods move around in the OSS communities: a few produce according to their abilities, the mass consume according to their needs. What may not apply or simply be obvious in industry that are "people intensive" becomes a plain truth in software.

Yet, a part of me shuts down when I realize this is making sense. What is wrong with me? After all, I spent most of my short professional life, making sure we made money at OSS and monetized our success. I still feel passionately that outstanding individuals should get rewarded in OSS, how "Ayn Rand" of me, how so 1990's!. That we would get paid for producing software, that we would market goods in order to make a living and beyond seemed like a foregone conclusion yesterday, it stills seems so today. I have not compromised on that point. And I am obviously very grateful for the luck we have had and in no way would I change what we have done with professional open source for some vague promise of a better tomorrow. I am still a realist at heart?

But are they incompatible belief? Can you be a communist in a monetary society?? In that light, isn't professional open source, a socialist utopia that embraced making money? More on the topic of monetary modern marxism soon.

The Beauty Issue

2009-10-21T10:10:00.001-07:00

My husband and his friend both assume that another friend of theirs is quite a hit among the ladies. Apparently high school and college were good times for X. “Can you imagine that they used to call him the 'Devastator'."

The irony is that neither my husband, nor his friend, bothered to ask actual women, including their own wives, what they think of X. The man in question is nice enough looking, but I haven’t spent much time thinking about him. The truth is that all above-average looking people are simple abstractions to me, unless they’ve written, said or done something that particularly piques my interest.

I don’t relate too well to the (outward) absence of obvious flaws in other people—like being too nice or too beautiful. No doubt this stems from an instinct to preserve dignity. One wonders if the unnaturally beautiful or virtuous might be applying their own (higher) standards to us: aka “could use an extra hour of treadmill every day,” or “needs to use more age-defying facial moisturizer” or “if you don’t have anything nice to say, don’t say it.”

Even worse, if I suspect that an above-average good-looking person spends a lot of time improving or maintaining their physical appearance. Extreme self-discipline also makes me uncomfortable—seems too much like a self-mortification fetish. I, myself, last tried a diet in 2005—the South B(i)tch ™, which is exactly how carb-deprivation made me feel. Every time I’ve made an effort to diet or exercise more, I’ve lost the same five pounds, which immediately come back--since I haven’t been willing to make a Permanent Lifestyle Change. I do love walking and hiking, for the pleasure of these activities, not because they are connected in my mind with Self-Improvement. The irony is that all these men who spend hours buffing up in the gym would probably get more female attention if they did something like join a cooking class or book club or learn to dance.

On the self-improvement note, I recently received an email inviting me to a book signing by a former high school classmate who has written a book of lists to help people cope with those life-changing events—buying a new house, getting married, having children, getting divorced, dealing with death, and even the impossibly improbable like the World Trade Center Bombing on 9-11. I thought about this. I make lists too. This gives me a convenient sense of accomplishment, while enabling me to further procrastinate from the tedious things I mostly don’t want to do. I put things in neat stacks or star emails in my in-box. My rationale is that if something is important enough, somebody will remind me to do it and it will then pop back to the top of the list, and eventually I’ll take care of it.

Are women less judgmental about physical appearances than men? I thought about men who would not fall into the category of Somebody Whom Other People Consider Exceptionally Attractive that I would find interesting, like Salman Rushdie, for instance. I loved The Enchantress of Florence. What sort of woman, I wonder does a sensitive, deep writer-type like Salman Rushdie find attractive? Wife number four, Padma, model, celebrity chef. She's beautiful and she can cook, what went wrong there? Apparently, she wasn’t supportive enough of his career. What could the source of the “connection” he feels with most recent girlfriend, Pia Glenn be? Oh wait, that didn’t work out either…because he couldn’t get over Padma. He may write like an angel, but he appears to have the emotional maturity of a 16 year-old…

The interesting thing about getting older is that, for most people, it’s a great equalizer. Apparently X has been going to pick up his children at their school, and noticed that the high school girls in their plaid mini-skirts and knee socks still look cute, but they don’t give him a second look. However, he feels that his appearance is quite appreciated by these girls’ mothers. Sorry “Devastator” you’re cougar bait now.

TF21: Detroit Techno

2009-10-12T05:01:00.001-07:00

Detroit Techno by marcf999

I don't know if it is because it is autumn but I always seem to go back to the deep techno sound when October weather hits. Something about the melody and hard beats.

I have always loved Detroit Techno. It is funny how little most americans know about Detroit Techno. To them Detroit is a city living in 3rd world squalor. To me and most europeans of my age (40) Detroit is the birthplace of electronic music. When mop-rock was still all the rage in most inland US, the Detroit DJ's were touring european clubs and were blown away at 3000 kids dancing to inner-city black techno music. I remember sharing a cab with a journalist that was going to take pictures of Derrick May at his club, I was headed to the club myself for an afterparty during the Detroit Electronic Music Festival in 2003. He asked "who is he?", I explained just how influential he had been to the world electronic music scene and bla bla bla... the guy seemed genuinely confused, he was from Detroit and had never really heard of him, he was just there to take pictures. I was truly dumbfounded.

Anyway, nowadays, one of the artists that I think is most in line with what I consider Detroit Techno is "DJ Bone". He has been around for a few years. The stuff he does is really good. The label is called "Subject Detroit" and it features Rennie Foster, which I remixed last year. The sound is hard. Aggressive even. But in true Techno fashion after a few listens it starts sounding like a lullaby to me. This is a compilation of recent (and no so recent tracks) on Subject Detroit. Hope you like it.

Playlist:
Music- DJ Bone
Minimal- Matias Aguayo- Marcus Rossknecht mix
Alias- Aux 88
R.I.D.E - DJ Bone
Good Time Charlie - Rennie Foster
Break It Down - Alekxis Jaina
One More Tune - DJ Bone
Sin City - DJ Nasty
Structured Music - Stephen Brown
Belt of Orion - Rennie Foster
Dead or Alive - DJ Bone
Hot LZ13 - Rennie Foster
Beauty in Decay - DJ Bone
Change (Acapella) - DJ Bone
Crusin Down 7 mile - DJ Nasty
Flying Object - DJ Nasty
Cause of Action - DJ Bone
One Way Out - Mark Williams
Platform 9 3/4 - Alekxis Jaina