30 April 2009

Ben Stein Watch: Black Folks

I'm not sure what to make of Ben Stein's latest column in The New York Times.

He talks about his first job -- selling shoes at Shoe Giant. The point? Apparently that sales can be tough but exhilirating. He repeatedly quotes Willie Loman, the fictitious salesman of Arthur Miller's famous play, to that effect. Indeed, the subhead of the column is a paraphrase from Death of a Salesman.

But what is Stein selling here? There's no real effort to draw any lesson that might either help or enlighten his readers. My guess? He is selling himself and the idea of his own benevolence. Or, maybe, he just felt the pressure of a looming deadline in the utter absense of inspiration.

One good thing about this column, though: there's no effort to pontificate about civil rights, or about how nice were the black people buying those shoes. He doesn't make us feel like we're stuck inside a showing of Hairspray.

Why should I bring that up? Because this isn't the first time Stein has told the world about his brief shoe-selling fling. In 2001 he contributed one paragraph to a Fortune Magazine column. The columnist, Grainger David, asked several prominent people what their first job had been, and stein was one of the respondent. There, too, he talked about shoes, but he gave it a Hairspray twist.

All I can say to that is: Wow. He likes black people. Awesome. He probably wears his baseball cap on backwards, too.

Come on, Ben. You have prime jourbnalistic real estate in the business section of The friggin' New York Times. Give us something.

26 April 2009

Paging William Blake

Tyger, tyger burning bright --
or maybe its a fox tonight?
What immortal hand or eye
Could cause you through the snow to fly?


this video, courtesy of the BBC and YouTube, is well worth the cost of the one minute: actually a bit less.

25 April 2009

The Banking Industry Stress Test

The Federal Reserve yesterday made public a portentiously titled document about its ongoing examination of all those troubled investment banks you've been reading about.

The Fed's paper is called "The Supervisory Capital Assessment Program: Design and Implementation."

Read it for yourself here.

Or take my word for this concise summary. The Fed and other regulators have been looking over the records of the banks with an eye to determining whether they could survive the next bad thing that might happen to them, "a recession that is longer and more severe than the consensus expectation."

The idea, apparently, is that if the Fed does this stress testing and then triumphantly proclaims that the US banks are now in great shape, able to handle whatever economic reality may throw at them over the next two years, potential equity investors and counter-parties will cheer up and the engines of commerce will start to hum again.

There is a lot that is dubious in that reasoning. But I have to say, I find the name of the program funny. Supervisory Capital Assessment Program? SCAP? Why not make it the Supervisory Capital Recovery Assessment Program? Oh ... sorry ... I just realized they are no doubt saving that name for an assessment of the US auto industry.

Anyway, there was a neat public argument over this program on CNBC yesterday morning, puitting Rick Santelli against Steve Liesman. Rick Santelli, you may remember, helped inspire the whole "tea party" thing with a much-viewed soliloquy on mortgages, bail-outs, etc.

The clip to which I'm about to link you starts in a rather pedestrian way. Santelli gives his usual morning report from the trading pits. Feel free to skip forward to about 3:15, when things get more interesting. The pundits in the studio are talking about the saying "most people think they're above average" and what it may mean in terms of the upcoming stress test announcements.

Then at about 4:15, Santelli jumps back into the discussion, and it gets hot between Steve and Rick, with each accusing the other of not understanding how the banking system works.

Interesting question from Liesman. "You are a local official on the banks of the Mississippi, deciding how high the levy should be. How great of a disaster do you want to prepare for, a 100-year flood? a 500-year flood?"

The point of course has to do with how stress tests should work (what is a "worst case scenario" exactly?) and how banking capital reserves should be set.

Rick gives a good philosophical answer to that question, but Steve thinks it misses the point, and wants to try to get Rick to think inside the box, if you will, of the existing social/political/regulatory system. "Reality not your imagination," as he puts it. Then things go amusingly down hill into shouting match territory.

A stress test for the vascular system of both men, perhaps?

24 April 2009

Active Roster, Boston Red Sox

The baseball season is still new. Let's say who is who on our favorite team.

Active Roster
Pitchers B/T Ht Wt DOB
19 Josh Beckett R/R 6-5 220 05/15/80
17 Manny Delcarmen R/R 6-2 205 02/16/82
62 Hunter Jones L/L 6-4 235 01/10/84
31 Jon Lester L/L 6-2 190 01/07/84
48 Javier Lopez L/L 6-4 220 07/11/77
63 Justin Masterson R/R 6-6 250 03/22/85
37 Hideki Okajima L/L 6-1 195 12/25/75
58 Jonathan Papelbon R/R 6-4 225 11/23/80
36 Brad Penny R/R 6-4 230 05/24/78
56 Ramon Ramirez R/R 5-11 190 08/31/81
24 Takashi Saito L/R 6-2 215 02/14/70
49 Tim Wakefield R/R 6-2 210 08/02/66
Catchers B/T Ht Wt DOB
16 George Kottaras L/R 6-0 185 05/10/83
33 Jason Varitek S/R 6-2 230 04/11/72
Infielders B/T Ht Wt DOB
22 Nick Green R/R 6-0 180 09/10/78
25 Mike Lowell R/R 6-3 210 02/24/74
15 Dustin Pedroia R/R 5-9 180 08/17/83
51 Gil Velazquez R/R 6-3 190 10/17/79
20 Kevin Youkilis R/R 6-1 220 03/15/79
Outfielders B/T Ht Wt DOB
55 Jeff Bailey R/R 6-2 200 11/19/78
44 Jason Bay R/R 6-2 205 09/20/78
54 Chris Carter L/L 6-0 230 09/16/82
7 J.D. Drew L/R 6-1 200 11/20/75
46 Jacoby Ellsbury L/L 6-1 185 09/11/83
Designated Hitters B/T Ht Wt DOB
34 David Ortiz L/L 6-4 230 11/18/75

23 April 2009

Ben Stein Watch: Missing the Point

The inaugural edition of the Chris Faille incarnation of BSW will take a look at this.

As you can see via that link, Ben told his reader in late March that Jim Cramer "appeared earlier this month on 'The Daily Show,' where Mr. Stewart yelled and cursed at him, saying he did not let Americans know just how serious the problems were on Wall Street."

Sorry, Ben, I don't know that. I do know that Cramer appeared on The Daily Show, but it am quite certain that to say that the host, Jon Stewart, "yelled and cursed at him," is an inept summary of the proceedings.

There was one lapse into profanity on Stewart's part, when he said "I understand that you are trying to make finance entertaining, but this is not a f***ing game."

The bleeped adjective there was used not to curse at Cramer, but to modify "game," as in "Wall Street fun and games," or to conjure up an image of Nero fiddling while Rome burns, and to express exasperation. My recall is that Stewart was rather affable, although in a somewhat gnomic fashion. Gee, how could we settle this difference in recall? With clips, perhaps?

Anyway, Ben goes on in the above column to explain that Stewart was angry at Cramer for getting predictions long. Stewart was naive about this because, Ben patiently explains, there is nobody who knows how to make reliable predictions.

There, too, Ben misses the point. By a mile. Actually, Stewart was making two good points and neither of them was simply that Cramer got some calls wrong.

Stewart's points were:

1) "Isn't there a problem selling snake oil as if its vitamin tonic?"

2) There's a difference between predicting how markets will come out -- accurately or not -- on the one hand and manipulating them on the other.

He played clips of a video Cramer made for a website called TheStreet.com, in which Cramer seemed to be bragging about having successfully manipulated prices back when he was running a hedge fund.

That's in the second of the three segments in the site to which I've linked you above.

The bottom line, though, for this edition of BSW: did Ben even watch the same show everyone else was watching?

19 April 2009

Happy Easter to the Orthodox

Why do the Easters of the Eastern and of the Western Christian traditions differ?

Some years (such as in 2007) they coincide. That year, Easter was April 8, east or West. But that only makes the usual disparity more maddening.

The World Council of Churches takes the matter very seriously. "It has long been recognized that to celebrate this fundamental aspect of the Christian faith on different dates," the WCC Has said, "gives a divided witness and compromises the churches' credibility and effectiveness in bringing the Gospel to the world."

The formula applied in both traditions in the same. Easter is the first Sunday after the first full moon after the vernal equinox.

But for the Orthodox the term "full moon" means the actual astronomical full moon. For the western churches, that of Rome and its offspring alike, the full moon involved is the "ecclesiastical" full moon, based on tables created by the Church.

There is also a difference over the precise meaning of the term "equinox." There is also the relationship of Easter with the Jewish Passover to consider in a full account. It all gets very confusing.

Happy Easter, though, for all who are celebrating today.

18 April 2009

Incoherent Strategy

The economic strategy of the Obama team is fundamentally incoherent. Yes, the team hasn't been in place long -- parts of it are not in place even yet. But we know enough already to know that there are real problems with some of its pillars.

I was no fan of the previous administration, you should recall. I don't regret the change. But how much mileage are they supposed to get out of that? I have to call things as I see them.

What does the Obama crowd think the banks are supposed to do with the TARP money, for example? It has re-affirmed the essence of the TARP strategy decreed by the Bushies. But ... what is the point? Should the banks keep their new cash on the balance sheets to build up capital reserves so they will be and remain fundamentall sound? or at least so they'll look sound? Or should they lend it out, thereby emphatically NOT building up reserves and taking further risks?

A key Congressional ally of the administration is Congressman Gary Peters of Michigan. Speaking recently of his expectation that the banks will and SHOULD take a bullet for the protection of the auto industry, he said: “We hope they [the bankers] will understand that what was given to them was not for their benefit, but to get the economy moving again and maintain American jobs.”

Well, that’s the problem. First, what was given them was in the crudest individualistic sense precisely “for their benefit.” The bankers kept their jobs, and thanks to Chris Dodd, who says he was working on behest of the admninistration in this bit of draftsmanship, they also kept their bonuses.

Second, what was given them was also supposed to be for their benefit in a less crude, more institutional, sense too. Those balance sheets. Making the toxic assets (um, legacy assets? or whatever the latest buzzword is?) less toxic.

A separate set of measures, the “stimulus” stuff, is supposed to be doing the separate job of “getting the economy moving again.” Or is it? This administration has no clue.

The interaction of PPIP with the mark-to-market changes gives us another form of the same logical incoherence.

Under a good deal of pressure from the administration and its friends on Capitol Hill, the FASB gave in on mark-to-market, allowing for certain assets to be kept on the bank’s books at higher nominal value than previously. Not unsurprisingly, this has reduced the incentives of the same banks to sell those assets to the public-private hedge funds the administration is trying to create.

Hold them or fold them? You can demand of a card player that he do one or the other. But you can’t coherently demand that he do both at the same time.

17 April 2009

The Pirate Bay founders jailed

A court in Sweden has sentenced four men to a year in jail for copyright infringement.

The men (Frederik Neij, Gottfrid Svartholm Warg, Carl Lundstrom and Peter Sunde) were also ordered to pay US$4.5 million in damages. The money is to go to a number of entertainment companies, including Warner Brothers, Sony Music, EMI, and Columbia Pictures.

The four convicts are behind a popular file-sharing site: The Pirate Bay. Here's a five-minute YouTube video of the bust, Swedish police raiding the ISP host for the service.

The head of the Internatioonal Federation of the Phonographic Industry (IFPI) told the BBC: "There has been a perception that piracy is OK and that the music industry should just have to accept it. This verdict will change that."

The case reminds me of the heady days of the 1990s when the mantra "information wants to be free" was on so many lips and copyright laws were seen as vestiges of a passing era. The sad fact is that "information" itself, as an abstraction, has no actual wants, and copyright law, as these four men have discovered, has some relevance left in it.

16 April 2009

The New Ben Stein Watch

Felix Salmon has for a year and a half in his Portfolio blog performed the great public service of keeping track of the spiral of nonsense emanating from the word processor of Ben Stein, the guy who has carved out a niche in life as something between a pundit and a Hollywood extra.

I've followed and learned from Salmon's BSW, and my own readers have, I think received some benefit.

Here's an example of something I wrote on Stein in my other blog, Proxy Partisans, back in November.

The Economics Junkie has also done good work in keeping track of Steinian absurdities.

And here is an example of one of my contributions to this particular genre of literaure within the four corners of Pragmatism Refreshed.

Anyway, the reason for the whole revival is that Salmon has decided to abandon the BSW. Stein's column's are no longer amusingly bad or infuriating to Salmon -- they are "somewhere between boring and incomprehensible."

That's his call to make of course, but the disappearance of BSW strikes me as sad. So I hereby volunteer to "take over the franchise," as Salmon's April 12th entry suggested that some one might. I think of it more as grasping the baton.

For future BSW fixes, come to Pragmatism Refreshed.

This decision leaves us with the question of timing. Stein has his "Everybody's Business" column in he New York Times of course, and Salmon's BSW was conceived mostly as a same-day response to that. He also has an advice column with yahoo, in which he says unhelpful things like this (from his latest): "The economic future has become extremely cloudy, albeit with hints of sun. The government is doing what it can -- this is sometimes helpful, sometimes not. Your primary reliance, however, must be on yourself."

And of course no one can schedule when he'll come out with another pseudo-documentary or eyewash commercial.

My own schedule won't be tied to his in any event. I anticipate this blog's BSW as an every Thursday event. Or most Thursdays (I don't promise fanaticism.) So if that suits you ... we'll meet here next week.

12 April 2009

As with Christmas, so with Easter

I have made it one of the traditions of this blog to quote Milton's verse, from the Nativity Ode, every Christmas Day.

I won't do likewise for Easter, but just this once I will look at this sacred day, through majestic 17th century verse, this time from Milton's

Paradise Regained.

From the title alone (and from the fact that it is a sequel of sorts to Paradise Lost) some one who hadn't read it might guess that the poem Paradise Regained would be set amidst the events of Easter week, when according to Christian faith the possibility of salvation was truly regained for the human species.

But no ... though philosophically that is exactly what Milton's PR is about, that is not the dramatic setting. The events of the poem take place during Jesus' sojourn in the desert, (Luke, chapter 4) with Milton giving us his own distinctive take on the temptations of the devil, and Jesus' majestic "Get thee behind me."

And I think on this week's end of the choir of angels who in Milton's telling appear and praise Jesus after his triumph over Satan's temptations, thus:

For, though that seat of earthly bliss be failed,
A fairer Paradise is founded now
For Adam and his chosen sons, whom thou,
A Saviour, art come down to reinstall;
Where they shall dwell secure, when time shall be,
Of tempter and temptation without fear.
But thou, Infernal Serpent! shalt not long
Rule in the clouds. Like an autumnal star,
Or lightning, thou shalt fall from Heaven, trod down
Under his feet.

PARADISE REGAINED, Book IV, lines 612-621.

11 April 2009

Thinking about Cerberus

Cerberus, the private equity group, bought Chrysler from Daimler in 2007.

I've been thinking of that deal anew in recent weeks with the continued disintegration of the US auto industry.

Here's a fascinating blog entry written by someone else who has obviously also been giving it some thought Robert Farago.

Farago's unnamed source says that he thinks Cerberus was really hoping to merge Chrysler's finance company with GMAC, thereby creating a massive auto lender which it could sell to a big bank. Given that plan, the Cerbereans had to keep the auto company alive in order to preserve the real prize, that finance company.

There is some plausibility to that, and I'm beginning to understand the flaw in some of my own earlier theorizing about the future of the auto industry. I've been focusing on the auto/petroleum connection, or lack thereof. I've long thought it would be natural for Exxon/Mobil to buy an auto company, for the same reason that hot dogs and relish are generally sold by the same vendor. Exxon/Mobil could afford the losses at the showroom, just as Gillette sells its razors for a loss -- it does so because it makes a profit from the stream of blades that the customer who buys the cheap razor is thereafter committed to buy.

I now see that neither analogy really works. The hot-dogs-and-relish combo is only natural because at appropriate events we want to buy them at the same time. We want the hot dog, and just enough of a condiment to go with the dog. But of course if we're buying condiments for use at home, we'll go to a grocery store not a ballpark, and there is no great tendency toward consolidation of the relish and hot dog companies who supply such stores.

The lose-on-razors-to-profit-on-blades trick only works for Gillette because its blades are specially designed to fit its razors. So do those of Schick. Were blades fungible (as if petroleum) that model would break down.

Autos and auto finance is a natural combination for the same reason that hot dogs and relish are. The need is simultaneous. The car dealership is the ball park. I want to get the loan to spread over my new car.

What Farago is suggesting, though, is that Cerberus was banking on a decoupling of auto companies with finance comapnies. A GMAC/ChryslerFin combination would presumably be a company interested in financing anybody's car.

That doesn't seem to have worked out all that well for them.

So what lesson might I draw here? Perhaps that though the times through which we are passing are difficult, they aren't revolutionary. What has been bundled will stay bundled (cars and their finance companies, blades and their razors) and what has been separate (car and petroleum companies) will remain asunder.

10 April 2009

UConn Huskies

On the women's side, the UConn Huskies are college basketball champions this year (their sixth championship during the reign of coach Geno Auriemma, and their third undefeated season) -- an eminence they acquired by defeating the Louisville Cardinals 76 to 54.

The Huskies have been so dominant this year that not only did no one defeat them int he 39 games of the season, but no one came close. Every game they played ended with the Huskies ahead by more than 10 points.

Tina Charles was the stand-out of the championship game, scoring 25 points and getting 19 rebounds.

On the men's side, the Huskies also had a fine year, getting into the Final Four Round, but they lost to Michigan State Saturday night in the semi-final. The Spartans in turn lost to North Carolina's Tarheels on Monday night. So congratulations to the Tarheels on their championship.

Alas, though, the final stages of the UConn Huskies' year, on the men's side, were somewhat over-shadowed by a recruiting scandal, one that reminds me of the movie "Hoop Dreams" and the unsavory side of college sport's in general.

As is the custom, college basketball ends just as professional baseball begins, and as the trees in my region are budding. Enjoy the new season, in both senses of the term.

09 April 2009

Greg Newton, Rest in Peace

Greg Newton has passed away. He was a witty and incisive contributor to the economoblogosphere.

Newton warned in September 12, 2005 that the Gaussian cupola, the basic mathematical trick used for pricing credit derivatives, was not entirely suited to the weight it was being made to bear. That blog entry ended with the words "tick, tick, tick."

In recent months, other analysts have returned to the issue of the Gaussian cupola and its over-use. They have had the benefit of hindsight -- but it was Greg who warned us that the timebomb was ticking before it went off.

Until the day I die I expect that I'll consider it a badge of honor that Greg gave me a "forelock tug" in August 2007. That was when a committee of the US Senate issued a report on the whistle-blowing controversy surrounding the SEC and former staff member Gary Aguirre. Greg was covering the story of what he called "L'Affaire Aguirre" closely. He ran an item on August 6 entitled "Empty suits and selective 'enforcement'" in which he expressed the hope that the chairman of that agency would soon "be greeted with a stack of resignation letters from several senior members of the division of enforcement, and the agency's inspector general."

When I read that I had just written a story on Aguirre myself for my former employer, HedgeWorld. As part of preparing that story, I had learned that the IG was no longer around. His office told me he had just retired. Quelle coincidence!

I hadn't made enough out of this at the time, but I did pass the information along to Greg.

On August 8, Greg wrote this, "One Down: Stachnik Out as SEC IG."

I'm the "Mr. F" referenced at the end of the piece. So my life hasn't been entirely in vain.

I took vastly more from Greg's blog than I was able to return to it. One of his most memorable calls came just one year and one week ago, involving the country of Angola, a country which (I'll keep this in mind if I'm ever in trouble) has no extradition treaty with the United States. Greg managed to find the most newsy nugget in a 280 page court filing involving the demise of the Plus Funds.

So here's to him. One last long forelock tug of my own.

05 April 2009

Palm Sunday verses

John 12: 12-16


12 On the next day much people that were come to the feast, when they heard that Jesus was coming to Jerusalem,
13 Took branches of palm trees, and went forth to meet him, and cried, Hosanna: Blessed is the King of Israel that cometh in the name of the Lord.
14 And Jesus, when he had found a young ass, sat thereon; as it is written,
15 Fear not, daughter of Sion: behold, thy King cometh, sitting on an ass's colt.
16 These things understood not his disciples at the first: but when Jesus was glorified, then remembered they that these things were written of him, and that they had done these things unto him.

04 April 2009

An "almost historic" compromise in London.

The leaders of the industrialized nations (more than twenty of them, at last count, but the low-ball term G20 has stuck) have packed up and left London with their respective retinues, and they'll each try to make their case back home that they got what they wanted and needed from this week's summit.

The governments of France and Germany went into this with a unified agenda. They wanted everyone to agree that the "shadow banks," i.e. the hedge funds, were the real problem, and that a new international scheme of regulation or at least of ensuring the transparency thereof will be some part of the solution.

In April 2005, during the national election campaign in Germany, the chairman of the German Social Democratic Party, Franz M√ľntefering, referred to hedge funds as "locusts." This has struck a chord with the public there, and Germany has been on a Mormon-like look-out for chances to shoo some seagulls in the locusts' direction ever since.

France is a more recent convert to the regulate-hedge-funds cause, but the country has long bridled at the dominance of the "Anglo-Saxons" of both London and New York in international finance, so this theme comes naturally enough to the fore there.

So, with the big conference in the history books, what did the Merkel/Sarkozy alliance achieve?

The G20 has agreed to turn the Financial Stability Forum, which has in essence been a wonkish study group, into the Financial Stability Board, which will work with the IMF "to identify and report on macroeconomic and financial risks and actions needed to address them." It still sounds rather like a wonkish study group to me.

There's also a general understanding that the countries of the G20 should extend regulation and oversight to all systemically-important financial institutions, instruments and markets, including the largest hedge funds.

In a somewhat related move, the G20 has agreed to crackdown on offshore tax havens and secret account. The wording of THAT bit of the communique darned near blew apart the necessary facade of amity. The Organization of Economic Cooperation and Development (OECD) was expected to release a list of rogue jurisdictions that have refused to co-operate with international efforts at financial transparency and other good things. The G20 communique said that the participating nations stood ready to "deploy sanctions" on behalf of their "public finances and financial systems." It also said that it would "take note" of the upcoming G20 list.

China, which is not a member of the OECD, objected to language in the communique that would have made it sound like the G20 was deferring to that body. President Obama brokered compromise language to the effect that the G20 would "take note" of the OECD list. The language was weak enough for China to accept, yet still the threat of sanctions against somebody-or-other was strong enough to make France and Germany happy.

All in all, the results are rather paltry. I'm happy about the fact that they are paltry. I don't think hedge funds are part of the problem and I don't think characteizing them as "locusts" is any part of the solution.

My point at the moment though is that I don't believe that in their heart of hearts either Merkel or Sarkozy believes that they've accomplished very much in the way of creating a grand new regulatory system on the global plane. Yet for their domestic audiences they need to pretend that they've accomplished a good deal.

Accordingly, Chancellor Merkel has put out a statement to the effect that the meeting has found "a very good, almost history, compromise in a unique crisis."

Almost historic? That blows my mind. Everything past is in some sense "history," and surely any meeting of more than 20 heads of states is "history" even in the narrowest of kings-and-battles understandings of the term. So this historic convocation produced an "almost historic" compromise?

I'm almost amused.

03 April 2009

Plagiarism detection

Where there is a demand, there will arise a supply.

In the contemporary world, where any child with a research assignment can find a closely related paper on the internet with unprecedented ease, and then with a couple of clicks copy it to his own file and put his name on it, there is a great demand for plagiarism detection software. Teachers want to know, quickly and reliably, which of their students has done just that.

Apparently the two best known programs marketed as the answer to this prayer are: turnitin and Safe Assignment.

Unfortunately, there are still a few bugs in such efforts.

I have no profound point to make here, I'd just like to encourage anyone with any talent in the area of software development whose talents aren't already fully deployed to think about this as one field for their exercise. The teachers of the world could use your help. And market forces will make it worth your while.

02 April 2009

T.S. Eliot

A few lines from BURNT NORTON, perhaps?

Words move, music moves
Only in time; but that which is only living
Can only die. Words, after speech, reach
Into the silence. Only by the form, the pattern,
Can words or music reach
The stillness, as a Chinese jar still
Moves perpetually in its stillness.
Not the stillness of the violin, while the note lasts,
Not that only, but the co-existence,
Or say that the end and the beginning were always there
Before the beginning and after the end.

lines 137 - 148

Knowledge is warranted belief -- it is the body of belief that we build up because, while living in this world, we've developed good reasons for believing it. What we know, then, is what works -- and it is, necessarily, what has worked for us, each of us individually, as a first approximation. For my other blog, on the struggles for control in the corporate suites, see www.proxypartisans.blogspot.com.