Perhaps it was the one between Lot and Abraham (called "Abram" in this passage) at Genesis 13: 5 et seq. I'll confine my quotation to the bit where Abram proposes the deal, verses 5 to 9.
5 And Lot also, which went with Abram, had flocks, and herds, and tents.
6 And the land was not able to bear them, that they might dwell together: for their substance was great, so that they could not dwell together.
7 And there was a strife between the herdmen of Abram's cattle and the herdmen of Lot's cattle: and the Canaanite and the Perizzite dwelled then in the land.
8 And Abram said unto Lot, Let there be no strife, I pray thee, between me and thee, and between my herdmen and thy herdmen; for we be brethren.
9 Is not the whole land before thee? separate thyself, I pray thee, from me: if thou wilt take the left hand, then I will go to the right; or if thou depart to the right hand, then I will go to the left.
As Richard Pipes wrote in his book, PROPERTY AND FREEDOM, summarizing, they: "separated their pastures in order to put an end to disputes ... and in this manner established their respective claims to a share of the land."
As against each other, and as against each others' herdsmen/employees, their claims were thereafter secure by virtue of the demarcation. They gave each other quitclaims, in effect.
31 July 2010
30 July 2010
Software
It seems that it would have been fun to be in San Diego on July 26, 2002 attending a conference on open source coding and hear this speech delivered.
Even the logistics of the speech were evidently a challenge. Bruce Sterling began to give this speech, "A Contrarian View of Open Source," and almost half way through a conference organizer interrupted to suggest they all move to another, larger, room.
"Can't you just throw out half the audience?" Sterling suggested. Which gives you an idea of the tone of the whole, too.
They got everybody settled in the new digs and the speech went on.
It's a better read if you know some of the cliches with which he is playing here -- if you know something about Lawrence Lessig's views on intellectual property rights, for example, or the context in which Eric S. Raymond introduced the expression The Cathedral and the Bazaar.
But you'll pick up the gist of it, from Sterling's own wonderfully skewed point-of-view, if you read.
And reading without reflecting is, as someone once said, a lot like eating without digesting.
Even the logistics of the speech were evidently a challenge. Bruce Sterling began to give this speech, "A Contrarian View of Open Source," and almost half way through a conference organizer interrupted to suggest they all move to another, larger, room.
"Can't you just throw out half the audience?" Sterling suggested. Which gives you an idea of the tone of the whole, too.
They got everybody settled in the new digs and the speech went on.
It's a better read if you know some of the cliches with which he is playing here -- if you know something about Lawrence Lessig's views on intellectual property rights, for example, or the context in which Eric S. Raymond introduced the expression The Cathedral and the Bazaar.
But you'll pick up the gist of it, from Sterling's own wonderfully skewed point-of-view, if you read.
And reading without reflecting is, as someone once said, a lot like eating without digesting.
29 July 2010
A Little Gift for the Dr. Who Fans
A tip of the hat to Andrew Sullivan. This is fun to watch. And I was never a huge fan. But ... enjoy!
25 July 2010
The Problem of Evil
If a loving God is all-powerful, why is there evil? Why, for example, do the good so often die young?
Efforts to answer such questions are known, technically, as "theodicy," or less technically as the problem of evil.
Here is Josiah Royce, giving it a run from his own idealistic-Hegelian point of view.
"If our theory of Being assigns to every objective fact a character as a relative fulfillment of the ideas which refer to it, death also, in so far as it fulfills ideas about death, is to just this extent no instance against our theory. Or, in case you will to know the facts about death, would your will be fulfilled if you remained ignorant of death?"
Of course, if a friend of mine dies young and I am parted from him forever, I am unlikely to be consoled by the thought that this is part of my knowledge of death, so I am "fulfilled" thereby. Royce acknowledges this. Still, he says a bit later: "And in presence of death you do thus seek for the Other, namely for the meaning of the fact, for the solution of this mystery, for the beloved object that is gone, for the lost life, for something not here, for the unseen, -- yes, for the Eternal. And in this your search for the eternal lies for you the very meaning of death and of finite despair."
(I'm not endorsing this theodicy, simply quoting what seems to me a very well-phrased sample of such thinking.)
Efforts to answer such questions are known, technically, as "theodicy," or less technically as the problem of evil.
Here is Josiah Royce, giving it a run from his own idealistic-Hegelian point of view.
"If our theory of Being assigns to every objective fact a character as a relative fulfillment of the ideas which refer to it, death also, in so far as it fulfills ideas about death, is to just this extent no instance against our theory. Or, in case you will to know the facts about death, would your will be fulfilled if you remained ignorant of death?"
Of course, if a friend of mine dies young and I am parted from him forever, I am unlikely to be consoled by the thought that this is part of my knowledge of death, so I am "fulfilled" thereby. Royce acknowledges this. Still, he says a bit later: "And in presence of death you do thus seek for the Other, namely for the meaning of the fact, for the solution of this mystery, for the beloved object that is gone, for the lost life, for something not here, for the unseen, -- yes, for the Eternal. And in this your search for the eternal lies for you the very meaning of death and of finite despair."
(I'm not endorsing this theodicy, simply quoting what seems to me a very well-phrased sample of such thinking.)
24 July 2010
Jane Goodall
Jane Goodall has been studying chimpanzees for fifty years now, and The Wall Street Journal this weekend has published an extensive essay in which she reflects on this golden anniversary of her life's work.
As is much of her work, this essay is a rebuke to human chauvanism. Goodall atributes to the chimps such a "human" trait as a sense of wonder, or what one might call in recognition of the writings of Edmund Burke, a sense of the sublime.
After writing of the elaborate rituals of chimpanzees in the magnificent presence of the waterfall in Kakombe Valley, "swaying thythmically from foot to foot, hurling huge rocks, then sitting and watching the water as it falls," she says, "Surely these displays are triggered by a sense of wonder."
Here's the complete essay.
As is much of her work, this essay is a rebuke to human chauvanism. Goodall atributes to the chimps such a "human" trait as a sense of wonder, or what one might call in recognition of the writings of Edmund Burke, a sense of the sublime.
After writing of the elaborate rituals of chimpanzees in the magnificent presence of the waterfall in Kakombe Valley, "swaying thythmically from foot to foot, hurling huge rocks, then sitting and watching the water as it falls," she says, "Surely these displays are triggered by a sense of wonder."
Here's the complete essay.
23 July 2010
Subprime lending for car loans
The wire services yesterday carried a story about General Motors and how it is "getting into the subprime lending business."
That's a story worth telling chiefly because "subprime" is such a scary word. And "subprime" is a scary word because the subprime housing bubble of 2004-07 was a factor in the credit crunch and then the general financial crisis of 2007-08.
But it need not be too scary. Take a deep breath, everybody.
All "subprime" means by definition is "more risky than prime." Some loans have to be subprime! They cannot all be prime, just as it is strictly impossible for all the children in Lake Woebegone or elsewhere to be above average.
The problem with the last subprime housing bubble and its disastrous collapse was that the inflationary credit policy of the Fed enabled the lending to go much further than it could have gone had there been a responsible monetary policy in place. That is the nature of central banking. 'Tis ever been thus.
So let's direct our anger at the right place in such a situation.
Anyway: GM is acquiring AmeriCredit Inc., a Fort Worth-based company that has already been working with it on subprime auto loans, which are now 4% of GM's sales.
Frankly, I find nothing alarming in that. Predictably, politicians have started their posturing. THAT annoys me. But that our political system is "subprime" is by now obvious to the least discerning.
That's a story worth telling chiefly because "subprime" is such a scary word. And "subprime" is a scary word because the subprime housing bubble of 2004-07 was a factor in the credit crunch and then the general financial crisis of 2007-08.
But it need not be too scary. Take a deep breath, everybody.
All "subprime" means by definition is "more risky than prime." Some loans have to be subprime! They cannot all be prime, just as it is strictly impossible for all the children in Lake Woebegone or elsewhere to be above average.
The problem with the last subprime housing bubble and its disastrous collapse was that the inflationary credit policy of the Fed enabled the lending to go much further than it could have gone had there been a responsible monetary policy in place. That is the nature of central banking. 'Tis ever been thus.
So let's direct our anger at the right place in such a situation.
Anyway: GM is acquiring AmeriCredit Inc., a Fort Worth-based company that has already been working with it on subprime auto loans, which are now 4% of GM's sales.
Frankly, I find nothing alarming in that. Predictably, politicians have started their posturing. THAT annoys me. But that our political system is "subprime" is by now obvious to the least discerning.
22 July 2010
Ralph Waldo Emerson
I recently encountered online a fascinating discussion of one aspect of the work of Ralph Waldo Emerson.
I will simply offer the link, to Jeff Carreira's essay.
Carreira quotes Emerson thus: "A man is a method, a progressive arrangement; a selecting principle, gathering his like to him, wherever he goes. He takes only his own out of the multiplicity that sweeps and circles round him."
If you wish to read that in context, you can of course go here and use Amazon's marvellous "click to look inside" feature.
Right after the two sentences that interest Carreira, Emerson gets more visual and metaphorical. But I leave that to your investigation.
There is a certain sort of thinker who begs to be known by three names. Even if the folks who knew him just called him "Waldo Emerson," it would seem to us in the 21st century wrong to just call him by two names. Plain wrong....
I will simply offer the link, to Jeff Carreira's essay.
Carreira quotes Emerson thus: "A man is a method, a progressive arrangement; a selecting principle, gathering his like to him, wherever he goes. He takes only his own out of the multiplicity that sweeps and circles round him."
If you wish to read that in context, you can of course go here and use Amazon's marvellous "click to look inside" feature.
Right after the two sentences that interest Carreira, Emerson gets more visual and metaphorical. But I leave that to your investigation.
There is a certain sort of thinker who begs to be known by three names. Even if the folks who knew him just called him "Waldo Emerson," it would seem to us in the 21st century wrong to just call him by two names. Plain wrong....
18 July 2010
Tojo's Fall From Power
Today, July 18, is the anniversary of a memorable shake-up in the Japanese government. On this day in 1944, under the stress of a failing war effort, the loss of Saipan in particular, Hideki Tojo, the man who had been Japan's prime minister since October 1941, resigned that post.
Tojo's rise to that position is in its way revealing of the pathology of Japanese decision making at the time.
It involved what one might call a love/hate relationship between Tojo and Fumumaro Konoye.
In November 1938, Tojo, now vice-minister of war, spoke to a group of industrialists and spoke harshly about a list of actual and potential enemies, including the Chinese, the British, the Americans, and the Russians.
The speech received a good deal of attention, and seems to have set off a sharp drop on the Japanese stock exchange. It also worried Konoye, who was prime minister at this time. Konoye was was no pacifist. He was perfectly content to lead a government in an endless war in China, but he wasn't eager to expand Japan's war by attacking, even rhetorically, the US and UK and the Russians.
Konoye quietly re-assigned Tojo to a position where he'd be less visible, give no speeches, and so do no further harm.
Konoye himself resigned in January 1939, complaining that he had become merely a "robot" for the military. Hiranuma Kiichiro became the new prime minister.
Kiichiro's government wanted a treaty with Germany, and it wanted that treaty to be especially aimed at what Kiichiro saw as the common enemy of Germany and Japan: Soviet Russia. When Hitler and Stalin entered into their own treaty in August 1939, the bottom fell out of Kiichiro's plans.
The political maneuverings of the following months are complicated and would be tiresome to relate. Suffice it to say that Konoye returned to the office of prime minister -- apparently no longer scrupulously refusing to be a robot -- in the summer of 1940. Konoye, who had once demoted Tojo to an invisible position, now promoted him to a highly visible one, making Tojo his War Minister.
It was under Konoye, too, that Japan entered into the Tripartite Pact with Italy and Germany. Therafter, Hitler attacked Russia and Japan moved its military ambitions southward, into Indochina. This precipitated a U.S. cut-off of oil sales to the Japanese. Konoye was still reluctant to do anything that would involve a direct confrontation with the English-speaking powers. And in September 1941, Konoye told the US ambassador that he would like to meet with Roosevelt personally in an open-ended summit.
Roosevelt and Cordell Hull were leery of a summit. They suspected (accurately) that Konoye would expect them to acknowledge Japanese pre-eminence in its sphere of influence.
At any rate, Konoye resigned in October when he saw that the armed forces were pressing for a war with the western powers and he didn't have the support to stop them. Tojo became prime minister at this time, in this context.
So today we mark the day of his downfall. I don't have any cosmic lessons to draw from any of this, but various fascinating alternative histories suggest themselves.
Tojo's rise to that position is in its way revealing of the pathology of Japanese decision making at the time.
It involved what one might call a love/hate relationship between Tojo and Fumumaro Konoye.
In November 1938, Tojo, now vice-minister of war, spoke to a group of industrialists and spoke harshly about a list of actual and potential enemies, including the Chinese, the British, the Americans, and the Russians.
The speech received a good deal of attention, and seems to have set off a sharp drop on the Japanese stock exchange. It also worried Konoye, who was prime minister at this time. Konoye was was no pacifist. He was perfectly content to lead a government in an endless war in China, but he wasn't eager to expand Japan's war by attacking, even rhetorically, the US and UK and the Russians.
Konoye quietly re-assigned Tojo to a position where he'd be less visible, give no speeches, and so do no further harm.
Konoye himself resigned in January 1939, complaining that he had become merely a "robot" for the military. Hiranuma Kiichiro became the new prime minister.
Kiichiro's government wanted a treaty with Germany, and it wanted that treaty to be especially aimed at what Kiichiro saw as the common enemy of Germany and Japan: Soviet Russia. When Hitler and Stalin entered into their own treaty in August 1939, the bottom fell out of Kiichiro's plans.
The political maneuverings of the following months are complicated and would be tiresome to relate. Suffice it to say that Konoye returned to the office of prime minister -- apparently no longer scrupulously refusing to be a robot -- in the summer of 1940. Konoye, who had once demoted Tojo to an invisible position, now promoted him to a highly visible one, making Tojo his War Minister.
It was under Konoye, too, that Japan entered into the Tripartite Pact with Italy and Germany. Therafter, Hitler attacked Russia and Japan moved its military ambitions southward, into Indochina. This precipitated a U.S. cut-off of oil sales to the Japanese. Konoye was still reluctant to do anything that would involve a direct confrontation with the English-speaking powers. And in September 1941, Konoye told the US ambassador that he would like to meet with Roosevelt personally in an open-ended summit.
Roosevelt and Cordell Hull were leery of a summit. They suspected (accurately) that Konoye would expect them to acknowledge Japanese pre-eminence in its sphere of influence.
At any rate, Konoye resigned in October when he saw that the armed forces were pressing for a war with the western powers and he didn't have the support to stop them. Tojo became prime minister at this time, in this context.
So today we mark the day of his downfall. I don't have any cosmic lessons to draw from any of this, but various fascinating alternative histories suggest themselves.
17 July 2010
Goldman Sachs Settlement
The Securities and Exchange Commission and the brokerage firm Goldman Sachs have kissed and made up.
They announced as much after the close of business on the stock exchange Thursday (and, perhaps not incidentally, after the Senate had voted in favor of the big Dodd-Frank bill).
The deal looks like a clear win for Goldman's attorneys. It seems they persuaded the SEC guys there was no case there, so the best thing to do was to bow out with some grace. Here's the official announcement.
And here is Felix Salmon's take, with which I concur.
Salmon is gloomy about the fact that Goldman scored this win, because he has long bought the prosecution's argument. As a pragmatist and an anarcho-capitalist, though, I'm delighted with this turn of events.
Here's what Adam L. at Credit Slips, has to say. "The real value of the Abacus litigation was it was a chance to shine some sunlight on the inner workings of Wall Street. The complaint and hearings gave us a taste, but if this litigation went further, we would likely have learned much, much more."
I'm sorry, but the notion of holding a trial not because there is sufficient evidence the defendants actually did anything illegal, but because somebody wants to use the public spectacle to shed "sunlight," is itself repugnant. Devoid of sunlight. It is the kind of justification that could lead us to a very dark place.
They announced as much after the close of business on the stock exchange Thursday (and, perhaps not incidentally, after the Senate had voted in favor of the big Dodd-Frank bill).
The deal looks like a clear win for Goldman's attorneys. It seems they persuaded the SEC guys there was no case there, so the best thing to do was to bow out with some grace. Here's the official announcement.
And here is Felix Salmon's take, with which I concur.
Salmon is gloomy about the fact that Goldman scored this win, because he has long bought the prosecution's argument. As a pragmatist and an anarcho-capitalist, though, I'm delighted with this turn of events.
Here's what Adam L. at Credit Slips, has to say. "The real value of the Abacus litigation was it was a chance to shine some sunlight on the inner workings of Wall Street. The complaint and hearings gave us a taste, but if this litigation went further, we would likely have learned much, much more."
I'm sorry, but the notion of holding a trial not because there is sufficient evidence the defendants actually did anything illegal, but because somebody wants to use the public spectacle to shed "sunlight," is itself repugnant. Devoid of sunlight. It is the kind of justification that could lead us to a very dark place.
16 July 2010
Lincoln and McClellan
I've been reading a book by John C. Waugh, Lincoln and McClellan: The Troubled Partnership Between a President and his General.
Here's Waugh's website with the neat holograph of Waugh himself.
His story in Lincoln and McClellan is a somewhat familiar one to civil war buffs, but good stories always bear re-telling. Here is one sample paragraph:
"The new general-in-chief would not fight; he would continue to prepare. So all would continue to be quiet along the Potomac, and that was no longer generally considered a desirable condition but a curse. If there was quiet on the Potomac, there was very little silence from the people in the North. The public outcry was 'On to Richmond!' which the influential New York Tribune was running daily as its masthead."
About sixty pages later, we get to the climactic showdown between Generals McClellan and Lee.
"Displaying a quality of audacity that McClellan believed he lacked, Lee attacked on June 26, on a very clear, still, midafternoon....Lee's army slammed into McClellan's right flank north of the Chickahominy at Mechanicsville, opening a bloody week of fighting that would become known as the Seven Days battles. Porter fought the Confederates at Mechanicsville on this first day, and the battle was at best a draw -- in effect, therefore a Confederate failure. McClelland pulled back to Gaine's Mill, where an implacable Lee assailed him again the next day, June 27, in a fierce battle beginning at noon and lasting nine hours. McClellan got the worst of the encounter and the next day withdrew his army farther down the James to Savage's Station. Lee followed."
Here's Waugh's website with the neat holograph of Waugh himself.
His story in Lincoln and McClellan is a somewhat familiar one to civil war buffs, but good stories always bear re-telling. Here is one sample paragraph:
"The new general-in-chief would not fight; he would continue to prepare. So all would continue to be quiet along the Potomac, and that was no longer generally considered a desirable condition but a curse. If there was quiet on the Potomac, there was very little silence from the people in the North. The public outcry was 'On to Richmond!' which the influential New York Tribune was running daily as its masthead."
About sixty pages later, we get to the climactic showdown between Generals McClellan and Lee.
"Displaying a quality of audacity that McClellan believed he lacked, Lee attacked on June 26, on a very clear, still, midafternoon....Lee's army slammed into McClellan's right flank north of the Chickahominy at Mechanicsville, opening a bloody week of fighting that would become known as the Seven Days battles. Porter fought the Confederates at Mechanicsville on this first day, and the battle was at best a draw -- in effect, therefore a Confederate failure. McClelland pulled back to Gaine's Mill, where an implacable Lee assailed him again the next day, June 27, in a fierce battle beginning at noon and lasting nine hours. McClellan got the worst of the encounter and the next day withdrew his army farther down the James to Savage's Station. Lee followed."
15 July 2010
The double slit experiment
Here's a fun link to an explanation of the classic two slit experiment, courtesy of the University of Colorado.
Start there, click on the green button to see the pattern, then follow the explanation as you're directed to next panel.
The gist of it is that we have to think of electrons as waves in order to make any sense of the interference pattern.
Here's another link, to another "take" on the older form of the same experiment, using light waves (or particles known as "photons") rather than matter.
"Modern photodetectors (which exploit the photoelectric effect explained by Einstein) can show individual photons plinking against the screen behind the slits in a particular spot at a particular time-just like particles. But as the photons continue striking the screen, the interference pattern gradually emerges,a sure sign that each individual photon went through both slits, like a wave."
So the same wave/particle duality appears in both matter and energy. So what? Didn't I learn this at school, decades ago, and mentally shrug it off like everybody else?
Yes, but I was callow. Here is the point. As Horgan stresses, paraphrasing John Wheeler of Princeton, it is a "physicist's choice of apparatus" that "forces the photon [or the electron] to choose" whether it is acting at a given moment as a wave or a particle. Think about that. A mindful creature, a conscious experimenter, determines the nature of the building blocks of reality by the way in which the experimenter seeks to measure said blocks.
This is fatal to reductionism. It is simply incoherent to say that A is "nothing but" B unless B itself can be understood without reference to A. What if we string them together? A is nothing but B, which is nothing but C, which is nothing but D. This string becomes incoherent if we end up using A-dependent terms in our discussion of D.
Yet that is exactly the situation we face in the relations among the sciences. If we say "mind is nothing but a particular manifestation of life, life is nothing but a particular manifestation of matter, matter is nothing but the way certain very tiny particles interact," then we ought in principle to discuss the interactions of those tiny particles without intrusive talk about "decisions" or "knowledge" or other mind stuff. Yet we can't. We end up saying things like this (Horgan quoting a scientist at the University of Rochester), "The quantum state reflects not only what we know about the system but what is in principle knowable."
Since this epistemic circle plainly does exist, the once-dreamt-of reduction has failed, and it is the case that there is more to this world than particles bouncing around and various manifestations thereof. We are of course free to speculate about the nature of that "more."
Start there, click on the green button to see the pattern, then follow the explanation as you're directed to next panel.
The gist of it is that we have to think of electrons as waves in order to make any sense of the interference pattern.
Here's another link, to another "take" on the older form of the same experiment, using light waves (or particles known as "photons") rather than matter.
"Modern photodetectors (which exploit the photoelectric effect explained by Einstein) can show individual photons plinking against the screen behind the slits in a particular spot at a particular time-just like particles. But as the photons continue striking the screen, the interference pattern gradually emerges,a sure sign that each individual photon went through both slits, like a wave."
So the same wave/particle duality appears in both matter and energy. So what? Didn't I learn this at school, decades ago, and mentally shrug it off like everybody else?
Yes, but I was callow. Here is the point. As Horgan stresses, paraphrasing John Wheeler of Princeton, it is a "physicist's choice of apparatus" that "forces the photon [or the electron] to choose" whether it is acting at a given moment as a wave or a particle. Think about that. A mindful creature, a conscious experimenter, determines the nature of the building blocks of reality by the way in which the experimenter seeks to measure said blocks.
This is fatal to reductionism. It is simply incoherent to say that A is "nothing but" B unless B itself can be understood without reference to A. What if we string them together? A is nothing but B, which is nothing but C, which is nothing but D. This string becomes incoherent if we end up using A-dependent terms in our discussion of D.
Yet that is exactly the situation we face in the relations among the sciences. If we say "mind is nothing but a particular manifestation of life, life is nothing but a particular manifestation of matter, matter is nothing but the way certain very tiny particles interact," then we ought in principle to discuss the interactions of those tiny particles without intrusive talk about "decisions" or "knowledge" or other mind stuff. Yet we can't. We end up saying things like this (Horgan quoting a scientist at the University of Rochester), "The quantum state reflects not only what we know about the system but what is in principle knowable."
Since this epistemic circle plainly does exist, the once-dreamt-of reduction has failed, and it is the case that there is more to this world than particles bouncing around and various manifestations thereof. We are of course free to speculate about the nature of that "more."
11 July 2010
First Sunday after Independence Day
This year, as it happens, America's Independence Day fell on a Sunday, so the first Sunday thereafter comes with the full week's delay.
It is, as always, a good time to contemplate the grave danger in confusing religious piety with political/patriotic feelings. I'm not making a constitutional point -- let's not argue about what the phrase "establishment of religion" meant to Madison, Mason, and that old powdered-wig-wearing crowd. (If I die a martyr to the US, will I be greeted in paradise by a crowd of Virginians?)
My point, rather, is theological. I believe whole-heartedly that the universe isn't just a bunch of material/mechanical coming and going. Life is more than matter and mind is more than life and the whole of the cosmos is more than its parts -- that More is what we revere as God. Precisely because I believe this, I find it baffling and disheartening when people try to hijack spirituality for nationalism.
On this first Sunday after Independence Day, let us recall the first book of Samuel, chapter 8, with its stern warning against any earthly claims to sovereignty.
--------------
So Samuel told all the words of the Lord to the people who asked him for a king. And he said, “This will be the behavior of the king who will reign over you: He will take your sons and appoint them for his own chariots and to be his horsemen, and some will run before his chariots. He will appoint captains over his thousands and captains over his fifties, will set some to plow his ground and reap his harvest, and some to make his weapons of war and equipment for his chariots. He will take your daughters to be perfumers, cooks, and bakers. And he will take the best of your fields, your vineyards, and your olive groves, and give them to his servants. He will take a tenth of your grain and your vintage, and give it to his officers and servants. And he will take your male servants, your female servants, your finest young men, and your donkeys, and put them to his work. He will take a tenth of your sheep. And you will be his servants. And you will cry out in that day because of your king whom you have chosen for yourselves, and the Lord will not hear you in that day.”
It is, as always, a good time to contemplate the grave danger in confusing religious piety with political/patriotic feelings. I'm not making a constitutional point -- let's not argue about what the phrase "establishment of religion" meant to Madison, Mason, and that old powdered-wig-wearing crowd. (If I die a martyr to the US, will I be greeted in paradise by a crowd of Virginians?)
My point, rather, is theological. I believe whole-heartedly that the universe isn't just a bunch of material/mechanical coming and going. Life is more than matter and mind is more than life and the whole of the cosmos is more than its parts -- that More is what we revere as God. Precisely because I believe this, I find it baffling and disheartening when people try to hijack spirituality for nationalism.
On this first Sunday after Independence Day, let us recall the first book of Samuel, chapter 8, with its stern warning against any earthly claims to sovereignty.
--------------
So Samuel told all the words of the Lord to the people who asked him for a king. And he said, “This will be the behavior of the king who will reign over you: He will take your sons and appoint them for his own chariots and to be his horsemen, and some will run before his chariots. He will appoint captains over his thousands and captains over his fifties, will set some to plow his ground and reap his harvest, and some to make his weapons of war and equipment for his chariots. He will take your daughters to be perfumers, cooks, and bakers. And he will take the best of your fields, your vineyards, and your olive groves, and give them to his servants. He will take a tenth of your grain and your vintage, and give it to his officers and servants. And he will take your male servants, your female servants, your finest young men, and your donkeys, and put them to his work. He will take a tenth of your sheep. And you will be his servants. And you will cry out in that day because of your king whom you have chosen for yourselves, and the Lord will not hear you in that day.”
10 July 2010
The Banque de France
There's a fascinating story in Thursday's Financial Times about the central bank of France and the role it may have played in the shenanigans leading up to the collapse of Lehman Brothers in Septemnber 2008.
Regular readers in the econoblogosphere will not need to be reminded that part of the Lehman decline-and-fall involved an instrument known (at first internally, now to the world!) as Repo 105.
Repo 105, and its cousin Repo 108, were transactions designed to remove certain assets from the balance sheet, usually for a period of less than two weeks. As the term suggests, these "repos" were quite similar to standard repurchase deals, used to secure short-term financing. There was just one big difference ... Lehman did not account for Repo 105 transactions as financing transactions, but instead treated them as true sales.
Here's the intriguing part. Nobody can do a Repo, or a "Repo 105" for that matter, alone. There has to be a counter-party.
The FT tells us Thursday, "In the final months ... the French central bank was often on the other side of the bank's deals, taking collateral in the process." We know what was in it for Lehman. They could lessen the degree to which they (seemed) over-leveraged during key snapshot periods. But what was in it for the Banque de France?
The FT's Henny Sender seems baffled.
Regular readers in the econoblogosphere will not need to be reminded that part of the Lehman decline-and-fall involved an instrument known (at first internally, now to the world!) as Repo 105.
Repo 105, and its cousin Repo 108, were transactions designed to remove certain assets from the balance sheet, usually for a period of less than two weeks. As the term suggests, these "repos" were quite similar to standard repurchase deals, used to secure short-term financing. There was just one big difference ... Lehman did not account for Repo 105 transactions as financing transactions, but instead treated them as true sales.
Here's the intriguing part. Nobody can do a Repo, or a "Repo 105" for that matter, alone. There has to be a counter-party.
The FT tells us Thursday, "In the final months ... the French central bank was often on the other side of the bank's deals, taking collateral in the process." We know what was in it for Lehman. They could lessen the degree to which they (seemed) over-leveraged during key snapshot periods. But what was in it for the Banque de France?
The FT's Henny Sender seems baffled.
09 July 2010
There Ain't No Such Thing As A Free Lunch
The title phrase of this blog entry is often abbreviatred TANSTAAFL in libertarian circles. Those aren't initials, buddy. That's an acronym, pronounced "tan-staff-ill."
Anyway, it is a profound truth. I was once arguing about health care policy with a Canadian who was trying to instruct the ignorant Yankee on this subject. She said that of course health care in Canada isn't a free lunch. It does get paid for obviously -- doctors don't work for free -- hospitals don't construct themselves. So since there is no such thing as a "free lunch" anyway, there is nothing to be concerned about. Right?
I told her that she had entirely misunderstood the significance of TANSTAAFL. The point isn't "the free lunch is like Big Foot. Big Foot doesn't exist, so he won't come and hurt you." The significance of TANSTAFFL is a warning, not a bit of re-assurance.
The warning is precisely that some people sometimes deceive themselves into believing that they see a free lunch, or that they see Big Foot for that matter. The coddling of such deceptions can do real harm. The danger is not Big Foot but the delusion.
Anyway, this column in the Chicago Sun Times Monday made much the same point using that Independence weekend favorite beverage -- lemonade. When that old symbol of childish enthusiasm and entrepreneurship, the lemonade stand, is turned into a lesson that good (material) things are "free," things are in a sorry state indeed.
Anyway, it is a profound truth. I was once arguing about health care policy with a Canadian who was trying to instruct the ignorant Yankee on this subject. She said that of course health care in Canada isn't a free lunch. It does get paid for obviously -- doctors don't work for free -- hospitals don't construct themselves. So since there is no such thing as a "free lunch" anyway, there is nothing to be concerned about. Right?
I told her that she had entirely misunderstood the significance of TANSTAAFL. The point isn't "the free lunch is like Big Foot. Big Foot doesn't exist, so he won't come and hurt you." The significance of TANSTAFFL is a warning, not a bit of re-assurance.
The warning is precisely that some people sometimes deceive themselves into believing that they see a free lunch, or that they see Big Foot for that matter. The coddling of such deceptions can do real harm. The danger is not Big Foot but the delusion.
Anyway, this column in the Chicago Sun Times Monday made much the same point using that Independence weekend favorite beverage -- lemonade. When that old symbol of childish enthusiasm and entrepreneurship, the lemonade stand, is turned into a lesson that good (material) things are "free," things are in a sorry state indeed.
08 July 2010
Philosopher's World Cup
Spain has defeated Germany, setting up a Spain-versus-Holland match for the World Cup Championship.
Here is something else that Spain has going for it of late.
Anyway, Spain defeated Germany 1 - 0, which as my sister reminded me is probably a tribute to the great Spanish philosophers Maimonides and Averroes. Or, would be, if this were the Philosopher's Cup familiar to Monty Python fans.
Maimonides will try to guide you right if you are "perplexed" by the rules of the sport, or even the question of whether to call it soccer.
Averroes is your guy if you suspect that we are all thre same beneath the skin. He'll use the one-and-only "active intellect" as he maneuvers past the opposition.
They'll have to contend with the tough Dutch, who recently defeated Uruguay, due of course to the midfield of Spinoza and Brouwer, with Erasmus I think tending goal.
Here is something else that Spain has going for it of late.
Anyway, Spain defeated Germany 1 - 0, which as my sister reminded me is probably a tribute to the great Spanish philosophers Maimonides and Averroes. Or, would be, if this were the Philosopher's Cup familiar to Monty Python fans.
Maimonides will try to guide you right if you are "perplexed" by the rules of the sport, or even the question of whether to call it soccer.
Averroes is your guy if you suspect that we are all thre same beneath the skin. He'll use the one-and-only "active intellect" as he maneuvers past the opposition.
They'll have to contend with the tough Dutch, who recently defeated Uruguay, due of course to the midfield of Spinoza and Brouwer, with Erasmus I think tending goal.
04 July 2010
This Supreme Court Term
The U.S. Supreme Court has wrapped up another term -- John Paul Stevens' last.
There were several remarkable decisions this year, and I'll pass them in quick review, in no particular order.
JONES v. HARRIS ASSOCIATES concerns mutual funds, and the fees they can charge without violating their fiduciary obligation to their investors. Nobody is sure how it will affect actual mutual fund operations, but there is a general consensus that it is important.
In terms of the standard to be applied, the respondent and the petitioner in the case before SCOTUS agreed. They both wanted the court to endorse for the first time a standard laid down by the second circuit in 1982, in Gartenberg v. Merrill Lynch. The standard since then has been that to be guilty of a breach of fiduciary obligation "the adviser-manager must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.”
The matter got to SCOTUS this year because the seventh circuit disagreed with Gartenberg. The seventh circuit then (despite a dissent by Judge Posner) refused to rehear the case en banc.
The original panel's justification for blocking Gartenberg lawsuits was that allowing trial courts to second-guess market rates is a bad idea, and that mutual fund managers can only be said to have violated their duty if it can be shown that they had lied to their directors. Posner's own inclinations are laissez-faire, so I find it impressive that he thought this wrong, that some sort of objective reasonableness standard, as with Gartenberg, is appropriate.
SCOTUS agreed with Posner and embraced Gartenberg rather than the Seventh Circuit approach, and it remanded for further proceedings. Still, it is not clear how big a difference this will prove to make. Will it encourage some disgruntled investors to sue their managers to get their fees back, now that it is clear they can at least get their foot inside the courthouse door? Yes, probably.
Should we be worried about that? I don't believe so. There has after all been no flood of mutual fee related lawsuits over the decades since Gartenberg, even in the 2d Circuit where that decision has been binding.
DOE v. REED denied a request by an organization, "Protect Marriage Washington," to keep the personal information of the signers of a petition private, affirming the constitutionality of a law in that state that requires disclosure in most cases (though allowing for ad hoc exemptions).
It was not a "clean win" for transparency, though. The decision allows PMW to ask the district court in Washington for an exemption from public disclosure.
The lead counsel for PMW said in a statement, "While we wish the Court had agreed with us and found that petition signers speaking on any issue should be protected from having personal information disclosed to the public, we are looking forward to returning to Washington and showing the Court that supporters of traditional marriage should have their personal information protected from disclosure."
SCOTUS voted for this result 8-1, with only Justice Thomas dissenting. Thomas would have held that "compelled disclosure of signed referendum and initiative petitions" is unconstitutional because it chills citizen participation in democratic assembly and speech.
I have no sympathy for the whole protect-traditional-marriage cause, but Thomas' decision seems right to me. I am cynical enough to wonder whether he would have written just this decision had it been a gay rights group on the other side of this issue that was asking for anonymity.
CITIZENS UNITED v. FEDERAL ELECTION COMM'N struck down decisions on what various affected parties, including for-profit corporations, may say during the course of a campaign. Much has been said and written on this subject. I won't add a lot to it.
I will note that this was the decision that provoked President Obama to criticize the Justices during the State of the Union address. The presence of the Justices at the SOTU speech has long been considered a non-controversial formal gesture, which allows for the presence of the top level of all three branches of our federal government in the same room at the same time. But Obama chose to make it an opportunity for face-to-face confrontation.
Justice Alito responded to that by mouthing the words "not true."
Stuffy people have bemoaned that exchange. I think both men acted appropriately. Let's be less stuffy and more honestly confrontational in our politics! It may help us learn to get beyond politics, and beyond the myth of sovereignty -- though I'm sure that idea was far from both of their minds at that YouTube-able moment.
BERGHUIS v. THOMPKINS is the latest example of SCOTUS' long entanglement in the specifics of police interrogation rules. Specifically, two officers of the state police of Michigan interrogated suspect Thompkins, after informing him of his Miranda rights.
For three hours he remained silent, although he did not first say "I invoke my right to remain silent" or "I want a lawyer" or anything of that sort. After 2 hours and three quarters, the police did manage to get him to speak, in a highly incriminating way.
By a 5-4 vote, SCOTUS allowed the statement. "Police are not required to rewarn suspects from time to time. Thompkins’s answer to Helgert’s question about praying to God for forgiveness for shooting the victim was sufficient to show a course of conduct indicating waiver," says Justice Kennedy.
I think Sotomayor, writing for the four dissenters, has the better of the argument, though, and will give her the last word here.
"I cannot agree with the Court’s much broader ruling that a suspect must clearly invoke his right to silence by speaking. Taken together with the Court’s reformulation of the prosecution’s burden of proof as to waiver, today’s novel clear-statement rule for invocation invites police to question a suspect at length—notwithstanding his persistent refusal to answer questions—in the hope of eventually obtaining a single inculpatory response which will suffice to prove waiver of rights. Such a result bears little semblance to the “fully effective” prophylaxis, 384 U. S., at 444, that Miranda requires."
SKILLING v. UNITED STATES granted a partial victory to former Enron CEO Jeffrey Skilling. More important, it trimmed back the overly luxuriant prosecutorial interpretations of the "honest services" statute.
I've discussed this one at length on my other blog, and I'll just link you to that.
Here's another discussion of the case.
BILSKI v. KAPPOS is the much-anticipated decision on "business method" patents and on the machine-or-transformation test of what is or isn't patentable.
Here, too, I have said much on the subject on my other blog, so I will say very little on this one. The good guys won.
To grant this opinion would give Bilski and his partner, Rand Warsaw, a license to file patent-infringement lawsuits in a wide variety of cases of routine commodity hedging, simply because they have reduced to paper a sort of algorithm for that common process. It is a bit like describing the flapping of wings in the hope of suing the birds -- businesses have been hedging their commodity price exposure for as long as anyone can remember.
Still, it is not clear what the court is saying about business method patents as a rule.
I do think Elena Kagan, as our solicitor general, submitted a fine brief in defense of the patent office's refusal to grant Bilski and Warsaw their requested monopoly. Those who are complaining that her experience does not qualify her as a Supreme Courty Justice might want to consider how vastly sup[erior that brief is in its reasoning to any of the three opinions the litigation produced (authored by Justices Kennedy, Breyer, and Stevens.)
There were several remarkable decisions this year, and I'll pass them in quick review, in no particular order.
JONES v. HARRIS ASSOCIATES concerns mutual funds, and the fees they can charge without violating their fiduciary obligation to their investors. Nobody is sure how it will affect actual mutual fund operations, but there is a general consensus that it is important.
In terms of the standard to be applied, the respondent and the petitioner in the case before SCOTUS agreed. They both wanted the court to endorse for the first time a standard laid down by the second circuit in 1982, in Gartenberg v. Merrill Lynch. The standard since then has been that to be guilty of a breach of fiduciary obligation "the adviser-manager must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s length bargaining.”
The matter got to SCOTUS this year because the seventh circuit disagreed with Gartenberg. The seventh circuit then (despite a dissent by Judge Posner) refused to rehear the case en banc.
The original panel's justification for blocking Gartenberg lawsuits was that allowing trial courts to second-guess market rates is a bad idea, and that mutual fund managers can only be said to have violated their duty if it can be shown that they had lied to their directors. Posner's own inclinations are laissez-faire, so I find it impressive that he thought this wrong, that some sort of objective reasonableness standard, as with Gartenberg, is appropriate.
SCOTUS agreed with Posner and embraced Gartenberg rather than the Seventh Circuit approach, and it remanded for further proceedings. Still, it is not clear how big a difference this will prove to make. Will it encourage some disgruntled investors to sue their managers to get their fees back, now that it is clear they can at least get their foot inside the courthouse door? Yes, probably.
Should we be worried about that? I don't believe so. There has after all been no flood of mutual fee related lawsuits over the decades since Gartenberg, even in the 2d Circuit where that decision has been binding.
DOE v. REED denied a request by an organization, "Protect Marriage Washington," to keep the personal information of the signers of a petition private, affirming the constitutionality of a law in that state that requires disclosure in most cases (though allowing for ad hoc exemptions).
It was not a "clean win" for transparency, though. The decision allows PMW to ask the district court in Washington for an exemption from public disclosure.
The lead counsel for PMW said in a statement, "While we wish the Court had agreed with us and found that petition signers speaking on any issue should be protected from having personal information disclosed to the public, we are looking forward to returning to Washington and showing the Court that supporters of traditional marriage should have their personal information protected from disclosure."
SCOTUS voted for this result 8-1, with only Justice Thomas dissenting. Thomas would have held that "compelled disclosure of signed referendum and initiative petitions" is unconstitutional because it chills citizen participation in democratic assembly and speech.
I have no sympathy for the whole protect-traditional-marriage cause, but Thomas' decision seems right to me. I am cynical enough to wonder whether he would have written just this decision had it been a gay rights group on the other side of this issue that was asking for anonymity.
CITIZENS UNITED v. FEDERAL ELECTION COMM'N struck down decisions on what various affected parties, including for-profit corporations, may say during the course of a campaign. Much has been said and written on this subject. I won't add a lot to it.
I will note that this was the decision that provoked President Obama to criticize the Justices during the State of the Union address. The presence of the Justices at the SOTU speech has long been considered a non-controversial formal gesture, which allows for the presence of the top level of all three branches of our federal government in the same room at the same time. But Obama chose to make it an opportunity for face-to-face confrontation.
Justice Alito responded to that by mouthing the words "not true."
Stuffy people have bemoaned that exchange. I think both men acted appropriately. Let's be less stuffy and more honestly confrontational in our politics! It may help us learn to get beyond politics, and beyond the myth of sovereignty -- though I'm sure that idea was far from both of their minds at that YouTube-able moment.
BERGHUIS v. THOMPKINS is the latest example of SCOTUS' long entanglement in the specifics of police interrogation rules. Specifically, two officers of the state police of Michigan interrogated suspect Thompkins, after informing him of his Miranda rights.
For three hours he remained silent, although he did not first say "I invoke my right to remain silent" or "I want a lawyer" or anything of that sort. After 2 hours and three quarters, the police did manage to get him to speak, in a highly incriminating way.
By a 5-4 vote, SCOTUS allowed the statement. "Police are not required to rewarn suspects from time to time. Thompkins’s answer to Helgert’s question about praying to God for forgiveness for shooting the victim was sufficient to show a course of conduct indicating waiver," says Justice Kennedy.
I think Sotomayor, writing for the four dissenters, has the better of the argument, though, and will give her the last word here.
"I cannot agree with the Court’s much broader ruling that a suspect must clearly invoke his right to silence by speaking. Taken together with the Court’s reformulation of the prosecution’s burden of proof as to waiver, today’s novel clear-statement rule for invocation invites police to question a suspect at length—notwithstanding his persistent refusal to answer questions—in the hope of eventually obtaining a single inculpatory response which will suffice to prove waiver of rights. Such a result bears little semblance to the “fully effective” prophylaxis, 384 U. S., at 444, that Miranda requires."
SKILLING v. UNITED STATES granted a partial victory to former Enron CEO Jeffrey Skilling. More important, it trimmed back the overly luxuriant prosecutorial interpretations of the "honest services" statute.
I've discussed this one at length on my other blog, and I'll just link you to that.
Here's another discussion of the case.
BILSKI v. KAPPOS is the much-anticipated decision on "business method" patents and on the machine-or-transformation test of what is or isn't patentable.
Here, too, I have said much on the subject on my other blog, so I will say very little on this one. The good guys won.
To grant this opinion would give Bilski and his partner, Rand Warsaw, a license to file patent-infringement lawsuits in a wide variety of cases of routine commodity hedging, simply because they have reduced to paper a sort of algorithm for that common process. It is a bit like describing the flapping of wings in the hope of suing the birds -- businesses have been hedging their commodity price exposure for as long as anyone can remember.
Still, it is not clear what the court is saying about business method patents as a rule.
I do think Elena Kagan, as our solicitor general, submitted a fine brief in defense of the patent office's refusal to grant Bilski and Warsaw their requested monopoly. Those who are complaining that her experience does not qualify her as a Supreme Courty Justice might want to consider how vastly sup[erior that brief is in its reasoning to any of the three opinions the litigation produced (authored by Justices Kennedy, Breyer, and Stevens.)
03 July 2010
Thinking about Population
When the phrase "population theory" comes to mind, so inevitably, does the name Thomas Malthus, the author of the single most influential essay on the subject. Indeed, Malthus is to essays on population what Melville is to novels about whaling.
But what of the more than two centuries of subsequent debate? Which other names should one know to get up to speed? Well, first, there is Edwin Cannan.
In 1888 he wrote, in Elementary Political Economy: "[A]t any given time the population which can exist on a given extent of land, consistent with tha attainment of the greatest productiveness of industry possible at the time, is definite."
"Is definite"??? What the heck kind of a predicate for such a long convoluted subject is that?? A very indefinite one. Nonetheless, one gets his drift. There presumably is some "best case" at any one time, given the technology and capital accumulation and all other pertinet factors at that time, that can be stated in a given number of people per square mile.
One might also mention Henry George, the land-tax theorist, who addressed population issues. Here is the relevant chapter of Progress and Poverty. George didn't involve himself with trying to determine the optimum level of population. He is certain that the earth could support everyone there is, and everyone that is likely soon to arrive, were social conditions such as to allow it. His refutation of some of the Malthusian arguments is salutary.
Finally, I'll link you to a recent philosophical discussion. Gustav Arrhenius has used population theory to illustate moral issues, "what we ought to do in situations when our actions affect future generations. More specifically, I shall focus on the moral problems involved when our actions affect who’s going to live, their number and their-well being."
But what of the more than two centuries of subsequent debate? Which other names should one know to get up to speed? Well, first, there is Edwin Cannan.
In 1888 he wrote, in Elementary Political Economy: "[A]t any given time the population which can exist on a given extent of land, consistent with tha attainment of the greatest productiveness of industry possible at the time, is definite."
"Is definite"??? What the heck kind of a predicate for such a long convoluted subject is that?? A very indefinite one. Nonetheless, one gets his drift. There presumably is some "best case" at any one time, given the technology and capital accumulation and all other pertinet factors at that time, that can be stated in a given number of people per square mile.
One might also mention Henry George, the land-tax theorist, who addressed population issues. Here is the relevant chapter of Progress and Poverty. George didn't involve himself with trying to determine the optimum level of population. He is certain that the earth could support everyone there is, and everyone that is likely soon to arrive, were social conditions such as to allow it. His refutation of some of the Malthusian arguments is salutary.
Finally, I'll link you to a recent philosophical discussion. Gustav Arrhenius has used population theory to illustate moral issues, "what we ought to do in situations when our actions affect future generations. More specifically, I shall focus on the moral problems involved when our actions affect who’s going to live, their number and their-well being."
02 July 2010
Cassano testified
Now THIS is the one for which people have been waiting! Well ... wonks of a certain sort.
On Wednesday, June 30, the Financial Crisis Inquiry Commission finally heard from Joseph Cassano on his role in American International Group (AIG) in the period leading up to the financial crisis of 2008.
Joseph Cassano, who ran a sort of high-risk prop desk within AIG, known as "Financial Products" or AIG FP, is often credited/debited with setting off the 2008 crisis. Indeed, Cassano wears the biggest black hat in Michael Lewis' book, The Big Short.
Describing a period beginning in late 2004, Lewis writes: "The 'consumer loan' piles that Wall Street firms, led by Goldman Sachs, asked AIG FP to insure, went from being 2 percent subprime mortgages to being 95 percent subprime mortgages. In a matter of months AIG FP, in effect, bought $50 billion in triple-B rated subprime mortgage bonds by insuring them against default. And yet no one said anything about it -- not AIG CEO Martin Sullivan, not the head of AIG FP, Joe Cassano ....The deals, by all accounts, were simply rubber stamped inside AIG FP, and then again by AIG brass."
AIG FP stopped writing such deals in late 2005 -- except for those that were still "in the pipeline."
The news out of the hearing room Wednesday, though, was that Cassano was notably unapologetic. You can read his written submission to the committee for yourself, of course here.
To use the appropriate jargon, AIG FP was writing CDS' on CDOs. Or: it was writing credit default swaps on collateralized debt obligations. Or, as Lewis summarized it in the passage above, it was -- through a chain of instruments by which it hid the risk from itself -- implicitly buying bundled-up subprime mortgages.
Even in retrospect, after the blow-up, Cassano shows a touching faith in the ability of his quants in this statement. "You have asked about the way in which we calculated fair market value for our portfolio. This was, to be sure, a challenging, first-of-its-kind process at AIG-FP, but I believe we developed a reasonably strong analytic method for estimating fair value. We selected a model developed by Moody's (the Binomial Expansion Technique, or "BET") in September 2007. We customized it to provide the most accurate valuation estimate possible."
But of course, if Lewis is at all right than the damage had been done before September 2007. The plane hadn't crashed yet but it was on an auto-pilot course for the mountainside.
Cassano's back-and-forth with the committeemembers is more fun than his pre-hearing statement. Watch that here Go to FCIC Panel Two, and fast forward it to about 37:20, "We were working in an opaque market," and keep it running until he takes offense at the notion that he was making a "one sided bet."
That does seem to be what he was doing, umbrage notwithstanding,
On Wednesday, June 30, the Financial Crisis Inquiry Commission finally heard from Joseph Cassano on his role in American International Group (AIG) in the period leading up to the financial crisis of 2008.
Joseph Cassano, who ran a sort of high-risk prop desk within AIG, known as "Financial Products" or AIG FP, is often credited/debited with setting off the 2008 crisis. Indeed, Cassano wears the biggest black hat in Michael Lewis' book, The Big Short.
Describing a period beginning in late 2004, Lewis writes: "The 'consumer loan' piles that Wall Street firms, led by Goldman Sachs, asked AIG FP to insure, went from being 2 percent subprime mortgages to being 95 percent subprime mortgages. In a matter of months AIG FP, in effect, bought $50 billion in triple-B rated subprime mortgage bonds by insuring them against default. And yet no one said anything about it -- not AIG CEO Martin Sullivan, not the head of AIG FP, Joe Cassano ....The deals, by all accounts, were simply rubber stamped inside AIG FP, and then again by AIG brass."
AIG FP stopped writing such deals in late 2005 -- except for those that were still "in the pipeline."
The news out of the hearing room Wednesday, though, was that Cassano was notably unapologetic. You can read his written submission to the committee for yourself, of course here.
To use the appropriate jargon, AIG FP was writing CDS' on CDOs. Or: it was writing credit default swaps on collateralized debt obligations. Or, as Lewis summarized it in the passage above, it was -- through a chain of instruments by which it hid the risk from itself -- implicitly buying bundled-up subprime mortgages.
Even in retrospect, after the blow-up, Cassano shows a touching faith in the ability of his quants in this statement. "You have asked about the way in which we calculated fair market value for our portfolio. This was, to be sure, a challenging, first-of-its-kind process at AIG-FP, but I believe we developed a reasonably strong analytic method for estimating fair value. We selected a model developed by Moody's (the Binomial Expansion Technique, or "BET") in September 2007. We customized it to provide the most accurate valuation estimate possible."
But of course, if Lewis is at all right than the damage had been done before September 2007. The plane hadn't crashed yet but it was on an auto-pilot course for the mountainside.
Cassano's back-and-forth with the committeemembers is more fun than his pre-hearing statement. Watch that here Go to FCIC Panel Two, and fast forward it to about 37:20, "We were working in an opaque market," and keep it running until he takes offense at the notion that he was making a "one sided bet."
That does seem to be what he was doing, umbrage notwithstanding,
01 July 2010
Invention of Teflon
Today, July 1, is the anniversary of the day, in 1939, when Roy Plunkett filed a patent application for an extremely heat-tolerant no-stick stuff formally known as tetrafluoroethylene resin.
Less formally, it is known by its trade name: Teflon.
Plunkett was working then for DuPont's laboratory in Deepwater, New Jersey. The discovery is said to have been an accident, but no doubt chance favors the prepared.
It was not the only landmark in Plunkett's career. But mortals only get the chance to be remembered, at most, for one achievement. In Plunkett's case, the one is Teflon.
It is even more important as a metaphor than it is as a material. We had one recent President who was remembered, half-jokingly, as the "teflon President," and another who was known, in ironic reversal, as the "velcro President."
So here's to you, Mr. Plunkett. Like the White Line naval engineers who worked on The Titanic, you started with a set of practical workaday issues and ended up with a cosmic paradigm.
Less formally, it is known by its trade name: Teflon.
Plunkett was working then for DuPont's laboratory in Deepwater, New Jersey. The discovery is said to have been an accident, but no doubt chance favors the prepared.
It was not the only landmark in Plunkett's career. But mortals only get the chance to be remembered, at most, for one achievement. In Plunkett's case, the one is Teflon.
It is even more important as a metaphor than it is as a material. We had one recent President who was remembered, half-jokingly, as the "teflon President," and another who was known, in ironic reversal, as the "velcro President."
So here's to you, Mr. Plunkett. Like the White Line naval engineers who worked on The Titanic, you started with a set of practical workaday issues and ended up with a cosmic paradigm.
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