30 January 2011

Annual Dilbert Post

Scott Adams, the cartoonist who created Dilbert, likes to say that there are only nine news stories, constantly re-written.

Every once in awhile I like to check the newspaper with his list in mind, to see if he is right. I'll start with his wording unmodified by examples.










Does that break-down hold up for the news of the past week or so?

1. The extreme weather story. One word: Australia.

2. Idiots kill innocent people. Always too easy. I won't even include a link. Check your local paper this morning.

3. Politician does something illegal. For this one, I've got a cool link, and it brings us in imagination to sunny Italy!

4. Primate attempts inappropriate sex. A porn-film operation under the primatological name "Cheeky Monkey Inc." seems to have made inappropriate use of a food vending truck.

5. Experts warn of financial calamity. And the municipal bond market is the target of many of the latest warnings.

6. Big Company Buys Another Big Company. These mergers often take on a trans-national cast. That's nothing new. But when the industry that is consolidating is defense consulting, it's still news.

7. Famous Person Does Something Interesting. Ah, the celebrity news category! Ricky Gervais seems to have touched a few Hollywood nerves.

8. The scientific discovery that might be useful in ten years? That CERN thing -- wasn't it supposed to have found that all-important Higgs boson by now? How long will it remain elusive before particle physicists wonder (a) whether it exists and (b) if it doesn't, how to patch up their theories?

9. Government fails to achieve a goal. The governments of Europe have experimented in recent years with the creation of a unified currency zone. That experiment may be crashing to an end. Symptoms of the crash are in all the papers.

Yes, I think Scott Adams has a point.

29 January 2011

A Great Sentence from Dylan Thomas

"I was born in a large Welsh industrial town at the beginning of the Great War: an ugly, lovely town (or so it was, and is, to me), crawling, sprawling, slummed, unplanned, jerry-villa'd, and smug-suburbed by the side of a long and splendid-curving shore where truant boys and sandfield boys and old anonymous men, in the tatters and hangovers of a hundred charity suits, beachcombed, idled, and paddled, watched the dock-bound boats, threw stones into the sea for the barking, outcast dogs, and, on Saturday summer afternoons, listened to the militant music of salvation and hell-fire preached from a soap-box."

28 January 2011

Contango: 2011 Edition

Regular readers may remember that every year at this time I do some basic arithmetic regarding contango.

As a refresher, contango is the discount you can get on a non-perishable commodity by virtue of your willingness to accept delivery at once, or (stated inversely) the extra payment you make if you want the seller to hold it for you for some interim.

One would naturally expect this discount to be closely related to the costs of storage space. After all, if I buy crude today and tell you to deliver it six months from now, you have to keep it somewhere during the interval, and pay the maintenance on the storage facilities. If I take delivery now but I don't use it over the six months, then the cost of storage falls on me.

So: a year ago I simply measured the per-barrel price for March delivery (which was $74.14) against that for August delivery ($77.08) and extrapolated that into an annual rate. The five month delay in delivery cost the buyer $2.94 at that time, which extrapolated into an annual figure would have been $7.06 or about 9.5% of the price of the barrel.

Checking the figures a year later ... the price of a barrel was $89.58 for March 2011 delivery last time I checked. Never mind the question of why that has gone up. I'm focusing on just one piece of the puzzle now. The price for August delivery was $94.49. That's a difference of $4.91 for storage. This annualizes to $11.82, which is roughly 12.5% the price of a barrel.

Why is contango on the increase? I might like to suggest that this confirms that the market is signalling a recovery soon. People are willing to pay to store the crude NOT because the costs of carry have gone up dramatically but because speculators would rather have crude oil several months from now than now. And they'd rather have in six months from now because they are getting signals that people are going to be driving more, the wheels of industry are going to be turning ... good times will be back. At least to some degree.

But then ... I'm still uncomfortable. After all, forgetting speculation, the simple cost-of-carry sort of contango might have increased to 38% annually. Why not? Maybe all the easy storage spaces are all used up, and it takes extra expense to bring new storage space on line (marginalism, anyone?) and THAT is leading to a sizeable discount for anyone who will take the stuff out of the marketers' hands quickly.

All this is making my head hurt. Enough!

27 January 2011

Equity and Prop Desks

Below is a brief passage from what may become the third chapter of my proposed book as represented in the table of contents I provided on December 10, 2010.

This complements materials I've provided for the two previous chapters, and we will continue our march in a measured pace.


3. Equity and Prop Desks

The distinction between equity and debt is critical to any serious discussion of modern finance. It is also, not coincidentally, critical to the understanding of corporate liquidations or reorganizations. We will begin there, and soon enough we’ll be discussing corporate governance, government regulation, and the mysteries of federalism.

Think of a newly bankrupt corporation as a see-saw with a much heavier weight on the left and a lighter weight on the right. The right end, then, is up in the air. The left end (the equity) sits on the ground. The fulcrum is in the middle.
In terms of the right to receive a payoff, the most senior debt has first dibs. This is the airiest part of the see-saw. After those debts are paid off, payments follow in a sequence defined by contract and law. In time, the liquidators of the estate come to the fulcrum – the point at which what remains to be distributed is the good will of the ongoing enterprise.

Let’s assume that there is some such value (if not, we’d be dealing with a liquidation rather than a reorganization). On this assumption, the holders of the “fulcrum security” will be reimbursed by the transformation of their securities into the equity of the reorganized company. The classes of security that are lower than the fulcrum security, including the holders of the old equity, will get nothing.

One quick way of expressing all of this is to say that the holders of the equity of a company are the ones who bear the “residual risk.” They are the ones most certain to lose out in the event of liquidation. Thus, their interests are aligned with the interests of the corporation as a continuing, sustainable, entity.

To use a serious maritime image rather than the frivolous playground imagery above, we might say this: it is because the captain would go down with the ship, in accord with maritime tradition, that the captain is the best one to entrust with the task of steering the ship safely. Passengers with secure access to a rowboat in the event of a mishap are less suitable for the task.


A footnote in there may refer to “Chapter 11 Reorganization Cases and the Delaware Myth” by Harvey R. Miller (2002), an article that sought to rebut the widespread impression, the “myth” that “there is something fundamentally wrong, even reckless, with the reorganization process as it is practiced” in the federal bankruptcy court in bellwether Delaware.

A further theme of the chapter as it develops will be the critical role of speculation in uncovering the real value of assets. Specifically, the equity markets (and their speculators) reveal the value of an ongoing enterprise as its market cap. The difficulties caused by regulations that obscure that process, thus hiding the true value. Prices as data. Leonard Read’s pencil.

From there to the role of shorts, a return to the Enron scandal, what Skilling called a certain short. Hedge funds and the prop desks of banks.

23 January 2011

The One Before Eichmann

Adolf Eichmann is in the news again. Der Spiegel says that newly available records give a new story of his life in hiding, and tell of an Israeli effort to capture him when Israel itself was a brand spankin' new nation, in 1949.


(My apologies -- I've had trouble getting that URL to work as a link -- just copy and paste it into your browser if you like!)

Some related surfing tells me that before the Eichmann case, Israel had only tried one WW II war criminal. That was Rezso Kasztner, a Hungarian Jew who, Israel alleged, had collaborated with Eichmann in the destruction of the Jews of that country.

According to Neal Bascomb, author of "Hunting Eichmann" (2009), Israel didn't even have a law on the subject of prosecutinbg Nazis and their collaborators until 1950, so they wouldn't have had one in place at the time of that first effort to capture Eichmann.

As to Kasztner, Bascomb writes: "The supreme court ... eventually ruled that Kasztner had saved Jewish lives rather than aided in their destruction -- but not until after he had been assassinated in March 1957."

Tough timing on that vindication, Kasztner ol' buddy.

22 January 2011

Prometheus, Continued

I'll continue my discussion from yesterday without a lot of overlap.

It seems that the Federal Circuit, via its decision in Prometheus Labs, is suggesting that the doctrinal limit on the patenting of "physical phenomena" doesn't actually limit very much.

The above link will take you to Holman's Biotech IP Blog, which has a very extensive discussion of this case. Unfortunately Holman, like many of the blogosphere's commentators on IP matters, is a patent hawk. He believes the stronger is the legal protection for patent hoilders, the better. I, on the other hand, am a dogged patent dove, or maybe a dovish patent dog (allegorical zoos become confusing): so on my anarcho-cap bias alone I would have been happy to see this case go the other way.

It still might, because SCOTUS could yet get it. The Bilski decision indicates they want to do something about this field of law, and they obviously didn't think that decision was a proper vehicle for doing anything bold. Maybe this one will be more to their liking.

As to the "physical phenomena" limit in particular, I'll note that back in 1948 the court said that the characteristics of certain bacteria, "like the heat of the sun, or electricity, or the qualities of metals, are part of the storehouse of knowledge of all men. They are manifestations of the laws of nature, free to all men and reserved exclusively to none." Here's a link to that decision, by William O. Douglas.

Love that oracular Douglasite prose.

21 January 2011

Federal Circuit: Prometheus

In December the Federal Circuit issued a ruling in Prometheus Laboratories v. Mayo Collaborative Services, an important test of where the patent-law winds might blow next, in the wake of last summer's Bilski decision from the Supreme Court.

You'll recall that in June 2010 the Supreme Court rejected the notion that Bernard Bilski was entitled to a patent on certain abstract ideas for hedging against energy commodity price increases. Although four of the Justices wanted a bright-line rule against "business method" patents in general, that fell short of a majority, and did not represent the judgment of the court, which as expressed in Justice Kennedy's decision was a rather ad hoc this-case-only sort of thing.

In the Prometheus case, the lab named after the god chained to a rock claims a right to a method of determining the proper dosage of a particular drug for a particular patient. The drugs in question are known as 6-MP and AZA, both of which turn into certain metabolites within the human body. The method, then, is to monitor the patient, determine the level of these metabolites, and keep increasing the dosage until those metabolites get into the desired range. If they are present in an amount above the desired range, decrease the dosage!

Mayo Collaborative argued that the way the body metabolizes 6-MO anbd AZA is a natural phenomenon, that natural phenomena are just as unpatentable as are abstract ideas, and that thus under Bilski this patent should be disallowed.

Even before the resolution of Bilski, this argument was successful before the district court. But the appeals court, the first time it heard this case, before the Supreme Court had decided Bilski, held for Prometheus. After Bilski, SCOTUS sent Prometheus back to the Federal Circuit for reconsideration.

The news then is that the circuit court judges have now taken the position: we have reconsidered it, only to conclude that we were right the first time around.

More thoughts on this case tomorrow.

20 January 2011

Staten Island Sojourn

I went to New York City recently. I do that fairly often these days, but usually it's a day trip. This time an overnight stay was necessary.

I'd like to thank Russ again for his assistance. And thank you to your friends, most of whom I didn't get to meet. (Weather and an adverse development in the business rationale for the trip cut it short.) Thanks too, to the hens for the eggs.

I stayed on Staten Island, which induced some nostalgia, because I lived on Staten Island, in the St George area (right near the ferry terminal) beginning in the autumn of 1982 and well into 1983.

The thing to remember about the north end of Staten Island is -- it rises up from the sea quite steeply. Everything in the St George and surrounding neighborhoods is on an impressive hill. Commuters get the benefit of that hill when they walk down toward the ferry on the way into work in the morning, then they curse it on their way up the hill after they're done for that day.

This trip also created the opportunity for my first time driving over the Verrazano Bridge. (That's one "z" and two "r"s, not the other way around.) The view of the harbor on the way across is breathtaking. What is also breathtaking is the price of the trip -- $13 to get from Brooklyn to Staten Island! The way back is free, which is usually the case these days. Still, $13 for that round trip is a good chunk of change. No wonder they can afford to give away the ferry rides.

My own navigation abilities proved better than expected. I suspect Russ expected that I would drive around his neighborhood, get confused by the warren of 1-way streets, and call him on my cell phone in frustration. Instead I was able to call him to say, "I'm on your street now," which seems to have surprised him.

It's good to be an old SI hand.

16 January 2011

Random Quote: History of Philosophy

Henri Bergson, CREATIVE EVOLUTION (1913).

"There is, then, immanent in the philosophy of Ideas" [Platonism and its kin], "a particular conception of causality, which it is important to bring into full light, because it is that which each of us will reach when, in order to ascend to the origin of things, he follows to the end the natural movement of the intellect....The affirmation of a reality implies the affirmation of all the degrees of reality intermediate between it and nothing. The principle is evident in the case of number: we cannot affirm the existence of the number 10 without affirming the existence of the numbers 9, 8, 7, ... , etc., -- in short of the whole interval between 10 and zero."

Emphasis in the original.

15 January 2011

In Vino Veritas

I knew the wikileaks kerfuffle reminded me of something from the distant past, but it has taken me weeks to loosen up the right memories.

Back in the 1970s, when the first generation of Star Trek was a memory and the next generation still just a project, there was a series of recordings of pseudo-episodes. I listened to three of them at one point on an LP.

The one audio Star Trek that sticks in my mind was called "In Vino Veritas." It involved a diplomatic conference among three powers each claiming the same planet: the Federation, the Klingons, and the Romulans. Because of a truth serum that a trouble maker has slipped into their wine, they start saying things that are grossly inconsistent with their diplomatic positions, and the conference breaks down.

The troublemaker went by the unlikely alias of Jack Spratt. (Why would you adopt "Jack Spratt" as a name if you were trying to blend into a conference as an inconspicuous "Federation" delegate???) Were they serving fat at the conference, in between toasts of wine, and he wanted an excuse not to partake, so "Jack Spratt" seemed logical?

14 January 2011

Patrick Poivre d'Arvor

M. d'Arvor is apparently a very well-known television news anchorman in France.

I never knew of his existence until I did a google search about a week ago for plagiarism, hoping to find some juicy scandal and ... there he was. And there it is.

D'Arvor has written a biography of Ernest Hemingway scheduled for publication January 19. The last time I checked, this 400-page book is STILL scheduled for publication, juicyness notwithstanding.

L’Express claims that much of d'Arvor's book was copied from a book on that subject by an American writer, Peter M. Griffin. This Peter Griffin is apparently not the one who is the lead character in "Family Guy," but surely I jest. (Don't call me Shirley.)

In an era in which we have sunk so low as to bowdlerize Huckleberry Finn, why worry about a little plagiarism here and there? Because there's a principle involved, and indeed it's the same principle involved in opposition to that bowdlerization. The point is that we are burying our literary history -- we are mulching it so completely we no longer seem to know or care who wrote what, using which words. And there is nothing more important to who we are and who we will be than that we retain the critical intelligence necessary to maintain these distinctions.

We have to be able to say, "Twain wrote this text, not that other text that has been patched up and given his name." Likewise, we have to be able to say, "Griffin wrote this, and anyone else who makes use of it ought to credit him properly." They are, indeed, two perspectives on the SAME side of the same coin.

13 January 2011


On this day in 1898, Emile Zola's immortal editorial "J'Accuse" saw print.

You can find the letter in full, and in English, starting at page 43 of this book.

I'll just quote one nicely-turned passage here.

"Of course, there is the War Minister, General Mercier, whose intelligence seems to be on a mediocre level; and of course there is the Chief of the General Staff, General Gonse, whose conscience managed to make room for a good many things. But to begin with, there was really only Major du Paty de Clam. He led those men by the nose. He hypnotized them."

Is the word "intelligence" as ambiguous in French as it is in English here? Zola clearly means that the General's personal cognitive gifts were not great. He could have meant, though, (at least if he had been writing in English) that the General was not being well-served by the spies in his employ. To my reading, anyway, the possibility of the more 'innocent' meaning adds extra spice to the actual meaning.

I'm reminded, with the way my mind has of combining the sublime with the ridiculous, of a scene in Hogan's Heroes. General Burkhalter demands to know whether Colonel Klink is spying on him.

Klink: I assure you, General, I have nothing to do with intelligence.

General: Zat is obvious, Klink.

09 January 2011

Sample Chapter, Comments Welcome

I'm posting a full chapter of my work-in-progress.

As regular readers know, I'm at work on a book I'm called Gambling With Borrowed Chips. Its about the crisis of 2007-08, although in a more analytical sense than that which applies to most of the books currently available 'about' that subject. It suggests the deep history behind that crisis, and the way forward from here.

Chapter 2 will discuss the history of debt and interest payments.

Your comments are welcome. The chapter is here.

08 January 2011

Oxymandias Meme, Conclusion

As I said yesterday, Graves returns to this theme -- the boast of immortality for one's achievements juxtaposed with posterities actual ignorance thereof.

Certainly his best use of it is in a poem straightforwardly titled, "To Evoke Posterity." You can find it for yourself here.

The first stanza states the theme:

"To evoke posterity
Is to weep on your own grave,
Ventriloquizing for the unborn...."

Subsequent stanzas get increasingly derisive toward those who think they will receive some posthumous reverence. How great will it be, exactly, "To be cast in bronze for a city square,/ To dribble green in times of rain/ And stain the pedestal"?

If you are written up in the history books, what then, the narrative voice asks. You will just be "two more dates of life and birth" for the study of boys and girls. But they won't study you anyway, because all the ones "of mettle" will play truant, "and worn excuses try."

Altogether a very lively poem.

07 January 2011

The Oxymandias meme

Most reasonably well-educated people whose native language is English, a category that I'm sure includes my readership, have encountered Shelley's poem Ozymandias. Here are a few lines to jog your memory:

"Two vast and trunkless legs of stone
Stand in the desert. Near them on the sand,
Half sunk, a shattered visage lies, whose frown
And wrinkled lip and sneer of cold command
Tell that its sculptor well those passions read...."

The poem ends with two discordant observations: first, that the owner of that wrinkled lip, Ozymandias, thought his works immortal: "look on my works," he confidently declares, to his posterity.

The second observation, of course, is that his works proved mortal indeed, buried now under "lone and level sands" around that ruin of a statue.

The poem is a powerful expression of a meme -- the notion that a deserved obscurity awaits precisely the egotist who boasts about his legacy.

As I mentioned yesterday, I have of late been reading the collected poems of Robert Graves, and it struck me that the Ozymandias meme plays a rather large part in his poetic armory.

One of his poems is called "The General Elliot," and it describes a hero of that name, whose visage is painted on a sign above a tavern, presumably here. The name is probably a reference to Gilbert Elliot-Murray-Kynynmound, 1st Earl of Minto, who was the Governor-General of India between 1807 and 1813.

The gibe in Graves' poem is the same in Shelley's: Yes, you were a big wheel in your day, but no one knows who you are now, or in what wars you gained distinction.

He fell in victory's fierce pursuit,
Holed through and through with shot....
The potman cannot well recall,
The ostler never knew,
Whether that day was Malplaquet,
The Boyne, or Waterloo.

The eighth and final verse reads:

And paint shall keep his buttons bright
Though all the world's forgot
Whether he died for England's pride
By battle or by pot.

If the reference is, as I suspect, to the Governor-General, let it be said that he died at home, in England, in 1814, a year after leaving his Indian post, (about a year before the Battle of Waterloo, a century after the battle of Malplaquet, and more than 120 years after the battle of The Boyne.)

Another poem in this collection, titled simply "Vanity," states the Oxymandias meme more baldly. Indeed, this one may be faulted for violating the cardinal rule "show don't tell." Though it shows us an apparently supernatural toad who "dreams away the past," its interest is in telling us what this toad knows.

Which is "that certitude at last/Must melt away in vanity --/ No gate is fast, no door is fast."

The Eliot poem is rather gimmicky, though in its way moving. "Vanity" is flat. But there is another poem that displays the same meme with great power, and of that I will write in tomorrow's entry.

06 January 2011

Christmas Loot

For Christmas, from my sister (thanks Carolyn) I received a copy of the Collected Poems of Robert Graves, the 1961 edition. Thanks Carolyn.

Robert Graves was a scholar, known in that capacity for his translation of Suetonius' classic, The Twelve Caesars, as well as a novelist, known for his dramatization of Suetonius' work in I, Claudius and Claudius the God.

One wonders what the shade of Suetonius, no doubt wandering about in Limbo, thinks of Graves. Is he grateful for the publicity or does he feel ripped off?

Anyhoo ... the poems have nothing to do with all that. There is a good deal that one might say about these poems on a close reading and I will try to say some of it, as to a couple of them, for tomorrow's entry.

02 January 2011

My three calenders

For my week-by-week desk calender through 2011, I will be relying on an unflashy but serviceable item from American Express, with factual tidbits on each page about various destinations where I could presumably enjoy a debt-financed vacation with my Amex card. It tells me with referemce, for example, to French Polynesia that the "views from Moorea's Belvedere Lookout are among the most spectacular in the South Pacific." Those views encompass two famous bays -- one named for Capt. Cook, the other not. But it is the one that is not named Cook's Bay (named, rather, Opunohu Bay) where Cook in fact landed. So it says here.

That reminds me a bit of the tricky American history question, "On what hill did the battle of Bunker Hill take place?"

This desk calender alson has a neat "thirty years ago this week" feature on every page, so I can keep track of what was happening in 1981.

Separately, my month-by-month calender for the coming year, from Dr. Seuss Enterprises, provides me with 13 Seussian illustrations. This is one of those so-called 16-month calenders, in which the last four months of the outgoing year have to share one page before one gets to the usual month-per-page stuff: hence the 13 illustrations. Why is that necessary? I need one calender a year anyway -- why does anyone think I need four months worth of quarter-page overlap?

The oldest illustration is for the month of July. It's from Horton Hears a Who, a 1954 publication.

Finally, for the day--by-day calender on the top of my dresser, I will this coming year be relying on "non sequitur" to get me through MMXI. Enough with the Latin phrases.

Out with the old, in with the new!

01 January 2011


Here's a straightforward list.

1. Take good care of my car. If all goes well, I should complete the payments on "Hirohito" as 2011 comes to an end. I need to keep it maintained properly so it won't die on me before then.

2. Keep up with its insurance, too! Yes, I know that's the law. Doesn't hurt to remind myself in the form of a resolution.

3. Venture outside the boundaries of the U.S. I had gotten spoiled with traveling back in 'the day.' I've remained within the U.S. for each of the last two years. Hope that doesn't becomes a three-year streak. (I love my country -- I just also love travel.)

4. Make progress toward the publication of another book. My last book, the secondary education textbook on economics I co-authored, came out a decade ago. Too long a dry spell.

5. Keep track of Nasser Saber. Will his long-promised book be published in 2011? Am I going to be mentioned therein? I have a feeling in my bones, folks.

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.