It’s Saturday!

Happy Saturday Sky Dancers!! It’s a beautiful fall day here in Indiana, but I’m looking forward to getting back to Boston. I’ll be taking off in a couple of days and I hope to be home by Tuesday or Wednesday. My mom is going along for the ride so she can hang out with her youngest grandsons for awhile. It will be fun, because she’ll be there over Halloween. But enough about my boring life–let’s get to the news.

This story is a couple of days old, but still worth reading. Via BDBlue at Corrente, Which GOP candidate do you think has raised the most money from Wall Street?

Barack Obama!

Despite frosty relations with the titans of Wall Street, President Obama has still managed to raise far more money this year from the financial and banking sector than Mitt Romney or any other Republican presidential candidate, according to new fundraising data.

Obama’s key advantage over the GOP field is the ability to collect bigger checks because he raises money for both his own campaign committee and for the Democratic National Committee, which will aid in his reelection effort.

As a result, Obama has brought in more money from employees of banks, hedge funds and other financial service companies than all of the GOP candidates combined, according to a Washington Post analysis of contribution data. The numbers show that Obama retains a persistent reservoir of support among Democratic financiers who have backed him since he was an underdog presidential candidate four years ago.

And get this–Obama has raised nearly twice as much as Romney from the Mittster’s old firm, Bain Capital! So don’t believe all those stories in the media about the Wall Street titans switching to Mitt.

Here’s another “breaking news” story from Forbes: US Businesses Not Being Strangled By Regulation And Taxation, World Bank Says. Gee, no kidding? But the Republicans say that’s the main cause of our economic problems, don’t they?

The World Bank uses indicators such as time spent to set up a business to getting credit, among other things, in benchmarking the 183 countries it ranks in “Doing Business”. The report measures and tracks changes in the regulations applied to domestic companies in 11 areas in their life cycle–such as investors rights, taxation, cross border transactions, legality and enforcement of contracts and bankruptcy law. A fundamental premise of doing business is that economic activity requires good rules that are transparent and accessible to all, not just big business. Such regulations should be efficient, the World Bank states, striking a balance between safeguarding some important aspects of the business environment and avoiding distortions that impose unreasonable costs on businesses. “Where business regulation is burdensome and competition limited, success depends more on whom you know than on what you can do. But where regulations are relatively easy to comply with and accessible to all who need to use them, anyone with talent and a good idea should be able to start and grow a business (legally),” the World Bank said.

Where does the supposed regulation and taxation crippled U.S. stand in the rankings? It is number four, trailing behind New Zealand (3), Hong Kong (2) and Singapore (1).

What it looks like from the research desks at one of the most powerful and elite multilateral institutions on the planet is a U.S. that does not have the government in its way, but a U.S. whose government is more out of the way than it is in every other major economy on earth, including mainland China.

Wow, I wonder if Congressman Paul Ryan reads Forbes? Naaaah… probably too far left for him. And speaking of Ryan, he appeared at a town hall meeting in Muskego, WI yesterday and made a complete ass of himself as usual. From Think Progress:

During a town hall today, House Budget Committee Chairman Paul Ryan (R-WI) was asked by Matthew Lowe, a student, why the GOP wants to cut Pell Grants. Ryan responded by saying that the program is “unsustainable,” before telling Lowe that he should be working three jobs and taking out student loans to pay for college, instead of using Pell Grants:

LOWE: I come from a very middle-class family and under President Obama, I get $5,500 per year to pay for school, which doesn’t come close to covering all of the funding, but it helps ease the burden. Under your plan, you cut it by 15 percent. I was just curious why you would cut a grant that goes directly to the middle- and lower-class people that need it the most.

RYAN: ‘Cause Pell Grants have become unsustainable. It’s all borrowed money…Look, I worked three jobs to pay off my student loans after college. I didn’t get grants, I got loans, and we need to have a system of viable student loans to be able to do this.

That’s funny. I read that Ryan used his father’s Social Security survivor benefits to put himself through college. I’d like to see some documentation on those three jobs he claims he worked while attending classes, writing papers, and studying for exams. Besides, I’ll bet the unemployment rate for college-age kids wasn’t at depression levels back then.

And speaking of paying for college, here’s an interesting piece at Truthout by Ellen Brown: Can the Fed Prevent the Next Crisis by Eliminating Interest on Student Loan Debt?

Among the demands of the Wall Street protesters is student debt forgiveness – a debt “jubilee.” Occupy Philly has a “Student Loan Jubilee Working Group,” and other groups are studying the issue. Commentators say debt forgiveness is impossible. Who would foot the bill? But there is one deep pocket that could pull it off – the Federal Reserve. In its first quantitative easing program (QE1), the Fed removed $1.3 trillion in toxic assets from the books of Wall Street banks. For QE4, it could remove $1 trillion in toxic debt from the backs of millions of students.

The economy would only be the better for it, as was shown by the GI Bill, which provided virtually free higher education for returning veterans, along with low-interest loans for housing and business. The GI Bill had a sevenfold return. It was one of the best investments Congress ever made.

There are arguments against a complete student debt write-off, including that it would reward private universities that are already charging too much and it would unfairly exclude other forms of debt from relief. But the point here is that it could be done and it (or some similar form of consumer “jubilee”) would represent a significant stimulus to the economy.

According to Brown, student loan debt is “the next Black Swan.”

Here’s another stupid Republican story for you. Eric Cantor was scheduled to give a speech yesterday at the elite Wharton School of Business at the University of Pennsylvania. Cantor was to speak on what Republicans plan to do about income inequality. The school was so excited that they opened the talk to the public. In addition, there was to be a protest by several groups, including Occupy Philly.

Guess what Cantor did? He wimped out and cancelled. ROFLOL! From the LA Times:

Cantor was scheduled to speak on income inequity at a lecture hosted by the Wharton business school. The Virginia Republican’s office said he called off the speech after learning that protesters planned to rally outside and attendance would not be limited to students and others affiliated with the school.

Ron Ozio, director of media relations at University of Pennsylvania, said the business school “deeply regrets” that the event was canceled.

“The university community was looking forward to hearing Majority Leader Cantor’s comments on important public issues, and we hope there will be another opportunity for him to speak on campus,” Ozio said in a statement. “The Wharton speaker series is typically open to the general public, and that is how the event with Majority Leader Cantor was billed. We very much regret if there was any misunderstanding with the Majority Leader’s office on the staging of his presentation.”

This is pretty disgusting: Libyans line up to see Gaddafi’s body on display; groups call for probe into death

International human rights groups called Friday for an investigation into the death of former Libyan leader Moammar Gaddafi as gory new videos showed him being spat at and punched by revolutionaries and as skepticism mounted about official claims that he was shot in crossfire after being captured.

The new cellphone videos cast a shadow over the revolutionaries even as they were celebrating the end of their eight-month struggle to wrest control of the country. NATO had backed the rebels in the name of shielding pro-democracy civilians from Gaddafi’s brutality.

“The government version certainly does not fit with the reality we have seen on the ground,” said Peter Bouckaert of Human Rights Watch, who has been investigating the capture of Gaddafi in his home town of Sirte. Amnesty International warned that the killing could be a war crime.

Why do I suspect the U.S. Government gave the go-ahead for Gaddafi to be executed, just like Osama bin Laden? You might want to read Joseph Cannon’s take on this one.

Finally, late last night the Volker Rule was number 1 in Google’s top stories. From the NYT:

When Paul Volcker called for new rules in 2009 to curb risk-taking by banks, and thus avoid making taxpayers liable in the future for the kind of reckless speculation that caused the financial crisis and resulting bailout, he outlined his proposal in a three-page letter to the president.

Last year, when the Dodd-Frank Wall Street Reform and Consumer Protection Act went to Congress, the Volcker Rule that it contained took up 10 pages.

Last week, when the proposed regulations for the Volcker Rule finally emerged for public comment, the text had swelled to 298 pages and was accompanied by more than 1,300 questions about 400 topics.

Wall Street firms have spent countless millions of dollars trying to water down the original Volcker proposal and have succeeded in inserting numerous exemptions. Now they’re claiming it’s too complex to understand and too costly to adopt.

Gee, what a surprise. I wonder how many of those millions were taxpayer dollars?

So…what are you reading and blogging about today?


Living in a Black Swan World

blackswans2I’ve been reading Nassim Nicholas Taleb’s Black Swan in between journal articles. Boston Boomer and I picked up on this book and honed in on the theory earlier this year.   A Black Swan moment or event is large-impact, hard-to-predict, and rare.  The event is unexpected because its outside “normal” expectations. Here’ some basic information  from Wiki.

The theory was described by Nassim Nicholas Taleb in his 2007 book The Black Swan. Taleb regards many scientific discoveries as “black swans” — undirected and unpredicted. He gives the rise of the Internet, the personal computer, World War I, and the September 11, 2001 attacks as examples of Black Swan events.

The term Black Swan comes from the assumption that ‘All swans are white‘. In that context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia metamorphosed the term to connote that the perceived impossibility actually came to pass. Taleb notes that John Stuart Mill first used the Black Swan narrative to discuss falsification.

Read the rest of this entry »


Quantifying the Unquantifiable

I found this neat article on 13 tipping points by Market Watch’s Paul Farrell.  I managed to read it in between multi-napping and watching the Dow go down in response to the the State of the Union Address and bad  numbers coming out of housing.  Then, I watched the market return to a more neutral position following Ben Bernanke’s second day of congressional testimony .  I decided it might be a good idea to talk about how information comes into markets and how markets react to that information using his article.

The article is subtitled why “Obamanomics may backfire, triggering the next Great Depression”.  It’s actually less about Obamanomics than it is about the number of unquantifiable ‘shocks’ to the macroeconomy that may lurk out there and panic or entice Wall Street.  These shocks (called so because they shock the economy and frequently appear unforeseeable) represent a huge amount of risk but can’t be easily written into the mathematical models.  They wait out there like a cat ready to pounce on an unsuspecting mouse.  Farrell’s basic point is that we don’t know right now if the stimulus package will work because there is too much unquantifiable risk out there.  However, just because the mouse is unsuspecting, I always think that there must be ways of detecting that big old cat. Hence, I research.

Usually the chance of the shock can be added into a model using Bayesian ‘dummy’ variables.  They take on either a 1 or 0 value and are ‘weighted’ by the probability of realizing the event.  So, the 13 variables that Farrell lists could be used to cause a negative shock (using a negative one for the occurrence of the event) times its Bayesian probability (say something like a 20 % chance of occuring vs a 80% chance of not occuring).   Shocks can also positive impact by using a positive 1 for the occurrence of the event say like a technological advance that just suddenly happens.

Farrell identifies these 13 things that are possibilities that haven’t been “quantified” by most Wall Street Risk models because these models focus on getting at the risk and pricing of an asset using asset-related events, rather than macroeconomic-related events.  Here’s his list.  It’s a basic what’s what of tinfoil hat scenarios.

  1. Massive debt: government, private; Fed printing money, tax increases
  2. Population: exploding demand, resources depleting, conflict, rebellion
  3. Lobbyists: feeding frenzy, 40,000 run Washington, sabotaging democracy
  4. Derivatives: $683 trillion hiding in shaky global “shadow banking system”
  5. Petro czars: Exxon, Saudis, Chavez, Iran — all vulnerable, unstable, risk
  6. Universal health care: 46 million uninsured; costs inflating debt
  7. War on drugs: massive global failure: Afghan, Mexico, Latin America.
  8. Deflation? Inflation? Stagflation? 1970’s sideways market ahead?
  9. Entitlements: Social Security, Medicare, drug benefits may soon sink us
  10. Politics: “Grand Obstructionist Party” Or “New Contract with America?”
  11. Savings: sabotaging consumer spending, the engine driving the economy
  12. Climate change: Pentagon sees increasing tension, triggering new wars
  13. Socialism and nationalization: will free markets return, or sink us?

tippingpointUsing Malcom Gladwell’s idea from the Tipping Point (a book club selection that Readers of the Confluence will recognize,),  Farrell isn’t sure if any of these dicey situations will actually reach that critical place where the event impacts everything it touches.  Hence, becoming one of Gladwell’s Tipping points.

More significant, although invariably left out of Wall Street’s equations, true economic tipping points will grow to a “moment of critical mass, the threshold, the boiling point,” according to author Malcolm Gladwell, where “change” (whether positive or negative) is “unstoppable.” And although left out, these macroeconomic variables can account for over 90% of the risk in an economic equation or derivatives contract, as we’ve discovered so painfully this past year.

Read the rest of this entry »