My article Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics has received a Google Knol "Top Pick Knol Award". Cheers!
Ah! Someone highjacked the review section of the article and messed it up, Ritu..? anyways..
Friday, December 11, 2009
Friday, November 27, 2009
BICs Vs. The Tobin Tax
I write this article as a commentary on Paul Krugman's support of a Tobin tax on all financial transactions.
It has gained steam lately after being picked up by British leaders including the top financial regulators and the prime minister as the Turner-Brown proposal. When French President Chirac would say this a few years ago, everybody laughed at him....
I think putting incentives that may or may not be short of a tax aimed at directing hedging and speculative activities on securitizing BICs that mirror the value of target underlyings without having an effect on them is the farsighted and most effective proposal that still stimulates rather than slow down economic activity.
"Turner-Brown"
- Op-Ed Columnist - Taxing the Speculators - NYTimes.com (view on Google Sidewiki)
Monday, November 9, 2009
Damned Yankees -Republican/Democrat President
This thought of Republican Vs. Democrats having an impact on NYY winning odds crossed my mind but I did not have the extensive background of Mr. Fleisher on the observation. It is easy to add such an insight in the pricing of NYY odds of winning the series as an additional factor in assessing odds of winning individual games using the BICs framework.
The interested reader is invited to look at the Wolfram demonstration (http://demonstrations.
"Damned Yankees"
- Op-Ed Contributor - Damned Yankees - NYTimes.com (view on Google Sidewiki)
Saturday, November 7, 2009
New York Yankees World Series Triumph!
As a tribute to fellow New Yorkers, to Baseball and World Series fans the world over, I do dedicate my new Wolfram Demonstration on Baseball & BICs.
To the New York Yankees!
To a magnificent victory!
To the New York Yankees!
To a magnificent victory!
Wednesday, November 4, 2009
The Reach for a new paradigm: BICs
The new paradigm is to be found in a widening of the concept of probability to mind trading, hedging and risk management issues. The traditional probabilistic framework by failing to account for risk and uncertainty, perpetuates dangerous expectations based fallacies. BICs (http://tinyurl.com/cyxhpa) theory are already a comprehensive theory to help effectively navigate these issues. See:http://www.
"Economist Profiles In the wake of the worst financial crisis since the Great Depression, economists are racing to provide policy makers with the tools they need to avert a repeat -- a process that some believe could require a revolution in economic thought. In doing so, they are building on the work of colleagues who saw early on the dangers presented by an unstable financial sector. Here are some of the people who did the early work, and who are now using it to build new models of the economy."
- Crisis Compels Economists To Reach for New Paradigm - WSJ.com (view on Google Sidewiki)
Wednesday, October 7, 2009
World Bank launches distressed assets programme - Risk.net
World Bank launches distressed assets programme - Risk.net: "World Bank launches distressed assets programme"
This program looks more like the Treasury PPIP/TARP and has copied the features of those, notably the "Public/Private" partnership dimension. Their is no discussion of the Equity/Debt distribution or source of the funds.
It is regrettable no one has thought about being a market maker on the distressed assets traded at refined levels of granularity as we proposed.
This program looks more like the Treasury PPIP/TARP and has copied the features of those, notably the "Public/Private" partnership dimension. Their is no discussion of the Equity/Debt distribution or source of the funds.
It is regrettable no one has thought about being a market maker on the distressed assets traded at refined levels of granularity as we proposed.
Monday, October 5, 2009
Public-Private Investment Program Almost Ready to Begin - NYTimes.com
Public-Private Investment Program Almost Ready to Begin - NYTimes.com
This article has some important numbers to bear in mind:
"The International Monetary Fund estimated last week that financial institutions worldwide still held about $2.8 trillion in troubled mortgages and securities, and that they had booked losses on less than half that amount so far. A big share of those assets is in American banks.
The Public-Private Investment Program would acquire only a tiny fraction of those assets, amounting to $12 billion. All told, the Treasury said, the five firms have thus far raised $3.07 billion in private equity. The Treasury will match that amount, dollar for dollar, with its own equity investment. It will also provide up to $6.13 billion in financing guaranteed by the government.
In effect, the money-management firms will be able to buy about $12 billion in troubled assets. The firms will split any profits evenly with the Treasury, but taxpayers would ultimately be on the hook if the investments lost money."
Finally it looks like it is going to start at long last along the lines that we outlined in The Investment Professional
http://www.theinvestmentprofessional.com/vol_2_no_3/abstract-bics.html
See also my knol articles:
1. Fair Value Pricing, Government Market Making and PPIP
2. Estimating Costs for PPIP Assets in a Market Making Framework & BICs
This article has some important numbers to bear in mind:
"The International Monetary Fund estimated last week that financial institutions worldwide still held about $2.8 trillion in troubled mortgages and securities, and that they had booked losses on less than half that amount so far. A big share of those assets is in American banks.
The Public-Private Investment Program would acquire only a tiny fraction of those assets, amounting to $12 billion. All told, the Treasury said, the five firms have thus far raised $3.07 billion in private equity. The Treasury will match that amount, dollar for dollar, with its own equity investment. It will also provide up to $6.13 billion in financing guaranteed by the government.
In effect, the money-management firms will be able to buy about $12 billion in troubled assets. The firms will split any profits evenly with the Treasury, but taxpayers would ultimately be on the hook if the investments lost money."
Finally it looks like it is going to start at long last along the lines that we outlined in The Investment Professional
http://www.theinvestmentprofessional.com/vol_2_no_3/abstract-bics.html
See also my knol articles:
1. Fair Value Pricing, Government Market Making and PPIP
2. Estimating Costs for PPIP Assets in a Market Making Framework & BICs
Saturday, September 19, 2009
Op-Ed Columnist - No, It’s Not About Race - NYTimes.com
Op-Ed Columnist - No, It’s Not About Race - NYTimes.com: "For example, for generations schoolchildren studied the long debate between Hamiltonians and Jeffersonians. Hamiltonians stood for urbanism, industrialism and federal power. Jeffersonians were suspicious of urban elites and financial concentration and believed in small-town virtues and limited government. Jefferson advocated “a wise and frugal government” that will keep people from hurting each other, but will otherwise leave them free and “shall not take from the mouth of labor the bread it has earned.”"
This Hamiltonian Vs. Jeffersonians divide which has recently been stated as Blue Vs. Red states is a very rational behavior even though it does not seem so a priori and can be explained via population density and the holistic theorem: The more concentrated a population, the more it makes sense for it to seek government intermediation. The more people there are, the more government intervention makes sense, on a linear cost bringing in quadratic benefits basis.
This Hamiltonian Vs. Jeffersonians divide which has recently been stated as Blue Vs. Red states is a very rational behavior even though it does not seem so a priori and can be explained via population density and the holistic theorem: The more concentrated a population, the more it makes sense for it to seek government intermediation. The more people there are, the more government intervention makes sense, on a linear cost bringing in quadratic benefits basis.
Monday, September 7, 2009
How Did Economists Get It So Wrong? - NYTimes.com
How Did Economists Get It So Wrong? - NYTimes.com
This piece is well written and offers a plausible explanation within the framework of mainstream accepted knowledge. But it's explanations merely reflect what has emerged as conventional wisdom and the intellectual strengths and weaknesses of its author, namely strength in economic history understanding and relative weakness in mathematical fluency.
As a result the piece trashes mathematical skill and look to economic history in Keynesian analysis to seek prescriptions for the current predicament.
What Mr. Krugman may not be able to grasp is not that there are good maths and there are bad maths. The maths used in economic theory and neoclassical economic theory since the end of WWII is transposed from Physics and seems a priori impressive. But we seek to address economic issues. "It ain't Physics" . It is only suitable and built for a world with no constraints on resources, continuity of time and space, unrestricted trade i.e. no frictions, perfect rationality of operators, etc.
There have been recent attempts to correct those assumptions, but all withing the edifice of the traditional mathematical architecture.
Indeed behavioral economics and finance are descriptive theories and provide a well deserved criticism of rational agents theories, but these have not been translated in efficient prescriptive formulations.
BICs are built from the ground up to provide a more resilient framework for more effective formulations that reflect actual human economic reality and behavior. They provide the math to efficiently accommodate evolving economic realities
My biggest concern is with prescriptions that are derived from Mr. Krugman's analysis. They are backward looking and fail to integrate the economic transformations that have taken place since the 1930s, notably the advent of the Internet, the rise of the service and network economies, the relative decline of manufacturing as a source of economic wealth, globalization, the environment...
-------------
PS: The following section made me scratch my head:"The theoretical model that finance economists developed by assuming that every investor rationally balances risk against reward — the so-called Capital Asset Pricing Model, or CAPM (pronounced cap-em) — is wonderfully elegant. And if you accept its premises it’s also extremely useful. CAPM not only tells you how to choose your portfolio — even more important from the financial industry’s point of view, it tells you how to put a price on financial derivatives, claims on claims."
Although the original vanilla call option was originally priced by Fischer Black using a CAPM based argument, derivatives pricing theory in all subsequent textbooks more the arbitrage arguments along Merton's Rational Pricing Theory. It is true that Merton makes a CAPM style argument to value derivatives in incomplete settings such as underlyings driven by jumps, but a robust and replicative pricing argument can still be made without reference to the CAPM and its outrageous assumptions, as I do with BICss.
OK, here let's just say the proposition on CAPM as the modern tool used to value derivatives is debatable. As far as I know, the CAPM is more commonly used in corporate finance for corporate valuation purposes where one uses the CAPM to obtain the required rate of return that is used to discount expected future earnings to deduce present value.
But what's really is a bit startling to me is the characterization of derivatives as "claims on claims"... Derivatives are contracts whose payout is is derived from(i.e. is a function of )the value of other observables(stocks, credit indices, temperature,...) at payout payment time(i.e. maturity).
This piece is well written and offers a plausible explanation within the framework of mainstream accepted knowledge. But it's explanations merely reflect what has emerged as conventional wisdom and the intellectual strengths and weaknesses of its author, namely strength in economic history understanding and relative weakness in mathematical fluency.
As a result the piece trashes mathematical skill and look to economic history in Keynesian analysis to seek prescriptions for the current predicament.
What Mr. Krugman may not be able to grasp is not that there are good maths and there are bad maths. The maths used in economic theory and neoclassical economic theory since the end of WWII is transposed from Physics and seems a priori impressive. But we seek to address economic issues. "It ain't Physics" . It is only suitable and built for a world with no constraints on resources, continuity of time and space, unrestricted trade i.e. no frictions, perfect rationality of operators, etc.
There have been recent attempts to correct those assumptions, but all withing the edifice of the traditional mathematical architecture.
Indeed behavioral economics and finance are descriptive theories and provide a well deserved criticism of rational agents theories, but these have not been translated in efficient prescriptive formulations.
BICs are built from the ground up to provide a more resilient framework for more effective formulations that reflect actual human economic reality and behavior. They provide the math to efficiently accommodate evolving economic realities
My biggest concern is with prescriptions that are derived from Mr. Krugman's analysis. They are backward looking and fail to integrate the economic transformations that have taken place since the 1930s, notably the advent of the Internet, the rise of the service and network economies, the relative decline of manufacturing as a source of economic wealth, globalization, the environment...
-------------
PS: The following section made me scratch my head:"The theoretical model that finance economists developed by assuming that every investor rationally balances risk against reward — the so-called Capital Asset Pricing Model, or CAPM (pronounced cap-em) — is wonderfully elegant. And if you accept its premises it’s also extremely useful. CAPM not only tells you how to choose your portfolio — even more important from the financial industry’s point of view, it tells you how to put a price on financial derivatives, claims on claims."
Although the original vanilla call option was originally priced by Fischer Black using a CAPM based argument, derivatives pricing theory in all subsequent textbooks more the arbitrage arguments along Merton's Rational Pricing Theory. It is true that Merton makes a CAPM style argument to value derivatives in incomplete settings such as underlyings driven by jumps, but a robust and replicative pricing argument can still be made without reference to the CAPM and its outrageous assumptions, as I do with BICss.
OK, here let's just say the proposition on CAPM as the modern tool used to value derivatives is debatable. As far as I know, the CAPM is more commonly used in corporate finance for corporate valuation purposes where one uses the CAPM to obtain the required rate of return that is used to discount expected future earnings to deduce present value.
But what's really is a bit startling to me is the characterization of derivatives as "claims on claims"... Derivatives are contracts whose payout is is derived from(i.e. is a function of )the value of other observables(stocks, credit indices, temperature,...) at payout payment time(i.e. maturity).
Tuesday, September 1, 2009
Op-Ed Contributor - The Case Against a Super-Regulator - NYTimes.com
Op-Ed Contributor - The Case Against a Super-Regulator - NYTimes.com
This case does not seem to have been convincingly made.
While not voicing an opinion for or against a single regulator - It all depends on what they would be empowered to do- it seems to me the argument presented by Ms. Bair here, namely attention neglect that would threaten smaller community banks could be effectively addressed in a multi-layered supervisory system (layers being for example state-regional-federal) as advocated in our holistic theorem implementation recommendation for a single counterparty of reference on a subsidiarity principle See:http://www.authorstream.com/Presentation/kongtcheu-184552-UnityofPurpose3-Business-Finance-ppt-powerpoint/
See also the corresponding knol.
This case does not seem to have been convincingly made.
While not voicing an opinion for or against a single regulator - It all depends on what they would be empowered to do- it seems to me the argument presented by Ms. Bair here, namely attention neglect that would threaten smaller community banks could be effectively addressed in a multi-layered supervisory system (layers being for example state-regional-federal) as advocated in our holistic theorem implementation recommendation for a single counterparty of reference on a subsidiarity principle See:http://www.authorstream.com/Presentation/kongtcheu-184552-UnityofPurpose3-Business-Finance-ppt-powerpoint/
See also the corresponding knol.
Sunday, August 30, 2009
The Greenback Effect -Till Debt Does its Part -" Going where the Joneses Go Arguments"
Op-Ed Contributor - The Greenback Effect - NYTimes.com
This piece by virtue of who its author is was bound to be interesting and of interest to many.
Likening the Greenback effect to the Greenhouse effect is indeed an expression of intense intellectual alertness and the case against runaway deficits just like the case against runaway toxic gas emissions is sensible enough.
The larger issue with the piece is that the wrong assumption that GDP equals assets on the government balance sheet. Absent a demonstration of that essential link, the entire case falls apart.
It also brings back to mind an equally short-sided line heard a lot in this crisis that it is a fall in savings and a high level of debt that have pushed the US on an unsustainable path. This is so WRONG. As Mr. Buffett rightly says, "I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt." The same goes with individuals. The issue for individuals as with corporations or governments is HOW TO VALUE ASSETS OR LIABILITIES. It is not a simple question and there are a lot of ways to seem reasonable and be very wrong about it. It is an issue that requires deep analytical skills and an ability to creatively understand handle issues that far outstrip the intellectual arsenal of the winners of earlier generations. Those earlier winners are precisely those at the apex of their intellectual influence, yet they simply do not measure up to the scope of the issues. For example Paul Krugman’s recent Op-ed piece "Till Debt Does Its Part" while correctly making the argument that debt or the deficit are not the issue some seem to make it to be, still rely on the same fallacious debt or deficit to GDP ratios and uses historical and international comparisons for calibration purposes. To me this is still a going where the Joneses go argument.
This issue does is not limited to policy makers and analysts, but it extends to the most respected mathematicians of finance.
Because we currently use inefficient and unstable methods for these valuations (Buffett here equates GDP with the government balance sheet),there is a lot of instability in those valuations which results in unwieldy swings that bring us so often close to the abyss. This is where the robustness in the BICs valuation approach will in time be seen as providing the best framework for stable and dependable valuations of all types of assets thereby substantially eliminating volatility in assets valuations.
If government assets were properly valued, it could in fact responsibly borrow without ever minding the deficit, the size of the GDP, as long as the assets created with the monies borrowed could be reliably shown to be worth even more.
Reference:
http://www.nytimes.com/2009/08/19/opinion/19buffett.html?scp=1&sq=The%20greenback%20effect&st=Search
http://www.nytimes.com/2009/08/28/opinion/28krugman.html?em
This piece by virtue of who its author is was bound to be interesting and of interest to many.
Likening the Greenback effect to the Greenhouse effect is indeed an expression of intense intellectual alertness and the case against runaway deficits just like the case against runaway toxic gas emissions is sensible enough.
The larger issue with the piece is that the wrong assumption that GDP equals assets on the government balance sheet. Absent a demonstration of that essential link, the entire case falls apart.
It also brings back to mind an equally short-sided line heard a lot in this crisis that it is a fall in savings and a high level of debt that have pushed the US on an unsustainable path. This is so WRONG. As Mr. Buffett rightly says, "I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt." The same goes with individuals. The issue for individuals as with corporations or governments is HOW TO VALUE ASSETS OR LIABILITIES. It is not a simple question and there are a lot of ways to seem reasonable and be very wrong about it. It is an issue that requires deep analytical skills and an ability to creatively understand handle issues that far outstrip the intellectual arsenal of the winners of earlier generations. Those earlier winners are precisely those at the apex of their intellectual influence, yet they simply do not measure up to the scope of the issues. For example Paul Krugman’s recent Op-ed piece "Till Debt Does Its Part" while correctly making the argument that debt or the deficit are not the issue some seem to make it to be, still rely on the same fallacious debt or deficit to GDP ratios and uses historical and international comparisons for calibration purposes. To me this is still a going where the Joneses go argument.
This issue does is not limited to policy makers and analysts, but it extends to the most respected mathematicians of finance.
Because we currently use inefficient and unstable methods for these valuations (Buffett here equates GDP with the government balance sheet),there is a lot of instability in those valuations which results in unwieldy swings that bring us so often close to the abyss. This is where the robustness in the BICs valuation approach will in time be seen as providing the best framework for stable and dependable valuations of all types of assets thereby substantially eliminating volatility in assets valuations.
If government assets were properly valued, it could in fact responsibly borrow without ever minding the deficit, the size of the GDP, as long as the assets created with the monies borrowed could be reliably shown to be worth even more.
Reference:
http://www.nytimes.com/2009/08/19/opinion/19buffett.html?scp=1&sq=The%20greenback%20effect&st=Search
http://www.nytimes.com/2009/08/28/opinion/28krugman.html?em
Friday, August 14, 2009
The Investment Professional - BICS, the PPIP, and Expectations-Based Risk Management
The Investment Professional - BICS, the PPIP, and Expectations-Based Risk Management: "Smoke and Mirrors
BICS, the PPIP, and the Fallacies of
Expectations-Based Risk Management"
http://www.theinvestmentprofessional.com/vol_2_no_3/abstract-bics.html
Check this out. I'll just update with the following comment:
"With signs of impending economic peril dissipating, the PPIP looks to become one of the greatest government programs that never were.Yet the structural tools used in the analysis here and the core criticisms they lead to makes it a Gedankenexperiment whose lessons are still very worth learning."
BICS, the PPIP, and the Fallacies of
Expectations-Based Risk Management"
http://www.theinvestmentprofessional.com/vol_2_no_3/abstract-bics.html
Check this out. I'll just update with the following comment:
"With signs of impending economic peril dissipating, the PPIP looks to become one of the greatest government programs that never were.Yet the structural tools used in the analysis here and the core criticisms they lead to makes it a Gedankenexperiment whose lessons are still very worth learning."
Sunday, July 26, 2009
Op-Ed Contributor - The Great Preventer - NYTimes.com
Op-Ed Contributor - The Great Preventer - NYTimes.com:
Interesting piece. I am not sure whether stating that a person was actively complicit in the creation of a disaster and then participated in the rescue from the abyss is the soundest argument to make the case for them to be REWARDED. The opposing piece by Anna Jacobson Schwartz seems more coherently argumented.
Precisely with respect to BICs, when Roubini recalls that "The Fed even committed to purchasing up to $1.7 trillion of Treasury bonds, mortgage-backed securities and agency debt to reduce market rates." it once more makes me thing how much most cost-efficiently the fed could have controlled long term rates with interest rate BICs that replicate the whole curve.
I argue that the Fed making markets on interest rate BICs should be a major aspect of needed reforms at the Fed. Indeed in the 2003-2006 period, the fed had a hard time curbing the speculative bubble in the real estate market because acting only on overnight lending rates, it could not control long term rates that determine mortgage rates.
Interesting piece. I am not sure whether stating that a person was actively complicit in the creation of a disaster and then participated in the rescue from the abyss is the soundest argument to make the case for them to be REWARDED. The opposing piece by Anna Jacobson Schwartz seems more coherently argumented.
Precisely with respect to BICs, when Roubini recalls that "The Fed even committed to purchasing up to $1.7 trillion of Treasury bonds, mortgage-backed securities and agency debt to reduce market rates." it once more makes me thing how much most cost-efficiently the fed could have controlled long term rates with interest rate BICs that replicate the whole curve.
I argue that the Fed making markets on interest rate BICs should be a major aspect of needed reforms at the Fed. Indeed in the 2003-2006 period, the fed had a hard time curbing the speculative bubble in the real estate market because acting only on overnight lending rates, it could not control long term rates that determine mortgage rates.
Thursday, July 16, 2009
Holistic Theorem - Wolfram Demonstrations Project
Holistic Theorem - Wolfram Demonstrations Project:
The Wolfram Demonstrations project today released my peer reviewed dynamic illustration of the "Holistic Theorem" which is the basis of my unity of purpose article which argues that it is in the self interest of financial institutions to welcome mandatory clearing of financial derivatives. Its key proposition is that:
"'The more people participate in a system, the more it makes sense for a central authority to mediate their relationships/communication; no matter what the cost for setting up this central authority, as the number of participants increases, this cost is dwarfed by the benefits of centralized mediation on a linear versus quadratic basis'."
The Wolfram Demonstrations project today released my peer reviewed dynamic illustration of the "Holistic Theorem" which is the basis of my unity of purpose article which argues that it is in the self interest of financial institutions to welcome mandatory clearing of financial derivatives. Its key proposition is that:
"'The more people participate in a system, the more it makes sense for a central authority to mediate their relationships/communication; no matter what the cost for setting up this central authority, as the number of participants increases, this cost is dwarfed by the benefits of centralized mediation on a linear versus quadratic basis'."
Saturday, July 11, 2009
Geithner: Business Hedging Isn't Target - WSJ.com
Geithner: Business Hedging Isn't Target - WSJ.com: "Mr. Geithner's testimony Friday didn't shed much new light on details that lawmakers and industry players are clamoring to hear. Specifically, it remains unclear how regulators will determine when a contract is considered standardized. Mr. Geithner conceded the administration isn't ready to carve out a definition, although he promised it would be broad and 'designed to be difficult to evade.'"
Comment:
The question of a definition is indeed KEY.
BICs provide the best framework for providing a robust working definition. See:http://tinyurl.com/cyxhpa
With BICs markets, BICs would be the "standardized derivatives" and everything else would be composed of such BICs. It helps solve hedging ability issues that are matters of concern in this article. In addition, it in effect ensures that economic efficiency forces, in the search for the cheapest production cost, will push derivatives trades where they are cheapest, i.e. in a centrally cleared exchange system.
Comment:
The question of a definition is indeed KEY.
BICs provide the best framework for providing a robust working definition. See:http://tinyurl.com/cyxhpa
With BICs markets, BICs would be the "standardized derivatives" and everything else would be composed of such BICs. It helps solve hedging ability issues that are matters of concern in this article. In addition, it in effect ensures that economic efficiency forces, in the search for the cheapest production cost, will push derivatives trades where they are cheapest, i.e. in a centrally cleared exchange system.
Sunday, July 5, 2009
New Stimulus ? No Stimulus?
Bruce Bartlett, a former treasury dept economist has an article in the FT titled "We do not need a second stimulus plan"
He explains that because really stimulative programs that were part of the stimulus would only stimulate much later, there is no basis for declaring the stimulus plan passed earlier in the year was insufficient and that we need a new one.
Indeed Krugman has held a different view for a long time. So I just checked his blog and there is an entry on the article titled "Bruce Bartlett misstates the problem"
he points out the statement:
"The problem is that the Obama administration was much too optimistic about how quickly stimulus spending would affect the economy. Christina Romer, chair of the Council of Economic Advisers, and Jared Bernstein, chief economist to vice president Joe Biden, forecast in January that the stimulus would reduce unemployment almost immediately."
and points that it is inaccurate.While this may be factually true, it seems to me it does little to invalidate the central argument Mr. Bartlett is actually making.
I wish there would be more Krugman substantiation of the statement: "The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted."
I would be very interested in finding data quantifying the scope of shovel ready projects with large multiplier effects.
As I have written elsewhere projects with network effects as described in my holistic theorem would have the biggest stimulative impact, possibly at the lowest cost.
These include
-network infrastructure projects such as roads and bridges, in particular near housing developments (These would help support prices of houses in those areas by making the developments more easily accessible to urban work areas)
- internet infrastructure development projects
-electrical/smart grid development projects
-Financial Services central clearing
The question to me is how many(number and budget) can be moved along, on what timeframe,
07/09/09 - Here's the WSJ survey of economists on the question:
He explains that because really stimulative programs that were part of the stimulus would only stimulate much later, there is no basis for declaring the stimulus plan passed earlier in the year was insufficient and that we need a new one.
Indeed Krugman has held a different view for a long time. So I just checked his blog and there is an entry on the article titled "Bruce Bartlett misstates the problem"
he points out the statement:
"The problem is that the Obama administration was much too optimistic about how quickly stimulus spending would affect the economy. Christina Romer, chair of the Council of Economic Advisers, and Jared Bernstein, chief economist to vice president Joe Biden, forecast in January that the stimulus would reduce unemployment almost immediately."
and points that it is inaccurate.While this may be factually true, it seems to me it does little to invalidate the central argument Mr. Bartlett is actually making.
I wish there would be more Krugman substantiation of the statement: "The problem, instead, is that the hole the stimulus needs to fill is much bigger than predicted."
I would be very interested in finding data quantifying the scope of shovel ready projects with large multiplier effects.
As I have written elsewhere projects with network effects as described in my holistic theorem would have the biggest stimulative impact, possibly at the lowest cost.
These include
-network infrastructure projects such as roads and bridges, in particular near housing developments (These would help support prices of houses in those areas by making the developments more easily accessible to urban work areas)
- internet infrastructure development projects
-electrical/smart grid development projects
-Financial Services central clearing
The question to me is how many(number and budget) can be moved along, on what timeframe,
07/09/09 - Here's the WSJ survey of economists on the question:
Monday, June 29, 2009
Wary Banks Hobble Toxic-Asset Plan - WSJ.com
Wary Banks Hobble Toxic-Asset Plan - WSJ.com
It was an ill conceived idea for everybody. The realization now starts to sink in and everybody is trying to get out of it in as politically viable a way as is possible.
The best way of implementing that idea was as a market maker on those assets bought/sold at a refined level of granularity.
I have an article coming in the Investment Professional coming out next month that use the BICs framework to show how a lot of what was said was merely smoke and mirrors, including what the "smartest" said. A must read.
http://www.theinvestmentprofessional.com/upcoming-articles.html
It was an ill conceived idea for everybody. The realization now starts to sink in and everybody is trying to get out of it in as politically viable a way as is possible.
The best way of implementing that idea was as a market maker on those assets bought/sold at a refined level of granularity.
I have an article coming in the Investment Professional coming out next month that use the BICs framework to show how a lot of what was said was merely smoke and mirrors, including what the "smartest" said. A must read.
http://www.theinvestmentprofessional.com/upcoming-articles.html
Saturday, June 13, 2009
FT.com / Comment / Opinion - Economists clash on shifting sands
FT.com / Comment / Opinion - Economists clash on shifting sands
The neo-classical vs. neo-liberal debate as being framed here between Ferguson and Krugman has always struck by the fact that none of these positions provides clear analytic means for deciding when to decide where government (or central counterparty) action is judicious and when it is not.
While Krugman might be right at this moment, blind acceptance of his prescriptions may lead to trouble at other times.
It it is why I see my piece on the holistic theorem, despite its analytic relative simplicity as crucial in understanding how to decide among these two camps in practical situations such as the present issue of whether or not to adopt centralized clearing of derivatives.
SEE: http://knol.google.com/k/phil-kongtcheu/the-holistic-theorem/24v2kgtuvzk2v/16
The neo-classical vs. neo-liberal debate as being framed here between Ferguson and Krugman has always struck by the fact that none of these positions provides clear analytic means for deciding when to decide where government (or central counterparty) action is judicious and when it is not.
While Krugman might be right at this moment, blind acceptance of his prescriptions may lead to trouble at other times.
It it is why I see my piece on the holistic theorem, despite its analytic relative simplicity as crucial in understanding how to decide among these two camps in practical situations such as the present issue of whether or not to adopt centralized clearing of derivatives.
SEE: http://knol.google.com/k/phil-kongtcheu/the-holistic-theorem/24v2kgtuvzk2v/16
Sunday, June 7, 2009
Editorial - Congress, the Banks and Derivatives - NYTimes.com
See my knol on the "Holistic Theorem"
This editorial makes a painfully & tragically poor traditional liberal argument for derivatives regulation even though the ultimate goal of regulating all derivatives trades is what is needed. It merely re-hashes the March 29,09 editorial piece. See:http://www.nytimes.com/2009/03/29/opinion/29sun1.html
They conclude by saying:
"Senator Tom Harkin has introduced legislation that would require exchange trading for derivatives. Representative Collin Peterson has introduced a bill that would tighten the regulation of derivatives’ clearinghouses. He acknowledges that his bill is not as strong as he would like but that Congressional politics left him no choice, telling The Times, “The banks run the place.”"
and I say: "duh"
In this specific instance, they fail to see that their is a unity of purpose between derivatives trading institutions and advocates of centralized clearing, and that is the most effective argument to be made in order to effect CENTRALIZED CLEARING OF ALL DERIVATIVES TRADES.
Why set yourself up for a fight against a party where the odds of winning are against you when you can simply & persuasively explain to the other party that it is in their best interest to switch to your side of the argument?
See:http://knol.google.com/k/phil-kongtcheu/the-holistic-theorem/24v2kgtuvzk2v/16
Note also that regulated BICs exchanges on different types of underlyings, by creating exchanges that most efficiently trade instruments that all customized derivatives merely combine would eliminate the loopholes of the proposed legislation
This editorial makes a painfully & tragically poor traditional liberal argument for derivatives regulation even though the ultimate goal of regulating all derivatives trades is what is needed. It merely re-hashes the March 29,09 editorial piece. See:http://www.nytimes.com/2009/03/29/opinion/29sun1.html
They conclude by saying:
"Senator Tom Harkin has introduced legislation that would require exchange trading for derivatives. Representative Collin Peterson has introduced a bill that would tighten the regulation of derivatives’ clearinghouses. He acknowledges that his bill is not as strong as he would like but that Congressional politics left him no choice, telling The Times, “The banks run the place.”"
and I say: "duh"
In this specific instance, they fail to see that their is a unity of purpose between derivatives trading institutions and advocates of centralized clearing, and that is the most effective argument to be made in order to effect CENTRALIZED CLEARING OF ALL DERIVATIVES TRADES.
Why set yourself up for a fight against a party where the odds of winning are against you when you can simply & persuasively explain to the other party that it is in their best interest to switch to your side of the argument?
See:http://knol.google.com/k/phil-kongtcheu/the-holistic-theorem/24v2kgtuvzk2v/16
Note also that regulated BICs exchanges on different types of underlyings, by creating exchanges that most efficiently trade instruments that all customized derivatives merely combine would eliminate the loopholes of the proposed legislation
Friday, June 5, 2009
Fair Value Pricing, Government Market Making and PPIP - a knol by Phil Kongtcheu
I have just received notice from Prof. Zia Haqq, Conference Manger that an enhanced version of this paper Fair Value Pricing, Government Market Making and PPIP - a knol by Phil Kongtcheu, which includes the continuation paper http://knol.google.com/k/phil-kongtcheu/estimating-costs-for-ppip-assets-in-a/24v2kgtuvzk2v/4 has been accepted for presentation at the conference "Heterogeneous nations and Globalized Financial Markets: New Challenges" which will be held at Imperial College in London July 9-10,2009. www.worldbizconference.com. I submitted the paper without really thinking too much about it and now I am not sure how I can manage to participate even though I really would like to...
The paper contains a more systematic analysis of the subsidies of the govt plan for investors, as well as the pitfalls of the reasoning systematized under the term "fallacy of expectations based risk management"
The paper contains a more systematic analysis of the subsidies of the govt plan for investors, as well as the pitfalls of the reasoning systematized under the term "fallacy of expectations based risk management"
Tuesday, June 2, 2009
Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics - a knol by Phil Kongtcheu
Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics - a knol by Phil Kongtcheu
I have just received a notice from Ms. Carole Dobson conference manager that this knol "Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics" has been selected for presentation at the "Quantitative Methods in Finance Conference (QMF) 2009" to be held 16-19 December 2009 in Sydney, Australia.
The conference site is at http://www.business.uts.edu.au/qfrc/qmf/index.html
This conference is a leading annual financial mathematics conference and I am pleased to be given this opportunity and really hope to be able to participate.
I have just received a notice from Ms. Carole Dobson conference manager that this knol "Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics" has been selected for presentation at the "Quantitative Methods in Finance Conference (QMF) 2009" to be held 16-19 December 2009 in Sydney, Australia.
The conference site is at http://www.business.uts.edu.au/qfrc/qmf/index.html
This conference is a leading annual financial mathematics conference and I am pleased to be given this opportunity and really hope to be able to participate.
Friday, May 22, 2009
FT.com / Columnists / GillianTett - Why public private plan has bankers squirming
FT.com / Columnists / GillianTett - Why public private plan has bankers squirming
Indeed it is unclear that participation is such a free lunch.
Indeed it is unclear that participation is such a free lunch.
Wednesday, May 20, 2009
Most-Popular Lists Breed More Popularity - WSJ.com
Most-Popular Lists Breed More Popularity - WSJ.com
This article documents the self reinforcing phenomenon of popularity lists. The more an article is listed as popular, the more it becomes popular. It is the same dynamic that leads to the formation of too big to fail entities as described in the presentation below.
Uploaded on authorSTREAM by kongtcheu
Awereness of this bias should lead to antitrust type policies to correct it where it affects decision making with potentially dangerous consequences such as in the insurance industry.
This article documents the self reinforcing phenomenon of popularity lists. The more an article is listed as popular, the more it becomes popular. It is the same dynamic that leads to the formation of too big to fail entities as described in the presentation below.
Uploaded on authorSTREAM by kongtcheu
Awereness of this bias should lead to antitrust type policies to correct it where it affects decision making with potentially dangerous consequences such as in the insurance industry.
Blogspot Block in China
Since last Saturday all blogs on blogspot.com seem to have been blocked here in China. I now have to access my blog through very convoluted and annoying means which will reduce my posts for a while.
Youtube has been blocked for a while also now.
See also:
http://markschinablog.blogspot.com/2009/05/blogspot-blocked.html
Youtube has been blocked for a while also now.
See also:
http://markschinablog.blogspot.com/2009/05/blogspot-blocked.html
Friday, May 15, 2009
China Is Ahead of the Curve on Oversight - WSJ.com
China Is Ahead of the Curve on Oversight - WSJ.com
Interesting article, which fits well with my piece on "unity of purpose".
Note that these are merely linear derivatives (bonds, forwards, swaps) currently trading in China.
Uploaded on authorSTREAM by kongtcheu
Interesting article, which fits well with my piece on "unity of purpose".
Note that these are merely linear derivatives (bonds, forwards, swaps) currently trading in China.
Uploaded on authorSTREAM by kongtcheu
Monday, May 11, 2009
Op-Ed Contributor - The G.D.P. Question - NYTimes.com
Op-Ed Contributor - The G.D.P. Question - NYTimes.com
I liked the data rich nature of this piece on comparative government spending as a share of GDP.
His point taken, I wonder why he did not discuss the possibility of government continuing to to provide the same level of service while reducing the cost of these services as is currently being suggested for shifting the balance of cost towards preventive health care that will substantially reduce curative costs down the road. Krugman's piece today seems to show that is where the gov't is going.
Where are the statistics showing that European countries spend less on healthcare for better results as as measured by life expectancy? That France has the best health care system of OECD countries?
However one central point that the data provided shows but that the author did not notice is how Government share of GDP is correlated with population density. And this to me is one more illustration of my little holistic theorem applied here:
"The more people participate in a system, the more it makes sense for a central authority to mediate their relationships/communication; No matter what the cost for setting up this central authority, as the number of participants increase, this cost is dwarfed by the benefits of centralized mediation on a linear vs. quadratic basis."
See my proposal for centralized clearing of derivatives that underscores this analysis.
Uploaded on authorSTREAM by kongtcheu
I liked the data rich nature of this piece on comparative government spending as a share of GDP.
His point taken, I wonder why he did not discuss the possibility of government continuing to to provide the same level of service while reducing the cost of these services as is currently being suggested for shifting the balance of cost towards preventive health care that will substantially reduce curative costs down the road. Krugman's piece today seems to show that is where the gov't is going.
Where are the statistics showing that European countries spend less on healthcare for better results as as measured by life expectancy? That France has the best health care system of OECD countries?
However one central point that the data provided shows but that the author did not notice is how Government share of GDP is correlated with population density. And this to me is one more illustration of my little holistic theorem applied here:
"The more people participate in a system, the more it makes sense for a central authority to mediate their relationships/communication; No matter what the cost for setting up this central authority, as the number of participants increase, this cost is dwarfed by the benefits of centralized mediation on a linear vs. quadratic basis."
See my proposal for centralized clearing of derivatives that underscores this analysis.
Uploaded on authorSTREAM by kongtcheu
Saturday, May 9, 2009
Geithner Weighs Pace of Job Losses, Defends Stress Tests | Online NewsHour | May 8, 2009 | PBS
Geithner Weighs Pace of Job Losses, Defends Stress Tests | Online NewsHour | May 8, 2009 | PBS
When I watch Mr Geithner talk, he is very eloquent about the intent of the policies. This piece gave me an opportunity to learn a lot. It seems to me however that he is not broadening enough the framework within which to effect successful outcomes.
While nationalization as repeatedly advocated by krugman may not perhaps be the best way of handling things, I wonder why there has not been that much on the table about the govt lending directly to consumers and small biz. I wonder why govt is not thinking about market making of troubled assets on the lines I have proposed.
I know they are attempting to do that with student loans and Fannie & Freddy's size of the mortgage market have substantially grown. In my view the scale and scope of these should be more direct and swift.
Such a govt competing force would then force institutional banking to lend under reasonable terms or perish as they should. Almost like single payer being discussed for health care...
Another thing that is part of the common wisdom now is that lack of savings is one of the things at the root of this crisis. To me this is narrow minded. The pb is the failure of asset valuation methods. If you have 100 in assets and 90 in liabilities, it should not be a pb. the pb is when you think your assets are worth 100 when they are actually worth 80. So to me US low savings rate is not really the pb. Mr. Geithner's explanation of the transition out of recession does not challenge that idea...
BICs provide an approach to more coherent and credible assets valuations.
When I watch Mr Geithner talk, he is very eloquent about the intent of the policies. This piece gave me an opportunity to learn a lot. It seems to me however that he is not broadening enough the framework within which to effect successful outcomes.
While nationalization as repeatedly advocated by krugman may not perhaps be the best way of handling things, I wonder why there has not been that much on the table about the govt lending directly to consumers and small biz. I wonder why govt is not thinking about market making of troubled assets on the lines I have proposed.
I know they are attempting to do that with student loans and Fannie & Freddy's size of the mortgage market have substantially grown. In my view the scale and scope of these should be more direct and swift.
Such a govt competing force would then force institutional banking to lend under reasonable terms or perish as they should. Almost like single payer being discussed for health care...
Another thing that is part of the common wisdom now is that lack of savings is one of the things at the root of this crisis. To me this is narrow minded. The pb is the failure of asset valuation methods. If you have 100 in assets and 90 in liabilities, it should not be a pb. the pb is when you think your assets are worth 100 when they are actually worth 80. So to me US low savings rate is not really the pb. Mr. Geithner's explanation of the transition out of recession does not challenge that idea...
BICs provide an approach to more coherent and credible assets valuations.
Monday, May 4, 2009
Genesis of the Debt Disaster
FT.com / Weekend / Reportage - Genesis of the debt disaster:
Interesting piece. It refocused in my mind the question of how the different probabilistic concepts we come to see as intelligible have illusory meanings.
What is Correlation? What is Volatility?
Indeed, one of the strengths of BICs is to provide physical definiteness to these sometimes misleading concepts for reliable risk management.
Interesting piece. It refocused in my mind the question of how the different probabilistic concepts we come to see as intelligible have illusory meanings.
What is Correlation? What is Volatility?
Indeed, one of the strengths of BICs is to provide physical definiteness to these sometimes misleading concepts for reliable risk management.
Friday, May 1, 2009
Op-Ed Columnist - Genius - The Modern View - NYTimes.com
Op-Ed Columnist - Genius - The Modern View - NYTimes.com
I really like this type of anthropo-socio-cultural subjects David Brooks often covers.
This piece reporting recent research on genius confirms many of the things I have always suspected. The development of what is referred to here as "Genius" is simply the result of implementing the predictable steps that help make things appreciably better:
- To do things well you must spend the initial time to refine or break down a whole block into smaller units that are mastered with precision
-Once this process is mastered, executing other more creative sequences can be performed with superb flawlessness.
With respect to BICs,
-the effort is yet again to break a complex product into elementary units
-Once this process is mastered, handling other more complex or creative structures can be performed with superb flawlessness.
I wish Brooks would have also dealt or would deal in another piece with the forms of genius that society fails to appreciate in due time or that get altogether lost, those ultimate artists of Flaubertian imagery; the type of structural societal changes that may help unhindered expression or enjoyment of the various forms of genius. In the end a genius that is not duly recognized is a loss to society.
As Schopenhauer said: "talent hits a target no one else can hit, genius hits a target no one else can see". Using this lexicon, we'd say the article is more a discussion on talent rather then genius.
I really like this type of anthropo-socio-cultural subjects David Brooks often covers.
This piece reporting recent research on genius confirms many of the things I have always suspected. The development of what is referred to here as "Genius" is simply the result of implementing the predictable steps that help make things appreciably better:
- To do things well you must spend the initial time to refine or break down a whole block into smaller units that are mastered with precision
-Once this process is mastered, executing other more creative sequences can be performed with superb flawlessness.
With respect to BICs,
-the effort is yet again to break a complex product into elementary units
-Once this process is mastered, handling other more complex or creative structures can be performed with superb flawlessness.
I wish Brooks would have also dealt or would deal in another piece with the forms of genius that society fails to appreciate in due time or that get altogether lost, those ultimate artists of Flaubertian imagery; the type of structural societal changes that may help unhindered expression or enjoyment of the various forms of genius. In the end a genius that is not duly recognized is a loss to society.
As Schopenhauer said: "talent hits a target no one else can hit, genius hits a target no one else can see". Using this lexicon, we'd say the article is more a discussion on talent rather then genius.
Wednesday, April 29, 2009
PRMIA - Blog- "Functionalism" in art, design, architecture &" risk"
PRMIA - Publication Weblogs
This blog post from Odette Gregory that I read on the PRMIA site caught my attention with the words "risk" & "functionalism". I am intrigued by the interpretation of functionalism in art, architecture & design as it relates to the notions of functions and functional operators as defined in mathematics and used in the formulation of BICs.
See:
Uploaded on authorSTREAM by kongtcheu
PS: She just kindly sent me a note, which just brought back these toughts to my mind.
This blog post from Odette Gregory that I read on the PRMIA site caught my attention with the words "risk" & "functionalism". I am intrigued by the interpretation of functionalism in art, architecture & design as it relates to the notions of functions and functional operators as defined in mathematics and used in the formulation of BICs.
See:
Uploaded on authorSTREAM by kongtcheu
PS: She just kindly sent me a note, which just brought back these toughts to my mind.
Monday, April 27, 2009
FT.com / Comment / Opinion - Let central banks direct the supply of credit
FT.com / Comment / Opinion - Let central banks direct the supply of credit
Interesting policy suggestion that I am not sure will be so easy to implement. The question is how do you set capital ratio levels to counteract foreign capitals inflows? What formula do you use?
if too much capital is set aside, it will go to buy government bonds, thereby pressuring down interest rates against central banks goals,...
The real pb in my view was the inability to control long term rates.
Again, a BICs framework on interest rate is to me the most efficient mechanism of controlling long term rates, thereby controlling mortgage demand/supply
Interesting policy suggestion that I am not sure will be so easy to implement. The question is how do you set capital ratio levels to counteract foreign capitals inflows? What formula do you use?
if too much capital is set aside, it will go to buy government bonds, thereby pressuring down interest rates against central banks goals,...
The real pb in my view was the inability to control long term rates.
Again, a BICs framework on interest rate is to me the most efficient mechanism of controlling long term rates, thereby controlling mortgage demand/supply
Saturday, April 25, 2009
Thursday, April 23, 2009
Good Government and Animal Spirits - WSJ.com
Good Government and Animal Spirits - WSJ.com
Comment
See:
Laws of Nature 3 - BICs
http://www.youtube.com/watch?v=Kw1O_6mGsXE
http://www.authorstream.com/Presentation/kongtcheu-175778-LawsofNature3-Business-Finance-ppt-powerpoint/
http://www.authorstream.com/PresentLive/kongtcheu-175778-LawsofNature3-Business-Finance-ppt-powerpoint
Uploaded on authorSTREAM by kongtcheu
Unity of Purpose
http://www.youtube.com/watch?v=70ciLLjpS4U
http://www.authorstream.com/PresentLive/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint
http://www.authorstream.com/Presentation/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint/
Uploaded on authorSTREAM by kongtcheu
Comment
See:
Laws of Nature 3 - BICs
http://www.youtube.com/watch?v=Kw1O_6mGsXE
http://www.authorstream.com/Presentation/kongtcheu-175778-LawsofNature3-Business-Finance-ppt-powerpoint/
http://www.authorstream.com/PresentLive/kongtcheu-175778-LawsofNature3-Business-Finance-ppt-powerpoint
Uploaded on authorSTREAM by kongtcheu
Unity of Purpose
http://www.youtube.com/watch?v=70ciLLjpS4U
http://www.authorstream.com/PresentLive/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint
http://www.authorstream.com/Presentation/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint/
Uploaded on authorSTREAM by kongtcheu
Financial Reforms We Can All Agree On - WSJ.com
Financial Reforms We Can All Agree On - WSJ.com: "6) Avoid grade inflation in rating agencies' opinions. Lots of bad ideas are surfacing about how to accomplish that goal, one of which is to require that buyers, not sellers, pay for ratings. This would not improve the reliability of ratings. Regulated, buy-side investors (banks, pensions, mutual funds and insurance companies) pushed for ratings inflation of securitized debts to loosen restrictions on what they could buy. Giving these buyers more power would not discourage ratings inflation. Another bad idea gaining ground in Europe is to have regulators micromanage the ratings process, which would be destructive to the ratings' content.
There are better alternatives, one of which is to force ratings to be quantitative. Letter grades have no objective meaning that can be evaluated or penalized for inaccuracy. Numerical estimates of the probability of default (PD) and loss given default (LGD), in contrast, do have objective, measurable meanings.
The Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings are used by regulators should provide specific estimates of the PD and LGD for any rated instrument (they already calculate and publicly report the necessary statistics). Requiring these organizations to express ratings using numbers could alter the rating agencies' incentives dramatically. If they were penalized for systematically underestimating risk over a significant period of time -- say, with a six-month 'sit out' from having their ratings used for regulatory purposes -- they would have a strong self-interest in correctly estimating risk."
-------------------------------------
Comment
The issue is not so much alphabetical versus numerical as it is an issue of further granularity in rankings
See my book chapter VIII:
My recent output on proposals for reform:
Unity of Purpose
http://www.youtube.com/watch?v=70ciLLjpS4U
http://www.authorstream.com/PresentLive/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint
http://www.authorstream.com/Presentation/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint/
Uploaded on authorSTREAM by kongtcheu
Too Big to Fail
http://www.youtube.com/watch?v=YzO6_CusfL8
http://www.authorstream.com/Presentation/kongtcheu-179114-TooBigtoFail-Business-Finance-ppt-powerpoint/
http://www.authorstream.com/PresentLive/kongtcheu-179114-TooBigtoFail-Business-Finance-ppt-powerpoint
Uploaded on authorSTREAM by kongtcheu
There are better alternatives, one of which is to force ratings to be quantitative. Letter grades have no objective meaning that can be evaluated or penalized for inaccuracy. Numerical estimates of the probability of default (PD) and loss given default (LGD), in contrast, do have objective, measurable meanings.
The Nationally Recognized Statistical Rating Organizations (NRSROs) whose ratings are used by regulators should provide specific estimates of the PD and LGD for any rated instrument (they already calculate and publicly report the necessary statistics). Requiring these organizations to express ratings using numbers could alter the rating agencies' incentives dramatically. If they were penalized for systematically underestimating risk over a significant period of time -- say, with a six-month 'sit out' from having their ratings used for regulatory purposes -- they would have a strong self-interest in correctly estimating risk."
-------------------------------------
Comment
The issue is not so much alphabetical versus numerical as it is an issue of further granularity in rankings
See my book chapter VIII:
My recent output on proposals for reform:
Unity of Purpose
http://www.youtube.com/watch?v=70ciLLjpS4U
http://www.authorstream.com/PresentLive/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint
http://www.authorstream.com/Presentation/kongtcheu-179123-UnityofPurpose2-Business-Finance-ppt-powerpoint/
Uploaded on authorSTREAM by kongtcheu
Too Big to Fail
http://www.youtube.com/watch?v=YzO6_CusfL8
http://www.authorstream.com/Presentation/kongtcheu-179114-TooBigtoFail-Business-Finance-ppt-powerpoint/
http://www.authorstream.com/PresentLive/kongtcheu-179114-TooBigtoFail-Business-Finance-ppt-powerpoint
Uploaded on authorSTREAM by kongtcheu
Tuesday, April 21, 2009
Why Capital Structure Matters - WSJ.com
Why Capital Structure Matters - WSJ.com: "History isn't a sine wave of endlessly repeated patterns. It's more like a helix that brings similar events around in a different orbit. But what we see today does echo the 1970s, as companies use the capital markets to push out debt maturities and pay off loans. That gives them breathing room and provides hope that history will repeat itself in a strong economic recovery.
It doesn't matter whether a company is big or small. Capital structure matters. It always has and always will."
Very thoughtful piece.
It doesn't matter whether a company is big or small. Capital structure matters. It always has and always will."
Very thoughtful piece.
Saturday, April 18, 2009
FT.com / Video & Audio / Interactive graphics - How the repo market works
FT.com / Video & Audio / Interactive graphics - How the repo market works
Comments:
1) Repos as described here are a combination of an asset sale coupled with a forward contract on the underlying. Forward being a simple form of BICs...
2) The fed should have stepped in and done a more generalized intervention as clearing Counterparty in September immediately after Lehman failed, and not just in the repo market, but almost for all OTC activities.
Comments:
1) Repos as described here are a combination of an asset sale coupled with a forward contract on the underlying. Forward being a simple form of BICs...
2) The fed should have stepped in and done a more generalized intervention as clearing Counterparty in September immediately after Lehman failed, and not just in the repo market, but almost for all OTC activities.
Friday, April 17, 2009
Op-Ed Columnist - Green Shoots and Glimmers - NYTimes.com
Op-Ed Columnist - Green Shoots and Glimmers - NYTimes.com: "the White House spokesman, Robert Gibbs, says that “you will see in a systematic and coordinated way the transparency of determining and showing to all involved some of the results of these stress tests.” No, I don’t know what that means, either."
In my college days in France, we used to call this "Grand Pipeau"!
In my college days in France, we used to call this "Grand Pipeau"!
Wednesday, April 15, 2009
Laws of Nature 3 BICs
I just released on youtube and on the blog mainpage this short encapsulation of BICs to the tune of Beethoven's "allegro con brio"
Monday, April 13, 2009
M. Flaubert, c'est moi !, par Orhan Pamuk - Le Monde.fr
M. Flaubert, c'est moi !, par Orhan Pamuk - Le Monde.fr
Reading this French op-ed piece in Le Monde by Orphan Pamuk made me muse:
Flaubert & Philibert,
"Style indirect libre" & BICs,
Same ideal!
Flaubert, c'est moi!
PS: My first name "Phil" is short for "Philibert"
Reading this French op-ed piece in Le Monde by Orphan Pamuk made me muse:
Flaubert & Philibert,
"Style indirect libre" & BICs,
Same ideal!
Flaubert, c'est moi!
PS: My first name "Phil" is short for "Philibert"
Sunday, April 12, 2009
FT.com / Weekend / Reportage - Is a high IQ a burden as much as a blessing?
FT.com / Weekend / Reportage - Is a high IQ a burden as much as a blessing?: "“Monty Hall dilemma"
I just wanted to make a note on this article which deals with the “Monty Hall dilemma" which is a reformulation of Bertrand's box paradox described by Joseph Bertrand in his "Calcul des probabilités", published in 1889!
On p. 248 of Fischer Black and the Revolutionary Idea of Finance
, the author Perry Mehrling narrates as if the "let's make a deal" quiz is an ingenious creation of Fischer Black that goes to show how smart he was. He does not outright says it, but phrases the context in a way that makes it appear - if you are not familiar with the origins of the puzzle, that it was Black's invention.
As the Black Scholes edifice crumbles furthermore in this crisis, this illustrates once more, what a fraud all of it was.
Remember that when someone solves it correctly, it probably just means they read or heard it somewhere else before and is no indication of the power of their intellect. I am sure Vos Savant had seen it before.
It relates to BICs as the solution of the puzzles requires some aptitude to understand conditional probabilities which are just a trivial case of BICs.
One of the confusing aspects of the problem statement is:
“But if thought corrupts language,
language can also corrupt thought.”
George Orwell
I just wanted to make a note on this article which deals with the “Monty Hall dilemma" which is a reformulation of Bertrand's box paradox described by Joseph Bertrand in his "Calcul des probabilités", published in 1889!
On p. 248 of Fischer Black and the Revolutionary Idea of Finance
, the author Perry Mehrling narrates as if the "let's make a deal" quiz is an ingenious creation of Fischer Black that goes to show how smart he was. He does not outright says it, but phrases the context in a way that makes it appear - if you are not familiar with the origins of the puzzle, that it was Black's invention.As the Black Scholes edifice crumbles furthermore in this crisis, this illustrates once more, what a fraud all of it was.
Remember that when someone solves it correctly, it probably just means they read or heard it somewhere else before and is no indication of the power of their intellect. I am sure Vos Savant had seen it before.
It relates to BICs as the solution of the puzzles requires some aptitude to understand conditional probabilities which are just a trivial case of BICs.
One of the confusing aspects of the problem statement is:
“But if thought corrupts language,
language can also corrupt thought.”
George Orwell
Friday, April 10, 2009
The Crisis of Credit Visualized
The Crisis of Credit Visualized
Just virally sharing this short & comprehensive clip about the Credit Crunch I just watched, courtesy Fabienne-Fariba Salimi, Process Safety Expert on the HEC Alumni page
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
Just virally sharing this short & comprehensive clip about the Credit Crunch I just watched, courtesy Fabienne-Fariba Salimi, Process Safety Expert on the HEC Alumni page
The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.
The wider scope of BICs
I released this knol on The wider scope of BICs that reaches out to strategic partners.
Thursday, April 2, 2009
FASB Gives Firms More Leeway in Valuing Assets - NYTimes.com
FASB Gives Firms More Leeway in Valuing Assets - NYTimes.com
What does "orderly" means? What does "orderly" means?
What does "orderly" means? What does "orderly" means?
Tuesday, March 31, 2009
Banks Lose $836 Million in First Derivatives Loss (Update1) - Bloomberg.com
Banks Lose $836 Million in First Derivatives Loss (Update1) - Bloomberg.com
As I reread this article, it strikes me that the underlyings experiencing the steepest losses were credit, interest rates and equities. Indeed it makes sense
-Credit started it all and as all those credit derivatives became worthless, dramatic losses followed
-Interest rate losses accelerated as money markets froze in the fall. The fed acted, but not enough to change the global picture
- Equities derivatives hedging suffered from the ban on short selling
It occurs to me, particularly on the interest rate and equities derivatives that they were done in by their reliance on dynamic hedging strategies.Had they based their hedging strategies on BICs, those loses would have largely been avoided. Indeed BICs with their contractual pre-agreement features would have forced the execution of the apropriate hedging strategies.
FX which were not affected by these restriction had a field day. What happened to equities is reminescent of what happened to emerging markets fx in 1997-1998.
As I reread this article, it strikes me that the underlyings experiencing the steepest losses were credit, interest rates and equities. Indeed it makes sense
-Credit started it all and as all those credit derivatives became worthless, dramatic losses followed
-Interest rate losses accelerated as money markets froze in the fall. The fed acted, but not enough to change the global picture
- Equities derivatives hedging suffered from the ban on short selling
It occurs to me, particularly on the interest rate and equities derivatives that they were done in by their reliance on dynamic hedging strategies.Had they based their hedging strategies on BICs, those loses would have largely been avoided. Indeed BICs with their contractual pre-agreement features would have forced the execution of the apropriate hedging strategies.
FX which were not affected by these restriction had a field day. What happened to equities is reminescent of what happened to emerging markets fx in 1997-1998.
Monday, March 30, 2009
Geithner Plan: The False Dichotomy of Alternate Choices
Based on Meet the Press and This week interviews of Mr. Geithner, nobody at the the treasury seems to have seriously raised to the Secretary's attention, the possibility of a less costly, surgical, and more effective alternative through market making as I have advocated.
The False Dichotomy of Alternate Choices. False dilemma.
I cry a river over this.
The False Dichotomy of Alternate Choices. False dilemma.
I cry a river over this.
Visit msnbc.com for Breaking News, World News, and News about the Economy
Sunday, March 29, 2009
Estimating Asset Costs for TARP/PPIF in a Market Making Framework & BICs - a knol by Phil Kongtcheu
Estimating Asset Costs for TARP in a Market Making Framework & BICs - a knol by Phil Kongtcheu
This article is a follow-up to the knol article "Fair Value Pricing, Government Market Making and TARP" and uses the concept introduced in the knol article " Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics".
In this article we seek to estimate the proportion of assets ultimately held by the Government in a market making model, their cost and the parameters needed to make such estimates.
An important financial insight of this analysis is that we show that market making results in earning a spread that makes market making loss unlikely.
This article is a follow-up to the knol article "Fair Value Pricing, Government Market Making and TARP" and uses the concept introduced in the knol article " Introduction to Basis Instruments Contracts (BICs) for Mathematics, Finance, and Economics".
In this article we seek to estimate the proportion of assets ultimately held by the Government in a market making model, their cost and the parameters needed to make such estimates.
An important financial insight of this analysis is that we show that market making results in earning a spread that makes market making loss unlikely.
Tuesday, March 24, 2009
Geithner plan arithmetic - Paul Krugman Blog - NYTimes.com
Geithner plan arithmetic - Paul Krugman Blog - NYTimes.com
I agree with the subsidy argument made here to reject the Geithner plan but the example while at first very neat, nonetheless misses an element of investors preferences: many investors have already lost a lot and it is not unreasonable for them to demand more to risk what they've got left. Here is how it works:
Let's suppose Dr. Krugman's net worth is $100 million (including job security and reputation) and I say we flip a coin with equal probability of head and tail.
If it falls on head, Dr. Krugman wins and receives $1 billion; If it falls on tail, he loses everything he has got and pays out his net worth of $100 million. Will he take the bait?
I do not know the structure of Dr. Krugman's risk preferences but I am sure most people will not take it, even though their expected gain here would be $450 million.
This is what I call the fallacy of expectations based risk management. Many of the firms that go under in every financial crisis make the same mistake, often advised by very, very smart people. They make their investment decisions based on expectations profiles without full appraisal of the sustainability of downside scenarios that higher order metrics such as variance/volatility or above fail to capture. It seems a lot of very, very smart people out there are still making the same kind of intellectually cute but intrinsically flawed argument.
For this reason, I think the more simplistic example of my earlier post makes a more robust argument explaining the subsidy part of the plan.
I agree with the subsidy argument made here to reject the Geithner plan but the example while at first very neat, nonetheless misses an element of investors preferences: many investors have already lost a lot and it is not unreasonable for them to demand more to risk what they've got left. Here is how it works:
Let's suppose Dr. Krugman's net worth is $100 million (including job security and reputation) and I say we flip a coin with equal probability of head and tail.
If it falls on head, Dr. Krugman wins and receives $1 billion; If it falls on tail, he loses everything he has got and pays out his net worth of $100 million. Will he take the bait?
I do not know the structure of Dr. Krugman's risk preferences but I am sure most people will not take it, even though their expected gain here would be $450 million.
This is what I call the fallacy of expectations based risk management. Many of the firms that go under in every financial crisis make the same mistake, often advised by very, very smart people. They make their investment decisions based on expectations profiles without full appraisal of the sustainability of downside scenarios that higher order metrics such as variance/volatility or above fail to capture. It seems a lot of very, very smart people out there are still making the same kind of intellectually cute but intrinsically flawed argument.
For this reason, I think the more simplistic example of my earlier post makes a more robust argument explaining the subsidy part of the plan.
Monday, March 23, 2009
Geithner: My Plan for Bad Bank Assets - WSJ.com
Geithner: My Plan for Bad Bank Assets - WSJ.com
From what I understand from this piece, this plan deals with the capital structure of the funds that will purchase the assets, but not the mechanism through which the asset prices will be formed, i.e how the funds will price the assets...Umh...OK.
It seemed to me that the pb is not that there is no money out there, but that money does not want to touch those toxic assets and that the role govt in this is to come up with an efficient pricing mechanism that restores liquidity.
A few hours later,...
Well, in fact this plan is still a big unjustified subsidy to Wall Street compared to what I have proposed. To make it easy, consider this
Suppose you want to buy to buy a toxic asset T. You think that when you dispose of it in a year it will be worth $110. How much will you be willing to pay for it today? It all depends on the cost of borrowing. If you can get a 0% loan you can pay up to $110. If the interest rate is 10%, you will not pay more than $100 for T. So the lender who lends you money at 0% when the market on such loans is 10% is giving you a subsidy that you will share with the asset T seller. Furthermore lending such subsidized money to more than one potential buyer will ensure through competitive forces that the bulk of the subsidy is passed on to the seller. That's probably why Wall Street cheered today..
From what I understand from this piece, this plan deals with the capital structure of the funds that will purchase the assets, but not the mechanism through which the asset prices will be formed, i.e how the funds will price the assets...Umh...OK.
It seemed to me that the pb is not that there is no money out there, but that money does not want to touch those toxic assets and that the role govt in this is to come up with an efficient pricing mechanism that restores liquidity.
A few hours later,...
Well, in fact this plan is still a big unjustified subsidy to Wall Street compared to what I have proposed. To make it easy, consider this
Suppose you want to buy to buy a toxic asset T. You think that when you dispose of it in a year it will be worth $110. How much will you be willing to pay for it today? It all depends on the cost of borrowing. If you can get a 0% loan you can pay up to $110. If the interest rate is 10%, you will not pay more than $100 for T. So the lender who lends you money at 0% when the market on such loans is 10% is giving you a subsidy that you will share with the asset T seller. Furthermore lending such subsidized money to more than one potential buyer will ensure through competitive forces that the bulk of the subsidy is passed on to the seller. That's probably why Wall Street cheered today..
Op-Ed Columnist - Financial Policy Despair - NYTimes.com
Op-Ed Columnist - Financial Policy Despair - NYTimes.com
I could not agree more with Mr. Krugman on the sense of desperation over this plan.
I have cried a river over this, and over and over.
And I cry again...
However we arrive at the same conclusion from different analytic paths and our prescriptions differ. My analysis remains this
I could not agree more with Mr. Krugman on the sense of desperation over this plan.
I have cried a river over this, and over and over.
And I cry again...
However we arrive at the same conclusion from different analytic paths and our prescriptions differ. My analysis remains this
Sunday, March 22, 2009
Op-Ed Columnist - Are We Home Alone? - NYTimes.com
Op-Ed Columnist - Are We Home Alone? - NYTimes.com: "And you will ensure that we’ll never get out of this banking crisis, because the solution depends on getting private money funds to team up with the government to buy up toxic assets — and fund managers are growing terrified of any collaboration with government."
Huh!...
My only quarrel with the article is the apparent assumption that the plan the government appears to be poised to announce is the obviously best and only game in town...
Once more, Mr. Friedman, would you read this?
Huh!...
My only quarrel with the article is the apparent assumption that the plan the government appears to be poised to announce is the obviously best and only game in town...
Once more, Mr. Friedman, would you read this?
A Medical Madoff: Anesthesiologist Faked Data in 21 Studies: Scientific American
A Medical Madoff: Anesthesiologist Faked Data in 21 Studies: Scientific American
As I was going through the French edition of this article in Le Monde, it hit me once again that the present crisis is also at a deeper level a crisis of defect in the structure of means of attribution of credit that is not limited to finance, but that extend to all learned fields of knowledge in the upper echelons of society.
I have refused to play the "gaming the system" strategy for I believe sooner or later things in such games fall apart.
This gives me hope that someday those who stood up to look for the truth and claim it no matter what the price may receive their due.
Someday, somewhere over the rainbow...
As I was going through the French edition of this article in Le Monde, it hit me once again that the present crisis is also at a deeper level a crisis of defect in the structure of means of attribution of credit that is not limited to finance, but that extend to all learned fields of knowledge in the upper echelons of society.
I have refused to play the "gaming the system" strategy for I believe sooner or later things in such games fall apart.
This gives me hope that someday those who stood up to look for the truth and claim it no matter what the price may receive their due.
Someday, somewhere over the rainbow...
Saturday, March 21, 2009
Toxic Asset Plan Foresees Big Subsidies for Investors - NYTimes.com
Toxic Asset Plan Foresees Big Subsidies for Investors - NYTimes.com
Moronic disgrace.
Design complexity here is no substitute for discernment.
I cry a river over this.
See: http://knol.google.com/k/phil-kongtcheu/fair-value-pricing-government-market/
Moronic disgrace.
Design complexity here is no substitute for discernment.
I cry a river over this.
See: http://knol.google.com/k/phil-kongtcheu/fair-value-pricing-government-market/
Senators Debate Fed's Role in Overseeing Systemic Risk - WSJ.com
Senators Debate Fed's Role in Overseeing Systemic Risk - WSJ.com
Reasonable debate to have. In my book BICs 4 Derivatives Volume I : Theory
(Chapter VIII, pp 192-195), I argued for a central counterparty organization as counterparty of reference on all trades which guarantees the payment of contractual agreements on both sides of a transaction.
The systemic risk overseeing entity should act as central counterparty of reference on all trades whose default may pose a systemic risk or act as a regulator and guarantor of last resort to private entities (exchanges, clearing houses,...) who play such a role.
As a guarantor of last resort, this entity may be best within FDIC; As guarantor of credibility through the power to print money, this entity may be best within the Central Bank authority. What is most important in my view is that its function be articulated as proposed above.
Reasonable debate to have. In my book BICs 4 Derivatives Volume I : Theory
(Chapter VIII, pp 192-195), I argued for a central counterparty organization as counterparty of reference on all trades which guarantees the payment of contractual agreements on both sides of a transaction.
The systemic risk overseeing entity should act as central counterparty of reference on all trades whose default may pose a systemic risk or act as a regulator and guarantor of last resort to private entities (exchanges, clearing houses,...) who play such a role.
As a guarantor of last resort, this entity may be best within FDIC; As guarantor of credibility through the power to print money, this entity may be best within the Central Bank authority. What is most important in my view is that its function be articulated as proposed above.
Thursday, March 19, 2009
Fed Will Inject $1 Trillion More Into the Economy - NYTimes.com
Fed Will Inject $1 Trillion More Into the Economy - NYTimes.com
Not bad. But I think a but in a more structurally efficient way, the fed would expend less and achieve the goal of curbing long term rates if it made markets on overnight functional notionals BICs-FRAs along the term structure. Since this would recompose into long term bonds without immediately disbursing the cash needed to purchase long term bonds, it would use less capital.
In 2005 when the fed was desperately trying to raise long term rates to dampen speculation on mortgages, but considering it prohibitively expensive to get into the business of selling long term bonds, I volunteered a piece to the NYT and WSJ explaining how BICs might help do this efficiently. No one was interested.
Still, policy makers have not figured this one out...What else can I do?
Not bad. But I think a but in a more structurally efficient way, the fed would expend less and achieve the goal of curbing long term rates if it made markets on overnight functional notionals BICs-FRAs along the term structure. Since this would recompose into long term bonds without immediately disbursing the cash needed to purchase long term bonds, it would use less capital.
In 2005 when the fed was desperately trying to raise long term rates to dampen speculation on mortgages, but considering it prohibitively expensive to get into the business of selling long term bonds, I volunteered a piece to the NYT and WSJ explaining how BICs might help do this efficiently. No one was interested.
Still, policy makers have not figured this one out...What else can I do?
Wednesday, March 18, 2009
Financial Journalists Fail Upward - WSJ.com
Financial Journalists Fail Upward - WSJ.com
Dear Mr. Frank:
I loved your piece, loved it, loved it. As the late poet Aime Cesaire once said for himself, in this piece "your mouth is the mouth of the mouthless and your voice, the liberty of those whose voice rests in the dungeons of despair"
I am one of those marginalized, laboring at out-of-the-way blogs. I have been and I am still excluded and ridiculed because my larger understanding of the economy was and is not one that fit well with the sort of Wall Street or academia worship preached by the likes of CNBC.
I published my book in 2005 questioning the mathematics underlying derivatives risk management, the systemic risk they posed and proposing an alternative.
In this crisis I feel that better than anyone I have heard so far I know how to most effectively get us out of this crisis stronger, faster at the least cost. I spent a decade working precisely on this.
On the most pressing issue of the day, how to deal with the toxic assets clogging the system, I have tried without success for two months now to have this published in the NY Times or the WSJ to attract the attention of decision makers. I know the public/private plan the administration seem set on adopting is going to be very expensive for taxpayers while fattening pockets of financiers. No one seems to realize how a government market making approach is simpler and more efficient. I have seen so far no one discussing that possibility
Check my blog at http://kongtcheu.blogspot.com/
Anyway, Thank you.
Your piece made me feel less lonely for a moment,
Phil Kongtcheu
Dear Mr. Frank:
I loved your piece, loved it, loved it. As the late poet Aime Cesaire once said for himself, in this piece "your mouth is the mouth of the mouthless and your voice, the liberty of those whose voice rests in the dungeons of despair"
I am one of those marginalized, laboring at out-of-the-way blogs. I have been and I am still excluded and ridiculed because my larger understanding of the economy was and is not one that fit well with the sort of Wall Street or academia worship preached by the likes of CNBC.
I published my book in 2005 questioning the mathematics underlying derivatives risk management, the systemic risk they posed and proposing an alternative.
In this crisis I feel that better than anyone I have heard so far I know how to most effectively get us out of this crisis stronger, faster at the least cost. I spent a decade working precisely on this.
On the most pressing issue of the day, how to deal with the toxic assets clogging the system, I have tried without success for two months now to have this published in the NY Times or the WSJ to attract the attention of decision makers. I know the public/private plan the administration seem set on adopting is going to be very expensive for taxpayers while fattening pockets of financiers. No one seems to realize how a government market making approach is simpler and more efficient. I have seen so far no one discussing that possibility
Check my blog at http://kongtcheu.blogspot.com/
Anyway, Thank you.
Your piece made me feel less lonely for a moment,
Phil Kongtcheu
Sunday, March 15, 2009
TALF Is Reworked After Investors Balk - WSJ.com
TALF Is Reworked After Investors Balk - WSJ.com
This subsidized lending program just looks like major league subsidy to the securities industry with layers of transaction costs that incentivize people to trade in potentially irrational way with cheap money and are likely to contribute to TARP assets price inflation . Why not just do market making as I have repeatedly suggested?
The key mistake here is that policy makers seem to confuse
- incentivizing trade on securities with high economic impact which should be the mission of the government here and would lead to a more rational underwriting industry practices going forward
vs
- encouraging the potential reckless issuance of new securities which may in fact perpetuate the practices that led to this mess.
This subsidized lending program just looks like major league subsidy to the securities industry with layers of transaction costs that incentivize people to trade in potentially irrational way with cheap money and are likely to contribute to TARP assets price inflation . Why not just do market making as I have repeatedly suggested?
The key mistake here is that policy makers seem to confuse
- incentivizing trade on securities with high economic impact which should be the mission of the government here and would lead to a more rational underwriting industry practices going forward
vs
- encouraging the potential reckless issuance of new securities which may in fact perpetuate the practices that led to this mess.
Friday, March 13, 2009
John Stewart Vs. Jim Cramer
The Daily Show with Jon Stewart | Stewart vs. Cramer:
A few thoughts:
1) "Is collective responsibility an alibi?"
This topic of my high school philosophy dissertation exam seems to me like something that out to be debated or revisited here. All the culprits in the present crisis seem to think collective responsibility is an alibi. I differ.
How at the very least about a journalistic or governmental effort to search and single out the heroes?
2) "It is much easier for a man to fail conventionally than to stand against the crowd and speak the truth" John Maynard Keynes
The usual expectation is that the one(s) who stood against the crowd and spoke the truth at great cost to themselves would reap the benefits when convention fails.
Painful as it was to watch for Mr. Cramer, I suspect he is still going to be having his show and make even more money "head he wins, tail you loose".
I have spent a decade on BICs, and BICs would have helped and can still help get out of this... And here am I, just as pitiful, out of the public sight and out of the public mind.
Where is the morality of all of this?
3) Is it time to debunk the Financial Investment Equity Risk Premium Fallacy
which says over the long term stocks outperform bonds?
(1976 Ibbotson Brinson) .See also:
http://www.dailyspeculations.com/scholarly/LongTermStockReturns.html
http://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/IntnlRiskPremium.pdf
How about saying "Lies, damned lies, and statistics"
I bet that buying government I-Bond (inflation bonds) would yield a better return net of management fees and taxes than the large majority of index funds.
But saying that would destroy the entire financial advisory industry. So let's keep it quiet....
4) Finance and Economics is a complex and serious business that must be handled with nuance, intellectual sophistication that can sound very boring to simply minded persons; by attempting to be simplistic and entertaining to attract huge audiences, CNBC & Cramer dig for themselves huge holes in which they ultimately fall
The Stewart clip evidence against Cramer:
CARLY SIMON - YOU'RE SO VAIN referred to by stewart in the interview
A few thoughts:
1) "Is collective responsibility an alibi?"
This topic of my high school philosophy dissertation exam seems to me like something that out to be debated or revisited here. All the culprits in the present crisis seem to think collective responsibility is an alibi. I differ.
How at the very least about a journalistic or governmental effort to search and single out the heroes?
2) "It is much easier for a man to fail conventionally than to stand against the crowd and speak the truth" John Maynard Keynes
The usual expectation is that the one(s) who stood against the crowd and spoke the truth at great cost to themselves would reap the benefits when convention fails.
Painful as it was to watch for Mr. Cramer, I suspect he is still going to be having his show and make even more money "head he wins, tail you loose".
I have spent a decade on BICs, and BICs would have helped and can still help get out of this... And here am I, just as pitiful, out of the public sight and out of the public mind.
Where is the morality of all of this?
3) Is it time to debunk the Financial Investment Equity Risk Premium Fallacy
which says over the long term stocks outperform bonds?
(1976 Ibbotson Brinson) .See also:
http://www.dailyspeculations.com/scholarly/LongTermStockReturns.html
http://corporate.morningstar.com/ib/documents/MethodologyDocuments/IBBAssociates/IntnlRiskPremium.pdf
How about saying "Lies, damned lies, and statistics"
I bet that buying government I-Bond (inflation bonds) would yield a better return net of management fees and taxes than the large majority of index funds.
But saying that would destroy the entire financial advisory industry. So let's keep it quiet....
4) Finance and Economics is a complex and serious business that must be handled with nuance, intellectual sophistication that can sound very boring to simply minded persons; by attempting to be simplistic and entertaining to attract huge audiences, CNBC & Cramer dig for themselves huge holes in which they ultimately fall
The Stewart clip evidence against Cramer:
CARLY SIMON - YOU'RE SO VAIN referred to by stewart in the interview
Thursday, March 12, 2009
Charlie Rose - A conversation with Timothy Geithner, U.S. Treasury Secretary
Charlie Rose - A conversation with Timothy Geithner, U.S. Treasury Secretary
In this interview he made a lot of sense. His enunciation of principles is coherent; however the actual tools to effect those principles, while not entirely unacceptable are not always the most effective I would think of.
"Ars sine scientia nihil est"
For example, when he is talking about doing the private public partnership to unclog tarp assets . They are going to lend money to private investors so that the can go and buy tarp assets. The contention I have repeatedly made is: why would this be better than setting up a market making operation on those assets traded at a refined level of granularity?
In this interview he made a lot of sense. His enunciation of principles is coherent; however the actual tools to effect those principles, while not entirely unacceptable are not always the most effective I would think of.
"Ars sine scientia nihil est"
For example, when he is talking about doing the private public partnership to unclog tarp assets . They are going to lend money to private investors so that the can go and buy tarp assets. The contention I have repeatedly made is: why would this be better than setting up a market making operation on those assets traded at a refined level of granularity?
Monday, March 9, 2009
Mathematical Model and the Mortgage Mess - NYTimes.com
Mathematical Model and the Mortgage Mess - NYTimes.com
Yes, BICs 4 Derivatives Volume I : Theory chapter IX pp 203-232, showed that this was faulty and proposed the coherent alternative. When will you wake up people? when?
I cry a river over this. I cry a river over this....
As I have described at length in other writings(See this or this ), this crisis was a failure of the existing mathematical modeling framework at describing the real world dynamics of underlyings. Therefore the corresponding hedging and risk management strategies failed to represent reality and this fact becomes most obvious at times of crisis. One of the reasons for this development is the over-representation of former physicist at the highest levels of "quantdom" who have forced the adoption of a framework coming from another world. But "It ain't physics". It just ain't.
And I cry a river over this. I just cry a river over this....
Yes, BICs 4 Derivatives Volume I : Theory
chapter IX pp 203-232, showed that this was faulty and proposed the coherent alternative. When will you wake up people? when?I cry a river over this. I cry a river over this....
As I have described at length in other writings(See this or this ), this crisis was a failure of the existing mathematical modeling framework at describing the real world dynamics of underlyings. Therefore the corresponding hedging and risk management strategies failed to represent reality and this fact becomes most obvious at times of crisis. One of the reasons for this development is the over-representation of former physicist at the highest levels of "quantdom" who have forced the adoption of a framework coming from another world. But "It ain't physics". It just ain't.
And I cry a river over this. I just cry a river over this....
They Tried to Outsmart Wall Street - NYTimes.com
They Tried to Outsmart Wall Street - NYTimes.com
The newsy or useful point the article is trying to make kind of eludes me. From the front page snapshot, I thought there would be some statistic showing demand for quants has shot up with the crisis other than the discrete opinion of a quant professor who has a conflicted interest in selling his academic curriculum to prospective students. The reporter apparently just opened his quant rolodex and got a number of known quants say something that would make them look good and prop their books. Unlike what the title "They Tried to Outsmart Wall Street" would suggest, it does not try to hold any of those accountable.
How about BICs Sir, how about BICs, it actually would help...
I cry a river over this...
As I have described at length in other writings(See this or this ), and keep on saying, this crisis was a failure of the existing mathematical modeling framework at describing the real world dynamics of underlyings. Therefore the corresponding hedging and risk management strategies failed to represent reality and this fact becomes most obvious at times of crisis. One of the reasons for this development is the over-representation of former physicist at the highest levels of "quantdom" who have forced the adoption of a framework coming from another world. But "It ain't physics". It just ain't.
And I cry a river over this. I just cry a river over this....
The newsy or useful point the article is trying to make kind of eludes me. From the front page snapshot, I thought there would be some statistic showing demand for quants has shot up with the crisis other than the discrete opinion of a quant professor who has a conflicted interest in selling his academic curriculum to prospective students. The reporter apparently just opened his quant rolodex and got a number of known quants say something that would make them look good and prop their books. Unlike what the title "They Tried to Outsmart Wall Street" would suggest, it does not try to hold any of those accountable.
How about BICs Sir, how about BICs, it actually would help...
I cry a river over this...
As I have described at length in other writings(See this or this ), and keep on saying, this crisis was a failure of the existing mathematical modeling framework at describing the real world dynamics of underlyings. Therefore the corresponding hedging and risk management strategies failed to represent reality and this fact becomes most obvious at times of crisis. One of the reasons for this development is the over-representation of former physicist at the highest levels of "quantdom" who have forced the adoption of a framework coming from another world. But "It ain't physics". It just ain't.
And I cry a river over this. I just cry a river over this....
LinkedIn: Answers: What are the best ways to enable grassroots stimulus, esp. with entrepreneurship?
LinkedIn: Answers: What are the best ways to enable grassroots stimulus, esp. with entrepreneurship?: "How about simply providing stimulative loans/ investments directly to all those educated professional in the financial services and media sectors that are being laid off in droves to start up anew?
Simple criteria: US Citizen or Permanent resident+college degree
Max amount 50K - No paperwork -Checks mailed by the IRS"
Simple criteria: US Citizen or Permanent resident+college degree
Max amount 50K - No paperwork -Checks mailed by the IRS"
Sunday, March 8, 2009
Saturday Night Live - Geithner Cold Open - Video - NBC.com
Dear Mr. Secretary Geithner,
Please , read this:
Please, please, please
Please , read this:
How to Value Illiquid Toxic Assets clogging up the banking system
Please, please, please
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