Apes of the Apocalypse

Goodhart's law, again

2010-12-12T06:31:00.000-08:00

The current crop of Ivy Leaguers -- accustomed to being treated like high-paying customers -- make useless employees.

2010-12-12T06:20:00.000-08:00

Saw the final preview to "Who's afraid of Virginia Woolf" -- it was almost like watching Jason Robards and Katherine Hepburn perform Eugene O'Neill -- or, for that matter, hearing Itzak Perlman play Mozart, or Michael Jordan make a series of baskets. This is a virtuoso performance at the highest level.

2010-12-09T10:04:00.001-08:00

So they tell us that inflation is under control, even as commodity prices are doubling.

Why isn't inflation going through the roof? Because wages are collapsing.

Oh great. Everything costs twice as much, we are being paid half as much, and we should feel good because inflation is "under control".

The evolution of my groupon useage

2010-12-02T05:26:00.001-08:00

Phase 1: Wow! These are great deals, I'll buy a bunch.

Phase 2: I use my groupon at one of the restaurants and have a deeply flawed experience -- concluding that Groupon is the new Transmedia -- a depressing step on the path of a restaurant's extinction.

Phase 3: Wow! One of my favorite restaurants is on it! I'll get several.

Phase 4: I go to my beloved restaurant, without the groupon, and see that they have lowered both the quality of ingredients and the portion sizes. I have my first bad experience at that restaurant, and am so saddened that I probably won't return: I'd rather give my groupons away than spoil whatever happy memories I have left.

Phase 5: Groupon takes a 50% commission from the restaurant? No wonder staff are so surly to grouponsters. Does that mean their break-even number is 4x? Restaurants are told that groupon will bring new customers, but -- in my case at least -- they might as well paint a plague warning on the door.

2010-01-24T07:44:00.000-08:00

Imagine the financial economy as an Olympian realm, residing in the clouds, where traders play with financial assets, and Zeus-like, bored, come down to earth and mate/create mischief. You see it in the papers, when somebody builds a four-lot single-family house in a prime location in a major city. You see it in a bar, when a trader snags a beautiful, classically educated Yalie. However, doing this takes than a half percent of their assets -- the rest of their assets continue to float around in the financial economy, because, in that economy, they get returns of more than twenty per cent per annum.

So the financial economy -- where centimillionaires and even billionaires, insulated from the prying eyes of the Forbes 400 list by layers of discretion -- has this incredible concentrated power -- liquidity -- that does not disrupt the real world as long as it stays in its universe. The commodity bubble in the Summer of 2008, when the financial economy completely disrupts the real world, and temporarily doubles food prices on the whole planet, but then the bubble bursts when the financial economy realizes that people cannot afford to pay double prices to eat.

But where does all that money come from? Mostly it is created by central banks, keeping interest rates low, so money-center banks can take profits and avoid losses since it costs them nothing to hold losses on their books. Keeping interest rates low allows Obama to present the fiction that insolvent banks are doing fine.

Other than bank failures, what would happen if the Fed started raising rates? Money would shift into the real economy, with the immediate consequence that wage-earners would be competing with all this extra money for the same goods in the universe. And that would economic dislocation -- the equivalent of reducing most people's pay by half or two thirds -- would have immediate political consequences.

And, that of course, is why the Fed is keeping rates low, and why Obama is not earnestly trying to shut down the financial party. When the party is shut down, the revelers would stream into the village, but the longer they spend in their own world, the more disruptive they will become when they merge with ours.

2010-01-02T04:45:00.001-08:00

When Palinolithic Republicans assert that the Reagan years were a particularly happy time for America, and refreshed joy awaits the country if we return to them, they neglect that the burst of pent-up entrepreneurialism was only possible because it had been pent-up for so long, and, more subtly, that the redistributive income taxes from 1930 to 1980 had reduced the economic clout of the established financial aristocracy, creating a vacuum at the top that motivated people into superhuman acts of achievement.

Middle America spent the last ten years distracted by terrorism, pornography and survival, while mega-wealthy individuals have been quietly solidifying their economic position, to the point where we are at the genuine risk of an intergenerational aristocracy that will stifle entrepreneurialism for years to come and a return to the Reagan era of easy money and deregulation would accelerate that trendency.

No wonder our resolutions are so short-lived

2010-01-01T07:21:00.000-08:00

Of all the Julian crimes, starting the year in the Dead of Winter rather than the Opening of Spring, is a typical authoritarian dick-move -- it desynchronizes civilization from the rhythms of nature, and increases people's reliance on godlike leaders.

The origin of the religious instinct?

2009-12-31T04:14:00.001-08:00

Gratitude assumes an agent to whom one is grateful.

Middle Age

2009-12-31T04:10:00.001-08:00

I used to hear vast symphonies in my head

Echoing crescendos of competing orchestrations

Now my thoughts are the lonely buzzing of a single insect

Easier to write down, but less interesting to read.

Will I ever be 20 again?

2009-12-28T03:59:00.000-08:00

Reason is a servant of the passions. It is one of those "childish things" that Paul tells you not to play with when you get older.

A person does not wake in the morning and say, "I'm going to ponder the various circumstances of my life, and determine in a rational and logical fashion whether I should be grateful or resentful." A person wakes up feeling resentful or grateful, and comes up with justifications for their bias. With the sheer amount of data in a human life, there is a lot of room for "curve-fitting", and thus you get resentful billionaires and ridiculously happy people in slums...

I can understand why a political operator might find a ridiculously happy slum-dweller undesireable, particularly if the politician's social status depends on mobilizing the resentments of the poor, but which of us slum-dwellers wouldn't choose gratitude?

Health care debate

2009-09-19T08:56:00.001-07:00

As a former professor of constitutional law, Obama should know that the plan to transform the healthcare system in this country is a constitutional question, and should be preceded by a constitutional amendment granting government the powers that he seeks. The debate on healthcare should be a debate over a hundred word long amendment rather than competing hundred thousand word long congressional bills.

A Billy Jack moment at the beer summit

2009-07-30T09:12:00.001-07:00

Shilling for the Jackson family Budweiser distributorship is a bit too predictable. Obama should pour some of the Red Stripe in his glass, and then mix it with the "Blue Moon".

If you think about it, a working engine is a much simpler thing than a broken one

2009-03-07T08:06:00.000-08:00

Nobody understood the economy when it was working -- so why should they understand it better when it is broken?

2009-03-07T08:05:00.001-08:00

If the New York Times is right, and what we are seeing is a necessary restructuring of the economy, then the high unemployment rate is indicative of out-sized opportunities. As the economy restructures, talented people are released and are now able to help the visionaries who can see the future.

If we can just silence those creeps who keep whispering about inevitable currency revaluations -- which would require a constitutional amendment anyway -- we can focus on the fact that the United States is the wealthiest country in the world, and capital's favorite haven.

But what if we are selling our sound dollars in exchange for soon-to-be-revalued foreign currencies? Currency revaluations are quite contagious.

New economic policy

2009-03-07T08:01:00.000-08:00

Rather than having the government control the "commanding heights of capitalism", we need to structure things so there aren't any natural monopolies and no commanding heights at all. With interchangeable standards, there could be one hundred thousand different car companies rather than three.

What we need is a strong government with a deep faith in capitalism

2009-03-07T07:45:00.000-08:00

Choose a number -- say $250,000 -- and then let each person convert up to that number from the old currency to the new currency.

There is a mad shuffle, plenty of black market opportunities -- assets switch hands and as many people as possible get the full subsidy.

However, once the currency revaluation is over, you have effectively taxed all wealth over a certain sum. Like a jubilee, but a little less frequent.

With the whiff of a currency revaluation in the air, the prices of real assets skyrocket (because, of course, they are being paid for with soon-to-be-worthless money). That should at least resuscitate the real estate market.

Once money has been reestablished and equitably distributed and the future can be clearly assessed, capitalism will do its magic -- people will organize, et cetera. Foreign countries might be marginally less willing to export to us -- but we have been very forgiving of their currency revaluations, so fairness demands that they should give us at least one pass -- and we will be forced to come up with innovative domestic solutions if they are really such sore losers to boycott us. Win win.

So why is everyone so upset about all the trillions of dollars being spent to "save" the financial system? When we fail, we will need a currency revaluation, anyway.

Coincidence? I don't think so.

2009-03-06T13:37:00.001-08:00

So, 2 days after the assault of political robocalls that were the price of living in Illinois' fifth congressional district during the recent special primary should have ended, I received a robocall telling me "Don't hang up! You've won a fabulous Caribean vaca --". Of course I'm on the don't call list, and this is the very first time I've gotten this blatant a robocall -- it is doubtless because discount firm used by O'Connor, Fritchey or Feigenholtz for their dinner-interrupting harrassments had archived the number to sell other unscrupulous customers. Now -- as a result of their carelessness -- residents of the fifth can expect quasi-illegal phone calls for many months in the future.

Moving from a melting pot to a stew

2009-02-22T09:14:00.001-08:00

It always confuses me when, in Holder's recent speech for example, superficial people decry the social segregation of individuals into like-minded communities by saying that those individuals have incomparable riches to offer one another. I agree with the second sentiment, but those riches are the product of the social segregation that nurtures their unique cultural perspectives, and a project of massive integration would deprive future generations of that wealth.

Frank conversation

2009-02-21T03:04:00.000-08:00

Eric Holder wants us all to have a frank conversation about "race". But the beginning of that frank conversation would explain that most European-Americans have virtually no racial prejudice. They genuinely appreciate Africans, they respect their intelligence, admire their cultures, and appreciate their sense of family. No, their antipathy is is much more deeply rooted than something as superficial as racial prejudice -- they are irritated by African-American culture, and those feelings are vindicated when people like Bill Cosby express the same feelings, and doubly confirmed when their trusted African friends explain that they do not particularly enjoy African-American culture.

But when African-Americans process cultural biases as racial prejudice -- and respond with rage rather than self-examination or dismissal* -- a frank conversation would probably help them work through their issues. But remember, Holder said that we are a "nation of cowards" -- not that white people were cowards -- so maybe he was trying to initiate this helpful conversation in a particularly hamhanded way?

(* Just as an Indian might say, "those stupid Europeans make fun of us for wiping our butts with our hands, but we know they can never get truly clean with their wasteful toilet paper, and they are all walking around with shit on their asses".)

Sorry, John Paulson

2009-02-19T04:59:00.001-08:00

The beauty of Obama bailing out the bottom tranche is a textbook demonstration of why "legal risk" is such a notoriously difficult parameter to put inside a risk model. Trading companies zeroed in on the most outrageous mortgages like heat-seaking missiles, since they had the most edge when they shorted them. However, since bets were clustered in the same place -- the ratio of CDSes to Underlyings on bottom tranche mortgages is something like 7:1 -- so, if it is structured correctly, every dollar Obama gives away to the most obviously unworthy recipients should take away seven dollars from utterly unworthy trading companies. It almost gives one hope.

2009-02-16T15:29:00.000-08:00

In our Utopian totalitarian future, theaters and concert halls will maintain biometric "no buy" lists analogous to the "no-fly" lists kept by the airlines. The under-motivated and highly unionized staff at Orchestra Hall refuse to enforce concert manners at the level of a midwestern movie theater in the 1960s -- but salvation will come when computerized surveillance cameras record all violations of protocol, from unwrapping candy to unanswered cell phones, from grunting along with the music to learning forward in the gallery, and will forbid the transgressors from returning to any of our temples of culture, until they have demonstrated sufficient penance.

In the meantime, until Orchestra Hall rethinks its systematic policy of allowing the few to disrupt the concert-going experience for the many, I suggest you get a good stereo.

2009-02-16T15:24:00.000-08:00

The problem with parenting is that when they are younger, your children literally look up to you, but when they get older, they literally look down on you.

Fulcrum point

2009-02-15T04:26:00.001-08:00

There is a point in an artist's career where he has mastered his craft but has not lost his youthful enthusiasm for his material. This is why an artist's best work usually comes in the middle of his career. In literature and film, fans gravitate toward an artist's best pieces, but theater is ephemeral, and once it is gone the only thing that remains are memories for the audience, regrets from people who missed the show, and reputation for the director.

Sean Graney's production of "The Hairy Ape" is doubly marvelous because the play itself comes the central period of O'Neill's work, and Graney is entering into his own central period.

What if the layoffs are bullish?

2009-02-10T14:51:00.000-08:00

A major chicago institution enjoyed record growth year after year, but during this period, the Tribune carried story after story of mass layoffs at that exchange. I asked a staffer why they kept getting rid of people, with their net employment continually rising, and he explained that layoffs were a golden opportunity to fire pesky and litigous employees, and were necessary in an age of deep pockets and lawsuits. Managers would maintain lists of dispensible people, and -- when the summons for a layoff would come -- they would use the list to fill the quota.

In other words, they practiced a Welchian culling without stigmatizing the bottom ten percent, and since that time, I have viewed news articles about "layoffs" with suspicion. With that said, there is something more happening when the economy sheds a half million jobs. Could it be that companies are positioning themselves to take advantage of Obama's abandoned tax credit for new employees?

2009-02-09T11:43:00.000-08:00

So if we accept the biologo-biblical necessity of septanual cycles -- seven fat years followed by seven lean years -- and we accept that monetary policy has thwarted this fundamental cycle of life in the name of maximizing the return on capital -- then what exactly does Obama mean when he says that our economy will irreversibly slip into a deep depression if we do not act on his stimulus package? Is he saying that, even after seven lean years of poverty, simplicity and contemplation, nobody will be in the mood to dance, ever again? Or is he saying that unless we shoot ourselves up with adreniline the Democrats have a reduced likelihood of retaining their majority in the 2010 mid-term elections?

The difference between crap and art? Just ask Aristotle.

2009-01-31T02:22:00.002-08:00

When suffering is caused by an essential defect in the characters, the absence of that central defect in our own lives is a cause for joy. Individual suffering in the theater drives us towards Maslovian stasis by motivating us to increase our own happiness -- a tale with a sad ending is two thirds of a story, with the final third to be improvised by the audience in their own lives. However, when a "sad ending" is not rooted in the subjectivity of its creator or its characters -- but is represented as a failure of humanity humanity in a neutral and objective way -- the art work fails its Aristotelain cathartic function. It suspends the audience at the two-thirds mark, telling them that the narrative is insoluble.
Which is to say I liked "Batman returns" but hated "The Dark Knight". "Let the right one in" was unsettling in the way that a violation of narrative convention is unsettling. It is both memorable and unsettling to go to the opera and then have someone dump a bucket of pigshit on you, but does that make it art?

2009-01-31T02:22:00.001-08:00

Someone should start a foundation called the "Fuck the Elizabeth Cheney Foundation Foundation", and donate money to any group that is willing to forgo her money.

2009-01-30T12:39:00.000-08:00

The Companhia Triptal shows at the Goodman have been a highlight of several decades of Chicago theater -- it is unlike any show that has ever been seen on a Chicago stage. How does a show like this come into being? For one, they spend time slowly organically growing their productions -- four months of ten hour days developing one hour of theater, while most local productions are lucky to spend one month of six hour days developing three hours of theater. The missing element in Companhia Triptal's formula for excellence -- other than being Brazilian and being Geniuses -- is that they are supported by government grants rather than by ticket sales and dishwater dull utility-maximizing charities.

So the stimulus package has a contested 50M for the NEA, and an eager 14B for the universities. But what is more stimulating than good theater?

It is a truism that our educational system was obsolete by the time Gutenberg invented the printing press -- the purpose of a "lecture" was to have the students copy a text by hand -- and that academics, by maintaining a monopoly of credentials, have installed themselves as a mandarin class. However, their grasping greed in inflating faculty salaries during the last economic expansion should leave them vulnerable during the downturn, and a truly transformational President would let the universities suffocate for lack of oxygen while creating an alternative credentialing system that allies itself more closely with post-medieval technologies.

So imagine a stimulus package that included money for continuing education theater workshops, where -- all over the country -- people were invited to contemplate and discuss the great books, and create pieces of community theater that encapsulate their percieved essences. Wouldn't that workforce be both more motivated and more intelligent and more optimistic about humanity?

2009-01-30T12:38:00.001-08:00

What particularly galls me about the stimulus package is that our period of social transformation and chaos would be an excellent time to rethink the university, but Obama's 14B of Pell Grants shows that the best idea he can come up with is to tax the rest of our society in order to maintain faculty salaries at their current inflated levels.

2009-01-30T12:21:00.000-08:00

An interesting implication of David Brooks' much discussed recent column is that the Ivy league educations favored by our elites have cultivated the sort of self-centered intellectual facility that allowed them to manipulate and destroy the financial system for their own benefit -- and it has the chilling implication that the Harvard-trained brainiacs filling the ranks of the Obama administration are exactly the wrong people to preside over our social and cultural transformation.

2009-01-30T12:04:00.000-08:00

I recently saw a fifty seven minute long play at one of Chicago's great theaters, and the twenty-second minute, a woman got up from her seat, walked in between the forty person audience and the ten people on stage, and left the theater. Five minutes later, without waiting for a break in the one-act play, she returned, once again walking in front of the stage, and back to her seat.

At the point when she returned, a row of college kids who were watching the play started whispering to one another. The couple next to me glared at them, I glared at them, the person behind them glared at them, but they continued their conversation.

I blocked them out and focused on the play, but my attention returned when I heard a scuffling sound, followed by a queeny shriek from one of the college kids, who yelped "You SCRATCHED me, BITCH!" in a high-toned voice.

The kids were quiet for the rest of the performance, and bolted for the door when the lights came up. As we were all gathering ourselves and getting up, I approached the woman who had successfully silenced the kids, and congratulated her that on doing God's work. "I just wish God had spoken to me sooner", was her quotable reply.

Two decades of Chicago theater-going have exposed me to some pretty marvelous examples of audience rudeness -- for example, kids listening to rap on their Ipods while attending the CSO -- but now that the Obama era has officially started, people are using physical violence to enforce social norms. In the Laissez-Faire Bush years, we would have silently endured the kids' misbehavior -- but just in the last week there is enough optimism about the future of our country that people are literally willing to fight for what they believe in.

I'm gonna miss those guys...

2009-01-08T02:53:00.001-08:00

Remember the studies that showed that a person in a room with a photograph of Abraham Lincoln's glowering image was less likely to steal than a person in a room with an empty wall? The idea is that our deep psychological architecture is more likely to behave ethically when we feel we are being observed. Thus, it should not surprise that deeply unethical people (Foucault?) conflate surveillance with punishment. So maybe the Bush administration was watching out for us, by watching us, and we should not be so quick to abandon his utopian vision of an intrusive 24-hour government, watching our internet usage financial transactions, and telephone calls.

Bernie Madoff is not a refutation of this -- he succeeded because of a lack of surveillance rather than a surplus. And, the one unfortunate psychological byproduct of surveillance -- the squelching of creativity and independent thought (*) -- was apparent in excess among his customers.

(*) This, of course, is why certain philosophies of software project management, which look great on paper and seem compellingly logical, often completely destroy all productivity, and why -- even when they work -- dictatorships tend towards a toxic groupthink that dissociates from reality and ultimately collapses.

2008-12-29T05:46:00.001-08:00

If you wend your mind back to the ancient Halcyon days of August, you might remember that the American Newspaper industry was in a tailspin, and people assumed it would collapse within a few years. As a thought-experiment, consider the likelihood that a moderate recession is being spun into a full-fledged depression by negativistic Newspapermen? What kind of logic trusts people in a vanishing industry to report on the state of the country?

Samuelson, Summers, and other made men

2008-12-29T02:36:00.000-08:00

Obama's staffing choices to deal with the current market failure are part of the academic mafia that monopolized economic credentials to prevent the emergence a viable critique of the Efficient Market Hypothesis until quite recently. If you doubt this, check up on Samuelson's war on the Kelley criterion -- it violated his theological precepts, leading to outsized profits for trading companies that eschewed a Harvard pedigree.

Rethinking Universities, Part 2

2008-12-29T02:33:00.001-08:00

And what if the wild inflation of academic salaries were caused by the same expansion of credit that caused the housing bubble? Will the tuition bubble be the next to burst, or will Washington accept outsized professorial compensation as a given, and increase federal programs to subsidize it at current levels?

2008-12-28T09:25:00.001-08:00

The real reason that our economy will collapse is not because the middle class will start saving, but rather -- in instinctive self-preservation -- the ultra-rich will avoid conspicuous consumption to dodge the political consequences of calling attention to the their ill-gotten wealth.

Bismark was right. There is nothing better than owning trees.

2008-12-28T09:21:00.001-08:00

So, with real estate prices returning to historically normal levels, the ratio between the cost of, say, a restaurant meal and and the cost of an acre of land in Alabama has doubled, so the relative value of money, judged against major purchases is a cause of consumer deflation.

It's not the dirt you see!

2008-12-28T09:17:00.000-08:00

Madoff's fifty billion dollar loss will ultimately cost the United States more than a trillion dollars, by decreasing international faith in our markets.

2008-12-28T08:55:00.000-08:00

There is something touching when I read plans for the stimulus package:

a) improve the transportation infrastructure
b) improve the educational system
c) build a solid export driven economy
d) develop new technologies
e) reform the financial system

It is a one-size fits all wish list -- every place on earth would be delighted to receive it for Christmas, so I have to wonder why the Chinese would lend us the money for a systematic transformation of our society rather than, say, spending it to systematically transform their own? Or Indonesia, for that matter?

And how do Romanians feel when they read about these wish-lists? Why doesn't the world economy lend them a trillion dollars? The stock answer is that America is more trustworthy and has a mature financial system, but reforming our financial system will surely be more expensive than building one from scratch.

Maybe the stock market is being supported by the idea that Obama is a magic negro? It is easy to see Barack as the deus ex machina who will liberate us from economics, politics and history -- because the writers weren't paying attention and now there is no other way to provide a happy ending.

Another argument against Government backed mortgage securities

2008-12-28T08:50:00.000-08:00

And the latest wrinkle in the housing crisis is that almost all of America's housing stock will need to be torn down in the next twenty years.

2008-12-21T02:44:00.001-08:00

Since our political system requires money to operate, political success is predicated on appealing to people with money.

What is the difference between the two parties?

The Democrats want to kick the ladder away, while the Republicans want to grease the ladder to make it harder to climb.

Democrats are the party of inherited wealth, and they promote a static society which preserves the advantages of money and the education that was bought with that money;

Republicans are the party of corporate wealth, and they promote a static society which preserves the advantages of whatever economic conjuncture has conferred advantages on whichever group is currently buying the Republican Party;

Libertarians underestimate the need for a strong central government to prevent the monopolies, oligopolies, and oligarchies that undermine the libertarian ideal, and that the swiftest will be outnumbered by the very fast, so allowing the swiftest to win every race is political suicide.

Socialists don't get that humans like to organize themselves in packs of around sixty or eighty, and that a socialist government usually trades the corruption of an oligopoly for the inefficiencies of a monopoly.

2008-12-12T07:47:00.000-08:00

So now they are finding a biological basis for deconstruction and dialectics.

2008-12-06T01:53:00.000-08:00

CDSes on Treasuries have quintupled in cost, but -- as any student of political science would tell you -- the United States Government could not default on its debt without overturning Marbury versus Madison. That is to say, that even as interest rates are falling, the CDS markets are suggesting a bimodal distribution where the most likely outcome is grinding dull penury, but the possibility of a wild constitutional collapse is skyrocketing.

The Dialectic in Action!

2008-12-05T10:52:00.000-08:00

Could the destabilizing excesses of the past two decades only have been possible because of the collapse of world socialism? Did the existence of a flawed competition is curb the essential nature of capitalism? If this financial crisis had happened during the cold war, the people who destroyed our economy would have been guilty of treason, and deserving the death penalty.

Change from the inside?

2008-12-05T03:50:00.000-08:00

It is unsurprising that the people who have benefited from "the system" do everything in their power to preserve "the system". The structural mistake of the last century was to consolidate economic power in a few corporate institutions and then staff the upper levels of those institutions with products of a tiny number of educational institutions. This created a level of centralization where an intellectual error among a small cadre of individuals at the top of the pyramid would have ramifications to the entire base. Add the fact that once power was centralized into organizations with enormous social clout, those organizations would inevitably use their social position to enhance their power. However -- as a question of history -- those institutions are trying to collapse in order to prepare the way for something new, but the government intervention is simply preserving inefficient mechanisms for operating in the economy.

The problem is a consequence of centralization, and the collapse of the current system leads to an obvious solution: nationalize the banks and re-privatize them as collections of much smaller financial institutions, to create the natural benefits of a market that represents the broad diversity of human nature rather than one dominated by a few hundred Ivy League alums with outsized senses of entitlement. However, our entire civilization rewards those at the pinnacle of the pyramid, and there is a strong disincentive for the people at the top to rethink the structure of an economy that has been so "berry berry good" to them. Consequently, the bailout money is used to further consolidate economic power inside a few institutions rather than rethink the structure that created this.

But don't get me started on the idea that the systemic collapse brought about by regulatory advantages that Ivy Leaguers were able to weasel from their former classmates in their quest to increase their power is somehow proof that we need more regulation. The only law we need is the Sherman act -- allowing multiple institutions creates more diversification in the economy, and "spreads the wealth around" rather than concentrating it in the hands of the super-rich.

2008-12-05T03:32:00.000-08:00

With Obama's policy of saying yes to everybody, our future is a basketball, and Obama is trying to make a basket from half-court. So much has to line up perfectly for the combination of bank bailouts, corporate bailouts, massive infrastructure spending and trillion dollar deficits to succeed. Obama's desire to "jolt" the economy back into health is telling: the economy probably wants some bedrest, and extra activity after out bedtime will only prolong our recovery.

It is clear why the Chinese would lend us money to do genuinely stupid things -- to fight wars that alienate us all of over the world, or even a bailout plan that preserves paper profits on their bond portfolio while ultimately burdening the American economy with obligations that will deprive any incipient recovery of necessary oxygen -- but why would they sponsor American investment in infrastructure and education, and might pose a threat to China's plans for Millenial hegemony?

2008-12-05T03:29:00.000-08:00

This looks like good news, but watch for the symmetric study showing the contagiousness of gloom, with the implicit prescription of socially isolating the already socially isolated.

The idea of concentration camps was simply to concentrate undesirable elements and prevent them from contaminating the others. Will it be a matter of public health to set up concentration camps for the mentally ill? The standard for commitment is that a person is a "danger to himself or to others", and these epidemiological studies will, in fact, show that a bad mood is a danger to others.

2008-11-27T04:42:00.000-08:00

So let me see if I understand the crisis.

Alfred lends money that he doesn't have to Bill, and Charlie lends money that he doesn't have to Drake. The IOUs are written on napkins.

Bill and Drake bet against one another on a coin flip.

As it turns out, Drake wins the bet, but when it is time for him to collect, he is shocked to learn that neither Alfred nor Bill have real money to pay him. So he doesn't try to collect, but books his napkin-asset on his balance-sheet as a "cash or equivalent".

And now that the financial wonderland of fictitious loans and fictitious bets is being unwound, Obama and his team are asking Americans to pay real money -- which is to say, higher taxes -- to compensate Drake, who, as you recall, was never betting real money in the first place. Throughout the last decade, people were making a million dollars a day, but nobody cared, because they were only spending a fraction of it competing for goods and services in the real economy. However, the bailout is turning all those profits into real money, which will compete with wage-earners for the real products in the world.

So if you are a wage earner, and your children will be wage-earners, then
they will not eat as good food, buy as good seats to the orchestra, live in as nice a neighborhood, because, as a direct consequence what is happening right now, they will be competing against the descendants of people who earned tremendous amounts of money.

But will that really happen? The bailout, projected deflation, the low thirty-year note, and all that is probably a stop on the road of the system unwinding itself. They are using more imaginary money to prop up their other imaginary money.

2008-11-25T04:19:00.000-08:00

With our President Elect's metaphor -- that we need to "jolt" the economy back to life -- it is clear that economy is an ailing, sick, old autocrat with a heart condition caused by terrible dietary habits and a lack of exercise. If we bring him back from the brink of death, we will be dealing with a sick, ineducable and ungrateful Paterfamilias. So why not let the old bastard die, so a new generation can take over? Why mortgage the future on medical treatments for the old man when we could use that money on the kids?

the fixed income markets hurt more than the S&P

2008-11-21T09:55:00.000-08:00

Bonds are for wise old men, while stocks are young man's game. Stocks speak in ambiguous poetry, but bonds communicate in clear prose.

When the stock market crashes, nobody knows what the new prices mean. Are half the stocks worthless, while the other half are worth twice their value, but nobody can sort them out? Is it a wave of panic selling from hedge fund liquidation?

The twenty percent change in the return on the thirty year bond is telling us that monetary policy will neither default nor inflate, and that we are looking at a full generation of pain before things even begin to brighten a little.

Why Warren Buffett bought USG at 35

2008-11-19T10:01:00.000-08:00

It is becoming clear that capitalism is not a system that rewards intelligence, but rather a system that rewards the kind of intelligence required by the system at a particular juncture of the system's evolution, and that, after the system's requirements have shifted, what once passed for intelligence, looks a lot like stupidity.

2008-11-19T10:00:00.000-08:00

Citibank and Goldman Sachs are trading below their 52-week lows. In the cold light of reason, they are being assessed at lower values than those dictated by the eye-bulging panic of earlier sessions.

2008-11-18T10:02:00.000-08:00

It would certainly be cheaper than letting the Auto industry collapse, so maybe if everybody in America pitched in, and we all bought Goldman Sachs 500M Jun 5 calls in Ford, maybe Paulson would change his mind...

Must we all end as Tolstoy?

2008-11-18T08:22:00.000-08:00

Rumination on the role of art in society inevitably returns to Janusz Korczak. Would the orphans have been served by an unflinchingly honest caretaker? Who is really helped when artists "tell it like is"?

After watching the new bond movie last night, I see that violent movies as the anti-Korszack -- rather than soothing the souls of the innocent as they head to the chambers, modern entertainments symbolically enact the punishment instinctively craved by the profoundly guilty.

If you're going to do the crime, you should get the dime

2008-11-18T04:20:00.000-08:00

Throughout the upswing, mewling leftists complained about the unwillingness of corporations to share the benefits of increased productivity. However, if the profits generated during the last period were almost entirely specious, and the role of the "employees" was to be a distraction while the con men in charge of those organizations looted banks and shareholder value, then it is quite possible that the "workers" were quite fairly paid for their "work", since the engine of profitability was dissembling and fraud.

2008-11-18T04:07:00.000-08:00

Traditionally, "business" and "art" were considered separate and mutually exclusive domains. However, the last few decades have seen a blending of the categories, where former businessmen like Jeff Koons pursued lucrative art careers and many businessmen, like Rupert Murdoch or Sir Richard Branson, represented themselves to the public as "artists".

Using classical definitions, an Artist is someone who is skilled in Art, namely representation -- a person who is rich in leisure and subject to imaginative visions, while business is defined by the absence of leisure (negotium) -- a complete focus on the hear and now. There has always been one kind of artist who bridged the two diametrically opposed psychological states, and this person was called the "confidence artist", whose Art was entirely dedicated to the representation of himself as a person engaged in business. Come to think of it, if we accept the con man as a bridge between the worlds of Ars and Negotium, there is no need to create a new category to describe the contemporary world's "artist business man" and "businessman artist".

2008-11-18T04:04:00.000-08:00

The traditional argument against a Marxist vision of capital as a relentless force is that Marxism ignores the essential humanity and diversity of capitalists. However, it was only with the invention of the computer, and the elevation of the Chief Financial Officer that corporations because the truly profit-obsessed entities that Marx thought they were in the 1880s.

Paradise regained?

2008-11-18T03:44:00.000-08:00

One of the mechanisms by which capitalism as a system has perpetuated itself is that, during relatively good times, the wealthy were more generous to their minions, and then, during relatively bad times, those minions had savings that helped them endure a tougher economic climate. A Marxist matrix insists that capitalism has its own internal logic, and the capitalists will always be driven to a relentless maximization of their profits, but the historical fact is that many capitalists felt a deep human need to share their prosperity (for example, Henry Ford the First), and in many ways capitalism served more to amplify the humanity of the powerful rather than squelch the humanity of the poor.

The permeation of the computer and computerized accounting systems moved the position of Chief Financial Officer from a record-keeping role to a proscriptive role, and once the finances of the corporation were firmly dictated by the "numbers", it was logically impossible for the executives presiding over success to spread the wealth around among their employees, as was their natural human tendency. As a result of the "numbers" we had enormously dispirited workers who were short the enterprise risk of a company, without receiving any time decay in the form of bonuses.

Now, we are heading into a recession after the bulk of economic growth was shifted into a smaller class of people, and many are starting the downturn with more ravaged finances than they ended the last downturn. This has introduced a systemic instability into the political consensus around raw capitalism, untempered by human traits during the last period of growth. But how do you get the genie back in the bottle? How do you create a social system that rewards innovation without rewarding relentless and unimaginative obsession with the reward itself?

Why obama might fail

2008-11-17T14:44:00.000-08:00

Obama has the temperament to be one of the greatest mayors in America. He enjoys running things efficiently, listening to various points of view, finding the common ground. In fact, Daley shunted him into the Senate in order to prevent him from emerging as a viable challenge to Daley's hegemony.

However, will an essentially mayoral temperament help the President? The country is too diverse to bring together via compromise -- it needs to be united by leadership. Will Obama continue to grow into exactly what we need, and find the leadership to genuinely help Americans make the sacrifices that will take them to a better future?

Why Obama might succeed

2008-11-17T14:43:00.000-08:00

Time and again, people who fancy themselves to be smarter than him have second-guessed him on the campaign strategy, and he slowly and meticulously did the right thing and proved his detractors wrong.

You don't need ayawasca to see this future

2008-11-17T14:33:00.000-08:00

So what does the future hold?

Government bailouts increase the deficit;
Chinese stimulus packages and domestic infrastructure investment reduce their appetite for Treasury notes;
business is crowded from the credit markets, so government steps in with direct loans to businesses;
the deficit increases, further crowding private businesses from the credit markets;
a system that is neither socialist nor capitalist, where the government, in order to preserve the fiction of solvency, it makes easy credit available for the nearly bankrupt citizenry, who use the credit to maintain their debts, to perpetuate the shells of companies;
moves to nativism -- American taxpayers are subsidizing the formerly-international corporations, so the economic multiplier effects of those jobs should benefit the taxpayer base;
homeland security expands its grip, and public discussions of economic reality become a "threat to the homeland" -- censorship is put in place, because an attack on the United States credit rating is seen as more significant and more terroristic than leveling a couple of buildings;

At that point it gets somewhat cloudy... President Palin was the simulacra -- but who will be the real thing?

Hmmm, maybe capitalism can be saved after all?

2008-11-16T10:41:00.000-08:00

Imagine a meritocratic world, where people who wanted to run for office were given a standardized test, and then voters could assess their actual understanding of the undisputed facts.

Now, let's take it a step further, and imagine a world where the boards of corporations were selected from people who passed a similar standardized test, which would staff boards with people who could not easily be deceived by the CEOs. Further, let's imagine a world where, if a person wanted to be on a board, they would become legally liable for fraud that occurs in the company (i.e., expand Sarbanes-Oxley to include boards).

Repeal the 17th amendment

2008-11-16T08:54:00.000-08:00

Let's pause for a moment and ponder the original genius of the United States Constitution, and the provision of having United States Senators selected by the various State Senates. Madison's vision increases the credibility and competence of the state legislatures, and also effectively blocks high net worth individuals from purchasing their seats as an attractive trinket. It also selects individuals with deep political skills rather than public relations skills, which are far more useful in the Senate.

2008-11-16T05:07:00.000-08:00

The beauty of asking Clinton to be Secretary of State is that all of Bill's skeletons will be discussed during the Senate confirmation hearings, and that will either open Hillary up for perjury prosecution or neutralize her as a political force. If she accepts, then she cannot run in 2012, no matter how tempting a target the Obama Presidency is; if she declines, then Obama's conciliatory maturity contracts with her childish petulance.

2008-11-16T05:02:00.000-08:00

The bizarre idea that the financial system needs to be protected from capitalism is reminiscent of some South American Countries where legislators are all granted constitutional immunity to the laws that they pass.

I'd rather stiff the Chinese than sell the National Parks

2008-11-15T04:29:00.000-08:00

According to Barron's, the price of CDSes on T-Bills has doubled -- though T-Bills remain AAA. At first glance, it seems ontologically impossible for our government to default on its debt, since the federal reserve can participate in treasury auctions and create the money that could be used to repay the debt. However, if we must choose between hyper-inflation and stagnation -- and if interest payments consume a greater portion of federal revenue than the rest of the budget, if the presence of the United States Government in credit markets is squeezing out business-building competitors, and if we reach the point where the rest of the budget is less than the tax revenue, it might make economic, logical and political sense for the Federal Government to start fresh.

2008-11-15T04:21:00.000-08:00

Economic recession is usually accompanied by cultural prudery. But will the technosexual revolution liberate people from the business cycle?

Ooops

2008-11-14T04:40:00.000-08:00

So it turns out that the collapse of the Minneapolis bridge was not caused by Republican underinvestment in the infrastructure, but rather by Democratic overinvestment -- haste to build massive infrastructure projects without sufficient engineering.

2008-11-12T13:10:00.000-08:00

Would a purely corrupt system be more efficient than the system that we have? If the AIG bailout was about preserving 20B in Goldman P&L, it cost eight dollars for every dollar Paulson gave to his friends. If we could've just given him three hundred billion dollars as payment for locking himself in a room until the change of administration, it would have been worth it.

Why are you scared? It's only a flash of light!

2008-11-12T11:31:00.000-08:00

With the financial crisis, we have seen the explosion, but we haven't heard the sound, and we certainly haven't yet felt the shockwaves.

plus ca change ...

2008-11-12T11:30:00.000-08:00

The same people who were kicking themselves for not buying a nice New York brownstone for a hundred thousand dollars in the early eighties will probably have the chance to not do it again.

Deflation today, inflation tomorrow

2008-11-12T11:28:00.000-08:00

The bond markets are assuming that Obama will be responsible and clean up Bush's mess. But if Obama flinches, the bond markets will explode with pent-up anxiety about Bush's policies, and we'll face a deflationary economy, inflationary monetary policy, and long-term interest rates at ten percent. So watch what _that_ would do to housing prices.

2008-11-12T11:22:00.000-08:00

As the Treasury and Fed send another trillion dollars up the chimneys, to spitefully sabotage the future Obama administration, I feel like somebody who is locked outside of his house while a serial killer inside is meticulously killing his family. "Easy now, he has promised that he'll leave peacefully in a few hours", the police say. "We don't want any trouble: just sit tight."

How can I think such uncharitable things about them? Well, by their system of values, it is more charitable than thinking that they are complete idiots.

Wie man es macht, ist es falsch

2008-11-12T11:14:00.000-08:00

For a few brief seconds, I liked Paulson's bailout, because supporting "Troubled Assets" would wipe out the profits on the huge derivative portfolios tied to those assets, profits from which would benefit the wrong people in the financial system (i.e. people who ruthlessly took advantage of the broken valuation model for those contracts at places like AIG).

I should have guessed that when he realized that driving up the prices of CDSes would directly affect the PandL of Goldman, he would pull back from his original plan.

I still don't understand why the House Democrats supported the Bailout.

2008-11-12T07:40:00.000-08:00

So a giant dinosaur terrorized us for twenty years. Now the dinosaur is hobbled, exhausted and nearly dead. The dinosaur's minions come to us, hat in hand, and ask for food to keep the sick dinosaur alive. "You've gotta save the dinosaur, they say -- it's the only dinosaur you know -- and if you thought life was bad when the dinosaur was hunting you and eating your children, imagine how terrible life will be without the dinosaur!"

Is this how Newton felt?

2008-11-11T09:07:00.000-08:00

After admiring the comic timing of the PC guy, and hearing that the PC guy was played by "comedian, John Hodgman", and admiring the comic timing of "comedian, John Hodgman" on the Daily Show, I am slowly coming to the dawning realization that the "comedian, John Hodgman" who plays the PC guy is actual the same person as the "comedian, John Hodgman" who appears on the Daily Show!

Inscrutable bond markets

2008-11-10T14:45:00.000-08:00

But the big question is why the Chinese stimulus package didn't crush bond prices? If it is going to rescue the world economy, then interest rates should go up; if it suggests a fundamental reorientation of China towards itself, then it is the first of many Chinese stimulus packages, leaving less money to buy treasury notes, which should, of course, increase interest rates, too.

So the more depressing possibility, is that the bond markets expect a long and difficult near-deflationary period, so a four percent return is a real five or six percent return, and the assumption is that the economy will be so weak that even our local wealth will be tripping over itself to experience positive capital growth.

And thus we have more proof that the bond markets are just smarter and more emotionally mature than the equity markets.

Another fulfilled campaign promise

2008-11-10T02:20:00.000-08:00

By emphasizing programs to preserve the middle class, the new administration is opting for "change that basically keeps things the same", which, come to think of it, is exactly the kind of change that most Americans can believe in.

2008-11-10T02:02:00.000-08:00

The latest infusion for AIG is yet another transfer of wealth from the Federal Government to the financial system. It is increasingly clear that AIG did a terrible job modeling the risk on their credit default swaps, and if they had been Chicago Floor Traders rather than Harvard genius math Ph. Ds, they would have experienced the enormous demand for their product as evidence of an incorrect model, with a consequent adjustment to their model until demand slackened. However, moving our theoretical apparatus seven miles South in Chicago, to Hyde Park, we can still make sense of their ridiculously low prices for Credit Default Swaps: AIG default risk was built into the price, so at a CDS at two cents on the dollar for a fifty percent default risk had the embedded default risk of AIG itself.

We know that GS had 20B of AIG CDSes --but who were the other speculative counterparties? Now that the US stake in AIG has crossed 80%, this should be the requested in a FOIA filing. In the meantime, AIG should be put into a type of recievership where a federal judge can adjudicate which obligations will be made whole and which obligations will go out worthless. There is something outrageous about Federal money providing a 50x1 return on bets that were made at theoretical value and are going out at 5000 per cent.

Character types

2008-11-08T09:03:00.000-08:00

Bill Clinton was, of course, a band guy. The off-center outsider at High School with a special talent that freely moved among the cliques.

G. W. was a frat boy. Nuf said.

Obama's formative experience was being a "new kid". That means that his special gift lies in figuring out what people want, and then reinventing himself to become that thing. If you watch childhood dynamics, the first people to reach out to the "new kid" in a grade school are always the misfits and the losers, so it should not surprise the people on the left as they find themselves left behind as Obama moves into more elevated circles.

SchumpelPeter

2008-11-08T08:31:00.000-08:00

For the last two decades, it was a Schumpeterian world, as workers were told to have patience when their trusted social structures collapsed, and it was promised that new and better forms of civil society would emerge.

Now, of course, we have seen the collapse of big business, in as spectacular a fashion as big government collapsed in the seventies. And, of course, big business has sought to revive big government to protect it from the market's judgment of its failure.

But the real failure of our financial system came from extreme centralization and inadequate diversification. On a superficial level the financial system failed because the quality of free research available from Wall Street -- the foundational underpinning of the Efficient Market Hypothesis -- underwent a fundamental change when analyst compensation was reduced in the wake of Eliot Spitzer's indictments, while analyst compensation was increased at hedge funds. Once the top tier of analysts moved to hedge funds, the mid-level analysts at the ratings agencies were -- definitionally -- the people who could not get top-tier hedge fund jobs, and they were strangely in the dark while plying their trade.

But the real problem is an absence of diversity of opinion -- the collective group-think that descended on financial institutions where models estimated risk two three decimal places, but nobody bothered estimating the risk that the models were wrong (which is not to say that there weren't plenty of voces clamantes in desertas, but just that such people were effectively isolated from power). Those who felt in their gut that the models were wrong, were told that they didn't have the intelligence to deserve the high compensation that was a natural consequence of feeling in their gut that the models were right.

But this ultimately refutes the classroom model for stratifying intelligence and shows a sharp critique of Goldman/Harvard synthesis. By drawing our social elite from people who have the unique ability not to upset their social superiors -- people who receive Rotary Scholarships, get positive recommendation from High School teachers, learn to flatter the egos of the establishment figures at our institutions of higher learning -- we create an environment inside the higher echelons of corporate culture that is uniquely prone to groupthink, since these are the very people who were best able to articulate the hidden views of their teachers when they were in school. The result is, of course, that when an educational pedigree is the prerequisite for filling a social role, the people who fill that social role usually have a special gift for intellectual mimicry, and the absence of core values that is highly correlated with the ability to simultaneously please a variety of divergent professors gets caught in the amplification chamber of the modern american corporation, causing a lack of doubt in the generalized consensus.

Which is not to say that the highest reaches of American society should be staffed by pot-smoking drop-outs, though it is hard to imagine a bunch of stoners doing a much worse job, but rather to say that the failure of the financial system is, in fact, an indictment of the entire social structure that has emerged in the previous half-century. People who are thoroughly invested in that social structure can only imagine preserving it, and the means by which a highly centralized, systematically unintelligent social organization is to be preserved will only increase the imbalanced weight of the social structure when it is time for it to collapse, while forestalling the inevitable emergence of a more dynamic social structure.

Which brings us back to Schumpeter. Capitalism is a dynamic system, but humans are terrified little mice, who scurry to the safety of their holes at the first hint of change. For the longest time, so-called capitalists derided the working classes resistance to change, but when the capitalists are asked to do the very thing that their professed allegiance to their form of social organization would ask of them, they balk, and become the biggest and loudest whiners of them all. Schumpeter is usually seen as a reactionary, chiding the workers for their unionized resistance to progress, but the simple fact is that the real resistance to progress comes from those with the greatest stake in preserving the collapsing system -- namely the members of the Harvard/Goldman elite, and it will be interesting to see to what degree Obama is committed to preserving a system that has benefited most of his friends.

2008-11-07T03:53:00.000-08:00

One of the compelling Clintonian arguments was that, if Obama was have such trouble in a genteel campaign against a member of his own party, it was hard to imagine him withstanding a hostile campaign against another party. As it turned out, however, the Clintons were much tougher competitors than McCain was, which sticks to a Chicago trope, since the Chicago primary is usually the real election.

By this sign shall ye recognize him

2008-11-06T10:15:00.000-08:00

The key questions to watch for in the Obama presidency

1. How quickly he backs away from a Pelosi style generalized stimulus package which gives all taxpayers a couple hundred bucks to spend on ice cream cones and taxi fares.

2. Whether he bails out the automotive industry, or allows it to reconstitute itself in several dozen environmentally friendly, more economically efficient units

3. Whether he bails out the financial industry, or allows it to reconstitute itself into several hundred more economically efficient units.

4. How he finesses the inevitable need for a more intelligent tax policy.

5. Whether he encourages a moderately inflationary monetary policy at the fed.

No silver lining

2008-11-06T05:46:00.000-08:00

Q: If the world is heading for a catastrophe, why are gold prices plummeting?

A: With 20B ounces of gold in the world, each dollar decrease in the value of an ounce of gold reduces the wealth of the world by 20B, and a three hundred dollar drop in gold has reduced the wealth of the world by 6T.

Q: Oh, I get it. Gold is going down because, by some measures, it could be conceived as good news for gold to be going up.

Es Viva Andrew Mellon

2008-11-06T03:41:00.000-08:00

Over the last twenty years, Japan freely lent 10 Trillion dollars to the west -- this money went for bad real estate loans in the US, four store hotels in second world backwaters, coffee shops in iceland, and other terrible places where it is now worth dimes on the original dollars.

Nobody knows the extent of "rot" in the international financial system, but I would gently suggest that, as a matter of world history, the 10T number is probably a good start -- and that means that, if the goal of bailouts is to preserve the current system by having national governments make the banks whole, we are only about twenty per cent done. And then what do we have? We have a moribund financial system, and Americans get to spend the next twenty years paying for the crap that was bought in the previous twenty -- it is like socialism, except that people are subsidizing the Japanese rather than themselves.

When European and American governments are "saving" individual banks, the deeper fact is that we are only about ten per cent of the way done with repaying the trade imbalance.

So what is the right economic plan?

1. Moderate inflation
2. Expand the safety net
3. Let the current financial/corporate system collapse and allow the shards get caught in the safety net, and watch new and wonderful systems emerge. For example, if a team from a bankrupted automotive company has a smart idea, use the money that could have been spent keeping the automotive company alive to fund their lightweight enterprise.

Megacorporations are the evolutionary equivalent of dinosaurs -- large collections of dna that need size in order to compete with one another: in the future a swarming collection of smaller organisms will lead to greater efficiencies than hulking monstrosities. Government intervention to preserve these joyless monoliths is like enslaving the egg-stealing mammals in the service of their cold-blooded predecessors.

How is that Democrats have a reputation as biological evolutionists but economic theocrats?

2008-11-06T03:32:00.000-08:00

The idea behind "trickle down" economics is that the very wealthy will be delighted to spend perhaps one or two percent of their net worth on labor intensive luxuries that create comfortable middle class lives for echelons of service workers, however, in a year where the very wealthy have lost twenty to forty percent of their net worth, it is hard for them to cultivate the celebratory mood required for free spending, and we watch the entire economy slide into the abyss.

Deflation leads to a cycle of economic stagnation -- people hoard cash because simply sitting on money is the equivalent to investing it. By the same logic, if the Fed wants to revive consumption, inflation creates a giddy incentive to keep money circulating, as a "use it or lose it" philosophy prevails.

"If you make less than a quarter million dollars a year, you're safe"

2008-11-04T03:47:00.000-08:00

In a potentially deflationary environment with a 4% twenty year t-bill rate, it is preposterous to think that raising the income taxes on the top 1% of American earners will yield enough money to address the eleven trillion dollar debt that was established during the period when the American upper classes effectively quadrupled their assets. The truly wealthy are buying tax free federal bonds, and preparing to hunker down for several generations of untaxed leisure. Needless to say, the economy will not heal unless consumption is goosed, but increasing consumption through middle-class credit card debt is a non-starter, and the current conjuncture that couples a shrinking economy with a large class of people living on the interest paid by the federal debt will beget coupon-cutting trust fund families who will not contribute to the tax base.

Replacing the income tax with an asset tax would release money into the economy if the people who accumulated money during the consumption boom were forced to spend their money before it was taxed away. Inflation is, of course, an extra-legislative asset tax -- and if it is managed along with inflationary social programs that provide a safety net -- it is difficult to argue with a policy that would encourages reckless consumption among the very people who pocketed the federal deficit during the Bush years.

2008-11-02T08:24:00.000-08:00

And, lest we forget, allow me to remind you that the world is something like sixty trillion dollars poorer than it was a year ago (if we add together the collapsed world equity, commodity and property markets).

As they say on television, "that's gotta hurt!"

2008-11-02T08:21:00.000-08:00

There is a general hope in America that Obama and Axelrod's ability to create a ruthless political machine bodes well for their administrative competence at running the government. Chicago's experience with Mayor Daley suggests that those two factors are not inevitably coupled.

Marcel, the guy with a baguette in his armpit

2008-11-02T08:06:00.000-08:00

One of the mysteries of organizational psychology is the near inevitability of different social roles emerging inside the human ecosystem. If you put a hundred identical people together in a community, with a few months, twenty will be the responsible hard-workers, ten will be the class clowns, and the other seventy will be middling coalition -- willing to do what they are asked, but also eager to avoid work when they can. The extra discipline of the hard workers comes from a psychological oppositionality in seeing their structural superiority to the mediocre middle and the lazy laggards.

In rare cases, an entire organization -- conceptualizing itself in opposition to other organizations -- can defeat this basic dynamic. By structurally situating themselves in relation to other collectives, they are able to be almost 100% productive -- because they have effectively externalized their tribal need to psychologically represent the roles of class clown. This, of course, is the dark fact of racism's social utility -- and the tragedy of racism is not that one community takes its own superiority for granted, but rather that the other community accepts the role assigned to it -- or that the first community uses its power to suppress the second.

In this campaign, Obama and Axelrod have created a campaign of hard workers, and in broader political ecosystem, McCain's organization is unable to claw their way into the top tier, because the ground is so well occupied, with the bizarre result that their own campaign is so slapdash that it can be infiltrated by a pair of Canadian comedians posing as the Prime Minister of France.

2008-11-02T08:03:00.000-08:00

Whoever America chooses as President will age about twelve years in the first nine months, as they have to deal with tragic decisions and choosing the least terrible among dozens of nightmarish scenarios. Needless to say, McCain -- though his younger self might have been up to the challenge -- simply does not have the dozen years of vitality that the job will inevitably deplete.

Behavorial Finance, meet Technical Analysis

2008-10-30T07:57:00.000-07:00

What does it mean for stocks to "test the lows" or "test the highs"? Well, most people are delusional cheapskates and Monday morning quarterbacks. As they follow a stock, they privately imagine that they were the geniuses who traded the highs and lows. "Look at the chart -- it's so easy -- you just buy it here and sell it there!" But when it comes time to make a decision, while the stock is making new lows, of say, 13, 12, 11, and 10, these clowns sit on the sidelines, too terrified to buy. However, once it turns around from 10, and goes to say, 11, 12, 13 -- they tell themselves, "gee, I was so close to buying that stock at 10, but I'm not such a fool that I will pay 13"! But once the stock returns to its downward trajectory, these people support the price at the previous low, because they imagine that they would have bought it at the earlier price, and now that it returns to that price, they feel like less of a chump when they pay it. And that, Virginia, is why stocks tend to bounce off their lows and highs.

Classic Bailout

2008-10-25T04:14:00.000-07:00

If the TARP directly intervenes in markets and artificially supports inflated price levels, one delicious side effect is that CDSes on CDOs will settle at lower prices. Since some folks estimate the CDS:CDO ratio to be four or five to one, this would also reduce the economic fallout for the authors of CDSes.

When to hold 'em, when to fold 'em

2008-10-12T04:20:00.000-07:00

Last week, I was worried that a gambler like McCain would continue doubling down, using increasingly high-risk bets to keep himself in contention for the Presidency. However, with yesterday's change in tone in the campaign, the gambler is folding his hand.

If McCain continues playing the long odds and antagonizes the future President, he would be condemned to an irrelevant future as a United States Senator of the minority party. However, if he can Dole it up, he will still go down as a class act losing to an inevitable force, with the chance to be part of a bipartisan governing coalition.

2008-10-11T06:49:00.000-07:00

After preposterous faux-statistics on the upside, welcome to the astonishing world of bizarre downside statistics. The WHOLE POINT of the market is that it steadfastly refuses to repeat itself -- the existence of the expectation of repetition short-circuits repetition. So, responsible organs of journalism are now using their expertise -- which, as far as I can tell by reading the article, consists of looking at the graph included in the article -- to encourage people sell companies whose ROC : 5 Year Prime Rate ratios are three and four to one, just because they are expected to go down, based on historical analogies. After the markets settle down and we are in for grueling multi-year period of sideways stocks, slow growth, low volatility and low interest rates, people will start appreciating how hard a stock has to work in order to get back the ten percent that people threw away in their panic selling, and they'll look back on their investments and kick themselves.

But here's an idea. To encourage Buy and Hold, online brokerage firms should have an option that shows people the difference between the price where they sold a stock and where it is now, and add it together as money that was left on the table.

Boundless anxiety

2008-10-11T04:37:00.000-07:00

What if the European Union falls, and the different countries go back to their own currencies?

What if a bank in the Cayman Islands or the Bahamas has lent wildly in excess of its reserves?

What does it take for an unregulated tropical bank to fail?

What if hedge funds with loans from undercapitalized, underregulated banks are counterparties embedded throughout the financial system?

As it turns out, the G7 cannot agree to draw a circle of safety around its own banks, so the next phase of the crisis -- collapsing tropical banks that are providing leverage inside the system -- won't unfold next week.

Things will get worse if they get better

2008-10-11T04:28:00.000-07:00

Right now, the Fed is furiously pouring money in the economy to counteract the deflationary pressure of the collapsed stock and housing prices. Fighting deflation hurts people with savings, but it removes the incentive to invest or lend money inside the system, so it makes sense to have an anti-deflationary social policy. But if share prices recover, that extra money in the economy will create inflationary pressures, and the federal reserve policy that counteracts those inflationary pressures will reduce the speed of the recovery.

Remember the Seventies (part 2)

2008-10-10T13:00:00.000-07:00

It cracks me up when twentysomething financial journalists ask whether the despair at the bottom of the recent sell-off means that the bear market is over. Hardly. When people are so sick of stocks that nobody wonders whether the bear market is over, when the thought of owning a stock sends people running to the toilet in nauseated revulsion -- that's when it will be over.

"ha ha" funny, or "it makes me want to put a gun to my head" funny?

2008-10-08T04:57:00.000-07:00

Wouldn't it be funny if Paulson's desire to rid Goldman of a competitor was behind the collapse of the international financial system?

Every man a Philosopher King?

2008-10-08T04:16:00.000-07:00

Most cultural production is just a distraction that keeps people from thinking about the conditions of their existence. From the perspective of Plato's cave, audiences are stuck there, bored, and staring at a wall: diversion keeps them sane.

The difference between "art" and "cultural production" is that "art" leads to transcendence -- a shimmering appreciation of the beauty of the universe -- while "cultural production" can be a pleasant way for a brain exhausted by a long workday to pass some time. From a phenomenological perspective, "art" breaks the structural intellectual habits of one's historical era while "cultural production" reinforces those habits.

The passage of time can turn "cultural production" into "art", because the historicity of a work creates a counterpoint to the Zeitgeist of the current time, and the tension between the two systems of interpretation can undermine one's commitment to the current system of interpretation. In recent years, the marketplace has enhanced the value of cultural production by representing it as art, but cultural production that reinforces the preconceptions of its own historical era will only become art after that historical era has passed.

By telling people that contemporary books and movies are "art", our civilization has stripped real art of its power to counterbalance the cultural production of our civilization. Twenty years ago, people said that Film Studies Courses or teaching comic books at universities marked the end of our civilization -- and that is true insofar as the saving grace of our civilization is our ability to transcend our civilization -- but the real effect of putting contemporary culture on the same level as art is to reinforce our civilization rather than subvert it.

Social criticism -- pointing the relationship between cultural production and power structures -- draws attention to the moment of cultural production, but not the deeper reality masked by cultural production. Social critics can be so consumed by jealousy that they can't conceptualize an alternate reality. Their only truth is that other people are hiding the truth.

The last two weeks have been like a moment in a play where the house lights come on and the actors break character. The show is gripping, but the theatrical spell is broken. Previously solid truths have all the substance of shadows on the wall. Narrative is no longer following its expected path, and nobody knows what will happen next.

We are at a fork in the allegory: Will an enraged lynch mob fall on the performers? Will we find a better show with an even more compelling story? Or will we accept this moment of freedom as a gift and head towards the exit of the cave?