Ben A.
Ben H.

The Elephant In The Room

What's missing from your skeptical posts about Obama is any mention of the current state of the union, the context and starting point for this election. In fact it's missing from about four years' worth of your posts. The Republican party has become odious. It has fucked up the country. We are not voting here from some kind of neutral initial position, with two teams of identical technocrats differing only in their leadership. No: there is one team that is odious and has demonstrated that it harms our country, and there is the other team.

Specific instance of this: "the exuberance of expectations glowing in the breasts of Obamaphiles will not find satisfaction in the reality of an Obama presidency." If you measure that future reality against some abstract, neutral initial position, then no. If you measure it against the reality of November 3, 2008, then any president who speaks English and has a basic grasp of the world will provide plenty of satisfaction. [Doug: 11/4/08 17:38]
Strange Slogan Confluence

The Israeli tourist board has for the last few months taken out the full back cover of Commentary Magazine. It touts Israel as a destination with the slogan "No One Belongs Here More Than You" (clearly, they assume no Palestinian Arabs are reading the ads!) The phrase sounded familiar. A trip to the bookstore revealed where I had seen it before. Is this some sort of viral marketing cross-promotion or straight-up plagiarism? Moreover, using this slogan for a national tourist board is a waste. Clearly, "No One Belongs Here More Than You" ought to tout someplace like this! [Ben H.: 11/3/08 19:21]
I'm Going With Experience

I don't believe that McCain has much to recommend him over Obama. Do we want the cool, level-headed, sharp leftist or the crazy, cranky, unpredictable... uh... non-leftist (I hesitate to call him "conservative")? The main reason I lean toward the latter is that I feel safer in the knowledge that at least McCain would find himself trammeled by large Democrat majorities in the House and Senate.

One thing that I'm pretty sure, Ben A, you'll agree, even as you harbor greater hopes than I do, is that the level of enthusiasm, the exuberance of expectations glowing in the breasts of Obamaphiles will not find satisfaction in the reality of an Obama presidency. I mean that not as a deprecation of Obama's virtues. No human being could fulfil such expectations. What consequences for our political culture will the inevitable crash after the last few months narcotic high bring in train? Perhaps the benign outcome is an overcompensation by way of a descent into thusfar unplumbed depths of cynicism. A worse outcome would have his supporters ascribing his inevitable underperformance of unrealistic expectations to malign phantom conspiracies or to alleged defects of the structure of government. What mischief might unfold in the name of overcoming the conspiracies or the neddlesome, outmoded checks of our constitution?

I guess, what it comes down to for me is that, having had the opportunity in my work to operate in many different political cultures, I don't believe it is healthy for an electorate to freight any politician with such high hopes. A healthy political culture maintains a certain sceptical emotional distance from its politicians. It recognizes the inherent limits on what any leader can achieve and the tincture of roguery that colors even the most earnest candidate. Saints and miracles probably don't exist. The former certainly don't run for office and politicians certainly can't perform the latter. [Ben H.: 11/3/08 17:37]
The Triumph of Hope Over Experience

The title refers not only to my election prediction, but also to my own response to Barack Obama. The truth is I should be much less pleased. Past example demonstrates that almost all “fresh face” candidates disappoint. My own history tells me to distrust the instincts of any man acclimated to the left-wing swamps of Cambridge or Hyde Park. And even were Obama eager to transcend his machine-politics background, he comes into office at the head of a party at its core the political instrument of public sector unions. Experience teaches, therefore, to expect an Obama administration to bring with it a decline of American power abroad and at home a concerted effort to recast the state-citizen relationship as patron-client. A distasteful, dispiriting, and potentially dangerous combination.

With this said, I nonetheless view the prospect of President Obama with close to unalloyed optimism. There’s something about the man – or, more likely, the masterful way he has presented himself – that gives me hope. Hope for a transformational presidency. Hope that the story we will hear over the next eight years will not be the story we should by rights expect. Hope that I will not look back in four years and think my optimism foolish.

[And just to be clear, I am voting for McCain] [Ben A.: 11/3/08 03:12]

[Ben A.: 11/2/08 17:19]
ar(change)l [Ben A.: 11/1/08 07:54]
Senator Levin not beginning to grasp Obama's mandate: to be chief messenger of God (9) [Doug: 10/31/08 18:35]
Photos Mostly From Loir Valley

[Doug: 10/31/08 16:32]
Have They Not Done Enough?

Just when you thought the Bush White House could do no more harm, this WaPo piece shows up, detailing its final push to pay off its benefactors with new regulations, deregulations, and such. At the expense of the environment, naturally. I understand that politics is all about money and you've got to give back to the people who bankroll you. But this executive order calling for "salting the fields?" That just seems gratuitous, guys. [Doug: 10/31/08 06:12]
Unappreciated Resources That Could Help End Housing Slump

It is Detroit's long tradition for its many hooligans to set fire to its many abandoned homes around Halloween. Community organizers -- curse them! -- are leading an effort to stop this. Rather than treating this tradition as a nuisance to be squashed, we ought to recognize the positive role these hooligans could play at a time when a glut of McMansions has screwed up the housing market. Why not bus the hooligans to Florida and Arizona for a weekend of fun? [Doug: 10/30/08 08:07]

Our friend J-S invited us down to his family's place in the Loir valley, a sub-watershed of the Loire valley and my favorite part of France. (It's not too far from where we got married.) His mother lives there in what I would call a stately old manor, though far humbler places are regularly called chateaux. We had great weather and spent a lot of time walking in the gardens. These are so magnificent that J-S's mother gave public tours of them -- in fact we took this tour before we even met J-S -- until her mobility was reduced by a hip problem. During the war, and maybe even before, the estate was set up for self-suffiency. Pretty much everything we ate there (roast chicken, rabbit terrine, vegetables, even the jam on the bread in the morning) originated within 200 yards of the house. It was fun showing the animals to the kid. But I thought it a little insulting to the rabbits to keep right on top of the cage the rusty knife with which they're killed.

Anyway I don't know if things are so bad that autophagy is called for, but it's nice to know that autarky can be so fun and delicious. [Doug: 10/27/08 10:18]
In light of the difficult economic environment, Ben A., now is no time to give up autophagy. [Ben H.: 10/27/08 10:12]
Change I Can Believe In

I bit my fingernails for most of my adult life. This is a filthy habit, and about ten days ago, I decided to stop. Now my fingers end in a set of talons. Will power is a strange thing. [Ben A.: 10/23/08 22:29]
Please Don't Irradiate Me

The concept of limiting radiation exposure to non-cancerous tissue has strong scientific-medical rationale. Recall that lack of hard evidence in this context does not mean that a well controlled clinical trail has shown the methods equivalent, but rather that no such trial has been performed. The matter is still further complicated when the evidence is difficult to obtain. Measuring rare events which are difficult to quantify is a recipe for a failed clinical trial, even if the intervention works. So what do we do when we have strong rationale but no evidence?

The real question, of course, is reimbursement. If some guy with prostate cancer thinks wants to spend $25K to reduce his chances of impotence/incontinence by some unquantifaible amount, what's the damage? Some people spend $25K to buy an Audi instead of a used Honda. Whether we, the American people, should pay for such treatment is another matter entirely. This seems like a classic example where the patient should bear the cost until some measure of benefit has been proven (and maybe even beyond that). Ultra-premium medicine only breaks the bank if we guarantee it to everyone. [Ben A.: 10/23/08 16:34]

The Caneton Montmorency (duck with cherries) recipe in Julia Child, which I finally made, for Dao's birthday. It's less difficult than its complex recipe-nesting structure (recipe references master recipe which references two earlier recipes) would suggest. Certainly easier than her moussaka which I mentioned two years ago. The hardest part of duck with cherries may be finding the duck and cherries. Find frozen sour cherries. A masochistic urge just sent me to the Julie/Julia blog to see if that blogger mentions this recipe -- masochistic, because I know what a bad writer she is. She did indeed make it. Her estimation of the dish accords with mine ("Good good with capital letters") and I salute her for making the homemade potato chips that Jula advises as an accompaniment. But here too her prose bites the big andouille. Really her project was the most atrocious case of good idea/poor execution since that Lovecraft/Wodehouse mashup Ben A found. And what punishment does she get for her industrious mediocrity? A movie deal, naturellement. [Doug: 10/23/08 16:04]
Was it Oscar Wilde who wrote that, "a cynic knows the price of everything but the value of nothing"? I know few people who doubt the cynicism of our political glass. That being the case, you would think our leaders would not hesitate to put a price on life, regardless of its transcendant value. Why haven't we seen more proposals to put a hard limit on what insurance companies can be expected to spend in order to save a life? [Ben H.: 10/23/08 15:16]
Health Care In America

My favorite American health care story is this one, which I don't think I linked to when it appeared in the Times a while back. It is about $100 million proton accelerators designed to treat prostate cancer (I am not, as Dave Barry would say, making this up) despite the lack of hard evidence that they work better than other treatments. Presumably pressure is building to force insurance plans to cover it. Hey, I've got an idea for heart-disease patients -- a daily teaspoon of ground two-carat diamonds. There's no clinical evidence for it yet, but come on, diamonds! [Doug: 10/23/08 12:03]
The sad thing is that if the alternative was for the woman to stay in the hospital, the Carlyle plan probably proved a money-saver! [Ben H.: 10/23/08 06:16]
The truly heart-warming thing about this is that it will soon be covered on everyone's health insurance. [Doug: 10/22/08 08:34]
Iron Chef, Nov. 4 Episode

We'll be throwing a dinner party in which the main ingredient of every dish is arugula. Bring your own chardonnay. [Doug: 10/21/08 14:15]
My Career Track

I've been freelancing recently for a start-up (internet-enabled teddy bears). My task is largely to clean up the mess created by the Filipino freelancers who were initially hired to make the internet part of the system. My previous client was also working with a mainland Chinese freelancer. They used a platform called oDesk that allows you to manage your third-world team easily, handling just about every task short of English-Tagalog translation. If you want to see which way this trend is affecting my hourly rates, click around oDesk a bit. So I don't know what's going to happen if I fail to find a full-time job soon. One scenario I've started envisioning is returning to Michigan, buying a $1.75 house, and becoming an oDesk monkey. I mean, Michigan's economy has been dying for so long it's basically a third-world country with snow. [Doug: 10/21/08 13:54]
End Of An Era Indeed

They've stopped making Zima. A dark day for the "malternative" industry. Of course, nobody ever bought Zima after its original year of novelty. Its only real legacy is the episode where Troy McClure takes Patty (or was it Selma?) to a fancy restaurant and she lights up a cigarette. "Waiter!" says the snide, elitist diner at the next table. "I ordered a Zima, not emphysema!" [Doug: 10/20/08 14:33]
Music to accompany tumbrels' mile-long a.m. race in reverse is trimmed at beginning and end (10) [Doug: 10/20/08 14:26]
A RUGU(L)A [Doug: 10/16/08 14:26]
Overwhelming leadership of liberals ... augur a comeback for this! (7) [Doug: 10/16/08 03:56]
Renewable Energy

You know how engineers are building great turbines to harness the tides as huge volumes heave up and down daily? Maybe they should try that with the stock market. [Doug: 10/15/08 17:27]
Market Update

Shit, it took me an hour to take all those pictures, of course I'm going to milk them!

P.S. check out a commendable blogger who had a similar idea, earlier. I would heckle their live blogging of tonight's debate if it didn't start at 3 a.m. in my time zone. [Doug: 10/15/08 13:42]
Cheney Has Abnormal Heart Rhythm

Oddly enough it's "The Girl From Ipanema" [Doug: 10/15/08 12:38]
Looking For A Job

I'm now looking for a job in earnest. Why do I feel like a musical-chairs competitor who thought he'd just pop over to the drinks table for a quick refreshment? [Doug: 10/15/08 12:18]
A Meal Fit For A King (Or Maybe Ozzie Osbourne)

My parents came to town and took us to a nice restaurant -- a nice, nearby restaurant I wish we'd tried sooner. They had a special fall game menu. As in hare and venison, not tailgate bratwurst. I ordered something I'd never heard of called "lièvre à la royale", or hare in the royal style. If I were into the food-p0rn-blog thing, I would have taken a picture. Under that same hypothesis, I probably would have heard of the dish before, because further web research shows it to be something of a connoisseur's favorite, requiring hours of preparation. The same research shows my guess as to the sauce's enrichment factor -- hare's blood -- to be correct. A tiny ball of lead shot also showed up in the dish. Either this really was game, or the chefs went to great lengths to simulate authenticity; in either case I appreciate it. I'd characterize the dish as intense, and good. [Doug: 10/13/08 12:58]
Hedonic Integration From t = 2000 to t = 2008

What makes my argument all the more powerful is that Snakes On A Plane must count as some sort of hedonic Dirac delta function. [Doug: 10/10/08 16:29]
Economic Policy and Hedonic Integration

Professor Benjamin Friedman of the Big H has written the book on this topic. [Ben H.: 10/10/08 14:26]
Further Reflections On The Economy

(1) A piece on today about the coming passage of the phrase "quadrillion dollars" into non-science-fiction usage, not quite interesting enough to link to, did remind me of a monetary plan I had for the U.S., as it moves into realms of greater and greater income disparity. Or maybe it is better called a currency plan. The idea is that, to make wealth and income disparities seem smaller, our currency system should not be additive but logarithmic. Today you have a billion dollars, and I only have a thousand, and that peeves me. But tommorow you will have nine L-dollars, and I will have three, and that's not such a big difference, is it? I feel better already. The only the downside of my plan is that you will need a slide rule to go to the supermarket.

(2) People are all like, what a catastrophe, over the last eight years we've had the worst economic stewardship in history, boo hoo hoo. But (and I'm sure Ben H has had a more refined version of this thought) you've got to integrate your hedonic level over time. Over the last eight years even the humblest Americans have enjoyed big cars, huge McMansions, monumental televisions. Take me: factor out my mathematical pretensions and I'm really just a web monkey. Yet my television is of potentially infinite size -- it is a high-definition projector, and I can aim it at objects arbitrarily distant. Integrate this kind of enjoyment over eight years, and the fact that our retirement accounts have disappeared seems paltry by comparison. [Doug: 10/10/08 13:44]
Growth Sector

So, next month when we've all reverted to bartering, I think it will make sense to rehabilitate the old pneumatic tube system in New York. It's kind of like the internet -- you order stuff online and it arrives at your home or office -- only instead of putting in your credit card number, you put in, say, three potatoes and a bolt of cloth. [Doug: 10/10/08 08:46]

That's another example of how hard it is to improve ourselves, of how little control we exert over our habits. It took me three or four years to break my internet Scrabble addiction. And I didn't do it with one final push of willpower; one day it just occurred to me that I hadn't played in a very long while. Maybe it was the cumulative effect of small, individually weak pushes of willpower. Or maybe it was just random chance. [Doug: 10/10/08 08:43]
Taking Politics Out

Of ones' life, that is.

I have been attempting this election season to spend less time thinking about politics and less time reading about it. The effort has not been successful. Rapid separation has been frustrated by my long-standing affection for John McCain and my half-benign half-incredulous amazement over the rise of Obama. continues to exert an evil magnetism.

But I have grown more conscious of the tiresomeness of politics, how intolerable it makes conversation and thought. Increasingly I find explicitly political venues offenses against good taste. At worst, they resemble Boston sports radio, if the subject were religion and the hosts Torquemada and John Calvin. Even when they are not jarringly stupid, they stink of clannishness, of personal and class dislike barely disguised. And while I can pretend distance and disengagement, I know that I have become infected. When I hear talking points X, Y, Z -- especially, the mendacious, outrageous Z! -- I can instantly riposte. Who the hell wants to hear that? Who wants to be part of this conversation in the first place? [Ben A.: 10/10/08 03:31]
William Butler Yeats Offers Advice to the American Left

Parnell came down the road, he said to a cheering man:
‘Ireland shall get her freedom and you still break stone.’

[Ben A.: 10/10/08 02:39]

When I want some heart-warming news about the American economy, I connect remotely to the database of a site I rent for work purposes. It's on a shared server, so I have to scroll through about a hundred other people's databases before getting to mine. And it's really a unique snapshot of modern small business. People certainly seem to be full of ideas and energy! Check out a random sample of other database names preceding mine: 365petals, ablerank, americanlambstaging, argosyinvestors, asthma, audiorage, bearriverconverters, careerimages, cbsbeauty, cooshstore, coredinations, dalagerengineering, dentistdata, familytree, geektrainer, hookairz, limitlessness, packagingarts, pureecstasy, schwcandies,

If only I had root privileges to look inside some of these! Especially americanlambstaging. [Doug: 10/9/08 16:52]
My father points out that I beat MSNBC to the punch. [Doug: 10/8/08 15:06]
Market Levels and Reflexivity

Imagine that the S&P500 were trading today at 1200 (instead of 1000) and that fair value is really 1000. And further assume that other market prices (say US investment grade credit spreads) are roughly where they ought to be for current actuarial estimates of future economic developments and today's price of risk. Clearly, the S&P500 needs to adjust relative to those other market prices. Yet, what do you think would happen to those other market prices while the S&P500 undergoes its adjustment? They would get drilled. The process of adjustment, though necessary to bring the index to fair value, would push other prices away from fair value. The adjustment process feeds back into the overall price of risk. This reflexivity makes adjustments unstable.

Let me suggest that part of the problem these last few days relates to the reflexive properties of price adjustment. Many people wondering, as credit markets got killed over the past few months, why the equity market was holding up. My theory: expected inflation. Equity prices are nominal values. If the market expects higher inflation, for a given set of expectations of real variables, stock prices will trade at a higher level. Recently, it has become apparent that inflation estimates have been way too high. We're heading into deflation. Therefore, the nominal price of stocks needs to fall. The problem is that as these stock prices try to fall, they cause further disruption to other markets via the confidence channel (i.e. effect on price of risk). We're locked into a bit of a Catch-22. Now, in certain circumstances, there can be real channels of reflexivity. For example, if every household in America has borrowed a huge amount of (nominal) money against stocks, then a drop in (nominal) stock prices will cause real damage. I don't think, though, that's the issue here... [Ben H.: 10/7/08 17:08]
Pure genius. Just sell those images to Corbis and retire on the royalties. They are going to get used again and again and again in coming months. Speaking of media cliches, do you recall when the Dow crossed 10K for the first time, some years ago, Merrill took out an advertisement in the Wall Street journal offering "congratulations" to the financial market on that important milestone on the way to 35K and the Sounding of the Trumpet. I was wondering recently whether Merrill -- whoops, BofA -- was going to take out a similar advertisement as the Dow crashed down through 10K, perhaps offering expressions of disappointment in market participants' unforgiveable pessimism. [Ben H.: 10/7/08 16:41]
Stock (-Market-Crash) Photos

One of the hardest tasks of the business-section editor, whether in print or online, is choosing the right stock photo of a trader to accompany a "market tanks!" story. It all depends on the magnitude of the crash. Herewith, some guidelines.

For a 1% fall, the face should simply express concern.

Markets Fall 1%

(Reuters, Oct 7 2008)

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At 2%, the hand should more visibly support the head, to give a physical sense of the intense cogitation required of our traders at this point.

Markets Fall 2%

(Reuters, Oct 7 2008)

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When markets fall 4%, you want to convey that things are so serious that immediate action is called for -- a trader yelling into a phone is a good call here.

Markets Fall 4%

(Reuters, Oct 7 2008)

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At six percent, you want to show that no earthly action is going to stem the tide of losses -- get the trader looking wearily upward at about a 20 degree angle, at the "Big Board", or at The Sun Potentially Setting On An Era, or something.

Markets Fall 6%

(Reuters, Oct 7 2008)

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After the eight percent crash, even hope of salvation from above is extinguished: get the trader looking downward, with the double-hand migraine maneuver. (Ben H, I'm sure you can do this one far better than I can)

Markets Fall 8%

(Reuters, Oct 7 2008)

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At fifteen percent, go for pure daze.

Markets Fall 15%

(Reuters, Oct 7 2008)

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At 25 percent, I think "feral" is the right call.

Markets Fall 25%

(Reuters, Oct 7 2008)

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And when the sovereign funds repossess the entirety of Wall Street, well, anything goes at that point.

Wall Street Repossessed By SWF

(Reuters, Oct 7 2008)

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[Doug: 10/7/08 10:46]
And the government gets a clue! Fed just announced creation of a Commercial Paper Funding Facility... maybe they read this blog. Or maybe they just decided that sometimes the obvious step is no less important for being obvious. [Ben H.: 10/7/08 09:11]
Good link. It goes without saying that I recognize myself in that article. I was about to join in by sharing my own anecdote of Gilded Age obscenity -- until I realized that I already did so, not long after the event occurred (scroll down a bit to where it says "Warning to people in their mid-to-late-20's").

One thing I will add is that I hope S.Y., a recent Harvard grad we met here in Paris, didn't take the advice I gave her several months ago at a local creperie. The conversation went something like this.

S.Y: I'm not really sure what field I'm going to go into.
Me: Finance.
S.Y: A lot of friends are doing that, but I never really had any ...
Me: Finance.
S.Y.: Seriously, the interest in it never ...
Me: Finance.
S.Y.: But ...
Me: Look, you're young and you don't understand these things. Actually, I don't understand them either, in the sense of being able to explain how and why they work. What I know is that you shall go into finance. If you refuse, out of some willful perversity, you will end up like me.
[Doug: 10/6/08 15:18]
The New York Times, Explained in One Article

Here [Ben A.: 10/6/08 14:54]
Dude, that's my fallback job plan! You should see my "head-in-hands-eyes-wide-open" look. It can make 9 out of 10 retail investors who see it liquidate in panic. [Ben H.: 10/6/08 13:58]
You know what job I think I would be good at? Posing with a look of despair and/or consternation in front of an LED stock ticker, so that newspapers and websites can have pertinent photographs on days like today. I even own a suit. [Doug: 10/6/08 13:51]
He's probably holed up in the Oval Office, chuckling that thanks to his election, he wasn't allowed to trade the equity market! Or perhaps he is ruefully shaking his head at how people who know very little about finance are blaming him for the a mortgage problem that originated with the CRA "reform" bill of 1995 and the defeat of his own attempts to impose a tighter leash on Fannie Mae and Freddie Mac in his first term!

Anyway, he tried to limit the damage of this crack-up -- keeping his own unpopular ass out of the spotlight and sending out Paulson to lead the effort. I think the problem has gone beyond anything to do with mortgages now and is a classic 19th century style money-marked panic -- straight out of Bagehot's Lombard Street. It has also spread beyond the US and has showed that excessive (and to a certain extent, unexpected) leverage crept into financial systems all over the world. The solution will have to be multilateral... [Ben H.: 10/6/08 13:18]
The internet keeps telling me there's some sort of worldwide catastrophe going on. Where's that guy, whatsisname, the one you two helped elect a few years back? Does he have something to say about this? [Doug: 10/6/08 12:16]
The furlongs of Rolos did not lie! [Doug: 10/6/08 11:05]
The Spreading Crisis

I wrote up a piece last week about EESA and TARP, but never got around to posting it. Developments have outstripped its predictions anyhow. One point from that piece worth mentioning now, though, is that Congress really vitiated the power of the TARP by voting it down once. The TARP's main immediate effect is confidence; confidence is easier to preserve than restore. That first negative to the bill destroyed a lot of confidence that its ultimate passage couldn't restore -- to the point where the TARP went from moderately helpful but suboptimal measure to totally inadequate. Here's an analogy. A guy starts suffering a heart attack. Now, he eats a notoriously unhealthy diet. As he gasps on the floor, the doctor runs over to his refrigerator and pulls out all the butter and replaces it with broccoli. Sure, the guy needs to clean out his refrigerator, but that's a matter for after you deal with his acute heart-attack. The US financial sector has a lot of crap in its refrigerator, but right now it is suffering a heart attack. WHat needs to be addressed is the utter breakdown of the short-term financing market. The government should be working on facilities to buy short-dated commercial paper and to guarantee interbank deposits. Then we can debate about whether TARP or recapitalization is the best way to deal with the banks' longer-term problems.

An Imagined Future

As the markets have gone haywire, I try to keep the mood somewhat light in the office. I tell my analysts that someday they'll be able to tell their grandkids about these days (forsan haec et ille and all that).

Kiddies, many, many years ago, your Grandpa worked at a hedge fund during the Great Crash. Banks that had stood for decades saw their worth evaporate overnight. Credit disappeared, and people wanted only ready money

Two weeks ago, I joked the kids would ask: "Grandpa, what's a hedge fund?"

Last week, i joked the question would be: "Grandpa, what's a bank?"

Today, I joke that the question will be: "Grandpa, what's credit?"

Tomorrow, I suspect it will be: "Grandpa, what's money?"

[Ben H.: 10/6/08 07:43]
Room 257

The Times has a story today about Room 257 of the Manhattan Municipal Building, where city employees marry couples. It was a more or less open secret that, despite our ceremony in France, the legally binding part of our marriage actually happened in that room. The story says that Bloomberg, unhappy with the shabbiness of the place and the rush of the transactions, has succeeded in moving the operation to a grander setting. (The Times timed all 51 "ceremonies" on a typical day, and found that they lasted between 48 seconds and 2 minutes, 32 seconds; our own certainly fell within that range.) New Yorkers will thus be treated to a better wedding "experience". I don't know about Dao, or our witness Shannon, but I thought the experience was great as it was. My memory may be slightly cloudy but I don't think the words "bada bing bada boom" would have formed part of our ceremony anywhere else. [Doug: 10/5/08 08:57]
Another Confession

Not once in my life have I had any interest in any aspect of the Ted Hughes/Sylvia Plath thing. Nor in either person individually. [Doug: 10/3/08 12:41]

I can't pronounce Ahmenijihad -- or whatever; I can't spell it either.

P.S. forgot to say -- S+WA+M and S+MO(KINE)SS [Doug: 10/3/08 04:31]
The origin of many a golf game: suddenly stopped functioning: in the toilet!? (7,6)


... or something like that.

Incidentally, Ben A, I hope you took advantage of the English dailies for cryptic practice. I neglected to recommend the Telegraph as a source of non-expert-level puzzles. The Times of London, on the other hand, regularly kicks my ass. [Doug: 10/2/08 15:59]

I hope that you guys have respectively had a good time in Europe and maintained sanity and solvency at work. We had a great though short time in England. Evidence:

On the Eurostar

On the Eurostar

At Naya's birthday party, in Naya's old dress

With Naya

Hampstead Heath

Hampstead Heath

[Doug: 10/1/08 12:50]
Dumping on the TARP

If JPM and Citi intended to make good their purchases of WaMu and Wachovia through that strategy, they made a high stakes poker bet. And Congress has just ensured the banks are holding a busted flush! [Ben H.: 9/29/08 15:08]
Another One Bites the Dust

Today's bank dead-pool winner: Wachovia! Not as clean an exit for the tax payer as in the case of WaMu, but all things considered, not so bad. Wachovia, though its disastrous acquisition of Golden West Financial last year, had the nation's biggest book of option-ARMs. Citigroup has taken Wachovia's banking operations for a nominal sum. Once again, depositors are made whole. However, unlike in the case of WaMu, senior and sub-debt holders also get rescued by the acquirer. On the other hand, the FDIC does have to take some risk in this trade. On an identified pool of around $300bio of assets (mostly mortgages), the FDIC will relieve Citi of any losses beyond $42bio. The probability of that loss intensity is remote, but not impossible.

Still, if we now have WaMu and Wachovia out of the way without any cash outlay from the government, we are doing a heck of a lot better than I would have hoped for a couple of weeks ago. And it does make me question whether the form that the bail-out bill has taken really makes sense.

Of course, perhaps JPM and Citi made their acquisitions fully intending to dump most of the acquired assets on the Treasury... [Ben H.: 9/29/08 12:49]
Debate Wrap-up

I never should have put "'Wall Street' and 'Main Street' in the same sentence" into our debate drinking game. Ugh.

[Ben A.: 9/27/08 08:21]
WaMu Deal: Does This Merit a Bail-out Reconsideration

The market had long singled out WaMu as perhaps the biggest disaster among US depository institutions. The bank had plunged aggressively into option-ARMs (a particularly risk form adjustable rate mortgage)at precisely the wrong time. After a spate of mergers, its systems remained a jumble, its branch network had expanded like kudzu, but the branches themselves were designed mainly for mortgage origination. Most, for example, did not even have vaults. So how did this disaster unfold? What ungodly sum did WaMu's mistakes cost the US taxpayer? Curiously, nothing. OTS intervened the bank (banks, really, as the holding company had three banking subs) and appointed FDIC as administrator. FDIC immediately turned around and transferred all WaMu's deposits along with its assets (that supposedly horrible mortgage book) to JPMChase; that institution paid FDIC $1.9bio for the privilege. Shareholders and sub-debt-holders will get nothing. Senior debt holders will have recovery that, in the case of holdco bondolders, might reach as high as par. So, here's my question? If the most hideous zombie bank could fetch a buyer willing to pay cash and assume all the deposit liabilities, in exchange for getting its assets and branches, how bad is the underlying situation of the banking system, really? Clearly, funding pressure is intense. Risk aversion is off the charts. But this phenomenon can arise from pure psychology. JPMChase doesn't face funding pressures and has the confidence of the market. Therefore, it can regard the situation of a WaMu soberly. In this respect, it can consider the situation not unlike the managers of the Treasury's putative TARP facility might. Now, if Citibank takes out Wachovia, you'll have two of the scariest situations disposed of without government intervention. How close at that point would we be to having calmed fears about the most apocalyptic outcomes for the US financial system? Would the TARP even prove necessary anymore? [Ben H.: 9/26/08 18:43]
Starting from Seattle, Washington Mutual’s head went underwater (4) [Ben H.: 9/26/08 15:27]

[Ben A.: 9/26/08 11:33]
No Comment, Ye Scurvy Dogs!

Somali officials say the pirates are growing in numbers, with more than 1,000 gunmen at their disposal, and they have evolved into a sophisticated organized crime ring with their headquarters along the rocky shores of northern Somalia. There is even a pirate spokesman (who could not be reached on Friday).

Speaking of spokesmen. [Doug: 9/26/08 11:09]
British bank found on islet of viscous soils (8) [Ben H.: 9/26/08 11:05]
Washington Mutual Goes Down

A Woo-Hoo Moment of silence, please. [Ben H.: 9/26/08 09:32]

And in the time I spent figuring that out, I've missed out on $1mio of PNL at least... [Ben H.: 9/25/08 14:17]

that's the spirit! [Doug: 9/25/08 13:37]
Here's one (never as elegant as Doug's, but give me credit for effort!)

Suffer amid bout of risk-reduction? (7) [Ben H.: 9/25/08 12:20]
E(ARM)ARK [Ben H.: 9/25/08 12:14]
word. [Doug: 9/25/08 11:44]
UN Week!

I won't repeat my general complaints about the UN General Assembly plenary that takes place in NYC every September and brings gridlock in its wake. Rather, I'll note some of the specific instances of this year's fun. Police have set up barricades in front of our building and directly across the street every day this week. Our side of the street serves as the designated protest site for anti-PRC Falun Gong adherents. The other side has been occupied by a smaller group of red-flag-waving defenders of the Chicoms*. Falun Gong's metaphysical claims may be bunk, but give credit to their breathing exercises. The chant leader has gone on unflaggingly for 8 hours a day since Monday. From up here, it sounds mostly like "blah, blah, blah, blah", but still it's impressive. On the other hand, I can see how the Chicoms might find these dudes annoying.

On a somewhat related note, I will propose to them the following all-purpose chant:

Hey-hey, ho-ho, these two iambs have got to go!

*Overall, this is only slightly worse than last week, when both sides of the street played host to a Gossip Girl film shoot and the GG camp-followers. The latter blocked the sidewalk between my building and the informal exclusion zone the GG production assistants established in front of the stars' trailers. I discovered this zone by crossing it in my apparently outrageous attempt to go from my office to the subway. The production assistant in turn discovered that traders are perfectly comfortable using the c-word at high volume when frustrated). [Ben H.: 9/25/08 11:01]
I don't think you'd hear Paulson or Bernanke use the term "bailout." That's more the press's and politicians' doing. One can't contradict them outright, though, because Paulson has not given sufficient detail on how Treasury will determine the prices it will pay for the assets it buys. There is some chance (low, I presume) that Treasury will pay over even actuarial value. Also, it's evident that the point of the TARP is that the prices Treasury will pay will indeed exceed market "fire sale" prices, which does represent a kind of subsidy, albeit one that take the form of the government not making as much money on the trade as it could if it screwed the banks to the wall. The theory, of course, is that the broader cost to the economy (and hence the fisc) of the disorder from a fire sale would be higher than the gain from paying the lowest achievable price.

[Ben H.: 9/25/08 06:06]
Dedicated Federal funds for electronic weapon -- that thing that shot out lightning bolts in the Indiana Jones movie (7) [Doug: 9/25/08 05:28]
Why is the Paulson plan universally called a "bailout" then, and not "a wise large-scale investment by the US government"? The P.R. would seem to have been horribly botched. Maybe the White House has simply forgotten how to present arguments that are true. [Doug: 9/25/08 05:22]
What really bothers me about the TARP? The idea that some financial institutions may on account of this facility survive, even though they are very poorly run. Badly run institutions need to die. The resources they tie up ought to migrate to other institutions that can better manage them. The irrationalities they introduce into the market must end. Do we really want WaMu around to distort the mortgage market and property market by offering unqualified buyers negative-amortization mortgages? Paulson needs to show me how the creative destruction is going to happen under his plan... [Ben H.: 9/24/08 17:49]
Something barbecue connoisseurs require: suppliers of beef wrapped in bit of Spanish moss? (9) [Doug: 9/24/08 17:04]
That's the difference between consumption spending and investment spending. The Treasury is going to buy $700bio dollars of mortgage-backed paper which, marked to realistic actuarial assumptions of cashflows and discounted at the Treasury's borrowing rate, are worth very close to (and perhaps more than) $700bio dollars. The government will not have to resort to printing money (that would indeed be quite inflationary), because the Treasury will be able to borrow the necessary resources. The Treasury's ability to borrow will not be fatally compromised because investors see that the money is being used to buy assets that have some value. As those assets turn into cash, the cash will pay down the Treasury bonds issued to pay for them in the first place. To pay for healthcare for all (assuming that it is not a funded scheme) would probably cost more like $700bio per year and in perpetuity. THat rightfully scares the poop out of the bond market, because it implies constant issuance of debt with no prospects that the stuff bought with the money will generate resources to pay back the debt. As a result, the probability that the government might someday have to resort to the printing press goes up and inflation expectations increase. Higher inflation expectations tend to push up current inflation. Moreover, spending on health care generates demand for finite real resources, potentially beyond the economy's potential for aggregate supply (in contrast, buying mortgage-backed paper creates no direct demand for real resources). Hence, free health care for all would likely be immediately inflationary. [Ben H.: 9/24/08 17:02]
As always with macro- (or indeed with micro- or meso-) economics I defer to Ben H's judgment. Assuming he's right, and that a trillion-dollar Wall Street bailout will have no real effect on inflation, doesn't the question then become this: why haven't we been treating ourselves to lots of other trillion-dollar goodies? I bet for a trillion dollars you could build a train to take you from Manhattan to JFK in 30 minutes. And a 2nd Avenue subway line to boot! You could also carve a hundred giant mesas in Nevada into ziggurats shaped like Devo's headgear. I don't want to overstate the value of the latter plan, but I mean, if there really is no downside to printing the dollars that would pay for it, why not?

More fancifully, you might give every American citizen access to doctors and medicine. But I gather, from the fact that I hardly ever hear this idea mentioned, that there must be something intrinsically louche, dirty, about it, as though you were proposing a national p0rn0graphy fund or something. [Doug: 9/24/08 10:19]
Yes... another way people talk about it is as "physical probability" or "physical distribution", as opposed to "risk-neutral probability" or "risk-neutral distribution." In our world, a bond, for example, should never trade at its physical/actuarial probability of default, but at higher probability that takes into account the market price of risk. Quite a lot of senior asset-backed paper trades at prices that imply 15-20% returns assuming very adverse delinquencies and foreclosure losses. Even if the government bought this paper above market prices (so long as it is below the security's actuarial value, discounting at Treasury yields), it would likely still make money. Of course, you could argue that the government could have bought them at the market price of risk and made more money, but from a pure accounting perspective, it's still a money-making trade. [Ben H.: 9/23/08 17:56]
The Definition Of Actuarial

Am I right to understand here, Ben, that when you use "actuarial" to describe a security, it means some kind of probabilistic calculation of what that security's future payoff will be (based on the contract that defines the security), as opposed to what the market will currently offer for it? [Doug: 9/23/08 15:43]

You guys need to step up. Try this &-lit --

They typically radiate in all directions a considerable amount of mendacity! (9)

Starts with S. [Doug: 9/23/08 15:13]
[Doug: 9/23/08 12:52]
Distinguish short-term inflationary from long-term inflationary effects. In the short term, the Treasury will have no trouble issuing paper that soaks up whatever excess money is pumped into the economy by the purchase of mortgage paper. Bills were trading inside of 10bps! Right now, the market demands too much government paper. In the long term, the plan could be inflationary, if, like any other government spending program, it pushes the fisc into such deficit that the only way out is via the inflation tax. The long-term fiscal impact of the TARP remains quite uncertain. Mortgage paper all trades like dog shit right now, but it isn't all dog shit actuarially speaking. We see some really great buys -- paper we think is probably money-good trading at mid-teens yields. If the Treasury buys at knock-down prices, or takes warrants on the banks that access the TARP, the program could over its life-cycle make money for the government. Even if the government overpays, the assets it buys won't be worth zero. So $700bio is not the right number to look at; rather, the worst case scenario runs to substantially less. We're talking maybe 2-3% of GDP. Social Security and Medicare are multiples of that. If we're heading to Zimbabwe territory, we got on that highway when FDR and Lyndon Johnson were driving! [Ben H.: 9/23/08 06:12]
Peter Schiff, president of Euro Pacific Capital, said the fear of inflation provoked by the $700 billion plan -- without figuring out a way to pay for it -- was behind the market's dramatic movement.

"Where's the tax increase to fund this bailout? Where is the cut in programs? The government's not doing either -- they're just going to print money," he said. "And if you think inflation is the answer, take a trip to Zimbabwe and see how it's working for them."

My friend, we're going to make Robert Mugabe look like Milton Friedman! [Doug: 9/23/08 05:57]
I find myself in the unwonted position of agreeing with Chris Dodd. It makes sense for the government, as the only entity with the requisite balance sheet size and staying power, to set up a facility for buying market-less mortgage paper. However, it is entirely unfair that the government should do so without getting equity upside from the institutions helped -- no, rescued -- by the intervention. The Paulson plan will indeed unclog the balance sheet of the banks. So, too, would simply giving them money no questions asked. But the bailout package needs to be narrowly tailored to achieve its aim -- stabilizing the financial system and getting lending going again -- without introducing unnecessary distortions or tempting opportunities for corruption. Right now, financial institutions are paralyzed with uncertainty as to the market value of their mortgage-backed paper. They have some idea of its actuarial value. The market value could fall well below actuarial value, for example in in the event a bank has to carry out a firesale of paper, due to bankruptcy or distress. If the government can put some certainty as to the floor value of the paper, it would go a long way to solving the problem. To do so does not require buying all the paper; rather just the paper that banks need to sell, due to their own weakness. If a bank reaches this degree of weakness, though, the shareholders should take a hit. THe government should get dilutive warrants from any bank it has to assist with a bid for mortgage-backed paper. Sure, this would deter banks from seeking this assistance. But the plan will work even if most banks don't avail themselves of it. All that needs to happen is that all banks feel assured that asset value won't get torpedoed by a fire sale.

The current plan will buy garbage from everybody, more or less indiscriminately. It will leave the government (and hence the taxpayers)without any claim on the upside created by the commitment of taxpayer money. That's unfair and ultimately dangerous. [Ben H.: 9/22/08 18:31]
I say we build a huge fleet of space battleships and go to the Andromeda galaxy and take our fucking money back from that dancing alien.

We can give the CEO of Boeing a trillion dollars and unfettered authority to design and build the fleet.

And if in the end the ships don't fly, well, no hard feelings, at least you gave it your best shot. [Doug: 9/22/08 13:18]
The market is going down again, WTF? Hey, I want the government to buy my mutual funds at their price back when the Dow was at 14,000. You guys know a lobbyist I can call? [Doug: 9/22/08 09:49]
I feel so old ... I can remember when a trillion dollars was a lot of money. [Doug: 9/20/08 12:42]
Got A Problem? US Treasury Can Solve It!

The Treasury is apparently now guaranteeing all money market fund deposits. Wait -- some more headlines now coming across the tape!

[Ben H.: 9/19/08 07:49]
Tell me about it! No shorting of financial stocks? What are we, some kind of banana republic? THat's what places like Nigeria and Russia do when confronted with dropping stock prices, and we mock them for it. Our GC spoke to two Senators from the Republican side last night and both said that this was championed within the Senate (i.e. Senate support for Cox) by Hillary and Schumer, at the behest of GS and MS. Disgraceful. The irony is that we have tons of data on short trading and short trades as a percentage of volume actually ticked lower than normal in the last week. GS and MS are not under attack by short sellers, but rather by owners of the stock. They've come to realize that massively leveraged speculation in illiquid assets does not work in markets such as these. [Ben H.: 9/19/08 06:01]
We are all Jerome Kerviel now. [Doug: 9/18/08 12:46]
The Latest In Metaphysics

A paper called "Bergsonian Dynamics" in which I show how recent advances in mathematics can resurrect the once-famous Bergsonian philosophy, solving a bunch of otherwise intractable philosophical puzzles in the process. Bergsonian Dynamics in PDF (the images are bitmapped and thus a bit fuzzy), or in postscript (.dvi) format on the off chance that you have a postscript reader. [Doug: 9/18/08 07:04]
Thanks for that, Ben. I'm not sure whether to buy or sell but I feel like I have a better idea what's going on. On the metaphysics front, I really should link to my latest attempt to sketch neo-Bergsonism. Gotta patch some things up with the paper first. On the leadership and leadership from below front, I've helped out my friend Trond Arne Undheim with a site called Leadership From Below, which is all about leadership from below. He did not take my advice and call his book "Leadership Notes From Underground". Hopefully he found some of my other suggestions helpful. Note that any resemblance to my old proposal for "The Prosperity Pentagram" is purely coincidental. [Doug: 9/17/08 11:33]
Falling Down on the Job

Sorry that I've been rather silent on the financial crisis. After all, when drug companies make news, Ben A reliably chimes in; and when there's an upheaval in metaphysics, Doug is on the case. Unfortunately, I've been spending my days dealing with some of the administrivia of investment bank failures.

I do have time for a couple of very quick thoughts:

Lehman Brothers: Letting it go was the right call. That's so, even in light of the Bear Stearns deal. Think of the financial turmoil as a forest fire. Bear was the little house at the edge of town. Douse the flames there and perhaps the rest of the town is spared*. Lehman is modest private house closer to the center of town, but now the town's already on fire. There's no particular reason to expend resources fighting this fire. I also believe that to the extent that Lehman actually gets worked out in a reasonably orderly fashion, it's a very bullish outcome. Market participants have lived in irrational fear of i-bank failure, because they can't imagine how it will work out. Once they see that counterparty exposures can be unraveled without the whole system unraveling, they will face future Lehmans much more calmly. And no i-bank will believe that it can hold the system hostage by pointing a gun at its own head. So far, the signs are pretty good. The good businesses at Lehman are getting bought, the counterparty exposures are getting marked and closed out (in our experience, they were well-margined), etc.

Fannie and Freddie: It's a pity the administration didn't kill these vampires while it had a stakes to their chests. Give these consummate lobbyist-mongers even a breath of life and they may well come roaring back. The damage was done back when Barney Frank and Chris Dodd protected them from Richard Baker's reform proposals. This one will cost us all a decent bit. There was no avoiding it at this point, but the least we could have asked for was an end to these nefarious organizations.

AIG: Not a bailout! A great fuckin' trade for the Fed. We were discussing on the desk yesterday how AIG should be handled, and the consensus was to do exactly what the Fed ended up doing. The AIG businesses are worth a ton. This is a liquidity problem and not a solvency problem. The Fed is not only going to get paid back, it will earn 815bps of spread and probably make a bundle on the equity. Well-played! Do you think the Fed will syndicate a small piece out to me??

The End of American Financial Hegemony?: I think not. Check out what's happening the UK's banks (look at HBOS today); in Russia, we saw RTS shut down yesterday after a 20% one-day fall. The Central Bank just had to pump $40bio into Sberbank and VTB (sure, smaller than $85bio AIG, but the Russian banking system is a tiny fraction of ours!), and there are rumors of several brokerages gone bust.

*I didn't like the Bear deal at the time and I think that subsequent events have confirmed it as a mistake. It didn't stop the fire from spreading and it probably emboldened Dick Fuld to hold off from selling Lehman to a stronger partner. That said, my point is that there is a colorable case for having been in favor both the Bear deal and the decision to let Lehman fail. [Ben H.: 9/17/08 06:31]
I want to clarify my position on the current financial crisis. I am a firm believer in free markets, except when people become greedy and try to maximize the amount of money they make. [Doug: 9/17/08 05:48]



Ben A.
Ben H.