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Journal: Some figures on the housing bubble 1

Journal by blue trane

http://www.milkeninstitute.org/pdf/riseandfallexcerpt.pdf provides some numbers:

The total value of housing units in the United
States amounts to $19.3 trillion, with $10.6 trillion
in mortgage debt and the remaining $8.7 trillion
representing equity in those units as of June 2008.

Of the approximately 80 million houses in the
United States, 27 million are paid off, while the
remaining 53 million have mortgages. Of those
households with mortgages, 5 million (or 9 percent)
were behind in their payments and roughly 3
percent were in foreclosure as of mid-2008.

So, say 10% of $10.6 trillion was at risk of default, or $1 trillion.

The notional amount of CDS
increased from less than $1 trillion in 2001 to slightly
more than $62 trillion in 2007, before declining to
$47 trillion on October 31, 2008.

So the derivative market inflated the real value of the mortgages by about a factor of 6, and then magnified the size of the possible default problem by a factor of 15.

I'm reminded of a sentence from John Lanchester's book, I.O.U. (another journal of mine on the book):

"Even once it's explained, however, it still seems wholly contrary to common sense that the market for products that derive from real things should be unimaginably vaster than the market for the things themselves."

Note that the total value of derivatives, according to the May 2014 BIS Statistical Release, was $710 trillion. So the $62 trillion 2007 figure has been increased by a factor of 10, again.

---

The Fed bought up trillions of the MBS assets, thereby letting off the hook the CDS holders who had insured them, I think. Pension funds held a lot of CDSes, so a SIGTARP report stated that it was prompted to action to save retirement accounts. Yet when Detroit experienced a dramatic increase in its liabilities due to an interest-rate swap with UBS, the Fed and the national government did not step in to help. Why not?

Fed Chairman Bernanke stated somewhere that helping state and local governments were too political for the Fed to get involved in. So it is the realm of fiscal policy. Why couldn't he say outright that the government can run a deficit to help out state and local governments? It worked for the Fed helping banks; why shouldn't it work for the government helping states and cities?

User Journal

Journal: Web pages jumping around

Journal by blue trane

I was just reading the introduction to an article on Slashdot's front page. Suddenly, the page refreshed, and reloaded leaving me with a view of the top of the site. I had lost my place, my concentration, and the train of thought I was engaged in.

The early internet wasn't like this. Now, when a page loads it jumps around. So I start reading some text, and suddenly an ad above the area loads, and the text jumps off the screen.

This happens even on wikipedia.

Is it a deliberate strategy on the part of advertisers to get you to notice their ads?

Is it an unintended consequence of loading pages in parts, not leaving enough space for the top parts?

Is my viewing experience not important to the developers?

Whatever, it is really annoying to me when i'm reading something and then suddenly the browser moves it out of my view.

User Journal

Journal: Paradise Cove 1

Journal by blue trane

January 5, 2014

One of the main goals of this road trip was to visit the site of Rockford's trailer.

In the 1970s, according to the evidence in the Rockford Files, Paradise Cove had free public access to the public beach. In one episode (The Queen of Peru) a motor home parks next to Rockford's trailer and Rockford, despite being annoyed by the kids' noise-making, nevertheless tells the father that he has a right to park there since it's a public beach.

Today, Paradise Cove seems to have been fully privatized. The Paradise Cove Cafe charges for beach access ($20 for walk-in, $30 for beach parking). There is a large trailer park in the Cove which now covers the hills behind Rockford's trailer, which in the 1970s were wild. In one episode, Rocky runs up the hill behind the trailer; today there are fences and roads and signs saying "No access to the General Public".

Things were better in 1970s pre-Reagan America.

I liked Rockford because money didn't faze him. He met a lot of very rich people, but he didn't want what they had. At the ends of lots of episodes he gets stiffed out of his fee or reward money; his reaction is invariably to laugh it off. Sometimes he wins, and celebrates. When he doesn't though he doesn't lose his cool. Money played some part in the game Rockford played, but it wasn't the goal. He didn't worship money or use it to keep score.

Another reason I like The Rockford Files is the sunshine under which a lot of the outdoor shots were filmed. It's 75 degrees here in the middle of winter. Looking at maps in the chilly Pacific Northwest, I wanted to see what some warm weather felt like. Today I went for a swim!

Some more pictures of Paradise Cove, and also the mudrock (?) formations in the adjacent Santa Monica hills, are in this folder of road trip pictures.

User Journal

Journal: Stockton

Journal by blue trane

"The Miwok Indians lived in the Central Valley among the delta's waterways, using them for food and transportation." (http://en.wikipedia.org/wiki/Stockton,_California)

Stockton is a shock after coming from Indian Grinding Rock Park, where the Miwok ground acorns.

The park was relatively quiet, and the air was fresh. Lots of trees.

Stockton is industrialized, with a constant sound of trucks and trains. I'm in a Motel 6, next to a large trucking yard. All through the night trucks drove past. There's also a garbage dump down the road.

I went for a run to get out of the room which was giving me a headache. I passed an electric traffic warning sign on a small trailer, alerting drivers to a street closure. The end date of the closure was 12/31/2013; it's 1/4/2014 now. So they haven't taken away the out-of-date warning sign. Symptomatic of the city's budget problems?

I should have stayed at the park campsite. The charge was $30, and I didn't have it in cash.

This city reinforces the feeling that western civilization has gone completely wrong, and the Miwok had a better idea of how to live. The air was fresh in the park; here, back in the motel room, already the headache is coming back.

What if we had not overrun the Miwok in the mad rush for gold? Things could have been done differently; white settlers could have coexisted with the Indians, mutually benefited. Civilization could have brought technology but learned to keep population down and live in balance with the environment. We could have had a much more utopian setting instead of the Stockton that exists today.

User Journal

Journal: Burr

Journal by blue trane

From "Burr", by Gore Vidal, page 420:

An usher opened the front door. In the muddy courtyard, a groom stood with my horse. Jefferson looked at me curiously. "I must say that I had rather thought you would be coming back to live here."

"To this house?" I asked most pleasantly.

"Why not? But I meant to Washington City, to this Congress, representing one of the western states."

"It is still a possibility."

"You ought not to waste yourself, Colonel."

"I do not think that it is I who have done the wasting."

Jefferson blushed; and bade me farewell.

From Matthew Davis's biography of Burr (in the Preface):

I soon discovered that Colonel Burr was far more tenacious of his military, than of his professional, political, or moral character. His prejudices against General Washington were immoveable. They were formed in the summer of 1776, while he resided at headquarters; and they were confirmed unchangeably by the injustice which he said he had experienced at the hands of the commander-in-chief immediately after the battle of Long Island, and the retreat of the American army from the city of New-York. These grievances he wished to mingle with his own history; and he was particularly anxious to examine the military movements of General Washington on different occasions, but more especially at the battle of Monmouth, in which battle Colonel Burr commanded a brigade in Lord Stirling's division.

Further on:

Four days after, viz., the 28th of June, the battle of Monmouth was fought. It was on this occasion that General Washington ordered the arrest of General Lee: 1stly, For disobedience of orders in not attacking the enemy on the 28th of June, agreeably to repeated instructions; 2dly, For misbehaviour before the enemy on the same day, by making an unnecessary, disorderly, and shameful retreat; 3dly, For disrespect to the commander-in-chief, in two letters, dated the 20th of June. On the 12th of August the courtmartial, of which Lord Stirling was president, found Lee guilty, and sentenced him to be suspended from any command in the armies of the United States for the term of twelve months. The history of the battle of Monmouth, with all the consequences that followed, has long since been given to the world by the friends and the opponents of the respective parties. It is only necessary to state here, that Colonel Burr, on that occasion, was ranked among the supporters of Lee, and had himself real or imaginary cause of complaint against the commander-in-chief.

In this action Colonel Burr commanded a brigade in the division of Lord Stirling, composed of his own regiment and some Pennsylvanians, under the immediate command of Lieutenant-colonel Dummer. Gordon, in his History of the American Revolution, says, "The check the British received gave time to make a disposition of the left wing and second line of the main army in the wood, and on the eminence to which he had been directed and was retreating. On this were placed some batteries of cannon by Lord Stirling, who commanded the left wing, which played upon the British with great effect, and, seconded by parties of infantry detached to oppose them, effectually put a stop to their advance. The British, finding themselves warmly opposed in front, attempted to turn the American left flank, but were repulsed."

Shortly after the action had become general, Burr discovered a detachment of the enemy coming from the borders of a wood on the southward. He instantly put his brigade in motion for the purpose of checking them. It was necessary to cross a morass, over which a bridge was thrown. He ordered Lieutenant-colonel Dummer to advance with the Pennsylvania detachment, and that he would bring up the rear with his own regiment. After a part of the brigade was over the bridge, Colonel Barber, aid to General Washington, rode up, and said that the orders of the commander-in-chief were that he should halt. Colonel Burr remonstrated. He said his men, in their present position, were exposed to the fire of the enemy, and that his whole brigade must now cross the bridge before they could halt with any safety. Colonel Barber repeated that the orders of General Washington were peremptory that he should halt, which was accordingly done, and the brigade, in their divided state, suffered severely. Lieutenant-colonel Dummer was killed; Colonel Burr's horse was shot under him; and those who had crossed the bridge were compelled to retreat.

So, Burr had the feeling of being wasted those in command over him at Monmouth.

(More on the Battle of Monmouth: http://www.historynet.com/battle-of-monmouth.htm, http://en.wikipedia.org/wiki/File:Battle_of_Monmouth.Dean.USMA.edu.history.gif)

User Journal

Journal: Israeli inflation

Journal by blue trane

http://www.tradingeconomics.com/israel/inflation-cpi

From http://www.jewishvirtuallibrary.org/jsource/Economy/eco5.html:

The linkage system was very successful. In major economies around the world, consumers often feel the pinch of just 2-7% annual inflation. But Israelis, who had to deal with a much higher inflation rate, went about their business practically unaffected. For three and a half decades, their real income was protected by this index-linked mechanism. Furthermore, over this period the standard of living rose at an average rate of close to 4% annually.

However perfect, the linkage machine itself was fueling the fire of inflation at an increasing pace. As inflation evolved into hyperinflation, the price spiral was taking a toll on economic output. Dealing with daily linkage adjustments and their repercussions was draining the time and resources of households and businesses.

In July 1985, the government adopted the Economic Stabilization Policy, which called for interference in the economy to an extent that would be considered "reactionary" among economic theorists. A total freeze of prices of all goods and services was imposed and the linkage mechanism was suspended. Everything from price tags in shops and stores, charges for services, prices specified in contracts, wages and public budgets to foreign exchange rates, remained fixed at the exact nominal quotation on the day the policy was declared.

It worked. In 1985, inflation fell to 185% (less than half the rate in 1984). Within a few months, the authorities began to lift the price freeze on some items; in other cases it took almost a year. In 1986, inflation was down to just 19%.

The linkage system was reinstated as soon as the stabilization policy showed signs of success, although the Bank of Israel began to take stricter measures to supervise the monetary aspects of the economy.

Can linkage be automated so that it becomes seamless, and inflation transparent?

Can some method similar to Brazil's response to hyperinflation be used to fight the psychology of inflation?

From http://www.npr.org/blogs/money/2010/10/04/130329523/how-fake-money-saved-brazil:

People would still have and use the existing currency, the cruzeiro. But everything would be listed in URVs, the fake currency. Their wages would be listed in URVs. Taxes were in URVs. All prices were listed in URVs. And URVs were kept stable - what changed was how many cruzeiros each URV was worth.

Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.

The idea was that people would start thinking in URVs - and stop expecting prices to always go up.

From Generating a Sharp Disinflation: Israel 1985, by Michael Bruno:

In the past two years it became evident that balance-of-payments and
foreign reserve difficulties may arise even when the current account
improves, due to problems associated with the capital account. In part, at
least, these problems stem from loss of public confidence in the government's
ability to control the economic system, leading to massive private
purchases of foreign currency and capital flight.

Unfortunately, the most common explanation of rising inflation due
to an increase in the government deficit (argument a) can at best account
for a rise in Israel's inflation rate in the early 1970's but not in
subsequent periods. The step-wise leaps in inflation from 30-40 percent in
1973-76 to nearly 500 percent annually in 1984-85 (point 851 in Figure la
refers to January-July 1985) occurred while the budget deficit, though
large, was more or less stable at 12-15% of GDP (see Table 2).

An alternative and somewhat complementary line of argument to that of
the inflation tax explains the step-wise nature of the inflationary process
in terms of price level shocks (which account for the jumps) coupled
with full monetary accommodation (which explains why a price level shock
translates into a jump in the rate of inflation). The price shocks may be
entirely exogenous (e.g. oil and raw material price increases in 1973 and
1979 or the shock introduced with the October 1977 reform) or may be
induced by balance of payments difficulties (leading to devaluations and
price increasing fiscal measures such as subsidy cuts, as in 1974, 1983,
1984).

Why, under this view, has inflation almost always only gone up and not
down ? one reason may be that positive and negative price shocks are not
symmetric in their effects on the dynamics of inflation. When the general
thrust of fiscal and monetary policy is expansionary and there is a temp-
orary unexpected downward shift in the inflation rate expectations will
not be revised downward. The effect of such asymmetries is to make a
sequence of positive and negative shocks of zero mean impart an upward
thrust to the inflation rate.

So, inflation is psychological to a large degree. It seems there are wild expectations of inflation that fuel themselves. The fix for inflation is to somehow get people to stop expecting inflation; I think the actual budget deficit amounts don't really matter. It's the perceived effects of deficits in people's minds. Change those prejudices and you can deal with inflation without having to reduce government spending.

User Journal

Journal: Govt deficits and private surpluses 2

Journal by blue trane
In Gurley and Shaw's Money in a theory of finance, Table 3 on page 29 presents a "social balance sheet" for a "rudimentary finance" economy. In the table, the government's tax receipts are zero, while its purchases of goods and services are 10. So the government runs a deficit, in this "Rudimentary Finance" model. Further on (pages 38-39):

We have shown that real incremental demand for money during growth can be satisfied, in the rudimentary economy, by deflation of prices and money wage rates. But it can be satisfied too by growth in nominal money at stable levels of prices and money wage rates. If price and wage levels are to be stable during growth, the private sectors of the rudimentary economy must maintain surplus budgets and government must run a continuous deficit. The private sectors must save, lend, and accumulate nominal money while government must dissave, borrow, and issue money.

---

I think Stephanie Kelton makes a similar point, in What Happens When the Government Tightens its Belt? (Part I) and Part II. From Part I:

Because the economyâ(TM)s financial flows are a closed system - every payment must come from somewhere and end up somewhere - one sectorâ(TM)s surplus is always the other sectorâ(TM)s deficit. As the government "tightens" its belt, it "lightens" its load on the teeter-totter, shifting the relative burden onto you.

This chart drives home the point graphically. Kelton's model is not "rudimentary"; it models the existing economy. Gurley and Shaw are talking about price and wage stability during growth. But the overall idea is the same: public sector deficits are necessary for private sector profits.

User Journal

Journal: Focus vs. Dispersion

Journal by blue trane

Just awoke from a dream where I felt Tracie was influencing it, lying in the next bed in this hotel room. We've made an appointment for Tykee and Buddy at a vet tomorrow, in Seattle, and decided to take all the birds on a little vacation, to spend the night in this hotel, before going to the vet's tomorrow, further north.

In the dream I experienced a series of sensations I can best describe by comparing them to tubes. At first I was a tube that bent, flexibly; then I became aware of a straightening, strengthening impulse; the tube that I was became focusing, as if electricity sent through it would travel straighter, faster. Or if a bullet was shot through it, the bullet would go further because the tube protected it from outside influences such as wind.

At first the stronger, straighter, focusing tube seemed obviously better than the bent, flexible, dispersive, porous one that I had been before. But I was uncomfortable, made more so by Tracie's audible groan or snore that accompanied me waking up with the thought of these two tubes still vivid. It seemed as if she was highlighting or reinforcing the thought that the straighter tube was better; but I wanted to resist that idea.

Other episodes followed, containing the same theme of a flexible, dispersive tube followed by a straighter, more rigid, more focusing one. Each set of tubes was conveying something different; a bullet, then sound, then electricity, photons, light, etc.

At the end of each episode, Tracie woke me with some audible sound, a grunt or a groan or a snore, and I had the feeling she approved of the more focused tube that I had become (or become aware of) in the dream. But I resisted the idea that the focused tubes were better.

In thinking about the series of dream episodes, I realized I was more naturally bent towards the dispersive element, the unfocused tubes that spread out signals. I think there is some dispersive vs. focusing force in nature. I think society currently chooses to reward the focusing impulse. This is arbitrary, a fickle whim. Why can't society support both forces? It is a matter of politics, policy, not physics. The two forces exist in nature without judgment; why can't society let them coexist without prejudice?

I thought that birds tend towards the dispersive, the chaotic, the spreading: bird calls have wide frequency ranges, spread out over a broad spectrum rather than focused like a tuning fork. Birds also disperse seeds far and wide. When birds eat they shake their heads, spreading some of the seeds they're eating around them.

Armstrong's trumpet sound is like a bird call in that it too is spread out over a wide frequency range. Armstrong's genius was that he could also focus, play perfectly in sync when he wanted with other performers. Armstrong could combine the two tendencies for dispersion and focus, for discipline and elasticity, in one performance or in one note.

In monetary policy, the two forces are called "discipline" vs. "elasticity". My tendency is to support elasticity, creating more money, expanding the money supply, ending the artificial scarcity of money. The disciplinary approach believes in making money scarce, raising interest rates, forcing austerity policies on others.

I think monetary and/or fiscal discipline should be voluntary. Each individual should decide for themselves if they want to practice austerity in their own lives. Government should enable each individual to make a free choice, for themselves. Government can encourage austerity but should not impose it.

User Journal

Journal: Balancing Budgets

Journal by blue trane

I think balancing budgets becomes a fussy compulsion, almost a fetish: you want things to look neat. You want the figures to come out even, regardless of the consequences for individuals you don't know, far off at a distance somewhere. When the people who experience the repurcussions of your budget-balancing have no communication with you, and you only hear about their plight mediated through many third parties, it becomes easy to tell yourself a story about why they are suffering, and ignore or discount their real situation; because your own story, that you want your ledger book to "look nice", is so much more compelling and immediate.

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Journal: Detroit's bankruptcy 4

Journal by blue trane

From a thread in the Economics of Money and Banking, Part Two MOOC:

GJM:

http://www.moneynews.com/FinanceNews/Detroit-banks-derivatives-swaps/2013/08/16/id/520795

The money view? Banking regulations? Exploitation? Why did this happen?

---

Robert S Mitchell:

"In the swap deals, the banks would pay the city if rates rose, while the city would pay the banks if they fell. As it turned out, rates fell and the city had to pay the banks about $50 million a year and pledge $11 million a month in casino tax revenue as collateral."

From http://detroitdebtmoratorium.org/the-detroit-bankruptcy/:

"Detroit's financial expenses have increased significantly, and that is a direct result of the complex financial deals Wall Street banks urged on the city over the last several years, even though its precarious cash flow position meant these deals posed a great threat to the city. The biggest contributing factor to the increase in Detroitâ(TM)s legacy expenses is a series of complex deals it entered into in 2005 and 2006 to assume $1.6 billion in debt. Instead of issuing plain vanilla general obligation bonds, the city financed the debt using certificates of participation (COPs), which is a financial structure that municipalities often use to get around debt restrictions. Eight hundred million dollars of these COPs carried a variable interest rate, which the city synthetically converted to a fixed rate using interest rate swaps.

These swaps carried hidden risks, and these risks increased after the Federal Reserve drove down interest rates to near zero in response to the financial crisis. The deals included provisions that would allow the banks to terminate the swaps under specified conditions and collect termination payments, which would entitle the banks to immediate payment of all projected future value of the swaps to the bank counterparties. Such conditions included a credit rating downgrade of the city to a level below âoeinvestment grade,â appointment of an emergency manager to run the city and failure of the city to make timely payments. Projected future value balloons in low, short-term rate conditions. This is because the difference between the fixed swap payments made by the city and the floating swap payments projected to be paid by the banks increases. Because all of these events have occurred, the banks are now demanding upwards of $250-350 million in swap termination payments."

---

I wonder if the LIBOR rate manipulation affected Detroit's interest rate swaps, since LIBOR was manipulated downward, and Detroit's swaps were long on rates.

---

GJM:

It seems like fraud on the public to me. Thank you for your information.

---

Robert S Mitchell:

I was reminded of Professor Mehrling's explanation of how AIG failed, in Lecture 20 "Credit Derivatives". From the Lecture 20 Notes:

"When the referenced risky asset started to fall in price, the value of the insurance rose. This is a liability of AIG, so it cut into their capital buffer (AIG had no dedicated reserves against these CDS because it thought they were essentially riskfree). Not only that, but AIG had agreed to post collateral, and mark the CDS to market, so these losses were not just book losses but involved payments into a segregated account that Goldman Sachs controlled, about 30 billion at the time AIG failed."

AIG was exposed on credit default swaps, Detroit was exposed on interest rate swaps. But in both cases, the banks on the other side had written into the contract terms that triggered big payments, in case of a ratings downgrade for example. So when rates went down, Detroit was downgraded by the ratings agencies, and UBS (similar to what Goldman Sachs did in the case of AIG) demanded payment immediately of the future projected values of the swaps.

The Fed bailed AIG out, though. From wikipedia:

"AIG's credit rating was downgraded and it was required to post additional collateral with its trading counter-parties, leading to a liquidity crisis that began on September 16, 2008 and essentially bankrupted all of AIG. The United States Federal Reserve Bank stepped in, announcing the creation of a secured credit facility of up to US$85 billion to prevent the company's collapse, enabling AIG to deliver additional collateral to its credit default swap trading partners."

Why doesn't the Fed and/or the government step up to help Detroit? Why not have a SIGTARP for distressed cities, and states?

According to Kevin Puvalowski, testifying before Congress, shown in Q&A with Neil Barofsky, from about 50:35 to 51:13:

"And if you add all of those programs up, and assume that every program was fully subscribed at the same time, you get a total amount of support, from the government, of 23.7 trillion dollars."

$23.7 trillion for banks, but the government can't help Detroit with something like $18 billion? (And that figure might be inflated to better make the Emergency Manager's case).

SIGTARP mentions "retirement accounts" as a concern of the FRBNY leading to the AIG bailout, on page one of its report. Why isn't it concerned about the retirement accounts of the inhabitants of Detroit?

User Journal

Journal: Gore Vidal's "Burr"

Journal by blue trane

From pages 252-253:

The Colonel stopped abruptly; pushed aside the various depositions on the baize-covered table.

"Let us turn to less weighty matters. Let us consider the home life of Massa Tom, in the autumn of 1795."

From pages 255-256:

At about ten in the morning toward the end of September, I stood below the hill on which the mansion Monticello was a-building. All was confusion. A large forge manned (or rather boy-ed) by a dozen black children was turning out nails. The apostle of the agrarian life gaily admitted to now being a wholesale manufacturer.

"I have no choice," said Jefferson who greeted me at the smithy. "The crops pay for rebuilding the house. The nails pay for groceries. I calculate at my present rate of production I shall be out of debt in four years." I complimented him. I too have had my nail manufactories which were to get me out of debt. But somehow the nails never do the trick.

---

Suddenly Jefferson's horse shied. Savagely he jerked at the animal's mouth till blood came with the foam; all the while using his whip until the poor creature was heavily wealed. It was my first experience of the way he always treated horses.

---

We rode through a meadow filled with brick kilns. Slaves were everywhere, hard at work. I was surprised to see how "bright" they were. I do not know if that word is still in use in the south, but in those days a slave with a large degree of white blood was knows as "bright." It made me most uneasy to see so many men and women whose skins were a good deal fairer than my own belonging to Mr. Jefferson.

---

From page 257:

"I inherited the bright slaves from my father-in-law John Wayles." Jefferson sighed. "It is no secret - there are no secrets in Virginia - that many of them are his children." Sally Hemings was a daughter of Wayles which made her the half-sister of Jefferson's late wife. Certainly the girl bore a remarkable resemblance to Martha Wayles, if the portrait in the dining-room at Monticello was to be trusted. Amusing to contemplate that in bedding his fine-looking slave, Jefferson was also sleeping with his sister-in-law! One would have enjoyed hearing him moralize on that subject.

---

From pages 263-264:

I indicated the small boy who was now perilously climbing a tree. "Your grandson is going to hurt himself."

Jefferson flushed deeply. "That is a child of the place. A Hemings, I think."

Since the child was obviously son or grandson to him, I had seriously blundered and, as in law, ignorance is not a defence. It was a curious sensation to look about Monticello and see everywhere so many replicas of Jefferson and his father-in-law. It was as if we had all of us been transformed into dogs, and as a single male dog can re-create in his own image an entire canine community, so Jefferson and his family had grafted their powerful strain upon these slave Africans, and like a king dog (or the Sultan at the Grande Porte) Jefferson could now look about him and see everywhere near-perfect consanguinity.

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Journal: Problems with Production Possibility Frontier models

Journal by blue trane

In Coursera's The Power of Markets, Week 1, slides 8-10, Mark Zupan presents the Production Possibility Frontier model.

http://subbot.org/coursera/powerofmarkets/ppf2.png depicts a constant-slope production possibility frontier.

The assumption is that research is an opportunity cost of teaching, and vice versa. So if you, as the president of a university, add more research units, necessarily teaching units will decrease.

http://subbot.org/coursera/powerofmarkets/ppf3.png shows the typical case. The professor states that this case is based on empirical evidence, but he cites no sources. He also fails to define what "research unit" and "teaching unit" are.

His point is that, necessarily, if you have more research at your university, teaching will suffer. And vice versa.

But what about MOOCs? The professor himself has recorded his lectures, and they can be reached by thousands of students. How many "teaching units" does that translate into? Many more than for a purely physical classroom, which has size limits.

So the professor can record his lectures, have them reach orders of magnitude more students than can fit in his physical classrooms, and go on to do his research. The very technology he's using to present the "production possibility frontier" blows away the assumptions behind the model. When you take the class online, the scarcity of classroom space is eliminated.

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Journal: I.O.U., by John Lanchester

Journal by blue trane

From page 25:

This is how it's supposed to work. A well-run bank is a machine for making money. The basic principle of banking is to pay a low rate of interest to the people who lend money and charge a higher rate to the people who borrow it. The bank borrows at 3 percent (say), and lends at 6 percent, and as long as it keeps the two amounts in line and makes sure that it lends money only to people who will be able to pay it back, it will reliably make money forever.

This institution, in and of itself, will generate activity in the rest of the economy. The process is explained in Philip Coggan's excellent primer on the City, The Money Machine: How the City Works. Imagine, for the purpose of keeping things simple, a country with only one bank. A customer goes into the bank and deposits $200. Now the bank has $200 to invest, so it goes out and buys some shares with the money - not the full $200, but the amount minus the percentage it deems prudent to keep in cash, just in case any depositors come and make a withdrawal. That amount, called the "cash ratio," is set by the government: in this example, let's say it's 20 percent. So our bank goes out and buys $160 of shares from, say, You Inc. Then You Inc. goes and deposits its $160 in the bank; so now the bank has $360 of deposits, of which it needs to keep only 20 percent - $72 - in cash: so now it can go out and buy another $128 shares of You Inc., raising its total holding in You Inc. to $288. Once again, You Inc. goes and deposits the money in the bank, which goes out again and buys more shares, and on the process goes. The only thing imposing a limit is the need to keep 20 percent in cash, so the depositing-and-buying cycle ends when the bank has $200 in cash and $800 in You Inc. shares; it also has $1,000 of customer deposits, the initial $200 plus all the money from the share transactions. The initial $200 has generated a balance sheet of $1,000 in assets and $1,000 in liabilities. Magic!

From page 36:

These were the ratios for the big European banks on June 30, 2008, when the financial tsunami was just about to hit: UBS, 46.9; ING Group, 48.8 to 1; HSBC Holding, 20.1 to 1; Barclays Bank, 61.3 to 1; ...

The figures for the big American banks aren't quite as bad, but they're bad enough: what they boil down to is median leverage ratios of 35 to 1 in the United States and 45 to 1 in Europe. Another way of looking at these ratios is to say that they represent the amount fo the bank's assets which have to go bad for the bank to be insolvent. In the United States, on average, if 1/35th of the bank's assets go bad, the bank is bust; in the European Union, 1/45 of bad assets would have the same effect.

From page 45:

Finance, like other forms of human behavior, underwent a change in the twentieth century, a shift equivalent to the emergence of modernism in the arts - a break with common sense, a turn toward self-referentiality and abstraction, and notions that couldn't be explained in workaday English. In poetry, this moment took place with the publication of The Waste Land. In classical music, it was, perhaps, the premiere of The Rite of Spring. Dance, architecture, painting - all had comparable moments. (One of my favorites is in jazz: the moment in "A Night in Tunisia" when Charlie Parker plays a saxophone break, which is like the arrival of modernism, right there, in real time. It's said that the first time he went off on his solo, the other musicians simply put down their instruments and stared.) The moment in finance came in 1973, with the publication of a paper in the Journal of Political Economy titled "The Pricing of Options and Corporate Liabilities," by Fischer Black and Myron Scholes.

From page 49:

Even once it's explained, however, it still seems wholly contrary to common sense that the market for products that derive from real things should be unimaginably vaster than the market for the things themselves. With derivatives, we seem to enter a modernist world in which risk no longer means what it means in plain English and in which there is a profound break between the language of finance and that of common sense. It is difficult for civilians to understand a derivatives contract or any of the range of closely related instruments. These are all products that were designed initially to transfer or hedge risks - to purchase some insurance against the prospect of a price going down, when your main bet was that the price would go up. The farmer selling his next season's crop might not have understood a modern financial derivative, but he would have recognized the use of it.

User Journal

Journal: Dreams 1

Journal by blue trane

Wednesday October 30, 2013
Early in morning, 1:05am

2 dreams, connected, maybe same dream?

First one:
Ended with me confronting Jim
There had been some episode, some series of incidents with things in the house I was living in in the dream (with Mom too?) being broken or going missing. One day I heard noises and went upstairs to investigate. In the dream, it was light. There was a staircase that went around a corner, or two (like the staircase in the motel I stayed in last night, but not enclosed: the staircase was not walled,; you could see the living room (a little like the staircase in the house in France).
The staircase went up, then there was a landing, then it curved sharply (at right angles? At 180 degrees?) to the left. I, at the bottom, heard noises. It was daylight, or the lights were on. It was bright, no shadows, easy visibility. I went up the stairs to investigate. I heard something moving about up there.
I kept going. I felt no fear, I wanted to find the source of the troubles in the house.
I turned the corner on the landing, and continued up at the same pace. I was confident, unafraid, curious. I could hear the noises coming from the top of the stairs, sounding like someone rummaging through things.
At the top of the stairs, the room opened up onto a large balcony, with a balustrade at the far end.
I was surprised to see Jim at the far end, against the balustrade, arms outspread but back, as if he was being pushed back against the half-wall behind him. His face registered terror, his facial muscles twisted and contorted, his complexion red, his eyes moving around rapidly as if looking for escape.
I approached him, saying incredulously âoeJim?â
I realized Jim was the source of the odd noises and recent problems in the house. He seemed to acknowledge my realization [discovery], and was afraid of what would happen to him.
I had only good-will towards him: I didnâ(TM)t want to punish him. I wanted to help him. I felt love towards him, the love of a mother, or brother.
Then I woke up briefly, and reflected on this episode, considering it significant.

User Journal

Journal: Precious 1

Journal by blue trane

July 28, 2013

Precious flew out the front door yesterday. Tracie was talking Peach out to see me, and Precious who always wants to be with Peach, flew out after her.

I can't blame Tracie because I've let birds escape too: Elvie flew out the door once when I opened it. And Charlie, Nova, and Zoe got out through small openings in the front porch when I left the front door open while taking a shower.

We got Elvie back, miraculously: she flew onto a telephone pole, and a Seattle City Light truck used their cherry picker to scare her down to the ground where she let us pick her up. Years later however, after Tracie gave her to a friend, we heard she'd flown out again and was not found.

Precious disappeared. I thought I could hear him to the south, and took Peach with me on my shoulder (Peach can't fly because of a long-ago wing injury). I could hear Precious giving his contact cry in a tall tree. Peach would cry, and Precious would respond. But he was high up and I couldn't see him.

A guy was sitting on the porch of a house in view of the tree. I told him the situation, and asked if he saw Precious to let us know. I took Peach back inside because it was hot and she was in danger of getting overheated.

Later I went back to look again. The guy said he'd seen a yellow bird fly east. I went to the east, but couldn't see or hear Precious, even with Peach on my shoulder.

Then, later, we heard Precious in a tree near the trailer. He could hear the other birds squawking and was squawking back. We took Peach outside again. I went around to the back of the tree and could hear him but not see him. Again, he was high up, near the top of the over-100-foot fir.

There were lots of other birds around, sparrows and some crows and jays.

I stood in the driveway in full sight of the tree where Precious was calling from, holding Peach. I visualized him flying down to us. I held Peach up high; she called to him. I think she knew it was him calling back because she looked toward the tree he was calling from.

I kept taking Peach inside so she wouldn't get too tired or hot.

Standing alone outside, I concentrated on the tree, holding my hands out for Precious to fly to.

A hummingbird flew close to me. A big fly, or bee, flew into my finger and bounced off. It was as if they knew what I was trying to do, and were encouraging me. I whistled at Precious, giving a common call that he and I often made to each other. I told him Peach was here, come back to be with Peach. At one point I seemed to hear a subtle sound from him, not the loud contact cry he'd been doing but a softer vocalization, as if he was expressing some acknowledgment of my effort to get him to come to me. I felt his chirp was affectionate.

But he didn't fly down. Perhaps he was too scared; perhaps he needed more time.

Something in me got impatient. I had Peach then, and held her up high. But after a minute or two I went inside. Tracie was still outside and called to me to tell me he flew away from the tree. I was washing up in the bathroom and didn't hear.

I haven't heard him since then.

I wonder at my impatience, if I had stood out longer would he have come back. Did my going inside make him think I'd given up? Had I given up? For that day, maybe.

Due to circumstances beyond my control, I am not there tonight. I was there earlier today but didn't hear him.

I got really depressed, thinking about him. I didn't want to deal with all the neighbors knowing the situation, showing myself in front of them out looking for him. Was this my ego overcoming me, the same type of flaw that made me get impatient yesterday? Did he pick up on that flaw and give up on me?

I fasted for over 24 hours after he flew out. Last night I slept in my car, choosing the discomfort of lying in the front seat over spreading pads out on the ground at a campsite.

Today I ate. But it was not because I was hungry. I ate out of habit, from a feeling that I should feel hungry. I want to fast longer again (I've gone at least three days before). I wonder, if I can get into a truly transcendent, meditative state, if food is necessary.

I suspect I will end up doing what Precious did. I will choose freedom, and extricate myself from the relationships that currently tie me down. I will be truly alone, and stop eating. I will die of self-starvation, like a good Jain.

Akaranga Sutra, Book 1, Lecture 7, Lesson 8:

The wise ones who attain in due order to one of the unerring states
(in which suicide is prescribed), those who are rich in control and
endowed with knowledge, knowing the incomparable (religious death,
should continue their contemplation). (1)

Knowing the twofold (obstacles i.e. bodily and mental), the wise
ones, having thoroughly learned the law, perceiving in due order
(that the time for their death has come), get rid of karman. (2)

Subduing the passions and living on little food, he should endure
(hardships). If a mendicant falls sick, let him again take food. (3)

He should not long for life, nor wish for death; he should yearn
after neither, life or death. (4)

He who is indifferent and wishes for the destruction of karman,
should continue his contemplation. Becoming unattached internally
and externally, he should strive after absolute purity. (5)

Whatever means one knows for calming one's own life, that a wise man
should learn (i. e. practise) in order to gain time (for continuing
penance). (6)

In a village or in a forest, examining the ground and recognising it
as free from living beings, the sage should spread the straw. (7)

Without food he should lie down and bear the pains which attack him.
He should not for too long time give way to worldly feelings which
overcome him. (8)

When crawling animals or such as live on high or below, feed on his
flesh and blood, he should neither kill them nor rub (the wound). (9)

Though these animals destroy the body, he should not stir from his
position. After the asravas have ceased, he should bear (pains) as
if he rejoiced in them. (10)

When the bonds fall off, then he has accomplished his life.
(We shall now describe) a more exalted (method) for a
well-controlled and instructed monk. (11)

This other law has been proclaimed by Gñatriputra:
He should give up all motions except his own in the thrice-threefold
way. (12)

He should not lie on sprouts of grass, but inspecting the bare
ground he should lie on it. Without any comfort and food,
he should there bear pain. (13)

When the sage becomes weak in his limbs, he should strive after
calmness. For he is blameless, who is well fixed and immovable
(in his intention to die). (14)

He should move to and fro (on his ground), contract and stretch (his
limbs) for the benefit of the whole body; or (he should remain quiet
as if he were) lifeless. (15)

He should walk about, when tired of (lying), or stand with passive
limbs; when tired of standing, he should sit down. (16)

Intent on such an uncommon death, he should regulate the motions of
his organs. Having attained a place swarming with insects, he should
search for a clean spot. (17)

He should not remain there whence sin would rise.
He should raise himself above (sinfulness), and bear all pains. (18)

And this is a still more difficult method, when one lives according
to it: not to stir from one's place, while checking all motions of
the body. (19)

This is the highest law, exalted above the preceding method:
Having examined a spot of bare ground he should remain there; stay O
Brahmana! (20)

Having attained a place free from living beings, he should there fix
himself. He should thoroughly mortify his flesh, thinking: There are no
obstacles in my body. (21)

Knowing as long as he lives the dangers and troubles, the wise and
restrained (ascetic) should bear them as being instrumental to the
dissolution of the body. (22)

He should not be attached to the transitory pleasures, nor to the
greater ones; he should not nourish desire and greed, looking only
for eternal praise. (23)

He should be enlightened with eternal objects, and not trust in the
delusive power of the gods; a Brahmana should know of this and cast
off all inferiority. (24)

Not devoted to any of the external objects he reaches the end of his
life; thinking that patience is the highest good, he (should choose)
one of (the described three) good methods of entering Nirvana. (25)

Thus I say.

End of the Seventh Lecture, called Liberation.

---

The karma that made me impatient will likely bind me to more cycles of birth. I will try to fix Precious's, and Peach's and Blue and Beju's, and Elvie's, and Charlie and Nova and Zoe's, and Buddy's and Chico's and Gizzy's and Nineteen's and Betty and Tychee's and Big Head's and George's and Ginger's and Bunny's and all the other animals I've known - I will try to fix the memory of them, of some identifying characteristic that each one has, in my soul, so that we may recognize each other when, if, we meet again in other incarnations.

Perhaps we can help each other progress towards Nirvana: the state of ultimate knowledge and eternal bliss, where we are not subject to the laws of cause and effect.

---

Added 6/29/2013:

Memories of Precious: feral, wild, rebellious look in his eyes sometimes

Didn't like to be picked up or petted

Sometimes flew on my shoulder and made affectionate, short, quiet chirps, and preened my face and neck gently

Hid behind a cage often at night

A guy behind the counter at a Starbucks I was in last night said "Precious" at one point while talking to the other workers. Is this a sign of some connection, some way of knowing without direct communication through scientifically accepted channels?

Added 6/30/2013;

It occurs to me: Precious may have been calling to the other members of his flock to join him. He was experiencing the heady sensation of freedom, and was trying to communicate that.

Maybe I'll follow his lead.

Recent picture of Precious

Another picture

Refreshed by a brief blackout, I got to my feet and went next door. -- Martin Amis, _Money_

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