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Comment Re:ATM could sell you an adjustable rate mortgage (Score 1) 644

...You're taking a big risk by taking out an ARM unless you're either in a stable enough financial position that you don't really need the money, in which case one might reasonably ask why you'd take out the mortgage in the first place, not to mention why you didn't just get a fixed-rate mortgage with a shorter term...

For a purchase on the order of magnitude where you need a mortgage (i.e. a home), even if you already have the money, it's probably not sitting in cash. In my case, I had "the money" to buy my house outright, but it was in my investment portfolio, which has appreciated considerably over the many years I've been investing. So to turn those investment positions into cash, I'd have to sell, which would incur significant capital gains taxes.

Furthermore, if you have both a mortgage and an investment portfolio, then the mortgage acts as implicit leverage on your portfolio. I.e., you can invest more because you have less capital tied up in your house. It's like buying stocks on margin, but as long as you make your mortgage payments, you'll never get a margin call. Not to mention mortgage interest rate deduction and historically low rates.

And why not get the fixed rate loan? Because the "teaser" rate on the ARM will be much lower than the 30-year fixed rate; and while the 15-year fixed rate will be lower than the ARM teaser rate, the overall monthly payment will be much higher. So the ARM gives you low(er) rates and a low payment (at least during the teaser rate years). As long as you have a legitimate plan for what happens when the teaser rate ends, they can be a pretty good deal for certain folks.

Comment Re:ATM could sell you an adjustable rate mortgage (Score 1) 644

Well, then I'd tell the ATM to go fuck itself, since adjustable rate mortgages are a scam, then I'd go find a different ATM that would sell me a fixed rate mortgage.

Like many things in life, they are a scam only when pushed on folks who don't know any better. I bought my last house with a 7/1 ARM, and just bought my next house with a 7/1 ARM as well. The documentation I got was IMO impressively thorough. I received, on no less than three separate occasions, documents that spelled out very clearly the worst-case scenario for my repayment schedule. Even the many-page-long amortization schedule I received at closing made worst-case assumptions.

My personal situation make the ARMs a no-brainer. First and foremost, my taxable investment portfolio has a value that is 2x the value of the house I'm buying. So I have my own insurance. Secondly, while a 15-year fixed mortgage had lower rates than the 7/1 ARM (at least the initial rate the first 7 years), the monthly payment was too high and made me uncomfortable. The 7/1 ARM teaser rate was considerably lower than the 30-year fixed rate. So I am guaranteed a payment for seven years that I find very comfortable. In fact, I strategically picked a payment that would still be comfortable if I lost my job and had to take another at considerably lower pay. Also, within that seven years, if rates plummet again, I can further pay down the balance and lock into a 15-year fixed with low rates and a deliciously low monthly payment. But if that doesn't come to pass, I do intend to fully pay off the balance before the rates start adjusting, as that is well within my means (*).

For me, and presumably others in my situation, ARMs make a lot of sense. For years I adhered to the conventional wisdom of "don't even think about an ARM"; but when I sat down and understood how they worked, I saw that they are a particularly good fit for me.

(*)I'm anticipating someone saying, If paying it off in seven years is well within your means, why not just get the 15-year fixed? Well, yes, that would be an even more optimal strategy. But I am giving up a little optimization for some flexibility. In particular, I get seven years of very low payments. Also, the mortgage interest deduction makes my rate implicitly cheaper still. (The mortgage interest rate deduction really is regressive.) And to anticipate another question, Mortgage interest rate deduction only counts if you itemize... Yes, before I even count the mortgage interest deduction, charitable giving, state income tax, and property taxes are much greater than my standard deduction.

Comment Re:We COULD get by working 10-20 hours a week (Score 1) 729

You want to stop the transfer of wealth to the 1%? Get rid of the loans. Ratchet back the maximum duration of a loan to 15, then 7 years, and make it harder to roll over balances from end of one loan to the start of another. Cap the interest rate so the percentage that's paid to interest over the life of the loan can't exceed 25% or 33%. Yes this will make it harder to buy a house or get an education - that has to happen if you want the price of those things to drop. People will have to learn to save first, buy later; instead of buy now, pay for it later. If you want to assist low-income people trying to buy a home or go to college, do it with supply-side subsidies. Build more government-funded or government-sponsored housing to increase the supply of housing. Create more public universities with capped tuitions to increase the supply of education. Don't do it with things like loans which create more demand.

Why are (selling) mortgages only the domain of the 1%?

What's to stop an ordinary person from short-selling UST futures? Note: futures are far less regulated that stocks, you can sell what you don't own fairly easily.

Take the cash you earned from short-selling your treasury futures and sell mortgages so people can buy their houses. Futures are marked to market, so you'll have to do a daily cash settlement on your short position (giving OR receiving money, depending on the price movement of the treasury futures). You can fund the payments with the profits from your mortgage.

Now you are essentially a bank... at some point you should be able to borrow money at the federal funds rate. Fractional reserve banking says you don't have to keep a lot of cash on hand to do this, and you can use the mortgage payments you're expecting as even more collateral. Or sell some more treasury futures to fund more mortgages.

Note I've never looked into actually doing this, perhaps one of these steps isn't as trivial as it seems. But for someone with the ambition to understand how all this works (should be mostly free using the library), I don't see why there isn't a potential for a rags-to-riches story.

On the flipside... say you're a 0.0001% with money coming out your ears. If it's "so easy" to keep making money, why not just sell loans/mortgages? Two factors: credit risk and interest rate competition. In general, people (or institutions) with bad credit get worse rates. So as the seller of a loan, you're always trading risk for reward. But you're also competing with other (presumably wealthy) people who want to make a return on their investment. Just like a lot of people bidding on the same thing drives the buy price up, several people trying to sell a loan drives the interest rate down. I'm not a rich person apologist by any means, but they are held to the same supply and demand forces as everyone else. So if you're super rich, say you've got $10mm. Do you really want to sell 30-year fixed mortgages at 4%? Sure, that 4% is $400k/year... but what about inflation? We're in a historically low-inflation period right now, but do you think that will hold for the next 30 years? What will $400k/year be really worth in 2046? I guess you're somewhat protected from defaults through federal programs, but what about early payoffs? It's better than losing your money of course, but that 4% you could once count on is now gone.

Here's another lending business a person of more modest means can get into: tax lien loans. I've never done this, but read about people who do it as a side business. The idea works like this: some family can't pay their property taxes, so the local government will auction off loans to pay their taxes. You compete with other investors for the interest rate (how low are you willing to go?) Say you're the winning bid: you're allowed to pay that family's property tax as a loan to the family, backed by a lien on their property. Different states have different rules for the specifics of this, but that's the general idea. Since you're paying property taxes, the loan amounts you're making can be pretty much anything, depending on the location (a few hundred bucks to tens of thousands or more). So someone with say $10k could easily get into this business and with proper care, planning and research, could possibly make maybe 5 to 10 percent or more per year on that. If you can manage 8%, your money will double every decade. If you enjoy this kind of work and are really good at it, it shouldn't be too hard to get some people to invest in your business... say you raise $1mm to scale this into a full-time job. If you can maintain 4% after paying your investors, you're still making $40k/year. In much of the Midwest that's not affluent, but enough for a comfortable living.

Comment Re:distribution of wealth and (Score 1) 729

Probably preaching to the choir, but GDP is an imperfect measure of social productivity anyway. Consider my wife, a stay at home mom. Her activities don't count towards GDP, but they clearly have value (to our immediate family obviously; but also presumably to society, if you agree she's doing a reasonable job raising our kids). So, just for a thought experiment, let's say all families with two working parents suddenly had one parent lose their job; but the other's pay increased exactly by the amount of the one whose job was lost (i.e. household income is unchanged). Further assume the parent with the lost job is happy to not go back to work and be a stay at home parent. Overnight virtually all day care facilities would be out of business, causing a drop in GDP... Probably a very small drop, but you get the point.

Or what about some kind of agricultural commune or co-op: a bunch of people all work together to grow/raise their own food, and then share it. No money is exchanged. If we all did that for 100% of our food needs, I'm pretty sure that would have a huge impact on GDP, but if no one is going hungry, have we really lost anything?

I've often seen these kinds of thought experiments as prefaces to discussions about "citizen's income" policies.

Comment Re:Netflix & Starbucks are piddly shit (Score 1) 729

Skipping A $4 cup of joe and $20 bucks a month on Netflix won't make up for the massive increases to the cost of transportation, food, Cars, Housing and the things in life that really matter. It won't replace the pension your company no longer gives you (and no, a 401k is _not_ a replacement for a pension. If you retire at the wrong time you're fucked).

There's no shortage of frugality websites out there showing people with modest incomes who are still saving 25% or more of their pay. Or read Your Money or Your Life for inspiration. The Starbucks and cable habits are but one piece of a bigger plan. In general, you trade your time to save money. The reality is it's not just coffee and premium TV service; it's acknowledging that you can be happy even if you're not keeping up with the Jonses. Take that 1950s lifestyle, and live it today. You give up some luxuries, but still live better than most people in the world.

Here's a summary of every frugality plan out there (the secret is you don't get to cherry-pick what you do):

  • Keep a budget, or at least track your finances. (I personally recommend GnuCash.)
  • Live close to work. Preferably within walking or biking distance. If you can walk or bike, your transportation costs are basically zero.
  • Living close to work might entail giving up a big or fancy place. Don't live in the ghetto, but put some effort into finding something low-priced for your area that's still in a safe hood.
  • Walking, biking or even public transportation means you don't need to own a car. Ever done the math on what a car really costs? It's not just gas, it's insurance, title, extra taxes in some locales, maintenance, storage/parking... If you absolutely can not live without a car, pay cash for something used with a proven track record, like a Honda Fit with 80k miles on it. And learn to hypermile.
  • Buy basic ingredients and make all your own foods. Never (or rarely) eat out. There's no shortage of information out there on how to eat well (healthy, delicious, whatever) on the cheap. Beans and rice are an option for the hardcore, but you don't have to spend too much more to open up a lot of options.
  • Flagship cellphones are not allowed, nor are just about any 2-year contract plan. Buy something in the "value" range like the Moto G, or buy used, and get the bare-minimum service you need through an MVNO.
  • Cheap entertainment. The library is a great start. If you have an expensive hobby like golf, work part time at a country club or local course to fund it.
  • As long as you can live in a safe neighborhood and eat healthy, you should maximize your 401(k) contributions (yes, the full $18k/year). At a minimum, get the full employer match (if there is one), otherwise you're voluntarily working for a discount.
  • Once you've maxed out your 401(k) continue to challenge yourself to save even more.

There is of course no shortage of special exceptions that make the above harder or impossible. But for people who are reasonably intelligent, patient, have a good work ethic, and are willing to cut back on all the luxuries of the typical middle class person, wealth isn't too hard to achieve.

I tried to order that somewhat in terms of importance, most important first. Really, I think a lot of people would change their habits if they took the time to track their finances. That's at least half of what Your Money or Your Life is all about, showing you techniques for tracking and evaluating your spending. Rather than say at the end of every month, "Why don't I have any money left?", you start saying things like, "I spent $150 last month on DooDads? I don't even like DooDads that much!" The process of regular spending review should naturally induce better spending habits.

Furthermore, YMOYL talks about calculating your real wage, which is generally (significantly) lower than your advertised wage. The commute alone drags down your real wage---while your employer might not count it towards your 40 hours, you're doing it directly to support your job, so it's a time cost to you. So while commuting might not be "real work", it still counts against your wage. In other words, all things being equal, the job with the shorter commute has a higher real wage.

Comment Re:It's incredibly frustrating... (Score 1) 535

It's possible for almost anyone with a full-time job to invest

That's just so completely untrue

The minimum wage is $7.25 an hour. MANY people still work at or slightly above that. $7.25 * 2000 hours (full time) = $14,500 a year, or $1200 a month gross...

Let's tweak the statement a bit to make it universally true: It's possible for anyone living below their means to invest.

You only make $14k a year? You live below that. It won't be a cushy middle-class life, but you can get by and be healthy. And with the right attitude, you can actually be happy.

Before you complain about cost of living, consider that, minimum wage jobs are available everywhere. That's one clear perk of minimum wage jobs, you can do them in a part of the country with the lowest cost of living. Clearly, Manhattan and San Francisco are out. You will almost certainly need to share housing with roommates. You don't eat out or order in, you cook all your meals at home using only staples and/or grocery store loss leaders. Your clothes are strictly for function, not fashion, and will generally come from thrift stores. You don't own a car, you walk or ride your bike everywhere (maybe take public transport). You don't buy any media, it's all borrowed from the library. You might not have a TV, certainly not cable. Your phone is a pre-paid feature phone, not a smart phone. You don't own anything that doesn't get used regularly, and for those things that do get used regularly, you buy used on Craigslist. Fitness comes from doing body-weight exercises or maybe lifting DIY sandbags. Entertainment comes from socializing, board games, walking, nature trails, reading, volunteer work, etc.

Yeah, I know there are a million exceptions people can cite, but the above model works for any young, reasonably healthy person with the right attitude.

In fact, assume you can save half of that $14k every year. Assuming a 5% rate of return, in about 15 years, your portfolio will throw off that $7k/year you need to live. You could retire or maybe indulge in a little luxury.

Check out Jacob Lund Fisker of Early Retirement Extreme. He lives on about $7k/year. Clearly, as the name suggests, many will find his methods "extreme". Most people accustomed to wealthy first-world middle class life would find his methods an exercise in deprivation. But ultimately, once your basic human needs are being met, it's generally a choice whether or not to be happy. Before the advent of civilization, we were forced to compete with other animals in a world of scarcity. Now, particularly in wealthy countries like the USA, we have abundance, which in a market economy means low prices. You can get everything you need for virtually nothing. And even the life of "deprivation" I outlined above is still luxurious relative to most of the world's population, or certainly compared to the average quality of life for humans since the dawn of mankind.

Comment Re:Just so you know (Score 1) 252

For all you integrated GPU haters and Intel haters... the Intel Linux drivers are straight up excellent. I do not believe there are better Xorg drivers available in Linux, including NVidia. Intel has really been diligently working to make their Xorg drivers work well and they deserve credit. For desktop work, HD video and other non-first person shooter use cases both the hardware and the drivers are a godsend and I thank Intel.

Honest question, is that sarcasm? In particular, the comment about HD video. I've been using MythTV as an open source DVR/media center for many years. When Sandy Bridge came out, it was in theory the perfect HTPC chip:

  • - Super-low idle power consumption. With a little attention paid to the components, it's not hard to build a system that uses less than 20 Watts of power when idle. Low power means low heat, and low heat means you don't need a lot of fans, and can use a small, stylish case (that looks more like AV equipment rather than a PC)
  • - Hardware decoding of common video formats. So I can watch my Blu-Ray rips without using a lot of CPU power, thus keeping energy usage and heat to a minimum.
  • - Still a "real" CPU for when you need to fallback on software decoding. The nVidia ION based systems share the above two criteria; but with a wimpy Atom CPU, if you ever need a real generic computation ability you're out of luck. The SNB chips give you the best of both worlds.

And I watched in envy as, just after the SNB launch people on forums (AVSForum for example) built Windows-based media PCs that were delightfully capable, small, cool, quiet, and used very little power. When was the SNB launch, like two years ago? And I still can't get vaapi working reliably on my HTPC. My situation is just like this "anyone have vaapi working reliably on sandy bridge" post on Phoronix. Basically, it seems to work for a brief amount of time, but it's not deterministic. Maybe five minutes, maybe a couple days, but ultimately, X will hard lock and the screen will go black. Fixed only by logging in remotely and rebooting. So maybe it works for some. But it certainly doesn't "just work" --- if it does in fact work, there is clearly some magical alchemy of proper versions of all the different software components, and possibly the phase of the moon.

Comment lots of things to consider (Score 1) 397

How much shorter is the commute? That alone will add "pay" to the new position. I think a lot of people fail to recognize just how expensive car commuting is. If the new work place is close enough that you can bike, you can really save a lot of money.

These days, when considering what a job pays, you can't just look at the salary. I really recommend reading Your Money Or Your Life . Yeah, the language is kind of mushy and touchy-feely at times, but the general points are important. All for-pay jobs should be considered in terms of their real pay. Which is your salary, minus taxes, minus commuting expenses, minus work incidentals (uniforms or other equipment you personally need to buy), etc etc. Any non-reimbursed expense that you must incur as a result of your job must be subtracted from the advertised salary. IOW, would you spend this money if you didn't have to work? Furthermore, you need to break that real pay into an actual wage, i.e. what is your effective per-hour pay? Take the salary, minus all the expenses I mentioned, and divide by hours spent on work---including your commute, forced breaks, overtime, etc. (So, for example, consider two otherwise identical jobs, but one with different commute times. The one with the longer commute has a lower overall real wage.)

Consider also health insurance benefits. If you're single, it's probably less of an issue. But if you're married and have kids, then it becomes a big deal.

I will say this: I've now had two positions in my career, and in both case I was part of the "expense" structure. In other words, the stuff I worked on was necessary and provided real value to the company, but was not the primary revenue generator. So management views it as an expense, and cost-cutting is the name of the game. How little can we spend and still get the same result? But when you're dealing with a part of the business that is directly responsible for the profits, management tends to be a little more flexible, and willing to take bigger risks. Just something to consider: if you're moving from a position where you work on your company's end product, to one where you are simply part of the "support" structure, you may find the new environment to be frustrating.

FWIW, I was faced with a loosely similar situation: I had a relatively stable job at a big company. It paid a decent wage and I more or less liked it. But from a friend's invitation, I took a chance on a completely new job in a new city at a startup. The startup has been quite successful, and I'm making considerably more money. But I'm not particularly happy with the job itself; not miserable, but it's certainly not something I'd do for free. I stay for the pay. But I don't regret my choice; even if I knew then what I know now, I'd still take the job. The way I look at it, I'm "buying" greater future freedom by sticking with the not-enjoyable-but-high-paying position for now.

My first link in this comment was from Mr Money Mustache, a blog about facilitating early retirement through frugality and saving money. The retirement goal isn't so much of being able to sit around and do nothing, but being financially independent so that you're no longer a wage slave---you can strictly chose what you do based on the fulfillment factor, rather than worrying about putting food on the table. IOW, you can find the job you like so much you'd do it for free.

Do you know anything about the department/group you'd be managing in the new position? What are the people there like? Are they naturally happy and motivated to do good work? Or is it a sweatshop, where your job will be to crack the whip? Are they struggling right now, and just looking for a patsy to take a big fall?

Ultimately it's a personal decision, no matter how many details you provide about each position. I would use Your Money or Your Life (YMYL) to analyze the finances of both positions. In a lot of cases, you'll find that one job has a higher salary only on the surface. But seen through the eyes of someone who's read YMYL, the pay might actually be lower! And after YMYL, do as much work as you can to understand the "feel" and intangible side of the new position. What are the people like? What are management's expecations? What's the culture like?

Comment it will eventually be commoditized anyway (Score 1) 500

I think all the hoopla about HFT is way overblown. Rather than try to interfere, why not let it just run its course? It's the hot new industry now, but eventually, that won't be the case. Like most other industries, it's on a trajectory towards commoditization. IOW, increasing effort is required for decreasing profits.

I've worked for a small HFT firm for many years now; helped it grow from startup to where we're at now. Some random factoids that a lot of people don't understand:

  • - Everyone always focuses on stocks, but HFT takes place in lots of other markets. My firm barely trades stocks. The big money is in other instruments, like futures (US and foreign), sovereign debt products (e.g. US treasuries), and foreign exchange. And note that while a stock's price is exactly what it is, for most other products, that "price" represents a fraction of the real price. For example, the price of a US Treasury is basically the percentage of $1 million. So even a one-tick movement represents a fairly large change in price.
  • - The startup costs aren't that high. Are they trivial? No, but they are not insurmountable. At least my company uses commodity servers, and in some markets, still relatively old networking equipment. The price to co-locate with an exchange is not outrageous. Of course it depends on the exchange, but you can probably get a co-located cabinet for $10k/month or less. Then you add in exchange fees (highly dependent on the venue) and clearing fees. All that stuff is quite unremarkable relative to the start-up costs of any other non-trivial business (dramatically lower than, say building a factory, or buying big earth-moving equipment).
  • - I find it amusing that HFT firms claim they benefit everyone by "increasing liquidity". The irony is that they only participate in markets that are already quite liquid. It's hard (virtually impossible) to make money in an illiquid market with low overall volume.
  • - The presence of all these automated market-making algorithms ensures a low bid-ask spread. Yes, when people trade, they are effectively paying a "HFT tax". But without HFT, the big-ask spread would probably be much larger, and traders would instead pay the spread. I can't see how people can legitimately complain about this. Remove HFT and you replace the "HFT tax" with the "bid-ask spread tax".
  • - Depending on the "style" of HFT, some market-making firms actually, by design, lose money on actual trades. They make their profits from the exchange, who pays rebates for making markets. HFT is a boon for the exchanges, where profits scale with volume.

What kind of people are really hurt by HFT? Certainly not me, as a small-time buy-and-hold investor. Heck, I send market orders. I intend to hold my securities for at least a decade. If I over-pay by a cent or two, I don't really care. And, as I suggested in my last two bullets above, who's to say that I didn't get a better price due to HFT? Maybe some market maker took a loss on the trade with me, but profited overall from exchange rebates? Maybe without automated trading, I would have had to pay a larger bid-ask spread? I don't think anyone can really know the answers to these questions. I'm certainly not losing any sleep over them.

Opposite me are the big institutional investors managing mutual funds, trusts, pensions, etc. These people typically have a goal of meeting some pre-defined position based on the design of their fund. The bigger goal is meeting the fund strategy, rather than micro-optimizing each individual trade. Do they really care about the HFT guys skimming a bit off of each trade? And, as in the case of the small buy-and-hold investor, how can anyone know that they actually are getting a worse price than they would without the HFT guys? How does anyone know that the big institutional investors also wouldn't be subjected to a costly bid-ask spread?

I'm certainly not trying to defend HFT. I keep my job only for the big bonus. I don't really feel like I'm improving society. At the end of the day, I feel like my efforts really just make wealthy people wealthier. But combine the big bonuses with a frugal lifestyle, and I'm on track to retire quite young. That means: more time to spend with my family; and the ability to pick jobs based on how fulfilling they will be, rather than whether or not they pay the bills (I could be a full-time volunteer).

Anyway, I don't think it's worth getting all worked-up over HFT. And as I said at the start of this comment, it will be a commodity industry before long. The other side of every profitable/winning HFT trade is a losing trade for the counter-party. Eventually, HFT methods will come into the hands of these counterparties. Now the previously winning HFT will have to adapt to continue to be profitable. I think at some point, we'll see off-the-shelf trading software that lets people execute their trades with the same sophistication as the HFT shops. In order to remain profitable, HFT will have to keep digging deeper and deeper in their research, and come up with increasingly clever schemes. That's a path for more effort probably less returns. I.e., commoditization. That's the flipside to my first bullet-point above: eventually, it will be very expensive to launch an HFT, and the available opportunities for profit will be shrinking. That makes it overall less lucrative, which implies boring, meaning, you won't care about it any more.

Comment Re:I baffles me... (Score 1) 1042

The fundamental fallacy of the libertarian ideal is that people are independent entities. This is completely false. For my day to day existence, I depend tremendously upon a very large number of people. Just look around you. What percentage of the items around you did you make entirely on your own? My guess is none. Even if you built everything yourself, you almost certainly used tools made by somebody else.

They used to say communism works in theory, but I don't think that old saying still applies. It really doesn't work, if you pick apart the details. I think libertarianism is the same thing: from the big picture perspective, it sounds great, but beyond that, it's logically flawed---it ignores the reality that human nature and human institutions are imperfect and corrupt. Or the idea that the "free market" is the solution to everything---my understanding is that a perfect market is one with a truly level playing field. A truly level playing field is one in which all participants have access to complete information at all times---how is that possible under any circumstances? A perfect market, with a truly level playing field is simply not possible, not even "in theory". So our current system is broken, but the libertarians want to replace it with something that is logically also not perfect.

While I feel that regulations are a double-edged sword, I do think they make my life better. And this goes back to the comment I quoted above: how can anyone think that their life would truly improve if all regulations were removed? Think about how hard your life would be: is the water you're drinking safe? Is your food tainted? Are the buildings in which you live and work structurally sound? Are they wired safely? Are the consumer electronics you're buying filled with mercury or other heavy metals? Are they going to electrocute you when you plug them in? I think the anti-regulation people (libertarians, right?) either don't recognize or at least take for granted how much "free" comfort they get due to regulations. And they always come back and say, but there would be independent businesses, bound by contract law, that would audit foods and structures and consumer products for safety (e.g. Underwriters' Laboratories). But how can anyone think that for profit "regulators" would really work in the interest of the public? They will be paid by the companies making products, and their first priority will always be profits. And how can we audit those private companies, to make sure they are actually honoring their contractual obligations? See my comment above about a level playing field. Furthermore, necessarily, products that are "regulated" by these for-profit companies will cost more. So poor people are further screwed, as they will be less likely to afford the "safe" stuff.

Another flaw to the argument is the idea that everybody earns what they are paid. For some of the top earners at hedge funds, they can take home MILLIONS in a day, far more than the lifetime earnings of a teacher. Do you honestly think that a hedge fund manager contributes more to society in a DAY than a teacher does in a lifetime? I'm not saying that everybody should be paid the same - there are clearly examples of types of work and sets of skills whose true value is greater than others. My point is that income is often not a measure of how much value a person contributes - it is more a measure of how close they sit to money.

I have yet to have someone explain to me why libertarianism isn't another term for social Darwinism. The fundamental underpinnings of a market economy are supply and demand. What work an individual performs is a function of his personal "supply". That is, his talents, aptitudes, and/or interests. Not everyone can make the big bucks, for one reason or another. As the parent said, most jobs don't pay in proportion to their benefit to society. I just don't get it: how can a pure market economy and a society held together by contract law (isn't that libertarianism in a nutshell?) suddenly change human nature and values in such a way that the needs of the masses are balanced with the needs of the individual? Does anyone really believe that optimizing a society's structure around the needs of the individual will be good for everybody as a whole? Can some people not see (in less that two minutes) that there are plenty of examples where individual interests directly conflict with a group's interests?

At the end of the day, humans are imperfect and therefore human institutions are imperfect. I think the goal of any government is to recognize those flaws, and try to create a structure where the effects of those flaws are minimized. And I don't think there's a single silver bullet to fix it. Like anything we build, a government, a market structure, a society---they all require care and feeding, planning and monitoring, checks and balances. That is, it requires work. I think there's a middle ground where most people will be driven to do that work, for the greater good---that is, work for something that benefits themselves and at worst has a neutral impact on everyone else. And frankly (perhaps in contrast to everything I just wrote), that middle ground is a little less comfort than I think most middle class (and up) people in the USA have come to expect. Too much comfort, and we become shiftless and complacent; too little comfort and we might as well revert back to primitive times where daily life was a struggle to survive. Make life hard enough that I'm motivated to work hard and improve it; but also make life easy enough that I still have the time and energy to care about more than my immediate needs.

Comment Re:short term skimming (Score 2, Insightful) 216

Exactly. Goldman Sachs and JP Morgan earn a huge chunk of their profit from high-frequency trading. This profit must come at an expense of someone else (like regular stock holders). In my mind, this is legal theft.

I see this mantra repeated often around here, but I'm not so sure it's entirely true. First, what is a "regular stock holder"? On one end, there are small-time, buy-and-hold investors such as myself; on the other end, there are big institutional investors who manage massive portfolios for pension funds, insurance companies, mutual funds, etc. And there's everything in between. From one end of the spectrum to the next, you have very different trading profiles, and thus are affected very differently by high-frequency trading.

For someone like myself, I make maybe a few dozen (relatively) small buys per year. These buys are usually in the neighborhood of 100 shares. If a high-frequency trading program jumps in and effectively front-runs me to to make a few pennies, I don't really care. Overpaying by a penny or two per share means nothing given my buy and hold (long term) strategy. I'm already out $9.99 per trade in commissions to my broker. I'm looking at a horizon of at least ten years, when these relatively small additional costs shouldn't matter.

On the other end of the spectrum is the big institutional investor, like the pension- or mutual-fund manager. This person's job is to constantly rebalance the portfolio to meet some pre-defined metrics; he's generally actively trading huge amounts on a daily basis. While he certainly wants to get the best price possible when he trades, it's practically impossible for him to do that given the volumes in which he deals. Unless he has a highly specialized trading algorithm---that is, something just as sophisticated as the high-frequency traders---he can't help but signal his intentions to the market. Telegraphing his intentions is what makes him a "victim" of the high-frequency traders.

I'm not a fund manager, but my assumption is that, like me and my small buy-and-hold strategy, he also doesn't care about having a small percentage skimmed off of each transaction. To me, it's like buying a big-ticket item, such as a car. Say you budget $27k to buy yourself a new car. Now, some enterprising company goes out and manages a massive, real-time database of every car available for sale in the country. This company can use this database to find you the exact car you want, right now for $27,250. If you're willing to spend $27k, do you really care if you pay an extra $250? And for that $250, you get precisely what you want, and don't have to wait. Compared to going to a dealer, who, if you're lucky, might have what you want at your price... but chances are, the dealer will have something close to what you want, and you'll have to negotiate the price. Or maybe the dealer can get you exactly what you want, but you'll have to wait while he works the intra-dealer process to provision the car. Or maybe he can get you exactly what you want, for even less than $27k, but you'll have to wait for the car to be manufactured. A car buyer can face all these scenarios, but I believe the fund manager most closely mimics the first: that is, he knows exactly what he wants, and he wants it right now.

My prediction is that we'll see the high-frequency trading landscape continue to evolve. Like anything, there will come a day when that kind of business and the skills required to do it are commoditized. And when it reaches that point, it will be much less lucrative. I think we'll see traders of all profiles using ideas and techniques from the high-frequency world in their own trading, meaning that the very people high-frequency traders take from will become direct competitors. The small-time trader like me will implicitly use such techniques, though they will be invisible, as it will actually be implemented by my discount broker (perhaps they'll offer me the BestPrice(tm) service, which just uses high-frequency methods to get me a better price). The big institutional investor will build out his own algorithmic trading system with better "stealth" tactics, and also competes directly with the high-frequency types. I think we are heading towards a truly automated financial landscape. The "market" will consist of a bunch of little competing programs, and we'll see near-100% of all trades being not just electronic, but initiated by an algorithm rather than a human.

The ethics of all this I think is the same as with all technology. In the USA, doctors usually have high salaries. Even mediocre doctors probably fall into the "upper middle class" category, and some exceptional and specialist docs trickle into the "wealthy" category. And I think most folks would agree that an honest doctor's benefit to society is fairly tangible---they're helping you and your loved ones stay healthy. So perhaps they deserve their big paychecks. I also think conventional wisdom holds that jobs like nurse and teacher have tangible benefits to our society, though these are typically "middle class" or even "living wage" positions. But if you can consistently detect a mis-priced asset, or a major market move, and express this as a computer program, you'll find yourself securely grounded in the "very wealthy" class. But where's the tangible benefit to society?

Sometimes I take the socialist viewpoint that this is a major failing of capitalism: wealth isn't distributed according to benefit to society. Of course "benefit to society" is subjective, but our current system says detecting mis-priced asset is more valuable than saving a human life. On the other hand, perhaps that asset mis-price detection is truly more valuable than saving a life, we just don't yet have the ability to demonstrate it.

But ultimately, I think it's just human nature. Whenever there's a technology revolution in any industry, we always see questions of "is it too soon to use this?" For example, vaccines in medicine. As someone expecting his first child any day now, I found that there's a huge body of conflicting information (some of it downright scary) regarding infant vaccination. Just like with high-frequency trading, it seems to be a very polarizing topic, with staunch opinions on either side. I find that in situations like this, the truth is usually somewhere in the middle. And I like to think that my take on high-frequency trading is the middle ground---that it's ultimately neither good nor bad for markets, or even the economy as a whole. There's a lot of money to be made in it while it remains a fad. But as the techniques mature and become commoditized, it will be less glamorous and likewise less controversial. Human history is filled with stories of people making fortunes by being early adopters and implementers of technology. I'm not sure mankind has ever seen a new technology that didn't have a silver lining. Algorithmic finance falls into the same category---great for some, but others see the warts. When high-frequency trading as an industry matures---when finance is overwhelmingly algorithmically driven---it will be the "norm" and the warts will have smoothed over someone or at least accepted.

Comment Re:Why do they need to do traffic shaping? (Score 1) 705

The overselling of bandwidth, however, is necessary to make remotely efficient use of the infrastructure. The vast majority of net use is burst-based, so it's a huge waste to pay for the full 10Mbps of capacity for every user - just look at the prices on a leased line if you want to see how much that'd actually cost. Even at peak time, nowhere near 100% of customers are using their lines at 100% capacity.

Who says the infrastructure needs be used efficiently?

Besides, if there was more competition for last-mile connectivity, we'd have 10x the number of providers, meaning, 10x the infrastructure. Sure, the usage of all that combined infrastructure would be "inefficient", but it wouldn't have to be so oversold, because there's the same number of customers spread out over more lines.

As someone else mentioned, fiber, aka "the infrastructure", is cheap. It's getting the rights to bury the fiber that's expensive. And I wonder if that's because so many communities have granted monopoly status to last-mile providers like Comcast?

Comment Re:he's right (Score 1) 680

Need two different schools; one for kids who give a shit, one for kids who don't.

Why not military boarding schools?

Here's my plan:

  1. Install cameras in all classrooms
  2. Have monthly "reminder" sessions where the kids learn that they can be moved to a military boarding school for bad behavior
  3. After a certain number of reported behavior incidents, the taped footage is sent to some neutral 3rd party (like a jury) to review
  4. If the 3rd party decides the reports are valid and the student is disruptive, they are put under military control in a boarding school

It's really striking when you see a documentary about incredibly impoverished schools in other countries and how much the kids want to be there.

So we take out the ones that don't want to be there.

The camera and reporting system could also cut both ways: the teachers should also be held to some standards, and the video can be evidence of under-performing teachers as well. Teachers unions would probably keep this from happening though.

I have family and friends who teach in the public school system, and there are far too many classes where the teacher is nothing more than a baby sitter. Concerned teachers who investigate into the lives of their worst students (either in terms of behavior or academic performance) are usually shocked and appalled at the kids' home lives (or lack there of). My aunt has seen kids whose "bedroom" is like the old school interrogation room: peeling paint on the walls and maybe one light bulb hanging from a cord. Some kids don't even have proper beds. And this isn't the urban ghetto---this is smaller town middle America. How can you expect kids to care about school when their home lives are in such shambles? It sounds like a punishment, but a boarding school would introduce structure and routine into such a child's life.

My mother-in-law has a radical, non-politically correct idea for solving the "lousy parent" problem in public schools: if a child or child's parent is the recipient of any form of public aid, that aid can be withheld for at-school behavioral problems. The more I think about it, the more I like the idea.

Comment Re:You're Probably Right But ... (Score 1) 1425

How do you approach any person? By trying to understand who they are, and making your points from a perspective that they know and understand. This Jesus character had some very intelligent things to say. It's worth learning, and even impressing your fundamentalist neighbours with, if you can pull off a few quotes... The aim is to try and discover methods and practices which make for a more congenial fundamentalist neighbour. It's possible, especially if the religion has a love and acceptance factor built into it.

Oh, you mean I have to work at it?! Well, then, I'm not interested!

Just joking, I think that makes a lot of sense. I believe I actually witnessed this once: years ago, I went out to lunch with two co-workers. One, call him Fundie, was a fundamentalist Missouri Senate Lutheran; the other, call him Thinky, was a non-denominational Christian. Many of the comments I made in my original post apply to Fundie. Whereas, Thinky is someone I really respect: his faith is very important to him and his family, but he was extremely open-minded, and more than accepting of other viewpoints. To him, church was for being part of a community and providing some structure for his children.

Anyway, Fundie and Thinky started discussing their respective churches. Fundy asked Thinky, "Do you allow gays in your church?" Thinky said that they do allow gays, to which Fundie immediately replied, "But the Bible says it's wrong."

Thinky came back with, "Do you allow divorced people in your church?" Fundie replied that they do allow divorced people, to which Thinky replied, "The Bible also says that's wrong."

Fundie had no response, just sat in awkward silence. I had the tact to restrain myself, but in my mind, I wanted to jump up and hi-five Thinky.

If you find that trying to understand Christians is distasteful, then I put it to you that your reaction is emotional, not rational.

My knee-jerk reaction says you're wrong, wrong! :)

But upon further reflection, though I'm a bit ashamed to admit it, you're right. Though perhaps a bit paradoxical, I suppose it's just as easy to be "blinded by rationality" as it is to be blinded by faith. That is, if you're usually in a rational mindset, you might tend to assume you're always rational. And I think it's inhuman to truly be in a perpetually rational state of mind.

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