Wednesday, December 31, 2008

The Bacon's been Fried

There is a growing consensus that financial tools like credit default swaps, short selling, federally-re-insured mortgage backed securities, hedge funds, leveraged ETFs and other creations of the modern financial world require greater regulations.

The 2008 market implosion was dramatic. Lots of paper money was destroyed.

The modern progressive thinkers, who oddly were the inventers of these failed financial tools, wish to push the conclusion that failure of these weird financial tools prove what they've known all along that the American experiment in freedom is a failure, the free market is a failure and that wee need a new social order akin to the progressive regimes in Cuba, Venezuela, El Salvador, Haiti, North Korea and Iran.

My parting shot for 2008 is that all of the financial instruments that appear to require greater regulation should never have existed in the first place.

The best example is naked short selling. Our corrupt financial system created a network of centralized brokerages in cahoots with a secretive organization called the DTCC. The insiders in this group can dramatically increase the float of any publicly traded company on a whim. Naked short selling undermines the ability of companies to re-invest the capital that they have built up through the years.

Short selling itself is anti-market. Short selling is a creation of regulators that allow people to sell the equity in companies that they do not own.

A large number of regulatory failures came to light during the economic collapse. The message of these regulatory failures, however, is not that the free market failed, but that Americans were a bunch of chumps for having faith in financial tools that are dependent on the integrity of regulators.

Rather than more regulation, we need to return to a financial regime based on the direct ownership of equity and away from the leveraged and federally backed financial system favored by the elite.

Ending the Year on a Sick Pun

On an end note, I was devasted to hear that one of my favorite actor had his bacon fried in the Madoff scheme. Tremors was the best goll-darn movie every made. It shows the grim reality of life in Southern Utah, dagnabbit. Footloose captures the deep inner conflicts utopian dreams of Northern Utah ... Oh My Heck.

Tuesday, December 30, 2008

The Ruling Class Predators

Last night, I left a snippy comment on DeepCapture. The comment sums up a few of my thoughts on modern business thought. The comment was a response to a 2006 quote from a 13 year veteran rogue from the SEC named Richard Sauer:

SHORT sellers occupy a position in the stock market like that of predators in nature.

With a few edits, my rant was:

Saying that we need predators in the market killing companies is equivalent to saying that we need murderers roaming the street to keep the population healthy.

One of the primary themes of classical tradition was that man could use rationality to overcome the base state of nature.

That tradition works. It brings on prosperity.

Man is a rational creature. We can improve our lot through reason and deliberation. Short selling appears to be undermining the ability of investors to engage in the rational process of assessing investment options. With modern communication technologies, the market is so efficient that we no longer need artificial regulatory measures like short selling.

Just as we don’t need rogues roaming the streets randomly killing people, we don’t need an elite class of insiders in brokerage firms randomly destroying companies.

Human rationality overcomes the need for predators.

In the last several years, there has been a predator class randomly killing large numbers of people in Iraq. I see absolutely no sign that the average Iraqi is better off with the killings. They actually look quite miserable and unhappy about all the killing.

Anyway, the current rot in Wall Street is more like a plague than a sleek predator. Sauer’s argument is akin to saying that the market needs to be covered with a festering pustulation to be healthy.

Look ma! That man is oozing with superating sores ... he must be really healthy!

Mankind is a rational creature. We thrive by using reason to overcome the plight of disease and predators. That’s why there’s billions of us. Sauer is simply repeating a failed elitist ideology that causes widespread hardship and misery.

This funny little trick of using reason to overcome our base nature is called "civilization."

Sauer's use of the predator metaphor to describe short selling is quite interesting. Throughout history, a common trait of the ruling class is that they see and treat the lower classes as animals. The Marxist Dialectic out and out denies man's rationality. This ruling class mantality has always been the antithesis to civilization.

Personally, I think this division between the classical and modern view of rationality is much more important than the division between left and right.

I might write more about Sauer's editorial. It is a prime example of the progressive view of the way business works.

Monday, December 29, 2008

Freeloading on the Network

@microstock image

Wikipedia is doing their annual beg for cash. Their goal is to raise a modest $6M for operating expenses.

The thing that stands out in my mind about the plea is that the organization employs only 23 people. This highly centralized group that dominates the information distribution sector provides only 23 jobs.

This news actually breaks my heart as I would love to live in a world with millions of people employed in research. The Wikipedia model, with one nonprofit group, fueled by volunteers, dominating the information creation and distribution system wipes out the dream of a large number of independent agents gathering and distributing information.

Of course, a large number of the "volunteers" are people working with government agencies, marketing firms or investor groups seeking to influence public opinion through social media. I suspect that there is a large number of the volunteers getting paid for their service. They just aren't paid on the front end.

Judd Bagley's antisocial media project shows how hedge funds use wikipedia and other forms of social media in short attacks.

There are good things that come from social media. Like all things created by man, the social media fad has both good and bad characteristics. At its worst social media turns into a form of cyber mob rule in which groups try to manipulate themselves into ideological domination.

There is also a nagging voice in my brain that rejects the domination/submissive model pushed by the modern dialectical way of thinking. Even though many people participate in wikis, the model falls far short of the depth of real quality research. The homogenized content produced through the editing process falls far short of the depth I like to see. Group editing also mutes the multiplicity of perspectives that comes from traditional research.

I prefer a vibrant market with thousands of voices being heard to a centralized voice created by a group think mechanism. I would rather see small sites where people get paid for the content they produce. I donated to Wikipedia before it was cool. Today, I would rather just pay for Britannica where people are employed to do the research.

The Progressive View of the Market

Progressives are an odd lot. They openly discourage people from paying for individually produced content such as research, music, art, etc.. Progressives also seem to have a fascination with market manipulation. As mentioned in my last post.

I think this is the legacy of Marxist thinking. Marx did not define Communism, what he did was to create a destructive view of the market called "material dialectics." This view encourages people to actively work to undermine the public market, on which the middle class built its fortune. The dialectics then provides formulas for manipulating the market from a meta-level.

Not surprisingly, the names of famous progressives tend to pop up in discussions of market manipulations. In the current market crash, we keep hearing names like Sandler, Madoff, and Soros. In previous generations, we find that Joseph Kennedy made a fortune that was enhanced by insider trading schemes. Many of which became illegal when his son rose to power.

Conservatives are doltish lot who try to concentrate on an ideology where free people use the market to help achieve their life ambitions. Progressives (like George Soros) tend to reject the foundations of an open society and produce a cast of characters with billionaires manipulating the market from above and a legion of rogues from below who try to undermine the market by disengaging from the market.

The problem is that this iron fist/iron glove methodology that leads to wide disparities in society. I stopped being a progressive because I found that so much of what I was doing actually undermined my intentions.

The music piracy craze at the turn of the millennia wiped out a large number of small music promoters who were investing in music distribution schemes, and left us with only the conglomerates that had the funds to create music distribution channels with DRM programmed into the music.

I just completed a review for a new fad called Couch Surfing.

I really like the basic idea of couch surfing. Travelers create an international social network. This network allows you to meet people when you go trekking abroad. It is a beautiful idea. I love the idea of meeting people from distant lands. It is terribly difficult to meet people when traveling.

When I first logged into Couch Surfing, my mind jumped ahead of itself with the realization that a for-profit site social network that introduced travelers and locals could be worked out in a way that it provided local tour guides with an extra source of income.

My ideal of social networking is that social networking should be beneficial for all parties engaged in the process. Social networking will fall apart if it simply devolves into a system of freeloading.

Unfortunately, the CouchSurfing effort is dominated by the progressive anti-market message. The site is set up primarily to discourage people from staying at the small hotels and bed and breakfast inns that I adore. The owners of the site self-righteously rub in their nonprofit status as they brag about how they've diverted millions of visitors from marginal hostels and small hotels. Thousands of low income hospitality workers owe their pink slip and fall from the lowest rung of society to the sneering founder of Couch Surfing. The world is worse for each small hospitality business that fails, and for each hotel worker who receives a pink slip because of these bozos.

Anyone who fills out a form and pays the filing fee can be a non-profit. Although a large number of worthy organizations have 401c status, there is nothing about 401c status that makes a group morally superior to those filing as a corporation.

Of course, now that the Progressives have a successfully engineered a super majority in Washington, we might see a muting of the anti market message of the left. Most progressives simply want power, and only use the methodology when they are on the out. Few progressive leaders want to see the massive unemployment and starvation that their dialectics creates. As such they tone down the anti-market message when they are in power.

I am hoping that, after the transition to power, progressives will tone down their infatuation with social movements that leave millions unemployed and helpless.

Anyway, my favorite travelers are those who work hard, save their pennies and spend liberally when they travel. The money people spend on hotels, restaurants, museums and exhibits when traveling help make the world a better place one commercial transaction at a time.

Sunday, December 28, 2008

Debt as an Asset

I did some reading up on the 2006 merger of Golden West Financial and Wachovia. Golden West Financials was a media darling that was giving to all of the politically correct causes. The two principles of Golden West were Herbert and Marion Sandler. According to Wikipedia and other sources, the Sandlers were in tight with and George Soros and very much dedicated to bringing a progressive regime to power in the US.

The Wikipedia page for George Soros credits Mr. Soros as the financier who broke the Bank of England in 1992.

At the time of the merger, Golden West had a loan portfolio of over a hundred billion in loans. Oddly, in the years after the merger, Wachovia found itself saddled with several billion in bad loans (mysteriously centered in the areas served by Golden West). Wachovia imploded. Wells Fargo picked up the pieces of Wachovia for less than the price of Golden West.

Wachovia is a politically incorrect bank with accounts from tobacco companies and tobacco workers. Wachovia's greatest crime against humanity came in the form of donations to the hated George W. Bush.

As Wachovia and Golden West were contributing to vocal groups on different sides of the political fence, I suspect that there will be some intriguing books written about the merger.

As the players involved with this story are rich, powerful and desirous of producing a history which paints them in a positive light. I suspect that the telling of the story itself will itself become a story as players seek to slander opponents and whitewash their activities.

It is a story that should be followed closely by historians and the public. The Charlotte Observer has an in depth article on the merger.

What struck me about the story is the overall absurdity of developing a debt portfolio as an asset. This system where banks hold billions of dollars in loans as an asset is guaranteed to lead to calamity as economic times change.

I know little about this merger beyond press releases and articles about the event. I bring up the case as a sensational intro to the topic on my mind which is the absurdity and danger of this system where banks hold, trade and leverage huge blocks of debt as assets.

Such a system is inherently instable, and is prone to manipulation. In reading about this case, I realized that it would be possible for a person (or foreign power) of malicious intent to create a debt bomb. Skipping from headlines to a thought experiment, I present an argument on how a group of mal intent could create a debt bomb:

A Debt Bomb

A bank can easily create a debt bomb simply by approving questionable loans, then lending customers in default the money to make their loan payments.

Throwing good money after bad is suicide for a person trying to create a solvent bank. In a world where financial institutions treat large blocks of loans as an asset, the growing pile of festering debt would look like a valuable investment.

Lending money to insolvent borrowers earns kudos in the progressive press. It increases the overall size of the loan portfolio and it decreases, for the time being, loan defaults.

When the debt bomb is ripe, the group that created the bomb need simply sell the bank.

In this system that treats debt as an asset, the people who created the debt bomb would make out handsomely. They can make even more money if they begin aggressively shorting the party that acquired the bomb.

I should note that while it is possible for a person to maliciously create a debt bomb, it is also possible for a person to do so accidentally. They could approve bad loans out of the goodness of their heart and throw good money after bad in a desperate attempt to save face, then sell the bank to an unwitting party.


On watching the financial collapse of 2008, I am left with the observation that this thing where financial institutions hold and leverage massive amounts of debt is inherently instable. While I think our financial collapse occurred simply because financiers saw massive debt loads as good thing, exploring the question (Was any of this intentional?) is a valuable exercise. When one creates an instable structure, it is possible for a person to push it over.

The ability of a malicious actor to create debt bomb simply highlights the instability of financial system based on massive debt loads. The simple conclusion is that we should replace the financing mechanisms that create massive debt loads with financial systems based on a more direct and stable relation with the underlying equity that serves as the collateral for the debt.

Saturday, December 20, 2008

3900S Pictures

I had a few hours of free time; so I took pictures of 3900 South and the Jordan River Parkway. Here are a few of the highlights:

3900 South and Trax Geneva Rock Mount Olympus over the Jordan River

The focus was off on this one. It would have been a money shot if I did it right:

Bird Watching

Saturday, December 13, 2008

BSP Approval

Lake Blanche on Big Stock PhotoOn the issue of MicroStock, the editors of approved one of my images. This means I now have an active microstock profile!

Okay, there is only one image. It was probably a sympathy approval. I am not above exploiting sympathy. The picture is of Sundial Peak, and they actually have a better photograph of that peak in their system already.

Friday, December 12, 2008

Microstock Recorder

I created a program for recording MicroStock. The term "Microstock" refers to images created by graphic designers licensed for use in blog posts and what not. I encourage bloggers to use MicroStock. MicroStock lets you add fun images to posts while giving some cash to graphic designers.

Good netiquette demands that you credit artists for their work.

I included a stock photo in a snide little post called "Reason's Greetings" with a Christmas scene photo. Realizing that the artist may not share my opinions and would dislike having my page show up in a google search for his name, I decided that a better way to credit the designer would be to create a separate page with microstock credits. This page has links to the designer's microstock page, and a link back to my project.

On the SE0 side of things, good netiquette happens to make an inbound link back to my blog post.

I designed this Microstock crediting program for my own use. I decided to make the program open to the public at large. I invite anyone using MicroStock in blog posts to use this program. It is simple: You enter basic info about the picture and your project. That info creates a page. To credit the graphic designer, you simply add a link to the credit page. As there is a link back to your page, this process is beneficial to both you and the graphic designer.

NOTE, the program is intended to credit designers for their work. I will delete entries of people who fill up my database with spam.

If you happen to be a photgrapher or graphic designer, Scott Maxwell created the following graphic to explain the overall MicroStock process. (Clicking the image brings you to the "Microstock Credit Page," which links back here.)
crowd sourcing dollar

Direction of the Market

In my last two posts, I argued that price fluctuations convey valuable information about the current capacity and consumption of the fuel supply and that is possible to create futures programs to help people match consumption to demand to reduce peak capacity problems.

These observations are basic common sense. Price in a healthy economic system passes information from producer to consumer about local capacity. This information directly aids in the optimization of resources.

A corollary to the above statement is that, if prices aren't reflecting this ebb and flow of local consumption v. demand; then there is something wrong with the economic system.

When we look at the history of energy, we find a world where prices thrash from extreme to extreme. In this world, we find business warriors and third world dictators conspiring to push prices down to extremes to drive alternative technologies and capacity off the market. The conspirators then reap the spoils in the inevitable spike.

During the presidential debate, there was a great deal of animus aimed at independent speculators in the market. Some candidates were making suggestions that the spike in gas prices was the sole result of speculators and that there should be greater restrictions on who is allowed to participate in the market.

I am not buying the line that independent speculators are the problem, nor do I accept that they are bad. Independent speculators only make money when they manage to buy low and sell high.

In a futures trading system, the speculators should have a net positive effect in honing in on prices; otherwise, they would simply lose money.

Speculators are not the problem. Manipulators are.

Problems seem to occur because the energy market is structured in ways that allow manipulation on both the downside and upside.

(Personally, I think the deep dips in oil prices have a worse impact than the spikes as the dips drive companies providing alternative fuel under.)

Anyway, to solve our energy problem, we need to look beyond who is participating in the system to the over all structure of the system.

In earlier economic times, the energy market was largely local. Prices would be set in direct negotiations between energy producers and consumers.

The Twentieth Century saw the rise of centralized markets dominated first by Standard Oil, then later OPEC. Oil prices are set on commodity exchanges that are far removed from production and consumption.

My thoughts are that the path to energy independence should involve more direct negotiations between energy producers and consumers, and that we should be gearing the market toward a system with a large number of small local independent energy producers selling directly to energy consumers.

The market is heading in the right direction. To be labeled green, businesses have started buying directly from local wind and solar farms, and many small firms are eyeing the energy business.

Unfortunately, I fear that in our time of political "change," that the political machine is set on greater centralization of the market. I believe the better path to energy independence involves the creation of a large number of small firms. I fear we will head on a the path of large social programs that will peter out and fail to achieve sustainable energy market.

Wednesday, December 10, 2008

Divining the Future

My last post suggested that price fluctuations are a good thing as such fluctuations convey important information about the current balance of supply and demand.

This observation begs the question if the current price of a commodity provides sufficient information. The answer, of course, is "no." The current price does not provide sufficient depth for a rational decision making process. The current price of gas is a triviality. What really matters to us is the price of fuel when it is time to consume fuel. In most cases, people make the decision to consume fuel well before they purchase it.

The solution, to this quandary, of course, is to let people purchase fuel when they make their decisions. When you buy a product in advance, you have a futures contract. Futures contracts are wonderful things in that they allow you properly price your goods.

As the people selling oil know all about annual fluctuations in prices, the price for contracts at the height of the season would be higher than those when demand is low.

The futures contract adds depth to the price equation.

You can also create systems that communicate information about the current power supply through direct communications. For example, the local electric grid will have a mix of solar, hydro and other fixed power generation mechanisms along with expensive backup systems that come online during peak capacity.

The power grid can communicate information about current capacity and demand. At peak demand, the system could send a signal telling the world that they are at peak capacity. Rather than turning on new capacity, the signal would automatically turn off less essential services. Likewise, when demand drops below base production, the system could send out signals and products that store energy could on; so as not to waste the capacity. Devices that turn on and off could have special metering and pricing.

Financial tools and technologies that help us match our energy consumption to production allow us to maximize the return for invested resources and should be encouraged.

(I will have one more post on this topic.)

Monday, December 08, 2008

Smart Energy Future

© Stock Photo
The track to energy independence will be long tough haul.

Recent generations developed the idea that the path to solving the world's problems was simply to overpower the problem with energy. In recent years, the world hit capacity. We now need to develop an economy with a little more finesse. The high path to conservation is to improve the quality of our decision making process so that we make the best use of our available resources.

Apparently, Utah is considering changing the gas tax from a fixed rate per gallon to a percentage of the price.

Scott Hinrichs dislikes this idea as he feels that percentage tax would magnify price fluctuations. Let's say the base price of gas fluctuates from $2 to $4 a gallon each year; a 10% tax would cause the pump price to fluctuate from $2.20 to $4.40. A tax fixed at $.30 a gallon would even out the price fluctuations. The price would go from $2.30 to $4.30.

I countered by saying that, if there is something in our economy that causes massive fluctuations in prices each year, we don't want to have a tax policy that dampens the fluctuation, we want a tax policy that passes full information about the fluctuation so that people can make energy decisions based on the information conveyed by the price.

The thing that causes the annual jump in gas prices is, of course, the summer driving season when consumer demand pegs capacity. As there are constraints on supply, what happens is that prices raise to the point when consumer demand eases off and matches supply. The percentage tax gets us to the break point sooner than a fixed cent tax.

As we move into the world of alternative fuels, I suspect we will find ourselves enmeshed in an extremely complex fuel economy where different forms of fuel hit their maximum capacities at different times throughout the year, day or week.

Alternative energy is the art of storing and releasing energy so that it has maximum effects. Perhaps the best path to alternative energy is to create pricing variable pricing structures that communicate capacity information in the form of cost.

Imagine having an electrical grid that communicated costs throughout the day. Refrigerators, air conditioners and battery chargers could respond to this information by turning themselves off and on according to the price of the moment.

The wild fluctuations in price this summer seem to have left a good many people emotionally devastated. Personally, I see the wild fluctuations as a good thing in that the fluctuations have people more attuned to the nature of energy, which travels in waves.

Taxes distort prices. Perhaps the distortion of a percentage based gas tax would be better than the distortion of fixed penny tax because the percentage based tax does a better job of communicating information about current demand and capacity.

Just In Time Production

Interestingly, a system with fluctuating energy prices might cause us to alter some of our current ideas about business. For example, people are currently sold on Just in Time production. JiT techniques say "resource considerations be damned" we want material handled by production flow. Fluctuating energy prices might cause manufacturers to see their production line as a system that stores and releases energy and modify the JiT line with a little old fashioned material handling and processing wisdom.

A good portion of the alternative energy future is designing a system that accurately communicates capacity information so that consumers can meter their consumption of energy accordingly.

Wednesday, December 03, 2008

Reason's Greetings

There is a really strange group of people who hold with religious fervor the tenet that all war is the result of religion. Adherents to this belief have faith that, if mankind simply discarded religion for reason; there would be an evolution in the world spirit that leads to a state of eternal peace.

The statement is essentially that war is the product of religion. If we replaced religion with reason, there would no longer be war.

I feel like tossing a sabot in the machine.

When I read history, it appears that the irreligious are as likely, if not more likely, to go to war than the religious. Of course, since one finds religions on every corner of the earth; it is possible to frame a religion as the reason for any given war.

It is all but impossible to argue a person away from a religious tenet. Atheists would simply accuse me of framing the irreligious for participating in the various communist revolutions that were theoretically based on pure reason.

No, making arguments about specific wars just leads to shrill noise; So, I wish to toss my sabot at one of the central premises of the argument.

The term "reason," of course, simply refers to whatever ideas spurred people to action. Historically, everyone who has agitated for war has done so with a reason in mind.

As we argue about the reasons for war, one cannot help but realize that, if there is a reason for every war, then "reason," is somehow a common attribute to all wars.

If there is even one war where religion is not the reason for the war; then one might come to the horrible realization that "reason" is the cause of war.

This really throws in doubt the supposition that we could get rid of war if we replaced religion with reason.

If reason is the cause of war; some might reason that we could live in harmony with nature if only we learned to discard reason. You will actually find a very large number of people in our society trying to do just this.

I contend, however, that the statement: "if we discard reason we will return to harmony with nature" is flawed.

The ability to reason is part of the nature of man. Denying one's nature does not restore harmony with nature.

Sadly many people, at this point, throw up their hands in despair.

There is hope. I believe that it is possible for us to improve our method of reasoning to reduce the likelihood of war. The path is difficult. There are many paradoxes and ancient hatreds that mar the path peace. (An example of paradox is that one cannot stop war simply by surrendering as the propensity to surrender invites invasions. As for ancient hatreds, we find that the current wars in the Middle East seem to be part of a continuing conflict that reaches back to ancient wars between the Ancient Greeks and Persians.)

The secret to reducing war is to realize that there are different types of reasoning. There is sound and unsound reasoning. If our goal is to stop war, then the better path to blaming wars on religion would be to explore the foundations of our system of reason and to improve our rational skills.

Monday, December 01, 2008

Dialectics of the Short Sell

My contention is that ideas matter. Before we constrict our financial system in a new straightjacket of regulations, we should engage in a debate about what ideas went wrong.

The western tradition appears to have created two fundamentally different views of the economy. I will call these the analytical and dialectical view.

The analytical view traces to the days of Pacioli and The Renaissance and is centered quite solidly in the analytic tradition of Aristotle. Luca Pacioli (1446-1517) was a Franciscan friar who codified the system of double entry accounting. The early Florentine Renaissance was centered on the process of the creation of assets. Florence produced a plethora of grand master artists, because the town saw the work of the grand masters as a valuable asset.

Pacioli's system of accounting would produce balance sheets and income statements for businesses. Investors could use these balance sheets and income statements to determine how best to invest their resources. The basic idea is that when businesses are using the same standards of accounting you can move to a higher level that lets you use the ancient tools of analysis to figure out what is best use of resources.

The dialectical view can trace its history through antiquity as well. Most modern thinkers are enraptured with Plato. The writings of Machiavelli clearly indicate that there was a change in thinking toward the waning of Florence.

The dialectical view really took hold in the wake of Kant … the 1800s.

The analytic view is that commerce is this thing where rational people are engaged in a process of analyzing their resources and engaging in trade with the goal of developing assets and improving their condition. IMHO, this is the soul of classical liberalism.

The dialectical view has an extremely dim view of the common man which they see as irrational creatures yanked about by hormones and impulses. The merchant class is nothing but a petty bourgeoisie incapable of rational thought.

The view has permeated the intellectual class for centuries is that bourgeoisie is this horrible group of people engaged in these petty business wars each seeking domination of the market.

Short selling is a creation of this dialectical view. Short selling is a regulatory measure put in place by central banks and brokers that allow them sell stocks that they do not own. The trader sells the stock with a promise of buying the stock back at some point in the future.

The regulations that allow short selling create a market where anyone is able to sell shares in an asset at any moment without actually owning the asset. The goal here is to create a dialectical process where the price of assets by a conflict between shorts (those who sell the asset without owning it) and the longs (the people who actually own the asset.

Short selling is antithetical to the analytic tradition that sees the economic process as a system where people improve the assets that they own.

Short selling directly hampers the development of equity by confusing ownership. A system of widespread short selling creates a situation where multiple people believe that they own the same share of stock.

It is common during a hostile takeover for the robber baron in the hostile take over to heavily short the company under business attack. A business warrior laying siege on a company can have an army of agents short the asset. For example, they may have their agents short 51% of the shares in a company while buying 51% of the company. The business pirate can leap over the railings, storm the boardroom and claim ownership when in fact the pirate had simply engaged in a trick to confuse title.

Ideas matter.

The 2008 market collapse (and other historic market collapses) was fueled largely by short selling (people selling stock they do not own). This market collapse pushed many companies out of existence. Pushed many families out of their homes, and yanked food from the mouths of children.

Short selling is part of this absurd dialectical framework created by the tradition of Machiavelli, Hegel and Marx which leads directly to unnecessary conflict and division in our society.

Conversely, I contend that short selling is diametrically opposed to the concepts of free trade and analytical tradition that produces wealth. This tradition has people tending and improving the assets that they own. Short selling is an anti-market mechanism dreamed up by a ruling class which wishes to enmesh the market in absurd business wars that create massive inequities in society.

END NOTE: Please note, elitists on both the right and left support short selling and the dialectical dreams inherent in the practice.

Sunday, November 30, 2008

The Black and White on Nonjudgmental Thinking

One of the favorite activities of the left is to wander around and accuse folks labeled as conservatives of "black and white thinking."

For that matter, in school some 20 years ago, I was taught the same technique.

The technique has actually been around for generations.

The goal is to create the image that the group labeled "conservative" is intolerant, while group laying claim for whatever left leaning label is in vogue at the moment is the standard bearers of reason.

I find the use of this tag line sad because, when you get down to it, the tag line is itself an assault on reason.

The goal of logic is to come up with clean definitions and propositions that we can use in making important life decisions.

Quality science depends totally on coming up with good definitions and clean statements that can be tested against reality.

Our whole modern society is dependent on people cleanly defining terms and making judgments … black and white thinking.

There are many things in our life that resolve to a yes or no. For example, an airplane chartered to fly from New York to Paris either has enough fuel for the trip, or it doesn't. A plane without enough fuel for the voyage only makes it as far as the crash site. People making transatlantic voyages are dependent on engineers, mechanics, weather services agencies, and what not, to make sure the plane has the fuel for a safe voyage.

Before taking off, there is a black and white statement made: Yes, we have the fuel for the plane flight.

Our modern system of commerce is infused with people using black and white reasoning in day to day affairs. Meat inspectors spend their days examining carcasses declaring some good and others bad. A good meat inspector should err on the side of caution and toss out a fair amount of good meat.

The meat inspection process means that we can reasonably assume the food at the store is safe for human consumption.

The mortgage industry depended on black and white thinkers making critical judgments about borrower's inclination and ability to repay. These black and white thinkers were shouted down by community organizers.

A decade into the new enlightened era of nonjudgmental lending, the financial world found itself enmeshed in a catastrophic failure as banks were unable to value their assets.

The act of making propositions based on carefully defined terms is the heart of logic, yet, in school we are taught to dismiss political opponents of the left as black and white thinkers.

A few minutes ago I turned on my digital computer. Logged into a digital network and transferred a packet of digital signals from a massive bank of digital switches A digital algorithm deciphered the digital signal and displayed on my digital monitor an accusation that I am a horrible black and white thinker.

I suspect that the dimwit who repeated the talking point that people who are not members of the left are black and white thinkers failed to realize that the only reason he is able make insults through cyberspace is the "black and white" logic behind digital technology.

The whole key to digital technology is creating a system of signals that can be reliably resolved to on or off. When the routers in this great digital network become enlightened and stop being judgmental about the signals they send and receive, a black and white thinking technician rips it out the broken router and replaces it with one that works.

I routinely say outlandish statements in this blog. The purpose of this type of blog is random thoughts on issues of the day. There is a central conflict in my writing. Back when I aspired to being an enlightened progressive thinker, enlightened progressive professors taught me all sorts of mean biting tricks that could be used to attack the hated conservatives.

Through the years, I've become much more appreciative of classical thought and writing.

The problems of the world are not the result of traditional logic (which is vilified as black and white thinking). The problems are the result of people doing bad things to each other. A modern enlightened thinker is as likely to do bad things to people as the traditional black-and-white thinker.

No, I take that back. I've come to trust the decisions made by people vilified as black and white thinkers more than drones claiming to have achieved nonjudgmental enlightened state of thought.

The world enjoyed a wonderful spurt of growth driven by the Information Technology revolution. During the computer revolution, there was a new found appreciation for the value of logic. Today, we find our nation and the world regressing to radical methodologies conceived during the great social revolutions of the 20th century.

Saturday, November 29, 2008

Black Friday Results

I can't believe it! One of my web sites had a sale on Black Friday. Someone bought a MicheBag. A MicheBag is a really clever purse with an exchangeable outer shell. You buy a purse and several shells to match your clothes. You can then quickly accessorize for different outfits without moving the content between purses.

They have a wide selection of shells to fit just about every outfit ... well, except, of course, they don't have shells that go well with outfits worn by men.

Truth be told. I have not purchased a MicheBag myself because I would only be able use it on Friday nights ... and I already have a this nice pink frilly handbag with sequines. It is so cute. It goes perfect with my pink spiked heels, and is barely big enough to hold my pistol ...

... and, err, I think I may have given more information than people care to hear.

Back to reality. Black Friday is supposed to be the biggest shopping day of the year. So, every year, I check the directory to see if I made a black friday sale. Most years I don't; So I am happy to have broken the trend.

The fun part of the affiliate game is you never know what people will actually buy. The things I sell most often are purses, are purses, Scrapbooking Supplies, and Temple clothing.

Clearly, people are not reading my blog.

Personally, I have this self image where I am the rough rugged outdoorsy type; So, i thought I would be selling a lot of rough, rugged outdoorsy gear, which I don't.

Of course, my definition of a well equipped backpack has a bivvy sack, a down comforter, a thermarest, an old pair of sneakers, a coat, a spoon, a plate that can be used for cooking and the food.

I could never work at a sporting goods store. If they asked me what one needs to go camping, the answer is "not much." We could go broke. The site that most fits my attitude toward life is Walkabout Travel Gear. This store started in Moab. They seem to change their address on occasion.

People pointing in my direction often say: "eeeeek, a geek." So, I thought I would end up selling a lot of electronics. My answer to computer questions is: If you put linux on your old PC, you will have a pretty fast machine. My operating environment is pretty much down to a laptop and web hosting acccount. So, I don't sell much there either.

BTW, the one product I hope to sell this Christmas season is a fun little thing called the iPig. It is a docking station for an iPod.

Friday, November 28, 2008


I am really happy with the appointment of Paul Volcker to Obama's economic recovery team. Paul Volcker, more-so-than Greenspan, moved the country from the Keynesian insanity where our leaders believed they could micromanage the economy with taxing and spending, to one concentrating on sound monetary policy.

One of the most important events in monetary history came when Volcker gave up the position as head of the Federal Reserve, showing that that the ideas behind the reserve matter more than the personality.

I always felt that Greenspan was punch drunk on the influence of the position. Many of our currently problems are the result of Greenspan staying in the position for far too long.

I was also surprised at the appointment of Lawrence Summers. The faculty of Harvard struggled against Summers a few years back. Most people who are struggled against quietly fade away.

BTW, I hope that people understand that the snide posts in this blog are about negative methodologies. Change campaigns tend to release ugly political forces.

A politician positioned as a change agent is faced with the problem that they must either continue the process of social upheaval that brought them into power, or sit down and try to do what is best for the country. Stopping the agitation for change means selling out one's political base. Continuing the agitation for change leads to an economy that thrashes and falls into a pattern of action/reaction that leads to self destruction.

The centerpiece of my personal political beliefs is that I dislike self-destruction. I want to live in a country where people are trying to find the best path to broadbased prosperity.

My anger for the last several years is directed at the change campaign as it diverts us from a real discussion about how to structure a society with broadbased prosperity.

Monday, November 24, 2008

Fundamental Rights

The classical liberal tradition, as I understand the term, gave a great deal of import to logical consistency. Logicians would be concerned with both internal consistency and applicability to the nature. The idea is to have a small number of consistent rules that are known and relatively well understood and followed.

This is pretty much the way science works. Scientists seek small number of physical laws that explain a great deal. In science, a person puts forth a hypothesis then checks to see how the hypothesis stacks up against nature and how well it fits within the current existing framework of scientific ideas.

Scientists tend to be conservative lot. They don't like changing the basic logical framework of science on a whim. For example, I think it would be better to say that objects are repelled from the heavens, but the cabal of scientists at the university is sticking with a gravitational theory that has objects attracted toward the earth.

In my opinion, moralists looking to define civil rights should do so by defining rights that are logically independent and consistent with other fundamental rights.

The surest way to destroy our basic civil liberties is to overload the system with claims of contradictory rights.

Unfortunately, we live in a world where people can start claiming any notion to be a right.

For example, in the segregated South there apparently were people who held the notion that they should be able to drink from water fountains that were only touched by people of their race.

The "right" to drink from racially segregated water fountains is in direct opposition to the right of others to participate in the public sphere of life. A century ago, a whole generation of politicians rose to influence on this belief that people had a right to exist within a sphere of racial purity.

In hindsight, rights to live in separate but equal spheres caused a great deal of division and really looks absurd. The notion of segregation was contradictory to the other rights enumerated by the founders, and needed to go.

The classical liberal ideal is anchored in the Artistotelean tradition. Classical liberals sought a small number of logically independent rights. The system falls apart when people start asserting rights (like segregation) which are contradictory to the other rights.

Dialectic View of Rights

Modern Liberalism, of course, starts with Kant, Hegel and Marx.

Kant (like many people before him) realized that there were intrinsic problems at the edges of reason. For example, there will always conflicts in defining the beginning and end of life. Likewise there are problems making assertions about free will. If there is no such thing as free will, then the whole debate about rights is absurd. There are also the standard problems with absolutes, continuity, the infinite and the reflexive paradox.

Do I have the right to oppress others? What about the right to own others as slaves?

Hegel was a master at using the foundation laid by Kant in proofs that "freedom is slavery, and slavery freedom."

Hegel and Marx presented a world view where the world spirit was eternally locked in thesis antithesis conflicts. The Dialectics has a history of master/slave reversals.

You can actually express these conflicts in terms of rights.

A group will rise to hegemony. In this hegemony, the people in power express a system of rights to maintain their power. Kings, emperors and feudal lords gave themselves rights over the serfs in their dominion.

Overtime, the disenfranchised would grow in number and influence, and demand a new set of rights to replace old system.

In the material dialectics, the thesis/antithesis conflict would resolve in a massive catharsis (e.g., the revolution). The new hegemony would then try to cement in its power with its new set of rights and the process would repeat as the newly disenfranchised would start forming a new system of rights.

Marx considered the rights enumerated in the Constitution as just an attempt by a horrible group of terrible people called the bourgeoisie to cement in their hegemony. There next revolution would demand a new set of rights that are in conflict with the petty rights held by the petty bourgeoisie.

In the dialectical view, rights are always in conflict and are constantly evolving in an unending spiral of social conflict and violence.

Classical v. Modern Liberalism

I think there is a profound difference between the way that classical liberals and modern liberals view rights. A classical liberal is looking for a small number of well defined non-contradictory rights that can be used as a foundation for a society that has an overall respect for individuals.

Such people are happy with the Bill of Rights, despite its many short fallings.

The classical liberal wants to defend individual rights, while the modern liberal wants to take the offensive and assert sexy new rights.

The new rights favored by the modern liberal tend to conflict with those established by previous generations.

I believe that the classical liberal approach has a better chance of creating a sustainable base for a free and prosperous society. The modern liberal approach is sexy, but chaos created by having overloading the system of civil rights with contradictions is leads to deep societal divisions, and conflict.

Tuesday, November 18, 2008

A Civil Rights Issue?

Dennis Prager published a post on Frontpage Magazine that is similar to the one I was about to sit down and write.

Prager surmises that the reason black Americans voted for proposition 8 was efforts by the progressive community to equate the gay marriage with the civil rights movement. This makes more sense than the claim that the black community in fundamentally conservative, but are just too silly to know it.

Gay and straight activists who liken their demand to redefine marriage to black suffering under Jim Crow merely cheapen historic black suffering.

I would add to his article that observation that slavery denied the slaves the right to marriage. The bossman's ownership trumped sacraments of the church. The children dropped by slaves were products to be sold. Being denied a right makes one more protective of that right.

Since Prager's article on this subject is better than mine, I guess I will say something else.

I suppose I should mention that back in the early 1980s I was a proponent of gay marriage. My reasoning was that gay marriage might stop the spread of AIDS and might reduce the number of kids molested by gays (I kept meeting people with stories of molestation).

There were some extremely angry people in the Gay Lobby who pointed out the selfrighteousness of my viewpoint. They wanted a new radicalized world where sex was free of committment. Everyone was to have thousands of different partners. They were very strongly opposed to marriage.

Many of the people holding this view died.

The really big change came when radicals realized that if gay marriage were made a legal equivalent to hetrosexual marriage then they could use the courts to attack their enemies. You could sue a church adoption service if they refused the request of two men wanting a boy. They could sue small bridal shops that only had wedding gowns in women sizes. They could have in your face honeymoons at that quaint bed and breakfast. If the innkeeper made any form of protest, there would be a protest and lawsuit.

These people just wanted to be bullies. BTW, you know that a movement is not a civil rights movement if it leaves a large number of people forced to live silently in fear.

The last experience that convinced me that the gay marriage issue was an intentional effort by the left to create a wedge issue came when I fould people fundamentally opposed to marriage as an institution actively supporting gay marriage as an institution.

Unlike the civil rights movement which was about a group of people denied real fundamental rights. The gay marriage issue lacks real depth.

In conclusion, I would like to quote Natalie R. Collins, who is a published author who takes extreme pride in her writing and always quick to point out gaffs in her foes:

Wake up, right-wing America. The battles you are fighting in your God’s name are not battles of love, but those of hate and divisiveness.

Natalie, projecting hate and divisiveness on your opponents is an act of hatred and division. This tag line is appearing all over the place ... which is a bit scary. In a bizarre Utah twist, Natalie also makes the statement:

Gordon B. Hinckley is turning over in his grave, as all the spinning he did to bring the Church into the “mainstream” Christian fold is going to turn out for naught.

As I recall Mr. Hinckley was supportive of the civil rights movement. Ms. Collins seems to be trying to equate the civil rights movement with the gay marriage ploy ... the very thing Dennis Plager was talking about.

I doubt that any of the leading figures of the civil rights movement such as MLK, LBJ, or Kennedy would say that Proposition 8 was the equivalent of Jim Crow laws or that throwing leaflets in the Mt. Hope Church. But, I can't see inside their heads.

Monday, November 17, 2008

Lame Duck Mischief

A few posts back I attributed the damage done by the Credit Default Swaps to the Bush Administration. Wikipedia says attributes CDFs to the bipartisan Commodity Futures Modernization Act of 2000 which was past during a lame duck session and signed by President Bill Clinton.

The CMFA essentially turned the entire United States into an Enron style risk management scheme. Undoubtedly, it gave the the departing members of the Clinton Administration extremely cushy jobs in the financial sector.

The TARP appears to be the same type of lame duck mischieviousness ... that is a bipartisan effort to heap the American taxpayers with debt in order to land lucrative campaign contributions for those going into office and jobs with generous salaries for those on the way out.

Reach Upward pointed out an article on the WSJ. The quote sticking in my mind about the NY Financial sector: "This is 212,000 people making nearly $80 billion in wages and salaries last year..." That is an average salary of $378k/year!

They weren't producing wealth. The financial sector of late did little more than fill balloons with hot air to watch them blow up in other people's faces.

I wish the economic conversation was about removing programs like CFMA and nake short selling, rather than this game of serving up ladles of government slop in the form of TARP. Regardless, lame duck sessions should not be the time for introducing major new initiatives.

Family Values = Hate

I am extremely depressed. Watching the news, I find myself inundated with angry looking people waving signs trying to equate the defense of traditional family values with hatred.

Websites I visited today were selling stickers trying to equate family values with hatred as well. I've read several self-righteous blog posts claiming that the people voting against proposition 8 in California are open minded, while the people who voted for it are motivated by hate, and are using their hatred to divide the country.


It seems to me that the act of accusing one's opponents of hatred for simply holding different views is itself an act of hatred. Of course, I can't see into the minds of the angry people waving protest signs and tell if they are motivated by hate or if there is a more solid foundation of reason behind their political tactics.

I watched images of Drew Barrymore and other starlets say passionate things in favor of declaring same sex marriage to be the logical and moral equivalent of heterosexual marriage. If a man and women are allowed to form a union, have children and raise family; then a man and a man or a woman and a woman should be able to couple together, produce children and, um, raise a family.

It is only fair.

Drew Barrymore is clearly one of the prime intellectual forces of the left, and I am inches away from accepting the righteousness of the cause.

Unfortunately, having had too many bad experiences with progressive thought, I've developed a nagging sympathy for the rightwing reactionary side of things.

A central argument of progressives is that the people against their cause are motivated by hate. I don't have the magical ability to see other people's motivations. It seems more likely to me that the people wishing to retain the traditional definition of marriage are not motivated by hate, but simply have an authentic desire to defend a long rational tradition that stretches through antiquity.

One might even say that the tradition reaches through the fossil record to the dawn of cellular life when strands of DNA gained an evolutionary edge over other strands of DNA through the process of sexual reproduction.

My observation is that humans, like most other plants and animals on this planet perpetuate through sexual reproduction. This form of reproduction involves a male and female. We aren't just talking about the nature of man, we are talking about the nature of terrestrial life!

Different species have different takes on reproduction. In many cases the offspring are dependent on their instincts and are left to fend for themselves from the moment of birth. Others care for their child. A paradox is that predators often care for their offspring longer than herbivores.

Humans have a relatively long time to maturation and require a great deal of care and nurturing. As with other species, the two humans best positioned to this nurturing are the parents of the children.

The institution of marriage is not about the happiness of the couple being wed. The institution of marriage evolved around the benefits that ensue when couples are deliberative in the reproductive process and make a commitment to raising their offspring.

Marriage isn't about the happiness of the married couple. Marriage involves moral issues such as abstinence until a couple is in a financial position to raise children. The institution of marriage is not about the couple but about the family.

Just like the harvest festivals around the world celebrate the natural process of bringing in the harvest, marriage celebrates the natural process of a man and woman forming a bond to raise the child that they produce.

Equating family values to hate makes as much sense as saying that the harvest festival is about hating Spring. My eating turkey on Thanksgiving says nothing about my feelings toward Spring.

The institution of marriage is based on a long rational tradition grounded in solid reasoning based on the nature of man.

The position for proposition 8 makes more sense to me than the one against it. While trying to understand the opposition, I realized something about the poor state of rationality in our society.

Imaging v Reasoning

Apparently, the vast majority of the Hollywood celebrities are fore treating same sex marriage the logical and moral equivalent of heterosexual marriage. The Hollywood group seems to be the origin of the belief that anyone who opposes the dictates of the left is motivated by hate. Actors, after all, spend their day contemplating the motives of their characters.

The vote shows that Hollywood stands in opposition to the majority of Californians who voted against the proposition 8. Even Republican celebrities like Arnold Schwarzenegger support declaring same sex marriage the logical and moral equivalent to heterosexual marriage.

The striking gap between celebrity point of view and the point of view of the people made me stop and take notice.

Celebrities live in a world where image is king.

As such, celebrities reflect a new think which is driven entirely by manufactured images, metaphors and movie themes. In such a world one's reasoning is a matter of placing images through popular themes.

A common storybook theme is that people find happiness in marriage. Hence, this rational tradition of marriage as a foundation for raising kids gets processed into an image of people being denied happiness.

One of the most prominent movie themes involves a hero standing up for the disenfranchised. Being the hero who stands up for the disenfranchised people denied happy is the greatest role to which an actor can aspire.

Standing up for declaring gay marriage the logical and moral equivalent to heterosexual marriage is a dream role. Conversely, taking the other side is a career killer.

Perhaps the anger over proposition 8 is really not about the issue itself but about a clash between rationality and new think.

It has been almost three generations since the John Dewey and cohorts ripped logic from the curriculum. The appreciation of rationality is now a minority position.

People weaned on new think of images and themes appear to be unable to see the wonderful western rational tradition and recognize the solid rational foundation of institutions such as marriage, the free enterprise system and (dare I say) even the value of the scientific method.

Unable to see the rational tradition, the protestors simply seem to be projecting divisiveness and hatred onto their opponents.

Reactionary Thinking

Unfortunately, I can't really say the right is doing well in their argument for the defense of marriage. I fear that many of the people on the right are driven by the same visual mentality.

I have not seen conservatives presenting arguments the rational foundations of marriage. Instead they seem to wanting to play the role of O'Reilly style culture warrior.

The LDS Church in particular seems to have a problem. The Christian tradition had marriage ending in death. (The end of marriage is one of the big advantages of death). Joseph Smith created an image of a Celestial Kingdom where one's terrestrial family is not only preserved, but is key to one's position in the afterlife.

If you aren't married; you aren't making it into heaven.

Some polygamist sects seem to be holding to the image that having multiple wives is the key to entrance into heaven.

The Best Way to Defend Marriage

I prefer coming up with answers to complaining about problems; So, I thought that I would type out what I consider key to defending marriage.

The first step is to emphasize the rational foundations of marriage. The institution of marriage is a demand that couples put off having children until they have the resources to care for the children. It is hard life that demands sacrifice such as abstinence before marriage and a very strong commitment. Marriage is about a commitment to raise children.

The second key to defending marriage is to accept that marriage is not for everyone, and that there should be a place in society for people who've chosen not to get married.

We live in an overpopulated world. The rapid rate of reproduction is to our detriment.

The unmarried are often the most productive in society.

Traditional Christian society made these people priests, nuns and often soldiers. Essentially, the system made the unmarried the leaders of the culture as the priests and nuns were the scholars and educators.

People don't like the image of these roles. Churches and social institutions wishing to defend marriage would actually do well to create a place for the unmarried in their fold.

In my opinion the worst example of religious thinking comes from the polygamist sects in Southern Utah that simply tosses out a large number of its young men as old men compete for young wives.

A rational religious tradition needs to find ways to assure that it nurtures its youth while assigning a valuable role for all of the members of the society. This is both the right thing to do. The way things are rigged, if religious groups fail to find positive roles for singles, it is a crucial matter for the preservation of the rational tradition of marriage.

Wednesday, November 12, 2008

The Role of Ideology in Market Reform

I contend that the market is a creation of the mind. We know this because the human mind is the only thing that directly interfaces with the market.

There are a large number of objects that indirectly affect the market. Likewise, there are many things are indirectly affected by the market. The driving force behind the market, however, is the human mind.

The indirect forces are quite strong. Physical needs force people to engage in the market. Conversely, the market motivates people to take actions in the physical world. It is also notable that people tend to keep physical tokens including metal coins, pieces of paper or even splotches of electrons on computer discs to keep track of their position in the market.

The value of these tokens is not inherent in the token, but assigned to the tokens through a collective bargaining process that originates in our minds.

Considering that the market is a product of the mind; then the ideas we have about the market are paramount. It is through the market that our minds shape the reality around us.

People use the term "ideology" to refer to a collection of ideas.

Pundits love to give names to ideologies. However, there is an infinite number of ideas, meaning that there is an infinite number of possible ideologies.

There is a subtle point to be made here. If the market is a product of a collection of ideas, then, pretty much by definition, there is an ideology that rules the market at any given moment.

The ideas that rule the market change on a frequent basis. For example, in 2007, people thought mortgaged backed securities re-insured by the Government Sponsored Enterprise FreddieMac were a sound investment. That changed in the mortgage mess of 2008.

At any given time, you will find the market being ruled by a different mix of ideas (ideology). The mix of ideas that exist at any time transcends all of the named ideologies. The collection of ideas that rule the market at any given moment is transcendent and changing. This collection of ideas is an ideology, none the less.

So, if my contention that the market is a collective product of our minds, then the market at any moment entails a collection of ideas. A collection of ideas is called an "ideology."

This means that, no matter how we mince the debate about reform, the debate will involve discussions of ideologies.

As I write, there is a great deal of concern about market reform. To have successful market reform, we must be able to talk about different ideologies.

Tuesday, November 11, 2008

Brittle Thinking and System Faults Lead to Collapse

In 2008 the American financial system imploded. This implosion is causing worldwide turmoil.

I believe it worthwhile to look in detail at this implosion to figure out how to prevent similar crises in the future. During the crisis, several financial instruments came to the fore. Notably,

  • Hedge Funds (short sells and options),
  • Credit Default Swaps,
  • Insurance (and reinsurance),
  • Fixed Wages
  • and Debt Financing.

I could have made the list longer. For example, wage labor and pensions belong in the list, but I will talk about those later. Keeping the list short makes the post succinct.

A hedge fund uses complex formulas to hedge risks. Such funds might short $30 for every $100 invested.

The goal of insurance is to pool a large number of related risks; so that people can address risks on a pay as you go basis. The goal of an insurer is to have a pool of risk large enough that the pool can handle predictable fluctuations of costs. The insurer changes a premium that gives the insurer a handsome little profit in excess of the anticipated risk.

Credit Default Swaps are a new financial innovation. These are part of a new system devised to let banks sell risks associated with loans.

A key component of the above tools is size. Hedge funds, insurance and credit default swaps all seek security in size. The reports I've read about credit default swaps indicate that they went from nothing to being larger than the Gross Domestic Product of the planet earth in less than a decade.

Perhaps the most dangerous part of our financial system is that consumers, businesses and even banks have become addict to debt financing.

We are seeing the lending and borrowing of massive amounts of money at fixed interests. Banks borrow from the Federal Reserve at prime then lend at prime plus a premium. Their goal is to loan out as much as possible. They can protect themselves with FreddieMac and credit default swaps.

Looking beyond the moral hazard arguments, what we have at the moment is a financial system flush with financial instruments set on finding guaranteed fixed rates of return on an extremely large amount of money for a preferred class of investors.

I've heard some people refer to this process of manipulating the system to give a class of investors a large fixed income as rent seeking.

When one look at this mess from a macro level, one realizes that, from the very start, the idea is untenable. The world economy does not grow at a fixed rate. Prices continually fluctuate. The economy does not grow at fixed rates, but tends to skip around.

I suspect that the proponents of the financial regime believed that they were creating a self regulating financial system. What they did in actuality is to create a brittle market with systemic flaws and deep inequities.

The hue and cry at the moment (especially from the financial sector itself) is that the system requires stricter government regulation.

However, before imposing any new regulations, I believe we should engage in a much deeper conversation about what the market is and what we want to achieve with the market.

In watching the financial meltdown, I've come to believe that the primary fault in our financial system is that the system is being driven by a desire of the financial system to give a class of investors a high guaranteed rate of income (rent seeking).

This fault exists regardless of the aggressiveness of government regulators.

Designing regulations and corporate bailouts to preserve the current financial regime might simply have the effect of institutionalizing the systemic faults in the system.

I believe that the better path is to rethink the market from scratch and to find ways to wean ourselves away from debt financing. Rather than seeking new regulations for hedge funds and credit default swaps. I believe that the wise path may be to eliminate these tools altogether.

After all, both hedge funds and credit default swaps exist solely to give one class of investors advantage over the market at large.

Sunday, November 09, 2008

Here's to a Change from Change

I have to chock up the last five years of presidential election campaigning as one of the darkest episodes in American history.

Ironically, the person who I thought was the best candidate won the election. I simply don't like how he won. As I care more about ideas than power, I worry about the ideas that will surface in his administration.

The primary problem I see at this point in history is that nature of the campaign that just gave a super majority to the Democratic Party. The Party used a very dangerous style of change campaign. The form of the effort is that you capture the press, and then assemble groups that simply agitate for change. In no time you have a shrill noise surrounding all political and economic issues.

As the divisions in society grow deeper and the ability to engage in discourse diminishes, the group the best organized group is able to step into the power vacuum.

I've heard several laud the change campaign as a non-ideological revolution.

The notion is that all of the problems of the past were the result of ideologies, or of religions. Therefore, if you have no ideas or beliefs, then paradise will ensue.

The change campaign has never been about ideology. It is a form for rising to power.

The change campaign is the very heart of radicalization. You can radicalize anything. You can radicalize socialism, you can radicalize religions. You can even radicalize pragmatism.

I find it absurd. We just gave a party a super majority for change without a discussion of the form of the change.

The biggest hope for the country is that Obama has enough sense to realize the negative nature of this effort.

I am an optimist. The American people are sick and tired of a corrupt bloated government. The result of this is that during both the Clinton and Bush administration, the nation moved in the opposite direction of the stated ideology of the president.

Personally, I have a very strong dislike for presidential politics. This is a part of the reason why I do such a bad job blogging about it.

I believe strongly that the direction that the people are taking has a bigger influence than the ideology of the president. The Clinton years saw a sharp turn toward the free market, and we had tremendous prosperity.

The Bush years saw a giant leap leftward. American businesses and investors stopped seeking innovation and were primarily engaged in finding ways to avert risk through hedge funds, reinsurance, credit swaps and complex formulas that used shorting so that they would win in both bear and bull markets.

People, driven by an irrational hatred of Bush were primed to fall for anything other than the person they were conditioned to hate.

Noam Chomsky knows that it is far easy to manufacture discontent than it is to manufacture consent.

Anyway, now that the change campaign has resulted in the designed power shift, we find ourselves in a situation where we need to dig ourselves out of a big financial pit.

Attempts to save the day with debt financed bailouts and stimulus packages have not achieved desired results.

In all likelihood, just leaving the market alone and letting it correct itself would do the job.

We are in a day when people are receptive to ideas. So, starting tomorrow, I will start blogging about what I consider to be the best set of ideas for turning things around.

For our nation to get back on track we need to realize what knocked us off track.

The point of this post is simply to reiterate my belief that the change campaign is part of the problem. The change campaign was the source of much of the current division in our country. It is the source of the lack of confidence in the investment community. Investors fear committing resources while a political party with a super majority has a mandate for unspecified change. Consumers don't buy cars or eat out fearing the change. Companies lay off workers in anticipation of the unspecified change as well.

The biggest problem is that that the change campaign has consolidated even more power in a Federal government that appears to be bankrupt and out of ideas.

So, starting tomorrow, I will stop doing what I dislike (blogging about politics) and start doing what I like ... blogging about ideas.

Friday, November 07, 2008

Good First Press Conferenece

IMHO, President Obama did a superb job on his first press release. I am so happy to hear Obama give a speech that did not include the word "failure."

I really hope that Bush and Obama can pull off a civil transition of government.

The Corollary

The contention of the last two long posts was that the change-style elections are the most divisive elections. I believe that the dismal showing of the third party candidates helps support that claim. When ideas or policy directions are the focus, then contrarians are happy to toss their vote away making a statement of principle.

The 2000 election was much more of a nail biter than 2008, yet third party candidates got 4% of the vote. The 2008 campaigns lacked substantive debate on policy. The result showed a much more divided nation.

If you would concede, for the moment, that a social-change campaign is an intrinsically divisive form of politics; then one discovers an interesting corollary: The social preservative campaign must also be intrinsically divisive.

The statement "This sentence is true" is as much a paradox as "This sentence is false."

The real society shattering divisions happen when social engineers are able to contrive a resonating discord between a social change and social preservation campgaign.

Buckley and his crowd were foolish when they accepted the label "conservative" for their set of principles as it allows the left to frame the cause of classical liberalism as regressive.

This problem really comes to the fore when you have leaders like Bush and Cheney who are not adept at presenting their case to the people. We had eight years where people were able to project all sorts of images onto the Bush/Cheney presidency.

One interesting commonality between Bush and Obama is that the primary strength of the candidates is their ability to organize the inner aperatus of their respective parties. Both candidates simply grabbed the costume of "agent of social change" or "agent of social preservation," then ran a campaign based on tactics, not issues.

The result of this style of campaign is that people end up projecting images onto the candidates.

The method creates a deeply divided society.

rmwarnick pointed out that I do a horrible job discussing this aspect of politics. He said of the long posts:

Is there some kind of blogosphere prize for the least reality-based commentary? I think you are a contender!

What I was trying to do is to repeat the type of nonsense that happens in many poli-sci and sociology classes. The aim is to show that they way our professors are teaching us to think about politics and political tactics is the source of the shrill political divide in our nation. Marx did not define communiism. He devised a change-style method for rising to power. Hitler used the Marxist method of agitating for change.

Snipy insults work sometimes. RM's snipy insult didn't really hit a mark because the gist of this series of posts was a belief that both Bush and Obama ran campaigns that weren't reality-based.

Thursday, November 06, 2008

Unity on a Foundation of Division

Early in the campaign season, Michelle Obama made comments about how she thought America was becoming a mean and base society. Unfortunately conservative pundits tried to use the statement to make a case that the Obama's, somehow, didn't love America.

Truth is, I agreed with Michelle Obama. Reading hundreds of blogs and forums, I had encountered numerous examples of the deteriorating state of civil discourse.

The question in my mind, then and now, is if the Obamas realized the source of the tension, or if they are simply playing the game of projecting all of their dislikes onto their partisan opponents. (The process of projecting negative labels onto one's opponents is fundamental to leftist thought).

Like a good voter should do, I invested a substantial amount of time trying to decipher and understand the substance behind the Obama campaign. I read his books, watched debates and listened to speeches. By the time of the election I saw nothing but a repeat of the Marxist campaign model where the candidate pounds the message of failure in the direction of their opponent while demanding a nebulous change.

Obama, of course, is not the one who invented the change campaign. The left had been manufacturing events and sentiment for running a change campaign in 2008 since Bush took office in 2000. Quite frankly, I believe that the Clintons had a lot more to do with engineering the 2008 change campaign than Obama. He was able to step into the role of agent of change designed for Hillary.

I like President Obama as a person and I sincerely wish him well as a president.

In my opinion, the question of whether or not he will be a good or mediocre president resides in this question of whether or not he sees the source of the deteriorating state of civil discourse, or if he will spend his presidency wearing political blinders and simply project all ills of the world onto the hated opposition party.

The source of the discontentment is, of course, the change campaign.

The change campaign starts with a concerted effort to manufacture discontent and disaffection. This really isn't hard to do. A demon trained in the technique could probably get a host of angels discontent with the fluffiness of the marshmallow clouds in heaven and eventually raise enough angst and tension to run a change campaign.

It is possible to manufacture discontent by pulling tricks like questioning the motives of your political opponents, framing issues in negative light, running whisper campaigns about conspiracy or coupled with "Colbert Report" style ridicule. When a partisan group controls the universities and press, they can manufacture a ground swell of discontent without ever even addressing issues.

Once the discontent has established critical mass, one need simply pound the drum of failure for a solid three years with claims that the economy will crash and the world will crumble. Since the market is a product of the mind, a well structured change campaign can even reach the point where people lose their confidence and the market declines.

This Marxist style change campaign is effective. It is what put Lenin, Hitler, and Mao in power. Historically, it has also been one of the most destructive methods of political ascent.

Now, I think we are fortunate that Obama stepped into the position of agent of change because there is a glimmer of hope that he has seen and recognizes the fundamental good in American society. There is even hope that he's caught on to the fact that many of the players on the far left like Bill Ayers and Reverend Wright are fundamentally rogues.

President George Bush clearly had faults. These faults were more of the blundering buffoon type of faults. Such faults rarely do deep intrinsic damage to a country's psyche.

The change campaign, by its very nature, creates extraordinarily deep resonating divisions that are hard to heal. Historically, this Marxist style of change campaign has led to steep declines where it was employed.

If Obama continues to follow the dialectic, he will spend his administration ringing the partisan bell. Change requires the marginalization then the eventual elimination of the hated opponents of change … the conservatives, Jews, or whatever ethic or social group the change agent framed as the villain of history.

Authentic efforts to reach across the aisle to heal the scars created by the change campaign will earn Obama the ire of his political base … the far left. Nobody in the history of civilization does a better job of hating than a radical zealot.

In several speeches, Barack has asked us to look beyond the "Red and Blue State" divide that dominated the Bush administration.

This looks like a positive step.

If you step back and consider the post election calls for unity in context of the source of the disunity, one finds that such efforts lack authenticity and are part of a self destructive pattern. The calls for unity are a bit like the platitudes of the sobering drunk who flutters with positive messages of sobriety in build up to the next binge.

A few political strategists like Karl Rove and Dick Morris aside, the red state/blue state divide was never core to Conservative beliefs. Moral principles are the core to conservative beliefs. To most conservatives, the divide was an aberration of history.

The red/blue division was much more central to the Left. The Dialectic is philosophy about division. You pull underhanded tricks to magnify division when you are out of power, and then make calls for unity when in power.

Calls for unity placed on foundation of disunity are apt to fail.

The very nature of this change campaign places Obama in an extremely difficult position. To really go forward, we have to break from the action/reactionary politics inherent in the process set forth by the Democratic Party.

Obama was not the originator of this campaign strategy. He might be able to avert the consequences of the strategy's design. The best start is to recognize that Material Dialectics held by the left (and reactionaries on the right) is the source of the problem.

*NOTE Other than a few immigrants residing in servant quarters, illegal immigrants can't afford to live in Boulder, San Francisco or even in oppressively zoned Salt Lake city limits. Intellectuals can make pretense to altruism on immigration because they have effectively shielded themselves from the issue with high costs of living and tight zoning restrictions.

Tuesday, November 04, 2008

Church Fork

I labeled a set of Fall pictures that I took of Church Fork and the Pipeline trail in Mill Creek Canyon about a week ago. The Forest Service is doing some sort of erosion control project in the area where they ripped off the top layers of soil and draped it with cloth. Apparently they were having problems of slides caused by picnickers playing on the hillside and disturbing the soil. The problem with living in an area with steep mountains is that the sides of such mountains are easily disturbed.

Mountain Runner~Church Fork AreaMill Creek Canyon

Obama's Message of Failure

Libertarian leaning independents like me tend to see the election as a choice between two evils. Which is worse, the Democrats who tax and spend or Republicans who borrow and spend?

In this election, I must admit, I am absolutely and thoroughly proud of the fact that George Bush had the political courage to stand against public sentiment and support the troop surge. I am also proud of the American Troops, who in the onslaught of adversity stood with the Iraqi people against the radicals who slaughtered innocent civilians in their quest for power.

I am voting for John McCain for his role in supporting the Surge and for a long history of working to do what is best for the nation.

The theme of this post is the question about which party is more negative.

As a matter of partisanship, newspaper reporters and college professors routinely use examples from Republican campaigns in discussions about negative campaigns. This creates that illusion that Republicans depend solely on negative campaigns.

What I see is something different. Republicans tend to be overt in their actions while Democrats favor subtlety. When a Republican goes negative, it is generally clear that they've gone negative. They want the world to see the negative thing they see.

Democrats, on the other hand, like to build negativity into the core of their message, while pretending that they are the beacon of hope and light.

A prime example of this technique is Barack Obama's message of "failure."

Look at how many times Barack use the word "failure" in his campaign.

Calling other people a failure is one of the lowest, underhanded, insulting and negative acts that a politician can undertake.

I've been astounded by the shallowness of Barack's campaign. It is nothing more than following the recipe laid out in the Manifesto and Mao's Little Red Book. What you do is label your opponent a failure. Frame issues to support the label, then talk about some sort of unspecified change that will happen on removing the failure.

There are always bad things in the economy and political structure that need fixing. Despite Obama's hate-filled drumming of the world failure, I see a great deal of good around me. As for the failure, the economic troubles seem to be things that built up over decades.

Who failed?

Let's see: A government-backed mortgage reinsurance scheme established by FDR crumbled under the collective weight of the bad loans created by the Community Reinvestment Act passed in the Carter years and strengthened in the Clinton years.

Add to this the slew of social legislation passed in the first 100 days of the Pelosi Congress.

We then had two solid years where the partisan press screamed recession, death and gloom. This finally pushed the economy into a position where oil speculator (both in and outside the US) were able to push oil prices to absurd levels. This was followed by an orchestrated short attack on the American stock market.

The only connection that the above events have with this election is that many of the players in the drama loathe George W. Bush.

For once, I might actually vote Republican. McCain is the best candidate. He ran a positive campaign. His views on immigration match my views. He probably would be ahead in the polls if the partisan press had not framed the election in such a way as to have people voting on McCain's weakest issue … the attack on the economy.

My only hesitancy in supporting McCain is that he has a long history of working with Congress in a bipartisan fashion. He is the guy who makes things happen. With a Democratic Congress and Senate, that means he would make an expansion of the state happen.

Of course, it is Congress that holds the purse strings. A bigger more intrusive government will happen regardless of the president.

I hope that American voters reject Obama's message of failure because we are not a failed nation.

Monday, November 03, 2008

Bankrupting Coal

Conservatives are incapable of understanding even the simplest political concept.

Yes, Obama intends to bankrupt the coal industry. But that does not make the coal industry go away nor does it lead to the loss of any jobs.

When a critical infrastructure goes bankrupt, one simply nationalizes it.

As everyone in the environmental field knows, it is not the burning of coal that causes global warming. It is the private ownership of coal that causes global warming.

If the energy sector were nationalized; then we would stop seeing all of these dire reports in the media about global warming; thus, making the problem go away.

This concept has been proven with light rail. Robert O'Toole of the Cato Institute has pointed that the resources consumed for light rail is generally higher than driving the same distance in a poorly tuned SUV. If there was any legitimacy to thermodynamic equations, then light rail is a wash and high speed light rail a big negative.

Politically, the equations are different. Global warming is, first and foremost, a political phenomena. It is the result of our collective consciousness that is rebelling at the private ownership of resources.

We stop global warming by changing our consciousness.

It is all about change.

The free market failed.

So, we need change. And should vote for change.

Lightrail reduces global warming by replacing private consumption of energy (the source of global warming) with public consumption of energy.

See, how change works. It is only carbon compounds that came from the private consumption of energy that produces global warming.

Driving a car to work is all fuddyduddy old time thinking.

Riding a train is cool.

Don't you see? If riding a train is cool, then it doesn't matter how much energy the train consumed. The train is publicly owned.

Bankrupting the coal industry, then nationalizing it changes our thinking about the industry. Nationalized coal is clean coal?

Once coal is out of the hands of all those privately held companies then it magically becomes clean coal.

Bankrupting the coal industry does not mean lost jobs it means change.

Vote for change.

This message was made possible by Airheads for Obama.