Ali’s blog

Mostly quant stuff with occasional digressions

Archive for April, 2008

NLR piece on subprime and financialisation

Posted by alifinmath on April 30, 2008

An essay by Robin Blackburn, in New Left Review, which can be found here. I’ll try to be sparing in my cut-and-paste:

Such distortions multiply as ‘financialization’ takes hold. It is boosted as the logic of finance becomes ubiquitous, feeding on a commodification of every aspect of life and the life-course—student loans, baby bonds, mortgages, home equity release, credit-card debt, health insurance, individualized pension funds. Financialization also encourages corporations to privilege financial functions and to see themselves as chance collections of assets which, as circumstances change, must be continually broken up and reconfigured. While the individual is encouraged to think of him or herself as a two-legged cost and profit centre, the corporation is simply an accidental assemblage to be continually shuffled in response to fleeting market signals.

More broadly, today’s institutional investment—‘grey capitalism’—has tolerated or spawned financial malpractice often dressed up in the latest jargon of the ‘quants’ and engineers.

The post-1972 take-off of financialization coincided with advances in computing capacity and the discovery of new mathematical techniques for valuing options and constructing derivatives. To begin with, these techniques were used mainly to reduce uncertainty and hedge currency risk. But before long it became clear that derivative swaps could be used to bamboozle tax authorities and shareholders. Financial engineering could convert one type of income stream into another, or an asset into income or the other way round—reducing or avoiding tax.

The complexity of the cdos and cdss—credit default swaps, the financial instruments which insure bond holders—generates new risks: documentation risk, operational risk, ratings risk, counter-party risk, liquidity risk and linkage risk among them.

As time goes on, we’ll probably see more and more of this kind of serious analysis from the Left (i.e. the real Left), which will seek to place the curent problems in a theoretical and historical framework.

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Praying for cheaper gasoline

Posted by alifinmath on April 29, 2008

Found this:

There was a pray-in at a Chevron station in San Francisco on Friday led by a minister asking God for cheaper gas…

Now I confess I’m a bit of an agnostic myself and even if I did believe, I doubt I’d bother the almighty with such petty concerns. But if some people do have to pray, why not for more fuel-efficient vehicles, for better and more comprehensive mass transit, and for more rational urban design (instead of the unplanned suburban sprawl ubiquitous in the USA)? It could be, however, that the almighty is on the side of 300-pound fatties who want cheap gasoline for their insatiable 12-mpg SUVs, used for 60-mile roundtrip journeys between home and work and home and mall. This, I believe, is known as “American exceptionalism.”

 

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Japan, China, and South Korea shy away from US Treasury debt

Posted by alifinmath on April 28, 2008

http://www.bloomberg.com/apps/news?pid=20670001&refer=home&sid=adQ8ReGYJ.D8

April 28 (Bloomberg) — Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a federal deficit that is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.

Asian investors outside Japan are also pulling back. Money managers in China, the second-biggest overseas holder of Treasuries, with $486.9 billion, and South Korea say they favor debt in Europe, equities or commodities.

A bit of a problem for the US government as low interest rates coupled with a weakening dollar make it difficult to finance fiscal deficits. The only thing that would make US Treasury debt sufficiently attractive as to offset currency rate risk would be high interest rates — but this is not considered an option presently.

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Timothy Garton Ash on the inevitable letdown

Posted by alifinmath on April 24, 2008

Ash has written a piece on the inevitable letdown which will result regardless of which candidate gets voted into the Oval Office:

… there’s the difference in the United States’ position in the world now, compared with that during Kennedy’s time, let alone Truman’s. For all the systemic difficulties in store for China, for all the continued strengths of America’s open society and its military preponderance, the United States’ relative power has diminished, is diminishing, and will continue to diminish. This is true of its economic power, above all, as the nation has lived beyond its means, government spending has been skewed toward the military, and the mighty banks of New York go cap in hand to the sovereign wealth funds of Arabia and Asia. Sound like John F Kennedy he may, but Obama’s United States will not be able – to quote the legendary words of JFK’s inaugural address – to “pay any price, bear any burden, meet any hardship, support any friend”. It can simply no longer afford the cost.

There’s nothing original in Ash’s perspective and I also disagree that Clinton would be the the least of the three evils but he does highlight the inflated expectations that accompany every presidential election — followed invariably by business as usual. Readers’ comments, to be found below Ash’s piece, are entertaining and often hit the nail on the head (IMHO).

 

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Internship placements

Posted by alifinmath on April 23, 2008

The good people at Quantnet have been sending out questionnaires to some of the better MFE programs in the USA, trying to get a feel for what kind of job they’re doing in placing people. Princeton has just replied. This is the way a properly-run program goes about doing things. People thinking about doing an MFE need to get straight answers on these questions before committing themselves. The stakes are so high and the market so brutally competitive that applicants shouldn’t even think of second-rate or (even worse) fledgling progams. And in the scheme of things, differences in tuition fees fade into insignificance, bringing to mind the old business adage, “not cheap at any price,” for shoddy stuff.

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Kevin Phillips’ new book, “Bad Money”

Posted by alifinmath on April 23, 2008

Bad Money, by Kevin Phillips, came out last week. Phillips is one of the more perceptive American commentators and I think I have all his books except “American Theocracy.” His latest book — “Bad Money” — is riveting because it attempts to place recent financial and economic events in a theoretical framework. And a framework to understand what’s been occurring is exactly what’s been lacking in discussion and coverage so far. I’ve been attempting some such framework myself but haven’t got further than some inchoate insights and dimly-felt intuitions. A couple of essays I’ve found helpful have been Foster’s The Financialization of Capital and the Crisis and Arnold’s Sub-Prime Crisis Moves US Toward a Different Future.

I can’t attempt a synopsis or critical analysis of Phillips’ book because I’ve just begun it, but I’d like to quote a bit from the preface:

1) This transformation (declining value of the dollar) intensified during 2007, overlapping with the high-profile emergence of the housing, mortgage, and credit crisis. Both situations, I believe, related to what the United States in recent years had ceased to do — produce enough of its own manufactures and oil — as well as what it had started to do: fantasize about military and financial imperialism, about exporting mortgage-backed securities and collaterized debt obligations to a grateful world. Few miscalculations have been so tragic.

2) (The book) is about the insecurity of America’s future as the leading world economic power, given a debt-gorged and negligent financial sector, and the vulnerability caused by the nation’s expensive dependence on imported oil.

3) Part of what Bad Money deals with that I have not touched on before is the financial sector’s massive use of private debt and leverage during the 1990s and then again in the first decade of the twenty-first century to expand its size, global reach, and extraordinary profitability. This is less a market-based Adam Smith brand of triumph than a mercantilist joint venture with U.S. government authority, strategic direction, funding support, and periodic Federal Reserve or U.S. Treasury bailouts of overextended financial institutions.

If and when I finish the book, I may post my impressions and criticisms.

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Destitution in Germany

Posted by alifinmath on April 22, 2008

In The Local:

One in four German families live below poverty line

The number of German families facing destitution is rising, as one out of every four households live below the poverty line, according to a new survey.

At least 26 percent of Germans do not earn enough money to sufficiently support themselves, a significant rise from 13.5 percent in 2003, German magazine Der Spiegel reports in its latest issue.

I haven’t been able to find the original article in the online version of Der Spiegel, so I suppose I’ll have to look at the print copy. These kind of figures spell the end of bourgoisie politics-as-usual: the Great Depression provided a boost to both the Communists and the Nazis in Germany, as Germans came to feel that the usual parties had nothing to offer. I daresay the same will occur eventually in the USA, despite the incessant barrage of mind-deadening propaganda  which we are mercilessly exposed to around the clock. I’m not saying radical movements will have any real panacea to deep-seated and intractable problems; merely that people (even sheeple!) will get fed up to the back teeth with puerile debates on why a contender for office doesn’t wear an American flag lapel pin. Nero fiddles while Rome burns.

 

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Fleeing from Zimbabwe

Posted by alifinmath on April 21, 2008

In the NYT today:

Human Wave Flees Violence in Zimbabwe

She said she had seen gangs loyal to Zimbabwe’s longtime president, Robert Mugabe, beating people — some to death — in the dusty roads of her village. She said Mugabe loyalists were sweeping the countryside with chunks of wood in their hands, demanding to see party identification cards and methodically hunting down opposition supporters.

She was among the latest desperate arrivals in what South Africa’s biggest daily newspaper is calling “Mugabe’s Tsunami,” a wave of more than 1,000 people every day who are fleeing Zimbabwe across the Limpopo to escape into South Africa.

I can’t think of a single black country that isn’t a failed state. Whites keep getting blamed for colonialism and granted they’ve been a rapacious lot, but I can’t help thinking colonial Africa was better for Africans than what they have now. And it isn’t even as if Africa was a peaceful place before Europeans turned up: they’ve been in a state of low-intensity warfare for untold centuries. With regard to Zimbabwe, a crack team of mercenaries could probably restore at least temporary order to the country (along the lines of Frederick Forsythe’s “The Dogs of War.”)

 

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David Dees’ artwork

Posted by alifinmath on April 19, 2008

David Dees’ artwork can be found here. It’s black humor. Nah, scrap that last comment. It’s a bit too frightening and a bit too close to the truth to be called black humor. It’s a view of a bleak present morphing into a dystopian future.

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More examples of Zizek’s “will-to-ignorance.”

Posted by alifinmath on April 18, 2008

In Dissident Voice:

Perry O’Brien, an Afghanistan war veteran (a medic), Winter Soldier organizer, and now Conscientious Objector, suggested in an online video interview that there is an unofficial “don’t ask don’t tell” policy between military personnel and civilians–civilians want to glorify the warrior, but don’t want to hear the gory details of war. He suggests that the people at home have a willful ignorance that goes hand in hand with the military telling soldiers that the civilian psyche can’t handle the reality of war and that soldiers should keep what they do in war to themselves.

Amen.

Winter Soldiers speaking publicly will allow citizens to understand the reality and true cost of war.

What if the f***ing civilians don’t want to know any of this? They don’t even want to know what happens to their own soldiers let alone the hapless civilians at the receiving end.

We know that the US government lies.

But not too strenuously. Nor does it try to keep the facts away from those who really want to know. And both for the same reasons: the apathy and indifference of the civilian population.

The “all volunteer army” is in fact, a poverty draft. Testosterone laced recruitment campaigns featuring F-16s, helicopters and aircraft carriers appeal to youthful idealism and dreams of adventure while promising job skills, and being part of something greater than oneself—not to mention large signing bonuses and college tuition. All this sounds mighty fine to young men and women without prospects following high school graduation. This deliberate targeting of the most vulnerable and destitute in society for use as cannon fodder is despicable and sickening at best. 

Yep: get your negroes, mestizos, and white trash to fight your wars. Though I think most of them go in cynically with their eyes open. But prospects in civilian life are virtually non-existent. No need for a draft when there aren’t that many alternatives. Calling it despicable is a moral judgement of the kind I refrain from.

The reality for soldiers returning home is that the war is no longer a topic of conversation—either in the news, or on the public’s mind. One soldier described his dismay one night in a bar when someone remarked on his uniform and exclaimed, “You mean we’re still over there?!”

It never was. Somehow these idealists think the public is seething with moral fervor and concern, anxious to do the right thing. Hell, they couldn’t care less. They’re fickle, have a short attention span, and fundamentally don’t want to know as 1) it makes them uncomfortable 2) makes them feel impotent, and 3) lies outside the orbit of their humdrum lives. Every ruler learns this pretty fast.

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