Wednesday, December 31, 2008

Chaotic thinking

"When I meet God, I am going to ask him two questions: Why relativity? And why turbulence? I really believe he will have an answer for the first."

-- Werner Heisenberg

Part I

Back when I got my first computer (a used Tandy 1000 with two floppy drives, a 300 BAUD modem, and a whopping 384Kilobytes of RAM -- 128 original + a 256 expansion module -- something like the one above) a dear friend named Chuck insisted I look into chaos theory. It was the mid 80s and Benoit Mandelbrot's theories were all the rage in the artworld. Chuck had written a few little bits of code to emulate a series of chaotic orbital decay events using information he'd found someplace or another, and he found the visual patterns they produced endlessly interesting.

About that time I read a short article in the back of some popular tech magazine describing another kind of chaotic function in a program written in Pascal, so I tried my hand at transcribing it into Basic, which my version of MS DOS supplied for me. The resulting program was laughably primitive, only a few lines long. But it worked. Using the PSet command, it located a point on the screen's x/y axes that represented the values of two variables in a simple equation as determined by the value of a third which was controlled by some function I no longer remember. As the program ran, it drew a line of dots that descended the screen till, at a certain point, the line split, which meant that there were two true values for each of the variables. Then the two lines split. Then all the lines split again. And again.

All this happened in an orderly fashion until it got strange. That's the technical term for what transpired -- the lines my program drew are called attractors, and when they break into apparent disorder, one says that they are strange attractors. Strange they were. Dots proliferated in certain regions of the screen, always descending, but in no pattern that was at first predictable. Eventually another, non-linear structure appeared, a cloud of dots that seemed to coalesce into soft arcing forms that mimicked the arcs if the program's initial lines in a curiously organic way.

Part II

Back in October, the PBS News Hour ran a segment in which Paul Solman interviewed Mandelbrot and Nassim Taleb, the author of The Black Swan, a book about unpredictability and the limits of what we know for certain. About 5:15 into the interview the butterfly effect and the idea of turbulence comes up in their discussion of what's happened and will happen to the enormously complex international financial system. The ripple effects of the implosion of big players like Lehman Brothers and the maiming of bigger ones like AIG are not confined to the values assigned to their shares or to their debt instruments. Ripples are not confined even to one country. In a structure with as many interconnected obligations and mutual dependencies, a structure as unbelievably complex as international finance, they suggested, the effects of a meltdown can be catastrophic. That's the turbulence fear they express.

Look at the smoke from Bogie's cigarrette above (image from Wikipedia). It rises in a smooth ribbon for a bit, spreads, and expands. At first it's coherent, but at a certain point it becomes turbulent, chaotic. Eventually it no longer appears to be a single form; it is no longer even smoke.

Part III

A series of excellent articles by Brady Dennis and Robert O'Harrow, Jr. in the Washington Post describes the events leading up to the AIG disaster in detail. Here are some links: Articles one, two, and three. They are worth reading. The first part tells how three men who worked at the notorious junk bond firm Drexel Burnham Lambert -- Howard Sosin, Randy Rackson, and Barry Goldman -- conceived of new debt instruments that revolutionized the world's finanial markets. they hatched their ideas in 1986, about the time I was noodling with a short program written in Basic to illustrate chaos.

Partnering with AIG, they set up something called AIG Financial Products to offer novel and complex financial instruments. They made themselves and their company enormous amounts of money. And then things got chaotic:

Financial Products unleashed techniques that others on Wall Street rushed to emulate, creating vast, interlocking deals that bound together financial institutions in ways that no one fully understood and contributed to the demise of its parent company as a private enterprise. In the panic of mid-September's crash, the Bush administration said that AIG had grown too intertwined with the global economy to fail and made the extraordinary decision to take over the reeling giant. The bailout stands at $152 billion and counting -- almost 10 times as large as the rescue for the American auto industry.

Many of the most compelling aspects of the economic cataclysm can be seen through the story of AIG and its Financial Products unit: the failure of credit-rating firms, the absence of meaningful federal regulation, the mistaken belief that private contracts did not pose systemic risk, the veneration of computer models and quantitative analysis.

Note two things in the quote above: 1. "no one fully understood;" and 2. "the veneration of computer models."

These guys are smart. Sosin is an alumnus of Bell Labs, Rackson of the Wharton School of Management. Goldman holds a PhD in economics. But what was constructed -- the net of international financial obligations -- grew too big and convoluted to comprehend.

The computer models they and their colleagues trusted to guide them through it all suggest a poignant clue to Nassim Taleb's worries about our current situation. Edward Lorenz, the MIT mathematician and meteorologist credited with naming the butterfly effect, made his discovery when he was running an early computer weather model. When he reran one simulation, starting not at the beginning but a little ways into the model, the results were wildly different from his first attempt. The data from the second run were rounded off slightly, and the systems he was modeling are so complex that tiny differences in values -- less than a thousandth place in Lorenz's case -- meant huge differences in output.

A butterfly in Beijing can cause a storm in Texas.

Financial Products' management and the kinds of products they conjured into being changed over the years, but its mathematical and model-based business apparently didn't very much. Tom Savage, a mathematician, replaced Sosin (who left because of conflicts with AIG's management), Joseph Cassano, another Drexel Burnham alumnus, took over the reins. But the rigorous vetting of each transaction continued.

But even as Financial Products experimented, Savage said, he continued to stress the need to minimize risk. "That was one of the things that really marked this company, was the rigor with which it looked at the business of trading. . . . There was an academic rigor to it that very few companies match," he said.

"It was Howard Sosin who said, 'You know, we're not going to do trades that we can't correctly model, value, provide hedges for and account for.' "

The models continued to show that the products they were selling (increasingly credit default swaps -- insurance on third-party debt) were only the tiniest bit risky. It would take the chaos of a world-wide depression to make them go bad.

And then, one mortgage too many failed, so to speak. A mortgage securitized in a bundle of mortgages, which bundle was itself secured by a product sold by Financial Products. A cascade of rising collateral obligations and falling credit ratings ensued.

The butterfly flapped his wings.

Now we taxpayers own AIG. It's cost us $152 billion so far.

But Taleb's fear is that this only the first part of the ensuing storm. Turbulence and chaos are like that. What will come of AIG's troubles is yet to be seen.

Monday, December 29, 2008

Somebody always makes money

The New York Times reports that a lot of old hands who were in the thick of the late 80s/early 90s bailout of a passel of failed and failing savings and loans, the Resolution Trust Corporation, are now homing in on the bucks to be gotten in our current mess. Says the Times:
What is obvious to former R.T.C. officials is that, like the last go around, a great deal of money will be made by a select group of investors and business operators, particularly those with government contacts. The former government officials said in interviews that much of what is motivating them is a desire to help the nation recover from this latest stumble. But they acknowledge they intend to be among the winners who emerge.
That $700 billion in TARP money is getting spread around. Deals are getting done. And, most importantly, commissions are being charged.

One interesting outfit emerging from all this is SecondMarket, which bills itself as "the marketplace for illiquid assets." This is curious largely because "illiquid" means there is no market for the asset. Illiquid assets are items of dubious value which are REALLY hard to sell. Say, for example, you own a basket of debt paper issued by a company like Lehman Brothers. What can you do? The debt issuer is bankrupt. If you're the guy charged with telling regulators and shareholders what your assets are worth, you need to find out what an illiquid asset like a bond issued by a bankrupt bank can be sold for. Nobody wants it, true. But there is still something of value left in the corpse of Lehman. Some spare change under the couch cushions, maybe. And your bond gives you claim to a portion of the remaining money pie along with all the other creditors in line for a slice.

The fine folks over at SecondMarket have a plan for you: they work to make markets for junk like that. Even if it's only a few pennies on the dollar, they can find somebody who'll buy your paper. The trick is arriving at the right price.

Currently SecondMarket deals in auction rate securities, bankruptcy claims, restricted securities, and limited partnership interests.

Auction rate securities were once touted as safe as cash. They're bonds with long maturity periods, but which are auctioned monthly or even weekly, so their value fluctuates according to what the market will bear at any given time. It's a long-term debt that behaves like something with a much shorter half life. But about 11 months ago the auctions began to fail. Nobody wanted to buy them because of their risk of default. They once were liquid. They became illiquid.

Restricted securities are financial instruments which are bought from companies under certain circumstances which are not registered with the SEC. They are part of the so-called shadow financial system. Since they may not be sold in the regulated market for financial instruments, they are also illiquid.

Limited partnership interests are basically hedge funds. Here's a telling quote from the SecondMarket Web site:
Limited partnership (LP) interests are ownership rights in investment entities
such as private equity funds, hedge funds, and funds of funds (also known as
alternative investment managers or AIMs). Over the past several years the
secondary market for limited partnership interests, which are typically longer
term investments, has grown tremendously.

The market is expected to continue to grow at a rapid pace as many limited
partners seek to reduce their alternative investment exposure. Many are
requesting redemptions or simply seeking to get out of their positions largely due
to poor fund performance, a need for capital or a desire to rebalance their
portfolios. To fund these redemption requests, many AIMs are selling their
positions at sub‐optimal levels, artificially decreasing capital availability and asset
prices as well as increasing market volatility.
The secondary market is comprised of folks trying to dump shit before the stink gets too strong for their noses or stomachs. And the dumping has pushed the price of their shit pretty far down. It'll go down more, but someday the price will rise. So the plan is to make markets for these items with people positioned to buy them at fire sale prices, people expecting an economic turnaround in a reasonable time.

The management team at SecondMarket includes a "Senior Advisor" by the name of Bill Seidman, a CNBC talking head, a former FDIC chairman, and the fist chairman of the Resolution Trust Corporation. Says Mr. Seidman in the Times:
“It is an enormous market,” said Mr. Seidman, who has already joined two such potential money-making efforts and is evaluating proposals to participate in a third. “I am enjoying this.”
Well there's big money to be gotten. Why not?

Here's why not: We have a system of finance designed to cheat us. Its job is to make industry and services possible. Its effect is to generate imaginary wealth.

Somebody wants to open a cafe? He gets a loan and works his ass off to pay the loan back. A school district wants to build a new computer lab? They float a bond and the honest citizens of the district pay taxes to make the debt right. Somebody wants to open a tech business? He borrows to make it happen and then works to make it happen and repay his debt along the way.

But the financial markets have gotten butt-ugly distorted. They've fallen down the rabbit hole and begun to hallucinate wealth and value when there is none. Market fundamentalists will tell us over and over and over again that they make entrepreneurship possible with their capital machinations, but I can see no proof of this supposition. They only make money for themselves. They care not for goods and services, except insofar as they can buy them with their many many dollars.

At some future date SecondMarket will begin dealing in collateralized debt obligations and mortgage backed securities and other instruments of financial innovation. And they'll make another boatload of money, as will their more savvy investors. When this happens, there will be no increase in entrepreneurship. There will be no new ideas about dinners out or digital widgets or instructional technology in public schools. There will be only dollars.

Can you see what is wrong with this picture?

Department of why not

Houston's Art Guys are selling their name and their abject logo (above). Their Web site indicates the logo was the winning entry in a 1993 competition. Esteemed curator Walter Hopps was the juror. Imagining what the other entries looked like is, of course, futile.

The asking price for the Art Guys brand and logo is a hefty $500,000, which may sound like a bunch in the current depressed market, but as one of the Guys points out it comes to only $20,000 a year over their 25-year career.

Along with their announcement that they are engaged to a houseplant, the sale is designated an official Art Guys silver jubilee event.

Monday, December 15, 2008

Art, money, and big waves

Dave Hickey in Vanity Fair:

Numbers tell the story. In 1976, Michael Milken was estimated to have earned $5 million at Drexel Burnham Lambert. By December of 2007, hundreds of times as many people were bringing home staggering multiples of that amount every year. This radical redistribution of wealth created the illusion of “high art prices.” In fact, art prices have fallen as a percentage of the buyer’s disposable income, so art is statistically less important to the people who buy it. The question of how good the art is and how long it will last is of much less consequence.

So think of the art world as a beach and money as the surf. Waves roll in but they always suck back out, leaving a few masterpieces, taking some beach with them. When a really gnarly monster rolls in, the best we can hope is that it will leave some beach behind and a few treasures in the sand, along with the wreckage and the bodies—because the wave will suck away. And when it does, as it is doing right now, the whales will either hold or dump. If they hold, art will remain a stable-valued, low-liquid commodity. If the whales dump at cut-rate prices, the art world will undergo its first catastrophic value re-adjustment in 40 years. It won’t be pretty, but it will be exciting to watch.

Sunday, December 14, 2008

Looks like art, smells worse

Here's a nice graphic over at Slate showing how much money has been committed to assorted bailouts and how much has been actually spent. Totals: ~$5.6 trillion promised; ~$2.3 trillion spent.

Slate's Flash graphic looks very much like a slick, Pop version of a Kenneth Noland abstraction. That's utterly not relevant to anything, except writing the word "Pop" and Noland's name in the same sentence gave me a unnatural rush of naughty glee.

Meanwhile, the New York Times' profile of Harvey Miller, the $1,000/hour bankruptcy attorney in charge of winding down the fetid corpse that once was Lehman Brothers, offers this harsh observation:

From his perspective as Lehman’s undertaker, Mr. Miller believes that the fallout from the firm’s messy bankruptcy could have been avoided. Regulators could have stepped in, he says, not necessarily to save Lehman, perhaps, but to head off the meltdown that followed. “They totally missed it,” he says. “Look what happened.”

When companies rushed to terminate contracts with Lehman, he says, investor confidence plummeted in just about everything — securities and the markets they trade on, corporate debts and the assets backing them, the power of the government and its readiness to use it. In the days after Lehman filed for bankruptcy, he notes, demand for corporate debt utterly evaporated.

The failure of a Wall Street firm poses its own special risks, because other companies that rely on it — such as counterparties to complex financial contracts known as derivatives — are all financially exposed to its collapse.

That’s why Mr. Miller says it was crucial for the government to head off the wholesale termination by counterparties of all their transactions with Lehman before the firm was forced into bankruptcy. “If the Fed or the Treasury said, ‘Let’s say to Lehman, there’s no bailout, we’re not going to save the company,’ they could have supported an orderly unwinding of all the transactions over a period of months,” he says. “It probably would’ve cost the economy a lot less money.”
Lehman owes counterparties and creditors $640 billion. A little planning and order when dealing with that fact beforehand would seem a good idea.

Sunday, December 7, 2008

A little bit Moody about investing

A long article in the New York Times today looks into one significant factor in the credit market collapse: bond rating agencies' going too easy on their evaluations of the risks surrounding a slew of mortgage backed securities. In the abstract, it's interesting reading. In real life, it's cause for rage.

The article focuses on Moody's, one of the big rating agencies on Wall Street, and on its role in facilitating the housing bubble (the others are Standard and Poor's and Fitch). Basically, it goes like this: Mortgage originators securitized the mortgages they produced into various financial instruments like bonds, collateralized debt obligations, etc. so they could sell these instruments to investors eager to get a good return on their money. The sale of the instruments produced cash which loan originators could then use to generate more mortgages. It's the job of a company like Moody's to assess the risk associated with the securities and assign a grade to them based on an estimation of the quality of the underlying debt. In the words of a Moody's spokesman quoted in the Times:
“Moody’s credit ratings play an important but limited role in the financial markets — to offer reasoned, independent, forward-looking opinions about relative credit risk, based on rigorous analysis and published methodologies...”
Nice spin with that "but limited" bit, eh?


Let's look at the "reasoned, independent, forward-looking" part of the statement. Financial instruments built out of mortgages and other sorts of debt are often divided into slices called "tranches" (tranche = slice in French) with a heirarchy of risk and reward assigned to each slice. Higher tranches get paid before lower ones. When all the debts in the security are paying as they should everybody gets a piece of the action. But as mortgage holders get behind in their payments or (worse) default, the lower tranches get nothing while the upper guys still get paid. I know that's horribly complex, but that's the way they do things. And complexity can be profitable.

So the Times reports:

Consider a residential mortgage pool put together in summer 2006 by Goldman Sachs. Called GSAMP 2006-S5, it held $338 million of second mortgages to subprime, or riskier, borrowers.

The safest slice of the security held $165 million in loans. When it was issued on Aug. 17, 2006, Moody’s and S.& P. rated it triple-A. Just eight months later, Moody’s alerted investors that it might downgrade the top-rated tranche. Sure enough, it dropped the rating to Baa, the lowest investment-grade level, on Aug. 16, 2007.

Then, on Dec. 4, 2007, Moody’s downgraded the tranche to a “junk” rating. On April 15 of this year, Moody’s downgraded the tranche yet again; today, it no longer trades. The combination of downgrades and defaults hammered the securities.
Millions in debt were rated an excellent risk in 2006. The same -- exactly the SAME -- debt gets a not so good score in a year, and four months later it's junk. Now nobody wants any of it at any price. This one example of a scenario that has been repeated untold times since the boom went bust and would appear to be what passes for "forward-looking" in the world of risk assessment.

Then there's the issue of "independent" opinions. Used to be that Moody's got paid by the people who bought securities, not the guys selling them. That changed in the 70s. Now the issuers of credit instruments pay rating agencies for the rating service, and the conflict of interest is just about inescapable. Add to that the pressures to maximize shareholder profits (Moody's went public in 2000) and you get a real problem. From the Times:

By the time Moody’s became a public company in 2000, structured finance had become its top source of revenue. Employees in this unit rated bundles of assets like credit card receivables, car loans and residential mortgages. Later they rated collateralized debt obligations, or C.D.O.’s, yet another combination of various bundles of debt.

Moody’s could receive between $200,000 and $250,000 to rate a $350 million mortgage pool, for example, while rating a municipal bond of a similar size might have generated just $50,000 in fees, according to people familiar with Moody’s fee structure.

A standard of profitability at many companies is its operating margin, which measures how much of its revenue is left over after it pays most expenses. While operating margins at Moody’s were always enviable — in 2000 they stood at 48 percent — they climbed even higher as revenue from structured finance rose. From 2000 to 2007, company documents show, operating margins averaged 53 percent.

Even thriving companies like Exxon and Microsoft had margins of 17 and 36 percent respectively in 2007. But Moody’s and its counterparts were not founded to be profit machines.
Structured finance is a generic term for all those complex securities we've heard so much about as the financial markets spazzed out. The more complex the financial instrument, the more a rating agency could charge to assess its risk. A huge amount of money was on the line with each rating. This is what passes for "independence" in the world of risk assessment.

As to "reasonable," if we are to apply a pragmatic test -- say, looking at whether or not their ratings accurately reflected the realities of the products under scrutiny -- the verdict can't be kind. How could anybody claim that reasonable opinions about risk ended up with a global financial meltdown? As with the tech bubble before it, the housing bubble was irrational, and Moody's was integral to the irrationality.

There is ample blame for this mess. Subprime lenders who asked nothing regarding the credit worthiness of people who were buying houses they couldn't afford, government regulators who allowed big banks and other financial institutions to value their assets according to the "reasonable" opinions of rating agencies and didn't regulate like they should have, banks that leveraged every buck they had on deposit 30 times in reckless bids to maximize profits, doofus home buyers picking up properties on spec so they could flip them quick in an ever-rising tulip mania of a market -- all those guys and others had a big share in the mess.

But credit rating agencies like Moody's enabled a baseless boom by propping up false assessments of the underlying value of the securities that kept the credit flowing beyond any reasonable limit.

Saturday, December 6, 2008

Past blast

Back in the early 1980s, a good friend let me use his computer to type up my resume -- my first experience ever with a word processor. The machine was a Kaypro (pictured above) which ran an operating system called CP/M on a Z-80 CPU. With a whopping 64 kilobytes of RAM and two 5 1/4-inch floppy drives, its capabilities were somewhat limited, but it worked as long as you remembered to save your document frequently.

I found the picture today here. Unfortunately, I've lost track of my friend.

Chuck, If you're out there drop me a line.

Thursday, December 4, 2008

Money and art

UBS -- the Swiss banking giant which employs retired Texas A&M economics professor, former senator, handmaiden to high finance, and noted pissant Phil Gramm -- the Swiss banking giant which was the center of a recent tax-evasion scandal involving indictments of its Global Wealth Management division and Gramm's fellow UBS board member Raoul Weil over a scheme to allegedly hide $20 billion or more in assets belonging as many as 17,000 US citizens from the IRS -- that UBS -- is the main sponsor of this year's Art Basel Miami Beach. UBS was a sponsor last year's event in Florida, too.

UBS likes art. Or art collectors. Or art collectors' lucre.

ABC News reports:

According to the indictment, UBS bankers "solicited new business from existing and prospective United States clients at Art Basel Miami Beach."

"They sent their salespeople here. They have encrypted computers. They smuggled assets out of the country to help those people conceal what they should have paid the IRS," said Jack Blum, a Washington tax lawyer and consultant to the IRS. "So the question is, why should a bank like that be allowed to continue in business?"
So you go to an art fair to see some art? What're you some kind of schmuck? It's about the cash, numnutz. Sure you can pick up a Clemente at Mary Boone or a Sugimoto at Gagosian. Who can't? And what about a Francis Bacon doodle or a sweet sweet Larry Rivers bauble at Marlborough? Heck pal, with all those tax-free Swiss franks, why not get them both? But don't forget to drop by the smilin' folks over at the UBS booth. The can fix you up for some fine tax scams that'll make your capital gains -- aesthetic or financial -- just plain disappear.

Only chuckleheads play fair.

I don't know. It just came to me.

Wednesday, December 3, 2008

Grass fed

Not long ago my wife and I bought a quarter steer from our egg lady. One of the compensations we get for living in a very small east Texas town (a local monthly calls itself the voice of the Upper East Side of Texas, heh) is that we have access to some incredible tasting, sustainably raised meat and eggs. The egg lady delivers a couple dozen free-range eggs -- okay, the chickens range freely, not the eggs -- regularly. And annually she slaughters a steer, parts of which we have bought on a couple of occasions.

A word about grass-fed beef: it's delicious.

Since the animal spends his life walking around and not penned, it can be a bit chewy if it's over-cooked. On the other hand, exercise gets blood flowing in its muscles and a diet of carotene-rich herbage both adds flavor and makes the fat distinctly yellow. Cattle evolved as grass eaters. They have a digestive system designed by millennia of natural selection to get the most out of a very fibrous, low starch diet. This document from Colorado State begins:
The rumen is a fermentation vat par excellance, providing an anaerobic environment, constant temperature and pH, and good mixing. Well-masticated substrates are delivered through the esophagus on a regular schedule, and fermentation products are either absorbed in the rumen itself or flow out for further digestion and absorption downstream.
It continues:

Feed, water and saliva are delivered to the reticulorumen through the esophageal orifice. Heavy objects (grain, rocks, nails) fall into the reticulum, while lighter material (grass, hay) enters the rumen proper. Added to this mixture are voluminous quantities of gas produced during fermentation.

Ruminants produce prodigious quantities of saliva. Published estimates for adult cows are in the range of 100 to 150 liters of saliva per day! Aside from its normal lubricating qualities, saliva serves at least two very important functions in the ruminant:

  • provision of fluid for the fermentation vat
  • alkaline buffering - saliva is rich in bicarbonate, which buffers the large quanitity of acid produced in the rumen and is probably critical for maintainance of rumen pH.

All these materials within the rumen partition into three primary zones based on their specific gravity. Gas rises to fill the upper regions, grain and fluid-saturated roughage ("yesterday's hay") sink to the bottom, and newly arrived roughage floats in a middle layer.

Then comes an illustration that may owe a lot to Carroll Dunham:

Or maybe not.

The point here is that cattle evolved an extraordinary digestive tract that has nothing to do with eating and digesting grains like corn. Feeding corn to cattle is an industrial agriculture practice and owes its being to economic factors and not good animal husbandry. Basically you can get a steer fatter faster on less land if you feed him corn. But a corn diet can also make the steer sick, so he also gets frequent doses of antibiotics.

The economics of corn are downright Byzantine with market distortions arising from huge agribusinesses like Monsanto and from USDA farm subsidies. Growing corn is also intricately linked to America's consumption of fossil fuels (transportation, processing, fertilizer manufacture, etc.) Michal Pollan's book The Omnivore's Dilemma covers much of this info in engaging detail. Apparently there is molecular evidence that US citizens consume more corn (via corn sweeteners, animal flesh raised on corn diets, and so on) than do Mexicans.

Tonight I cooked a T-bone steak from our quarter steer for dinner. Grass-fed beef. I seared it in a steel skillet and let it rest while I fried some turnip pieces in the pan drippings. When they were nearly done, I added a chopped shallot and later some smoked turkey stock. After reducing the stock, I added some lemon juice and some grated horseradish.

I cut the meat off the bone and sliced it for serving with the turnips and juices. Nobody ate better. It was rich and flavorful and simple and right.

It was a huge steak. There is leftover meat for salads later and the bone and trimmings are in a stock pot simmering as I type.

Tuesday, December 2, 2008

Pimp my Prius

Over at Juiced Hybrid you can buy all sorts of widgets to make your Prius cooler, hotter and more efficient. Items range from a bolt-on chassis stiffener:

To a device you plug into the car's diagnostic system that promises to teach you how to improve your mileage:

To an electronic module that will make your Prius run on battery power only at speeds up to 34 mph:

To a $5,000 kit to convert your Prius to a plug-in EV car with 360 lbs of extra batteries and a huge increase in mileage:

Juiced Hybrid claims you can expect up to 100 mpg with the extra batteries.

I searched the site and found no offerings for Prius duallies:

They did have a link to a Prius autocross race, though:

Somebody should organize the Texas Grand Prius (Marfa to Terlingua, say). I'd enter.

Talking and writing

I'm actively procrastinating honoring a review commission. It'll happen, just not today. The ideas are coalescing. The images and wider-world references and associations have begun to arrange themselves. I've not written it, however.

Today instead I did a bit of yard work and noodled about in my studio and on the Web. Here's something I found on line this afternoon via a link at Smith Magazine:

Of course I don't think only about writing. I spend time with my wife, family and friends. I read a lot, watch a lot of politics on TV. But prose is beavering along beneath, writing itself. When it comes time to type it is an expression, not a process. My mind has improved so much at this that it's become clearly apparent to me. The words, as e. e. cummings wrote, come out like a ribbon and lie flat on the brush. He wasn't writing about toothpaste. In my fancy, I like to think he could have been writing about prose.

Yes, I had that cummings line in mind before I began. I knew I was heading for it. By losing the ability to speak, I have increased my ability to communicate. I am content.
The writer is film critic Roger Ebert. The quote is from a Sun-Times blog post that dates from late October of this year. I recommend it.

Saturday, November 29, 2008

Last weekend

We visited San Antonio last weekend, and I learned there are several missions in the city besides the Alamo. Unlike their famous sibling, these other missions are maintained by the National Park Service. The Alamo is owned by the Daughters of the Republic of Texas and is located across the street from a Ripley's Believe it or Not Museum and other crummy tourist pits. I shot the image above in the ruined residence hall of Mission San José on the southern end of the modern San Antonio. I shot the image below the same morning in front of the Alamo.

The mission church was reconstructed after its dome collapsed in the 1870s, but much of the structure dates from its founding in 1720.

That's the west facade of the mission church. It is still a working Catholic church where mass is celebrated regularly. Mission San José had the good fortune not to have been the site of a much mythologized battle, so it gets no Christmas tree. And the crummy wax museum geeks leave it alone.

Nice guy

Weird image:

His name is Jeremy Newton, and he's a graduate student at a university where I used to teach. He was invited to participate in a group show at Centraltrak in Dallas. The opening was tonight. That pink scumble of stuff above is a detail of a carpet of Pink Pearl eraser rubbings Jeremy made last year. The guy's a natural. He scattered a layer of eraser rubbings on a gallery floor before he'd ever heard of Barry Le Va. Maybe he still hasn't heard of Le Va. I don't know.

The trouble with what I saw tonight, though is that idiot gallery visitors don't look where they're going. Jeremy told me that his initial installation with the piece humbly and simply lying on the floor didn't work out because oblivious folks kept stepping on it. He had to set it on a low pedestal for the opening. Much was lost. Confining his oddball material to a raised platform took away some of its stubborn, mute factuality and made it only "art."

I've seen it in other contexts, and it's better than that.

Thursday, November 20, 2008


I almost forgot...

My wife and I are in San Antonio for a conference. Our hotel is across the street from the Alamo. The Alamo sprinklers are running tonight:

All is well.

Tomorrow I'll gallery hop while she confers and conferences and more.

Wednesday, November 19, 2008


Paul Cullum, writing in Vanity Fair, discloses a memo from horrible, horrible factory painter of tepid banalities Thomas Kinkade to the director and crew of his film, Thomas Kinkade's Christmas Cottage. At least that's the title in Cullum's piece. IMDB lists the title as Thomas Kinkade's Home for Christmas. Whatever.

The memo contains 16 items which Kinkade wanted the filmmakers to bear in mind while working on the project. Here's one:
15) Nostalgia. My paintings routinely blend timeframes. This is not only okay, but tends to create a more timeless look. Vintage cars (30's, 40's, 50's, 60's etc) can be featured along with 70's era cars. Older buildings are favorable. Avoid anything that looks contemporary -- shopping centers, contemporary storefronts, etc. Also, I prefer to avoid anything that is shiny. Our vintage vehicles, though often times are cherished by their owners and kept spic-n-span should be "dirtied up" a bit for the shoot. Placerville was and is a somewhat shabby place, and most vehicles, people, etc bear traces of dust, sawdust, and the remnants of country living. There are many dirt roads, muddy lanes, etc., and in general the place has a tumbled down, well-worn look.
Everything should have a pleasing coat of moss on it. Like Hobbits and really stupid fixer-upper village dwellings in the rain. Jean Baudrillard, writing of the death of reality in "The Precession of Simulacra," says that nostalgia isn't what it used to be. I guess not.

The movie was released on DVD November 11 with no theatrical run, presumably because it's abysmally awful. Iceland, which is bankrupt and starving, will host a theatrical release tomorrow. Poor Iceland.

Warning: viewing the trailer is not advised. It is included here for evidentiary purposes only. Just use your imagination to conjure a feeble Peter O'Toole mouthing "Art is about LIFE." Poor Peter, money must be an issue for him. Just like Iceland.

Painters can make good films. Julian Schnabel's The Diving Bell and The Butterfly is wonderful and moving.

And Robert Longo's film based on William Gibson's story, Johnny Nmemonic is engaging, proto-steampunk stuff.

But this Kinkade stuff makes me shudder: there's an audience for it. They walk among us and like moss-coated memories of shabby miracles.

Kimbell image update

The above image, from a story in the Fort Worth Star-Telegram, shows an architectural model of Renzo Piano's current idea for the new Kimbell Art Museum building. Published reports indicate that the model is accurate in the overall proportions of the structure and its placement relative to the existing 1972 Louis Kahn masterpiece. However, the project will likely evolve before construction begins in 2010.

Tuesday, November 18, 2008

Kimbell addition

The Kimbell Art Museum in Fort Worth announced plans to add another building to the justly celebrated 1972 structure by Louis Kahn. Renzo Piano, who worked in Kahn's studio around the time the Kimbell was designed, will design the new structure, which will be located just west of the existing museum. Just what the building will look like is not clear to me, but here's an illustration from the Dallas Morning News:

Adding to a masterpiece like the Kimbell is going to be a tricky job. The museum announced plans for an addition to Kahn's building once before to a storm of criticism from architects and the public. The earlier plan was to attach more vaults in imitation of the original structure, which would have seriously messed up the building's extraordinary aesthetics. This time the museum and Piano had enough sense to construct a separate building.

Here's an aerial view:

Here's another view:

I really love that building. I hope the addition causes no harm.

Monday, November 17, 2008

Art's spectrum

I saw two shows in Dallas over the weekend that just about set the limits for the spectrum of activities covered by the blanket term "contemporary art."

At the Dallas Museum of Art the Olafur Eliasson survey "Take Your Time" celebrates and explores the conundrums surrounding perception and consciousness -- specifically the consciousness of perception considered as experiences in a continuous duration. It's all Bergsonian philosophy and the embededness of perception in the ever changing objects of its awareness, except when it's all look at the facts of the museum experience and how that context attends what you're getting out of these things you're looking at. The audience Saturday was enthralled. Smiles and appreciative murmurs abounded. Fun philosophy. (image via

At Conduit Gallery I caught the last day of a smart, hip show by Fahamu Pecou, a painter and graphic designer based in Atlanta. His day job involves working with assorted hip-hop performers, helping to design the particular street-smart, tough guy images of masculinity so central to marketing their music and personas. This led Pecou to generate a Warholesque campaign for himself involving a series of paintings based on imaginary covers for (mostly) actual magazines like Artforum and Tema Celeste featuring himself as a star. His campaign slogan: "Fahamu Pecou is the shit." It's all the intersection of public image, race, and constructed gender executed with a fierce wit. The title of the painting above is Warn a Brother.

Sunday, November 16, 2008

The party's over

In the wake of the Enron fiasco, gray-haired men who knew business and its inner workings counseled us all that hastily conceived regulations aimed at preventing another fubar situation involving off balance sheet accounting and risky trades in derivatives would likely yield unintended consequences and actually cause more harm to the efficient operations of business enterprises than good for the safety of investors and the public. Regulations in general are bad for business, it was argued.

Government isn't the solution, quoth Reagan and his apostles; Government is the problem.

Tell it to Somalia.

But anyhow, back in 2002, Bush said “we need men and women of character who know the difference between ambition and destructive greed, between justified risk and irresponsibility, between enterprise and fraud.” His post Enron solution was to encourage rational, ethical behavior among the business class. In the words of LA Times reporter Ronald Brownstein:
Bush offered much the same balance Tuesday [July 9, 2002], suggesting that a key to solving problems in the boardroom was for chief executives to set a “moral tone.” Embedded in that summons is the conviction that the crisis of corporate ethics is primarily a problem of individuals who go bad, rather than a financial system that encourages even good people to make bad decisions–and a regulatory system that fails to deter them.
We all know how well that worked out.

So last week Bush offered this opinion on financial matters:

One vital principle of reform is that our nations must make our financial markets more transparent. For example, we should consider improving accounting rules for securities, so that investors around the world can understand the true value of the assets they purchase.

Second, we need to ensure that markets, firms, and financial products are properly regulated. For example, credit default swaps - financial products that insure against potential losses - should be processed through centralized clearinghouses, instead of through unregulated, "over the counter" markets. By bringing greater stability to this large and important sector, we would reduce the risk to our overall financial system.

Third, we must enhance the integrity of our financial markets. For example, authorities in every nation should take a fresh look at the rules governing market manipulation and fraud, and ensure that investors are properly protected.

Fourth, we must strengthen cooperation among the world's financial authorities. For example, leading nations should better coordinate national laws and regulations. We should also reform international financial institutions such as the IMF and the World Bank, which are based largely on the economic order of 1944. To better reflect the realities of today's global economy, both the IMF and World Bank should modernize their governance structures. They should consider extending greater voting power to dynamic developing nations - particularly as they increase their contributions to these institutions. They should also consider ways to streamline their executive boards, and make them more representative.

Improved accounting rules! Maybe we can make them even reflect reality!

Regulated trades for credit default swaps! What a concept! Could it be that a financial system representing several times the US GDP might need a little look-see from a regulator or two now and again?

Tighten up fraud laws! Can free markets survive?

International cooperation on financial regulations! Can world government be far behind?

We are witnessing the end of the latest incarnation of laissez-faire capitalism. Stubborn adherence to Reaganite dogma got us into a hellish mess, and even Bush knows it. It's over. Laissez-faire arguments will persist. Witness the silly calls to repeal capital gains taxes when Paulson first floated a bailout plan before Congress. Perishing few Americans can claim capital gains on anything right now. The tax bogeyman came to the lips of some conservatives almost as a Pavlovian response to a crisis, not a reasonable and pragmatic tactic in the face of bad financial conditions. But on the whole, the Reaganonomics ideology -- its worldview -- lies in ruins along with Lehman Brothers. Individual ethical choices are not the solution. Indeed individual choices are the problem, and the point is not ethics. Rather the point is that we must moderate capital's demand for more and more and more and ever higher returns on investment. And we must do so because excesses threaten capitalism itself.

What that moderating structure looks like remains to be seen. The G20 summit this weekend was a start, and apparently a pragmatic one. From the Economist:

Just what path the G20 will take is not yet clear. All sides interpreted this communiqué from the summit a little differently. Mr Sarkozy talked about the “historic” shift in America’s attitude to financial regulation. The Bush administration focused on the summiteers’ commitment to pro-growth policies and open markets. Leaders from emerging economies, not surprisingly, concentrated on their new global role.

In some areas the leaders clearly papered over their differences. The communiqué, for instance, nodded to Europeans’ desire for more regulation by promising to ensure that “all financial markets, products and participants are regulated or subject to oversight”. But it quickly tempered that point with phrases more to the Bush administration’s liking: promising to make sure that “that regulation is efficient, does not stifle innovation, and encourages expanded trade in financial products and services”.

Friday, November 14, 2008

A coupla emails

No TARP oversight?‏
From: Michael Odom (
Sent: Fri 11/14/08 1:34 PM

I read that there still is no special inspector general for the billions in rescue dollars allocated by Congress to help the economy. I read that no monitoring report has been made, in spite of the legal requirement that it be done.

This is egregiously unacceptable.

We taxpayers have entrusted you with enormous sums to right this wrecked economy. We did this because we knew it was necessary for the greater good. But you must do your part to make certain that our trust is not misplaced. Even the appearance of waste, fraud, or cronyism will severely damage the public trust.

Are you people incompetent? Are you cynical?

Do your job.


(No Subject)‏
Sent: Fri 11/14/08 1:34 PM
On behalf of President Bush, thank you for your correspondence.

We appreciate hearing your views and welcome your suggestions.

Due to the large volume of e-mail received, the White House cannot respond to every message.

Thank you again for taking the time to write.

For details see the Washington Post.

Update: They've picked somebody for the job: Neil Barofsky. He must still be confirmed by Congress.

Thursday, November 13, 2008

Auction results

Things did not go so well for Christie's and the Fulds last night. As reported, Lehman CEO Dick and MOMA trustee Kathy Fuld consigned a portion of their art collection to the auction house for sale at last night's auction of post-war and contemporary art. The sale included 16 drawings by Willem de Kooning, Agnes Martin, Arshile Gorky, Barnett Newman, and others. Today, Bloomberg reports that the Fulds' drawings garnered $13.5 million, significantly less than the $15 million low-end estimate before the sale.

Lot 49, the 1951 de Kooning Woman, failed to meet its low estimate of $3 million, coming in at $2,770,500 after the buyer's premium got tacked on. The rest of the auction appears to have gone somewhat worse than that. Sez Bloomberg:
The auction house sold $113.6 million of contemporary artworks, half its presale low estimate, as prices tumble.
But still, Dick 'n' Kathy have reason to celebrate today. Even if their stuff didn't make them as much as they might have liked, they turned a tidy profit. Bloomberg, again:
Among the Fulds' top lots was Gorky's 1946-47 ``Study for Agony I'' in pencil, crayon and ink, which sold for $2.2 million, at the low estimate. The Fulds bought the work at Christie's in New York in 1996 for $370,000.
Agony's premium is up these days, even if art in general is on the skids.

So far I've heard nothing about the NPR report yesterday that said Christie's guaranteed the Fulds $20 from the sale. ABC reports that number was the high estimate for the 16 drawings at auction, so the guaranteed return was almost certainly less than that figure. But I quibble. As ABC has it:
Fuld collected $10,900,000 in base salary and $77,475,000 in cash bonuses during his 14 years as Lehman's chief.
I'm certain he was worth all that and more to the thousands of Lehman's unemployed.

(Update: A later version of the Bloomberg article indicates that the Christie's guarantee to the Fulds may indeed have been $20 million.)

Wednesday, November 12, 2008

The Crying Lot 49

The Fulds are selling part of their art collection tonight. Dick Fuld was CEO of Lehman Brothers until its bankruptcy in September. His wife Kathy is on the board of directors at MOMA and an avid collector of modern and contemporary art.

The Guardian reports that tonight's auction of post-war and contemporary art at Christie's will offer a number of works from the Fulds' collection, including three de Kooning drawings.

This de Kooning Woman (1951) is lot 49. The owner is not identified on Christie's Web site, but this "special notice":

On occasion, Christie's has a direct financial interest in lots consigned for sale which may include guaranteeing a minimum price or making an advance to the consignor that is secured solely by consigned property. This is such a lot. This indicates both in cases where Christie's holds the financial interest on its own, and in cases where Christie's has financed all or a part of such interest through a third party. Such third parties generally benefit financially if a guaranteed lot is sold successfully and may incur a loss if the sale is not successful.

is consistent with an NPR report that the Fulds negotiated a guaranteed $20 million from the auction house for the sale. Even if the artworks do not sell, Dick 'n' Kathy get almost enough money to buy another $21 million Manhattan apartment to go with the one they already own.

Bonus points if you've read Thomas Pynchon's novel The Crying of Lot 49. The confluence of Pynchon's paranoid rantings and the current economic situation -- a situation for which Dick Fuld is more than a little responsible -- would be delicious in another Pynchon novel.

If only we were all fictional characters and our money were fictional, too...

(Update: I was in error to label Dick Fuld a former CEO. Bloomberg indicates he is still CEO, albeit chief of a bankrupt company.)

Saturday, November 8, 2008

Change again

Is it just me, or is there something oddly Reagan-like in the feeling of political/cultural sea change that accompanied Obama's win Tuesday? It's not just the consonance of "new day" and "morning in America." As others have said, Obama is a transformational figure in our nation's politics. I take this to mean more than the fact that he appeals to a new generation of voters. The welcome participation of young voters is, in itself, a boon to democracy to be sure, but along with their coming to the (pun alert) party came something else.

I think that's why pronouncements about the "liberal agenda" and "conservative core values" from both the left and the right haven't made much sense over the past week. The constellations of ideas associated with the words "liberal" and "conservative" for the past 30 years or so are realigning. The referents of the words have begun to reform in novel associations of values and goals, as old ideologies about race relations, free market capitalism, the mutual responsibilities of the individual to the community, and the role of religion in public discourse come apart. This is why Obama beat Clinton in the Democratic nomination process: his approach to the nation's challenges recognizes what is going on in the ways we have begun to re-imagine the usefulness of possible solutions apart from ideology. She speaks an aging language. He's developing a new one.

Obama had the foresight to recognize early on what he called "the arc of history" in his victory speech, but the change is not in his vision alone. America has begun to reform its worldview in terms of pragmatic imaginings of the future. The old ideologies unraveled long before Alan Greenspan admitted before Congress his "shock" that he had been wrong in a fundamental assumption about the nature of the economy.

Thursday, November 6, 2008

Wanna see something really lovely? Point your browser here:

It's loading slow as a two-year campaign this afternoon, but it's up and running already.

Wednesday, November 5, 2008


I was born in the Deep South near the middle of the last century. Racism was the norm in the segregated culture of my childhood. The doctor’s office had a “colored” waiting room. The drugstore was segregated. So were drinking fountains.

I remember the segregated swimming pool, the segregated movie theater, a segregated amusement park. Unspoken, but always everywhere was the dominant belief that the races were so different that they must be kept from one another. Blackness was irreducibly other.

Our family moved to suburban Dallas in 1959 where I attended segregated schools till my graduation in the late 60s. The school district wasn’t officially segregated, mind you. Brown v Board of Education held separate schools unjust and unequal back in 1954. We had “neighborhood schools” which just happened to be either all white or all black. Nothing was said about the segregated neighborhoods.

I spent several weeks each summer of my childhood with my grandparents in a small town outside Baton Rouge. This was during the Civil Rights struggle. I remember arguments about Freedom Riders “stirring up trouble” and rumors of race-motivated beatings and efforts to suppress voting rights. The arguments were based on premises like states’ rights and “preserving our way of life.” I remember when the local public swimming pool closed rather than obey a court order to desegregate. I remember James Meredith being admitted to Ole Miss. I remember CORE and SNCC. I remember finding Klan leaflets on the street and George Wallace standing in the doorway of the University of Alabama.

And yesterday I voted for the son of a man from Kenya and a woman from Kansas to be president. My state went against Obama, but my vote was counted as part of his national majority. I am one of more than 52 million Americans responsible for electing the right man, and it just so happens that he's an African American.

How much has the world changed during my life. How grateful I am to have witnessed its changing.

Of course, he's also all American.

Not 2004

The night of the last presidential election I watched coverage of the returns late into the wee hours. When CNN reported that Ohio voters in late-reporting precincts said they were voting on social issues like gay marriage, I knew it was lost and went to bed. Next morning I picked up the first of Patrick O'Brian's seafaring novels. The times were not with me, and the Napoleonic Wars seemed like a safe place to visit for a while. I read them all over the next weeks. All 20 or so of them.

Tonight when the news broke that Obama had enough electoral votes to win, my wife cried. It was joy behind her tears.

Tonight my daughter in Austin texted me "We did it!" "333 electoral votes and counting!" I replied. A few moments later she shot back "Landslide! History live on MSNBC."

Tonight when Obama began his victory speech, my wife cried again. Cried along with Jesse Jackson and many others on TV.

My daughter was born almost 25 years ago in Terre Haute, IN. She's of the generation that ushered in this change. Earlier tonight, I read that Vigo County, IN (Terre Haute's county) got the presidential election right every election but two since 1892. Vigo County (and my daughter) got it right again tonight.

Anything I read this week, I'll read for joy, not escape.

Tuesday, November 4, 2008

Just voted

Lines and long waits are being reported in other places. Not here. I was in and out in minutes.

Monday, November 3, 2008

Obama video

Got a couple of robo calls today. I just got an email from David Byrne urging me to vote tomorrow. It's what I deserve for downloading that free tune from his Web site last month, I guess.

The Paul Simon video above has been running tonight on CNN and MSNBC with some frequency.

Tomorrow night we can all breathe again.

Saturday, November 1, 2008

Studs Terkel

Studs Terkel died yesterday. He was important in so many ways, but today I'm thinking of a vinyl recording of the Congolese mass, Missa Luba I used to own. Terkel wrote the liner notes. In his memory, here's the Sanctus from Missa Luba:

Friday, October 31, 2008

Thinking about politics

Really thinking, not playing along with the team.

Individual videos of independents and Republicans explaining why they plan to vote for Obama are here.

Thursday, October 30, 2008

Pastrami update

The brisket sat in the pickling brine for three days. (A few hours short of the whole 72, actually, but who's counting?) And this evening I dusted it with toasted, freshly ground black pepper and coriander and moved it into the smoker pit.

Because it's supposed to smoke very slowly (Ruhlman and Polcyn write that usually, pastrami is cold smoked before it's finished in a hot smoke environment), I set a pan of ice in the pit with the meat. You can see that even after the 10 minutes or so it took me to get the photo, the ice has begun to discolor from the smoke.

As I write this, the ice is gone and the meat is getting warmer. Currently it's cooking at about 275 F.

I'll have pastrami before bed time.

Travelling show again and again and...

My magnet painting on the flank of a Toyota Tundra in Greenville, TX. Photo courtesy of Josie.

Two thirds of the economy

Consumer spending represents two thirds of US economic activity. Reuters reports today that the US Commerce Department's estimation of the economy shows we the people tightened our belts considerably in the past quarter:
Consumer spending, which fuels two-thirds of U.S. economic growth, fell at a 3.1 percent rate in the third quarter -- the first cut in quarterly spending since the closing quarter of 1991 and the biggest since the second quarter of 1980. Spending on nondurable goods -- items like food and paper products -- dropped at the sharpest rate since late 1950.
We're eating fewer pork chops and more beans, it seems. As to that new Ford F-150 pickup Bubba wants to buy, well:
Consumers cut spending on durable goods like cars and furniture at a 14.1 percent annual rate in the third quarter, the biggest cut in this category of spending since the beginning of 1987. Car dealers have said that sales have virtually stalled, in part because tight credit makes it hard for even creditworthy buyers to get loans.
A friend of mine owns a car dealership here, and I'm afraid to ask him about his business. A downturn in a business sector of a magnitude not seen in over 20 years can not be ignored. Tightened credit (an artifact of the general financial malaise in the wake of years of unregulated trades in improperly valued financial instruments) is only part of the issue here.
Continuing job losses coupled with declines in the value of stocks, other investments and housing prices have put consumers under severe stress. The GDP report showed that disposable personal income dropped at an 8.7 percent rate in the third quarter -- the steepest since quarterly records on this component were started in 1947...
This is a prima facie case for supporting and expanding the middle class. The US economy is structured upon a foundation of middle class spending. Losing 8.7% of our buying power screws even the rich.

This is why I support Obama's tax plan.

Tuesday, October 28, 2008

Coupla financial blogs

I've referenced Barry Ritholz's finance blog here a few times, and though a bit more technical than I can easily digest at times, it is a good source of reasoned, non-ideological information about our current meltdown.

Tonight, for the first time, I visited James Surowiecki's blog at the New Yorker online. The guy's good. His print columns are better, of course, but he offers a fresh and sometimes very personal take on developments in the economy. This entry from today poses an interesting move in Social Security, for example:

A couple of weeks ago, economist Brad DeLong suggested (at least semi-seriously, I think) that now might be a good time to “take the Social Security Trust Fund balance out of Treasuries and move it into equities.” As he put it, “Buy low, sell high after all. Just saying…”

This idea was proposed by the Clinton Administration, but didn’t get much traction, in part because Alan Greenspan opposed it for what, in retrospect, looks like largely ideological reasons, namely his disbelief that the government could own U.S. equities without interfering with corporate behavior. This isn’t entirely a red herring, but it’s hardly an insuperable obstacle, either. And given the massive government interventions we’ve seen in the past few months, having the government invest in index funds hardly seems like some intolerable transgression of free-market principles, either. (That’s not even to mention the fact that the sovereign wealth funds of myriad foreign governments have already bought major stakes in American companies, without any obvious disastrous effects.)

Given the market’s current turmoil, it is, of course, unlikely that you’re going to be able to convince members of Congress that now is the time to “gamble” our retirees’ future in the market. But any reasonable expected-value calculation would have to say that it would be sensible to put at least part of the fund into equities. The current yield on a five-year government note is just 2.5 per cent, while the dividend yield alone on the S. & P. 500 is well above three per cent. So even if the stock market goes nowhere for five years and companies keep their dividends flat over that time period (both of which are incredibly unlikely), the trust fund would still come out ahead. And in the more likely scenario, which is that the stock market eventually rebounds from these lows and reverts to its typical performance, the trust fund would come out way ahead. Some may have taken DeLong’s idea as a Swiftian modest proposal, but it’s sounding more sensible every day.

Not that it's ever going to happen. And I suppose in the long run it shouldn't happen. Imagine the effects of a multi-trillion dollar buying spree in a market as volatile as the current one.

Geezer test

Essay portion:

Generation WE: The Movement Begins... from Generation We on Vimeo.

Compare and contrast.(25 points)

Extra credit:

We had our chance. What did we make of it? (10 points)


My family will gather at my house Sunday. I'm making pastrami for them, using the recipe in Brian Polcyn and Michael Ruhlman's book Charcuterie. Currently, I have a beef brisket in a pickling brine in the refrigerator. It's been there for about a day. Two more to go. After three days of brining, it'll get patted dry and rubbed with black pepper and coriander. Then comes the smoke.

Tonight it looks like this:

The brisket started out at five pounds, but the salt and sugar in the brine will draw some moisture (and therefore weight) out during the meat's time in its bath. I imagine I'll end up with about four pounds of pastrami.

Car Art in Nebraska

The "Painting is Never Traveling Show" as it looked earlier on a big Ford van in Omaha. Image courtesy of Jill and Stan.

Thursday, October 23, 2008

Paddy Hirsch talks credit default swaps

Video from American Public Media's show Marketplace:

Untangling credit default swaps from Marketplace on Vimeo.

It's a doozy, that credit default swap biz. Things go swimmingly as long as they swim. But the credit downgrade twist where a company like AIG has to up its collateral against its obligations when it's perceived to be in trouble is crucial. Once the decline begins for a company that's too deep into CDSs, the outcome is pretty much a "slam dunk," so to speak.

And the option to bet against an insurable item -- corporate bonds in Hirsch's example -- is a major shitpile. You can legally buy a swap which guarantees the value of debt instruments to which you have no real exposure. That is, you can buy a guarantee that you will be compensated for the total value of an investment you don't even own if you are willing to pay the premium for the "insurance" that will pay you for the lost value that will occur if the bonds (or whatever) go south. You can bet the bonds will fail and get paid their value at the time of the contract even if you never owned the bonds.

It's legal.

All the financial institutions in the world were involved in insuring and counter-insuring assorted iterations of each other's holdings and the speculative values of assorted debt instruments they might or might not even own. For fun and profit. And such transactions are not regulated.

Great system, eh?