Piracy: the Russian Solution

Somalia is a failed state, the best example of one globally. We call it a country, but it really only a country in terms of negative space, as it is not part of any other country. And because of that, it has become home to a modern day pirate coast, complete with infamous ports of call, crime, and all the rest of it.

What is Russia's solution?

Go in with ground troops and wipe out the pirate towns.

I actually dont think it is the worst idea, but would be much better if there was actually a concerted effort to bring stability back to the country. It looked like there would be a in 2006, with a US backed incursion by Ethiopia, but that turned out to be just to break the power of the I.C.U., the Al Qaeda back Islamic courts which had gained power over much of southen Somalia.

Interestingly, Somaila is doing much better since the civil war. It is an entirely free market system (as there is no government), but it is more developed than one would think, with a better education system than it had previously, better infrastructure (in terms of phones and internet, if not roads, water, etc.) and a growing economy. It is of course a lesson that the govt. really only plays a much smaller role in bringing about all of the positive effects of modern life than most people believe, or govt. itself would like you to think.


hulu.com is a NBC/News Corp joint venture and does online HD full length movies and TV shows, in better quality than youtube (at least for now, as YouTube is planning a rival service).

The end of a..... the end of one of the worst cars ever

The final Yugo has been built.

WOO HOO!! w00t w00t

wait...? I was amazed to find that they still made Yugo's, but on Nov. 20th, the last one came off the line.

Which was a very very fantastic moment, because the thing is and was one of the worst pieces of crap ever built. I would rather try to ride a donkey across the country on I-80 than drive a Yugo on the same route. And if there were a race, the donkey would win. Granted, its a fast donkey, but there you-go.

Jag + Land Rover need $1 billion

Ford seems to have pulled off a very good deal selling Jag and Land Rover when they did (though at the time I will admit I was not sure), though the better deal would seemingly have been to get out of the auto industry altogether...

Tata motors - the Indian auto company which is the not very proud new owner of the two renown British name plates - is asking the British govt. for $1 billion in loans to keep the operations afloat. Jag and Land Rover are luxury brands, and with conspicuous consumption one of the first things to go in a crises, their sales have tanked (along with the rest of the auto industry, to be fair).

It does seem a little steep though, considering they are now owned by an Indian company, and only employ 15,000 workers in the UK. Sure, its a lot, but I am not sure even Gordon is going to step up to the plate on this one.

Why those who support the UAW are idiots

This was taken from an article supporting the UAW. Its logic is so impeccably stupid that I dont really need to say anything more:

"There are plenty of people in this country who would desperately love to see all unions go away. Over the course of the congressional hearings on an automaker bailout this week many of those people have continually brought up the un-cited "fact" that UAW workers get $70/hour in wages and benefits as opposed to about $40 or so for non-unionized workers at the foreign owned transplants. While the UAW and the Detroit automakers have made more than their share of mistakes and deserve a good chunk of the blame for what is happening, there is a major problem with this particular argument. IT'S NOT TRUE!

UAW members do not take home $70/hour. That is the automaker's cost per active employee. What's the difference? The latter figure is total spent by automakers on wages and benefits divided by the number of active employees. The cost of benefits includes the pensions and health care costs for the hundreds of thousands of living retirees in addition to active workers. Those punching the clock every day, don't get a dime of that. As of last year, UAW workers made an average of $28/hour in wages + $10/hour in benefits. The rest went to retirees, a cost that is borne by the automakers."


Citi, which has been one of the worst investments I have made (though some options turned out alright, I started buying into the underlying when it was worth 7 times yesterday's close), is setting a new course for govt. bailouts.

Now the govt. will be partners on billions of dollars in debt, a very different setup to the previous loans against troubled assets.

Here is how the deal works:

"Under the terms of the agreement, Citigroup will cover the first $29 billion of pretax losses from the $306 billion asset pool, in addition to reserves it already set aside.

Citigroup will accept 10 percent of losses above that amount, with the government responsible for 90 percent. The Treasury is second in line, taking $5 billion in losses, and the Federal Deposit Insurance Corp. is third, absorbing up to $10 billion. If the portfolio plummets through those triggers, the Fed steps in with a loan for the remaining assets"

This is mostly because of the SPVs (special purpose vehicles) which are off-balance-sheet entities set up by the i-banks to invest in crap like mortgage derivatives, and to give leverage to hedge funds. It was one of the reasons my old job of calculating hedge fund leverage and other such things was so difficult, because no one had any idea how big the SPVs were. And now we know that they nearly killed Citi.

Well... I have to say, this downturn has outlasted my expectations by a very wide margin.

Often I wonder where the line is between self-fulfilling-prophecy and rational action.

Woot rocks

Flexi USA PCPetID Pet ID Tag for Collar

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Where, Oh Where Can He USB

Here’s what you do: You take your most sensitive data—your access codes, instructions to your underlings in the event of your untimely death, naked pictures of your exes, whatever—and you store them on this 64-meg flash drive that’s designed to hang on a pet collar.

You put the drive on such a collar, then you put the collar on a scary dog. Or, actually, it’s not very responsible pet ownership to cultivate scariness in a dog. So instead, put the collar on an untrainable exotic pet, like a hyena that prowls your grounds or something.

Now that’s security! No one will ever get at this drive, not while it dangles a few inches from the jaws of your guard hyena! The drive is shockproof and weatherproof to survive being stored on a live animal, but we wouldn’t recommend you put it on an alligator collar or anything. Effective as that would be from a theft-deterrent standpoint, it probably wouldn’t last for hours underwater.

The other thing it’s good for is putting your contact information on it in case your dog gets lost. But if a pet ID collar is all you want, this one is totally inferior to the low-tech numbers-stamped-on-a-metal-tag version. You don’t want the person who finds your lost dog to have system requirements for figuring out how to return her.

But here’s something you can’t do with an old-fashioned dog tag: When your internet connection goes down, send the dog back and forth between your house and the neighbors’, as a canine courier of totally wireless (but slow) email.

Why private companies are better than public monopolies

I recently had an issue with the USPS where they claimed to have delivered a package from Amazon to my front door. To the best of my knowledge, they never did, and I am highly doubtful that it showed up and then was somehow rapidly stolen in the middle of the day in Arlington. I could be wrong, but I would be surprised. The confusion came talking to the post office because you have to call before 9:00am to talk to anyone who knows anything. Turns out our regular guy was taking a day off on monday, so he did not know what happened. The guy who "delivered" it was taking a day yesterday. Finally talked to him today, and he says he remembers a package. Sure, whatever.

Amazon on the other hand, quickly gave me a full refund for the cost of the purchase, including shipping.

I am pretty damn impressed with Amazon, and disappointed (though unsurprised) with the USPS.

auto bailout

it is unlikely to pass. The idea was to give the automakers $25 billion out of the $700 billion designed to bail out the financial mess. But the automakers dont have the support they once did, and it looks like they will not be getting their money.

Then again, only GM actually says they need it...

At the same time, the $25 billion in 5% loans that they were already promised to go towards "green" innovations will likely be allowed to be used for anything they want, basically giving them liquidity.

I agree with the move, but I find it highly inconsistent with the Fed lending programs which have bailed out "banks" by taking on much crappier assets against billions of taxpayer dollars... but inconsistency is the mark of govt. involvement in the economy, so I suppose I should not be surprised.

I would, however, be a shame to lose GM or Ford. Chrysler, I believe, is slready gone (though Jeep and the Viper will live on, which is what really counts.)

Old Advice

Sent from James:

The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.

-- Cicero , 55 BC

Amazing that a) Rome was so well developed so long ago, and b) in the last 2000 years we have not learned a damn thing.

aw... crap

Crisis Hits the Business Schools

Applications for MBA programs are up, but job opportunities for second-year students in finance or consulting have turned wretched

After nearly four years as a management consultant at such firms as Deloitte Consulting and Booz Allen Hamilton, Ari Perlman was itching to try his hand at investment banking. So this summer the 26-year-old MBA student at the University of Virginia's Darden School of Business signed on with Lehman Brothers for an internship. Then all hell broke loose. With the economy unraveling and much of Wall Street seemingly on the brink of collapse, Lehman slashed bonuses for interns. And by the time Perlman returned to campus, the company had filed for bankruptcy. Lehman's last check for Perlman's travel expenses? Bounced. An e-mail explained that a new check would be in the mail. Eventually. "I haven't heard anything from them since," says Perlman, who's now looking for a consulting job. "And frankly, I am not too hopeful."

On the nation's B-school campuses, hope used to spring eternal. No more. Students like Perlman are downsizing their expectations, rejiggering career plans, and settling for less as the cascading effects of the global financial crisis start to be felt at MBA programs around the country. With companies pulling back on second-year recruiting and competition for the few remaining finance jobs becoming fierce, students are entering what surely is the toughest MBA job market since the dot-com bust. "I think next fall is going to be very, very difficult," says George G. Daly, dean of Georgetown University's McDonough School of Business. "This is terra incognita."

Despite the gloomy outlook for current students, applications to B-schools are on the upswing, driven largely by applicants who have been laid off or are otherwise hoping to ride out the recession. With more applicants to choose from, admissions officers can be pickier, making 2009 a difficult year to land a slot at a top B-school. Meanwhile, professors and deans are attempting to make sense of the financial crisis in the classroom, offering new electives and town-hall-style meetings on the meltdown, altering syllabi, and writing new case studies based on recent market-churning events. Risk management, until recently an unpopular elective, is expected to become a more important part of many B-schools' curriculums in three to five years, a trend that Robert Meyer, co-director of the Risk Management & Decision Processes Center at the University of Pennsylvania's Wharton School, calls "potentially transformational."

For current students, though, the only concern is finding a job—and nowhere is that dream receding faster than on Wall Street. Brian Mirochnik, 26, an MBA student at the University of Rochester's Simon Graduate School of Business, is facing that reality head-on as he looks for jobs in the investment banking field. He didn't receive a job offer from UBS (UBS) after his summer internship and now is scrambling to find a position, a search he fears could easily stretch into the spring. "Banks are telling me they are going through their own layoffs and don't know when they are going to start hiring again," says Mirochnik, who has given up on the big Wall Street firms and is looking exclusively at boutique investment firms and mid-market banks. "A lot of the factors affecting my future employment are just out of my hands."

Second-year students such as Mirochnik without job offers appear to be in the most precarious position. According to a survey by the umbrella group MBA Career Services Council, about 70% of the 77 schools surveyed said they saw a downturn in full-time recruiting opportunities in financial services in October. Meanwhile, about half of the schools said overall full-time job postings and on-campus recruiting this fall was either flat or down 5% during the same period, with some indicating it has fallen as much as 10%.

In the coming year, the job market for MBAs may begin to bear a striking similarity to the period following the dot-com bust when some banks and consulting firms rescinded or renegotiated job offers they had extended to second-year students. That hasn't happened this time around—yet. But many are worried that the situation could change if the economy drifts into a deep and prolonged recession. "The dot-com meltdown was horrific," says Georgetown's Daly. "This has not reached those levels, but I expect it to."


With investment banking the hardest hit, many students are abandoning hope for Wall Street careers and pursuing jobs in consulting instead. At New York University's Stern School of Business—where about 40% of every class typically goes into investment banking—attendance at recruiting presentations by consulting firms has been standing room only, says Gary Fraser, Stern's dean of students, who oversees the office of career development. Attendance at interview preparation sessions offered by the management consulting club is up about 80% this fall. And some consulting companies are noticing a jump in applications from students who have done an about-face on Wall Street. Says Nikki Rath, the senior manager of campus recruiting and diversity initiatives at Booz & Co.: "We have definitely seen an increase in résumés that had a lot of banking on them."

But consulting may not be the haven many think it is. For one thing, the rush of finance students to consulting will make consulting jobs that much more difficult to land. With more students seeking consulting jobs, each one is likely to get fewer offers, making big signing bonuses unnecessary. Tom Rodenhauser, vice-president of consulting at Kennedy Information, which tracks the consulting industry, isn't optimistic. He says top students will get two or three offers this year, down from six in good years. Signing bonuses will dip to $20,000 or lower. The worst-case scenario? A student could receive a token bonus of $5,000 or none at all. Meanwhile, expectations are that 2009 will be a challenging year for many consulting firms as companies determined to trim costs cut back on discretionary projects.


All the bad news for B-school students has turned out to be good news for B-schools, which tend to do brisk business when the economy falters. Already, admissions officers say they are experiencing double-digit increases in applications for 2009 and increased interest from students. So far this year, the University of Chicago Booth School of Business has seen a 20% increase in attendance at information sessions worldwide and a surge in U.S. applications, says Rosemaria Martinelli, associate dean for student recruitment and admissions. At the University of Notre Dame's Mendoza College of Business, applications are up 20% from last year and admissions interviews are up 50%.

Meanwhile, worldwide registration for the Graduate Management Admission Test—a required standardized test for business school applicants and a leading indicator of future B-school applications—was up 16% in September from the same four-week period in 2007. The current surge in registration volume is similar to one that followed the bursting of the dot-com bubble, which led to an explosion in B-school applications about a year later. This time, the impact on applications is expected to be even more pronounced, since the downturn is not limited to a single industry. Says Dave A. Wilson, president and chief executive of the Graduate Management Admission Council, which administers the exam: "You are going to see a good surge in application volume next year, and maybe into the tail end of 2010."

Somali Pirates grow bolder

Somali pirates have seized a supertanker, their largest take to date. The MV Sirius Star, owned by the Saudi company Aramco, is over 1,000ft long and can carry 2 million barrels of oil, making it one of the largest tankers out there.

It was seized south of the usual pirate waters, and further out to sea.

Basically, they get on board, they hold the crew hostage, and demand $1-2 million. And it works.

"People in Garoowe, a town south of Boosaaso, describe a certain high-rolling pirate swagger. Flush with cash, the pirates drive the biggest cars, run many of the town's businesses – like hotels – and throw the best parties, residents say....
This is too much for many Somali men to resist, and criminals from all across this bullet-pocked land are now flocking to Boosaaso and other notorious pirate dens along the craggy Somali shore. They have turned these waters into the most dangerous shipping lanes in the world"

There are currently 11 ships being held hostage and waiting for payment. It is a difficult situation, as the pirates hold the ships and can destroy them, but at least for now, they cannot offload the cargo, as they do not have the equipment. The end result is that the companies involved usually end up paying the ransom.

It is incredible to me that piracy is on the rise. Like terrorists they live off of the fact that it is more costly to protect yourself completely than it is to deal with a certain level of success on the part of the pirates. It is however an unfortunate legacy of a failed US foreign involvement.

UAW says they are not to blame for the big 3's problems... yeah...

So the UAW has come out an said they are not to blame for the problems of the big three US automakers. Which is of course BS. They said it is the general economic meltdown. That might make a little bit of sense, if the big three had not been near death for the last 15 years. The only thing that kept them going has been truck sales, which are the only things that they actually made money on.

The UAW is why Detroit is collapsing while the rest of the world plans on building more cars in the US. It is ridiculous for the UAW to say that they have no role in the automakers problems, in my eyes, they are the very root of the problem. It has been the manufacturing costs, the healthcare costs, and overall labor costs which have dragged Chrysler, GM, and Ford into the dirt. Granted, the automakers made some poor decisions themselves, but I lay the blame squarely at the feet of the overpaid, over-protected, and overly needy UAW.

Unions have no place in a developed economy.

Tempermental Temperatures: Problems with climate change numbers

Forwarded from my Mom, good article on the uncertainties which still exist around climate change. Basically, when you actually drill down, there is little evidence that temperatures have been rising. At the same time, I think that we should work to limit pollution etc, but I dont think that it is "the crises of our generation" or any of that.

The world has never seen such freezing heat

By Christopher Booker
Last Updated: 12:01am GMT 16/11/2008

Have your say Read comments

A surreal scientific blunder last week raised a huge question mark about the temperature records that underpin the worldwide alarm over global warming. On Monday, Nasa's Goddard Institute for Space Studies (GISS), which is run by Al Gore's chief scientific ally, Dr James Hansen, and is one of four bodies responsible for monitoring global temperatures, announced that last month was the hottest October on record.

Snow in London
A sudden cold snap brought snow to London in October
  • Read more from Christopher Booker

    This was startling. Across the world there were reports of unseasonal snow and plummeting temperatures last month, from the American Great Plains to China, and from the Alps to New Zealand. China's official news agency reported that Tibet had suffered its "worst snowstorm ever". In the US, the National Oceanic and Atmospheric Administration registered 63 local snowfall records and 115 lowest-ever temperatures for the month, and ranked it as only the 70th-warmest October in 114 years.

    So what explained the anomaly? GISS's computerised temperature maps seemed to show readings across a large part of Russia had been up to 10 degrees higher than normal. But when expert readers of the two leading warming-sceptic blogs, Watts Up With That and Climate Audit, began detailed analysis of the GISS data they made an astonishing discovery. The reason for the freak figures was that scores of temperature records from Russia and elsewhere were not based on October readings at all. Figures from the previous month had simply been carried over and repeated two months running.

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    The error was so glaring that when it was reported on the two blogs - run by the US meteorologist Anthony Watts and Steve McIntyre, the Canadian computer analyst who won fame for his expert debunking of the notorious "hockey stick" graph - GISS began hastily revising its figures. This only made the confusion worse because, to compensate for the lowered temperatures in Russia, GISS claimed to have discovered a new "hotspot" in the Arctic - in a month when satellite images were showing Arctic sea-ice recovering so fast from its summer melt that three weeks ago it was 30 per cent more extensive than at the same time last year.

    A GISS spokesman lamely explained that the reason for the error in the Russian figures was that they were obtained from another body, and that GISS did not have resources to exercise proper quality control over the data it was supplied with. This is an astonishing admission: the figures published by Dr Hansen's institute are not only one of the four data sets that the UN's Intergovernmental Panel on Climate Change (IPCC) relies on to promote its case for global warming, but they are the most widely quoted, since they consistently show higher temperatures than the others.

    If there is one scientist more responsible than any other for the alarm over global warming it is Dr Hansen, who set the whole scare in train back in 1988 with his testimony to a US Senate committee chaired by Al Gore. Again and again, Dr Hansen has been to the fore in making extreme claims over the dangers of climate change. (He was recently in the news here for supporting the Greenpeace activists acquitted of criminally damaging a coal-fired power station in Kent, on the grounds that the harm done to the planet by a new power station would far outweigh any damage they had done themselves.)

    Yet last week's latest episode is far from the first time Dr Hansen's methodology has been called in question. In 2007 he was forced by Mr Watts and Mr McIntyre to revise his published figures for US surface temperatures, to show that the hottest decade of the 20th century was not the 1990s, as he had claimed, but the 1930s.

    Another of his close allies is Dr Rajendra Pachauri, chairman of the IPCC, who recently startled a university audience in Australia by claiming that global temperatures have recently been rising "very much faster" than ever, in front of a graph showing them rising sharply in the past decade. In fact, as many of his audience were aware, they have not been rising in recent years and since 2007 have dropped.

    Dr Pachauri, a former railway engineer with no qualifications in climate science, may believe what Dr Hansen tells him. But whether, on the basis of such evidence, it is wise for the world's governments to embark on some of the most costly economic measures ever proposed, to remedy a problem which may actually not exist, is a question which should give us all pause for thought.

  • Mr. Murdoch

    "A recent American study reported that many editors and reporters simply do not trust their readers to make good decisions. Let's be clear about what this means. This is a polite way of saying that these editors and reporters think their readers are too stupid to think for themselves."

    He was making the point that many newspapers have themselves to blame when it comes to falling readership. And I agree. He was also pointing out that in this day and age it is growing increasingly impossible for a editor to decide what is news and what is not. And I agree. I just disagree that newspapers are still going to be the way news is delivered in the future. Some will stick around, but not many, and almost no regional papers, eventually.

    Obama the narcissist

    This is a very interesting article, and I have long believed that Obama is a narcissist, but whether that will lead to the doom predicted here I am not sure. I do believe that he believes more highly in himself than in anything else, and that is dangerous. Regardless, it is a very interesting read.

    Understanding Obama: The Making of a Fuehrer
    By Ali Sina

    I must confess I was not impressed by Sen. Barack Obama from the first time I saw him. At first I was excited to see a black candidate. He looked youthful, spoke well, appeared to be confident – a wholesome presidential package. I was put off soon, not just because of his shallowness but also because there was an air of haughtiness in his demeanor that was unsettling. His posture and his body language were louder than his empty words. Obama's speeches are unlike any political speech we have heard in American history. Never a politician in this land had such a quasi "religious" impact on so many people. The fact that Obama is a total incognito with zero accomplishment, makes this inexplicable infatuation alarming. Obama is not an ordinary man. He is not a genius. In fact he is quite ignorant on most important subjects. Barack Obama is a narcissist. Dr. Sam Vaknin, the author of the Malignant Self Love, also believes, "Barack Obama appears to be a narcissist."

    Vaknin is a world authority on narcissism. He understands narcissism and describes the inner mind of a narcissist like no other person. When he talks about narcissism everyone listens. Vaknin says that Obama's language, posture and demeanor, and the testimonies of his closest, dearest and nearest suggest that the Senator is either a narcissist or he may have narcissistic personality disorder (NPD).

    Narcissists project a grandiose but false image of themselves. Jim Jones, the charismatic leader of People's Temple, the man who led over 900 of his followers to cheerfully commit mass suicide and even murder their own children was also a narcissist. David Koresh, Charles Manson, Joseph Koni, Shoko Asahara, Stalin, Saddam, Mao, Kim Jong Ill and Adolph Hitler are a few examples of narcissists of our time. All these men had a tremendous influence over their fanciers. They created a personality cult around themselves and with their blazing speeches elevated their admirers' souls, filled their hearts with enthusiasm and instilled in their minds a new zest for life. They gave them hope! They promised them the moon, but alas, invariably they brought them to their doom. When you are a victim of a cult of personality, you don't know it until it is too late.

    One determining factor in the development of NPD is childhood abuse. "Obama's early life was decidedly chaotic and replete with traumatic and mentally bruising dislocations," says Vaknin. "Mixed-race marriages were even less common then. His parents went through a divorce when he was an infant (two years old). Obama saw his father only once again, before he died in a car accident. Then, his mother re-married and Obama had to relocate to Indonesia : a foreign land with a radically foreign culture, to be raised by a step-father. At the age of ten, he was whisked off to live with his maternal (white) grandparents. He saw his mother only intermittently in the following few years and then she vanished from his life in 1979. She died of cancer in 1995."

    One must never underestimate the manipulative genius of pathological narcissists. They project such an imposing personality that it overwhelms those around them. Charmed by the charisma of the narcissist, people become like clay in his hands. They cheerfully do his bidding and delight to be at his service. The narcissist shapes the world around himself and reduces others in his own inverted image. He creates a cult of personality. His admirers become his co-dependents.

    Narcissists have no interest in things that do not help them to reach their personal objective. They are focused on one thing alone and that is power. All other issues are meaningless to them and they do not want to waste their precious time on trivialities. Anything that does not help them is beneath them and do not deserve their attention. If an issue raised in the Senate does not help Obama in one way or another, he has no interest in it. The "present" vote is a safe vote. No one can criticize him if things go wrong. Why should he implicate himself in issues that may become controversial when they don't help him personally? Those issues are unworthy by their very nature because they are not about him.

    Obama's election as the first black president of the Harvard Law Review led to a contract and advance to write a book about race relations. The University of Chicago Law School provided him with a fellowship and an office to work on his book. The book took him a lot longer than expected and at the end it devolved into…, guess what? His own autobiography! Instead of writing a scholarly paper focusing on race relations, for which, he had been paid, Obama could not resist writing about his most sublime self. He entitled the book Dreams from My Father .

    Not surprisingly, Adolph Hitler also wrote his own autobiography when he was still nobody. So did Stalin. For a narcissist no subject is as important as his own self. Why would he waste his precious time and genius writing about insignificant things when he can write about such an august being as himself?
    Narcissists are often callous and even ruthless. As the norm, they lack conscience. This is evident from Obama's lack of interest in his own brother who lives on only one dollar per month. A man who lives in luxury, who takes a private jet to vacation in Hawaii, and who has raised nearly half a billion dollars for his campaign (something unprecedented in history) has no interest in th e plight of his own brother. Why? Because, his brother cannot be used for his ascent to power. A narcissist cares for no one but himself.

    This election is like no other in the history of America . The issues are insignificant compared to what is at stake. What can be more dangerous than having a man bereft of conscience, a serial liar, and one who cannot distinguish his fantasies from reality as the leader of the free world?

    I hate to sound alarmist, but one must be a fool if one is not alarmed. Many politicians are narcissists. They pose no threat to others.. They are simply self serving and selfish. Obama evinces symptoms of pathological narcissism, which is different from the run-of-the-mill narcissism of a Richard Nixon or a Bill Clinton, for example. To him reality and fantasy are intertwined. This is a mental health issue, not just a character flaw. Pathological narcissists are dangerous because they look normal and even intelligent. It is this disguise that makes them treacherous.

    Quantum of Solace

    I have seen a few reviews of the film, and they are mixed. Some say the plot is all over the place, and attribute this to the fact that there are three screenwriters: a sign that someone was brought in to fix the script. However, other reviews (admittedly, one of them British) loved the film, and thought it "took the clamps off" that kept Casino Royale moving slow. I kind of liked the slower movement, and am a little worried that Quantum of Solace heads a little to far towards Die Another Day, which I have tried hard to forget was ever made.

    Of course, I plan on seeing it, and soon.

    Nuclear Solution to NIMBY: Put it under the backyard

    The idea is to build small and safe nuclear reactors which will be buried underground and used to power small areas of the grid. It should power 20,000 homes for 8-10 years, and should be maintenance free for that time. The biggest benefit, as I see it, is that there is no nuclear power plant. Nuclear is the best fuel source we have, especially from an environmental standpoint, and the problem has always been NIMBY (Not In My Back Yard). In this case, Hyperion power plans to simply bury the small reactors. Not sure on cost, but factoring in the desire to be "green" I see a lot of regions buying in to this one, though enough to make it successful I am somewhat dubious about.


    Election results

    Good tool for checking out election results:

    One of the more interesting ones is how even in this landslide in an electoral college sense, there were very few counties (though important ones) which actually changed sides.

    Full Length YouTube

    CBS and MGM are now offering full length ad-supported shows and movies on youtube. Hells yeah, I am a big fan of this. Plus, Google had to figure out some way to make money on their $1.6 billion investment. And I think it will be a big hit, if it is executed well (which considering how easy to use YouTube is, I cant see why it would not be.)

    Quantum of Solace is Qless

    There is no Q in the new Bond movie.


    That is seriously upsetting news.

    To be totally up front about it, what the hell are they thinking? Granted, I like the new darker/edgier Bond, but no Q? Why? Why do that? Granted, there were times it was over the top, and some of the product placements in the Bronsnan era were especially annoying, but there is still something fantastic about using a laser from your watch, flying suitcase helicopter, or having stinger missiles in your z3.

    I am still very excited about the movie, just upset they decided to forgo one of the main ingredients to a long time winning recipe.


    is out of control. In a good way.

    Frankie asked me a little while back if there was a Galt's Gulch somewhere on Earth. Right now, I would say that place is Dubai - a city made of capitalism, drive, and energy. Without oil reserves, the Kingdom of Dubai has still managed to become on of the great epicenters of the world economy.

    And one thing they love are crazy engineering projects. While Palms and the Earth (artificial islands) are probably my favorite, it is the skyscrapers which are really wild.

    Burj Dubai is the worlds tallest building, and will be far far taller than anything else when it is complete. But it will not even hold the title in Dubai for long, as the Nakheel tower will come to dwarf it sometime in the next decade. Comparison shot below.

    For me, I am just glad that we are finally pushing the limits, and pushing higher. The fact that a building completed in 1931 is still on the list shows that we have not pushed as far as we should (though it also shows just how incredible the empire state building was).

    The next decade will see records fall around the world, though sadly, the US seems to be unable to build a building, with the Freedom Tower a shining example of mismanagement and delay.

    But that is not the end of the story. There is now a planned 1.5 mile high "vertical city." It actually incorporates six "different" buildings, and has at its core a 125mph vertical bullet train instead of elevators. Sounds too wild to be true, but it is brought to us by the folks behind Jumeirah City, which it will be a part of. That development includes the Palms, the Earth, the QE2, all kinds of world records, etc. etc. So there is a good chance this will actually happen.

    AIG Bailout

    more on this later, but good summary I found:

    1. AIG’s problems are in credit default swaps and securities lending. AIG on Monday reported a third-quarter net loss of nearly $25 billion. But the company’s big headaches haven’t been in its bread-and-butter insurance business, but rather in lesser-known lines. AIG is a big player in credit default swaps--which are essentially insurance contracts that pay out when a company defaults--and is also involved in securities lending. Turmoil in these two businesses have hammered AIG’s balance sheet, causing a severe liquidity crunch.

    2. The original bailout was a punishment. Although the Feds stepped in to rescue AIG--while at the same time refusing to bail out Lehman Brothers--it did so in a punitive fashion. The original rescue package came with a painfully high interest rate of LIBOR plus 8.5 percentage points. That put pressure on AIG’s management team to sell assets quickly to pay it back. But such emergency selling--coupled with the chaos in the market at that time--meant that AIG could only command very low prices for the assets.

    3. New Bailout is less harsh. The revised bailout package is much more favorable to AIG. First, the interest payments on the loans are cut from LIBOR plus 8.5 percentage points to LIBOR plus 3 percentage points, and the repayment period is extended from two to five years. “The restructured bailout should give AIG the flexibility to sell assets in an orderly manner for closer to their intrinsic values rather than fire-sale prices,” Robert Haines, an analyst at CreditSights, said in a report. At the same time, the government will be putting billions of dollars towards removing assets that had been at the heart of AIG’s troubles from its balance sheet (from its credit default swap and securities lending businesses). The Treasury is also taking a $40 billion equity stake in the company.

    4. Actions could make repayment and equity appreciation more likely. The development saddles the government with even more exposure to a deeply-troubled company. But there is a possible upside, Haines says. The restructured bailout increases the chances that AIG will be able to repay the loan and puts the government in position to get a better return on its equity stake in the company. “I believe it ultimately is a better deal for taxpayers,” he says.

    5. AIG development adds pressure for a bailout of automakers. The Democrats are already been pushing to expand the bailout to include aid for the nation’s struggling automakers. Look for lawmakers on Capitol Hill to use the government’s expanded bailout of AIG to further their argument that Detroit should get cash as well.

    Oh'MyBama 2008 #8

    First post election gaffe, and its a pretty bad one. However, you will not have heard of it, because his mistakes are never broadcast.

    When asked if he had talked to all living previous Presidents, Obama responded:
    "I have spoken to all of them who are living, I didn’t want to get into a Nancy Reagan thing about doing any séances."

    Bad taste hardly describes it.

    City at the bottom of a lake

    Bulgaria, in search of tourism dollars (complicated by its seriously unsexy name, and the ex-soviet thing), is building a city at the bottom of a lake.

    Well, actually, digging up an old, old town which is now at the bottom of a lake. Seuthopolis, was discovered in 1948, but in 1954 a dam broke an flooded the region, making the lake it now sits in the middle of. The plan is to build a giant circular dike, and then use the site as a tourist attraction. Impressive, but it will be tough to make this more than a one-trick-pony. There better be some actually impressive stuff in the town..

    Declassified UK UFO files

    Official files about UFO encounters. There should be more on this in this blog, because I am a firm believer in UFO's, as the number of credible reports are simply far to high to ignore, and there are, in my mind, no logical explanations other than aliens. Article not my own:

    The UK Ministry of Defense has just declassified nineteen secret files detailing UFO encounters over the past decades, one of them involving a USAF Sabre fighter pilot who was ordered to fire at will against an unidentified flying object in British airspace. Unfortunately—or fortunately—lieutenant Milton Torres lost the contact after the UFO left the scene at a whooping 9,941 miles per hour. According to him, it had the proportions of an aircraft carrier:

    The blip was burning a hole in the radar with its incredible intensity. It was similar to a blip I had received from B52s and seemed to be a magnet of light. It had the proportions of a flying aircraft carrier.

    According to the Ministry of Defense, it all happened over Norwich in 1957. The 26-year-old Torres was called along with his wingman, taking off the Royal Air Force base in Kent. But something strange was happening: He was ordered to shoot the UFO down before they scrambled off to intercept it, something that had never occurred before.

    I shall never forget it, and for the last 50 years I have been waiting for an explanation, but I've never had one. On that night I was ordered to open fire even before I had taken off. That had never happened before. I was ready to hit the target with all 24 rockets: it would have been like buckshot out of a shotgun. I asked for authentication of the order to fire and I received it.

    To make things even stranger, the now 77-year-old Torres has declared now that he received a visit the next day from an American. The man, wearing a trench coat, waved his badge and claimed to be working for the National Security Agency. He said to him that what happened the day before was to be kept under complete secret. Or else.

    UFO experts say that, while all this could be explained by the existence of Project Palladium—the experiments that the CIA was conducting during those years to create false radar readings in the Soviet Union—this won't explain why the pilots were ordered to fire all the rockets loaded in their planes. Or why the blip appeared over British air space in the first place.

    There's another interesting case in the newly-declassified files: An account of a near-fatal accident at 22,000 feet, 17 years ago. In this file, Alitalia Flight AZ 284 almost had a direct collision with an UFO while approaching London's Heathrow airport. Fortunately, nothing happened because the object vanished just before the impact.

    No more GM/Chrysler love... but Hyundai steps in

    Basically, GM is in no fit state to buy anything. They are worth less than AGCO (less than famous tractor manufacturer), and about 1/150th of what VW is worth right now. And to buy things, you should be selling things, something GM has not been so hot at recently.

    So, along comes a company which is actually well run, effective, efficient, and growing quickly. Hyundai. They are one of the best car companies out there, and I think, with a long way to grow. I ahave watched and liked them for a long time, though to date they have not built a car that I would really want (the v6 sonata when it came out a couple years ago was the closest), they have an impressive record of getting better and better every year, and selling more cars.

    Unsurprisingly, and just as in the AMC sale to Chrysler 20 years ago, the asset which is really desireable is Jeep. Jeep is a great brand name, carries a lot of weight here and abroad, and has a solid lineup of trucks and CUVs (though no so good on the CUV part). That is exactly where Hyundai is weakest (the Sorrento being so-so, and the new Kia Borrego being introduced at just about the worst possible time for a 3-row body-on-frame SUV).

    It makes sense to me.

    better biodiesel bug

    Researchers have recently found a new very little dude who is a lot better at making diesel. Same idea basically as making ethanol, or beer, but this guy (pictured) will actually eat trees, bark, etc. rather than just the gourmet rice, wheat, and other cereals other bacteria feast on. Just been found, so no short term prospects, but long term, could really help out with the turning-old-junk-into-fuel campaign.

    car warranty calls

    I have gotten two of these personally, and they are really friggin annoying. Did not realize it was a US - wide scam. Basically, you get a call saying "urgent, your factory warranty is about to expire." It was blatantly a scam, but it seems quite a lot of people have bought extended warranties from the scammers.

    Seems they are pretty good at not getting caught though. One number being used was traced to a disconnected phone in Nebraska that had belonged to an illegal immigrant who had been deported after a meat-packing plant raid. Yeah.

    So, hopefully the annoying calls stop soon, but incredible that a small scam shop with a computer and some phone phreaking skillz can dial the entire country and not get caught, at least not yet.

    China's Stimulus Package

    China is pumping in $586 billion in infrastructure spending, as well as capital gains tax cuts to try and stop the economy from slowing too drastically. Basically, if they drop from 12% to 5% growth, it is basically a recession for them, and would have similar effects on their economy. Thus, they are spending what comes to 15% of annual economic output.

    That is a big stimulus package.

    What worries me more is if loans in china start to go bad with the weakening economy. Then we are in for a very hard landing.

    Honda walking assistance

    Honda has for a long time been big on robotics. And they have just released a robotic walking assistant for those who need help. Medically, a big step forward. But... well just look.

    Honda introduces new walking assist machine, doubles as bionic wedgie maker

    Ropeless jump rope

    I kid you not. I couldnt make this stuff up anyway...

    JumpSnap, The Ropeless Jump Rope - Calorie Counter, Cardio Pumping Workout DVD's, Hand Weights and Travel Bag

    "JumpSnap is the world's 1st patent pending ropeless jump rope. Get all the undistputed calorie burning benefits of a traditional jump rope without the interruptions of tripping on the rope."


    Coming up next, the weight free free weights.

    sun/earth portal

    Some interesting science here... and pretty wild. Seems the way that we are affected by solar wind is that every eight minutes the earth's and the sun's magnetic fields "connect" so that for a short burst we are hit directly by the solar wind, while the rest of the time our magnetic field sweeps the wind around us. very odd indeed.

    Full article below:
    Strange Portal Connects Earth to Sun
    By Jeanna Bryner
    Senior Writer
    posted: 03 November 2008
    08:22 am ET

    Like giant, cosmic chutes between the Earth and sun, magnetic portals open up every eight minutes or so to connect our planet with its host star.

    Once the portals open, loads of high-energy particles can travel the 93 million miles (150 million km) through the conduit during its brief opening, space scientists say.

    Called a flux transfer event, or FTE, such cosmic connections not only exist but are possibly twice as common as anyone ever imagined, according to space scientists who attended the 2008 Plasma Workshop in Huntsville, Ala., last week.

    "Ten years ago I was pretty sure they didn't exist, but now the evidence is incontrovertible," said David Sibeck, an astrophysicist at the Goddard Space Flight Center in Maryland.

    Dynamic bursts

    Researchers have long known that the Earth and sun must be connected. For instance, particles from the sun are constantly whisked away via the solar wind and often follow magnetic field lines that connect the sun's atmosphere with terra firma. The field lines allow particles to penetrate Earth's magnetosphere, the magnetic bubble that surrounds our planet.

    "We used to think the connection was permanent and that solar wind could trickle into the near-Earth environment anytime the wind was active," Sibeck said. "We were wrong. The connections are not steady at all. They are often brief, bursty and very dynamic."

    Several speakers at the workshop outlined the formation of a flux transfer event. One idea is that on the side of Earth facing the sun, our magnetic field presses against the sun's magnetic field. And about every eight minutes, the two fields briefly reconnect, forming a portal through which particles can flow. The portal takes the form of a magnetic cylinder about as wide as Earth.

    Sibeck said to think of the FTE as a giant rolling pin that lies flat along the boundary between the Earth's and sun's magnetic fields. (He noted the rolling pin would have to be malleable so it could pierce through both magnetic fields while lying flat.)

    "These FTEs kind of look like roller pins, and they form as little blob roller pins at the tip of the magnetosphere facing the sun," Sibeck told SPACE.com. "They can't decide which way they're going to slide around the Earth, so they grow there into big roller pins and then they take off and sort of spirally roll along [Earth's magnetosphere] like you're pounding out dough."

    More than one FTE can form at once, he said, and they stay open for about 15 to 20 minutes.

    More to learn

    In order to measure such FTEs, spacecraft must not only catch them forming but also be on either end of the magnetic structures (either lengthwise or widthwise). In fact, the European Space Agency's fleet of four Cluster spacecraft and NASA's five THEMIS probes have flown through and surrounded these cylinders, measuring their dimensions and sensing the particles that shoot through, Sibeck said. While these measurements have nailed down the width of an FTE, the length is still uncertain though one measurement put it at up to five Earth radii. One Earth radius is about 4,000 miles (6,400 kilometers).

    Astrophysicist Jimmy Raeder of the University of New Hampshire used those measurements to develop computer simulations of the portals. He found the cylindrical portals tend to form above Earth's equator and then in December, the FTEs would roll over the North Pole. In July, they roll over the South Pole.

    Sibeck thinks the events occur twice as often as previously thought, proposing two types of flux transfer events — active and passive.

    When the magnetic cylinders are active, they allow particles to flow through rather easily, forming important conduits of energy for Earth's magnetosphere, Sibeck said. When passive, the cylinders have more resistance to transiting particles. The internal structure of a passive cylinder makes it tougher for particles and magnetic fields to flow through. Sibeck has calculated the properties of passive FTEs and hopes he and his colleagues will hunt for signs of them in data collected with THEMIS and Cluster.

    The space scientists at the workshop still want to figure out why the portals form every eight minutes and how magnetic fields inside the cylinders twist and coil.

    They got it right... in 1999

    So, if you want a blueprint for what the Govt. should have been doing before this crises ever happened, this is a must read. It is the official report on hedge funds and leverage from 1999 after the collapse of Long Term Capital Management (the most famous of all hedge fund collapses, and a potential major blow to the markets). It applies equally well to investment banks and leveraged banking institutions. It is also a good primer on what exactly went wrong.
    I warn you it is as dry as the Bonneville salt flats and far far less exciting. But I am up to my neck in this stuff on a daily basis (at least for now) and thought I should share the love.

    Read on.. if you love reading about credit risk.

    The public policy issue raised by market participants' use of leverage is, first, determining the proper balance between the benefit leverage confers to markets and the potential systemic risk posed by high levels of leverage. If it is determined that, from time to time, existing mechanisms do not adequately limit the use of leverage, resulting in unacceptably high levels of systemic risk, then the question becomes one of how best to address this concern.


    Leverage allows an investor to take on higher risks, including those risks that are shed by

    others. Thus, the leveraged exposure of investors with higher risk appetites can be a vehicle that allows a larger number of risk-averse investors to reduce their risks. While the leverage that supports the reallocation of risk provides benefits, it can be fragile. In a volatile market, high levels of leverage increase the likelihood that a leveraged entity will fail, in part because the size of potential losses can seriously deplete and even wipe out the entity's net worth.


    When leveraged investors are overwhelmed by market or liquidity shocks, the risks they

    have assumed will be discharged back into the market. Thus, highly leveraged investors have the potential to exacerbate instability in the market as a whole. The outcome may be direct losses inflicted on creditors and trading counterparties, as well as an indirect impact on other market participants through price changes resulting from the disappearance of investors willing to bear higher risks. The indirect impact is potentially the more serious effect. Volatility and sharp declines in asset prices can heighten uncertainty about credit risk and disrupt the intermediation of credit. These secondary effects, if not contained, could cause a contraction of credit and liquidity, and ultimately, heighten the risk of a contraction in real economic activity.


    The leverage employed by hedge funds is acquired through derivatives transactions,

    repurchase agreements, short sales, and direct financing. In probably all cases, these exposures are collateralized at current market value. However, in the case of LTCM, the potential future exposure was not adequately collateralized relative to the creditworthiness of the LTCM Fund or to the potential price shocks the markets were facing in September 1998.


    Banks and securities firms have viewed hedge funds as desirable trading customers. For

    instance, dealers earn trading revenue from the funds' transactions flows without directly bearing the risks undertaken by the funds. Hedge funds' willingness to take on risks also may make it easier for dealers to execute hedging transactions to shed unwanted risks. Competition for hedge fund business may have led to a gradual erosion of risk management practices with regard to some hedge fund customers, and certainly with respect to the LTCM Fund in particular.


    A. Measuring Leverage and Risk

    Placing direct constraints on leverage presents certain difficulties. Given investors'

    diverse exposures to risk, and differences in their links to other market participants, requiring a uniform degree of balance-sheet leverage for all investors does not seem reasonable. First, balance-sheet leverage by itself is not an adequate measure of risk. For any given leverage ratio, the fragility of a portfolio depends on the market, credit, and liquidity risks in the portfolio. In addition, a high capital requirement based on balance-sheet concepts alone might induce fund managers to shift their risk-taking activities to more speculative trading strategies as they seek to meet rate-of-return targets on the required capital. It could also induce managers to move to offbalance-sheet risk-taking strategies such as through the use of derivatives.


    An alternative measure to balance-sheet leverage is the ratio of potential gains and losses

    relative to net worth, such as value-at-risk relative to net worth. An advantage of such a

    statistical measure is its ability to produce a more meaningful description of leverage in terms of risk. A disadvantage is the potential pitfalls in measuring value-at-risk, such as through faulty or incomplete modeling assumptions or narrow time horizons. These issues suggest that enforcing a meaningful regulatory capital requirement or leverage ratio for a wide and diverse range of investment funds would be a difficult undertaking.

    An alternative tool for indirectly influencing excessive leverage is credit-risk management.


    Credit-risk management can help to constrain the leverage employed by significant market participants, including hedge funds, thereby reducing systemic risk. The diversity of the credit risk and liquidity profiles of borrowers has led creditors to use a variety of tools to control credit risk. Public policy initiatives relating to hedge funds should build upon those practices that have worked well, and should encourage their use and improvements in their implementation.


    Collateral, capital, information, and the price of credit.

    Collateralization and the use of credit-risk spreads on credit exposures, including trading exposures, offer alternative ways of managing these same types of credit risk. The method which is chosen typically depends on the relative costs to the customer of the collateral and the credit spread that provide equivalent compensation to the creditor for the credit risk.17 With collateralization, collateral provided by the borrower provides protection to the lender against losses from default. When credit-risk spreads are used, the lender's capital and loan-loss reserves provide protection against losses from

    default, and the credit spread on the loan provides compensation to the lender for the cost of capital and reserves, plus a risk premium. For customers who can easily provide information demonstrating their creditworthiness, credit may be acquired on an unsecured basis because the credit risk spread is of lower cost than the cost of providing collateral. Supervisors and regulators of banks and securities firms usually have not interfered in private choices regarding different approaches to managing credit risk, as long as prudential standards are satisfied. For instance, in


    18 This decentralized approach to managing credit risk, overall, has worked reasonably well. At the end of

    1998, for example, total credit losses from OTC derivatives at US banks were only 0.21 of a percentage point of the

    average outstanding credit exposure for the year. In 1997, the figure was less than 0.05 of a percentage point.



    regulatory bank capital requirements, collateralized derivatives exposures have lower capital requirements than uncollateralized exposures, but the decision to collateralize has remained with the counterparties to the transaction.18


    Tradeoff between credit and liquidity risk.

    Another example of the diversity in credit risk management practice is in the use of variation margin. Variation margin can reduce the credit exposure in a derivative transaction, but only at the cost of imposing higher liquidity risk on the counterparties. For highly creditworthy counterparties, the cash-flow management demands of daily variation margin can impose costs that exceed the benefit from credit risk reduction. For

    other counterparties, however, the benefits of lower credit risk resulting from variation margin may exceed the costs imposed by higher liquidity risk. Thus, allowing diversity in credit-risk management practices can result in a more efficient financial system.


    B. Private Counterparty Discipline and Government Regulation

    The primary mechanism that regulates risk-taking by firms in a market economy is the

    market discipline provided by creditors, counterparties (including financial contract

    counterparties), and investors. In principle, if a firm seeks to assume greater risks, either by increasing the riskiness of its assets or by increasing its leverage, creditors will respond by increasing the cost or reducing the availability of credit to the firm. The rising cost or reduced availability of funds provides a powerful economic incentive for firms to constrain their risktaking.


    Counterparty discipline can serve as an effective tool to mitigate the risks of excessive

    leverage. The constraint on leverage imposed through counterparty credit terms can occur

    directly through trading and credit limits or initial margin, and indirectly through credit spreads on transactions that would lower the returns from leveraged positions. The exercise of credit discipline in trading relationships has the potential to provide a balance between the benefits and risks of leverage. The counterparty's assessment of its ability to shoulder the credit exposure to the leveraged entity should constrain leverage below excessive levels. Such counterparty discipline, however, failed to constrain leverage adequately in the case of LTCM.


    Such market discipline tends to be effective when creditors have the incentives and the

    means to evaluate the riskiness of the firm to adjust credit terms accordingly. In some cases, however, either the incentives or the means are lacking. Incentives will be reduced or eliminated if creditors do not perceive themselves to be adversely affected by increases in the firm's level of risk. In particular, if the firm's obligations are guaranteed by a financially strong third party (e.g., a government), its creditors may be indifferent to its level of risk. If the firm is able to obtain financing from unsophisticated creditors — for example, from retail investors — those creditors may not have the means to accurately evaluate the firm's riskiness and, therefore, may not insist on credit terms commensurate with the firm's level of risk.


    Even when creditors have the incentives and means to provide market discipline, risktaking will not always be effectively constrained. Evaluation of the riskiness of firms is inherently difficult, and errors in evaluation and/or judgement are probable. Thus, business failures and losses to creditors will occur. In general, however, the failures and losses that have occurred have been small relative to the benefits of a market economy.

    Consequently, in our market-based economy, market discipline of risk taking is the rule

    and government regulation is the exception. Generally, government regulation becomes necessary because of market failure or the failure of the pricing mechanism to account for all social costs.


    Government regulation of markets is largely achieved by regulating financial intermediaries that have access to the federal safety net, that play a central dealer role, or that raise funds from the general public. Any resort to government regulation should have a clear purpose and should be carefully evaluated in order to avoid unintended outcomes.



    A. Closeout Netting

    The LTCM episode raises some issues involving the U.S. Bankruptcy Code. The first

    involves clarifying the ability of certain counterparties to exercise their rights with respect to closeout, netting, and liquidation of underlying collateral in the event of the filing of a bankruptcy petition without regard to the Bankruptcy Code's automatic stay.

    These provisions, which the President's Working Group on Financial Markets urged

    Congress last year to expand and improve, are generally recognized to be important to market stability. They serve to reduce the likelihood that the procedure for resolving a single insolvency will trigger other insolvencies due to the creditors' inability to control their market risk. In other words, this protects the market from the systemic problem of "domino failures." Nevertheless, in certain circumstances, a simultaneous rush by the counterparties of a defaulting market participant to replace their contracts could put pressure on market prices. To the extent that the default was due to fluctuations in market prices in these contracts, this pressure might tend to exacerbate those fluctuations, at least in the near term. This problem could be significant where the defaulting debtor had large positions relative to the size of the market.

    6 yr. Presidential Term.. in Russia

    quick update: along with his missiles in NATO's backyard proposal, Medvedev also brought up the idea that the Russian Presidential term be extended to 6 years, coming into effect for the next President... whoever that might be....
    Which would lead to the next President, lets hypothetically call him "Rutin", being able to serve for 12 years. At which time he would be able to invoke a clause which nominated him to "Everlasting God King" and automatically make the bottom 1/3 of the population indentured serfs.

    Windows 3.1 Discontinued. Seriously.

    We all know it. Or at least I assume we do. And I loved it. I went right from DOS to this, and man was it cool. It had graphics, and windows, and a file manager, and PAINT!!! It was the coolest damn thing. And until 1/11/2008, Microsoft was still selling it.


    I am not lying.


    I promise.

    No i wont pinkie promise, look it up, they sold it till this weekend.

    Mostly it was actually for thinks like cash registers and the almost-as-awesome-as-paint Virgin Entertainment system in Virgin Atlantic planes, which brought about the personalized in-flight entertainment revolution.

    But on Nov 1st, Microsoft decided enough was enough and stopped selling licenses.

    A sad, sad time. But a legendary OS which will always soldier on in our hearts. And in the fact that modern windows looks pretty damn similar.

    Kaliningrad Missiles

    When I was speaking with James last night, we guessed Russia would try an aggressive move early in the Obama Presidency in order to test the waters and see just how weak he will prove to be on hard power issues.

    It did not take four months. Or four weeks. It took about four hours.
    This morning Russia announced it would be deploying its Iskander missile system in Kaliningrad - the medium sized exclave between Lithuania and Poland.
    It is a highly advanced non-ballistic, non-nuclear missile system. It is designed specifically to avoid defenses such as the Patriot missile system though non-linear movements, decoys launched when nearing the target, and a flat flight profile. The purpose supposedly is to "neutralize - if necessary - the [US] anti-missile system" according to Medvedev. 
    In other words, Russia sees this election as an opportunity to push harder against a weakened and introspective United States. And sadly, I believe they will have success doing so. I wonder if Obama will cancel the missile shield program altogether? It will be an interesting time.  

    57 Seats

    The good news is that it looks like the Democrats will be held to 57 seats in the Senate - which does not give them the 60 needed for a filibuster-proof majority.

    Other than that, for me, the only big surprise came with the passing of decriminalization of marijuana in Mass. And sadly that Ma. residents seem to believe there is a benefit to paying more of their money to the Govt. and thus not striking down the state income tax.

    The Great Deleveraging: by the numbers

    Working this out for my paper, thought I would put it up for general review.
    1) the aggressive fund of 18months ago, a fund running 5 to 1 leverage.
    An investor takes $100,000 and puts it in a Fund of funds investment vehicle. That FoF then leverages the assets 3 to 1 to enhance returns. This was standard practice. The fund itself is running 5 to 1 leverage provided by a prime broker -- high, but still very plausible. The fund takes the money and invests it in CDOs, which are built with leverage, commonly 9 to 1 leverage.

    Where does that get you?
    135 to 1
    It takes only a 75bps (0.75%) drop to wipe out the original capital.
    Looking at a perhaps more realistic example, a similar fund with a none too unusual asset allocation model:
    Percent Loss to lose the principal 2.041%
    Total Leverage Ratio 49
    Sum  $ 7,350,000,000.00
    Cash  $ 3,150,000,000.00  $        2,100,000,000.00  $   350,000,000.00  $  1,750,000,000.00
    Allocations CDOs 9x Derivatives 3x Equities 1x Commodities/Futures 5x
    20% 40% 20% 20%
    Hedge Fund 5 1,750,000,000.00
    Fund of funds 3 300,000,000.00
    Investment 1 100,000,000.00 Regular Investment 50,000,000
    What this is saying is that with $50 million from retail investors and $300 million from a FoF (a pretty standard state of affairs a little while ago), and a 5x leverage ratio split into a overly simplistic asset allocation model will leave you in near as damnit in the end to a 50 to 1 leverage ratio. This is exactly what happened.
    Now, to again be simplistic, I will run this for the industry. I am going to say that of the $1.8trillion in the HF industry, $600billion is in leveraged funds of funds, probably too high. Then, taking a more realistic asset allocation, I put 40% into equities and 205 into the others (simplistic is hardly the word for my 'asset allocation,' more like 'made by a 4 year old' but I threw this together in 2 mins to work out the idea, so it goes). You get US HF worth $7 trillion before investing. After the inherent leverage of derivatives etc, you end up with $26.6 trillion trading position controlled by the HF. That is pretty damn big, and slightly more than the $26trillion estimated to be in mutual funds.. Globally.
    The numbers:
    Percent Loss to lose the principal 6.015%
    Total Leverage Ratio 16.625
    Sum  $ 26,600,000,000,000.00
    Cash  $ 12,600,000,000,000.00  $  4,200,000,000,000.00  $ 2,800,000,000,000.00  $     7,000,000,000,000.00
    Allocations CDOs 9x Derivatives 3x Equities 1x Commodities/Futures 5x
    20% 20% 40% 20%
    Hedge Fund 2.5 7,000,000,000,000.00
    Fund of funds 3 1,800,000,000,000.00
    Investment 1 600,000,000,000.00 Regular Investment 1,000,000,000,000
    So then, lets cut back the leverage to what I expect right now. I will adjust the investment for the $50 billion recently pulled out. Then take down the CDO etc allocation, bump up the non-leverage allocation (accounting for cash being held), and then cut the leverage ratio of the HF to 1.4, which is what I expect moving forward.
    Percent Loss to lose the principal 17.295%
    Total Leverage Ratio 5.782
    Sum  $   9,251,200,000,000.00
    Cash  $     705,600,000,000.00  $  2,352,000,000,000.00  $ 2,273,600,000,000.00  $     3,920,000,000,000.00
    Allocations CDOs 9x Derivatives 3x Equities and other 1x Commodities/Futures 5x
    2% 20% 58% 20%
    Hedge Fund 1.4 3,920,000,000,000.00
    Fund of funds 3 1,800,000,000,000.00
    Investment 1 600,000,000,000.00 Regular Investment 950,000,000,000.00
    Take a look at the sum. $9.25 trillion vs. $26.6 trillion. That is $17.35 trillion pulled out of the market.
    Consider that the global market cap in May of 2008 was roughly $57.5 trillion, and today $40 trillion.
    Obviously my numbers right now are just rough estimates, but for the back of an envelope, I think they shed some light on why equities fell so low a little while ago that by traditional P/E pricing methods we would basically have to have been facing the Great Depression in order to justify the prices.