Wednesday, September 28, 2011

How can I get funding for this kind of research??

According to a recent study at University of Missouri:

"It turns out that we still know we are making mistakes when intoxicated. We just don't care."

The whole article is worth a read:

Some more info about what alcohol does from lifehacker. This line in particular caught my attention:

"Substances such as cocaine and LSD work like pharmacological scalpels, altering the functioning of only one or a handful of brain circuits. Alcohol is more like a pharmacological hand grenade. It affects practically everything around it."

I don't know if all this makes me want to drink less or drink more.

Monday, September 26, 2011

I couldn't make this up if I tried

In 2014 a new city will be built in the middle of the New Mexico desert. It will have cutting edge infrastructure, state of the art security and enough room for 35,000 people. However it will be populated entirely by robots:

And since everything inevitably comes back to the Simpsons:

"The wars of the future will not be fought on the battlefield or at sea. They will be fought in space, or possibly on top of a very tall mountain. In either case, most of the actual fighting will be done by small robots. And as you go forth today remember always your duty is clear: To build and maintain those robots."

Blame the investors

Martin Wolf has a great post about how high target returns on equity are creating financial instability:

Banks love using the line "without high returns (and consequently leverage) we won't be able to attract equity investors." Bullshit. What will happen is their stock price will go down until its attractive to investors again. Every equity investor wants the bank to take as much risk as possible. They have unlimited upside and limited liability so they can't lose more than their original investment amount. What typically keeps the banks in line are creditors, they receive a fixed return on their investment but can still lose everything if the bank really screws up. Unfortunately in our Too Big To Fail world the creditors can't lose money either. If we bail out bank creditors (who are often other banks) there is no market check on the risky investments of banks. Without this system of checks banks will take as much risk as they possibly can, staying one step ahead of regulations. Banks are supposed to be prudent stewards of capital and risk management is supposed to be their primary business. But now our banking system is less stable than before, perhaps banks have better capital positions but these won't last long as equity investors demand higher returns (more risk).

I have this comic on my wall at work:

Saturday, September 24, 2011

World best vs. world record

Last month the IAAF declared that a woman's time only counts as a world record if its in a woman's only event. I don't get it, I don't understand their logic at all - especially since at many races the elite women start and race mostly separately from the elite women. These writers for the NYT clearly agree with me:

What's next, a world record only counts if there are no spectators? But then if a world record falls and no one is around to see it... If this is the way the sport is heading then maybe women should be banned from men's races entirely, those booty shorts are just waaaay too distracting.

Wednesday, September 21, 2011

Over 40% of 15-24 year old Spaniards are unemployed

Some pretty depressing numbers from the Economist this month:

By comparison youth in the US are doing great with an 18% unemployment rate and Germany is basically a paradise at 9%. And this article only looks at developed countries, around the Arab world the rates are astronomical. Are we creating a generation that will remain only marginally attached to the work force for their entire lives? School can only substitute for work so long because there's a lot that you can only learn on the job, plus there's a limit to the debt a person can afford to take out. The article points to Germany's widespread apprenticeship program as a reason for its success. Similar programs have had limited success in the US, our mentality has always been a little more 'do or die'. And if that's the way people like it I'm all for it. But if we're letting our youth fail at such high rates, why do we insist on bailing out our bankers? I'm just looking for a little equality.

Monday, September 19, 2011

Inflation: the cause and solution to all of life's problems

Inflation rates are running about 4% annualized right now, yet the Fed remains largely unconcerned. Brazil and China are running inflation rates nearly twice as high. This afternoon the US 30 year treasury rate is 3.18%, resulting in a -1% real yield (approx. interest rate - inflation rate). In fact we're seeing negative real yields all around the world. This is bad news for anyone trying to save money since they're essentially losing money every day. Yet for the past year central bankers around the world say this inflation is temporary and will soon subside, but how long before temporary inflation is no longer temporary? And now some members of the Fed have started supporting higher inflation rates as monetary policy. Uhhh... what?!?! The Fed's primary mission is to maintain price stability - now they're coming out and saying they want to promote price instability. Of course Volcker has called them out on it in the NYT:

People have come to expect too much of the Fed and as a result the whole institution has become too politicized. This last happened in the 70's with BAD results, the whole reason we have a separate Treasury and Fed is so that the people who spend money aren't the same ones who print the money. I'm not sure this is the case anymore. Monetary policy is no panacea, good monetary policy does not stimulate the economy it lets the economy grow on its own. On the other hand bad monetary can really mess things up by distorting incentives for saving and/or lending. Maybe its just the Austrian Economist in me but the Fed isn't supposed to give the Treasury a blank check, the Fed isn't responsible for maintaining full employment and most importantly the Fed isn't there to bail out irresponsible banks. It is a great institution with a strong history of success, but over the past few years it has overstepped its bounds - illegally some might argue. However we don't need to end the Fed, we need to keep it independent and outside the sphere of politics.

Friday, September 16, 2011

0's a percent / when loan guarantees go bad

Until recently almost no one knew the company Solyndra, now they're everywhere in the news. The solar panel manufacturer filed for bankruptcy two weeks ago, apparently they couldn't keep up with the cheaper Chinese manufacturers. Normally a bankruptcy like this wouldn't be a big deal, except for the fact that two years ago the administration had approved over $500 million in loan guarantees for Solyndra. That's right you and I are on the hook for the debt of this company. Now there's an investigation as to whether Solyndra's political connections rushed the loan approval - bad news for Obama.

Why is the government guaranteeing the debt of companies like this? And to this amount? I suspect its because then they can create jobs and dole out favors without any upfront cost. But these guarantees create HUGE off balance sheet liabilities (see Fannie and Freddie). If the government wants to spend money promoting green energy that's great but they shouldn't be playing these accounting games. I'm curious to see what the FBI uncovers.


I'm a big fan of lists, both reading other peoples and writing my own. As a result I just spent the last hour reading through a list of the best Chicago websites. I found some great sites on here that I'd never heard of before:

Speaking of the world's largest employer

The war in Afghanistan started almost 10 years ago. This is the longest war in American history, unbelievable. What a disaster. Do politicians not understand the sunk cost fallacy? Our goals are too ill-defined. How can we win the war if we don't know what we're fighting for? We certainly deposed a horrible and oppressive regime, but has daily life for Afghanis really improved? Here's the article that got me thinking about this:

The cost of the war in Afghanistan has already exceeded $400 billion. Think of all we could have done with that money. Without tangible progress I say we cut our losses and spend that $400 billion over the next 10 years on education and infrastructure back in the US. Or you know start paying off some of that $16 trillion we owe.

Tuesday, September 13, 2011

Countererrorist Modeling Group?

Just in case I get tired of modeling delinquent borrowers I could probably move on to supercomputer powered counter-terrorist data mining:

Obama's jobs program

This week Obama proposed a $447 billion plan to create jobs. The two big items in the plan are more tax cuts and more aid to states. Most state governments are in miserable long term shape (see Illinois). If the problem were simply liquidity then I'd support the aid but many states are insolvent long term. They've promised more in pensions, benefits etc than they can possibly afford to pay. The aid only puts off the day of reckoning - this seems to be a common theme of late. The tax cuts will certainly encourage the hiring at the margin, but at what cost? We have had limited success getting the economy growing with the existing tax cuts and monetary easing, why do we think more of the same is the solution? Furthermore the federal government is pretty bad at cost benefit analysis because it faces limited consequences if it screws up. If a company malinvests billions they go bankrupt, everyone who invested loses lots of money. If the government malinvests billions someone might get fired, but more often than not no one even checks to see if the investment is having the intended effect. James Bovard writes in the WSJ about the historical performance of job training programs (spoiler: they have a very poor record)

Think like a statistician

This is probably the coolest example of statistical thinking I've read about:

Selection bias is a huge problem in statistics and comes up all the time with clients. I've had several projects tank because we determined the data was non-random. Wald's solution to the non-random data problem is just brilliant.

h.t. MR

Monday, September 12, 2011

Greek default almost certain

Market prices are implying that Greece has a 98% chance of defaulting over the next 5 years:

Of course this has every asset market jittery. Who's next? How much longer can Ireland or Portugal survive? How bad will the losses be at French and German banks? Then of course there's Spain and Italy. Scary stuff. Europe really dug itself into a hole here, the periphery borrowed more money than they could afford to repay. Normally this wouldn't be a big deal, countries default on their debt all the time except that a lot of the money was borrowed from French and German banks. So now the Europe's peripheral problems are core problems. The French and German banks are already under-capitalized due to all their real estate losses and according to Basel II they don't need to hold capital for sovereign debt. I guess no one asked how the Greeks were actually spending this money. Michael Lewis  wrote a great article about this in Vanity Fair last year:

Thursday, September 8, 2011

The latest threat to the economy: productivity

Its rare that I'll read an article and agree with every word but this morning I found one:

There's plenty of blame to go around for why the middle class has been struggling but the author isn't out to promote a particular agenda. He simply identifies the critical problems we're facing: health care and education. We are able to provide everything else with stunning efficiency, but health care and education remain slow, expensive and for millions of people - ineffective.

Also while reading this article I became more convinced of my view that the current crisis is really just a part of a decade plus long crisis with labor. The work force hasn't become educated fast enough to adapt to new technology. As a result the people who have adapted have seen their wages rise rapidly (due to insufficient labor supply) while people who haven't adapted have seen their wages fall (insufficient demand for their labor). No doubt the industrial revolution saw similar displacements but once the work force caught up economic growth skyrocketed.

Wednesday, September 7, 2011

Another weekend another music festival

This past weekend was my 4th music festival of the summer (Pitchfork, Lolla, Outside Lands). On Friday I went (mostly) to see David Guetta and on Sunday night I went to the ATB afterparty at the Mid. Both shows were very solid overall, Guetta closed with a remix of Club Can't Even Handle Me that blew me away. ATB played some MGMT and Robyn which was much appreciated by all the hipsters in the crowd.

I'm a relatively recent convert to electronic music but after creating a David Guetta Pandora station a few weeks ago I just had to buy the ticket. I feel like he has his hand in nearly every song that I recognize but don't know the name of:

Monday, September 5, 2011

Time is never time at all

Its incredible how little we understand about time. Its so fundamental to everything but every time I try to think about it I get hopelessly lost. This guy sums up some interesting "facts" about time:

Remember when was a porn site? It must have been at least 10 years ago, I remember doing research for a social studies paper in 8th grade and stumbling upon it by accident - I wonder how many others did too. Now there's a new .xxx domain coming out in the next couple of months, are we going to see a site? The company which is running this domain is asking for $100-300 per year per url from companies to prevent someone from buying trademarked sites like I'm not sure how legal it is for them to do this but something feels wrong about it:

Sunday, September 4, 2011

The physics of tennis

As I was reading about the US Open I stumbled across this article on the physics of tennis. I always knew the playing surface mattered but I never knew why, interesting stuff.

Thursday, September 1, 2011

A culture of entitlement

Selfishness and narcissism are certainly not new, in fact the very word narcissism comes from the ancient Greek myth of Narcissus. But it does seem like there's a bit of a entitlement epidemic going around - for example the guy who yelled "get the government out of my social security!" at one of those town hall meetings in 2009. And this is peanuts compared to the AIG executives - they were guaranteed hundreds of millions for nearly driving the country in bankruptcy and they believed they deserved every cent! In this article the authors describe how this culture is affecting children.

This article definitely changed my feelings about how to teach children about money, respect and family obligations. I couldn't help but think of Kant's moral philosophy when reading this - the only truly good acts are those done for the sake of good itself. How soon is too soon to read Groundwork of the Metaphysics of Morals?

Swapping Debt for Equity

Under Chapter 11 bankruptcy frequently creditors agree to reduce the principal in exchange for equity in the newly created company. A couple of years ago I had this idea - why not apply the same principle to homeowners. The banks get (future) equity in the house and the borrowers get principal reductions and the housing market might even recover. Sounds like a win-win-win proposition. Clearly this blogger agrees:

But the more I thought about it, the more problems I find with the idea. Why would any borrower stick around once there's any equity in the house? As soon as they can sell the house and pay off their mortgage they would, borrower has a clear slate, bank gets nothing for their equity stake. Nin-Hai proposes that there much be a certain dollar amount of equity in the house before the person is allowed to sell. But it seems like those types of clauses would be a nightmare to enforce, plus it locks the person into their house for even longer. Also what bank wants to take on more house price risk? So I think its an interesting idea but ultimately impractical.