25
Sep 08

Sh!t, I’d like to introduce you to Fan…

Where to begin? For starters, Dear Leader provides proof positive of exactly how bad things are, reiterating that “we have nothing to fear but fear itself. The comments are not very Presidential and are sure to shake the confidence of both the American people, institutions, and our global partners.

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Bush’s dire words will have consequences. For starters, there’s this little bit of great news from China [Reuters] followed by a swift reversal/denial [also Reuters]:

Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.

“The decree appears to be Beijing’s first attempt to erect defences against the deepening U.S. financial meltdown after the mainland’s major lenders reported billions of U.S. dollars in exposure to the credit crisis,  the SCMP said.

A spokesman for the CBRC had no immediate comment.

Preliminary indications are that neither Congress, a healthy number of economists, and the American people are not falling for cheap parlor tricks.

The nation’s chief bookkeeper from the Congressional Budget Office suggests that the intervention may actually make things worse [WaPo]:

During testimony before the House Budget Committee, Peter R. Orszag ” Congress’s top bookkeeper ” said the bailout could expose the way companies are stowing toxic assets on their books, leading to greater problems.

“Ironically, the intervention could even trigger additional failures of large institutions, because some institutions may be carrying troubled assets on their books at inflated values,  Orszag said in his testimony. “Establishing clearer prices might reveal those institutions to be insolvent. 

In an interview later yesterday, Orszag explained using the following example: Suppose a company has Asset X, whose value is recorded on the books as $100. Because of the current economic decline, Asset X’s real value has dropped to $50. If the company takes part in the government bailout and sells Asset X for $50, the company has to report a $50 loss on its books. On a scale of millions of dollars, such write-downs could ruin a company.

Such companies “look solvent today only because it’s kind of hidden,  Orszag said. “They actually are insolvent  already, he said.

It doesn’t help any that Paulson and Bernanke view this crisis as a liquidity event and not a solvency event. They appear to believe that additional capital will dissolve the solvency problem. The fact that the amount $700,000,000,000 was just pulled from the air does not lend much confidence either.

The crisis is not just limited to investment brokerages and their exotic financial instruments. Your local retail bank may be in trouble too, and the FDIC is still undercapitalized as to insurance [Bloomberg]

It won’t take many more failures before the FDIC itself runs out of money. The agency had $45.2 billion in its coffers as of June 30, far short of the $200 billion Whalen says it will need to pay claims by the end of next year. The U.S. Treasury will almost certainly come to the rescue.

[…]

Emergency federal funding of the FDIC could swell the cost of government rescues of failed financial institutions to more than $400 billion — not including the $700 billion general Wall Street bailout now under discussion in Congress.

That number would be even higher if the government were on the hook for uninsured deposits — which amount to $2.6 trillion, 37 percent of the total of $7 trillion held in the U.S. branches of all FDIC member banks.

Currently 117 banks are on the “bad bank list”. 12 have failed this year alone; 2008 was the worst year for bank failures since the Savings & Loan Scandal in the 1990s.

By the end of 2009, about 100 U.S. banks with collective assets of more than $800 billion will fail, predicts Christopher Whalen, managing director of Institutional Risk Analytics, a Torrance, California-based firm that sells its analysis of FDIC data to investors.

“It’s not going to be Armageddon,” says Mark Vaughan, an economist and assistant vice president for banking supervision and regulation at the Federal Reserve Bank of Richmond, Virginia. “But it’s going to be bad.”


12
Mar 08

Going Meta on ‘The Experience Problem’ [Iraq, the Election, Andrew Keen, and the Internet]

Once again, there is a discussion spanning multiple disciplines that requires attention regarding the importance and relevance of experience.

In the 2008 US Presidential Election, we have a three-way battle over who is more experienced.Does Hillary Clinton’s presence in the White House as first lady make her more experienced than the junior Senator from Illinois, Barack Obama?Or does Obama’s longer legislative history, including time in Illinois’ State House, trump Hillary’s relatively new presence in the Senate?Does John McCain’s status as a former-Prisoner of War and as a Naval Aviator make him more experienced to be Commander-in-Chief? The popular electoral vote tracking site Electoral Vote has an interesting comparison, summing up the years of elected political service by all of the Presidents of the United States and graphing them along with the a summation of ratings as ranked by a numerous historians (some more rankings can be found via Wikipedia).The non-scientific finding was that the Presidents rated higher were also those with fewer years of elected experience.(Side note, it would be interested to see what the chart would look like if the ‘experts’ were with the amateurs from the various non-expert polls.(Likewise, I would like to see a comparison with Military service and rank, age, or experience, and maybe some economic and quality-of-life metrics as well).

Experience Rank Presidents

This conversation goes further with internet-curmudgeon, open culture naysayer, and rhetorical-bomb thrower Andrew Keen’s (discussed previously) recurring lament that the lack of experts on the internet and the reliance on crowdsourcing have led to sloppiness and mistakes (ironically illustrated by Keen’s failure to rebut and subsequent ‘rebutting’ of Lawrence Lessig), all framed by a horribly simplistic article in Newsweek, which has had the blogosphere rumbling.

There’s no doubt that experiential learnings have a benefit in certain circumstances, particularly in environments that are static and require technological (from a mastery of that particular domain, not necessarily one involving technology) expertise.Examples of this might be engineers, doctors, or lawyers.But with experienced people, what happens when they encounter the unexpected?

The more-correct answer to the expert and non-expert question is not a matter of either or, but rather one of ‘both’.The fresh perspective and lack of institutional bias makes the opinion of the amateur relevant, particularly as they bring outside learning into the mix.This experiential (or referential) diversity manifests itself often these days, via business and technological collaborations, culture jammers, and cross-functional teams.The sum of the two differing parts in a working system is greater than the whole, and most certainly greater than two of each part.

Remember that ‘experts’ planned the war inIraq.Experts managed our National Security pre-9/11.Experts managed the launch of the Challenger and the landing of theColumbia.Right now, experts are managing our economy.The biases of those same experts are sometimes the factor that causes the crisis, or at the very least stalls a solution or exacerbates the effects.

As discussed in this Social Psychology paper on [Government Policy] Think-Tanks from CornellUniversity[PDF] discussed on the Monkey Cage, there are also social and psychological pressures for conformity in institutions as well as pressures for the individual to distinguish themselves amongst their peers by taking contrarian stakes with their peers, at the cost of the scholarship of their work.This personal reputation entrepreneurship is often camouflaged behind the expertise of both the individual and the institution, thus masking any biases.

The biggest problem with experts is their overconfidence of their ‘knowns’.You may recall the following bit of Rumsfeldian-slash-beat-poet observation:

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As such, the planners of the Iraqwar felt that once we delivered the Iraqi people, we would be “greeted as liberators , based on their ideology and referential experiences with democracy.Those same planners were absolutely convinced post Gulf War I that the next threats to America would come from a revitalized Germany and Japan (circa 1992) and later China (I feel that they are right about this one, but they actually advocated confrontation as early as the late-1990s).Experts were in the control rooms of bothThree-MileIsland andChernobyl.The planners of our National Security pre-9/11 thought that the safeguards that were in place were sufficient to keep us safe, and that “no one could have anticipated airplanes used as weapons .The experts deciding on the launch of the Challenger thought that the O-Rings on the Challenger would be fine for launch, despite the freezing temperature, and the engineers and NASA and Lockheed thought that the risk of foam breaking of the shuttle’s fuel tank was negligible and posed little threat to the orbiter.The experts in the banking industry said their mortgage investments were sound; the experts in theHomeBuilding and Real Estate industry maintained that there was no Housing Bubble.Eliot Spitzer thought he knew enough about the political and financial systems that he could enjoy the company of high-priced hookers and escape controversy.Military planners were convinced of a ‘bomber-gap’ from the Eisenhower era through the end of the Cold War.

Known-Knowns and Unknown-Unknowns

Experts may occasionally feel that their mastery of the known-knowns and known-unknowns, in concert with the possible discoveries of unknown knowns, offset any threats presented by unknown-knowns.This may be true, except when there is insufficient, biased, misleading, overwhelming, or non-conforming data.The holes in that data is then plugged in with observations and perspectives filtered through that same experience, sometimes with disastrous results, as seen above.Sadly, there is often little accountability or effect on the reputations of these ‘experts’, as the failings are blamed on the missing data, and note for the experts’ failure to account for the unknown-unknowns.

The last great problem with experts is their failure to adequately recognize their own limitations.In fact, they are far more likely to overestimate their own competencies, opening up even more opportunities to introduce their cognitive biases into the decision making process.For example, unfunny people tell jokes yet rate themselves as funny.

None of this is to say that the expert should be banished, or that the summed wisdom of crowds is greater than that of the experts.Consider the current boom of conspiracy theories by amateurs working from limited information.They too are plugging gaps in their knowledge bases, and (hopefully) coming to inaccurate conclusions. But the diversity of experience of the many can still compensate for the concentrated experience of the few when confronted with a complex system.


09
Jan 08

Thought on McCain, Going into South Carolina

There's a VERY legitimate argument that both Romney, Giuliani, as well as the Democrats, if they are smart, should be having with regards to McCain…

He's already hinted that he's likely to be a one-termer.  At the risk of practicing ageism or age discrimination, he's quite old.  His captivity as a POW has certainly had a physical effect on him (particularly melanoma), and if the claims of George W. Bush circa 2000 (8-years ago) are true, his mental health. 

These factors require scrutiny towards his choices for a Vice President, since it's quite possible that person may have to assume the Presidency, either by choice or chance.  The country is essentially voting for President twice.  The GOP would be wise to consider this, and if they are not serious about backing Romney, Giuliani, or one of the B-, C-, D-list candidates, and to shepherd McCain through that process, as that Veep needs to fill Darth Cheney's shoes as well as being the Party's likely Messiah.


08
Jan 08

Live Free or Die

The real story in New Hampshire will be turnout and share of the vote. NH registratlons are as follows:

Ind: 44%
Rep: 30%
Dem: 26%

The current polling indicates Independents breaking 2:1 for Democrats, which would give us:

Rep: 45%
Dem: 55%

I suspect NH plays a role in identifying how Independents will vote nationally, just like Iowa informs about rural voters. It will also serve to determine which messages (hope, change, experience, status quo, fear, etc.) resonate with those voters.

You can check the results from the Concord Monitor’s Primary Blog here.


15
Dec 07

Only one reasonable explanation left…They Knew!!1!

Nancy Pelosi takes impeachment off the table. We find that Democratic Leadership was aware of the waterboarding tapes. Most recently, Harry Reid appears to be dismissing Chris Dodd’s hold (a member of his own party, no less) on legislation which promises retroactive telecom immunity as related to domestic spying.

I had always assumed that BushCo distorted, lied, or just never disclosed to the opposition the shenanigans they were up to, which would be wholly consistent with their actions in the past.

I can understand being bought by lobbyist dollars. I can even rationalize (but not condone) allowing things to spillover into 2008. But why facillitate and condone their actions further?

But the question still remains – why not deliver on electoral promises of answers, accountability, and oversight? Perhaps they have been adequately briefed, and now fear being fighting a two-front political war with the right criticizing them of changing their positions to appease their base, where they had, at least passively, condoned Administration actions, and a liberal base that would call for their heads for abandoning their principles? Is there any other reasonable explanation?