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Financial Crisis: "Trans-Atlantic Sniping"

President Bush cited an influx of foreign money into the United States as one of the root causes of the tight credit market and urged European and Asian policy makers to follow the US plan of large-scale bailouts of the financial system. This call was generally rebuffed. German Finance Minister Peer Steinbrück described the financial market crisis as "above all an American problem."

Steinbrück predicted that "the US will lose its status as the superpower of the world financial system." Instead European banks and sovereign wealth funds will have an increased role in a multipolar financial world.

The New York Times concludes from these transatlantic disagreements that "Trans-Atlantic sniping over the global financial crisis intensified." Wow, that's harsh words. Real snipers kill. If someone just disagrees with you, he does not kill you. You just gets a slight dent in your bloated ego. Apparently some people can't stand having folks on the other side of the Atlantic disagree with them. Pride goes before a fall (Hochmut kommt vor dem Fall) and sometimes even after the fall. Well, perhaps the NYT is just trying to sell more copies and more ads...

The article is discussed on my other site "Atlantic Community." We also present several expert opinions on the bailout plan and reform of the financial system and ask our members and all of you: How to Respond to the Financial Crisis?

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Nanne on :

Sniping is a form of headlinese. Shorter than, say, 'verbal attacks'. Though you might call this bickering. But that's longer! Anyway, the term is used correctly, as in, "to aim a carping or snide attack" - Merriam Webster. Although it is still a bit over the top. The Germans are understandably not amused about being asked play along now, after their proposals to increase financial transparency were laughed off last year by the Americans and the English. By which time the subprime crisis had already started. Taken their chance at a settlement before they went under, the Anglos should have. Still, the bailout plan also covers assets held by German banks... It's too early for Schadenfreude. It may yet be that a cascading collapse makes its way to the major German banks. Or at least, that another one or two minor banks go down due to exposure. There's an obvious domestic angle to Steinbrück's remarks. Which were, appropriately, made in the Bundestag. Lafointaine (ever the alert populist) is squarely putting the blame for the consequences that might result in Germany at Steinbrück's feet. It's always a good idea to shift the focus away from what could have been done domestically.

John in Michigan, USA on :

I agree. In fact, even in ordinary, non-headline English, the verb to snipe and sniping can mean bickering, and certainly from the context they are not intending it as a metaphor for sharpshooting.

Don S on :

"You just gets a slight dent in your bloated ego." Hmmm. Do you really believe that ego is bloated anymore after the events of the past two weeks? Or indeed the events of the past decade? Apparently so. Do you really observe, Joerg, or just use the good old paradigms? "Apparently some people can't stand having folks on the other side of the Atlantic disagree with them." Well THAT much is true. But it's true whichever side of the Atlantic one observes it upon. More true (if anything) in Germany than is the US. "Pride goes before a fall (Hochmut kommt vor dem Fall) and sometimes even after the fall" which may be the entire point of German foreign policy in the present age. To ensure that pride goeth before a fall, both before and after. And then to rub the nose in the result. Germany has established that it is the utter master of the word 'Nein', and no other words are needed in any situation. Bravissimo!

David O'Donnell on :

Why blame criminals for robbing a bank, if your policy is to always allow them to get away with it? The current financial crisis is not about the lack of laws, but of the failure to enforce the laws on the books. It doesn't matter how many laws we have or how well written if they are never enforced against the powerful. When prosecutors are corrupt, criminals run free and engage in ever larger crimes. The willful failure by DOJ lawyers to incarcerate their private practice bretherin in prior scandals started with Leslie Fay bankruptcy case and continued with eToys. This type of corruption became the seed which bore us the fruit of Enron and WorldCom. Similar failures by DOJ lawyers to prosecute corporate executive criminals taught more greedy players that hiring a law firm employing former DOJ lawyers ensures a regulatory climate devoid of criminal consequences no matter how greedy you are. Upon this corrupt playing field was born the current financial crisis. Our own U.S. Attorney General John D. Ashcroft warned of the existence of more public corruption in the U.S. than he could detect and prosecute, and he specifically identified Law Enforcement and the Judiciary as part of the problem. We are in need of a Federal Special Prosecutor to examine corruption in the DOJ regarding willful failures to enforce the law against law firms representing powerful hedge funds.

Pat Patterson on :

I'm not to sure how Leslie Fay and eToys are instructive examples because both companies essentially collapsed during recessions. And considering that the private regulating bodies of the market, then the SEC and then the AG's office took their pound of flesh from the corporate officers of Enron and Worldcom I'm not too sure what example they serve. Unless the economy becomes liquid again the whole exercise of blaming each other, blaming hedge funds, derivatives or any other assorted esoteric thievery is simply the equivalent of watching monkeys groom each other. WAMU is a good example as it failed because it carried bad loans which starved the institution of capital and then its wealthy clients withdrew their accounts to invest in Treauries, which explains the lower interest rates, because of the horrible rate of return and the lack of deposit insurance for amounts greater than $100k. Here I might suggest that a figure of $300-500K might be more suitable for eligbility under some new FDIC rules. We can all probably find some particular hobby horse to ride and blame "them" but unless that guy who moved to Riverside or San Bernardino or Chester or Fyfe can keep his job and make his house payments then the whole issue is moot.

Pamela on :

Well, if what this article is saying turns out to be true, things are going to get a lot worse - in a hurry. Fortis will fail on Monday. http://weeklystandard.com/Content/Public/Articles/000/000/015/636zbhel.asp gah.

John in Michigan, USA on :

"unlimited deposit insurance" "unlimited protection of principal in money market funds" What is Kristol smoking? Unlimited is absurd. Increase the limits, maybe. Temporarily, I hope. Any increase in deposit/MM insurance must be temporary, otherwise, in the long term, it will risk moral hazard. The S&L debacle of the 80's was made worse because federal deposit insurance was increased from (I think) $10,000 per account to $100,000 per account, thus creating overnight a 10x larger pool of risk-free capital for banks to play with.

Joe Noory on :

I don't know, [url=http://prairiepundit.blogspot.com/2008/09/how-small-unit-of-aig-in-london-blew-up.html]this[/url] sounds like fairly convincing proof that not only were the "decoupling" theorist dead wrong, but that they didn't square their "global markets" rant with their "decoupling" rant. Besides, sniping after the fact is sort of pointless. The real root cause was a government trying to practice [url=http://fr.youtube.com/watch?v=H5tZc8oH--o]social-democrat[/url] style government rather incompletely on one level, or otherwise without respect for the concept of backing on another.

Don S on :

"Instead European banks and sovereign wealth funds will have an increased role in a multipolar financial world." I've been hearing this kind of thing all over, including the Russian government, which seemed to believe that they can survive the global panic with an enhanced position. They may not believe that any more after the Russian stock market took a huge dive. Pamela noticed a rumor that the European bank named Fortis may be on the edge of bankruptcy. I checked their web site and saw two things: Fortis stoutly denies everything - they are completely stout. And they just changed CEO's a couple days ago, apparently without previously announcing the change. This is a "US problem", gentlepersons? Think again. Congress has to act Monday - but so does the EU and the EU Central bank to shore up their own. You cannot expect the US to save your shakey banks.

Pat Patterson on :

I was curious as well and did a little research and came to the conclusion that a deal in the US might only delay Fortis coming undone but not save it. Pamela, as usual has nailed it. Fortis has lost almost 75% of its share price over the last year and its current assets are less then the price it agreed to buy the continually underperforming ABN AMRO earlier this year. A slight digression in that BofA seems to be on a roll as it bought ABN AMRO's American assets as well as Countrywide at fire sale prices. I would kick myself for not buying BofA shares but I did buy Citigroup. I amassuming the latest news has a package going to the WH today, Sunday, to be signed. Then like every deranged investor in the world will get up early to see what the Japanese and the other Asian markets do on Monday.

Don S on :

The Fortis story is going public now. Realclearpoiltics has a link to a Bloomberg story about Fortis. It souns pretty bad.

atmanman on :

SEIZE CRIMINAL CAPITALISTS' ASSETS

Joe Noory on :

With informed analysis like that, what more information could one possibly need? Apart from the awareness that socialist economies were a fantasm that didn't funtion at all, and the latter day "radicals'" dreams of how it could work are little more than an effort to turn government into the biggest "evil corporation" imaginable with nothing but a clepto-political class in the form of quangos or politburos to keep it I check.

Don S on :

I am not going to take Finance Minister Steinbrück's quote too seriously at this point. It sounds like the initial reaction to an unpalatable idea, much like the initial omments by many congressmen were last week. One thing which should be clear is that the US is not asking Germany to help bail out US banks - that we will do ourselves. What we're talking about is helping to bail out the world system. European banks. Fortis, and other European banks with putrid portfolios. The 'bailout' in the US has two precedents, the Home Owners’ Loan Corporation of the 1930s and the RTC of the 80's. Both corparations were eventually closed out with a small profit to the government. The current bailout is likely to show similar results - a small profit or a small loss. It is possible that the US intervention will be enough to bail out some European banks simply by creating a market for currently unsalable securities. But I doubt that Congress will allow the Europeans to be first in line for the help - US based institutions will undoubtably come first. I think Europe has a choice here. You can do nothing and hope that the US intervention will be enough to steady the system. If that doesn't work you will learn of impending failures very late and the intervention will cost a lot of money. Or you can set up your own structure to help your own institutions. Doing this will probably be cheaper than last-minunte interventions & keep more banks in good shape. It will also reinforce the effect of the US intervention by removing potential chaos from the market.

John in Michigan, USA on :

"Home Owners’ Loan Corporation of the 1930s and the RTC of the 80's" In the Presidential debate Friday, Obama mentioned the HOLC of the 30's, but not the RTC of the 80's. Probably because the later was done under the Bush, Sr. administration, and it just won't do for Obama to admit that anything at all went right when a Bush was in office. Bizarrely, Obama used the phrase "McCain is correct" (or variations of same) over and over again in the debate. I suppose this is part of his academic, professorial speaking style, but it was very effective...for McCain, who has made an ad about it. [url=http://article.nationalreview.com/print/?q=M2E4MmYxZjMxMDgwMDI0NzJhMWM2NDY0ZjRmMWMxODU]National Review's Byron York had this gem[/url]: "Well, you wouldn’t expect [Obama advisor] Axelrod to admit that his guy messed up. But here’s a prediction: The next time McCain and Obama meet in debate, on October 7 in Nashville, start a drinking game in which you take a big swig every time Obama says, “John is absolutely right.” I’ll bet you get to the end of the debate without ever lifting a glass." Sadly, even in this crisis, we're getting style over substance. Obama would rather tie himself to FDR vs. Hoover imagery, rather than suggesting that we've learned a lot since the 1930s and that we now understand a great deal more that we did about how to avoid a decade-long Depression. One at times get the sense that some Democrats wouldn't mind seeing Iraq in flames and the US in a Depression, just so that could say, I told you so. Before we have another FDR-style "100 days" of massive new regulation, we should insist on a showing of political will and good faith: repair Social Security, one of FDR's signature institutions, which today is financially less sound than Lehman or any of those others that actually went into bankruptcy. McCain should have been all over this, suggesting that Obama knows only what he's read in the history books and nothing about actual policies, which McCain has personally experienced and lived through. McCain did a little sniping along those lines, but failed to really hit the target in my opinion. I don't understand why he isn't taking a clear position on what is to be done with the profits from a successful bailout. Since the bailout will (when all is said and done) be funded by deficit spending, why not insist that the profits, if any, be used 100% to reduce the national debt? I fear McCain is still distracted by his populist instincts to blame "greed". Well, narrow self-interest helped get us in this mess; but prudent, true self-interest, for example Warren Buffet, is helping to get us out. I hope he makes a bundle, he deserves every penny for his courage mostly resisting the real-estate, leverage, and related manias of the past decade or so.

Nanne on :

I disagree with that last part, but in the spirit of what you write, Obama might do well to say "social security is not a problem, Alan Greenspan fixed it in the 1980s".

Don S on :

Do you think it will make any difference, John? My sense is that this is gong to be an anti-elite election. But not anti-Obama. Anti the 'Masters of the Universe' specifically and the 'rightsizing', 'outsourcing', cheeseparing, non-managing managerial class generally. Middle America was already tired unto death of a decade withn no income growth, and to be sent the bill for the banks who piled risk on top of risk - is too much. WAY too much.... Obama has at least an 80% chnce of winning this thing if he doesn't expose his genitls onstage or show some other sign of psychological instability....

John in Michigan, USA on :

80% chance? I admire your optimism. The thing to remember is, most people are just now tuning in to the election. Also the financial crisis will bring people to the polls who otherwise would not have bothered. To them, scandals like Rev. Wright or Bill Ayers will be brand new, and not old news like they are to you and me. Timing matters so much. Traditionally, campaigns attempt to have an October Surprise. They do that because many voters aren't paying attention until Oct, and others were paying attention but have forgotten what they thought they knew from this spring, or last year, etc. We still haven't seen what either campaign has planned for the October Surprise, not to mention what the media or independent groups will do.

Don S on :

Oh, I hav no doubt that people are paying attention to public affairs right now, John. Do you, really? You are correct that in most elections people don't pay a lot of attention until October, and perhaps that may even be the case this year in the sense that they are not paying attention to the candidats that much. But I think there are larger forces moving right now, and it is those forces which are going to decide the election as well as a lot of other things. I've been watching the polls a little. The national tracking polls have moved toward Obama in a pretty big way and the trend does not seem to be flagging. State polls are also moving with Obama widening his lead in states where he was leading while McCain's lead seems to be narrowing in Florida & Ohio. The Intrade election market shows the Obama contract selling above 56 while McCain is about 40 - a week ago it was about even. I think a lot of people made their decision early this year - and the debate had nothing to do ith it.

John in Michigan, USA on :

Yes, people are paying attention now, as in right now, just the past week or so. Meaning, they are just now learning more about the candidates, and what they are learning probably still hasn't completely sunk in. In the past, Obama's image initially makes a very positive impression but over time becomes less impressive because their is so little substance underneath. Suppose Obama's chance really was 80%. The polls wouldn't necessarily show him ahead by an 80:20 margin, since your 80% figure reflects the chance of a victory, not the margin of victory. However, if Obama's chances were in fact 80% or close to it, the Intrade bidding should reflect this. The Intrade price of 56 suggests, lo and behold, a 56% chance of Obama winning. Oops, this afternoon it closed at 57. I will agree with you that Obama has "the big MO" (momentum) right now, but your claim of "at least 80%" is way too high.

John in Michigan, USA on :

Best amusing, layperson's description of a Collateralized Debt Obligation (CDO) I've yet seen: "The CDO that is talked about is like you selling your car to Joe, but not getting any money today for it. Joe is going to pay you next year. As soon as Joe gets your car, he rents it to Jim. Jim doesn’t pay him, but offers to pay him monthly for the use of the car. Jim sells the car to a chop shop. The chop shop pays Jim a commission, and sells pieces of the car at a profit to Tim, Tom, Dick, and Harry. Harry buys Dick’s pieces, and puts together a new car — but has an accident. How is Joe going to collect? Who really owns the car? [i]Of course it’s more complicated than that...[/i]" [url=http://pajamasmedia.com/blog/who-are-we-bailing-out-and-why/]Source[/url].

Pat Patterson on :

I remember this from my Roman Law classes. It remains your car because it is classifed as a defective conveyance as Jim "bought" the car but then rented it out without actually owning it. His use of the car does not allow him to change the status of the car until, after one year, he pays for it. As to getting the money, either sue Jim or walk to the nearest 7/11 and pray that a scratcher pays out.

John in Michigan, USA on :

I just like the idea of a very complicated explanation that nevertheless requires a disclaimer that the real thing is even more complicated. Also I was doing a little self-parody. Your Roman Law analysis sounds fine for normal transactions. However, one of the complications is, when I sold my car to Joe for payment 1 year later, Joe included terms in the contract that let him rent the car, lease it, or sell it for parts, whatever he wants...probably Joe's lawyer made him put a disclaimer that limited my ability to claim defective conveyance from Joe to any third party Joe might do business with.

Pat Patterson on :

Yep, that changes everything. You're sunk! Flee to the 7/11 at once.

Don S on :

I am providing a link to a Bloomberg story which states (tward the bottom) that big European banks are actually MORE severely leveraged on average than their US counterparts. http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=an37HatMCc4s "Daniel Gros, director of the Brussels-based Center for European Policy Studies, said in a report this month that the largest European banks have a leverage ratio -- which measures shareholders' equity to total assets -- of 35 compared with less than 20 for the biggest U.S. counterparts." Hmmmm. Of course this is not the entire story - there appear to be many non-banks tied up in this. Obviously there are a lot of weak banks in the US, but obviously some very strong ones also. J.P. Morgan, Morgan Stanley, and Citigroup have been snapping up assets on the cheap and appear to be strong. Wachovia went to Citigroup over the weekend after Morgan bought WUMV last week. Over the weekend Fortis, a huge Belgian-Dutch-Luxemborg bank was lent 11.2 billion euros by the three governments on the security of 49% of it's common stock, The UK seized Bradford & Bingley, a large mortgage bank, and the German government rescued Hypo Real Estate with a 35 billion euro loan guarantee. Hypo is only Germany's 2nd largest commercial real estate lender - I wonder how much it will cost to bail out #1?

John in Michigan, USA on :

Hmm. Unless there's something I'm missing, this seems to be a huge problem for the theory that deregulation is entirely, or even mostly, to blame. Did Europe deregulate its banks? If not, why didn't Europe's regulators (the EU or the individual countries' regulators) prevent their banks from making the same poor choices that supposedly "deregulated" US banks made? === For now, I'm going to avoid commenting on the recent failure of the bailout plan in the US House. It is too soon to know if it is a permanent failure, or a temporary setback, much less what it all means.

Don S on :

Possibly. On the other hand, apparently European regulation allowed their I-banks to leverage at 40-1, significantly above leverage levels in the US banking sectos. Or so I hear. The amazing thing to me is that the signs now seem to point to the epicentre of this crisis ahifting to Europe. Many European banks appear to be more heavily leveraged (40-1 vs 20 or 25 -1), European LIBOR rates (the spread between interest rates on government bonds and bank bonds) are about twice as high as in the US. But the most amazing thing is what happened in the currency markets today. With all the chaos elsewhere I would expect the dollar to be in free-fall. Not so, the euro dropped 2.5% against the dollar and also against the pound and the yen. The yen also dropped against the dollar but not as much. Flight to safety? Not hardly. Flight to relative safety, perhaps. Traders seem to believe that the US is farther forward in purging bad assets. There was a wave of bailouts in Europe this weekend, and I think people concluded there was something rotten in the state of Denmark. And Germany, France, Nederlands, Belgium, UK....

Pamela on :

"It is too soon to know if it is a permanent failure, or a temporary setback, much less what it all means." It means that members were getting inundated with communications from their districts that said 'vote for this crap and find another day job'. I promise you what most people knew about the bill was what they heard on the news - "Wall Street Bailout". Lynch mobs were forming up. Personally, I understood what the bill was trying to do but I hate the implementation. And right about now, I think Hank Paulson should develop an intimate relationship with a lamp post and some piano wire.

Don S on :

Perhaps Paulson is not the best choice to head this kind of effort, but unless Warren Buffett becomes available Paulson is probably the best we can do. Face, almost nobody in the banking sector saw this coming. Buffett did however. In 2002 Buffett spoke of his efforts in unwinding derivatives positions of General Re, a reinsurance company which Berkshire Hathaway had taken over. I encourage you all to read it to understand why things went to hell. http://www.myprops.org/content/Warren-Buffett-On-Derivatives-derivatives-are-financial-weapons-of-mass-destruction-carrying-dangers-that-while-now-latent-are-potentially-lethal.-2002/ Some salient points: "When Charlie and I finish reading the long footnotes detailing the derivatives activities of major banks, the only thing we understand is that we don’t understand how much risk the institution is running." "When we purchased Gen Re, it came with General Re Securities, a derivatives dealer that Charlie and I didn’t want, judging it to be dangerous. We failed in our attempts to sell the operation, however, and are now terminating it." "History teaches us that a crisis often causes problems to correlate in a manner undreamed of in more tranquil times." "In banking, the recognition of a “linkage” problem was one of the reasons for the formation of the Federal Reserve System. Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously-strong banks, causing them to fail in turn. The Fed now insulates the strong from the troubles of the weak."

John in Michigan, USA on :

That's an outstanding link, Don. As I've already stated, I hope Buffet makes a killing. Your excerpts hint at what is I think one of Buffet's recommendations: We should create an institution that does for investment banking what the Federal Reserve System does for regular banks. And there may be some practical merit to this idea. There is a fascinating blog post I will try to find about how scenarios very much like what Buffet described (but not as complex as the real world derivatives markets) played out in the virtual markets of Second Life. Maybe future regulators should be forced to game-play their proposed regulations in virtual markets before being permitted to foist them on the real world. Here's the problem with regulation: in a free society you can't regulate everything. There will always be capital that is, by conventional definitions, clinically insane. If we regulate the known derivatives market too much, that capital will migrate to currently unknown or unregulated markets. Maybe China or Russia will become the new haven for this sort of capital. (Both of course have regulation that on paper is more strict than the US...unless of course you know who to bribe or have the right political connections; if you do, its the Wild West all over again. China particularly is overdue for a crash, having grown at unreal rates for over a decade now. I only hope for the sake of the Chinese it will be more gentle than the Cultural Revolution). Or, maybe places like the Caymans will become the new home for this capital. At the same time, crazy capital will invent new markets for itself. We are already on the verge of virtual, Internet markets that pop up, have their moment in the sun, and vanish as quickly as blogs or web sites; These markets will have no particular location or home, and will come and go so fast, they will be impossible to regulate. So unless you regulate every facet of economic activity, including all private transactions, there will always be unregulated capital. Nor is crazy capital always a bad thing. Everyone knew IBM was correct that the personal computer market was tiny, and that telecommunications was a natural monopoly. Prudent regulators would probably not have banned mass market personal computer and new telecommunications companies outright, but they would have imposed enough accounting rules and other investment restrictions to prevent them from leveraging their modest, private resources and taking on the establishment. Everybody knew these companies would fail, and most of them did. But then we got Apple, Microsoft, Sprint, etc. Without them, we might still be paying, in today's money, over $1/minute for long distance, and over $10,000 for a personal computer, and lugging around "portable" phones in a briefcase. Civil libertarians understand that, in order to preserve the ideal of free speech, we have to permit, and even protect, ideas that are hateful, or just plain crazy. Every day, real human beings are hurt, sometimes deeply, by unregulated speech. It other cases, unregulated speech leads to violence that perhaps could have been prevented. Yet we persist. Free speech works because we all know that we can, at any time, say the most horrible and vile things, yet most of the time, we choose not to. Knowing that we have that choice, and collectively choosing to regulate ourselves, leads to a much more powerful, authentic, and enduring sense of community than the fear of getting caught and punished ever would. The same goes for economic freedom. The trick with regulation is, it must make markets on balance more attractive, not less. That is why I was pressing you so hard on the question of limiting executive pay. Excessive pay is more a symptom than a cause. Will limiting it attract capital to regulated markets, thus helping to ensure we realize the benefits of the regulation you believe in, or will it merely chase capital away? Won't "greedy" executives just find other ways to assert their status and privilege? How can we be sure these substitutions won't be even more unhealthy than obscene levels of compensation? What if these Masters of the Universe go into politics instead?!?

Pamela on :

That's a great link Don. I found it about 2 years ago after listening to Steve Forbes ranting about the relationship of derivatives/mortgage problems and saying that Buffet had been warning about it for years. I don't always agree with Forbes but I have great respect for his intelligence and integrity, so I went looking and finally found the link. I would mark that as the point when I really started to pay attention. If any of you are interested in more reading, I can tell you the books that have been seminal for me. Thomas Sowell, economist Basic Economics Applied Economics Nassim Taleb - trader The Black Swan Fooled by Randomness Charles R. Morris - banker The Trillion Dollar Meltdown I especially recommend the last - it gives very clear explanations of the very complex finacial vehicles that have come into play on the markets and how they're traded. As you can see from the title, Morris saw this debacle coming. The amusing thing is, given the $700 billion price tag we've just been handed, he was not that far off, was he? *do I really need to mention Hayek/The Road to Serfdom? Thought not.

Pamela on :

Here is a taste of Nassim Taleb on the current banking crisis. THE FOURTH QUADRANT: A MAP OF THE LIMITS OF STATISTICS Statistical and applied probabilistic knowledge is the core of knowledge; statistics is what tells you if something is true, false, or merely anecdotal; it is the "logic of science"; it is the instrument of risk-taking; it is the applied tools of epistemology; you can't be a modern intellectual and not think probabilistically—but... let's not be suckers. The problem is much more complicated than it seems to the casual, mechanistic user who picked it up in graduate school. Statistics can fool you. In fact it is fooling your government right now. It can even bankrupt the system (let's face it: use of probabilistic methods for the estimation of risks did just blow up the banking system). [ ] And we are beyond suckers: not only, for socio-economic and other nonlinear, complicated variables, are we are riding in a bus driven by a blindfolded driver, but we refuse to acknowledge it in spite of the evidence, which to me is a pathological problem with academia. After 1998, when a "Nobel-crowned" collection of people (and the crème de la crème of the financial economics establishment) blew up Long Term Capital Management, a hedge fund, because the "scientific" methods they used misestimated the role of the rare event, such methodologies and such claims on understanding risks of rare events should have been discredited. Yet the Fed helped their bailout and exposure to rare events (and model error) patently increased exponentially (as we can see from banks' swelling portfolios of derivatives that we do not understand). Are we using models of uncertainty to produce certainties? http://www.edge.org/3rd_culture/taleb08/taleb08_index.html Much more at the link including technical details on research.

Don S on :

"Are we using models of uncertainty to produce certainties?" That certainly seems to be a description of the derivative products which caused the linkages which are causing such turmoil. Fortunately this is a human-designed system with human-designed rules; those rules can be changed, as the SEC demonstrated with it's recnt 'clarification' of it's 'Mark to Market' rule stating that in the absence of a market expected payment streams could be used to value a security.

Don S on :

"Avoid Optimization, Learn to Love Redundancy" Well no WONDER you grokked it. Sounds just like good systems design, at least in high-risk domains. Risk analysis, something which seems to be out of vogue both in computer systems development and in the financil sector, or so it would seem.....

SC on :

And now for something completely different: We interrupt this serious discussion of Transatlantic sniping on economic policy, for sniping of different sort, and to announce that American writers of literature have been given notice that, all other considerations aside, in the view of European salons they are in their essence _merely_ Americans; a distinction which inherently pollutes their pathetic attempts at "art": http://www.breitbart.com/article.php?id=D93H89QO0&show_article=1 Please, kind reader, a moment of silence for the excruciating pain that must attend the horrifying realization among some thousands of New Yorkers that, for all these years, they've been living in a cultural backwater. From here in the middle of the country, I feel their pain. ;)

Pamela on :

Well, speaking for myself, I've spent my entire life ignoring Phillip Roth and Joyce Carol Oates. And Doris Lessing, come to think of it.

SC on :

Mon Dieux! You may the qualities necessary for membership on the esteemed literature committee. :)

Pamela on :

unlikely. I think Tom Wolfe is a genius and Lonesome Dove one of the great American novels. /continue with the cultural sneering

SC on :

(sniff) Just so. :)

Don S on :

Pamela, I did the same for many years until in a mortal moment of moral weakness I broke down and bought a Roth bestseller; "The Plot against America". And made a horrid discovery - the man actually can write a book worth reading. I timorousely dipped my toe into another Roth pond - his masterpiece "American Pastoral", which only confirmed my disillusionment. Roth is possibly as good as The Great One (Tom Wolfe). Nonetheless I can fully understand why the Swedish Nobel committee deems Roth and Wolfe unqualified; they both can write like angels. Judging by recent recipients of the Prize, this ability utterly disqualifies them for their Prize.....

Don S on :

SC, I feel the same way. But did I detect a little bit of a smirk there at the thought that the New York literary community had been deemed beneath notice by the Nobel committee? In turn the New Yorkers find people from (Rolla, was it?) similarly beneath notice. Professors in Rolla may in turn find such as my humble self who do not hold the PhD beneath their notice (I am unnaturally honored that you condescend to notice such as I). And because I live in a better post code (London) I can scorn those from lesser localse - like Chicago. As Dean Swift quoth: "So nat'ralists observe, a flea Hath smaller fleas that on him prey, And these have smaller fleas that bite 'em, And so proceed ad infinitum." All of us lesser beings can take comfort from the undoubted fact that the Nobel Committee in it;s Grandness would have overlooked Dean Swift for their Prize (had such been awarded during his mortal coil).....

Marie Claude on :

uh can't wait for the cooking recepts book, ya know from the new-age religion of Alaska, got to see how some manages the bear cooking, stewed ? rost ? salad ? wellcome to the christian polpotism era

Joe Noory on :

What is it with these post-modern idiots? Does hating normal, happy people make them feel smart?

Don S on :

I don't think 'hate' is precisely the word, Joe. I suspect a combination of envy and disdain explains it in many cases. Those who are truly talented (like Tom Wolfe, EJ Doctorow, and Philip Roth) probably don't even feel the need to feel disdain. I don't know that much about these men, but I am a big James Michener fan and have probably read everything he ever read inclusing the autobiographical stuff. He was a complex man, quite left wing, but had no time for disdain. Indeed he had friends from every part of the political spectrum. I would have liked to have known him.... I knew Peter Drucker very slightly, having exchanged a letter or two with him. Drucker WAS capable of disdain, but curiously he seemed to reserve HIS disdain for poseurs. Honest ordinary people who wrote to him with questions he did not disdain - he did his best to help.

Marie Claude on :

I guess your the true exemple of your statment

SC on :

A smirk? Moi? ;) Dean Swift, to be sure, would understand well our grand judges in Stockholm as much as they would be perplexed by him. I've always loved the passage you've quoted. Rolla, it is. Here on the edge of the Ozark plateau it's been a glorious summer and promises to be one of the best autumns in memory. Many, many cold clear-running spring fed streams, open relatively inexpensive land with huge swaths of oak and hickory forests. Heh. All my European visitors are stunned to learn that for all the places I have visited, I've never set foot in NYC. Well, someday. :) No condescension toward you, or others here for that matter, by me. Heck, on many things discussed here I'm no more informed - often less, I've observed - than most here. I'll only claim pride of place in my own little corner of the mathematical world. Besides, I'm in agreement with those of you who find Tom Wolfe fantastic - and now you've gone and stoked a curiosity about Roth. Now more to do! Damn you, Don. Damn you. :P

Don S on :

SC, I know and love the Ozarks. I've even been to Rolla once or twice when I lived in Kansas City working a contract at Sprint in 1990. I don't sneer at Rolla or it's university; in many ways I find places like Rolla the most perfect expressions of certain American virtues. Close to the land but hubs of culture as well. People in the Ivies may curl the lip at schools like UM Rolla but the Rolla's more than pull their own weight. The banking crash may well help restore a healthier weight of values to the US. When Investment Banking and other false idols cease to transfix the eye of the young and talented they may come to see the value of careers in the applied sciences and engineering, and you will be there. The foremost practicioners of the Academic Sneer (tm) tend not to be those in maths or the hard sciences (or even the social sciences) but rather those in the self-conciously rarified aether of certain humanities. Departments specialising in 'Studies' of various kinds are the most notorious of these but the rarifiction seems to have taken firm hold in more traditional specialities to the point where many English scholars have transmuted themselves into Professors of Malcommunication - rather than of clear expresssion. One suspects that Rolla may have resisted this trend rather better than the U of Colorado, which notoriously promoted one Ward Churchill into a department chair despite a few defects in his scholarship. Indeed, come to think of it, Professor Churchill may have missed his true calling. He could have made FAR more money as an investment banker designing CDO's and other 'investment-grade bonds' with similar characteristics to his scholarly efforts. But I grow prolix when all I meant to say is that I've never observed you sneer at anyone. I was teasing you as you obviously saw....

Marie Claude on :

Don, I find it funny that you , and not you alone, think that we envy your people, most of the time we have the impression that, in the contrary, it's you that envy us. It's not also disdain, we would don't care at all if you weren't always after us, just humor on "uranus" people, it could bite more, sometimes it does, when the people are obviously bad intentionned and display BS At least humor is therichness of the weaks :lo: (is it a good image for you then ?) Yeah, I have also read sometimes that we are posers, only because we don't find that you have good tastes, either in politics, either in your food, but if you put what we are saying in a basket, then yours is far much heavy

Don S on :

Don't take is so personally, franchie. I did not assert that you (or most Europeans) envy Americans. Nor did I assert that certain parts of the Europan literature community envy most Americans. What I said was that clearly some of the people who influence the awarding of the Nobal Prize for Literature envy the success (and the very large market) of talented American writers like Philip Roth and therefore need to sneer at them. That was made very clear from the statement the Nobel committee chair made. They may also envy French writers - I see no recent laureates writing in french either. The fact is that people follow the winners (and even nominees) of the Booker Prize and the Pulitzer far more than the Nobel winner. That is probably the case in France as well; the Nobel Prize for Literature seems to be awarded in recent years more frequently for political reasons than for literary achievement.

Don S on :

The other post (with the Swift quote) was expression amusement at the heirarchy of sneering - with me close to the bottom. The Nobel types sneer at New York literary mavens, who sneer at midwesterners like SC, who look down upon at people in non-literary London (like me). I in turn can mock at people in Chicago - Paris wasn't mentioned.

SC on :

Swift's quote couldn't be more appropriate, and was certainly close to mind while writing my first post and link in this thread. But you do realize that being "close to the bottom" in the hierarchy of sneering would seem to make you one of the bigger fleas in Swift's grand allusion. The last shall be first . . . ;)

Don S on :

Indeed yes, SC. Subtley and natural modesty precludes one from pointing out that the Swift passage clearly implies that the biters are in fact parasites upon those they scorn. Which rather turns the matter upon it's head, an irony not lost upon Dean Swift I daresay. Nor yourself I see.... ;)

akshay on :

At the time of financial crises we need to come together united and try to solve the problems which are responsible for such a hazard. We need to overcome it. It is meant to bring calm to the population and markets and display government strength and stability.

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