Fictitious money

http://metahacker.livejournal.com/487990.html?nc=15

For about ten years now, since I started understanding that market capitalization was a made-up number, a mass hallucination of value that couldn't actually be accessed, I have felt like a modern-day Cassandra.

Because it makes no sense, inventing value. The harbinger was, for me, Akamai; when it went public, its 'value' -- its market cap -- briefly soared above that of Apple. Twelve guys, some of whom I knew second-hand, were suddenly "worth" more than a decades-old, successful company with thousands of employees -- or would have been, except I think Apple bought enough Akamai stock to increase its own value. And that's when it became apparent to me this was all fictitious money. You couldn't actually convert this 'value' into real cash, or services; when you tried to sell that stock, its value would fade. It was just a fun illusion on paper, unexecutable.

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I want betting to be illegal. It's harmful, it attracts addicts, and it's not the sort of thing I want in my (financial) neighborhood. I want the stock market to be a *stock* market. I want financial institutions to stay in touch with reality. I want to avoid successive layers of abstraction that make it harder and harder to identify when there's a problem.

I'm not sure that the solution is a feasible legal principle, but that post has good desciptions of the problems.

Fictitious money

http://metahacker.livejournal.com/487990.html?nc=15

For about ten years now, since I started understanding that market capitalization was a made-up number, a mass hallucination of value that couldn't actually be accessed, I have felt like a modern-day Cassandra.

Because it makes no sense, inventing value. The harbinger was, for me, Akamai; when it went public, its 'value' -- its market cap -- briefly soared above that of Apple. Twelve guys, some of whom I knew second-hand, were suddenly "worth" more than a decades-old, successful company with thousands of employees -- or would have been, except I think Apple bought enough Akamai stock to increase its own value. And that's when it became apparent to me this was all fictitious money. You couldn't actually convert this 'value' into real cash, or services; when you tried to sell that stock, its value would fade. It was just a fun illusion on paper, unexecutable.

####

I want betting to be illegal. It's harmful, it attracts addicts, and it's not the sort of thing I want in my (financial) neighborhood. I want the stock market to be a *stock* market. I want financial institutions to stay in touch with reality. I want to avoid successive layers of abstraction that make it harder and harder to identify when there's a problem.

I'm not sure that the solution is a feasible legal principle, but that post has good desciptions of the problems.

Why don't they.....

As I understand it, a big piece of the financial crisis is that no one knows which loans are good and which ones aren't. The vast majority of home loans are good, as I understand it. Some of the bad ones could be made good by renegotiating the interest down to ordinary rates.

So why isn't anyone tracing down which mortgages and parts of mortgages are in which funds, and then doing the credit checks which should have been done in the first place?

This is really valuable information. It would take a big investment to get it, but you could charge quite a bit for it, and/or save your bank with it. I think the job would get cheaper and easier as you found out who was making most of the bad loans.

So, am I just plain wrong about the situation? Or is the job too hard? Are people in the industry panicking so much they can't think? Is the industry so jammed up that no one can raise the money to get the information? Or is it so embarrassing and/or likely to impose so much legal risk that the information isn't available?

Addendum: And why isn't the government doing this? It would be a lot cheaper than the bailout.

Why don't they.....

As I understand it, a big piece of the financial crisis is that no one knows which loans are good and which ones aren't. The vast majority of home loans are good, as I understand it. Some of the bad ones could be made good by renegotiating the interest down to ordinary rates.

So why isn't anyone tracing down which mortgages and parts of mortgages are in which funds, and then doing the credit checks which should have been done in the first place?

This is really valuable information. It would take a big investment to get it, but you could charge quite a bit for it, and/or save your bank with it. I think the job would get cheaper and easier as you found out who was making most of the bad loans.

So, am I just plain wrong about the situation? Or is the job too hard? Are people in the industry panicking so much they can't think? Is the industry so jammed up that no one can raise the money to get the information? Or is it so embarrassing and/or likely to impose so much legal risk that the information isn't available?

Addendum: And why isn't the government doing this? It would be a lot cheaper than the bailout.

Precision Spoon Scale

For the cooking geeks:

If you're a serious chef, you know that volumetric measurement is terribly imprecise. Let's say you're making biscuits. The recipe says 1 cup of flour, but are we talking 200 grams or 270 grams? Depending on humidity, or how much your flour was compacted when you scooped it, that could make the difference between light and flaky, and hockeypucks.

Precision Spoon Scale

For the cooking geeks:

If you're a serious chef, you know that volumetric measurement is terribly imprecise. Let's say you're making biscuits. The recipe says 1 cup of flour, but are we talking 200 grams or 270 grams? Depending on humidity, or how much your flour was compacted when you scooped it, that could make the difference between light and flaky, and hockeypucks.

How the Swedes handled a housing bubble

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=2&oref=slogin&oref=slogin

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s finance minister at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

A couple of points. Being socialist in some sense (I've heard that Sweden actually has more freedom of commerce than the US, it's just that it also has a very strong safety net) didn't protect Sweden from having a housing bubble.

If the NYT article is the whole story, then Sweden didn't especially punish the individuals who were most responsible. It focused on punishing institutions.

Link thanks to patrissimo.

How the Swedes handled a housing bubble

http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?_r=2&oref=slogin&oref=slogin

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s finance minister at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

A couple of points. Being socialist in some sense (I've heard that Sweden actually has more freedom of commerce than the US, it's just that it also has a very strong safety net) didn't protect Sweden from having a housing bubble.

If the NYT article is the whole story, then Sweden didn't especially punish the individuals who were most responsible. It focused on punishing institutions.

Link thanks to patrissimo.

Fortunately, they're Chaotic Evil, and they're bored with doing the work

About the three page request for 3,757,735.63 miles of money if you could go at light speed for a dollar a mile:

The point here being that we wrote a lot of grants.

And the thing is that every one of those grants was longer, more detailed and better documented than the sorry excuse for a memo that Paulson threw together to request $700 billion from the public coffers.

A three-page memo with no details means your grant application gets turned down. It means your $15,000 grant application gets turned down. Why? Because $15,000 is a lot of money, and if you're going to ask someone to hand over that kind of cash, then you're going to have to do your homework. You're going to have to explain, in detail, what the money is for, where and when it's going to be spent. You're going to have to explain how you intend to report back, with detailed documentation, after the money is spent. And you're probably going to have to describe a detailed plan ensuring that you won't need to come back six months later to ask for another $15,000 for exactly the same thing.

Fail to provide that kind of documentation and detail and your grant application will be rejected. Not only that, but you'll be lucky if you're ever allowed to come back and re-apply with the same foundation. Why? Because $15,000 is a lot of money, and when you ask someone to give you $15,000 without the courtesy of telling them what precisely it's for, they tend to take offense. And the failure to do your homework and put together a decent, detailed application is viewed as evidence that you're not responsible enough to handle the money wisely. "We're lazy and disorganized -- give us money" is not considered a winning grant-writing strategy.

In other news, Fred's also finished his paragraph by paragraph sporkification of Left Behind, so if you like that kind of fun, there's plenty of it.

Fortunately, they're Chaotic Evil, and they're bored with doing the work

About the three page request for 3,757,735.63 miles of money if you could go at light speed for a dollar a mile:

The point here being that we wrote a lot of grants.

And the thing is that every one of those grants was longer, more detailed and better documented than the sorry excuse for a memo that Paulson threw together to request $700 billion from the public coffers.

A three-page memo with no details means your grant application gets turned down. It means your $15,000 grant application gets turned down. Why? Because $15,000 is a lot of money, and if you're going to ask someone to hand over that kind of cash, then you're going to have to do your homework. You're going to have to explain, in detail, what the money is for, where and when it's going to be spent. You're going to have to explain how you intend to report back, with detailed documentation, after the money is spent. And you're probably going to have to describe a detailed plan ensuring that you won't need to come back six months later to ask for another $15,000 for exactly the same thing.

Fail to provide that kind of documentation and detail and your grant application will be rejected. Not only that, but you'll be lucky if you're ever allowed to come back and re-apply with the same foundation. Why? Because $15,000 is a lot of money, and when you ask someone to give you $15,000 without the courtesy of telling them what precisely it's for, they tend to take offense. And the failure to do your homework and put together a decent, detailed application is viewed as evidence that you're not responsible enough to handle the money wisely. "We're lazy and disorganized -- give us money" is not considered a winning grant-writing strategy.

In other news, Fred's also finished his paragraph by paragraph sporkification of Left Behind, so if you like that kind of fun, there's plenty of it.

A Little Rest for the Spirit

Leaf covered with tiny bubbles

More extremely close-up pictures-- but many of them are insects, and not everyone finds those restful.

Link thanks to Geek Press.

A Little Rest for the Spirit

Leaf covered with tiny bubbles

More extremely close-up pictures-- but many of them are insects, and not everyone finds those restful.

Link thanks to Geek Press.