Gaza

The NY TImes reports:

WASHINGTON — When President-elect Barack Obama went to Israel in July — to the very town, in fact, whose repeated shelling culminated in this weekend’s new fighting in Gaza — he all but endorsed the punishing Israeli attacks now unfolding.

“If somebody was sending rockets into my house, where my two daughters sleep at night, I’m going to do everything in my power to stop that,” he told reporters in Sderot, a small city on the edge of Gaza that has been hit repeatedly by rocket fire. “And I would expect Israelis to do the same thing.”

There are two seperate questions at stake regarding Israel's attack on Hamas. The first is whether or not Israel is in its rights. The second is, is Israel acting intelligently, strategically or effectively. Obama's quote speaks to the former. These questions are not independant, the assertion that Israel has a right to do everything in its power to stop Hamas, is limited by "to stop Hamas".

The key question, then, becomes: Will what Israel is doing stop Hamas?

It is reasonable to fear that it won't. Its hard to see how killing a few hundred Hamas-niks and bombing a few buildings is going to stop Hamas. Hamas is supported and trained by Iran, its real leadership is in Syria and it has no apparent recruiting problem in Gaza. The most likely outcome of this war is an internationally brokered cease fire that will include easing the blockade on Gaza, which will, in turn, allow Hamas to -- with some justification -- claim Great Success and strengthen the argument within the Palestinian polity that the most effective way to deal with Israel is via violence.

The only way I can see to actually defeat Hamas militarily is to re-occupy Gaza. This is unlikely to happen, simply because Israeli parents -- by and large -- do not want their children patrolling Gaza. It is somewhat ironic in as much as the international community would probably acquiesce. Who that matters would really shed an honest tear if Israel overthrew the Hamas government, whilst accelerating negotiations with Fatah?

Given how eagerly the Israeli leadership appears to be embracing the current calls for cease fire, it is possible that the threat of ground invasion has always been a bluff. That Israel's goal was always more limited -- simply returning to the status quo. If so, that may well prove foolish. It is a bluff Hamas/Syria/Iran have no reason not to call. If the goal was indeed so limited, my sense is that Israel would have been better off with randomized intermittant attacks on a wide range of pin-pointed Hamas related targets in response to rocket attacks, instead of this phony War.

LTCM Post Mortem

Column in the nytimes argues Bailout of Long-Term Capital: A Bad Precedent?

THE financial crisis is a result of many bad decisions, but one of them hasn’t received enough attention: the 1998 bailout of the Long-Term Capital Management hedge fund. If regulators had been less concerned with protecting the fund’s creditors, our current problems might not be quite so bad.

Long-Term Capital was advised by finance quants, or quantitative analysts, who made a number of unsound, esoteric bets, including investments in interest rate derivatives. When Russia’s inability to pay its debts roiled global markets, the fund, saddled with high-leverage and off-balance-sheet obligations, was near collapse.

Because Long-Term Capital owed large sums to banks and other financial institutions, the Federal Reserve Bank of New York organized a consortium of companies to buy it out and cover the debts. Alan Greenspan, then the Fed chairman, eased monetary policy to restart capital markets, which were starting to freeze up. Long-Term Capital’s shareholders were wiped out, but none of the creditors took losses.

At the time, it may have seemed that regulators did the right thing. The bailout did not require upfront money from the government, and the world avoided an even bigger financial crisis. Today, however, that ad hoc intervention by the government no longer looks so wise. With the Long-Term Capital bailout as a precedent, creditors came to believe that their loans to unsound financial institutions would be made good by the Fed — as long as the collapse of those institutions would threaten the global credit system. Bolstered by this sense of security, bad loans mushroomed.

The notion that if only the Fed had not organized negotiations that led to a private consortium -- composed primarily of large LTCM creditors -- bailing out LTCM creditors, we would have been spared the excesses of the past few years is far from persuasive.

On the other hand, the more commonly held take-away -- that the LTCM near-disaster demonstrates the need for more hedge fund regulation -- is, to my mind, no more sensible.

The facts of the LTCM near-disaster were these: The heavily regulated pillars of our financial economy lent far more money then prudent to an unregulated high risk small business. The unregulated high risk small business failed, threatening the well being of its pillars-of-our-financial-economy creditors and, by extension, the broader economy. In effect, an orderly bankruptcy was negotiated.

It takes a certain narrow minded-ness to take away from that scenario the conclusion that particular high risk small businesses need to be regulated. A more sensible observer would be more afraid of the overly-risky loans the heavily regulated pillars of our financial economy were apparently making that put our economic well-being in jeopardy.

The most sensible course of action then -- and the one that could have safely averted our current crisis -- would have been to rethink banking regulation in light of its failure.

What this argues for now, as our fearless leaders dream up a financial regulation Patriot Act, is to remember that regulation works best when its results (effectiveness/cost) are carefully monitored.

Far more persuasive from Professor Cowen:

The ad hoc aspect of the bailout created a precedent for what has come to be called “regulation by deal” — now the government’s modus operandi. Rather than publicizing definite standards and expectations for bailouts in advance, the Fed and the Treasury confront each particular crisis anew. Decisions are made as to whether a merger is possible, whether a consortium can be organized, what kind of loan guarantees can be offered and what kind of concessions will be extracted in return. So far, every deal — or lack thereof, in the case of Lehman Brothers — has been different.

While there are some advantages to leaving discretion in regulators’ hands, this hasn’t worked out very well. It has become increasingly apparent that the market doesn’t know what to expect and that many financial institutions are sitting on the sidelines, waiting to see what regulators will do next. Regulatory uncertainty is stifling the ability of financial markets to engineer at least a partial recovery.

John Maynard Keynes famously proclaimed that “in the long run we are all dead.” From the vantage point of 1998, today is indeed the “long run.”

We’re not quite dead, but we are seriously ailing. As we look ahead, we may be tempted again to put off the hard choices. But perhaps the next “long run,” too, is no more than 10 years away. If we take the Keynesian maxim too seriously, and focus only on the short run, our prospects will be grim indeed.


Of Hanukah

Hanukah is an interesting holiday.

It is the only Rabbinic holiday without reference -- or justification -- in scripture. It is a holiday for exile -- only briefly celebrated when the Temple stood and not to be celebrated in messianic times.

We celebrate two roughly co-existing stories.

In the first, the Maccabees, facing the Great Satan of their day, invented Jihad and asymetric warfare, terrorised the population of collaborators, and eventually liberated the Holy Land from colonialist oppression. (If only then -- as seems to be the nature of such liberations -- to subject the Land to brutal and short-lived, mis-rule.)

In the second, the priests, returning to the defiled temple, found only a small, large enough for one day, flask of still-pure ritual oil preserved which miraculously sufficed the full eight days required to produce fresh ritual oil.

The observed activities -- the timing, the Menorah, etc -- largely, reference the latter story. One can get the sense that we celebrate the former only as a pre-requisite for celebrating the latter.

The liturgy to some degree connects the two stories thematially. The few defeated the many. The small amount of oil out-burnt itself. What Levinas calls the miracle of surpassing.

But, in the end, the true call of the Hanukah -- much needed today -- is, perhaps, to stewardship. Towards simply preserving what little we have as best we can. The promise of the holiday is, then, that our resources, however problematic and limited, will suffice. And perhaps the fufillment of that promise begins with the obligation to light our individual Menorahs in public view.

Of Senate Seats Bought and Sold

From the WSJ - Sweet Caroline

The dynamics are complicated. Normally, Mr. Paterson would have selected someone like Andrew Cuomo, the state's attorney general. Not only would that have removed Mr. Cuomo as a possible primary challenger to Mr. Paterson when he seeks a full term in his own right in 2010. Appointing Mr. Cuomo also would have given New York a proven operator with instant clout and credibility in the Senate.

But Mr. Cuomo's supporters were blindsided by the Kennedy boomlet, which was pushed by allies of Barack Obama and New York Mayor Michael Bloomberg. Within days it was made clear to Governor Paterson that if he appointed Ms. Kennedy, he would have no trouble raising money against any possible primary opponent and would be looked on with great favor by an Obama White House.

One Last Madoff

HFN reports on the rumors flying around madoff

Doubt centered on the mathematical unreality behind his investment performance. The trading system he claimed he used could not produce the data he reported. Did the broker-dealer arm of his investment business furnish Madoff with inside information? What was so earth-shattering about his trading technique that he had to keep it a complete secret? That uncertainty was enough to dissuade the Wall Street elite from throwing in with Madoff.

What this touches on is a piece of delicious, if tragic, irony. While most Madoff investors were likely as innocent as an ignorant investor can be, others were surely sophisticated enough to recognize the "mathematical unreality behind his investment performance." Some, too smart for their own good, suspected that Madoff was leveraging his broker dealer business to trade in inside information, and, therefore invested in him to get in on the scam, unsuspecting that they were not eating, but being eaten.

Velocity

Former Treasury official under W, Bruce Bartlett opining in the Times, adds his voice to the borrow-and-spend chorus.

As he explains

This explains a great deal about what is at the root of the economy’s problem today. People are so risk-averse that they are hoarding money, refusing to spend; banks are refusing to lend even to their best customers; and businesses are so desperate for safety that they would rather get a negative return on a safe asset than invest in something remotely risky, no matter how high the potential return.

When everyone in the economy suddenly stops spending, the number of times that money turns over falls. Since the gross domestic product equals the money supply times its rate of turnover — something economists call velocity — this means that if the money supply is unchanged then G.D.P. must fall.
...
Under these circumstances, when the normal rules don’t apply, the government must find more creative ways to ease credit conditions and get the economy moving again.

First, it needs to increase the budget deficit. This expands the amount of Treasury bills in circulation and is the same as expanding the money supply, which is necessary to keep G.D.P. from shrinking due to a fall in velocity.

Second, the Fed needs to revise its operating procedures. Instead of buying only T-bills it needs to buy securities with positive interest rates...

Third, the government must try to raise velocity by stimulating aggregate spending in the economy. This is harder than it sounds... The trick is to find a way to get people and businesses to spend money over and above what they would have spent anyway.

Putting aside for the moment the question of how much the demand for negative yielding treasuries came from the private sector vs the Fed in its attempts to increase liquidity, the ultimate flaw in this sort of analysis is in the way it dismisses the free choices of market participants as fundementally irrational and in need of government correction. If one believes in free markets, and a conservative economist ought to, one should give more credence to the free choices of market participants.

The heart of the issue is the question whether the attempt by private actors to radically reduce their risk -- by radically reducing leverge and spending -- is rational and proper or not. Bartlet argues that it is not, apparently mostly because a reduction in risk leads to reduction in GDP, and we can't have that. On the other hand, its easy to argue that our economy is still by historical standards radically over-leveredged, and that it could use even more de-leveraging, even at the price of a longer-term drop in GDP (the old GDP was inflated, in any case, by bearing excessive=unsustainable risk).

This is all best understood from the micro- perspective. An economically sound individual or business accumulates assets in boom markets, such that it has a cushion ready when the economy, inevitably, cycles down. This minimizes the natural reduction in spending in a down-cycle which in turn, in aggregate, reduces the depth and breadth of any dip. On the other hand, if an individual or business spent an up-cycle accumulating debt, such that it has less of a cushion ready, it is rationally -- if it wants to survive -- going to tighten up much more dramatically in the face of a downturn. Which is all a long winded way of stating the should-be obvious that the lower the savings level of an economy the more at risk it is of deep and sustained downturn.

If one accepts (or at least suspects) that our economy is already over-burdened with risk, the likely, long-term, consequences of government policies aimed at, in effect, doubling down, are, frankly, scary.

Grails + JSecurity

I have been using the Grails JSecurity Plugin for authentication/authorization in my proto-type Grails app.

While there are many good things about the JSecurity Grails Plugin, "thorough documentation" is not one of them. I had some difficulty figuring out how to tie it all togethr, so I am posting here my basic set up.

For apps where authorization is, to some degree, external to the core object model, the WildcardPermission is the flexible, powerful way to go.

In my app, however, authorization rules are deeply embedded within the domain model -- whether or not User X can edit object Y is a function of some of Y's member values. I do not see how that can be accomplished via WildcardPermission.

My first cut of a solution involves defining an enum and an interface

public enum PermissionActionEnum {
 VIEW, EDIT, EXECUTE, DELETE, CREATE, ...
}

public interface AuthProvider<E> { 
 public boolean isPermitted(User u, PermissionActionEnum a, E on);
 public Class<E> getClazz();
}

Each of these AuthProviders knows how to determine authorization by examining the target object. I have a class "GlobalAuthProvider" which contains references to all the known AuthProviders and its own isPermitted method which delegates appropriately.

I defined a JSecurity Permission to link resource/target with a PermissionAction.

public class ResourcePermission implements org.jsecurity.authz.Permission {
 Object resource
 PermissionActionEnum action
 ...
 //So that action can be set with either an Enum or String
 public void setAction(String name) {
  action = PermissionActionEnum.valueOf(name.toUpperCase());
 }
}

Next, I defined a groovy authService which wraps the GlobalAuthProvider

public class AuthService {
 ...
 public boolean isPermitted(User user, ResourcePermission resourcePermission) {
  GlobalAuthProvider gap = ...
  Object on = resourcePermission.resource
  PermissionActionEnum action = resourcePermission.action
  return gap.isPermitted(user, action, on);
 }
 ...

My Realm then delegates to the authService

class MyRealm {
 def authService
 ...
 //Assumes ResourcePermision
 def isPermitted(principal, requiredPermission) {
         def user = User.findByName( principal )
      return authService.isPermitted(user, requiredPermission)
 }
 ...

Now the JSecurity tag can be used in the gsp. This is a little tricky because the GSP jsec:hasPermission tag, appears to be slightly different from the general JSP one

<jsec:hasPermission 
 permission="${ new ResourcePermission(resource:obj,action:'VIEW') }">
...
</jsec:hasPermission>

JPA + Enum

Frequently in JPA domain models, entities contain "type" objects (for instance: an Employee entity may contain Gender and EmployeeType members).

The simplest Java-centric pattern is to make an Enum of the type object (e.g.: Gender) and mark the member with the @Enumerated annotation.

This is optimal so long as the list of types is more or less static (as in the Employee.Gender). If the list is more dynamic (as in, perhaps, in the Employee.EmployeeType) and especially if the list must be user modifiable, the entity member can obviously not be an Enum.

On the other hand, the general benefits -- stricter type checking, handy case statement, etc -- of Enum-inity still hold.

For this purpose, I have been using a hybrid pattern. Basically, my type entities have a referance to an enum and the enum refers back to the entity. Both have an identifying Name property. There is a special Enum.NA for those Entities not reflected in the Enum.

The way this works is I define interfaces like:


public interface LookupType extends Serializable {
public String getName();
public void setName(String s);
}

public interface LookupTypeEntity<E extends Enum> extends LookupType {
public E getEnum();
}
public interface LookupTypeEnum<E extends LookupTypeEntity<?>> extends LookupType {
public E getEntity();
}


So for example an EmployeeType might look like


@Entity
...
public class EmployeeType implements LookupTypeEntity<EmployeeTypeEnum> {
...
public EmployeeTypeEnum getEnum() {
return LookupTypeHelper.getEnum(this, EmployeeTypeEnum.class);
}
}

public enum EmployeeTypeEnum implements LookupTypeEnum<EmployeeType> {
KING, LORD, SERF, NA
;
private EmployeeType _entity;
private synchronized void initEntity() {
if (_entity == null) {
_entity = LookupTypeHelper.getEntity(this, EmployeeType.class);
}
}
public String getName() {
return name();
}
public void setName(String s) {
throw new UnsupportedOperationException();
}
public EmployeeType getEntity() {
if (_entity == null) {
initEntity();
}
return _entity;
}
}


In the helper class, I provide methods for traversing between the entity and the enum.


public static <T extends LookupTypeEntity<?>> T getEntity(LookupTypeEnum<T> e, Class<T> clazz) {
T t = null;
if ( ! NA.equals(e.getName() )) {
//Dao is a simple class I wrote that wraps a JPA Entity Manager
Dao<T> dao = ...
boolean entityExists = false;
try {
t = dao.findByName(e.getName());
entityExists = t != null;
} catch (NoResultException x) {
}
if (! entityExists ) {
logger.log(Level.INFO, clazz.getSimpleName() + " \'" + e.getName() + "\' not found in database. Creating...");
try {
t = clazz.newInstance();
t.setName( e.getName() );
t = dao.create(t);
logger.log(Level.INFO, "Created: " + t);
} catch (Exception ignore) {
logger.log(Level.WARNING,"Trying to instantiate " + clazz, ignore);
}
}
}
return t;

}

public static <E extends Enum<E>> E getEnum(LookupTypeEntity<E> t, Class<E> clazz) {
E e = Enum.valueOf(clazz, t.getName());
if (e == null) {
e = Enum.valueOf(clazz, NA);
}
return e;
}


Rowan Godwin Williams

Drudge links to Archbishop of Canterbury warns recession Britain must learn lessons from Nazi Germany

Dr Rowan Williams risks causing a new controversy by inviting a comparison between Gordon Brown's response to the economic downturn and the Third Reich.

In an article for The Daily Telegraph, he claims Germany in the 1930s pursued a "principle" that worked consistently but only on the basis that "quite a lot of people that you might have thought mattered as human beings actually didn't".

Dr Williams, the most senior cleric in the Church of England, then appears to draw a parallel between the Nazis and the UK Government's policies for tackling the downturn, which he says fails to take account of the "particular human costs" to the most vulnerable in society.

The Archbishop of Canterbury, whose true calling appears to be courting controversy, demonstrates why Godwin's Law is a good one.

On the other hand, to read what he actually wrote, its clear that the Telegraph's characterization is supremely unfair.

In the article, Williams, attributing to Barth, warns us to be careful that our "principles don't simply block out actual human faces and stories." He attributes this concern to the christmas story. He blames attachment to principle, in his sense (which is also somehow tied to selfishness), for the crimes of Hitler, Stalin, Pol Pot and (somewhat oddly) Mugabe. While he exhorts his readers to be careful, he does not accuse any UK Government policies of blocking out actual human faces and stories.

With his concern, I agree whole-heartedly. Conservative critism of bureaucrats in Washington making broad descisions for local communities is largely predicatd on this concern. But it would take peculiar lack of moral compass to conflate well-intentiond great society programs that devastated african-american communites with genocide.

Given the broader context, his article comes closer to painting Jews, then Gordon Brown, as Nazis. When one talks about what Jesus, or Christmas came to change, there is a historically implicit, change-from-Judaism. This is especially true when one sees the change-from involving improperly rigid adherence to rules. There is nothing wrong with this -- a believer has a right to believe that his set of beliefs are, in some way, superior to alternatives. There is, however, something dangerous in cartoonishly attributing the evils of the world to adherents of those alternatives.

Krugman on Ponzi

Krugman makes a similar argument to my earlier post.

In his hand, however, it becomes a semi-coherent, less then well thought out, screed.

The excutive summary of his argument is.

The financial services industry has claimed an ever-growing share of the nation’s income over the past generation, making the people who run the industry incredibly rich. Yet, at this point, it looks as if much of the industry has been destroying value, not creating it. And it’s not just a matter of money: the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.

The excutive summary of my argument is: Krugman's obvservations are largely accurate. But he is too happy to attribute it all to "Wall Street is Evil", without looking into why wall street is what it is.

But surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Few would disagree with the observation that the compensation structures at Wall Street banks has radically misaligned employee incentives. People more thoughtful, or interested, then Krugman might be curious as to why this is so. If He or I owned a financial sevices company, surely we would not compensate our employees in that manner. Why, then, did Wall Street Bank shareholders allow that in the banks they controlled?

Similarly, investment manager compensation appears to often transparently misalign the interests of investment manager and client. Why do clients tolerate these arrangements?

So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. And while Mr. Madoff was apparently a self-conscious fraud, many people on Wall Street believed their own hype. Still, the end result was the same (except for the house arrest): the money managers got rich; the investors saw their money disappear.

Putting aside Krugman's childish rant (all invesments are clearly not scams), he touches on a key issue. Investors often invest without really understanding what it is they are invested in. As such they are not capable of properly managing their investments. The natural question then is why is it that people invest in things which they cannot understand and so cannot competantly manage?

We’re talking about a lot of money here. In recent years the finance sector accounted for 8 percent of America’s G.D.P., up from less than 5 percent a generation earlier. If that extra 3 percent was money for nothing — and it probably was — we’re talking about $400 billion a year in waste, fraud and abuse.

It seems to me that the growth of the finance sector as a percentage of GDP has a lot more to do with the outsourcing of other sectors then a dramatic increase in "waste, fraud and abuse".

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

Its unclear to me in which direction the corruption flowed. Certainly politics is not only corrupted by "Wall Street". I think it is, at least plausible, that the collapse of Wall Street came, ultimately, because the investment banks, corrupted by the intrusion of government into financial markets, became very good at managing regulation and legislation while their ability to manage risk withered away.

Meanwhile, how much has our nation’s future been damaged by the magnetic pull of quick personal wealth, which for years has drawn many of our best and brightest young people into investment banking, at the expense of science, public service and just about everything else?

In a sense, Krugman reveals his hand. Perhaps especially because he is professor, he is concerned that students are not choosing the professions he would choose for them.

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? How, for example, could Alan Greenspan have declared, just a few years ago, that “the financial system as a whole has become more resilient” — thanks to derivatives, no less? The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

After all, that’s why so many people trusted Mr. Madoff.

Now, as we survey the wreckage and try to understand how things can have gone so wrong, so fast, the answer is actually quite simple: What we’re looking at now are the consequences of a world gone Madoff.

This is the sort of incoherent argument one expects from Krugman. Its quite the stretch to imagine that if only pay was dramatically lower on Wall Street "important" people would have gotten an earlier handle on the crisis.

But, as I commented, I certainly see a commonality across the dynamics he observes in the inevitably adverse consequences of investors throwing their money into investments they do not adequately understand and so cannot competantly manage. As a matter of public policy, then, that ought be discouraged.

Staying the course

Shockingly, the NY Times finds that White House Philosophy Stoked Mortgage Bonfire.

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

But the story of how we got here is partly one of Mr. Bush’s own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

Its almost boringly predictable that the Times' list of culprits includes everybody except congressional dems. As if the housing policies it ascribes to Bush, were not, by and large, inherited from the Clinton administration and did not enjoy broad, bipartisan support.

From his earliest days in office, Mr. Bush paired his belief that Americans do best when they own their own home with his conviction that markets do best when let alone.

He pushed hard to expand homeownership, especially among minorities, an initiative that dovetailed with his ambition to expand the Republican tent — and with the business interests of some of his biggest donors. But his housing policies and hands-off approach to regulation encouraged lax lending standards.


It should go without saying a President who pushed hard to expand homeownership (one word?) doesn't really believe in leaving markets alone.

Bush was clearly not alone in pushing hard to expand homeownership in particular amoungst minorties (for example...)

The Times' implies that, with proper oversight, the drive to expand homeownership need not have led to lax lending standards. This is hard to understand. Had banks maintained rigorous lending standards, people with weak credit and therefore historically without access to affordable mortgages would have remained so. It was precisely the loosening of lending standards that made mortgages more available, in turn expanding homeownership.

Mr. Bush did foresee the danger posed by Fannie Mae and Freddie Mac, the government-sponsored mortgage finance giants. The president spent years pushing a recalcitrant Congress to toughen regulation of the companies, but was unwilling to compromise when his former Treasury secretary wanted to cut a deal.

Hmm, perhaps this recalitrant Congress should have been included in the list of culprits. I wonder why it was missed.

As to the compromises bush refused, a more thorough description can be found here.

As early as 2006, top advisers to Mr. Bush dismissed warnings from people inside and outside the White House that housing prices were inflated and that a foreclosure crisis was looming. And when the economy deteriorated, Mr. Bush and his team misdiagnosed the reasons and scope of the downturn; as recently as February, for example, Mr. Bush was still calling it a “rough patch.”

In being over-opimistic in 2006, Bush was hardly alone.

For much of the Bush presidency, the White House was preoccupied by terrorism and war; on the economic front, its pressing concerns were cutting taxes and privatizing Social Security.

It takes a certain perspective to view "privatizing Social Security" as a pressing White House concern. By any objective measure it was not. Reforming social security was a bush priority for approximatey one year (3Q 2004 till 3Q 2005) out of his eight years. And he gave clear indication that he could live with social security reform that did not include "privatization". On the other hand, the fear of social security being privatized was a pressing concern of Bush opponents.

Lawrence B. Lindsay, Mr. Bush’s first chief economics adviser, said there was little impetus to raise alarms about the proliferation of easy credit that was helping Mr. Bush meet housing goals.

And yet -- to some degree, he did!

So Mr. Bush had to, in his words, “use the mighty muscle of the federal government” to meet his goal. He proposed affordable housing tax incentives. He insisted that Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.

Repetitively: People who believe that markets should be left alone, do not feel the need to use the mighty muscle of the federal government to force particular market outcomes.

Concerned that down payments were a barrier, Mr. Bush persuaded Congress to spend up to $200 million a year to help first-time buyers with down payments and closing costs.

And he pushed to allow first-time buyers to qualify for federally insured mortgages with no money down. Republican Congressional leaders and some housing advocates balked, arguing that homeowners with no stake in their investments would be more prone to walk away, as Mr. West did. Many economic experts, including some in the White House, now share that view.


I am quite curious as to how the editorial process worked for this article. The non-editorial content of the article is relatively fair-and-balanced. It paints a portrait of how well intentioned government interference in markets, broadly supported through two administrations and opposed if at all by some congressional republicans helped lead to our current crisis. The headline and more editorial content, almost ill-fittingly overlayed, seeks to pin this tail, above all, on Bush.

“This administration made decisions that allowed the free market to operate as a barroom brawl instead of a prize fight,” said L. William Seidman, who advised Republican presidents and led the savings and loan bailout in the 1990s. “To make the market work well, you have to have a lot of rules.”

But Mr. Bush populated the financial system’s alphabet soup of oversight agencies with people who, like him, wanted fewer rules, not more.


In reality, there were -- and are -- of course, a lot of rules. Few industries are nearly as heavily regulated as financial services.

It is also moderately oxymoronic to claim that free markets require a lot of rules. The reality is slightly more indirect then that. Free market require a lot of things -- information/transparency, competition/customer-choice, etc -- that can be fostered by good rules. The issue is not that there were too few rules, the issue is that there are too many bad rules and too few good ones. Given the process by which the government produces rules, it is at least arguably likely that this is the natural, or most likely, situation.

The president’s first chairman of the Securities and Exchange Commission promised a “kinder, gentler” agency. The second was pushed out amid industry complaints that he was too aggressive. Under its current leader, the agency failed to police the catastrophic decisions that toppled the investment bank Bear Stearns and contributed to the current crisis, according to a recent inspector general’s report.

The second, Donaldson, was on many fronts quite aggressive. He was very much for all sorts of new rules, none of which, however, would have done anything to avert or mitigate the current crisis. Which illustrates the limitation of the simplistic Regulation = Good argument.

Daye-Light

Watching UConn vs Gonzaga. Austin Daye is a revelation. He is a 6'11 sophomore with bonifide small foward skills. Plus he has a name made for sportscenter puns.

On UConn, its nice to see they have gotten back to the full court press this year. While their talent is evident they still looks too often the static, disjointed amityville horror of a stand-around-and-watch-AJ-Price offense that sunk them last year. On the other hand, if he stays healthy this year, there are not many teams with a better one.

Ponzi Schemes

Low-Interest Mortgages Are the Answer

Two Columbia Business School Professors argue in the WSJ:


Recent news articles suggest that the Treasury Department is considering a plan to offer a 4.5% mortgage for home buyers for a period of time. Let's hope it does. It would help arrest the decline in house prices that is at the base of the ongoing financial crisis and recession.


The claim that falling house prices are the cause of the ongoing financial crisis and that part of the solution is for government to support them rather perversely, to my mind, confuses cause and effect. It is almost (although obviouly not quite) akin to arguing that the government should have given money to people to invest in Madoff, to help arrest the collapse of his NAV which has had such tragic consequences.

For a variety of reasons -- not the least of which was well intentioned government interference in markets -- over the past 20-30 years, our financial system had been increasingly underpricing the riskiness of mortgages. The more the riskiness of mortgages was underpriced, the easier it was to borrow more and so the higher home prices rose. In the end, perpetually rising home prices became, perhaps, the only basis justifying the pricing.

If not, technically a Ponzi Scheme, it resembled one in fundemental ways. The racket was sustainable so long as home prices could be continually pushed higher -- by offering ever cheaper mortgages to increasingly less qualified borrowers -- when the music stopped it collapsed under its own weight. It is not hard to find many other examples of this dynamic -- conflating phantom growth driven by unsustainably accelerating leverage (often with government encouragement) with an actual increase in value -- in what passes for our economy.

Whatever the ultimate solution to our current mess, it involves allowing/forcing markets to sort out winners and losers and to far more conservatively price risk. I find it hard to imagine that it involves government again shoveling risk into markets.

Institutional Responsibility

YU Endowment Shaken By Madoff Storm, Losing $110 Million


Yeshiva University's endowment, already battered by the tough economic environment, took another major blow this past weekend, losing approximately $110 million, or 8% of their endowment's assets.

In a mass email to YU students, staff and many alumni, President Richard M. Joel acknowledged they invested approximately $110 million in Ascot Partners, a $1.8 billion hedge fund managed by J. Ezra Merkin, although they asserted that the exact figure was difficult to ascertain. Mr. Merkin, who recently resigned from his positions as a trustee on YU's board and chairman of YU's Investment Committee, sent a letter to investors Thursday, December 11th, stating he had invested "substantially all" of the fund's capital with Bernard Madoff; the fund is now virtually worthless. Before President Joel's letter clarifying that the loss was $110 million, sources had located the losses between $100 and $140 million, while some unsubstantiated rumors around campus had ranged far higher.
...
Mr. Madoff, who resigned this past weekend from his positions of treasurer of the Yeshiva University Board of Trustees and chairman of the board of Sy Syms School of Business, was indicted on Thursday on charges that he had swindled $50 billion in a Ponzi scheme which shocked Wall Street (see related article, "Former YU Treasurer Bernie Madoff Runs $50 Billion Ponzi Scheme").

Mr. Merkin served with Mr. Madoff on Yeshiva's board, and was a member of several other prominent instiutions. For the last few years he has served as the chairman of the investment committee at the UJA-Federation of New York, as vice chairman for the Ramaz School of Manhattan, and as a member of the Columbia College's Board of Visitors.
...
However, Yeshiva's problems with Mr. Merkin allegedly began well before Ascot collapsed. One board member at Yeshiva related that several trustees and President Joel been looking into Merkin's management of the endowment prior to the events of this past Thursday. While some were discomfited by returns they found disappointing, others seemed to be rubbed the wrong way by a leadership style described by several as secretive and overbearing. A friend and supporter of Merkin acknowledged that "he has a hard edge to him."

Some sources were particularly troubled by Merkin's tactic of directing substantial amounts of YU's endowment to a fund that he himself managed. Figures ranged for how much money was invested with Merkin, but it appears the best estimate is that roughly $200 million was invested in Merkin-managed funds.

Kenneth Reed, director of research and policy analysis at the National Association of College and University Business Officers, called this tactic "a definite conflict of interest." Mr. Reed explained that endowment investment committees customarily provide guidelines to ensure a healthy degree of diversification, but do not set more specific details for where and how to invest.

The UJA-Federation of New York, where Mr. Merkin had formerly served on the board's investment committee, did not lose money with Ascot Capital because a conflict-of-interest policy prevented Mr. Merkin from directing their endowment towards his own funds, according to their recent statement.

Several financial professionals further expressed surprised over Merkin's self-compensation for his work with Yeshiva's endowment funds. One source close to trustees alleged that Merkin took a full management fee and did not give YU any discount for the size of their investment, which is out of character for most investors in the hundreds of millions of dollars according to financial professionals.


It borders on criminally negligent for institutions -- and YU appears to be not the only one -- to allocate donor money without basic conflict of interest policies. Especially given that this is not a new issue.

It would take some chutzpa for such institutions to ask for further donor money before heads, especially those who are now claiming to have been troubled or discomfited or already looking into it, roll.

In terms of effective actions we can take now to prevent a tragedy like this in the future, I would think that holding people criminally liable for allocating donor money on the basis of social connections instead of rigorous due dilligence should be high on the list.

K-Rod

If one considers BAa, OPS and K/BB to be far better measures of a relievers worth then ERA or Saves, then I am not sure the mets wouldnt be better of with, for the same money, 3 of Hoffman, Fuentes, Springer, Saito and Rhodes instead of K-Rod.

Look at the numbers:

K-Rod	Righty	26	3-year, $37M
SEASON	TEAM	TBF	K/9	K/BB	AVG	OBP	SLG	OPS
2006	LAA	296	12.08	3.5	0.197	0.276	0.333	0.607
2007	LAA	285	12.03	2.65	0.204	0.299	0.306	0.604
2008	LAA	288	10.14	2.27	0.216	0.314	0.316	0.629
Putz	Righty	31	1-year 5.5M
2006	Sea	303	11.95	8	0.207	0.245	0.284	0.528
2007	Sea	260	10.3	6.31	0.153	0.202	0.252	0.452
2008	Sea	211	10.88	2	0.256	0.36	0.389	0.749
Fuentes	Lefty	33	2008: $5M
2006	Col	274	10.06	2.81	0.209	0.301	0.372	0.672
2007	Col	255	8.22	2.44	0.206	0.299	0.323	0.621
2008	Col	256	11.78	3.73	0.205	0.277	0.293	0.566
Wood	Righty	31	2-year, $20.5M
2006	ChC	86	5.95	1.63	0.253	0.326	0.52	0.846
2007	ChC	101	8.88	1.85	0.207	0.31	0.299	0.606
2008	ChC	276	11.4	4.67	0.219	0.288	0.344	0.63
Hoffman	Righty	41	2008: $7.5M
2006	SD	248	7.14	3.85	0.205	0.25	0.316	0.566
2007	SD	235	6.91	2.93	0.228	0.276	0.358	0.63
2008	SD	180	9.13	5.11	0.224	0.263	0.394	0.655
Springer	Righty	40	2008: $3.5M
2006	Hou	240	6.94	2.88	0.211	0.277	0.394	0.669
2007	StL	257	9	3.47	0.181	0.248	0.265	0.511
2008	StL	205	8.05	2.5	0.212	0.286	0.31	0.593
Rhodes	Lefty	39	2-year, $4M
2005	Cle	175	8.93	3.58	0.206	0.263	0.269	0.532
2006	Phi	214	9.46	1.6	0.261	0.376	0.383	0.757
2008	--	146	10.19	2.5	0.224	0.31	0.256	0.557
Saito	Righty	38	2008: $2M
2006	LA	303	12.29	4.65	0.177	0.243	0.262	0.503
2007	LA	234	10.91	6	0.151	0.209	0.239	0.448
2008	LA	197	11.49	3.75	0.226	0.294	0.299	0.594

Also scary, having lived through Wagner and Benitez who where great regular season closers that could be counted on to blow playoff games, is K-Rod's recent postseason performance.

Finally, the Mets do not really need another immature 26 year old on their roster. Adding a nucleus of steady veteran hands might go a long way towards avoiding yet another september meltdown.

Monetary Policy

In yesterdays WSJ, Mishkin defended Monetary policy.

My general sense is that in as much as I think that debt as a percentage of GDP is unsustainably high, and we need to de-leverage, and stay that way, loose monetary policy seems a reasonable means of maintaining price stability. In as much as I suspect that we lack the disclipline to not unsustainably relever the second economic conditions begin to improve, I am skeptical.

The crux of his argument is:


What if the Fed had not cut rates during the current crisis?

Tighter monetary policy -- by restraining consumer spending and business investment -- would have made it more likely that the economic downturn would be even more severe, which would result in even greater uncertainty about asset values. Tighter monetary policy would then have made an adverse feedback loop more likely: The greater uncertainty about asset values would raise credit spreads, causing economic activity to contract further, thereby creating more uncertainty, making the financial crisis worse, causing the economic activity to contract further, and so on.

If the Fed had not aggressively cut rates, the result would have been both higher interest rates on Treasury securities and a substantial increase in credit risk on other assets. Interest rates relevant to household and business spending decisions would then have been much higher than what we see currently.


I am not sure I buy his primary argument. It is certainly true that if the fed funds rate was set at 10%, consumer spending and business investment would be meaningfully restrained. I am not sure that this would be so at 3%, or 1.5%.

What I am sure about is that price instability meaningfully restrains consumer spending and business investment. Hyper-active monetary policy certainly can result in price instability. There is good reason to believe that the wild commodity price fluctuations we have experienced were an unintended consequence of the Fed's hyper-active monetary policy.

His secondary point seems more compelling. Since our government appears determined to try to borrow and spend its way into economic health, minimizing the rate it borrows at seems an incontrovertibly good idea.

Madoff

Why the SEC Missed Madoff’s Con


Bernard Madoff's firm managed $17.1 billion in assets, he declared this past January in his investment adviser filing with the SEC. He also checked the box showing that he had between one and five employees who performed investment advisory functions, including research, at the firm.

"That's unheard of," Peter Henning, a former SEC attorney and prosecutor, told ProPublica. "You wouldn't have a mutual fund run by one person. You have to have someone out there doing the research."

But there's no evidence that anyone paid much attention to the filing. According to reports, the SEC never inspected Madoff's firm, which first registered as an investment adviser in September 2006. That's despite years of suspicion of Madoff's remarkably consistent returns.

One whistleblower, a former exec at a rival firm, wrote the SEC as early as 1999 to warn that Madoff was running the "world's largest Ponzi Scheme." He repeated his warnings to the SEC through this past April. There were other critics and naysayers, including a 2001 article in Barron's questioning Madoff's unrealistically consistent returns.

The inspection likely never happened, the Washington Post reports, because the SEC "does not have the resources to examine investment advisers on a regular schedule." Instead, they target certain firms that use high-risk investment strategies -- and Madoff's didn't fit the profile. It also didn't hurt that he was a prominent fixture on Wall Street, a former chairman of the Nasdaq stock exchange. Only 10 percent of the 11,300 investment advisers registered with the SEC are examined on a regular basis, an SEC official tells the Post.
...
If the SEC had taken a look at Madoff's investment adviser business, a number of red flags might have warned them of the scheme. There's the lack of staff, as we noted above. There's also Madoff's auditor -- a shoestring operation run out of New City, N.Y. A "former SEC enforcement official" tells the Post that there are only a few accounting firms with the sophistication to audit an investment adviser of Madoff's size.

But the SEC didn't follow up on the complaints and suspicion. One reason, Henning said, might be the lack of any complaints from any of Madoff's clients. "One of the things you look for is a victim. That was the brilliance of what Madoff did. Everyone was making money so no one complained." The sheer scope of the fraud might have also been beyond imagining. "No one ever looks for a $50 billion Ponzi scheme. What he did is anything short of amazing."

In the SEC's defense, regulatory gaps kept Madoff off the radar screen for most of the years that he operated...


Calls to beef up the SEC's authority and staff are a natural response now. But I think, with some further reflection, they are misplaced.

It seems clear, in retrospect, that there were bright red flags around Madoff (in particular, the lack of respectable auditor), and that thoughtful investors would have steered clear of him. Investors who didn't were, simply (if understandably), greedy -- they looked at his returns and wanted in. This is not to understate, or ignore, the human tragedy, only to face the reality. The question, then, is, whether blinded-by-greed investors ought to be subsidized by taxpayers. Which, frankly, is what is being called for.

Instead of spending hundreds of millions to beef up the SEC, why not simply prepare an informational pamphlet for potential hedge fund investors, with useful factoids like "Be wary of investing in funds without respectable auditors" or "Be wary of investing in funds whose investment process and strategy, you do not understand" and the #1 rule, which tragically too many people ignored "Never ever put all your eggs in one basket"?

Tangentially, this also illustrates how optimistic it is to expect government regulators to provide sensible oversight. It seems like the SEC employed a fundementally flawed heuristic for determining the riskiest funds to target. I think more thoughtful regulators would have recognized that "shoestring auditors" was a brighter red flag then nominally "high risk investment strategies". On the contrary, it seems evident to me that a fund engaged in fraud would not advertise itself as pursuing a high risk investment strategies.

In the end, this is just the latest sign that, as a society, we are rapidly losing any trace of personal responsibility or accountability. That the question we are asking is "How did the SEC miss this?" rather than "Why are people suprised that an opaque investment with shyster auditors turn out to be a fraud?"

Hallelujah

Alexandra Burke's X Factor single Hallelujah is fastest-selling download

Hallelujah, simply, is one of the greatest songs ever recorded. It has been covered with increasing frequency (Bon Jovi, for example, included it in their concerts last year). The covers tend, unfortunately, if predictably, to follow the John Cale cover rather then Leonard Cohen's original.

Unfortunately, because the original was perfect, and perfectly Cohen. To title a song Hallelujah is label it as overtly religious. The religious imagery in the lyrics strengthens that association. At the same time the Cohen's lyrics are unabashedly sacrilegious. Cohen's gravelly, earthy voice singing, without artifice, the verses grounds them very much in-this-world. He is, to be sure, tired and jaded, but frankly, or stoic-ly, so. The chorus, backed by the choir, hearkens back to the more traditional (for example, Handel's) Hallelujah. But if the more traditional Hallelujah is a celebration of simple transcendental faith, Cohen's chorus reaches for something to replace that faith irretrievably lost. It finds the traces of that possibility in the choir. The singer in the verse is hauntingly isolated, in the chorus he sings-together, almost hand-in-hand.

Given the parelels, it was a great song to include in the Shrek -- which was a fairy tale for people too grown up or cynically post-modern to believe in fairy tales -- soundtrack.

The covers, starting with Cale's version, tend to lose both Cohen's grounded verses, and singing-together chorus. The song becomes an simple excuse for mournful, soulful, spiritual vocal gymnastics. At its best it contains shades of the troubled complexity of the original, at its worst (see: Wainright, Rufus), it become a whiny trainwreck.

To give Ms Burke some credit, her version better then most, reaches back to the spirit of Cohen's original. She opens the song with the mournful, soulful, spiritual vocal gymnastics that mark, or rather: mar, the Cale inspired covers, but she ends it with an almost frankly religious, choir backed, singing-together. It is more simplistically a song of faith lost and found then the original, but that is not a critisism.

Retirement

How to Fix 401(k)s


Has the 401(k) failed?

In the wake of the stock-market meltdown, that question is on the minds of a growing number of policy makers, academics and corporate leaders -- not to mention the account holders staring in disbelief at their quarterly statements.


On this level, the 401(k) makes a lot of sense: The government ought be encouraging people to save for their retirement. Adjusting the tax code to favor preferred behaviors is one of the more powerful behavior modification tools government has at its disposal.

On the other hand, as a red blooded, free-market, conservative, I do not much like the idea of my mom investing her retirement in the stock market. Free Markets are places where skilled, sophisticated participants profit at the expense of less able particpants. To the degree that the Stock Market is a free market, casual investors like my mother are, rightfully, going to get fleeced. To protect investors like my mom, we have tangled webs of market regulation. Given the situation we are in now, it is at least fair to question whether the regulation really adequately protects people like my mom. And we need to properly consider the cost. Over the past ten or so years, we have repeatedly been beaten over the head by the reality that our equity markets are failing miserable at what conceptually is their primary function -- the oversight of corporate management. It is no leap to imagine that efforts to make the stock market a safer place for casual investors contributes substantitively to that failure.

To take this tangent a bit farther, I additionally suspect that the abundance of pension money in our financial system corrodes the quality of our investment professionals. In a classical free-market model, customers hold companies accountable. Less competitive companies have less ability to attract and retain clients and, so, get weeded out. But as intelligent and capable as my mom is in her own domain, I question how effectively she oversees the services provided to her by financial service professionals. Without customers sophisticated enough to properly hold them accountable, companies inevitably become less competitive.

For this reason, I fear proposals like "Automatic IRA".

From a consumer perspective, I am a big fan of annuities. When I retire, I'd love to simply be able to convert my savings into an inflation-indexed income (+healthcare). On the macro level, longevity risk is very much the sort that calls for pooling.

As a practical matter, its harder to see how this could work. A company selling an annuity recieves its revenue right away and holds a long term liability. It could take fifteen or more years before it is determined whether or not a company rightfully priced the annuities it sold. Given what we have seen of how financial services companies operate, its hard to imagine that, should annuities become a popular retirement option, companies won't aggressively price to drive short term revenue and profits, and then wind up in a ponzi scheme which collapses as soon as demand for annuities, for whatever reason, diminishes.

Government backed annuities wouldn't be much better. Given what we have seen of how government interacts with financial services, its hard to imagine that in an effort to spread access to annuities, government wouldn't engage in the same sort of ponzi scheme. (As it did, to some degree, with mortgages).

To the degree that one believes that the FDIC and PBGC function well, some analogue would be called for, but I suspect that such entities will inevitably be underfunded in a time of crisis.

Redux

Obama's Team of Conformists

WSJ making the same point I did earlier.

Umbrella

Obama's atomic umbrella: U.S. nuclear strike if Iran nukes Israel

U.S. President-elect Barack Obama's administration will offer Israel a "nuclear umbrella" against the threat of a nuclear attack by Iran, a well-placed American source said earlier this week. The source, who is close to the new administration, said the U.S. will declare that an attack on Israel by Tehran would result in a devastating U.S. nuclear response against Iran.

There is good news here for those who feared Obama was the second coming of McGovern.

On the other hand, Obama, in regards to middle east policy, is far more likely to be the second coming of Clinton, which is to say: heart in the right place, but ignorant until too late about the realities of the region.

To wit: Iran is unlikely to launch a nuclear missle against Israel. Iran is far more likely to pass nuclear technology to affiliated terrorist groups. An attack by such groups will not, immediately or with certainty, be traced back to Iran. And so Israelis and Iranians know that Obama's umbrella is far from waterproof. Obama may even know that too, which is why its easy for him to offer it.

Granting Israel a nuclear guarantee essentially suggests the U.S. is willing to come to terms with a nuclear Iran. For its part, Israel opposes any such development and similar opposition was voiced by officials in the outgoing Bush administration.

This may not be true. Extending the umbrella might well be intended to lower the value of nuclear weapons to Iran, as part of an effort to disuade Iran from pursuing them.

If it is: Given that affiliated terrorist groups will likely be Iran's vector of choice for a nuclear attack, its not clear to me that Israelis should be more afraid of a nuclear attack from Iran then we are. New York is as least as likely a target for nuclear terrorists as Haifa.

Blagojevich

Illinois Governor Charged in Scheme to Sell Obama’s Seat

Its unclear to me that there is anything interesting, or to be surprised about, in elected official seeks personal benefit in making political appointee. It is, unfortunately, the way our system works. While there is obviously a legal distinction, I have a hard time finding a real ethical distinction between Blagojevich's wanting to appoint a qualified person to senate seat in exchange for the expectation of future fund raising, or even a future political job, and the thousands of political jobs the Obama transition team is doling out, in large part as reward for past support and in the exectation of future support.

To make the point starker: Jesse Jackson Jr is, arguably, by resume, far, far more qualified to be a senator then Obama's desire Valerie Jarrett. Is it really black and white as far as which is ethically more questionable, or more damaging to the public: A governer wanting to appoint a more qualified candidate in exchange for future political consideration or a President pushing for a less qualified long-time friend and mentor?

Secret Millionaire

Thoughts on Fox's latest wonder of the world, Secret Millionaire:

As hard as it is for my cold conservative heart to admit it, when you see people financially ruined by health care costs, it is hard to argue against some form of national health care. In any case, its not like we really have free market health care to start with.

I wonder if the individual recipients of the gifts realize they will only get to keep half the money after the government takes its vig. I wonder if that factors in to the descision making process of the donors (was I a donor, for tax purposes on both ends, I would prefer to donate to a worthy organization, instead of a worthy individual).

Finally, I think one thing the show illustrates well is what a wonderful thing the human connection between donor and recipient is. Something that is lost when government crowds out private charity initiative.

On Pricing

I was at a dinner with someone who works for FINRA who expressed the opinion the one of the great deficiencies of the current regulatory regime was the fact that funds price CDS monthly instead of daily.

My response, which I think gets to the heart of the matter (putting aside whatever private counterparties do contractually), is imagine if, for whatever reason, you had to price your house by what you could sell it for today. That would produce an unreasonably low price. Its senseless to demand daily pricing in less the liquid markets.

Two thoughts on that conversation:

First, while we can all now agree that financial markets require sensible regulation, there is a obviously high cost to onerous+benefit-less regulation. There seems an unfortunate tendency amongst regulators -- personified by my fellow diner -- towards onerous+benefit-less regulation.

Secondly, I think this point -- the dependance of price on time -- is something that what I have seen of regulatory and risk management practices tend to ignore. Going forward, of course, they ought not, and it leads to some pretty interesting conclusions.

For example, a fund with daily liquidity, perhaps, might fairly be forced to price its portfolio by its daily liquidation value. But a fund with a stronger lock up, should be allowed to price its portfolio in a manner that reflects the longer time it has to cash out. Which would mean that the same asset, in the hands of two different funds, could be fairly priced dramatically differently.

Grails GUI

For my nascent grails app I am using YUI + Grails GUI.

Ran into the problem described here, where one autocomplete options containers renders under another autocomplete text input.

The best fix I (described in jira) found was adding a zIndex property to the gui:autoComplete tag and setting the parent container div with it.

Criminal

http://online.wsj.com/article/SB122835270947177981.html

What is the greater crime.

Carrying a handgun in your sweatpants and drunkenly/accidently shooting yourself?

or locking up an otherwise harmless idiot who does so for 3 1/2 years?

Even More Easily Impressed

Drudge posted Another former rival joins Obama cabinet

As a simple reality check: Richardson never being a serious candidate, can't seriously be labelled a former rival of Obama.

More directly: Gates, Jones, Hillary, S. Rice and co are certainly an experienced, accomplished, independant and capable group. But by any objective measure, the team bush brought in in 2000 -- Rumsfeld, Cheney, C Rice, Powell, et all -- were a far, far more experienced, accomplished, independant and capable group.

In terms of the vigorous internal debate Obama is promising, I find it hard to imagine that the idealogical, or policy-driven, distance between Gates and Hillary and S Rice comes close to approaching what we saw between Rumsfeld and Powell and C Rice.

Easily Impressed

For the second time, that I have noticed, this season on Top Chef, a guest judge appeared far more impressed then warranted by a contestant's cheap shtick.

In last night's episode, Rocco DiSpirito was wowed -- wowed! -- when Stefan served his huevos rancheros in a cleanly cut egg shell.

Still, that wasn't quite as embarrassing as when, previously this season, Donatella Arpaia confused Fabio's lifting Ferran's well publicized spherification technique to make "olives" out of olive oil with something creative and novel. Fabio didn't even bother coming up with a creative application of the technique.

Econ For $100, Alex

from the NY Times: Bailout Monitor Sees Lack of a Coherent Plan


“You can’t just say, ‘Credit isn’t moving through the system,’ ” she said in her first public comments since being named to the panel. “You have to ask why.”

If the answer is that banks do not have money to lend, it would make sense to push capital into their hands, as the Treasury has been doing over the last two months, she continued. But if the answer is that their potential borrowers are getting less creditworthy with each passing day, “pouring money into banks isn’t going to fix that problem,” she said.
...
In her view, the government should be trying to create more reliable customers for those banks by shoring up the fragile finances of the millions of American families that could not save, borrow or spend even if their banks were flush with capital.

“Any effective policy has to start with the households,” she said. “Years of flat wages, low savings and high debt have left America’s households extremely vulnerable.”


There doesn't seem to be an economic question to which the answer, in the minds of congress, isn't “an extremely large stimulus package”.

In this case, I am largely sympathetic to her general concern regarding the financial well-being of american families. I am less sympathetic to its application here.

To read the Times, her argument can be fairly summed up as: "American households bear too much debt relative to their wages and savings, therefore we need to 'shore up' their finances so that they can borrow more." If they did actually borrow more, they'd, of course, be back to bearing too much debt relative to their wages and savings and we'd be back to where we started except deeper in public debt.

By any sort of historical measure, American households, business and governments are still in much too much debt. Its easy to argue that whatever immediate cause, this drunk-on-debt-edness is the broader cause of our current, now official, recession. Only in Washington and on Wall Street does it appear to make sense to frame the problem as "There is not enough credit in the system".

Final Thought: The increasingly easy availability of credit depresses wages. If I can -- with the help of credit -- consume more without earning more, I will be more willing to work for less.

Chicken Little

From ExecutiveSuite.blogs.nytimes: The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle

One hears a lot of such glooming and dooming. While there is no shortage of good reasons to be pessimistic, I am skeptical that this is really one of them.

Historically (and for good reason!), up until the past few years, mortgages were not generally offered to people who had little chance of paying them back. The mortgage security markets were, in some sense, unprepared to deal with these sort of borrowers. Credit Card debt, on the other hand, has long been offered to people who have little chance of paying it back.

(Big) 3 + (Chapter) 11

http://www.nytimes.com/2008/12/03/business/03auto.html

“I think it’s pretty clear that bankruptcy is not an option,” Ms. Pelosi said. But she said that the companies’ revamping plans must first pass muster among skeptical lawmakers who sent executives of the Big Three home from Washington empty-handed last month.

Its pretty clear, I guess, if you answer to Labor, that bankrupcy is not an option, but far less clear otherwise. The arguments one hears against bankrupcy are pretty weak. If these are companies that are in such bad shape that Chapter 11 won't save them, its hard to imagine Government loans will.

That said, so long as all the involved parties agree-to a viable plan, the bailout, being loans that will be paid back, won't cost taxpayers in the long run, and might save some grief in the short run.

Management appears to be presenting a plan that to a large degree mirrors the sort of restructuring Chapter 11 would produce making it more mysterious as to why Chapter 11 itself is inconcievable.


But G.M., the world’s largest automaker for decades, said Tuesday that it was in such dire straits that it would deeply cut jobs, factories, brands and executive pay as part of its plea to get $12 billion in federal loans and an additional $6 billion line of credit. G.M. also promised that it could be competitive on labor costs with Toyota by 2012.


With Chapter 11, GM could be competitive on labor costs with Toyota by 2009!


Mr. Wagoner is scheduled to drive to Washington in a Chevrolet Malibu hybrid vehicle, a concession to criticism from lawmakers who chided the Detroit executives for flying on private aircraft to last month’s hearings.

Mr. Mulally was en route to Washington on Tuesday in a Ford Escape hybrid, and Mr. Nardelli was set to leave drive in one of Chrysler’s hybrid S.U.V.’s.


Are there any unicycle manufacturers out there to bail out? Or better yet, what about the guys that make:



Mr. Henderson said that G.M. would try to negotiate a reduction in its debt from $66 billion, to about $35 billion. While he would not elaborate, the company was expected to ask bondholders to take equity in exchange for reducing their payout on long-term bonds.

G.M. will also seek to cut its labor costs by reopening its contract with the U.A.W. Possible cost cuts in the contract include eliminating job security provisions, including the so-called jobs bank that pays idled workers when their plants close.

So the plan is turn debt holders into equity holders and restructure labor agreements. But chapter 11 is not an option?

The article leaves open -- tho certainly Congress certainly should not -- the amenability of the bondholders and the UAW. It would be irresponsible of congress (which I suppose is perhaps rather more imaginable then Chapter 11), to fund the bailout without being assured in some manner of the co-operation of these other stakeholders.

Big Business <heart> Regulation

Drudge linked to a Boston Globe article:


But if the financial sector split the difference between the two parties in 2008, it will probably skew toward the Democrats in succeeding elections, as Obama becomes the chief advocate of the Wall Street bailout. Such a development would be shocking considering the animosity between Big Business and the Democratic Party that began during the New Deal of the 1930s, which drove up taxation and slapped new regulations across many industries. That animosity continued throughout the Reagan era, when businesspeople craved the lower tax rates and deregulation of Reaganite Republicans.


What might have been true in the 1930s, is hardly true now. Big Business long ago, not only made peace with the idea of regulation, but recognized the competitive advantage for them in it. Regulation, to the degree it is costly and complicated, increases the barriers to entry of an industry, making it harder for small upstarts to compete with the large established large players. Why should Big Business feel animosity towards Politicians promising them that?

I question how true this was in the thirties. Brandeis certainly recognized, then, that New Deal policies overtly favored Big Business.

Heros Progressives

In case my political reading of the last episode of Heros wasn't evident: The divide they set up last night was between Progressives, who see all the good that can be done if ordinary people were given "powers", and Conservatives, who fear too many ordinary people with too much power will destroy the world.

For whatever reason, the show appears to see fit to identify Conservatives as Heros and Progressives as Villians.

Grails Many To Many

Grails doesn't yet handle many-to-many relationships in the scaffolding.

Most of the stuff available online recommends using relationship domain class to fudge the many-to-many relationship. If I have a many to many relationship of User to Role, I could have a UserRoleRelation that has a one-to-many relationship with both a User and Role, which Grails should handle cleanly.

It is also pretty easy to set up a simple direct ManyToMany relationship manually, as follows:

In my Role.java class I have

@ManyToMany(targetEntity=User.class, mappedBy="roleCollection")
private Set userCollection;

In my User.java class I have

@ManyToMany(targetEntity=Role.class, cascade = {CascadeType.MERGE})
@JoinTable(name="USER_ROLE_XREF",
joinColumns=@JoinColumn(name="User_Name", referencedColumnName = "User_Name"),
inverseJoinColumns=@JoinColumn(name="Role_Name", referencedColumnName = "Role_Name")
)
private Set roleCollection;

I cross-refrence by name instead of id to make the table more human readable. This may have the unfortunate side effect of breaking the generate-views command.

In the user/edit.gsp, I add a select box with the list of roles available

<tr class="prop">
<td valign="top" class="name">
<label for="roleCollection">Roles:
</td>
<td valign="top" class="value ${hasErrors(bean:user,field:'roleCollection','errors')}">
<g:select name="newRoleCollection" from="${Role.list()}"
value="${user?.roleCollection?.id}" optionKey="id" multiple="multiple" />
</td>
</tr>

If you only want to present a subset of the Roles (which happens to be the case in my prototype app), you can use Role.findAllByXXX instead of Role.list()

Finally, in my controllers/UserController.groovy, I add the code to put humpty dumpty back together again.

user.roleCollection.clear()

//probably a groovier way to do this, but it works...
//if newRoleCollection is a string instead of a string[], each iterates over each character
boolean newRoleCollectionIsStringArray = params.newRoleCollection.class.name != 'java.lang.String'

if (newRoleCollectionIsStringArray) {
params.newRoleCollection.each{
user.roleCollection.add( Role.findById( Integer.valueOf( it ) ) )
}
} else {
user.roleCollection.add( Role.findById( Integer.valueOf( params.newRoleCollection ) ) )
}

It isn't pretty but it does the trick.

Mumbai Attacks

http://in.reuters.com/article/topNews/idINIndia-36809420081201

Framing this attack as an "intelligence failure", or a lack of preparedness on the part of Indian security forces, misses what should be an obvious point: There are few cities in the world in which 20 guys with machine guns and a deathwish could not have done similar or greater damage.

There is, best I can tell, only one workable defense against these sort of attacks: A reasonably well armed civillian population. To the degree that we need to fear these sort of attacks on American cities, we ought to consider loosening urban gun control laws.

Heros

I really liked Heros tonight. I haven't much liked the seasons Heros/Villians theme, but find it more interesting now when cast, in effect, as Conservatives/Progressives.

Deficits

http://www.nytimes.com/2008/12/01/opinion/01krugman.html?_r=1&hp

Its funny how the party in power always discovers the virtues of deficit spending.

Krugman seems to believe that large budget deficits aren't a big deal since "it’s basically money we owe to ourselves".

If that isn't voodoo economics, I don't know what is.

Grails

Been playing with Grails (http://grails.org/).

Positive first impressions: Conceptually, what is not to like about the possibility of defining your domain model and having a functioning GUI up in a few clicks? The Grails generated web-app code and structure appears much neater then, for example, what JBoss SEAM produced. I am also, for the moment, loving writing web-app controllers in Groovy. It feels so much more natural, for that purpose, then Java.

On the negative side: Conceptually, I don't see any non-trivial benefit to defining domain classes in Groovy instead of Java. On the contrary, it seems to me, that in any real enterprise context, you are going to want to define your domain (and perhaps a service layer) in Java. Additionally, if you use Java domain objects, you can reverse engineer them from the database using a tool like hbm2ddl. The development focus on POGOs makes me a little nervous that maybe the Grails development team is more focused on replicating Rails then really thinking about how Grails can most naturally fit into an Enterprise Java environment. The purchase by SpringSource does offset this fear.


Finally, grails seems to enjoy failing without useful error messages. For example: I ran into http://jira.codehaus.org/browse/GRAILS-2096 and http://jira.codehaus.org/browse/GRAILS-3658

My First Post

I am now a blogger. Woo Hoo!

Choosing blog names is tough, what with all the good ones taken. Mine is a riff on "off the beaten path".