finem respice


Shut the Door. I Feel a Draft.

Friday, April 10, 2009 - 14:22 (+0100) by ep

isolation only exists in art

One of the sure signs that the beginning of the end has begun for a Ponziesque scheme (and this term is intended here in its broadest possible sense) is the rattling, metal-on-metal scraping sound of a key turning clumsily in the outside lock, distinctly audible on the inside as it latches the only door leading out of the room in which your cash is stored. Once capital restrictions start to appear you know the end is nigh. Broadening the scope of that analysis, the failure mode checklist for the effort to control any capital system universally has restrictive capital controls (explicit or implicit) as one of the last items. What is surprising is that this effect is not more often recognized as a member of a larger class of problems: the effort to close (or, more accurately, to isolate) open systems- an effort doomed in the physical world by the laws of thermodynamics before it is even conceived. That it seems difficult to convince what may loosely be called "The Regulatori" that there are corollaries everywhere where systems interact is both unsurprising and sad.

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What Goes Up... Pass The Beer Nuts.

Thursday, April 9, 2009 - 19:20 (+0100) by ep

plastic population, indeed

The battle of the uptick continues unabated despite the fact that the campaign it underlies lacks even the most ethereal semblance of foundation. It takes no more thought than the realization that certain prices, (gasoline, crude, wheat, corn, soy, cotton) are not expected to trace an ever-upward path, or at least that it is considered bad if they do, to recognize the pure and rank hypocrisy that is the misguided "War on Declines."

Consider for a moment the implications of "up only." Are there no equities, none at all, that will, in fact, turn out to be overpriced today? That is, that the net present value of the total sum of their actual future cash flows for any reasonable discount rate is far exceeded by the current share price of the issue? A moment's reflection on this basic thought experiment should lead the erudite finem respice reader to the inevitable conclusion that any attack on short sellers is akin to the concept that mere belief in overvalued equities, much less the willingness to back this up with cash, is problematic.

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In Defense Of Schizophrenia

Thursday, March 26, 2009 - 09:07 (+0100) by ep

lone voice

Interestingly, the star of Member of the European Parliament Daniel Hannan has, quite literally overnight, ascended to dazzling heights and now burns brightly in the sky, propelled, one hopes not yet to its zenith, by his acerbic greeting of the "devalued Prime Minister" Gordon Brown of a "devalued government" on the occasion of the Prime Minister's visit to the European Parliament just yesterday.1 Those of us who have been quiet followers of Hannan's for many years now are pleased to find audiences in Europe, the United States and elsewhere apparently well conditioned enough, after the absolute nonsense of the last two or three decades, for the wit and thrust of his discourse to rack up over a third of a million views in a day.

  1. 1. "The Devalued Prime Minister Of A Devalued Government," Daniel Hannan, MEP (South East England), Strausberg, France (March 24, 2009).
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Second Verse, Same As The First

Monday, March 23, 2009 - 23:02 (+0100) by ep

seen this before

The Treasury today unveiled a fourth pillar in the battle to re-inflate the bubble to provide us with the asset prices to which we have grown accustomed. This one is focused on legacy assets, that is, mortgage backed securities and loans that have gone to custard, and a public-private partnership to pull them off the books. The idea is that the FDIC will evaluate the loans and assign a leverage ratio it feels acceptable. The FDIC will then backstop non-recourse loans to cover up to 85% of the purchase price for the securities. Or the Fed will provide loans directly, in the case of securities. The rest of the purchase price will be a 50%/50% split with the government matching private investors dollar for dollar to fill in the equity capital.

Of course, lest you forget, the other pillars of the crisis are:

  • Falling Home Prices
  • Frozen Credit
  • Bank Capital Strength
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A Novel Question?

Monday, March 23, 2009 - 17:08 (+0100) by ep

house of white

When Barney Frank stands up and says "We should act like owners," with respect to, for example, AIG, it brings up some rather interesting questions. For instance: Who holds the stock certificates on the preferred and common stock "the government" purchased? Who holds the notes for the debt? I sort of assume the answer here is "The Treasury" or "The Federal Reserve," as I'm not sure what structure Congress would even have place to take possession of equity, for instance.1 So, in the case of the former, the Treasury is a part of the Executive Branch. In the latter case, obviously the Federal Reserve is a part of the "Not A Government Branch" Branch. Can Barney, or any member of Congress, attempt to derive any power or privilege of ownership in these assets in a system that enshrines the doctrine of Separation of Powers? I'm not even sure Congress gets to vote the stock, much less claim some sort of extra regulatory powers that flow from ownership. Not that we are near there yet, but am I alone in thinking this would be an exceptionally interesting Supreme Court Case?

  1. 1. Actually, the correct answer is "Jill M. Considine, former chairman of the Depository Trust & Clearing Corporation; Chester B. Feldberg, former chairman of Barclays Americas; and Douglas L. Foshee, president and chief executive officer of El Paso Corporation," as these are the three trustees of the A.I.G. government trust. They are vested with "absolute discretion and control over the A.I.G. stock, subject only to the terms of the Trust Agreement, and will exercise all rights, powers and privileges of a shareholder of A.I.G." ("Who Owns A.I.G.? (A Continuing Story)," Dealbook, February 5, 2009).
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Strange Imbalance

Tuesday, March 3, 2009 - 20:05 (+0100) by ep

Serious question: Is the reason that we never hear about cabinet appointments (of whatever political denomination) going through background checks and finding that the IRS owes them for overpaid taxes because it never happens, or because it simply isn't reported? This seems a very odd and strangely coincidental imbalance to me, just statistically speaking.

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Prefab Phoenix

Tuesday, March 3, 2009 - 12:57 (+0100) by ep

any color you want as long as its canary yellow or concrete brown

Since before the first versions appeared in the Sears catalog 1908, if you had quick and dirty housing needs, you resorted to prefabricated building. There was great appeal in their low cost and quick construction time, as well as their disposablity. Of course social drives like the Gold Rush and various military buildups had significant effects on the market for shelter you could move by train. Further, the sudden surge in shelter needs for assembling troops pushed a combined growth in trailer homes and prefabricated structures before and during World War II, and the military sold hundreds of thousands of galvanized Quonset huts as surplus in the postwar years. It’s hard to beat the ability to lift in and drop 720 square feet with a crane in two hours or less when you plan to arrive quickly and leave before too long. And it is hard to beat the price if someone drops a 250kg bomb on one.

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Inflation

Monday, March 2, 2009 - 18:28 (+0100) by ep

what goes up

Now seems as good a time as any to experiment with novel ways of looking at bubblesque data from around the economy. While toying around with Google charts and the animated data methodologies therein is fun, I can't quite get what I want out of the end product. Instead, I have been laboriously constructing what I want by hand. It is a time consuming process, (particularly for an animation novice) but allows for a lot more customization. On the theory that finem respice is as good a place to experiment with these things as anywhere else one of the first betas (a comparison of FRE and FNM assets and agency MBS issuance) is attached below. Obviously, there are still some gaps in data (I have earlier data for MBS issuance than balance sheets for the agencies at the moment) but the overall picture seems clear.

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Karma, Lobotomized

Monday, March 2, 2009 - 14:32 (+0100) by ep

sounded good on paper

Karma is a very unappealingly idealistic concept. It may be some innate cynicism on my part that colors the lenses through which I see karma, but I find traditional understandings of karma to be an unlikely dynamic in any version of the cosmos that is not self-servingly laced with a sufficiently toxic dose of anthropic bias to return very high LD50 numbers. The sort of bilateral and evenhanded “cosmic justice,” for lack of a better term, that is implied stretches the imagination a bit past the limits of suspended disbelief. However, performing a rather radical hemispherectomy on karma results in a substantially more compelling version of the dynamic. Negative karma, of a sort, seems quite common. One wonders if the surgeon responsible for the procedure warned the patient and his or her wards about the possibility of hemiplegia and vision issues following the surgery. As an aside, one also wonders what cosmic karma seizures looked like before the operation.

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The Fourth Deadly Sin

Sunday, March 1, 2009 - 09:25 (+0100) by ep

inventor to be

I have always hated the phrase "necessity is the mother of invention." Necessity is not the mother of invention, sloth is the mother of invention. Give me an incentivized master of sloth anytime over someone who values mindless "hard work" for hard work's sake. I still marvel at people who brag about how many people their business employs and wish that practice would go the way of programmers who brag about how many lines of code are in their application. Hard work has no intrinsically redeeming properties except among body builders. Mammals grew to dominate this planet by being clever, not having big teeth. If you align incentives properly, you get the most done with the least work and innovations pop up all over both to game your incentives and to get the work done faster so that your employees can hit the ball game and stimulate the economy.

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