The subprime mortgage story: a problem of the weak

Most everyone is weak sometime. I'm basically tossing a coin when I choose health care benefits.

Ok, so I don't know anyone who isn't tossing a coin when they choose health care benefits. It's just that some of us know we're gambling while other players are more naive. The truth is the guy at the other end of the table wrote the rules -- he knows the game much better than we can.

When it comes to mortgages things are simpler for us. We're not sub-prime (yet), the products we buy are relatively simple and definitely generic -- there are lots of eyes on our side.

In the sub-prime market the game is trickier and the players have fewer resources than we. Those players get fleeced:

Lost in a Flood of Debt - Bob Herbert - New York Times

... There is some truth to the assertion that a lot of buyers signed up for deals they should have known they couldn’t afford. But it won’t do for the fat cats to fall back on empty phrases like “buyer beware.”

The subprime mortgage frenzy was a shameful, highly-charged phenomenon, motivated by greed and played out on a field of rampant exploitation. The victims deserved more protection than they got. As Paul Leonard, director of the California office of the Center for Responsible Lending, told me this week: “You shouldn’t have a marketplace that’s a ‘buyer beware’ marketplace for the most important financial transaction of most people’s lives.”

It’s not too much to ask that when Americans of modest means put their economic futures on the line, we have regulations in place to see that they are not ripped off...

The players get fleeced, the CEO walks, and some investors win, some lose.

So what ought we to do for the players who get taken, what do we do for the weak?

If you're a social Darwinist or neo-Calvinist this is just one more way that the market eliminates the unfit. If you're Libertarian the strong owe no duty to the weak, and you're probably a social Darwinist as well. If you're conservative there's a good chance you're either a religious neo-Calvinist or de facto social Darwinist -- but there's probably a portion that favors some state protection for the weak.

For neo-Liberals like me then the transiently strong definitely owe a duty to the currently weak. The question is not if something ought to be done, but rather what's the most pragmatic course given the reality of politics, the power of the market, and the inevitability of unintended consequences.

Bruce Springsteen. Saying thanks with Magic.

In October of 2004 my wife and I attended Springsteen et al's Vote For Change concert in Saint Paul (Neil Young dropped by.) My hearing hasn't been the same since, but I appreciated the sentiment.

Springsteen worked hard for the Kerry campaign, including writing a very good NYT OpEd.

It didn't work of course, but damn he did try. He didn't have to do any of it.

I thought back then I'd buy an album to say thanks. Unfortunately his next album had some nasty SONY DRM features -- it couldn't be ripped.

The other day I saw his newest album on sale at Starbucks: Magic. He's dumped SONY, this one is a plain old CD. So I got to express my thanks - at full price. I like the music too.

Tonight it's $9 on Amazon - a real bargain. #10 in music sales, so not too bad for an old rocker.

Thanks Bruce.

America 2016: how close are we tracking Fallows predictions?

Two and a half years ago Fallows wrote "Countdown to a Meltdown - A look back from the election of 2016". I came across it tonight; it's been a while since I read it.

It's the story of a nation that went off track in June of 2001:

... Before there was 9/11, however, there was June 7, 2001. For our purposes modern economic history began that day.

On June 7 President George W. Bush celebrated his first big legislative victory. Only two weeks earlier his new administration had suffered a terrible political blow, when a Republican senator left the party and gave Democrats a one-vote majority in the Senate. But the administration was nevertheless able to persuade a dozen Democratic senators to vote its way and authorize a tax cut that would decrease federal tax revenues by some $1.35 trillion between then and 2010.

This was presented at the time as a way to avoid the "problem" of paying down the federal debt too fast. According to the administration's forecasts, the government was on the way to running up $5.6 trillion in surpluses over the coming decade. The entire federal debt accumulated between the nation's founding and 2001 totaled only about $3.2 trillion—and for technical reasons at most $2 trillion of that total could be paid off within the next decade.4 Therefore some $3.6 trillion in "unusable" surplus—or about $12,000 for every American—was likely to pile up in the Treasury. The administration proposed to give slightly less than half of that back through tax cuts, saving the rest for Social Security and other obligations.

Congress agreed, and it was this achievement that the president celebrated at the White House signing ceremony on June 7. "We recognize loud and clear the surplus is not the government's money," Bush said at the time. "The surplus is the people's money, and we ought to trust them with their own money."

If the president or anyone else at that ceremony had had perfect foresight, he would have seen that no surpluses of any sort would materialize, either for the government to hoard or for taxpayers to get back. (A year later the budget would show a deficit of $158 billion; a year after that $378 billion.) By the end of Bush's second term the federal debt, rather than having nearly disappeared, as he expected, had tripled. If those in the crowd had had that kind of foresight, they would have called their brokers the next day to unload all their stock holdings. A few hours after Bush signed the tax-cut bill, the Dow Jones industrial average closed at 11,090, a level it has never reached again...

Well, that last part didn't pan out. The Dow is up and down right now, but we were up to 13,000 at one point. Of course if Fallows could really predict the DJIA he woudn't be writing a blog from Beijing. He also predicts economic calamity when with a 40% rise in the spot price of oil sometime around 2010 -- but we've already been through something close to that.

So he's not psychic. On the other hand the plummeting dollar and $400 billion plus housing market collapse happened roughly as predicted -- though we have yet to implement the massive federal trailer parks for families foreclosed from their homes. There's no discussion of global warming, but peak oil makes a brief show.

I hope I remember to take another look in 2009 ...

Quality crisis: software, hardware, publicly traded companies, food, toys and nations

My intuition has a reasonable, but not perfect, track record.

On the one hand I've been pretty good over the years with social and technological evolution. On the other hand I really don't understand why humanity is still in business forty years after the development of fusion weapons. I'm clearly missing something there.

Grains of salt advised. Anyway ...

My intuition is telling me that we have a 21st century "crisis of quality". I think this is related to some of my favorite themes, such as fraud (see esp. 21st century deception) and reputation management. It's demonstrated in the failures of the publicly traded company, our food and imported quality problems, and, I believe, the reelection of George Bush.

It may have its roots in anonymity, transience, and complexity.

Take my last week in the world of software and hardware for example:

• I spend an hour or so playing with Google's vaunted custom search only to discover their newest feature doesn't work.
  
• a trivially obvious bug in iPhoto 7 (iLife '08) destroys 3 family videos
• I discover you can't fully revert from Microsoft's buggy Office 2007 to their less buggy Office 2003
• I give up on my corporate XP box and rebuild, unable even now to say if the problem was hardware or software - or some interaction of flaws in both.
• I discover an emergent bug with IMAP interactions between multiple simultaneous user sessions of OS X Mail.app and Google's GMail implementation.
  

Yes. That's all in one week -- and I don't use either Vista or OS X 10.5.

That's a bad week.

Apple has a quality problem. Microsoft has a quality problem. Google has a quality problem.

The entire human world has a quality problem.

Except I seem to be the only one who's complaining.

Anyone else notice anything?

The key to successful remote collaboration - from 1970

John Halamka (amazing blog) quotes an email from Paul Gray, Professor Emeritus of Information Science, Claremont Graduate University. The topic is remote collaboration:

Life as a Healthcare CIO: Cool technology of the week:

Being retired, I receive my copies of Computerworld in batches from my office. Hence I only now read your September 15 article on flexible schedules. I was pleased to see that you found the need for initial meetings important in your thinking.

I thought you would like to know that this concept is not a new idea. When we first proposed telecommuting (Telecommuting-Transportation Tradeoffs: Options for Tomorrow, Wiley 1975) we quoted results that we found in the literature on the dispersal of government workers out of central London and central Stockholm in the 1960s. The dispersal was the result of, for example in London, of the concentration of office jobs that wound up depopulating the hinterlands of young people.

Everybody complained that they could not be moved out because they needed continual face to face contact with people in other agencies. Studies were done that found that once there is an initial meeting, which coupled a human face and body language with voice and correspondence, people were able to work in dispersed mode with no loss of effectiveness. However, they did need periodic (typically 6 month) refreshing of the initial contact so that the ties would be maintained.

I've lived with remote collaboration approaches for about seven years. I could definitely write a book, and, even before I read this, it would have said that an initial face-to-face meeting with q 5 month refresh meetings are essential to effective collaboration. I'd further recommend, if one can get away with it, spending the bulk of the in-person time time skiing, bowling, walking, dinner -- whatever activity the participants are able and willing to perform.

The social connection is the key factor in these face-to-face meetings, not the actual work done face-to-face. (Though that can be very effective, one outcome of the face-to-face needs to be a shared understanding of how remote work will proceed effectively.)

There are more things needed for effective collaboration -- like good quality phones. (Corporations can be absurdly stingy about phones while spending a fortune on dysfunctional video conferencing systems.) The social connection, however, is pretty much fundamental.

Even the best remote collaboration doesn't work well for new product development, but if done well with an experienced crew, good methodologies, and attention to the infrastructure it can be a good second best.

Interesting, but equally interesting is that his paper was published in the 70s and the underlying research was performed in the 60s. I used to study the dissemination of knowledge in medical practices; knowledge diffusion is a very rocky process. It will be interesting to see if blogs, wikis and the like will make any difference over the next 10-20 years. I think they might ...

The perils of compensation plans: housing market version

Publicly traded companies have a problem with their shareholders. They approve seemingly absurd executive compensation plans:

Banks Gone Wild - New York Times:

...But if the success turns out to have been an illusion — well, they still get to keep the money. Heads they win, tails we lose.

Not only is this grossly unfair, it encourages bad risk-taking, and sometimes fraud. If an executive can create the appearance of success, even for a couple of years, he will walk away immensely wealthy. Meanwhile, the subsequent revelation that appearances were deceiving is someone else’s problem...

We've known about this problem for over ten years.

The best explanation I've heard is that shareholders think they can get out before the stock craters, so the fundamentals are much less important than the share price.

The shareholders are wrong of course, but we are dealing with barely sentient primates after all.

Do we need to be looking at alternatives to the publicly traded company?

Pet poison follow-up: melamine and cyanuric acid

I've had a standing Google search on melamine for the past few months; I wanted to track developments beyond the lifespan of the original story. Today it served up an article on the mechanisms of the pet poisoning.

Last May there was still some questions about the nature of the toxin. That appears to have been settled - at least for cats:

UC Davis researchers identify toxic chemicals in pet food - Campus News

... Veterinary Toxicologists at UC Davis have discovered the toxicity of the chemicals behind the deaths of approximately 16 pets in the United States this year. The pilot study conducted in April and May of 2007 found that a combination of melamine and cyanuric acid caused cats in their study to experience acute kidney failure.

The two chemicals, found in nearly 60 million packages of recalled pet food in March of 2007, have been added as a source of protein in some brands of pet food, but until recently had not been tested for their toxicity.

"There were no published reports of toxicity studies examining the combined effects of melamine and cyanuric acid in any animal species," said director of the study and associate professor of Veterinary Toxicology Birgit Puschner. "We needed to determine with certainty whether or not melamine or cyanuric acid alone or in combination, could cause renal disease."

Although the University of Iowa conducted a similar study with pigs, UC Davis is the only research institution to find and publish the cause of toxicity in the recalled pet food. Their findings were published in the November issue of the Journal of Veterinary Diagnostic Investigation...

The Wikipedia article on the pet food recall already includes the citation. That's fast!

My personal sense is that Americans have mostly forgotten about the problem and have not changed their buying habits.

For example, Eukanuba, who used to make our dog's food, once boasted of their US based supply chain. They are now owned by Iams, who's name is now on our food. They make no such claims.

Clearly consumers have not been demanding any real changes.

It's hard to be a "market of one".

Two dimensional string theory

Promotion has sapped the output of my favorite physics bloggers, so I'm grateful to FMH for my physics fix:

Shadow World: Science News Online, Nov. 17, 2007

....Since 1997, physicists have proposed countless variations on Maldacena's theme, all of which interpret a string as a swarm of particles living in a small number of dimensions. Perhaps the easiest case to visualize is when that number is two. In such a scenario, anything that takes place in your many-dimensional, stringy universe has a sort of shadow representation in terms of particles moving on that universe's 'sphere at infinity.' This esoteric-sounding concept is actually similar to the familiar celestial sphere of the night sky as seen from Earth: It's the two-dimensional surface spanning all possible directions one can point to infinitely far in space...

So this re-representation of string theory has been popular for 10 years -- but I don't recall reading about it.

Annoying.

Sciam did cover this in Nov 2005 ("The Illusion of Gravity"), but I wasn't a subscriber then. (SciAm is the only periodical I subscribe to does not give archival access to current print subscribers. It's their right, but I do hold it against them.)

Wikipedia presents the theory more technically:

Juan Martín Maldacena (born September 10, 1968) is a theoretical physicist born in Buenos Aires, Argentina. Among his many discoveries, the most famous one is the most reliable realization of the holographic principle - namely the AdS/CFT correspondence, the successfully tested conjecture about the equivalence of string theory or supergravity on Anti de Sitter (AdS) space, and a conformal field theory defined on the boundary of the AdS space.

and on AdS/CFT correspondence:

In physics, the AdS/CFT correspondence (anti-de-Sitter space/conformal field theory correspondence), sometimes called the Maldacena duality, is the conjectured equivalence between a string theory defined on one space, and a quantum field theory without gravity defined on the conformal boundary of this space, whose dimension is lower by one or more...

Now, as we all know one of the primary challenges of the last 80 or so years of physics has been quantizing gravity. So, as a hobbyist reading this, I'm thinking the mathematical trick is to make the problem more tractable (and perhaps more constrained?) by taking gravity out of the picture. Hence the SciAm title - the "illusion of gravity".

This might be a bit like the old polar vs. cartesian coordinate transformation in Physics 101. Neither is "truer" than the other, but in some problems solutions are much easier. Or maybe the the Maldacena view will turn out to be the "better" model of "reality" (whatever that slippery beast might be).

I'll have to look around for some other popular summaries ...

Ravel on Bolero

Maurice Ravel

I have written only one masterpiece. That is Boléro. Unfortunately, it contains no music.

Guess what phone isn't promoted on the A&T site

Yep. No sign. No sign of the iPhone. It's beginning to look like AT&T's margins are every bit as thin, and Apple's every bit as fat, as rumor suggests.

AT&T is promoting phones where they at least make money on the plans.

I wonder if AT&T will eventually beg Apple to let them out of the contract early ...

Update: At least one commentator sees an iPhone, though it doesn't appear on the screen I get.

The best Trek: Slashdot chooses

Slashdot Polls are generally silly, but this time they asked a question that both matched the readership and was taken seriously.

They asked which Trek was the best. Voyager was not an option.

The rankings as of 61,594 votes (talk about a significant sample size) were:

• Star Trek: 14%
• Next Generation: 46%
• Deep Space 9: 16%
• Enterprise 5%
• Joke responses: 12%

I've never watched Enterprise, but that's the way I'd rank the rest. NG wins by a landslide and DS 9 and the original are roughly equal.

Of course NG was better before Picard was transiently assimilated. The Borg were great theater, but they sucked the oxygen out of the rest of the series.

One of my most memorable episodes, oddly, featured the often annoying "Q". Picard disdains his youthful recklessness, and Q decides to, you know, "teach him". Q causes Picard to live his life more circumspectly, leading Picard to a dead end job in the science division.

Any relationship to my current employment is purely coincidental :-).

Five by Dyer: two on Oil

Five from Gwynne Dyer

Oct 29 The Indo-US Alliance: The Wheels Fall Off
Nov 2 Telling the Truth about Oil
Nov 8 After Peak Oil
Nov 13 Pakistan Scenarios
Nov 18 Australia's Climate Change Election

All interesting, as usual.

Particle vs. Field: which is truer

Today it seems that particles are merely secondary ....

Nonlocality of a Single Particle Demonstrated Without Objections

... The scientists note an interesting comparison of their result to a principle of Leibniz’s metaphysics, the identity of indiscernibles. According to the principle, a pair of entangled quantum particles must be indiscernible from a single particle, since both objects have in common all the same properties—this is the only stipulation of the principle, number being irrelevant. The single-state nonlocality demonstrated here reinforces the equivalence of a single state and an entangled state—giving more credence to the position that quantum field theory, where fields are fundamental and particles secondary, is a close representation of reality...

In knowledge modeling the debate is between the nodes (statements) and the arcs (relationships). The arcs are pulling ahead.

Galois: killer unknown

My IOT podcast of the moment is on Symmetry. That story begins its modern history with Evariste Galois, who died in a duel aged 20.

Wikipedia tells the story, it's a bit less dramatic than the IOT version:

Évariste Galois - Wikipedia, the free encyclopedia

.... As to his opponent in the duel, Alexandre Dumas names Pescheux d'Herbinville, one of the nineteen artillery officers on whose acquittal the banquet that occasioned Galois' first arrest was celebrated. However, Dumas is alone in this assertion, and extant newspaper clippings from only a few days after the duel give a description of his opponent which is inconsistent with d'Herbinville, and more accurately describes one of Galois' Republican friends, most probably Ernest Duchatelet, who was also imprisoned with Galois on the same charges...

Whatever the reasons behind the duel, Galois was so convinced of his impending death that he stayed up all night writing letters to his Republican friends and composing what would become his mathematical testament, the famous letter to Auguste Chevalier outlining his ideas... However, the legend of Galois pouring his mathematical thoughts onto paper the night before he died seems to have been exaggerated. In these final papers he outlined the rough edges of some work he had been doing in analysis and annotated a copy of the manuscript submitted to the academy and other papers. On 30 May 1832, early in the morning, he was shot in the abdomen and died the following day at ten in the Cochin hospital (probably of peritonitis) after refusing the offices of a priest. He was 20 years old. His last words to his brother Alfred were...

If Galois had lived, there's little doubt the history of mathematics would be rather different.

Galois story is invariably described as romantic, but "stupid" seems more appropriate. Even a genius can be a fool - especially at age 20.

I was curious about the history of his opponent. The man played a major role in history after all. It's disappointing that he turns out be anonymous.

I could find nothing on the web about the subsequent life of Mr. Duchatelet, though I did find a number of spam sites that copied the wikipedia article. I suppose to track this down one would have to look for descendants, and see if there were some kind of oral family history.

Profiling: the astrology of criminology

Schneier sent me to this New Yorker article on the pseudo-science of FBI "profiling". It turns out to be about as scientific as lie detectors -- meaning not at all.

Dept. of Criminology: Dangerous Minds: Reporting & Essays: The New Yorker:

They had been at it for almost six hours. The best minds in the F.B.I. had given the Wichita detectives a blueprint for their investigation. Look for an American male with a possible connection to the military. His I.Q. will be above 105. He will like to masturbate, and will be aloof and selfish in bed. He will drive a decent car. He will be a “now” person. He won’t be comfortable with women. But he may have women friends. He will be a lone wolf. But he will be able to function in social settings. He won’t be unmemorable. But he will be unknowable. He will be either never married, divorced, or married, and if he was or is married his wife will be younger or older. He may or may not live in a rental, and might be lower class, upper lower class, lower middle class or middle class. And he will be crazy like a fox, as opposed to being mental. If you’re keeping score, that’s a Jacques Statement, two Barnum Statements, four Rainbow Ruses, a Good Chance Guess, two predictions that aren’t really predictions because they could never be verified—and nothing even close to the salient fact that BTK was a pillar of his community, the president of his church and the married father of two.

The Jacques, Barnum, Rainbow Ruse, etc are techniques used by professional "psychics" on their marks.