Causes of the crash of '08 - how much fraud?

At last count my list of contributing factors to the crash of '09 included ...

1. Complexity collapse: we don't understand our emergent creation, we optimized for performance without adaptive reserve
2. Mass disability and income skew: The modern world has disenfranchised much of humanity
3. The Marketarian religion: The GOP in particular (now the Party of Limbaugh), but also many Democrats and libertarians, ascribed magical and benign powers to a system for finding local minima (aka The Market). The Market, like Nature, isn't bad -- but neither is it wise or kind.
4. The occult inflation of shrinking quality: What happens when buyers can't figure out what's worth buying. Aka, the toaster crisis - yes, really.
5. performance-based executive compensation and novel, unregulated, financial instruments: a lethal combination. See also - You get what you pay for. The tragedy of the incentive plan.
6. Disintermediating Wall Street: Wall Street became a fragile breakpoint
7. The future of the publicly traded company: A part of our problem is that the publicly traded company needs to evolve
8. The role of the deadbeats: too much debt - but we know that
9. Firewalls and separation of powers: a culture of corruption, approved by the American electorate, facilitated dissolving regulatory firewalls
10. Marked!: Rapid change and the Bush culture made fraud easy and appealing

I put Marked! pretty low on the list, but maybe I should bump it up a bit. The Hall of Shame (Clusterstock) lists a lot more fraud than has made the papers [1]...

• Fairfield Greenwich Group: quietly complicit in the Madoff fraud?
• Angelo Mozilo: white collar mobster
• Sam Israel: a $400 million fraud. In the old days, he'd have been front page news. I never heard of him.
• Many more, each of which would have been in the news once - including: JS Forte, RS Piccoli, JG Ossie, D Palmer, A Nodel, Marc Dreier.
• Those swindlers who have made the news... Allen Stanford, and, of course, Mr. Madoff.

Good old fraud didn't cause the crash of '08, so I'm not going to move it up from the bottom of my list. I think it's more of a cofactor -- the primary drivers of the crash also made fraud easy, profitable, and almost culturally acceptable. In turn fraud, at more levels than we can imagine, accelerated the downturn.

One interesting note. Emily remembers John McCain's reaction when the crash began in the fall of 2008. McCain said "fire Cox". At the time that seemed rather odd, and McCain was criticized for coming up with Chris Cox (#18 on the list). In retrospect, one wonders how much political insiders knew about the amount of fraud in the system. Politicians of both parties spent a lot of time with people like Allen Stanford, and I'm guessing, despite the photographed smiles, that they felt a severe need for soap every time they shook his hand ...

[1] Inanely, we have to plow through a lot of links to get to the interesting ones, including a number of unfair listings - though this one's fair.

Good news from China

Between a wee bit of economic turbulence, the end of the Twin Cities outdoor ice season, the chalkboard nail screeches from the Party of Limbaugh, the apparent end of product development at Apple, the fight for the midterm (2010 is tomorrow) elections and the endless march of Bush/Cheney hangovers this ain't the happiest of times.

On the other hand, there's some good news from the most important place in the world.

China.

I don't think the US is going to fall apart, and I presume that whatever alien forces that have allowed us to survive the development of fusion weapons will continue to operate, so my top priority as an American father is that China be prosperous, happy and ... you know ... peaceful. (Sorry India, I have more confidence in your stability -- despite your neighbors.)

If I were running the US government my top priority for our economic interventions would be that they helped China. That's only one of several hundred reasons why I'll never hold political office.

So it's good news that Hilary Clinton was very warmly received in Beijing. And it's good news that James Fallows, senior editor of The Atlantic and Beijing resident for the past several years, sees real progress on climate change discussions ...

Even more on US-China climate cooperation - James Fallows

I've previously mentioned the Asia Society/Pew and Brookings proposals for US-Chinese cooperation. Here is another one, from the National Resources Defense Council, which has been doing environmental work in and with China for a long time. As a bonus, here is the summary of its 9-point action plan:

1. Engage in serious bilateral meetings on climate change and address the key sticking points to reaching meaningful agreement in Copenhagen in December 2009
2. Establish a US-China forum on climate change strategies that promote green jobs and economic recovery
3. Mobilize the untapped potential of energy efficiency
4. Assist in the deployment of renewable energy sources and technologies
5. Promote low-carbon, high-efficiency vehicles, fuels, transportation systems, and community development
6. Expand research and investment on carbon capture and storage technology
7. Improve greenhouse gas emissions monitoring and data transparency
8. Conduct co-benefit analysis on GHG [Greenhouse Gas] emissions controls
9. Invest in regular exchanges and sharing of expertise to improve enforcement of
environmental law and energy efficiency standards.

For North America climate change is a mixed bag. Some areas do worse (California agriculture is toast and we know New Orleans will sink), other regions, for a tropical primate, seem "better".

For China, however, climate change means lots more desert. China appears to pay far more attention to science than the Bushies or the Party of Limbaugh, so this is well understood there.

If China goes, we all go.

So it's double good that China relations in general are improving and that climate discussions are front and center.

Obama's maternal grandfather

As a father by adoption I've wondered who was Obama's de facto childhood father. As near as I can tell it was his maternal grandfather, Stanley Armour Dunham. I couldn't find out much about Mr. Dunham, perhaps because in our more or less patrilineal culture maternal grandfathers are kind of forgettable.

I really do need to read Obama's bio.

Apple's G3 software product

Can you guess what Apple software still supports the PPC G3?

Hint: It has its own revenue stream.

So when Apple is sufficiently motivated they don't have to obsolete old platforms.

Funny that.

Snap Circuits – a toy and a company from another era

The following is modified from my Amazon review of Snap Circuits (SnapCirtuits) -- a highly recommended electronics toy (a review by Mr. Verwillow helped sort out the confusing supporting web site story):

Snap Circuits Pro SC-750 (Amazon.com)

... The toy is the work of genius, but the manuals could use a refresh, the web sites are the work of a pre-Internet generation (The company was founded 30 years ago by two electrical engineers), and marketing is not exactly a priority.

As best I can tell the official web sites are www.snapcircuits.net and www.elenco.com. (www.snapcircuits.com now redirects to www.snapcircuits.net). Elenco.com tries to cover their educational market, soldering kits, and non-toy devices, so the Snap Circuits (SnapCircuits) site is a better bet. is your best bet.

The web site parts page includes upgrades kit from the simpler to more comprehensive Snap Circuits kit. I think the SC-500 is the sweet spot for most of us.

I strongly recommend the inexpensive Student Guide (experiments up to SC-300) and the Student Guide extension (covers the added experiments of the SC-500). Some Elenco documents mention a teacher's manual, but I get the sense that's obsolete.

I had to print out a paper form to order these, and even do my own arithmetic! First time I've done that in over 10 years. There is a (third) online site for ordering the manuals and other parts but it was so poorly done I preferred to trust the post office.

This toy really is a blast from the past, but it's wonderful.

Why models underestimate climate change

Members of the church of climatic stability emphasize the limitations of climate simulation and modeling. It would be a fair criticism if they noted that errors go both ways; models can both under and over estimate climatic variability. Alas, that would contradict church doctrine.

Model variability is a reason to be extra cautious, especially because climate models put us pretty close to the cliff.

Unfortunately over the past ten years the models have almost always underestimated climate variability, pretty much putting us, as Dyer wrote recently, over the cliff.

Why should the models be consistently too optimistic? In theory they should err equally both ways.

Turns out this is a serious question ...

Global Warming Leading to Climate Tipping Point | Newsweek.com

... Since the real world is so messy, climate scientists Gerard Roe and Marcia Baker turned for insight to the distinctly neater world of mathematics. Last year, they published an analysis in the journal Science arguing that climate models were skewed in the direction of underestimating the warming effect of carbon. The report reasoned that carbon emissions have the potential to trigger many changes that amplify the warming effect—water absorbs more sunlight than ice, humidity traps more heat, and so on—but few that would mitigate it. The odds, they figure, are about one in three that temperatures will rise by 4.5 degrees C (the top of the IPCC's range), but there's little chance at all that they'll rise by less than 2 degrees C. "We've had a hard time eliminating the possibility of very large climate changes," says Roe...

Reading between the lines climate modelers have been quite cautious; they chose to err towards optimism. That was probably politically wise, the church of climate stability would be even stronger had the models been more often wrongly pessimistic.

The reality is we're over the cliff. The question now is whether we can survive the landing.

America is going to have to grow up very quickly. The Dems alone can't do this. We desperately need a reformed science-based GOP, but instead we've got the Party of Limbaugh.

Are there any rationalist republicans at all?!

Lessons from baseball – the data will be known

I didn’t pay much attention to Alix Rodriguez’s steroid use. It’s been clear for some time that baseball fans, players, coaches, owners, team physicians and so on are all pretty comfortable with performance enhancing drugs.

But then I learned how he was “caught”. That’s much more interesting …

Link by Link - As Data Collecting Grows, Privacy Erodes - NYTimes.com

… In Mr. Rodriguez’s case, he participated in a 2003 survey of steroid use among Major League Baseball players. No names were to be revealed. Instead, the results were supposed to be used in aggregation — to determine if more than 5 percent of players were cheating — and the samples were then to be destroyed.

… when federal prosecutors came calling, as part of a steroid distribution case, it turned out that the “anonymous” samples suddenly had clear labels on them…

… the baseball players’ union… is being criticized for failing to act during what apparently was a brief window to destroy the 2003 urine samples before the federal prosecutors claimed them …

So he was caught because he honestly completed an “anonymous” survey, and the union kept the urine samples around. Instead of public outrage at this betrayal, the public beat up on Mr. Rodriguez (though, not, I gather, with much energy).

Sigh.

The lesson, which has been taught before, is that data flows in the direction of profit. Never depend on anonymity, and don’t believe anyone who promises it.

Routine tech tips everyone should know.

A great set of tips for common problems! Here are my personal favorites from Boutin’s article

Basics - Low-Tech Fixes for High-Tech Problems - PAUL BOUTIN - NYTimes.com

Cellphone Losing Charge

If your cellphone loses its battery charge too quickly while idle in your pocket, part of the problem may be that your pocket is too warm…

… To keep the phone cooler, carry it in your purse or on your belt.

This same method can be used to preserve your battery should you find yourself away from home without your charger. Turn off the phone and put it in the hotel refrigerator overnight to slow the battery’s natural tendency to lose its charge…

Remote Car Key

Suppose your remote car door opener does not have the range to reach your car across the parking lot. Hold the metal key part of your key fob against your chin, then push the unlock button. The trick turns your head into an antenna, says Tim Pozar, a Silicon Valley radio engineer.

Mr. Pozar explains, “You are capacitively coupling the fob to your head. With all the fluids in your head it ends up being a nice conductor. Not a great one, but it works.” Using your head can extend the key’s wireless range by a few car lengths. 

Cellphone in the Toilet

It could happen to anyone: you dropped your cellphone in the toilet. Take the battery out immediately, to prevent electrical short circuits from frying your phone’s fragile internals. Then, wipe the phone gently with a towel, and shove it into a jar full of uncooked rice…

… It is a low-tech version of the “Do Not Eat” desiccant packets that may have been packed in the box the phone came in, to keep moisture away from the circuitry during shipping and storage.

Longer Wi-Fi Reach

If your home Wi-Fi router doesn’t reach the other end of the house, don’t rush out to buy more wireless gear to stretch your network. Instead, build a six-inch-high passive radio wave reflector from kitchen items, like an aluminum cookie sheet.

Follow the instructions at freeantennas.com/projects/template. Place the completed reflector — a small, curved piece of metal that reflects radio waves just like a satellite TV dish — behind your Wi-Fi router..

Dirty Discs

You need to clean a skipping DVD or CD, but as a bachelor you don’t have any sissy cleaning fluids? Soak a washcloth with vodka or mouthwash.

Alcohol is a powerful solvent, perfectly capable of dissolving fingerprints and grime on the surface of a disc. A $5 bottle of Listerine in your medicine cabinet may do the job as effectively as a $75 bottle of DVD cleaning fluid…

Too Much Flash

If your cellphone’s built-in camera flash is much too bright, washing out photos, tape a small piece of paper over the flash…

Crashed Hard Drive

If — no, make that when — your PC’s hard drive crashes and can’t be read, don’t be too quick to throw it out. Stick it in the freezer overnight.

“The trick is a real and proven, albeit last resort, recovery technique for some kinds of otherwise-fatal hard-drive problems,” writes Fred Langa on his Windows Secrets Web site. Many hard drive failures are caused by worn parts that no longer align properly, making it impossible to read data from the drive. Lowering the drive’s temperature causes its metal and plastic internals to contract ever so slightly. Taking the drive out of the freezer, and returning it to room temperature can cause those parts to expand again.

That may help free up binding parts, Mr. Langa explains, or at least let a failing electrical component remain within specs long enough for you to recover your essential data…

Steve Ballmer - comedian extraordinaire

That Ballmer. He's such a joker. Imagine the riotous laughter after this straight faced delivery by Microsoft's CEO...

Slashdot | Ballmer Pleads For Openness To Compete With Apple

... At the Mobile World Congress, Steve Ballmer took aim at Apple's closed iPhone ecosystem with .... plea for openness: 'Openness is central because it's the foundation of choice.' Ballmer has apparently forgotten his company's own efforts to vertically integrate hardware and software (Zune, XBox), its history of vertically integrating software (tying SharePoint into Office, IE, SQL Server, Active Directory, etc.), as well as years of illegally tying Windows to Internet Explorer that only the US Justice Department could undo...

Nothing in that list compares to Microsoft's great triumph -- controlling the file formats for Office.

Sigh. If only people could remember how powerful a move that was ... and is. On the other hand, the Sharepoint strategy is almost as effective. Shall we mention ActiveSync and Exchange Server?

What a hilarious fellow.

It's a shame Jobs isn't well enough to do a competing monologue about how keenly Apple listens to their customers.

Immunizations - origins and necessity

I'm a physician with an interest in history, but I didn't know many of the stories im Jim Macdonald's post on immunizations:

Making Light: Why We Immunize

...Kids Vaccinations in general..
Advantages: none
Disadvantages: enormous

... I suppose that depends on whether you feel “Didn’t have to buy a teeny-tiny headstone” is an advantage....

Great reading for historical and cultural context. It's also a useful antidote to people with a foolish sentimentality for Nature. Remember, we may love Nature, but Nature does not love us.

American right keeps FactCheck busy

I think FactCheck.org thought they'd be able to rest after the presidential election.

Wrong.

Between chain mails (a popular conduit of nonsense for the right) and GOP Senators (another conduit of nonsense) FactCheck is quite busy exposing undeniable whoppers.

People without allegiance to reality are full time employment for an organization attached to the facts.

Bank stock prices are rational now - the nationalization effect

Krugman points out than until recently bank share prices reflected the hope that the Feds would bail out the banks -- and stick taxpayers with the bill.

Now that it's becoming clear that shareholders will get stuck with the bill, bank share prices are returning to a rational level. Meaning about zero...

Nationalization fears - Paul Krugman Blog - NYTimes.com

So everyone agrees that fears of nationalization are driving bank stocks down. That’s probably true, but those fears have to be carefully interpreted.

We are not talking about fears that leftist radicals will expropriate perfectly good private companies. At least since last fall the major banks — certainly Citi and B of A — have only been able to stay in business because their counterparties believe that there’s an implicit federal guarantee on their obligations. The banks are already, in a fundamental sense, wards of the state.

And the market caps of these banks did not reflect investors’ assessment of the difference in value between their assets and their liabilities. Instead, it largely — and probably totally — reflected the “Geithner put”, the hope that the feds would bail them out in a way that handed a significant windfall gain to stockholders.

What’s happening now is a growing sense that the federal government, in return for rescuing these institutions, will demand the same thing a private-sector white knight would have demanded — namely, ownership.

Pakistan's objections to American drone attacks somewhat less credible now ...

I don't think many people trusted the sincerity of Pakistan's complaints about American drones invading their air space. That number has now gotten even smaller ...

Google Earth exposes a U.S. drone base in Pakistan. - By William Saletan - Slate Magazine

... The image was freely available on Google Earth until Wednesday, when the News of Pakistan published a story about it. At that point, it vanished, as other sensitive military pictures have done. Today, you can still view it on the Web site of the Times of London. If you're a Pakistani citizen, it confirms that the United States has been launching its killer drones from inside your country, contrary to your government's pretense of opposition...

The bright side of the news is that this is positive sign of US-Pakistani cooperation. The consensus on the drone attacks is that they're killing bad people -- in addition to innocent bystanders of all ages. Their accuracy must be coming from Pakistani intelligence sources, which have presumably deeply infiltrated the Taliban.

The down side is it would have been nice for Pakistan to have had more deniability.

When will Google 2.0 sell a branded netbook?

The great thing about the netbook is price (batteries not included). Of course, like any computing device of any quality, netbooks also need network access -- but I think network access will also be commoditized.

The bad things are quality, cost of ownership, and value delivered.

The Target Trutech that triggered my netbook interests was/is incredibly crummy. The hardware is crummy, the software is ugly, the usability is lousy, and in fairly short order a new wave of virus attacks will destroy the first generation linux-based netbooks.

On the platform side Google Chrome for Linux will address one set of issues. That still leaves hardware quality and virus security as obstacles to Google's Chromestellation strategy. An extra $5 spent on a keyboard will vastly improve user experience, but at the brutal low end of the market there's no brand awareness to justify a $5 price boost.

Google, of course, can address those issues. Unlike Apple they don't have a hardware franchise to protect, and, of course, unlike Microsoft they don't have a software franchise to support.

Google will sell a Google-branded netbook. They'll do the ultra-thin Linux distro, and they'll do the antiviral and security updates. Their device, sold under the Google brand, will be able to justify the $15 higher price point that will take the $135 2011 Google netbook something everyone will own.

Which bring us, inevitably, to antitrust.

Google is now so dominant in search that a revived American antitrust division is already making noises. If they come to own the entire western, and possibly world, netbook industry they'll make the Microsoft of old look modest.

Google will sell a branded netbook, but they'll have to split the company to do it. Google 1.0 will have search, and Google 2.0 will have the netbook.

All stupidity is rooted in tax law

Why have companies learned to finance operations through debt?

The merits of equity v debt | Debtors' prison | The Economist:

... Corporate-finance theory may state that the value of a company should not be affected by its decision to finance itself with equity or debt. But, in practice, interest payments are generally tax-deductible; dividends are not. That gives companies a big push in the direction of debt...

If you ever see something in the world that seems bizarre, like rice paddies in the middle of 1970s Tokyo, think tax law and accounting.