World Wide Losses are the Best Losses

From the frozen lands of Norway's Arctic Circle to the hot sands of the Middle East and the booming metropolis of Shanghai the losses from America's subprime crisis are popping up around the world like angry whac-a-moles.  The losses are large and appear larger by being found in the most unexpected of places.  Today the focus is on these world-wide losses but I think future historians will focus on how the crisis demonstrated to everyone the power of integrated capital markets to diversify risk. 

The losses, of course, are regrettable and the desire to find and apportion blame for the crisis among investors, home buyers, mortgage brokers, credit analysts and regulators is understandable.  We should and will learn lessons.  And yet, despite problems with transparency one of those lessons ought to be that the crisis would have been worse if the losses had been more concentrated.

From this perspective, world-wide losses are perhaps the best losses of all.

How free trade affects thievery, part II

Yes commodity prices are high:

A thief sneaked under the sport utility vehicle with a battery-powered saw, slicing from the Toyota's underbelly what may be one of the most expensive small parts of the auto world: the catalytic converter, an essential emissions-control device made with small amounts of metals more precious than gold. Who knew?

...Theft of scrap metals like copper and aluminum has been common here and across the country for years, fueled by rising construction costs and the building boom in China. But now thieves have found an easy payday from the upper echelon of the periodic table. It seems there may not be an easier place to score some platinum than under the hood of a car...

The catalytic converter is made with trace amounts of platinum, palladium and rhodium, which speed chemical reactions and help clean emissions at very high temperatures. Selling stolen converters to scrap yards or recyclers, a thief can net a couple of hundred dollars apiece.

Here is the story.  Here is part I in the series.  Here is a man who died trying to extract gold from his computer.

The erotics of investing

When young men were shown erotic pictures, they were more likely to make a larger financial gamble than if they were shown a picture of something scary, such as a snake, or something neutral, such as a stapler, university researchers reported.

The arousing pictures lit up the same part of the brain that lights up when financial risks are taken.

...The study conforms with recent research that indicates men shown a pornographic movie were more likely to make riskier sexual decisions. Another suggests straight men think less about their financial future after being shown pictures of pretty women.

Here is more.  One question -- and perhaps a more direct test of the hypothesis -- is whether traders in more sexually integrated firms do in fact behave differently.  Or how about companies located next to modeling agencies?  I suspect in real social settings the effect washes out, for reasons identified by Freud (among others) some time ago.  The more literally minded among us might also question whether a stapler is in fact a neutral image.  It isn't for me.

Jeff Sachs on biodiversity

His new book Common Wealth devotes an entire chapter to this important topic.  Sachs writes:

The main lesson of ecology is the interconnectedness of the various parts of an ecosystem and the dangers of abrupt, nonlinear, and even catastrophic changes caused by modest forcings...It is a basic finding that biological diversity increases the productivity and resilience of ecosystems.  With more species filling more niches in a given location, a biodiverse ecosystem is better buffered against external shocks in is more adept at cycling nutrients, capturing solar radiation, utilizing water resources, and preventing the takeover of the system by single predators, weeds, or pathogens.  In other words, preserving biodiversity helps to preserve all aspects of ecosystem functions.  Removing one or more species from an ecosystem, for example, by selective harvesting of trees or fish or hunted animals, can lead to a cascade of ecological changes with large, adverse, and nonlinear effects on the functioning of the ecosystem.

Now, loyal MR readers may remember that I am genuinely uncertain how much we should worry about the loss of biodiversity.  I do know the following:

1. Many smart people who know much more science than I do are very worried about the loss of biodiversity.

2. Given that the human population has ballooned for the foreseeable future, massive losses in biodiversity are inevitable.  The question is how bad the marginal losses will be, if we do not adapt policy accordingly.

3. If I had to conduct a debate and argue that the marginal loss of biodiversity was going to be a tragedy for human beings (obviously, I can see the loss to animals, and yes I do count that for something), I would not do very well.  Yes Yana's children won't eat tuna and then I would sputter something about carbon and nitrogen cycles.

So OK readers, help me out.  I've read Sachs's passage and I don't think I disagree with any of the claims in it.  But I still cannot articulate to a skeptic exactly what marginal disaster will come if we do not take drastic action to preserve biodiversity.

Please use the comments to set me straight.  What exactly will go wrong?  And do not compare seven billion humans to pristine nature.  Compare seven billion humans with bad biodiversity policy to, say, five billion humans with a pretty good biodiversity policy.  What exactly is the difference?  What are these costs as a percentage of gdp? 

Please be as specific as possible; I genuinely would like to learn more.

Car patrol vs. foot patrol

Car patrol eliminated the neighborhood police officer.  Police were pulled off neighborhood beats to fill cars.  But motorized patrol -- the cornerstone of urban policing -- has no effect on crime rates, victimization, or public satisfaction.  Lawrence Sherman was an early critic of telephone dispatch and motorized patrol, noted, "The rise of telephone dispatch transformed both the method and purpose of patrol.  Instead of watching to prevent crime, motorized police patrol became a process of merely waiting to respond to crime."

That is from Peter Moskos's Cop in the Hood: My Year Policing Baltimore's Eastern District; here is my previous post on the book.

Predictions about 2008

From 1968:

A typical vacation in 2008 is to spend a week at an undersea resort, where your hotel room window looks out on a tropical underwater reef, a sunken ship or an ancient, excavated city. Available to guests are two- and three-person submarines in which you can cruise well-marked underwater trails.

But many of the predictions are good, at least in part.  Get this:

The single most important item in 2008 households is the computer. These electronic brains govern everything from meal preparation and waking up the household to assembling shopping lists and keeping track of the bank balance. Sensors in kitchen appliances, climatizing units, communicators, power supply and other household utilities warn the computer when the item is likely to fail. A repairman will show up even before any obvious breakdown occurs.

Computers also handle travel reservations, relay telephone messages, keep track of birthdays and anniversaries, compute taxes and even figure the monthly bills for electricity, water, telephone and other utilities. Not every family has its private computer. Many families reserve time on a city or regional computer to serve their needs. The machine tallies up its own services and submits a bill, just as it does with other utilities.

Via www.geekpress.com.  As usual, it is presumed that traffic and transportation problems will have seen a lot of progress when in fact they have not.  Nor was it understood how unevenly the benefits of progress would be distributed and how possible it would be to continue a life basically devoid of these advances.

Doubt is Their Product - Early Reviews are In

My book Doubt is Their Product: How Industry's Assault on Science Threatens Your Health (Oxford University Press, 2008) will be officially released May 1st (though it's available now through Amazon and Powell's), and I’ll be writing and speaking more about it over the next several weeks. The book reports on the way scientists working for “product defense” consulting firms manufacture uncertainty in order to help polluters and producers of dangerous products avoid or delay public health and environmental regulation.

I'm fortunate that Doubt is Their Product has already been reviewed by two journalists who do an excellent job describing the problems that decades of manufactured uncertainty have created for today's health and environmental advocates. The reviews by Chris Mooney at The American Prospect and Arthur Allen at The Washington Independent are both worth reading, whether or not you're seeking book-purchasing guidance.

In Doubt, I recount how the strategy of manufacturing uncertainty was pioneered by the tobacco industry. Clearly successful, it has been adopted by the asbestos, beryllium, chromium, and pesticide industries, among others, and it is the strategy used by global warming deniers. There are few industries that haven’t tried it - Andrew Dressler at Grist has a new piece on how the Indoor Tanning Association is trying to convince the public that “there is actually no evidence linking sun exposure with cancer.” (I talk about that in my book, too.)

Challenging the science behind any proposed environmental regulations has become standard operating procedure. Doubt is Their Product describes how polluters have not only delayed action on specific hazards, but, with the help of the Bush Administration, they have constructed barriers to make it harder for lawmakers, government agencies, and courts to respond to future threats.

In his review, Chris Mooney explains how product defense firms' exploitation of science leads to larger problems:

All of science is subject to such exploitation because all of science is fundamentally characterized by uncertainty. No study is perfect; each one is subject to criticism both illegitimate and legitimate — and so if you wish, you can make any scientific stance, even the most strongly established, appear weak and dubious. All you have to do is selectively highlight uncertainty, selectively attack the existing studies one by one, and ignore the weight of the evidence. Although Michaels focuses largely on the attempts to whitewash the risks that various chemicals pose to the workplace and public health, the same methods are also used to attack the scientific understanding of evolution and global warming.

And it happens virtually every time the government even dreams of regulating a substance. People know what’s going on, but they respond as if they’re simply shocked, shocked, to find science being tortured. And so the outgunned federal agencies that must consult science to take action — the Occupational Safety and Health Administration, Environmental Protection Agency, and Food and Drug Administration, among others — repeatedly capitulate to corporations that effectively purchase science on demand.

We used to have a regulatory system — that was the dream, anyway, of the 1960s and 1970s. But in significant part due to the manufacturing-uncertainty strategy, we now have the bureaucratic equivalent of clotted arteries. And mercenary science hasn’t just blinded federal agencies. It has also blinded the courts, where the same tactics apply. Indeed, recent changes to the role of science in the federal regulatory system and the courts have worsened the situation by making corporate sabotage of scientific research easier than ever.

The 1998 Data Access Act (or “Shelby Amendment”) and the 2001 Data Quality Act, both originally a glint in Big Tobacco’s eye, enable companies to get the data behind publicly funded studies and help them challenge research that might serve as the basis for regulatory action. Meanwhile, the 1993 Supreme Court decision in the little-known Daubert v. Merrell Dow Pharmaceuticals case further facilitates the strategy, unwisely empowering trial court judges to determine what is and what isn’t good science in civil cases. Under Daubert, judges have repeatedly spiked legitimate expert witnesses who were otherwise set to testify about the dangers demonstrated by epidemiological research. Often juries don’t even hear the science any more because the defense can get it thrown out pre-trial.

Arthur Allen, meanwhile, focuses on beryllium, a lightweight metal used in manufacturing nuclear weapons and other products. The Atomic Energy Commission started limiting workers' beryllium exposure in 1949, after many had already developed crippling lung disease; when it turned out that limit wasn't protective enough, both OSHA and the Department of Energy began the process of lowering the beryllium exposure limit. Brush Wellman, the largest U.S. manufacturer of beryllium, responded by hiring scientists to critique government studies and raising doubts about proposed new limits – and so far, OSHA still hasn't updated its inadequate beryllium exposure limit. Allen emphasizes the human toll that beryllium exposure can take:

From 1958 to 1993, Gary Renwand Sr. worked as a machinist at the Brush Wellman plant southeast of Toledo, Ohio, shaping parts for space capsule reentry shields, electrical switches and brake pads. "There was a lot of powder in the air," he told me. "We were never even told to wear masks until the last few years."

Toward the end of his work years, Renwand's mornings began with a coughing fit. Ultimately, he was diagnosed with chronic beryllium disease. He now heads a support group in Ohio for 200 other sick beryllium workers. Fifteen have died in the last few years.

In beryllium disease, which strikes as many as 15 percent of people exposed to the metal, the immune system goes into overdrive to try to rid the lungs of the invader. Renwand has been on a daily regimen of steroids for 15 years to counter his immune response. The steroids cause him to put on weight, and he now suffers from diabetes, heart disease and osteoporosis, in addition to breathing difficulties.

Renwand's oldest son, 51-year-old Gary Jr., has beryllium disease, too. And the elder Renwand worries about his youngest son, who is still working in the plant. "If I had known what I know now, I never would have let them go to work there. But there aren't a lot of decent-paying jobs around here."

It doesn’t have to be this way. There are ways to address these problems within our regulatory system and the court. I’ll be writing more about them in the weeks to come — and, of course, you can always learn about them from Doubt is Their Product itself.

Iraq and Germany (by Russell Roberts)

As the aftermath of the Iraq war continues to be chaotic, there is a tendency to hope that this is just a passing phase and that time and action, such as the surge, will lead to better outcomes in the future. This article by David Stafford in the Washington Post, looks at the parallels between post-war Iraq and post-World War II Germany. In both cases, there was looting, anarchy, and disappointment at the pace of progress. There was also a political struggle over how to deal with those who had been involved in an evil government before the war.

But as Chris Coyne points out in this week's EconTalk (and as Stafford mentions briefly in his article), there are crucial differences between Germany and Iraq. And between Iraq and Japan, the other successful result of US attempts to export democracy after war. Coyne also examines numerous other failures of US efforts to export democracy--Cuba, Somalia, and Haiti, just to name three, that failed miserably because the basic institutional infrastructure for democracy could not be created from scratch.

Coyne argues that most interventions hoping to create democracy don't just fail, they make things worse. He argues for non-intervention and free trade as the best hope of helping people living under miserable conditions.

North American Rowing Challenge (NARC) :: RE: NARC TEAM PROGRESS REPORTS: TEAM TIMBUK2

Author: PJM
Posted: Apr 2, 2008 7:11 pm (GMT -8)
Topic Replies: 70

It's still early but here are the stats for how we stand at 11:00 E.S.T April 2nd

TEAM TIMBUk2 PROGRESS

TOP 10 VIRTUAL TEAMS




1 view Age Without Limits Virtual Club 19,527,082 #:184, avg: 106,125
2 view TIMBUK2 Virtual Club 5,721,706 #:59, avg: 96,978
3 view LUNA-TICS Virtual Club 5,533,865 #:59, avg: 93,794
4 view ANCIENTS ONE Virtual Club 3,937,390 #:11, avg: 357,944
5 view ANCIENTS TOO Virtual Club 2,906,076 #:15, avg: 193,738
6 view PRAIRIELAND STROKERS Virtual Club 2,521,944 #:35, avg: 72,055
7 view ARIEL TOY Virtual Club 1,720,652 #:24, avg: 71,693
8 view VCIRC Virtual Club 1,133,070 #:14, avg: 80,933
9 view Pikelet IRC Virtual Club 876,266 #:5, avg: 175,253
10 view Arizona Outlaws Virtual Club 834,444 #:15, avg: 55,629


TOP 10 ALL TEAMS


1 view Age Without Limits Virtual Club 19,527,082 #:184, avg: 106,125
2 view Keweenaw Memorial Rehab. & Fitness Center Medical Facility 14,130,098 #:287, avg: 49,233
3 view Community Fitness Pointe of Munster, In. Health Club 10,921,049 #:291, avg: 37,529
4 view Free Spirits Undefined 7,195,561 #:51, avg: 141,089
5 view Final Results Fitness Health Club 7,190,677 #:190, avg: 37,845
6 view TIMBUK2 Virtual Club 5,721,706 #:59, avg: 96,978
7 view LUNA-TICS Virtual Club 5,533,865 #:59, avg: 93,794
8 view Saratoga Springs YMCA YMCA 4,084,549 #:55, avg: 74,264
9 view ANCIENTS ONE Virtual Club 3,937,390 #:11, avg: 357,944
10 view Albion Rowing Club Correctional Facility 3,728,500 #:10, avg: 372,850


TEAM TIMBUK2 STARS



2506 Pat Mazzei TIMBUK2 F 400,399
2507 Len Norton TIMBUK2 M 385,013
2508 Chris Hughes TIMBUK2 M 310,079
2509 Walter Schuyler TIMBUK2 M 304,052
2510 Clark Mundt TIMBUK2 M 300,169
2511 E Lynne Fitzmorris TIMBUK2 F 289,723
2512 Robert Lee TIMBUK2 M 245,667
2513 Ryan Berkelbach TIMBUK2 M 202,793
2514 Jeff Rice TIMBUK2 M 202,680
2515 Lisa Gesinger TIMBUK2 F 169,305
2516 Tolly Allen TIMBUK2 M 158,001
2517 ALBERT CROPANESE TIMBUK2 M 157,851
2518 Edwin Varley TIMBUK2 M 149,688
2519 Steve Dudek TIMBUK2 M 139,414
2520 David Thomas TIMBUK2 M 128,573
2521 Dave Hall TIMBUK2 M 117,588
2522 Chris Tompsett TIMBUK2 M 112,250
2523 Jack Dempsey TIMBUK2 M 110,802
2524 Alison Hughes TIMBUK2 F 106,550
2525 George Mudry TIMBUK2 M 103,692
2526 Kathleen Perregaux TIMBUK2 F 97,000
2527 Christopher John Green TIMBUK2 M 92,104
2528 Don Sell TIMBUK2 M 87,569
2529 Mike O'Rourke TIMBUK2 M 86,000
2530 William Fisher TIMBUK2 M 84,128
2531 Mark Bucherl TIMBUK2 M 82,170
2532 beverly dellinger TIMBUK2 F 74,945
2533 Robert Hoffman TIMBUK2 M 72,043
2534 Rick Newton TIMBUK2 M 67,328
2535 Sandi Jump TIMBUK2 F 60,500
2536 Elizabeth Andersen TIMBUK2 F 60,123
2537 Jay Moran TIMBUK2 M 56,964
2538 Jeff Westling TIMBUK2 M 49,345
2539 Julie Rettenmund TIMBUK2 F 47,950
2540 Charlie Hughson TIMBUK2 M 45,478
2541 Bill Youtie TIMBUK2 M 44,517
2542 Tom Bellevue TIMBUK2 M 42,000
2543 Justin Freeman TIMBUK2 M 42,000
2544 Bob Storck TIMBUK2 M 41,922
2545 Robert Humphreys TIMBUK2 M 39,372
2546 Marvin Winston TIMBUK2 M 38,637
2547 Cindy Kepler Reck TIMBUK2 F 35,632
2548 Karen Morgan TIMBUK2 F 33,274
2549 Bill Johnson TIMBUK2 M 30,196
2550 Bobbie Kielma TIMBUK2 F 27,015
2551 Pat BrookhouserIII TIMBUK2 M 23,196
2552 Bryan Schreiber TIMBUK2 M 22,725
2553 Spike Clancy TIMBUK2 M 21,305
2554 Joe Gallagher TIMBUK2 M 17,470
2555 Mike Beggs TIMBUK2 M 15,160
2556 David Jerome TIMBUK2 M 15,000
2557 Michael Matkin TIMBUK2 M 12,725
2558 Irv Soloway TIMBUK2 M 12,684
2559 Jeremy Kingry TIMBUK2 M 11,364
2560 brad keimach TIMBUK2 M 10,000
2561 Frank Heredeen TIMBUK2 M 10,000
2562 Khoo Kah Beng TIMBUK2 M 7,543
2563 Petter Hartmann TIMBUK2 M 7,015
2564 Zennya Kingry TIMBUK2 F 3,018


GREAT EFFORT BY ALL!!!!!!!!!

Pat

_________________

Training :: RE: Wolverine....or just erg hard....always.

Author: PaulG
Posted: Apr 2, 2008 1:24 pm (GMT -8)
Topic Replies: 9

I'm in a similar situation as Mike365 as I started erging seriously a few months ago and have set PRs in 7 different distances every time I try. I realize these happy times will not last. I suggest you take a look at the Concept2 UK site and download their custom training program. I would be interested in what more experienced people think of these custom programs. I have been following one carefully for several weeks, and I get the feelng that it is too easy. Of course I can always go harder. With regard to rest days, I am 51 and usually do not erg two days in a row, but that may change as I feel I am getting in better shape. By the second day my legs are back and I am ready to go again. When you are just starting out I consider rest days to be very important to avoid injury and boredom.

Paul
_________________

Fishhook island « Worlds in the Upper Right Hand Corner

The lovely beaches in the middle of the sea.

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Capital requirements smackdown watch

Eric Falkenstein writes:

How much capital for derivatives? Good question. Should it be weighted by risk? If so, how does one measure risk? Considering that risk is a function of the collateral, which comes in many different flavors (traded debt, pools of mortgages, pools of bank lines), and then are structured very differently, with differing levels of subordination, differing rules for the waterfalls of cashflows depending on various metrics of collateral quality. It's a mess.

...You may think this is no different than regular lending, but you would be wrong. For example, lets say you have two swaps, but they both offset each other almost exactly for interest rate risk, but as they have different counterparties, they have differing credit risk. How about swaps from the same counterparty, but differing interest rate exposures, partially netted. How much should capital be netted? And if the US banks have capital requirements greater than economically necessary, how many seconds before all swaps would move offshore?

I take him to be saying that financial institutions can never be transparent in their risk-taking, or at least not in the sense that can be made accountable to a regulator.  Read the whole thing.  Read also Doug Colkitt's comment here.  Note by the way that Bear Stearns, at the time of its collapse, had met Basel capital requirements.

Mark Thoma writes:

I'd argue that even though Basel was not perfect it was much better than having no regulation at all...If the regulations under Basel caused banks to move assets off the books, then without regulation they wouldn't have needed to move them, but the assets still could have been used in the same way, financial institutions could have taken the same risks and would have had the same or more incentive to do so without regulatory oversight, and they could have caused the same troubles. I don't see how the regulations themselves caused the risk taking. Regulation caused evasion of regulation, and Basel II is trying to deal with that problem, but the regulations did not cause the risk-taking itself.

Currently my view is closer to Thoma's.  The case against regulation requires that derivatives risk is observable (by the bank itself, and of course if it is not observable to anyone run the other way!) but not verifiable to an outside regulator (otherwise it could be controlled by regulation).  Even in that case, however, more informal systems of regulation should work, albeit imperfectly.  Yes banks will sometimes lie and trick the regulators but at least another layer of protection is in place.

There's lot of talk about the government buying up mortagages.  Even if you favor that plan, it's a one-off measure, not a long-term solution to stop a future crisis.  There is in fact a paucity of good regulatory proposals on the table.  There are plenty of ideas for how to stop what went wrong "last time" but fewer good ideas for how to stop the next version of a financial crisis.