Understanding liquidity risk

A few generations ago, savers responded to financial panics with runs on banks, and even healthy institutions could fail if they could not raise enough cash quickly enough.

For a long time, that all seemed to be safely relegated to the past. But now the runs are back — and this time the targets are not banks but the securities that have replaced them as the prime generators of credit in the new financial system.

“Our current system of levered finance and its related structures may be critically flawed,” said William H. Gross, the chief investment officer of Pimco, a mutual fund company. “Nothing within it allows for the hedging of liquidity risk, and that is the problem at the moment.”

A New Kind Of Bank Run Tests Old Safeguards (New York Times, August 10, 2007)

The Economist on conservative American malaise

The Republican Party is only the most visible part of the American right. The right's hidden strength lies in its conservative base. America is almost unique in possessing a vibrant conservative movement. Every state boasts organisations fighting in favour of guns and against taxes and abortion. The Christian right can call upon megachurches and Evangelical colleges. Conservatives have also created a formidable counter-establishment of think-tanks and pressure groups.

[...]

Yet today this mighty movement is in deep trouble. Veteran activists are sunk in gloom (“I've never seen conservatives so downright fed up,” says Richard Viguerie, a conservative stalwart). And the other side is cock-a-hoop. Stanley Greenberg, a Democratic pollster, describes the shift from conservatism as “breathtaking”.

[...]

In 2002 the electorate was equally divided between Democrats and Democratic-leaners (43%) and Republicans and Republican-leaners (43%). Today only 35% align themselves with Republicans, and 50% with Democrats. The Republicans are doing particularly badly among independents (the fastest-growing group in the electorate) and younger voters. The proportion of 18-25-year-olds who identify with the Republican Party has declined from 55% in 1991 to 35% in 2006, according to Pew. Tony Fabrizio, a Republican pollster, notes that the share of Republican voters aged 55 and over has increased from 28% in 1997 to 41% today, whereas the share aged 18-34 has fallen from 25% to 17%. No wonder Ken Mehlman, a former Republican Party chairman who oversaw George Bush's 2004 victory, is now advising hedge funds on how to deal with a Democratic-leaning America.

The American Right: Under the Weather (The Economist, August 9, 2007)

FQ (Feminism Quotient)

You Are 74% Feminist

You are certainly a feminist - whether you know it or not. You believe in gender equality, at least most of the time. You also believe there are a few exceptions.

Are You a Feminist?

The "exceptions" I probably got gigged on... I think the guy should pay on dates (sue me) and I object to women as, e.g., firefighters or infantry, so I can't say with honesty that I think women and men are equally suited for *every* job in the world.

Hat tip: Rachel, 84% Feminist

Subway Lockdown

Yesterday was interesting in New York City. 

All it took was about three inches of rain in three hours to bring the nation's largest mass transit system to its knees.

Subway tracks were swamped, buses were overwhelmed and commuter trains were held up for hours because of flooding Wednesday. Some roads became waterways, and one woman was killed in a car accident during the storm.

The weather also created problems for the region's airports, where delays of up to an hour were reported, and thousands of people throughout the region lost electricity for part of the day.

NYC storm leaves mess, and questions (AP via Yahoo)

Thank God, Carrie and I have jobs that can be done from home rather easily, and all the equipment that we need to do that. (For about four years, both of us worked, simultaneously, out of our tiny Greenwich Village apartment; it was our home *and* our office.)

We hunkered down in the air conditioning, connected remotely to our computers at our workplaces, and got a good day's work in.

On a normal, dry day, NYC pumps a lot of water out of its subway tunnels... that's just part of having an underground transportation system.  

It seems to me that the MTA needs some outside help in figuring out how to keep heavy rains from shutting down the transportation system for an entire metropolitan region, though.

Funny observation of the day

In an otherwise unremarkable and implausible post declaring Huckabee's likely success as GOP presidential nominee:

"The cat has already curled up on the bed of the McCain campaign..."

(see also)

Le grand saut

The article is not available online, dammit... but connoisseurs of extreme sports, eccentricity, skydiving and/or spaceflight would do well to get their hands on a copy of the August 13, 2007 edition of The New Yorker, and turn straight to page 58, where a long article by Burkhard Bilger introduces us to retired French paratroop colonel Michel Fournier, age 63.

Later this summer, Col. Fournier plans to attempt to parachute safely to Earth, wearing a pressure suit, from a height of twenty-five miles.

Excerpt from online abstract:

Michel Fournier has fallen from thirty-nine thousand feet (a French record), but he longs to go much higher. His record jump was just a warmup, he says, for what he calls the Great Leap: the highest, longest and fastest jump ever attempted. Fournier is a retired colonel in the French Army. He has made more than eight thousand jumps. Tells about his exercise regimen, which includes yoga, calisthenics, marksmanship. The Great Leap was conceived in the nineteen-eighties by the French Ministry of Defense and later co-sponsored by the French space agency. Its primary goal was to test parachutes and other equipment for pilots and astronauts. Tells how Fournier, who served in the French army in Algeria, came to be one of the three candidates for the Great Leap. The project was put on hold in 1988. In 1992, he quit the Army, sold his house, and purchased the mothballed equipment from the defense ministry. Over the past fifteen years, he has raised more than eleven million dollars.

Meet "Dr. Gourmet"

Timothy Harlan is a trained chef and practicing physician. (Naturally, he practices in New Orleans!)

At his site, Dr. Gourmet, he offers recipes and advice:

Working as a caterer throughout [Emory Medical] school, he continued to be involved with food and cooking but noticed a lack of knowledge in the medical field about eating healthy and eating well. Neither patients nor health care providers understood much about a healthful diet. Patients, it seemed, were usually told not what they could eat but, rather, what they could not eat.

Indeed. Aside from registered dietitians--and they are, pardon the expression, thin on the ground--very few medical folks seem to have solid medical-nutritional chops. I've bookmarked the site and plan to try some of the recipes.

Maps of War: A History of the Middle East in the progression of empires

This is good. (So is everything else at the MapsOfWar.com site.)

(Hat tip: Doc.)

An American VAT?

Bruce Bartlett, guestblogging at Andrew Sullivan's this week, is a big proponent of consumption-based taxes (a Value Added Tax, or VAT, such as is in common use throughout the European Union.)

He gets off a pretty good line at the end of a post, paraphrasing Lawrence Summers:

To put the issue more succinctly, let me quote Larry Summers, who once said something to this effect. We don't have a VAT because liberals think it is regressive--it takes more in percentage terms from the incomes of the poor--and conservatives think it is a money machine. We will have a VAT, Summers went on, when liberals figure out that it is a money machine and conservatives realize that it is regressive.

Wiser words were never spoken on this topic.

If Aesop had lived on the Upper West Side...

The Fox and the Goat

A fox is offered free tickets from Cindy in P.R. She drops them off after lunch, and the fox is dismayed to find that they are for an experimental Swedish dance company called Leøtåård. He takes the tickets to the goat in the next cubicle. “Leøtåård?” says the goat. “I’ve never heard of them.” “I saw them last week,” coos the fox. “The Scandinavian Alvin Ailey. I’ll give them to you for ten bucks.” And so, while the goat spends the evening in a dank underground space off Avenue C, the fox goes to Ollie’s and spends the ten dollars on lo mein. Sure enough, the performance is awful and the goat gets a massive strobe-light headache. Still, inexplicably, he puts his name on the e-mail list.

Moral: Always check the Web site.

Shouts and Murmurs: Aesop in The City (The New Yorker, Yoni Brenner, August 13, 2007)

Billions for "homeland security"... but how much for homeland infrastructure?

The tragic rush-hour collapse in Minneapolis of the I-35W Bridge over the Mississippi River is again forcing a reexamination of the nation's approach to maintaining and inspecting critical infrastructure.

According to engineers, the nation is spending only about two-thirds as much as it should be to keep dams, levees, highways, and bridges safe. The situation is more urgent now because many such structures were designed 40 or 50 years ago, before Americans were driving weighty SUVs and truckers were lugging tandem loads.

It all adds up to a poor grade: The American Society of Civil Engineers gave the nation a D in 2005, the latest report available, after assessing 12 categories of infrastructure ranging from rails and roads to wastewater treatment and dams.

"Bridge collapse spotlights America's deferred maintenance," Christian Science Monitor, August 3, 2007

A bridge collapse in Minneapolis. A steam pipe explosion in midtown Manhattan. A catastrophic levee failure in New Orleans...

Homeland Security dollars are being spent in a way that would make any self-respecting drunken sailor blush.

In the meantime, we aren't spending the necessary funds to maintain our roads, bridges, and our power, water and waste treatment infrastructure.

Our old, overloaded, decaying power grid struggles to keep up with demand and is incredibly vulnerable to failure (I *can't believe* that the 2003 Northeast Blackout, which took an enormous swath of the US and part of Canada out of service for up to four days, depending on where you lived, was not a wakeup call.)

Ye gods, what I wouldn't give for a real conservative candidate to step up and make this an issue.

Conservation and responsible stewardship of infrastructure is a bedrock issue, and one that allegedly fiscally responsible adults ought to be mighty damned interested in.

"The legacy of a director who never said no to anybody"

On September 17, 2001, President Bush signed a secret Presidential finding authorizing the C.I.A. to create paramilitary teams to hunt, capture, detain, or kill designated terrorists almost anywhere in the world. Yet the C.I.A. had virtually no trained interrogators...

[...]

The C.I.A. knew even less about running prisons than it did about hostile interrogations. Tyler Drumheller, a former chief of European operations at the C.I.A., and the author of a recent book, “On the Brink: How the White House Compromised U.S. Intelligence,” said, “The agency had no experience in detention. Never. But they insisted on arresting and detaining people in this program. It was a mistake, in my opinion. You can’t mix intelligence and police work. But the White House was really pushing. They wanted someone to do it. So the C.I.A. said, ‘We’ll try.’ George Tenet came out of politics, not intelligence. His whole modus operandi was to please the principal. We got stuck with all sorts of things. This is really the legacy of a director who never said no to anybody.”

Many officials inside the C.I.A. had misgivings. “A lot of us knew this would be a can of worms,” the former officer said. “We warned them, It’s going to become an atrocious mess.” The problem from the start, he said, was that no one had thought through what he called “the disposal plan.” He continued, “What are you going to do with these people? The utility of someone like [Khalid Sheikh Mohammed] is, at most, six months to a year. You exhaust them. Then what? It would have been better if we had executed them.”

"The Black Sites," The New Yorker, August 13 2007

Happy Birthday, Pops!

Today is Louis Armstrong's birthday.

Bibliomulas

I always loved the Bookmobile when I was little.

If it had been a book-toting mule, and it had been the only way that I could have gotten my hands on a book, how much more would I have loved it?

Coloring text in Wikipedia on the basis of trust (demo)

In this demo, the text background of Wikipedia articles is colored according to a value of trust, computed from the reputation of the authors who contributed the text, as well as those who edited the text.

• The demo contains only a few hundred pages. Click on Random page to get to an existing page, and once there, click on Random page on the left-hand side to get to other pages.

• Text on white background is trusted text; text on orange background is untrusted text. Intermediate gradations of orange indicate intermediate trust values.

• The history is colored as well, and it is the most interesting thing to look at. Click on history, click on a revision, then click the older and newer buttons. You can see how edits initially have a trust value that depends on the author, and gain (or, occasionally, lose) in trust as the page is revised.

UCS Wiki Lab - The Wikipedia Trust Coloring Demo

DIY sub builder meets the NYPD

What began as an unorthodox art project has become a law-enforcement headache today and the talk of the New York blogosphere.

Duke Riley, a heavily tattooed Brooklyn artist whose waterborne performance projects around the city have frequently landed him in trouble with authorities, spent the last five months building a makeshift submarine — a partial replica of what may be America’s earliest submarine, an oak sphere called the Turtle, which saw action (not particularly successful action) in New York Harbor during the Revolutionary War.

The wood and fiberglass submarine, which was launched into the New York Harbor, made its way toward a far larger vessel — the Queen Mary 2, one of the largest ocean liners in the world, which was docked at the cruise ship terminal in the Buttermilk Channel off Red Hook, Brooklyn.

What happened next was a delicate mixture of performance art and domestic security.

NY Times CityRoom Blog: One Mans Art (a Submarine?) Runs Into Trouble

Bear Stearns: Yahoo needs a social networking strategy

Courtesy of TechCrunch:

There is a bit of buzz around the presentation Bear Stearns Internet analyst Robert Peck gave a couple of days ago. It recommends a broad strategy for Yahoo to get their act together in the social networking space, and recommends a near term acquisition of one of the big players.

I’ve embedded the full presentation below. It is a broad overview of social networking in general, which Peck breaks down into four distinct types...

Cashing in on the Carry

The most controversial tax break on Wall Street, known simply as the Carry, is not authorized by any law and was never approved by Congress.

Instead, it grew quietly over several decades, hinted at but never directly addressed in obscure court cases and arcane regulations issued by the Internal Revenue Service.

Unchallenged by lawmakers, it swelled into a benefit that, by one back-of-the-envelope estimate, spares a small band of the country's richest and most powerful financiers $6 billion a year in personal income taxes.

Wall Street's Lucrative Tax Break Is Under Fire (Washington Post, 3 August 2007)

In a nutshell, here's how it works: fund managers and venture capitalists and those sort of folks arrange to receive much of their compensation as "carried interest," which is then taxed at capital gains rates (15%) instead of the twice-as-high (for their income bracket) personal income tax rates.

I agree with Judge Learned Hand on the subject of taxes: "Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."

Further, I think that low capital gains tax rates, which encourage investment, are a social good.

But the private-equity managers who are cashing in on the carried-interest loophole are, for the most part, not investing and managing their own money; they're performing services on the behalf of others. In other words, they're doing a job and being compensated for it.

As a society, we would do well to abolish the fiction that fees earned for managing hedge funds and performing other feats of financial engineering aren't "income" or shouldn't be taxable as such.

The Return of the Mountain Philosopher

Out of the comments section, back on his blog... look who's back.

Reactions from (the) Wall Street (Journal)

“It’s sad,” said a veteran reporter at one of the domestic bureaus, who did not want to be named because of concerns over his career. “We held a wake. We stood around a pile of Journals and drank whiskey.”