Click on WORD or PDF for full content
It seems there are two components to the causes of our current economic distress. The first, was affirmative action in mortgages. It had the same toxic effects affirmative action has had in the field of education, but in education there is no objective market mechanism to say, “This is bullshit.” So it can run along forever. However, there’s no ‘pretend’ option in the economy, so eventually the bad loans were found out. The second component, one harder to understand, is how the affirmative action mortgage bacillus infected the whole economy of the whole world. An article from Wired is one of the best attempts Pickerhead has seen in providing that understanding.
… Yet during the ’90s, as global markets expanded, there were trillions of new dollars waiting to be put to use lending to borrowers around the world—not just mortgage seekers but also corporations and car buyers and anybody running a balance on their credit card—if only investors could put a number on the correlations between them. The problem is excruciatingly hard, especially when you’re talking about thousands of moving parts. Whoever solved it would earn the eternal gratitude of Wall Street and quite possibly the attention of the Nobel committee as well.
To understand the mathematics of correlation better, consider something simple, like a kid in an elementary school: Let’s call her Alice. The probability that her parents will get divorced this year is about 5 percent, the risk of her getting head lice is about 5 percent, the chance of her seeing a teacher slip on a banana peel is about 5 percent, and the likelihood of her winning the class spelling bee is about 5 percent. If investors were trading securities based on the chances of those things happening only to Alice, they would all trade at more or less the same price.
But something important happens when we start looking at two kids rather than one—not just Alice but also the girl she sits next to, Britney. If Britney’s parents get divorced, what are the chances that Alice’s parents will get divorced, too? Still about 5 percent: The correlation there is close to zero. But if Britney gets head lice, the chance that Alice will get head lice is much higher, about 50 percent—which means the correlation is probably up in the 0.5 range. If Britney sees a teacher slip on a banana peel, what is the chance that Alice will see it, too? Very high indeed, since they sit next to each other: It could be as much as 95 percent, which means the correlation is close to 1. And if Britney wins the class spelling bee, the chance of Alice winning it is zero, which means the correlation is negative: -1.
If investors were trading securities based on the chances of these things happening to both Alice and Britney, the prices would be all over the place, because the correlations vary so much.
But it’s a very inexact science. Just measuring those initial 5 percent probabilities involves collecting lots of disparate data points and subjecting them to all manner of statistical and error analysis. Trying to assess the conditional probabilities—the chance that Alice will get head lice if Britney gets head lice—is an order of magnitude harder, since those data points are much rarer. As a result of the scarcity of historical data, the errors there are likely to be much greater.
In the world of mortgages, it’s harder still. What is the chance that any given home will decline in value? You can look at the past history of housing prices to give you an idea, but surely the nation’s macroeconomic situation also plays an important role. And what is the chance that if a home in one state falls in value, a similar home in another state will fall in value as well? …
London Times editors appraise the president’s first month.
… It is a political commonplace that you campaign in poetry and govern in prose. But the sound of Mr Obama’s prose has begun to jangle. “Now is the time,” he said lulling his congressional audience, “to act boldly and wisely – to not only revive this economy, but to build a new foundation for lasting prosperity.” The trouble is that this wasn’t the first time that Mr Obama told Americans that “it’s time to act”. Nobody doubts that now, in the teeth of the cruelest economic crisis in decades, it is time to act. But the world is still not clear what actions Mr Obama plans to take. What unnerves it even more is that when he has acted, his judgment has not always matched the sturdiness of his campaign rhetoric, let alone its slick, skilful execution. He has been ambushed in traps too often of his own making. …
Union-Leader editors too.
In nine words of his Wednesday night address to Congress, President Barack Obama proclaimed that he was not for big government. In the remaining 5,893 words, he proved those nine untrue.
The agenda the President put forward is the largest expansion of the federal government at least since the Great Society and probably since the New Deal. It would not simply pump short-term cash into the economy and the credit markets. It would fundamentally reorder America’s relationship with Washington.
Worse, it would do so in ways that are economically destructive. …
NewsBusters has more on Bill Moyers.
… Moyers has a reason to hope that everyone under 60 forgets, after all his PBS moralizing on shows with titles like The Secret Government, and after suggesting Reagan should be impeached for Iran-Contra dishonesty in a documentary suggestively titled High Crimes and Misdemeanors.
The more that uncooperative writers peek under the rocks of Bill Moyers in government service, the phonier he looks. He looks, unsurprisingly, like a Democratic hack who became a Democratic hack media star on PBS, a network launched by LBJ’s Democratic hacks.
The Economist reports Atlas Shrugged is selling especially well during triple T. (These Troubled Times)
Click on WORD or PDF for full content