Pix

    Advice for the wise.  Given the swine flu, you may want to do 45 seconds.


via the always great Toffuti Break

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Mrs. Krabappel and Principal Skinner were in the closet making babies and I saw one of the babies and then the baby looked at me.
Ralph Wiggum

Squid News

Squid rampage in Japan

My Pix

Oldsmobile, London, Ontario, 1982

All of my photos are on Flickr.

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All empty souls tend toward extreme opinions
William Butler Yeats

WW2

 

Hitler's moment of greatest triumph, July 6, 1940.  France has surrendered and Hitler has achieved in less than two months what Germany could not accomplish in the 4 years of WW1. In this photo he is basking in the total adoration of an entire nation.  Had he stopped there, he would have been considered one of Germany's greatest leaders.  But as Ian Kershaw observed, he couldn't stop there.  Hitler was a gambler and he would continue making bigger and bigger bets until he lost. 

Here is Harry Truman passing the same spot in May 1945.  Truman is in the dark suit, Byrnes and Leahy are riding with him.  There's a big version at the Truman library here.  The gaggle suggests they stopped here for the photo.

 

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Politics is the science of how who gets what, when and why.
Sidney Hillman

My Pix

 

Woman and baby carrage,  Kolomenskoye, Moscow, 1993

I really like this photo.  It says "Russia" to me more than any of the others I took. 

Pix

This is floating around the Internets.  I have no idea where it comes from.  But its a fine bit of photoshopping.  This kind of thing is way harder than it looks. 

Payback

The other juicy scandal in the US concerns a Congresswoman, Jane Harmon (D-Dumbass).   She was caught in a legal FBI wiretap making a deal to try and get charges against two Israeli spys dismissed in exchange for lobbyist support for her political ambitions.  But she wasn't charged.  Instead, the Alberto Gonzales blackmailed her to support warantless wiretapping.  Nice.

Anyway, Glenn Greenwald (who is usually too over the top for my taste) evicerates Harmon with her own words.  He's not very nice, but it is certainly satisfying.

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Let’s say this slowly: the Bush administration wanted to use 9/11 as a pretext to invade Iraq, even though Iraq had nothing to do with 9/11. So it tortured people to make them confess to the nonexistent link.
Paul Krugman, April 22, 2009

Magic

There's a really interesting article at Wired about magic.  It turns out that magic takes advantage of limitations in the ways our brains work.  As Penn and Teller have discovered, even if you know what they are doing, you are still fooled.

If the article piques your interest, check out Teller's great shadow trick here.

And this demonstrates that even if they explain what they're doing, you are still fooled.

WW2

    STG44
The Sturmgewehr 44 was a relatively cheap and powerful infantry automatic weapon.  It vastly increased the soldier's volume of fire.  This was the first true assault rifle and the model for all subsequent infantry weapons.  The AK-47, in particular, was inspired  by the  STG-44, though it AK had many innovations.  Nevertheless, the STG was the model and every infantry weapon since 1944 has used the concepts it pioneered.

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I told the doctor I broke my leg in two places. He told me to quit going to those places.
Henny Youngman

My Pix

Someone in the pool, 1982.  Kodak High-Speed Infrared.

All of my photos are on Flickr.

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Never think that war, no matter how necessary, nor how justified, is not a crime.
Ernest Hemingway

Correlation & Causation

Correlation does not imply causation.  Look at that R squared in the top right corner.  Traffic deaths and lemon imports are almost perfectly correlated.  But neither causes the other.  This is a really common cognitive error, nobody is immune to it.  Humans like stories and patterns, they instinctively attribute relationships and process where none necessarily exist.  It is hard for us to accept that many things are random and unrelated.

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"I am" is reportedly the shortest sentence in the English language. Could it be that "I do" is the longest sentence?
George Carlin

Dead Cat Bounce

 

    Dow, last 12 months

The markets are up and Obama is talking about glimmers of hope.  Had the situation turned?  Is the crisis abating?  Nope.  its a dead cat bounce. Even a dead cat bounces if dropped from sufficient high.

Although specific causes like the US sub-prime mortgage market were recognized before hand, almost nobody foresaw the tremendous complexity and global nature of the coming crisis.  Even they didn't see many significant consequences.  The crisis so-far has had several important themes.

1. The US housing bubble.  Asset bubbles always burst, leaving those who borrowed against bubble prices in a ruinous position.  
2. The tremendous over leveraging by countries like Iceland, Ireland and The Ukraine.  This one is significant because it shook up the currency markets.  
3. The uncontrolled growth of European banks.  Iceland, Ireland, Switzerland, The Netherlands, France and UK have banks who's combined liabilities greater than GDP.  Iceland would have to spend all its tax dollars for the next 19 years to pay off the commitments of its failed banks. 
4. The stunning over borrowing by consumers in many key economies, especially the US.  This over-borrowing, combined with housing deflation, means a consumer-led recovery is not on.
   
5. Blatantly illegal activities by US banks.  These people should be charged under organized crime laws rather than bailed out.  Its also worth mentioning the fraud by US ratings agencies like Moody's.  
6. The Bush administration's spectacular corruption.  This may have been the most corrupt US administration of all time.  They pissed away trillions enriching themselves and their friends.  Regulation first became a joke, then a memory.
7. The US' move away from traditional debt instruments that everyone understood, to derivatives that nobody understood.  Important because the traditional instruments have withered.  Reconstituting them will take years and imply an economy with far less available debt (i.e. less growth). 
   
8. The unexpectedly global reaction to the crisis.  Nobody expected such swift or far-reaching consequences in so many different places.
9. The complexity of the debt instruments at the core of the crisis.  Its almost impossible to take them apart to determine the status of the individual loans. Take a lemon, a lime and an orange.  Put them in a blender for 1 minute on high.  Now reconstitute the three original pieces of fruit.

You may notice the overarching theme of debt.  Debt is great, especially in business.  It allows you to rent money to buy an asset.  You pay back the money but still own the asset.   What nobody foresaw was the that providing debt would become so profitable that people would start manufacturing it outright.  US investment banks, became debt factories, manufacturing derivatives like toasters.  Too  much debt pouring into consumer markets creates bubbles.

So the fundamental problem is too much debt.  This is not just a US problem, because of globalization, everyone is involved.  The solution to the crisis is for asset prices to return to sustainable values, for all the bad debt created by the asset bubble to be wound down and for new mechanisms for financing debt. Asset prices have spectacularly re-adjusted over the last year, so that's already underway. What has not happened at all is the resolution of all the bad debt or the restructuring of the debt mechanisms. Hundreds of banks around the world are sitting on piles of worthless debt.  They are like a person on life-support.  The body functions, but they are not viable.  Thus the financial crisis persists.  Obama and the rest of the G20 are frantically engineering a soft landing.  No matter what, winding up all the bad debt will take years, with lots more pain on the way.  Likewise, the re-invention of debt mechanisms will take years.

The currency impact of so much government debt has yet to become apparent.  Europe's restructuring of its banking system to be less vulnerable has not yet begun.  The decision of China and India to re-orient resources on building their domestic markets has yet to be felt in global markets.  So I'm calling recent news a dead cat bounce rather than a recovery.

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Life is too important to be taken seriously.
Oscar Wilde

My Pix

 

Spanish moss at sunrise, Jekyll Island, Georgia, 1988.

Spanish moss is one of those things, like neon signs and flags, that were made for photographing.

All of my photos are on Flickr.

The Penny Drops

I'm usually swift on the uptake, if nowhere else. But its only in the last few days that it occurred to me what Obama is taking about when he says "get the credit flowing again". On the face of it, banks have not stopped lending. If that were the case, few cars or houses would be sold in the US, and a large percentage of businesses would have gone out of business. An apocalypse, in other words. Things are bad, but so-far, not apocalyptic.

The general problem for US banks has been that they have massive amounts of Collateralized Debt Obligations* (CDOs) on their books which have little or no value. These represent unrealized losses. Nobody knows what they are worth, if anything. When the banks have to finally account for these "assets" some of the big ones will go broke. Additionally, interbank lending is said to be down substantially. This cannot be true in the traditional sense, or the whole system would have frozen up. This was a real possibility in October, but less so now. So what's Obama talking about? New CDOs.

Over the last 10 years, CDOs became the vehicle for financing all kinds of US consumer loans, most prominently mortgages. But CDOs came to include credit card debt, student loans, car loans and all kinds of other consumer lending. These loans were sliced and diced with magic tricks that turned them into virtually risk-free investments for mutual funds, hedge funds, retirement funds, schools and municipalities. The process became a money machine for everyone involved, including the consumers that took out the loans. Obviously, the magic tricks turned out to be imaginary, and the slicing and dicing has only served to make the CDOs completely opaque. Take a slice of any CDO floated by anyone in the last five years. What's it worth? Nobody knows. More importantly, nobody can know because their structure is too byzantine for anyone to figure out. It will be sorted out eventually, but that could take years.

In the meantime, nobody wants to buy any new CDOs. The mighty CDO market that brought unlimited debt to US consumers has almost completely shut down. That's what Obama means when he talks about freeing up the credit markets. He's trying to put Humpty Dumpty back together. It probably won't work, but not positively. So there is a clever political calculation involved. As a new President, his choice is to tell Americans that they need to give up the growth and prosperity they enjoyed in the last 20 years, or he can try to restore the status quo. In a general sense, he can't be blamed for trying as long as he doesn't make a mess of it. He could, however, be blamed for not trying. Americans won't accept a new, lower, standard of living unless they believe there is no choice. The political problem is potentially larger than the economic problem, but its not on the mass media radar yet, so nobody's talking about it. But Obama's thinking about it. I like that. It means that even if he is unsuccessful at getting the parade rolling again, he may retain enough political capital for plan B, whatever that turns out to be.

Incidentally, this thesis explains the Europeans' disagreement with the US over how to handle bad assets. Their banks are in the same shape, but most European economies don't depend on easy consumer credit like the US. Those who did, like Ireland, Greece and Hungary, are in deep trouble. Those that didn't, like Germany, don't see the point of spending trillions to resuscitate a discredited system they don't depend on.

*There's a great 11 minute film that explains CDOs, previously posted here.