I don't know Borjas or quant details. But even without going into gory math there are some things that look obviously wrong by inspection, or more accurately approximations not intended to be universally true. Here's a well known example:
The fixed is a clearly only a first order cut at deorthogonalizing the system. Fine when used as an approximation, but for a better model you need a functional form, and how are you going to get that, especially as it is certain to depend on external variables? And if you're going to be predictive, you must have a better model.
When this formula is used, are the F's assumed or measured? Measured will still have issues (time behavior), assumed can be really problematic.
There's no acknowledgment of distributions changing on different timescales. I haven't seen much quant math, but most of what I have seen is in the frequency domain. What little I've seen in the time domain appears to be Markovian (various Monte Carlo exercises), which we know cannot be generally true. There also seems to be an assumption that the system is frictionless.
Now none of these things are showstoppers if you're using the formula for analysis (as opposed to prediction). But it seems more like people didn't care about the details, weren't interested in taking the time to look too closely, because it appeared to work and they had to Make Money Now. Besides, if they looked too closely they might not have liked what they found. So to me the problem isn't in the math, it's in the money managers
the entire derivatives market itself, it's unknown but I recall estimates around $65 trillion. So that number is ~ what we're talking about with TARP.
I put in the post the COP reporting estimates from stress tests and I'm quoting from memory from economists like Roubini, originally it was about $3.4 trillion or so, but the actual risk as the SIGTARP reported was $23.7 trillion, at risk.
These are the ones up for PPIP that I'm talking about.
My memory may be off, but wasn't that $1.5 trillion referring specifically to the credit default swap category only, not to the entire amount of credit derivatives on hand? (And just wait until that cap-and-trade legislation kicks in.)
That might have worked, except for Uncle Ben hypothesizing that most mortgages eventually get paid over their term. All the debate over mark-to-market created smokescreens that allowed the can to be kicked down the road, and now we are down the road a piece. Wonder if Mr. Paulson would be interested in buying that AIG paper from the Fed?
I believe it's around $1.5 trillion, they vary widely but I have not hear anything like $100 trillion anywhere.
Roubini has estimated them as have others and I believe I read the writedowns so far are about ~50% or less, the rest are on the books (in mark-to-market accounting fiction land).
But of course that's not the impeding CRE implosion. Midtowng has some great blog posts on here on CRE.
It looks like Bloomberg is finally picking up on the Enron accounting going on at banks.
Check out the footnotes to Regions Financial Corp.’s latest quarterly report, and you’ll see a remarkable disclosure. There, in an easy-to-read chart, the company divulged that the loans on its books as of June 30 were worth $22.8 billion less than what its balance sheet said. The Birmingham, Alabama-based bank’s shareholder equity, by comparison, was just $18.7 billion.
So, if it weren’t for the inflated loan values, Regions’ equity would be less than zero. Meanwhile, the government continues to classify Regions as “well capitalized.”
...
While Regions may be an extreme example of inflated loan values, it’s not unique. Bank of America Corp. said its loans as of June 30 were worth $64.4 billion less than its balance sheet said. The difference represented 58 percent of the company’s Tier 1 common equity, a measure of capital used by regulators that excludes preferred stock and many intangible assets, such as goodwill accumulated through acquisitions of other companies.
Wells Fargo & Co. said the fair value of its loans was $34.3 billion less than their book value as of June 30. The bank’s Tier 1 common equity, by comparison, was $47.1 billion.
Oh yeah, and on the Obama Administration's derivatives "regulation" - remember, the clearing house they will use will be ICE US Trust - and who owns ICE US Trust???
Early on the best way to approach this problem was for TARP to buy these mortgages directly and truly modify these mortgages to make them affordable. They failed to do that. Now the problem has gotten a lot worse.
Obama's loan modification program has failed miserably because financial conglomerates were holding out for a sweeter deal.
I'm making some assumptions, based upon much reading across the spectrum:
Assumption 1: With a report $100 to $200 trillion of toxic securitized assets exposure by JPMorgan Chase, Citi, BofA, Goldman Sachs and Morgan Stanley (note the lack of mention of any GSEs and A.I.G., etc.) things don't look too promising;
Assumption 2: The TARP funds have gone primarily to speculating, the stock market indirectly (thus pumping it up in the short term) and buy T-bills; and,
Assumption 3: Those commercial loans coming due for default - which the marvelous Elizabeth Warren mentioned (great interview, and I truly like this woman now, just as I truly admired Brooksley Born, but we know how that went)- will continue this so-called recovery phase of continuing unemployment and malaise well into the future (say 10 to 20 years plus).
No graphs, I'm afraid, just an intuitive pattern analysis from copious amounts of chart reading.
It just doesn't add up for me considering the amount of money we're talking about dumped into just these banks. I've been very surprised on a lot of data lately, and looking for places...was I wrong in my assumptions? How the hell is a recovery happening with that kind of hit to the economy? So on.
That was on "Morning Joe", which is supposed to model the morning coffee and newspapers type of kitchen table.
Watch that entire interview, it's really informative and myself, I like it when anyone from D.C. comes up with quips, one liners and acts a little more like a regular citizen when communicating...
I don't think she has gone far enough in bluntness and it's clear she entered the wicked world of D.C. politics in all of this.
I noticed, despite COP's very good use of online media, boiling the complexity down into very understandable summaries, overviews, etc..
The actual people watching these is very low...whereas, all one has to do is go on a talk show and hits 500,000 viewers. So, TV still rules and getting the focus on TARP, auditing, monitoring, what is really going on is getting increasingly difficult. I think everyone just wishes it all would go away like a bad dream.
is reflexive in nature meaning that it's prone to moments when it's increases not based on information but just a reflection of itself. It ignores fundamentals such earnings quality and fact that billions of dollar of toxic assets are still on the books with no significant improvement in economic conditions.
That’s because there’s still a world of hurt for Citi in the $83.2 billion in subprime mortgage-backed securities, corporate loans, home loans and commercial real estate mortgages that the bank’s finance team has stuffed neatly into something called the “Special Asset Pool.”
But there’s nothing special at all about these assets. This cesspool of toxic securities and floundering loans is the worst of the stuff that’s been stinking up Citi’s balance sheet.
I have also found it quite surprising how supposedly stabilized things are. But I have learned to never underestimate how much a rising stock market can blind people from the truth. None of these problems with the banks have truly been solved; they have just kicked the can further down the road. Ultimately we will have to deal with the consequences of these reckless actions.
of this mess. If they can do that then holding these toxic assets will be OK because eventually the value will return to them. That is the assumption and the BIG gamble.
It is a gamble that the financial oligarchy wants. They know that even if things don't return to "normal" there will the gov't to bail them out again. Great gamble w/ very little downside to it. Hedge funds and private equity see this gamble and that is why they are going "all in" on the financial sector. Just this morning in FT it was reported that big hedge fund - Paulson & Co. acquired a 2% stake in BofA and holding in many other financial conglomerates and banks.
They see the gamble - acquire these companies very cheap and even if it tanks there will be some return because of gov't bailouts and the upside will be huge.
BTW, I think Prof. Warren is doing a great job but she doesn't have to use those one liners to describe the situation. She should leave that to us. She should stay above the fray and investigate.
I think one truly can see these results in the equations. Look at the reads section (in EP menu), Gomory is a very good example of use of trade theory equations and showing that it's right there in the math, which says under certain conditions, certain variables trade is not a "win-win" as portrayed.
These are the types of things I am looking at. Take George Borjas, he shows repeatedly, with mathematics that increases in immigration will cause wage repression at certain levels.
So, this site has not delved into any heavy theory or use of equations and as you know I just added mimeTeX so we could....
So I think this is where the misunderstanding lies and from your comments I believe you can handle reading Gomory (he has a descriptive text but the second half of the book is completely mathematics).
when he said "A hundred experiments will not prove me right; a single experiment can prove me wrong".
Science is all about pragmatism: it tests hypotheses, and if the hypothesis fails, modify or try again. If it doesn't, go with it until it does fail. A theory may pass with flying colors for centuries, until technology improves enough to test it to failure. Classical mechanics is a prime example: it passed innumerable tests, but now we know it is fundamentally incorrect. It is still useful, for many things far more useful than quantum mechanics, and it is still taught at the graduate level (and it would be nice if more people understood it) -- but we know it fails at a very basic level. Math does proofs, science doesn't. Science does what works, math ... well, sometimes the connection to the real world can get a bit tenuous.
This isn't about anger or cynicism: I'm a physical scientist, not a pure mathematician, I'm more interested in understanding (even if poorly) how things work than in beautiful elegant proofs of what may be completely unrealistic. No doubt a mathematician might pose it otherwise.
I don't know Borjas or quant details. But even without going into gory math there are some things that look obviously wrong by inspection, or more accurately approximations not intended to be universally true. Here's a well known example:
The fixed
is a clearly only a first order cut at deorthogonalizing the system. Fine when used as an approximation, but for a better model you need a functional form, and how are you going to get that, especially as it is certain to depend on external variables? And if you're going to be predictive, you must have a better model.
When this formula is used, are the F's assumed or measured? Measured will still have issues (time behavior), assumed can be really problematic.
There's no acknowledgment of distributions changing on different timescales. I haven't seen much quant math, but most of what I have seen is in the frequency domain. What little I've seen in the time domain appears to be Markovian (various Monte Carlo exercises), which we know cannot be generally true. There also seems to be an assumption that the system is frictionless.
Now none of these things are showstoppers if you're using the formula for analysis (as opposed to prediction). But it seems more like people didn't care about the details, weren't interested in taking the time to look too closely, because it appeared to work and they had to Make Money Now. Besides, if they looked too closely they might not have liked what they found. So to me the problem isn't in the math, it's in the money managers
Scientific theories always have to be able to stand the test every time they're used. That's how it should be.
the entire derivatives market itself, it's unknown but I recall estimates around $65 trillion. So that number is ~ what we're talking about with TARP.
I put in the post the COP reporting estimates from stress tests and I'm quoting from memory from economists like Roubini, originally it was about $3.4 trillion or so, but the actual risk as the SIGTARP reported was $23.7 trillion, at risk.
These are the ones up for PPIP that I'm talking about.
My memory may be off, but wasn't that $1.5 trillion referring specifically to the credit default swap category only, not to the entire amount of credit derivatives on hand? (And just wait until that cap-and-trade legislation kicks in.)
That might have worked, except for Uncle Ben hypothesizing that most mortgages eventually get paid over their term. All the debate over mark-to-market created smokescreens that allowed the can to be kicked down the road, and now we are down the road a piece. Wonder if Mr. Paulson would be interested in buying that AIG paper from the Fed?
Frank T.
I believe it's around $1.5 trillion, they vary widely but I have not hear anything like $100 trillion anywhere.
Roubini has estimated them as have others and I believe I read the writedowns so far are about ~50% or less, the rest are on the books (in mark-to-market accounting fiction land).
But of course that's not the impeding CRE implosion. Midtowng has some great blog posts on here on CRE.
It looks like Bloomberg is finally picking up on the Enron accounting going on at banks.
Oh yeah, and on the Obama Administration's derivatives "regulation" - remember, the clearing house they will use will be ICE US Trust - and who owns ICE US Trust???
Early on the best way to approach this problem was for TARP to buy these mortgages directly and truly modify these mortgages to make them affordable. They failed to do that. Now the problem has gotten a lot worse.
Obama's loan modification program has failed miserably because financial conglomerates were holding out for a sweeter deal.
RebelCapitalist.com - Financial Information for the Rest of Us.
I'm making some assumptions, based upon much reading across the spectrum:
Assumption 1: With a report $100 to $200 trillion of toxic securitized assets exposure by JPMorgan Chase, Citi, BofA, Goldman Sachs and Morgan Stanley (note the lack of mention of any GSEs and A.I.G., etc.) things don't look too promising;
Assumption 2: The TARP funds have gone primarily to speculating, the stock market indirectly (thus pumping it up in the short term) and buy T-bills; and,
Assumption 3: Those commercial loans coming due for default - which the marvelous Elizabeth Warren mentioned (great interview, and I truly like this woman now, just as I truly admired Brooksley Born, but we know how that went)- will continue this so-called recovery phase of continuing unemployment and malaise well into the future (say 10 to 20 years plus).
No graphs, I'm afraid, just an intuitive pattern analysis from copious amounts of chart reading.
It just doesn't add up for me considering the amount of money we're talking about dumped into just these banks. I've been very surprised on a lot of data lately, and looking for places...was I wrong in my assumptions? How the hell is a recovery happening with that kind of hit to the economy? So on.
That was on "Morning Joe", which is supposed to model the morning coffee and newspapers type of kitchen table.
Watch that entire interview, it's really informative and myself, I like it when anyone from D.C. comes up with quips, one liners and acts a little more like a regular citizen when communicating...
I don't think she has gone far enough in bluntness and it's clear she entered the wicked world of D.C. politics in all of this.
I noticed, despite COP's very good use of online media, boiling the complexity down into very understandable summaries, overviews, etc..
The actual people watching these is very low...whereas, all one has to do is go on a talk show and hits 500,000 viewers. So, TV still rules and getting the focus on TARP, auditing, monitoring, what is really going on is getting increasingly difficult. I think everyone just wishes it all would go away like a bad dream.
is reflexive in nature meaning that it's prone to moments when it's increases not based on information but just a reflection of itself. It ignores fundamentals such earnings quality and fact that billions of dollar of toxic assets are still on the books with no significant improvement in economic conditions.
RebelCapitalist.com - Financial Information for the Rest of Us.
Citi's Dirty Asset Pool:
RebelCapitalist.com - Financial Information for the Rest of Us.
I have also found it quite surprising how supposedly stabilized things are. But I have learned to never underestimate how much a rising stock market can blind people from the truth. None of these problems with the banks have truly been solved; they have just kicked the can further down the road. Ultimately we will have to deal with the consequences of these reckless actions.
of this mess. If they can do that then holding these toxic assets will be OK because eventually the value will return to them. That is the assumption and the BIG gamble.
It is a gamble that the financial oligarchy wants. They know that even if things don't return to "normal" there will the gov't to bail them out again. Great gamble w/ very little downside to it. Hedge funds and private equity see this gamble and that is why they are going "all in" on the financial sector. Just this morning in FT it was reported that big hedge fund - Paulson & Co. acquired a 2% stake in BofA and holding in many other financial conglomerates and banks.
They see the gamble - acquire these companies very cheap and even if it tanks there will be some return because of gov't bailouts and the upside will be huge.
BTW, I think Prof. Warren is doing a great job but she doesn't have to use those one liners to describe the situation. She should leave that to us. She should stay above the fray and investigate.
RebelCapitalist.com - Financial Information for the Rest of Us.
I think one truly can see these results in the equations. Look at the reads section (in EP menu), Gomory is a very good example of use of trade theory equations and showing that it's right there in the math, which says under certain conditions, certain variables trade is not a "win-win" as portrayed.
These are the types of things I am looking at. Take George Borjas, he shows repeatedly, with mathematics that increases in immigration will cause wage repression at certain levels.
So, this site has not delved into any heavy theory or use of equations and as you know I just added mimeTeX so we could....
So I think this is where the misunderstanding lies and from your comments I believe you can handle reading Gomory (he has a descriptive text but the second half of the book is completely mathematics).
let's not
an argument.
(;))
proof as in with mathematical models, the theory as well as the evidence, the statistics.
So, let's switch to evidence.
when he said "A hundred experiments will not prove me right; a single experiment can prove me wrong".
Science is all about pragmatism: it tests hypotheses, and if the hypothesis fails, modify or try again. If it doesn't, go with it until it does fail. A theory may pass with flying colors for centuries, until technology improves enough to test it to failure. Classical mechanics is a prime example: it passed innumerable tests, but now we know it is fundamentally incorrect. It is still useful, for many things far more useful than quantum mechanics, and it is still taught at the graduate level (and it would be nice if more people understood it) -- but we know it fails at a very basic level. Math does proofs, science doesn't. Science does what works, math ... well, sometimes the connection to the real world can get a bit tenuous.
This isn't about anger or cynicism: I'm a physical scientist, not a pure mathematician, I'm more interested in understanding (even if poorly) how things work than in beautiful elegant proofs of what may be completely unrealistic. No doubt a mathematician might pose it otherwise.
I throw in plenty of rage, dismay and sarcasm in every post...but hey, I'm a math head. Since when doesn't science prove a hypothesis?
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