Tsunami

I'm trying to work on a presentation for next week, with
around 20 ppt presentations open as I shuffle slides around,
but I keep going back to various news sites to see what is
happening in Japan. The videos of the tsunami are much worse
on the net, when they showed the water crossing farmland on
CNN friday it looked like a thin film of water seeping across
fields.

My scale was wrong, watching the full video on
the web, the water is carrying houses and cars and even a
boat that must have set the record for farthest inland boat.
In the video, finally the water approches another town with
a highway with cars that are stopping because they see that
the thin film of water is bearing down on them. One white
car pulled off the road, reversed direction and was last seen
leaving ahead of the water, but the helicopter cameraman
didn't keep him in frame. The guy must have had a pretty
horrifying rear view mirror view.

Even in the most prepared country in the world, if the disaster
is big enough no one is coming to help for 3 days. yikes.
We're out of the Oughts, this crap should stop now.

Tom Clancy at it again

One of the first things I thought of on 9/11 after hearing that

the planes were crashed by terrorists was that those guys copied

the idea from Tom Clancy. Yesterday when the markets went tits

up, and it was explained a fat finger followed by program trading

it seemed like maybe someone else read "Debt of Honor"

"Even as the military mission begins, the cabal engineers the collapse of the American stock market by exploiting flaws in the program trading systems at major brokerages, and then deletes all trade records. With a massive economic crisis, and panic and chaos in America's homeland, it is hoped that America will be too distracted to quickly respond to military adventures."

Maybe the taliban has a trading desk and sold a billion shares of PG causing the

crash. I suggest that americans stay alert. If your broker recently spent 5 months in

Pakistan. has a 'death to the american satan' poster (or at least a serious knee injury

to the great satan poster) and fat fingers, then be alert.

Black Swan comes home to roost

Anthony Watts at What's up with that blog has an excellent
essay with photos showing what happened at the Deepwater
Horizon, some of the best information about what happened out
there, when no one from BP has given any details about what
was going on at the time of the disaster, and I've given up on
speculating because I feel similar to after 9/11; it's hard to believe
such a big rig burned up and sank taking 11 men with it.

What is clear to me is this was a Black Swan. BP's emergency
response plan apparently said there was low risk of pollution and
low risk of a catastrophic accident. The definition
of a black swan is when one is operating in extremistan where large forces,
monetary flows or pent-up pressures are operating. Where on the frequency
axis, if you make an estimate of the rate of negative events you are probably
wrong, with disastrous results, and where the events are 'rare' enough that
we don't really know what the frequency distribution is, or if it has a shape at all.

Where those two axis' collide is the forth quadrant,
where it is dangerous to assume that a low frequency event will be rare
enough to not affect you, and when you are wrong people are killed,
giant structures are reduced to pillars of flame, economic systems destroyed,
cats and dogs sleep together. [This is all covered by Nassim Taleb in
The Black Swan, and more precisely in an essay called The Forth Quadrant,
which has to be one of the most important articles ever published for
free on the internet. I added the dogs and cats]







from NNT's
the fouth quadrant.












The wonderful thing about the oilfield is it is where economics and engineering
geology and mathematics are all applied to create money. There are no evil
shadow organizations needed, just the simple rule that if a project will make
more money than the discount rate plus some stated excess profit taking into
account the probability that you'll get nothing in return, the project is drilled.

...

Before anyone says that the operator (BP) or the rig owner was incompetent
or negligent, the problem doesn't come from the lack of hard work or oversite,
but of thinking that we can operate in the forth quadrant without getting burnt
occasionally. We will get hurt and accidents will happen as long as men dare to
sail the sea in ships, fly to the moon or drill the ocean depths.

.

The forgotten man

I finished the first book that I bought for my new kindle, it was
The Forgotten Man by Amity Shales. It was a really fantastic book and
even though it was written from 2001-2006, it seems like the author
wrote the story with the events of the past year in mind.

The main theory of the book is that most of the new deal ideas didn't
shorten the depression and in some cases prolonged it and led to the
even deeper recession within the depression of 1937. Much of the problems
of the depression were caused by the uncertainty and experimentation of
the Roosevelt administration.

Many of the problems from the thirties are being echoed now, the false starts and various Tarp plans would seem to me to be the worst thing we can do. The treasury needs to make a plan and clearly outline what it is, then implement it in a transparent way so that businesses can predict
what is going to happen. This whole idea of get the evil rich people is counterproductive.
Say what you like about the rich, maybe wealth does trickle down or maybe not, but I know
that poor people don't create any jobs.

As seen during the new deal if you raise taxes so that the government will get the rewards
of any positive result while the "rich" pay for any downsides, the rich will sit on their ass
and buy government bonds.

Here's a good quote from the Kindles text highlight feature:

"New Deal was causing the country to forgo prosperity, if not recovery. The wealthy, after all, were in a position to take risks with new ventures precisely because they were wealthy—they could invest in several projects at once. Under the new 1935 law, a very wealthy man would see more than three-quarters of any profits from new ventures taken by income tax. Any loss, however, would be the same man’s to bear. This man would try to hoard his capital and wait—thus coming to fit the very stereotype of the idle rich man the New Dealers were hoping to propagate."

And here is why engorging the government with a stimulus probably won't help much:

"The problem in 1937 and 1938 was not that the New Deal was mismanaging or helping or punishing one sector of the economy over the other. It was, just as even Democrats now knew, that it was competing with the private sector, and frightening it. The solution to the depression within the Depression was not anything either of the two squabbling sides in the administration was contemplating. If Roosevelt wanted the economy to thrive in peacetime, he had to call off the competition."

On the other hand, it's easy to see that Bernanke studied the depression, continuously dumping
money into the economy is an effort to prevent the deflation that led to such misery as money
dried up, leading to barter and a scrip economy. A similar scenario would be much worse now,
because we have nothing to barter. A good percentage of the people still lived on farms in the
'30's, our over-extended "flat" suburbian economy where we are importing peaches from panama won't last 2 weeks without actual money.

I highly recommend the book.

The Black Swan Decade

I'm reading "The Black Swan" by Nassim Taleb, it's a pretty
fascinating look at the gaps in our knowledge when we think we're safe
because we're staying near the average in a non volatile market, but
really we've already driven off a cliff and the smooth sailing that we feel
is because the wheels aren't on a road. He's also got an essay in edge
magazine that hits some key points that a lot of bankers should have read
about 2 years ago...

I've always wondered what this decade will be called, my old man simpson
voice always says it's the oughts, and I'll be able to grumble when I'm an old
man "that hurricane happened back in ought- five". Now I'm afraid that this
decade will turn out to be the black swan decade, where everything from
hurricanes and tsunamis to bank failures and assholes flying planes into buildings
has happened. Personally it was the best decade, but for world history purposes
it seems like one continuous pile of poo.