Sunday, October 15, 2017

Excess Global Capital

I read an article today, Goldman To Lend to House Flippers by Liz Hoffman and Peter Rudegeair, in the Friday, October 13, 2017 Wall Street Journal.  This article said that Goldman Sachs Group is investing in house flipping by acquiring Genesis Capital, "a closely held Los Angeles firm that backs investors seeking to buy, spruce up and quickly sell homes."

We need to be able to read between the lines.  When Goldman stoops to investing in house flipping, we can read between the lines and say, "Goldman is having trouble finding good investments."  Then we might say, "maybe Goldman has more money than it knows what to do with."

It has been my contention for years that there is too much money floating around the world.  But I did not reach this conclusion on my own.  Niall Ferguson in The Ascent of Money wrote, "The volume of derivatives - contracts derived from  securities, such  as  interest  rate  swaps  or  credit  default swaps (CDS) - has grown even faster, so that by the end of 2007 the notional value of all 'over-the-counter' derivatives (excluding those traded on public exchanges) was just under $600 trillion."  I recall seeing his video version of this book saying there is more money in derivatives than in the capitalization of all companies on the U.S. stock market.

Investopedia defines "capital surplus" as "equity which cannot otherwise be classified as capital stock or retained earnings. It's usually created from a stock issued at a premium over par value."  This is not what I mean by excess global capital.  I mean that money available for investment exceeds the value of all businesses, of all corporate property.

Here is a quote from the Bain Report, November 14, 2012:  By 2010, global capital had swollen to some $600 trillion, tripling over the past two decades. Today, total financial assets are nearly 10 times the value of the global output of all goods and services.  The article is A world awash in money by Karen Harris, Andrew Schwedel and Austin Kim. 

A couple of questions arise naturally.  (1)  How did it happen that too much money came into existence? (2)  Does this mean that world governments have lost control over their money supply?  (3) And what dangers to the world economy lurk in the background, waiting to wreck our lives?  You might profit from reading the Bain Report on excess global capital.

Wikipedia has an article, Global saving glut, saying 'Ben Bernanke expressed concern about the "significant increase in the global supply of saving" and its implications for monetary policies, particularly in the United States.'  Corporations holding onto their money instead of investing it is not what I am concerned about.  That is certainly a topic worthy of consideration, but corporations make money by selling products and services.  Saying corporations do not always know what they are doing is not a surprise, that is the human condition.  I am concerned about financial firms making money out of thin air, sort of like Bitcoin.  It seems to me that governments losing control over their money supply is a dangerous circumstance.  If you and I do not understand these issues, we can be sure our representatives in Congress do not understand them either.

I believe it is important for us to better understand these financial issues because we depend on money to pay our bills.  If our money is destroyed, we are in incalculable trouble.

Robert

I have touched on this topic before.
Global Surplus Capital August 9, 2012
The Cause of the Crash of 2008 and the New Business Project August 5, 2012

Monday, September 4, 2017

Financial Thinking and Bitcoin Valuation

There is a fabulous article by Andy Kessler, "The Bitcoin Valuation Bubble," that came out in the August 28, 2017 Wall Street Journal.  Within this article you get two views of valuations for Bitcoin.  In one case Mr. Kessler models Bitcoin as a competitor to credit cards and he derives a value of $100 per Bitcoin.  Then he models Bitcoin as a software service and, using Salesforce as a comparison, he derives a value of $300 per Bitcoin.  Today a Bitcoin is selling for $4485.51, which is why Bitcoin looks like a bubble.

I recommend Mr. Kessler's article, also available on his own website, as an exposition on financial thinking.  I had to think hard on whether to refer to his thoughts as financial analysis, economic analysis, or accounting valuation.  I think it is best described as financial analysis.  Mr. Kessler started as an electrical engineer, which might be why his analysis seems so logical.

We in America need to think more astutely about economics and finance.  Mr. Kessler's article is a great starting point.

Robert

Tuesday, July 4, 2017

Is the Press Our Enemy?

The last time I watched CBS news, which was a while ago, they advertised as providing "Real News."  That was a response to the charge of "fake news" leveled at the press.  But the news media has not responded to charge of being the enemy of the American people. That was a flamboyant charge, but it is reasonable to ask, "Does the American press harm America?"

Walter Lippmann

Walter Lippmann is considered the foremost journalist in American history.  He was a Harvard graduate, a confidant of President Woodrow Wilson, and Mr. Lippmann said the press is a threat.

Walter Lippmann in his book Liberty and the News (1920) said "the health of society depends upon the quality of the information it receives," [p. 47] Lippmann spoke against activist journalists and advocacy journalism, saying, "the reporter ... ought not be serving a cause, no matter how good. In his professional activity it is no business of his whose ox is gored." [p.52] Then he says, "there is need for disinterested reporting ." [p.52]

As far back as 1920 people were frustrated by the poor quality of news reporting:  "There is everywhere an increasingly angry disillusionment about the press, a growing sense of being baffled and misled," [p. 45] Walter Lippmann said.

Later, in 1922, Mr. Lippmann expanded his thoughts in what is perhaps his most important book, Public Opinion, in which he describes journalism as a weakness in our democracy, the role of the press in either serving our democracy or threatening our democracy, and then he presents a plan for a professional and objective news corps.  It is a shame the profession of journalism has undergone "professional collapse," to quote the journalist Sidney Blumenthal, a former aide to Bill Clinton and advisor to Hillary Clinton.  Many believe the U.S. news media is untrustworthy, people on the left and people on the right.

Noam Chomsky 

Conservatives complain steadily about liberal bias in the press, but the far left also notices the press is untrustworthy. Dr. Noam Chomsky, a stalwart of the left, excoriated the press in a book, Manufacturing Consent, published 15 years ago. There is an excellent documentary with a similar title, Manufacturing Consent: Noam Chomsky and the Media.  I recommend the movie; it is good and it is inexpensive.  I suggest you watch it up to the intermission.  The second half of the movie is a paean to Noam Chomsky.  ("Manufacturing consent" is a term created by Walter Lippmann.) This documentary, Manufacturing Consent, is also available for free -- full length -- on YouTube.

Election Manipulation

Perhaps the greatest attack the media has launched against our democracy was their manipulation of the 2016 Presidential election.  In the first Democratic Party debate the moderator Anderson Cooper would not let candidate Senator Jim Webb speak.  Senator Webb could see the Democratic primary election was rigged towards Hillary Clinton and he dropped out.  In my opinion, Senator Webb might have been an excellent candidate for the Democrats, but the media boxed him out of the Democratic primary.

The media bent over backwards to help Donald Trump do well in the Republican primaries, thinking the Billy Bush interview they saved  to ambush Donald Trump as the Republican Candidate for president would destroy his chances in the Presidential election.  The Billy Bush interview gambit did not work, and Donald Trump is now President of the United States.

We should have had an election free of media manipulation.  The Democratic Party and the liberal media are running an anti-Russian propaganda campaign, but the real manipulation in the U.S. election was by the liberal media and the Democratic National Committee, as proved by Wikileaks.  They are furious, however, that their manipulations backfired.  Walter Lippmann worried about the press manufacturing consent, but the media manipulation during the 2016 election exceeded anything Walter Lippmann might have imagined, and anything any foreign power might ever hope to pull off.

What Can We Do?

To maintain our republic I think we should quit watching network news.  I believe the most trustworthy newspaper in America is the Wall Street Journal.  I suggest a subscription to the Wall Street Journal.  And I suggest looking at the print edition in addition to the online edition.  The front pages  of all national newspapers are scrubbed by management so it approaches propaganda.  Lippmann wrote, "... the most destructive form of untruth is sophistry and propaganda by those whose profession it is to report the news.  The news columns are common carriers.  When those who control them arrogate to themselves the right to determine by their own consciences what shall be reported and for what purpose, democracy is unworkable." [pp. 5-6]

Then Walter Lippmann goes on to say, "In so far as those who purvey the news make of their own beliefs a higher law than truth , they are attacking the foundations of our constitutional system." [p. 7]

The inner pages of the print edition will have articles that can impact your life or help you understand the world.  It is in the inner pages where you can find the truth.  But you must read the print edition to get past the thought police who control what you see on your iPhone or iPad.

Noam Chomsky said, "Citizens of the democratic societies should undertake a course of intellectual self defense to protect themselves from manipulation and control, and to lay the basis for meaningful democracy.

We need to communicate among ourselves with blogs and social media.  Our political meetings bring speakers to us.  Documentaries are informative.  Sometimes the foreign press is more accurate than the American press, but there is bias there as well.  I feel like Diogenes with his lamp, looking for an honest man.  We need to read to be informed, but we need to understand the bias within our reading material. James Fallows, a writer for The Atlantic magazine,  was President Jimmy Carter's speech writer, so we can understand that our impression of The Atlantic magazine as a left leaning periodical is an accurate assessment. Publications, editors, and writers all come with their own baggage, so we have to sift through the muddy waters of bias, looking for the gold nuggets of meaningful truth.

Contacting our Representatives

Since public universities have journalism programs, it seems right that our state legislature mandates the teaching of Lippmann's concerns.  When you pay the salary, you can demand quality work.  The Society of Professional Journalists does not mention "objectivity" in their Code of Ethics.  They mention fairness, but fairness might mean something different to a Communist than to you or me. If our taxes educate journalists, they should learn that objectivity and truthfulness are important, that journalism is not advocacy.  I have included below a sample email that I have sent to my Texas legislators.  If the press is a threat to our democracy, we should do something about it.

Conclusion

Walter Lippmann warned us about a manipulative press almost a hundred years ago.  He wrote two books on this topic, not just one book.  Fifteen years ago Noam Chomsky warned us that the press is untrustworthy, singling out the New York Times for its misdeeds.  Calling the press an enemy is a bit flamboyant, but there is no doubt the media is a threat to our democracy.

Robert


Copyright © 2017 Robert Canright all rights reserved

Creative Commons License
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.

References:  The Walter Lippmann quotes are from Liberty and the News by Walter Lippmann, New Jersey: Princeton University Press, 2008. ISBN 978-0-691-13480-2.  I recommend this edition and this book.  It is less than 100 pages long, including an informative Forward and a thoughtful Afterword.
The Noam Chomsky quote is from  Necessary Illusions: Thought Control in Democratic Societies, as reported here.
The best book on journalism I have seen is  The Elements of Journalism: What Newspeople Should Know and the Public Should Expect by Bill Kovach & Tom Rosenstiel.  The authors mention Lippmann a fair bit, but convey a superficial view of Lippmann's work.

Sample email to your representative:
Dear Representative,
Please consider legislation to mandate the teaching of objective reporting at Journalism programs at state funded colleges.  Additionally, the threat to our democracy by biased reporting, as discussed by Walter Lippmann in his book "Liberty and the News," needs to be made clear to journalism students.
Thank you
Your Name

Reference:
http://texasascendant.blogspot.com/2017/07/is-press-our-enemy.html

Monday, November 21, 2016

Might BlackRock Become the Next Lehman Brothers?

America desperately needs better leadership and we in Texas should step up and provide that leadership.  We must understand banking and finance to safeguard America from more calamities like the Great Depression and the Great Recession.  One example of a company that deserves careful attention is BlackRock, Inc., a multinational investment management corporation based in New York City.  A recent article in the New York Times, This Man Oversees $5 Trillion by Landon Thomas, Jr. was published in the Sunday September 15, 2016 edition.

Here is what we need to notice.  The company was founded and is led by Laurence D. Fink, who  while at First Boston pioneered securitized mortgages along with Lewis Ranieri at Salomon Brothers, which led to the subprime melt-down and the Great Recession.  Now Mr. Fink has built up BlackRock and his firm has a software program called Aladdin (Asset Liability and Debt and Derivatives Investment Network).  This software is supported by 2,300 of BlackRock’s 13,000 employees.  Seventy-five firms — including Deutsche Bank and Freddie Mac — managing a total of $10 trillion, now use it.  BlackRock believes by feeding data to this program they can master risk.  Aladdin might be due for a fall.

Remember Knight Capital Group suffered a software problem that destroyed the company.  On August 1, 2012, Knight Capital deployed untested software to their production software systems, not a test system, but the real-deal.   The company quickly lost $400 million and was liquidated.  The Aladdin program is used to manage $5 trillion of BlackRock assets and another $10 trillion of assets in 75 companies that use the program.  Do you remember the Flash Crash on May 6, 2010?  Hundreds of billions of dollars were quickly lost on the stock market.  The market recovered.  The real losses were not divulged.  Imagine what a $15 trillion death dive would do to the world financial system.

Consider software design and reliability.  In November 1999 the Mars Climate Orbiter burned up because of a trivial software error, a failure to convert units from English to metric.  Then in December 25, 2003 the European Space Agency  ExoMars lander Schiaparelli crashed into Mars.  The heat shield and parachute ejected too early.  Another software error.  If rocket scientists cannot guarantee flawless software on something as simple as Mars satellites,  why would financial firms be more successful with more complex programs?

We in Texas need to master software design and software reliability so we can safe financial software, and so we can analyze and repair flawed financial software before it becomes too late.  Lehman Brothers was not as big as BlackRock when its demise dragged the world into the Great Recession.

John Connally and James Baker were Texans who were Secretary of the Treasury.  Surely someday another Texan will fill that roll and I hope that Texan understands the danger software poses to the world financial system.  But we  must do more than hope.  We must prepare our future leaders with education and experience to fill roles like Secretary of the Treasury.

Robert

This article is a thread within the The Texas Software Reliability Project.
This is also a thread within The Texas Banking and Finance Project

Saturday, October 22, 2016

Leadership and Morality in Dostoyevsky

The 2016 Presidential election has had people thinking about morality.  The Brothers Karamazov by Fyodor Dostoyevsky raises a few points about morality.  In this blog post I point out these points.

Dostoyevsky suggests a link between atheism and socialism.  He suggests that a person interested in doing good who does not believe in God would be inclined to become a socialist.  The passage below is from Chapter V:  Elders.

As soon as he [Alyosha] reflected seriously he was convinced of the existence of God and immortality, and at once he instinctively said to himself: “I want to live for immortality, and I will accept no compromise.” In the same way, if he had decided that God and immortality did not exist, he would at once have become an atheist and a socialist. For socialism is not merely the labor question, it is before all things the atheistic question, the question of the form taken by atheism today, the question of the tower of Babel built without God, not to mount to heaven from earth but to set up heaven on earth.

Dostoyevsky also suggests that without a belief in God, in immortality, then natural law is destroyed.  Because natural law is the foundation of the U.S. Constitution, Dostoyevsky suggests that atheism spells the death of the U.S. Constitution, the foundation of our civil government and our liberties.  Furthermore, Dostoyevsky suggests morality will be turned upside down.  That what was moral will become immoral, and what was immoral will become moral.  This moral inversion is coming true.  Presidential candidate Hillary Clinton has called Christians deplorable homophobes and the U.S. news media is uplifting trans-sexuals as the new American heroes.  Here is a long but important passage from The Brothers Karamazov, Chapter VI: Why Is Such A Man Alive?  There is a discussion in quarters of Father Païssy, a Russian monk.  Dmitri is the oldest brother, Ivan the middle brother, and Alyosha the youngest, who wishes to become a  monk. Adelaida Ivanovna Miusov is Fyodor Karamazov's first wife, Dmitri's mother

"Ivan Fyodorovitch is smiling at us. He must have something interesting to say about that also. Ask him.”

“Nothing special, except one little remark,” Ivan replied at once. “European Liberals in general, and even our liberal dilettanti, often mix up the final results of socialism with those of Christianity. This wild notion is, of course, a characteristic feature. But it’s not only Liberals and dilettanti who mix up socialism and Christianity, but, in many cases, it appears, the police—the foreign police, of course—do the same. Your Paris anecdote is rather to the point, Pyotr Alexandrovitch.”


“I ask your permission to drop this subject altogether,” Miüsov repeated. “I will tell you instead, gentlemen, another interesting and rather characteristic anecdote of Ivan Fyodorovitch himself. Only five days ago, in a gathering here, principally of ladies, he solemnly declared in argument that there was nothing in the whole world to make men love their neighbors. That there was no law of nature that man should love mankind, and that, if there had been any love on earth hitherto, it was not owing to a natural law, but simply because men have believed in immortality. Ivan Fyodorovitch added in parenthesis that the whole natural law lies in that faith, and that if you were to destroy in mankind the belief in immortality, not only love but every living force maintaining the life of the world would at once be dried up. Moreover, nothing then would be immoral, everything would be lawful, even cannibalism. That’s not all. He ended by asserting that for every individual, like ourselves, who does not believe in God or immortality, the moral law of nature must immediately be changed into the exact contrary of the former religious law, and that egoism, even to crime, must become not only lawful but even recognized as the inevitable, the most rational, even honorable outcome of his position. From this paradox, gentlemen, you can judge of the rest of our eccentric and paradoxical friend Ivan Fyodorovitch’s theories.”

“Excuse me,” Dmitri cried suddenly; “if I’ve heard aright, crime must not only be permitted but even recognized as the inevitable and the most rational outcome of his position for every infidel! Is that so or not?”

“Quite so,” said Father Païssy.

“I’ll remember it.”

Having uttered these words Dmitri ceased speaking as suddenly as he had begun. Every one looked at him with curiosity.

“Is that really your conviction as to the consequences of the disappearance of the faith in immortality?” the elder asked Ivan suddenly.

“Yes. That was my contention. There is no virtue if there is no immortality.”


America in 2016 has turned morality upside down.  According to Dostoyevsky, this is because too many of our leaders are atheists. It is up to you, my friends and neighbors, to ponder why morality in America has turned upside down. And to ponder how we can find moral leaders, if we have a true understanding of morality instead of an inverted sense of morality.

Robert

The version of The Brothers Karamazov by Fyodor Dostoyevsky from which I quoted was the translation by Constance Garnett and is available free, online, at Project Gutenberg:
https://www.gutenberg.org/files/28054/28054-0.txt

Sunday, May 31, 2015

Eight Hundred Years of the Magna Carta

The Magna Carta was signed on June 15, 1215, eight hundred years next month.  We in Texas look from our Texas Revolution to the American Revolution for inspiration,  Our country's founding fathers looked to the Magna Carta and the Glorious Revolution of 1688 for inspiration.  We need to remember the  importance of the Magna Carta as we map the future for Texas and America:  the importance of a government constrained by laws for the protection of our liberties.

The Wall Street Journal had a wonderful article about the Magna Carta that you can read by googling "Magna Carta: Eight Centuries of Liberty by Daniel Hannan."

Here are a few quotes from the lengthy article to whet your appetite: 

The idea of the law coming up from the people, rather than down from the government, is a peculiar feature of the Anglosphere.

America’s Founders ... saw parliamentary government not as an expression of majority rule but as a guarantor of individual freedom. How different was the Continental tradition, born 13 years later with the French Revolution, which saw elected assemblies as the embodiment of what Rousseau called the “general will” of the people.

In that difference, we may perhaps discern explanation of why the Anglosphere resisted the chronic bouts of authoritarianism to which most other Western countries were prone.

The defense of liberty is your job and mine. It is up to us to keep intact the freedoms we inherited from our parents and to pass them on securely to our children.


And who is Daniel Hannan?  Mr. Hannan is a British member of the European Parliament for the Conservative Party, a columnist for the Washington Examiner and the author of “Inventing Freedom: How the English-speaking Peoples Made the Modern World.”

A great Texas must be built upon the rule of law.  Texas needs great lawyers and statesmen.

Robert

Saturday, April 4, 2015

The Special Methods Software Project

I have suggested a number of projects that can contribute to software development and economic growth in the state of Texas.  I mentioned the  Special Methods Software Project when I laid out the Texas Software Initiative, but I did not define it then.  There are a number of specialty areas in computer science that can have economic impact, but are little studied and have limited use.  However, the impact of special methods can be significant.  Here is a short list of special topics.

  1. Artificial Intelligence and Expert Systems
  2. Autonomous Agents
  3. Cellular Automata Software
  4. Genetic Algorithms
  5. Complexity Theory

This list is not exclusive, and not be any means exhaustive, but it is a starting point for discussion.  Google's self-driving car is an example of an autonomous agent.  Some people think the Google car can reduce traffic jams and save lives by reducing the effects of bad driving.  Some people think it is part of a plan to replace truck drivers with robots, throwing more people out of work.  Software certainly has an impact on our society.

I can recommend a good book as a start into the field complexity:  Complexity: A Guided Tour by Melanie Mitchell.  I have read it from cover-to-cover and found it fascinating.  This book by Dr. Mitchell is intended for the general audience and I found it at the public library. 

Another book that is interesting, although a bit quirky, is The Sciences of the Artificial by Herbert Simon.  This book by Dr. Simon does not use advance math, so in a sense it is accessible to the general reader. On the other hand, you are getting access to the mind of a brilliant man.  This is a treat, but you must be patient and follow him where he goes. I like to hold a book in my hand, so it is nice to know you can buy a copy from Amazon.com.  But if you are not sure about this book, you can peruse a PDF copy before buying a paperback copy.

Why take the time to be patient with Herbert Simon's book?  Let's consider just a few of his honors:
  1. Turing Award (1975)
  2. Nobel Prize in Economics (1978)
  3. von Neumann Theory Prize (1988)
Dr. Simon was is an intellectual heavyweight, but this is book is accessible.  Here is a quote from the preface to "The Sciences of the Artificial:" 
"... of particular relevance is the recent vigorous eruption of interest in complexity and complex systems. In the previous editions of this book I commented only briefly on the relation between general ideas about complexity and the particular hierarchic form of complexity with which the book is chiefly concerned. I now introduce a new chapter to remedy this deficit. It will appear that the devotees of complexity (among whom I count myself) are a rather motley crew, not at all unified in our views on reductionism. Various among us favor quite different tools for analyzing complexity and speak nowadays of "chaos," "adaptive systems," and "genetic algorithms." In the new chapter 7, "Alternative Views of  Complexity'' ("The Architecture of Complexity" having become chapter 8), I sort out these themes and draw out the implications of artificiality and hierarchy for complexity."

These specialty software topics are fascinating and can contribute economically to the state of Texas.

This post is part of the The Texas Software Initiative.

Robert