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Choking on austerity in Greece

Europe’s austerity policies (meant to bail out bad banks and screw debtors) have lead to mass poverty. Exhibit ‘A’ is Greece, which is literally choking on the fumes of its own destruction. At Atlantic Cities, Derek Thompson describes the disgusting air quality of Athens and its causes. Hundreds of thousands of Greeks are dirt poor and have no money to pay for heating. So they’re taking a collective step back in time, to an age when subsistence living was the norm. 

Greek unemployment is the highest in the developed world. The country’s GDP faces the worst peacetime contraction of any non-communist European country since the 19th century. Even workers with jobs often have to deal with delayed payments, furloughs, and lower take-home pay due to higher taxes. So, many families have made an understandable calculus: From now on, we’ll make out our own heat with wood, a match, and a fireplace.

Impoverished, unemployed Greeks are burning everything in sight, just to stay warm — and the ensuing smog is a constant reminder of the tragic, punitive response to the country’s financial woes.

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NASA is awesome.

NASA picked a good time to announce that it is funding 28 ambitious projects through its NASA Innovative Advanced Concepts (NIAC) program. When you land a nuclear-powered, laser-equipped vehicle on another planet using a supersonic parachute and a sky crane, you earn yourself some street cred. After the Curiosity stuck its landing like an Olympic gymnast, more people are going to give the bizarre NIAC projects consideration. They include a landsailing rover to cruise the surface of Venus, and a submarine to explore the ice-encrusted ocean of Europa, Jupiter’s sixth moon. That’s right, there’s an ice moon in our solar system that probably has a hidden ocean, and scientists are exploring the possibility of exploring it.

From Wired:

Concepts in Phase I will get about $100,000 (£64,000) to explore the basic feasibility of their harebrained scheme, for one year. Phase II projects — which includes new projects, and concepts that survived last year’s Phase I — will get as much as $500,000 (£320,000) for two years, to help develop their projects even further.

The Venus and Europa mission ideas are getting attention because they are badass and easy to visualize (however implausible they might turn out to be, we can picture them in our minds quite easily because they are basically variations of the “send a robot to explore another planet” thing we are already doing). But some of the other projects are even more exciting. For example, NASA’s own Jet Propulsion Lab will explore the potential of 3d-printable spacecraft. Three dimensional printing is one of the most disruptive technologies currently in use, and its applications are legion. I cannot wait to see how it will affect our efforts to explore, mine, and colonize the solar system. In the coming decades, when astronauts need equipment we will simply email them the designs, which they will print using on-board systems and raw materials that have either been brought up from Earth in bulk (major efficiency here) or mined somewhere else (the asteroid belt, say).

These far-sighted projects are the kind of thing that NASA is uniquely positioned to fund, even as it turns to the private sector to get people and equipment into near Earth orbit. Unfortunately, the radicals who demand that the U.S. Government cut out “wasteful” spending — even as they blame Obama for the cuts to the Pentagon that they voted for — aren’t interested in giving NASA the funding it needs. The Republicans once publicly lambasted volcano monitoring for being wasteful; they can’t appreciate the importance of geological surveys on Earth, let alone on other planets. Even more enraging to the right wing is NASA’s role in the Great Global Warming Hoax. They’ve done everything in their power to politicize science within the FDA, EPA and every other government agency that can get in the way of corporate profits. But NASA still comes out with reports like this one, showing “Unprecedented Greenland Ice Sheet Surface Melt”, or this one, concluding that “a sharp increase in the frequency of extremely hot summers can only be the result of human-caused global warming”. NASA’s climate scientist James Hansen has been a thorn in the sides of climate-deniers for years. It annoys the hell out of them that the geniuses who are landing robots on Mars are unequivocal in their statements affirming global warming.

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“This was an anomaly, not one we’re proud of.”

Do you think the computer-powered trading algorithms on Wall Street come equipped with Ctrl+Z?

New Jersey based Knight Capital lost $440 million yesterday thanks to a computer glitch. I use the word “glitch” here ironically – it seems to be tossed around when nobody wants to fess up to bad code and the responsible parties would rather assign blame to the computer itself, as if it has sinned. In Knight’s case, a “software malfunction” cost it four times its yearly earnings in one day. I would call this a “management malfunction”, or “human error”, but maybe I’m just not hip to the Wall Street jargon. I’m sure that Knight’s trading software did exactly what it was coded to do, and that its designers simply didn’t account for the circumstances that gave rise to the epic loss.

This is what philosopher Nassim Taleb would call a Black Swan, a highly disruptive, unpredictable (or at least unpredicted) event.  One of the key points in Taleb’s The Black Swan is that humans are astonishingly blind to uncertainty and far too confident of their ability to predict the future (this conclusion is bolstered by the excellent Thinking, Fast and Slow by Daniel Kahneman). A corresponding weakness is our tendency to “understand” the past with a degree of coherency that is unjustifiable. Hence, we think that unpredictable events could have been predicted after all, if only we had paid attention to the right data. In the next few days, I imagine a lot of very smart people will get to the bottom of what happened in the Knight computer, and make sure this specific calamity never happens again — if Knight survives long enough for that to make a difference. But in my mind, it’s not a matter of looking for the problem that led to this particular meltdown. I’m sure some valuable lessons will be learned from the shambolic Knight episode about the errors in one market model or one line of code, but will that help us predict the next variety of financial Armageddon?

Today, we have such a huge wave of data washing over us that trying to filter out the relevant bits is like holding a Brita up to a tsunami. Our globalized economy is so complex that nobody could hope to fully understand what makes it tick. The more you know about the real world, the fuzzier and less ineligible it begins to look. Where we don’t suffer from data overload, we suffer from excessive secrecy (especially with regard to the workings of government). Finance is opaque to even the most plugged-in data lords or politically-connected hedge fund managers. Trillions of dollars of derivatives are traded out of public view, and the CEOs of the too-big-to-fails have no idea how the quants from MIT are making them money through automated trading.

Instead of trying to predict the form and timing of the next screw-up, we should be looking at the underlying technological and legal rule sets that have created a dangerously flawed system. The fragile world of high finance is so vulnerable to these kind of events that we’re guaranteed to see one variety of disastrous “anomaly” after another, unless the whole system is made more robust. We will never be able to eliminate anomalies, but we can make systems that are not so vulnerable to anomalies.

This isn’t about computers. Remember the “rogue trader” who was able to lose $2 billion for UBS bank in 2011? What kind of system do we have if one guy can really toss around that kind of money without authorization? (The fact that he would have been rewarded, not charged with fraud, if he had made his firm money, is evidence of the system’s perverse incentives which make it even more fragile) More recently, JP Morgan Chase lost upwards of $5 billion on a trade that was meant to hedge (!) risk. It’s funny to hear CEO Jackie Dimon say, “We’re not making light of this error, but we do think it’s an isolated event.” Unfortunately, nothing has been done to make our financial system more robust since we were all made keenly aware of its weakness in 2008. As a result, the costs of the system are still being offloaded onto the public through implicit bailout guarantees. I shouldn’t even care that some bank was stupid enough to lose billions on one trade, but since its health is vital to the entire world economy, I’m forced to care.

More troubling is that the impact and frequency of Black Swans are bound to increase as the world becomes more interconnected. Case in point: the collateralized debt obligations (CDOs) that banks created in the early 2000s were meant to reduce risk, but ended up spreading risk throughout the system. Warren Buffet famously labeled derivatives like these “financial weapons of mass destruction”. I think that we are building up an unseen arsenal of systemic WMDs, the nature of which we can only guess.

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Tax avoidance

Exhibit A: Wealthy hiding $21 trillion in tax havens, report says

The “super-rich elite” are hiding more than $21 trillion US in tax havens around the world, an amount roughly equal to the combined GDP of the United States and Japan, according to a new report.

Exhibit B: Paying a plumber cash in hand morally wrong, says Tory minister

“Getting a discount with your plumber by paying cash in hand is something that is a big cost to the Revenue and means others must pay more in tax,” Gauke said.

(hat tip to Duncan Black)

If you’re feeling cognitive dissonance, remember that people who hire plumbers aren’t the sort of “job creators” whose taxes we’re supposed to cut.


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Bravo, TD.

For years, TD Canada Trust has tried to distance itself from the other Canadian megabanks through its customer service, and I’ve certainly appreciated its long hours (open until 8pm) if nothing else. Last week I walked into the new local branch of TD Canada Trust and their prioritization of the customer experience was obvious. I was happy to have a branch closer to home and even happier to discover the frills inside: free juice, a coffee machine, and one of those made-for-the-office putting greens (?!!). I was informed by the ridiculously helpful customer service  representative that I was inside a new kind of TD branch, a “Bravo” location. I told her with a wink that even though I “hated banks as a general rule”, I couldn’t complain about how I had been treated by TD.

But then the very next day I read that TD Canada Trust had closed the accounts of many Iranian-Canadians with little explanation or warning. Apparently, because these Canadian citizens had vague financial connections to Iran, their bank decided it had to shut down their accounts and lines of credit lest it run afoul of the new economic sanctions against that country. So sleep peacefully tonight, dear reader, knowing that Iran’s relentless push for nuclear weapons has been thwarted by TD Canada Trust’s latest initiative. Bravo, TD.

TD Canada Trust is the only Canadian bank to have carried out these measures, and they seem to have done so on their own initiative, without banking regulators getting involved. Apparently the financial industry can regulate itself, after all. Except TD appears to have ignored provisions in the Iran sanctions that should exempt some of its account holders from punitive action.

Section 5 part D of the regulation lists a series of exemptions for the sanctions between Iran and Canada. The exemptions for financial exchanges include financial services provided or acquired before November 11, 2011, pension payments to or from Iran, and non-commercial financial services under $40,000 (with record of transaction).

For Montreal lawyer Vincent Valaï, former president of the Association des Juristes Persans du Québec (an organization that has criticized TD’s actions), the absence of consideration for these sanction exemptions is the most puzzling part of TD’s closure of the accounts of some of its Iranian-Canadian clients.

Why did TD feel the need to be so aggressive in its interpretation of the sanctions, when no other bank had yet acted against its Iranian-Canadian clients? What was the downside of taking a more cautious approach, and putting its customers first? A bank director would have to set a kitten on fire on national TV before law enforcement thought seriously about fining his company.

TD’s public relations debacle notwithstanding, there are serious questions to ask about the morality of economic sanctions aimed at bringing about regime change. Sanctions like those against Iran don’t hurt the regime in power. Instead, they turn the population of the targeted country against the outside world and draw them closer to the demagogues who rule over them. Sanctions haven’t removed the communist regime from Cuba and didn’t do anything to weaken Saddam Hussein’s grip over Iraq in the 1990s. They end up hurting the ordinary people that they’re supposed to be helping. That’s not to say that restricting the sales of weapons or nuclear material to repressive regimes is a bad idea. But shutting down all the small-scale trade between citizens of a “bad guy of the week” country and their expatriate business partners isn’t a recipe for their democratic empowerment.

Most important, broad economic sanctions cause human misery on a massive scale. The catastrophic effects of sanctions on Iraq’s civilian population during the 1990s are well documented. It is conservatively estimated that hundreds of thousands of children died as a result of the sanctions. This was warfare by starvation (a war crime), but American policymakers asserted that the grotesque human toll was “worth it”. Even worse, the sanctions were expressly aimed at causing regime change, meaning that the Iraqi government was given no demands to meet except “dissolve yourself”. From the link above:

U.S. officials have stated that sanctions would remain even if Iraq complied with United Nations inspectors, giving the Iraqi regime virtually no incentive to comply. For sanctions to work, there needs to be a promise of relief to counterbalance the suffering; that is, a carrot as well as a stick. Indeed, it was the failure of both the United States and the United Nations to explicitly spell out what was needed in order for sanctions to be lifted that led to Iraq suspending its cooperation with UN inspectors in December 1998.

— Stephen Zunes, Continuing Storm: The U.S. Role in the Middle East, Foreign Policy In Focus, December 2000

Is the situation any different with Iran today? What is the Iranian regime supposed to do to relieve the sanctions that are ruining its economy? Nothing short of dismantling its entire civilian nuclear program would be enough to dissuade the U.S. government that it is not pursuing nuclear weapons. That still probably wouldn’t be enough — remember that the U.S. pulled out weapons inspectors from Iraq when they inconveniently found no evidence of WMDs. If the U.S. wants to lob cruise missiles into Iran, it can find a pretext, nuclear program or no nuclear program. Iran would have no guarantee of its own safety, because the Islamic regime would still be an attractive target for the war industry. Today media, government and military elites in the U.S. and Israel threaten to bomb it on a weekly basis. The United States is already waging cyberwarfare against Iran (google the stuxnet virus), and Israel is assassinating its scientists with car bombs. High profile Americans, along with the Israeli Mossad, support a terrorist group within Iran, the MEK. As for the effects of the sanctions themselves on Iran’s people, consider these statistics from Asia Times:

According to reports, the annual inflation rate in Iran is 22.2%, although many economists estimate it at double that. In the last week of June, the price of chicken rose 30%, grains were up 55.8%, fruits up 66.6%, and vegetables up 99.5%. Iran’s Central Bank estimates unemployment among the young is 22.5%, although the Financial Times says “the official figures are vastly underestimated”. The production sector is working at half its capacity. The value of the Iranian rial has fallen 40% since last year, and there is a wave of business closings and bankruptcies due to rising energy costs and imports made expensive by the sanctions.

This is the context of TD Canada Trust’s zealous — and voluntary — enforcement of the Iran sanctions. Do we really want to destroy an entire society? Because that is what will happen, long before the ayatollahs are ever dislodged from power.

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Romney’s secret African American supporters

After getting soundly booed during his NAACP speech for vowing to repeal “Obamacare”, Mitt Romney told Fox News that black leaders support him, but are afraid to voice their support in public. Ah, I wonder why that is? Probably because any “black leader” that supports Romney is not representative of the community he or she purportedly “leads”? Romney is polling single digits among African Americans, and for good reason. African Americans have always voted solidly Democratic, and when there’s an incumbent black president, they’re not likely to switch allegiances to the whitest man on the planet. But African Americans are not just blindly voting along party lines or for a man that shares their skin color. As disappointed as I’ve been with Barack Obama, it’s pretty hard to argue that African Americans would not do better with him in office than his opponent. The fact that Republicans can’t deceive blacks into voting for their candidate against their own economic interests, as the Bible-thumping white underclass does, must really gall them. Hence they complain, obliquely, about African American bloc-voting and imply that free-thinking blacks can’t come out in favor of an elitist corporate tool because the black-Democrat cabal will excommunicate them (or something).

But Republicans consciously made the choice to sacrifice the black vote when they adopted the Southern Strategy. They decided, in their infinite wisdom, that picking up southern Dixiecrat voters was more valuable than conceding the African American vote almost entirely. They surely didn’t realize that this overtly racial strategy would be difficult to reverse when Latin Americans became electorally significant. And now that political correctness requires the Republican candidate for president to actually speak in front of black folks, Republicans have to deal with the awkward reality of their institutionalized racism. If only blacks could forget about decades of hostility from Republicans and think about school vouchers!

Romney claims that blacks are unlikely to tell pollsters that they are willing to vote for him. This would be the reverse of the Bradley effect. The Bradley effect is named after LA mayor Tom Bradley, an African American who lost a race for governor despite being ahead in the polls. Political scientists attributed this discrepancy to social desirability bias – in other words, people told public opinion pollsters what they thought would sound politically correct, not necessarily what they thought. In Romney’s universe, African Americans are telling pollsters that they’ll vote for Obama because they think that’s what they’re supposed to say. I think it’s a lot more likely that blacks are saying they’ll vote for Obama because they’ll vote for Obama.

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Property values

In Life, Inc, Douglas Rushkoff tells us that he once had the misfortune of being mugged on Christmas Eve. As any conscientious and web-savvy person would do, he warned the members of his neighbourhood’s online message board to watch out for the suspect. Instead of feeling concerned for his safety, or even grateful for the advice, his neighbours berated him for publicly announcing the crime. Why? By making the mugging incident public knowledge, Rushkoff had  purportedly hurt the property values in his neighbourhood. Even though Rushkoff had undoubtedly contributed to the  community’s well-being, the beneficiaries of his good deed did not view their neighborhood as a “community” at all. Their houses were investments, not homes. Rushkoff ascribes this attitude to the creeping corpratization of our culture, and I find it hard to disagree.

I was reminded of this story by a post that just made the front page of reddit. Someone has been sending threatening letters to the poster, demanding that his family leave the neighborhood because the presence of his father’s taxi in the driveway is driving down property values in the neighbourhood.

“We asked you before to get your taxi out of your driveway and off the street, but we see that you’re back to your old ways. We’ve even noticed a beat up yellow cab parked across from your house. Are you too big of an asshole to realize how much these eyesores drive down your neighbors property values? You were warned. We know how to deal with assholes like you.”

Unsurprisingly, the community does allow small commercial vehicles such as taxis to be parked in driveways. But its shocking that someone could be considered an “asshole” just for being a taxi driver. Some people take any visible evidence of poverty (or in this case, an un-glamorous lifestyle) in their proximity as a personal affront. Just as the lord of the manor has the servants live in separate quarters, the besieged middle class prefer that the homeless, the janitors, the immigrants live somewhere else. Perhaps in the latter case, the presence of taxi drivers reminds white-collar neighbours of their own economic vulnerability. But really, a taxi cab in the driveway across the street not very influential on property values in a depressed economy. Maybe it’s time that people got out of the corporate mindset and started thinking like neighbors again. That would not only improve our quality of life but do much to improve the economic capacity of our cities (and property values along with it).

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