Categories
Tech

Economic Models for Turbulent Times Part 2

Originally posted on November 20, 2011 at 4:28 AM 

A new research study has already received unusual attention. The Network of Global Corporate Control [PDF] discovers a relatively small group of multinational companies with disproportionate influence over the global economy. The authors, a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zürich, are supposedly the first to empirically identify such a network.

The problem is approached using mathematical models designed for capturing behavior of complex natural systems. The study applies this methodology to a large data set of corporate information, to map ownership among the world’s transnational corporations (TNCs). Previous studies reported that a few TNCs drive much of the global economy. However, they analyzed fewer companies. Due to limited data availability and computing resources, past studies did not consider the effect of indirect ownership.

Categories
social science

Recovery is the same all over

The Youth for Christ Center in Myanmar provides food, shelter, safety, rest, Bible study and singing, free of charge, for 40 days to a maximum of three months.

Via Reuters, Photos of the Week: Faith healing for addicts6 July 2013:

Myanmar is the world’s second-largest producer of opium. Heroin abuse is widespread. The center’s popularity is a testament both to the severity of Myanmar’s drug problem and the lack of options in a poor country where modern treatment programs are rare. It offers prayer, Bible study and devotional singing, with football and weightlifting for those strong enough.

The text, above, accompanies an expressive, compassionately photographed gallery of ten images featured in Reuters Online, “Photos of the Week”.  Subjects were portrayed honestly and sensitively.

Categories
Economics

Cassandra Is Sooooooo Correct

Nihon Cassandra is more of a stock market investor than macroeconomics type. In other words, she isn’t really into bonds. In her own charming words,

So long as my distribution is skewed-right, and the tail not overly kurtotic, I am sanguine.

Recently, Cassandra excoriated herself for failing to predict our current global macroeconomic malaise, specifically, the odd lack of self-preserving behavior by those who have the most to lose. I think she is being unnecessarily harsh, as she understands far better than many others do, even now.

It was a close call. From September 2007 through 2010, the masters of financialization escaped ruin by the skin of their teeth. Saving the system, at public risk and expense, was useful to asset holders, e.g. the AIG crowd, Goldman Sachs and friends, Stevie Cohen, Walmart family scions, Icahn, Einhorn, Pritzkers, Koch brothers, Larry Ellison, Larry and Sergei Google, Mark Z, Jeff Bezos, Bill and Melinda, other much less publicly known owners of nation-sized yet privately owned wealth.

Cassandra expected that the excesses leading up to the 2008 financial crisis, e.g. over indulgence in luxury goods, real estate and high-end everything, would be known later as “Peak Inequality”. If the authorities were to bail out highly-levered asset-owners (enriching them further in some cases e.g. the notorious AIG bonuses payments), Cassandra expected that the State would promptly devise a way to recapture most of this taxpayer-funded largess.  In return, a modicum of social stability, sustained by an orderly market economy, would be assured.

In the aftermath, the Federal Reserve and fiscal policy makers would realize how fragile consumption was. They would not raise taxes nor cut government spending precipitously. Bad actors would fall from grace. Attitudes would change. All of us would feel chastened, and act accordingly.

In other words, prevent a nationwide populist revolt due to massive betrayal of public interests.

Trade recommendation for the integrity market: Sell calls

Cassandra, and I, expected that the 0.1% of the 0.1% would have been grateful. They were not. They are not now. Integrity is a market for perma-bears. Various practices associated with rapacious greed, including regulatory and legislator capture, have continued unabated. Inequality continues its incessant rise. Economic recovery is scant, yet deficits grow absurdly. Political divisiveness spreads. There is no end in sight to the public loss of confidence in,

  • elected government and
  • due process as a consistently effective means of fairly resolving disputes

Since Cassandra has clearly-stated content re-use rules, I recommend that you navigate over to her blog, and read her post directly. Focus on the final six paragraphs, and don’t forget to read the comments.

* I question the usefulness of higher marginal taxes or changes to capital gains taxes. Tax laws have power over the “poorer wealthy”. It does little good to raise taxes on small businessmen, physicians and others whose income is between $100,000 and $1,000,000 (net worth between $100,000 and $5,000,000). The real control of capital is concentrated among those with one or more magnitudes of order greater assets than that.

Categories
Tech

Bitcoin in the limelight: Questions for buyers and investors

DDoS attacks manipulate vulnerable markets

The vulnerable market was the Mt. Gox Bitcoin exchange. In April 2013, Mt. Gox was overwhelmed by DDoS. The point, the company speculated, was to destabilize Bitcoin and fuel panic-selling. After driving market prices down, the attackers can then rush in and buy Bitcoin at the lower price. Obviously, this isn’t fair.

Life isn’t fair but Bitcoin must be

Life may not be fair in general, but securities and currency markets require fairness and avoidance of market manipulation in order to function. Without it, they will die. Trust is essential. Apparently, Mt. Gox was robust enough to withstand this volatility. The attackers were fortunate. In their pursuit of unfair profits, they are taking a selfishly short-term view. DDoS attacks could destabilize Mt. Gox, or any other entity that serves a similar purpose. If that happens often enough, or in sufficient size, it will undermine credibility in Bitcoin.

Mt. Gox wasn’t uniquely vulnerable. In the past few months, there were other DDoS related Bitcoin extortion incidents. BTC-China was brought down in September 2013, and BIPS, a European payment provider, experienced a DDoS attack two days ago, on 26 November 2013.

Regulation and volatility

Using DDoS for extortion is possible due to Bitcoin’s lack of fraud control measures, which would usually be imposed by regulatory requirements. Of course, market manipulation and extortion are possible even when there are regulations! (I suspect that if one wanted to, one could DDoS forex exchanges.) Regulation and law enforcement is partly responsible for discouraging such behavior. Market participants’ own self-restraint and willingness to obey the rules is equally important.

Bitcoin’s current price volatility is very high. That is unsurprising for a new financial product. Volatility isn’t inherently bad, but it should be caused by normal market activity, not manipulation due to DDoS-facilitated extortion. Bitcoin price volatility will need to diminish to no more than 25% in order for it to function as a viable currency.

Structural boundaries

If I were to trade or invest using Bitcoin, my first question would be, “What are the boundary values?”

  • The number of Bitcoins is fixed at 21 million.
  • Are there are price levels that have any contextual meaning, i.e. are associated with limits? For example, stock prices are always greater than or equal to zero. For fixed income markets, negative interest rates should not be possible. Is there a scenario where Bitcoin could ever have a negative value?
  • Are there are vagaries of the block chain that would cause short term price or volume discontinuity?
  • What about market dominance due to collusion? That can happen in many markets, especially commodity markets. There are scholarly articles that establish a floor beyond which Bitcoin can no longer function, specifically, if there is collusion of selfish miners such by a Bitcoin mining pool.

Ebullience

The financial press and even well-known information security personalities seem to be caught up in the thrill of Bitcoin. The odd aspect is that some don’t seem to distinguish between good news and bad, as with Mt. Gox.

The excitement is infectious. Perhaps it is a means of escape from interminable and usually dreary economic news, as well as the powerlessness most of us feel about monetary policy and government in general.

Categories
political science

Threat assessment of Iran

Iran is no more likely to use nuclear weapons than any other nation that has such capabilities.

Comparisons

Iran is not riddled with out-of-control corruption. Consider Nigeria. Nigeria is an oil-rich nation but operates most of its petroleum production facilities at only 40% of capacity. Nigeria must even import refined fuel for its own consumption. Iran doesn’t do that.

Unlike Afghanistan, Iran has a decently educated population. What of matters such as state-imposed religion, negligible women’s rights and censorship? Regardless, it is highly unlikely that the people of Iran find the prospect of war, in the Middle East or elsewhere, to be a desirable outcome. The cascade of destruction from ANY country using nuclear weapons would be disastrous, whether it were the U.S.A., France, India, Israel, Russia or others.

Policy

U.S. foreign policy has been unclear to me lately. I do not see motives of self-defense, nor of imperialism. But the “war on terror” is not going well. The U.S. cannot sustain a constant state of foreign conflict. Yet that appears to be the case, continuously since 2002, and intermittently throughout the preceding 40+ years. 

When necessary, there will be intervals of war. These must have a conclusion. The delineation between peace time and war time needs to be finite, discrete.

Peace and war and peace

I am a U.S. citizen and I love my country. I don’t want us to be in wartime conflict on two or three fronts for years at a time, particularly since the “fronts” are not adjacent to our sovereign territory. Terrorist actions on U.S. soil, e.g. the terrorist attacks on the World Trade Center, Pentagon, elsewhere, on September 11, 2001, must be responded to decisively. That doesn’t necessarily mean going to war though. Let the CIA, or military counter-intelligence do what they are intended to do.

The first three months of 2012 have seen tensions in the Strait of Hormuz, nearby international waters, the sovereign waterways of Iran, and of neighboring countries. The same issues were a concern last year at this time, though. Barbs were exchanged in the international press. Nothing awful happened. Not last year, not this year. Iran recently held military exercises and announced production of highly enriched uranium fuel. What of that? 

Iran seems to be participating in the world community much as other countries do, and have done for centuries, with saber rattling as a show of strength.

Categories
political science

US Mint ends production of one dollar coins

Last Tuesday, 13 December 2011, The U.S. Mint announced that current production of one dollar coins is ending. The Mint will continue to produce a few one dollar coins for collectors, as required by law. But these will have numismatic value, and cost more than $1.00.

instead of producing 70-80 million coins per president, the Mint will now only produce as many as collectors order.