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    Quote of the Day

    "You should be more conscious when you are sleeping"

    -Isabella Hatkoff  (June 2010) on the breaking a pinky promise by her dad who was a sleeping


    "You can't solve a problem with the same kind of thinking that created it."
    -Albert Einstein (1879 - 1955)

    "Give a dog a fish, feed him for a day.  Teach a dog to fish, feed him for a lifetime."

    - Walter the Farting Dog

    "Wouldn't it make more sense to read the legislation before approve you it? It's like asking the architect to design the house after it is already built."

    -Paris Hilton


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    Coming Soon: Alexander Hamilton's Golden Rule


    Steve Forbes Waxes Eloquently on the Gold Standard

    Can the Wisdom of Shooter Hamilton Help Us Calm the Storm?

    Alexander HamiltonAs Rupert Murdoch, Nouriel Roubini and George Soros see the econolypse on the horizon, it is pretty damn clear that you can't run and you can't hide. The degrees of financial interdepence have doomed us to reconsider everything we held sacred about Capitalism. From Adam Smith's Invisible Hand to the radicapitalist Ayn Rand to Gordon "Greed is Good Buddy Boy" Gekko we are being forced to re-evaluate, re-assess and re-imagine, well, virtually everything. We are in a world of post-Newtonian financial physics and new paradigms will emerge not yet considered. I was always astounded by Milton Friedman's opening true parable called "The Island of Stone Money" about the Island of Yap in his book "Money Mischief". (Just read pages 3-7 and you'll get the idea.) 

    So the world financial system is stuck in the netherzone.  Unknown minds and faces will have to fidure this one out simply because all the regular suspects have been thoroughly discredited.  How cool is this going to be? All options are on the table. We will start series of thought experiments about what a capitalistic future might look like. By the time we're done you'll hardly recognize the place.



    Hamilton Got It Right--Why Can't We?

    By Steve Forbes

    In his stirring inaugural address President Barack Obama called for a new era of responsibility. One area in which that admonition is badly needed is the integrity of the dollar. From the days of Alexander Hamilton to the 1960s it was an article of faith that the dollar should be strong and stable; this could be reliably achieved only by anchoring it to gold. Weak, volatile and eventually worthless money has been the bane of countries throughout history. Hamilton and his successors recognized that a firm dollar was an essential foundation for a lawful society and for economic progress. True, Franklin Roosevelt in 1933--34 played with the greenback as if it were a delightful toy. But that short-lived experiment didn't work, and during World War II the dollar's tie to gold was reaffirmed by the Bretton Woods international monetary system.

    In the 1960s the idea took hold that a flexible greenback could help generate perpetual economic growth. Ignored were centuries of experience: Fooling with money invariably has unpleasant, unintended consequences and does more harm than good.

    The Nobel Prize winner Milton Friedman rightly admonished us that inflation was purely a monetary phenomenon: If a central bank prints too much money, you're in trouble; if it doesn't, money retains its value.


    to read article in its entirety:




    Buffet Part II


    Rod Serling Redux: Negative Nominal Interest Rates Part II

    But it's not possible!

    Oh yes it is!!!! (Coming Soon to a Central Bank Near You)

    Negative Nominal Interest Rates: You Get Back Less Than You Invest but by Design Rather Than Surprise


    This introduction to my favorite TV show from the 60's still creeps me out 40 years later:


    Is  Washington starting to run out of ideas?  As every conceivable monetary, fiscal and taxation policy tool has been thrown up against the wall including the kitchen sink,here's one they haven't floated that may be worth a look: Now may be the perfect time to  implement a bold new experiment utilizing a theoretically  heretical policy tool-- Negative Nominal Interest Rates (NNIR). You get back less than you invest but on purpose.  What a welcome relief to investors who have become used to getting back less than they invest as a matter of standard operating procedure. At least they would know what they weren't getting back!  No surprises which as we know: just as nature abhors a vaccuum all investors hate surprises.

    Take a look at our  entry from December 11, 2008 where we initially discussed this  theortical possibility of  negative nominal interest rates. I have been intrigued with this theory for nearly 20 years and see it as a real possible anti-dote to a financially necrotic set of policy tools.  This powerful prescription has little prededent (but some-- check out 1947 in Chicago) and I am pushing it around to radicapitalists and trend setters to take a second serious look. One of the leading ecomomic theorist is Marco Bessetto . Here is his research paper presented to NBER in 2004.  http://www.nber.org/~bassetto/research/negrates/negrates.pdf

    So as a thought experiment imagine a 400 bp yield curve starting at -2% sloping upward to +2%.  Then imaging the discontinuity of using 0% as the rate of discount.  NPV of periodic cash flows would equal the aggregate undiscounted summation through infinity. It's a little bit like the speed of light. Alternating cash flows as fiancial geeks represent multiple internal rates od return.  Kind of like  imaginary numbers in algebra  (very different than the imaginary numbers they use at the rating agencies).  We are approaching a new zone of a post-Newtonian framework where really weird things start to happen.  Stay tuned as you will here a lot more about this unprecedented monetary tool , a secret weapon of sorts, as we move further and deeper into the twilight zone.



    Here is a replay of an EPD article  from nearly six weeks ago written back in 1999

    By Daniel L. Thornton

    January 1999

    Can nominal interest rates be less than zero? Many people would argue not, reasoning that no one would invest $100 today with a promise of receiving only, say, $99 in one year, given the alternative of simply holding the $100 in cash. Yet, rates on short-term Japanese government bills recently were negative, and several foreign-owned banks in Japan have paid negative nominalinterest rates on yen deposits.

    Read Full Article at: http://research.stlouisfed.org/publications/mt/19990101/cover.pdf


    WTF? NEWS FLASH : Geithner Confirmantion Not Exactly a Confidence Inspiring Vote: 60-34


    Published Irregularly Weather or Not We Feel Like ItAny Damned Time We Please

    Important Dislaimer: In case any reader doesn't quite get it, this is parody protected under the first amendment of the Constitution of United Statements of America. If you don't like the law then feel free to go try and change it. If you are interested in further information on freedom of the press we suggest you start with John Milton's masterful essay "Areopagitica" (1644) http://www.uoregon.edu/~rbear/areopagitica.html

    Geithner's "Doogie Howser Problem"; In Serious Need of Reverse Botox

    Can Market Confidence Be Restored by New Secretary of Treasury Through TV Nostalgia?


    [Timothy Geithner]http://theintvduals.files.wordpress.com/2008/02/doogie-howser-md.jpg

    Timothy Geithner      Doogie Howser MD

    With hardly a  resounding vote of confidence, a Senate confirmation vote of 60 for 34 against, placed  our delicate  futures in the delicate hands of Timothy Geithner, the H & R Block DIY-not poster child.  The incredibly smart, policy wonkish but thoroughly Paulson-tainted Geithner limped across the finish line to be confirmed as Secretary of the Treasury.  The once master-of the-universe Paulson  should have stayed on Wall St.  Paulson turned out to be  quite the blithering idiot savant of the ill-reasoned, conflict laden bail-out imbroglio.  Do we see a pattern here people? Paulson, Rubin, Fuld, Thain etc. Good at one job doesn't necessarily make you good at another. Replacing Paulson with  Donald Duck probably would have sent the market soaring and have achieved a better Senate confirmation ratio than Geithner's.  Rumors of a Quinnipiac pole , most likely apocryphal,  suggested Donald Duck would have been confirmed at 72 for 26 against and 2 abstentions.  Without a resolute vote of confidence--  how about somthing more like 98 for 2 against  or even 89 for 11 against-- where does that leave us? Have  you ever tried to paddle a canoe with a crow bar?

    But we refuse to throw the baby out with the bath water which gets to the heart of the part of the matter. He just looks too damn young.  Another rumor  has it that a good portion of those voting against Geithner felt he bore an eeirie resemblance to  Doogie Howser MD but even younger.  An unidentified Senator voting against Geitner was overheard saying to an on-the-fence colleague. "I would rather let Doogie Howser perform a pre-frontal lobotomy on me with a jackknife than place the restoration of confidence in the global  markets in Geithner's hands."  So we just need to make hi, look older, tougher and a little bit grizzly.  Someone who would elegantly bite the head of a chicken off with his bare teeth-- but only if he needed to.  Any doubts Sarah Palin would qualify on that front? So what can we do.  He's our guy.

    Two things I can think of:  First  is we put Geithner into an episode of "Nip and Tuck", and weather and leather him him up a bit. Do a "makeunder" instead of a makeover. Not that I have a man crush or anything but he's just too pretty and delicate looking for the job but in a good way, a much manlier way than devil-dog John Edwards (who you just wanted to go over and mess up his his hair). There must be a new strain of botulism out there somewhere -- a highly virulent one- that can act act as a reverse botox agent. Let's get some real lines in that forehead. Put a few scars on his face, a few pock-marks. And please get rid of the spread collars. Where is Andre Leon Talley when you need him?


    Second thing is Geithner should  turn to the golden years of network television (an archaic term) for some inspiration. If he looks like Doogie Howser than let's just go for it. 

    For those of you who are a little rusty or just too young here is a clip from the inspirational series Doogie Howser MD:


     BTW, remember Winnie Cooper  from that other high-nostalia coming-of-age TV show The Wonder Years?   Danica McKellar, who played the role of  Winnie recently came out of the closet so to speak as a bona fide math genius who is now hawking a best-selling series of inspirational books for high school girls traumatized by the subject of math.  The series is called, I kid you not, Kiss My Math, which is exactly what every red-blooded young America boy wanted to do except Doogie,who in real ife as  Patrick O'Neal also came out of the closet. That  explains alot of things.

    So what's the point here?  Perhaps Geithner could bring in Danica McKellar to replace Neel Kashkari as the head of TARP. Check out Danica/Winnie's 1998 mathematical dissertation  on "Percolation and Gibbs states multiplicity for ferromagnetic Ashkin-Teller models on \mathbb{Z}^2".   I bet good ole Winnie could sort out $700 billion  of these toxic securities in a heart-beat.







    Danika McKellar aka Winnie Cooper before and after



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    JANUARY 27, 2009

    Geithner Confirmed as Treasury Secretary


    WASHINGTON -- The Senate confirmed Timothy Geithner as President Barack Obama's Treasury secretary by a 60-34 vote, paving the way for the new administration to usher in its financial-rescue plan.

    With Mr. Geithner now officially on board, the Obama administration is expected to detail shortly efforts to shore up the financial sector. In his first move, the Treasury Secretary is expected Tuesday to announce new rules intended to curb the influence of lobbyists and special interests in determining who gets aid from the government. The new efforts, part of Mr. Obama's plan to revamp the financial bailout, are aimed at ensuring that investment decisions are based on what is best for the stability of the financial system, rather than on any type of political influence.

    Possibly as soon as this week, the Obama administration will also announce its own approach to the crisis, including possibly asking Congress for additional funds to supplement the $350 billion that lawmakers recently approved.

    Mr. Obama's rescue is expected to focus on helping homeowners and bolstering financial institutions so they are willing to lend to consumers, businesses and each other. The Obama plan is expected to include a mix of efforts, including more capital infusions into banks and relieving firms of the toxic assets clogging their books.

    The White House on Monday left the door open for a request for additional funds. White House spokesman Robert Gibbs said "there may also be additional steps that are taken outside of" the $350 billion to address the financial crisis.

    The 60-34 vote speaks to the controversial nature of Mr. Geithner's nomination after disclosures that he failed to pay some employment taxes in a timely manner while working for the International Monetary Fund. The bulk of the dissent came from Republicans, but three Democrats broke with their party to vote against Mr. Geithner.

    Meanwhile, Mr. Geithner's confirmation will free the Federal Reserve Bank of New York to announce his successor as president of the regional Fed bank. William Dudley, a former Goldman Sachs economist who runs the New York Fed's influential markets desk, is likely to get the job. An announcement is likely Tuesday.

    The New York Fed is the Federal Reserve's eyes and ears on Wall Street, and the markets desk has been in charge of implementing many of the Fed's new lending and investment programs, making the job one of the most important in central banking.

    The choice of Mr. Dudley gives the New York Fed an assurance of continuity at a tumultuous time at the bank. Several of the Fed's biggest programs -- including one aimed at boosting the consumer loan market and another supporting mortgages -- are still in the process of being ramped up. Mr. Dudley is known inside the Fed and at Goldman as a tenacious pragmatist who has logged long hours during the financial crisis and developed a strong relationship with Mr. Geithner.

    The Obama administration is still wrestling with the details of its rescue, including how to help struggling firms without making the U.S. the de facto owner of the banking industry. With bank stocks low and bank capital needs high, additional government investments could give the U.S. effective control over financial firms, something the administration would like to avoid on a large scale.

    Among the ideas being discussed, according to industry officials, is a two-pronged approach that would allow the government to both purchase assets through a "bad bank" entity and also guarantee assets against further losses. This would allow the government to deal differently with securities, such as those backed by real-estate and other assets, and loans, including commercial and residential mortgages. Both options are designed to put banks on a firmer footing, which in turn would prompt them to lend more and could encourage private investors to come back into the industry.

    "They are probably going to do everything and use every tool," said Tom Gallagher, a policy analyst with ISI Group in Washington, D.C.

    The government used asset guarantees in its rescues of Citigroup Inc. and Bank of America Corp. In both instances, the government agreed to share losses with the banks on a certain group of assets. The banks agreed to take the first hit, and taxpayers are on the hook for much of the rest. In the case of Citigroup, the total amount of assets protected is more than $300 billion.

    Under the bad-bank plan, the government would create an entity to purchase assets, possibly using money from the $350 billion remaining in the Troubled Asset Relief Program and having the entity raise money by selling government-backed securities.

    The concept is rife with problems, including what price the government should pay. If the government pays too low a price, banks may have to take deeper write-downs than they have already, exacerbating their financial woes. But if the prices are too high, then banks -- and their shareholders -- are benefiting at taxpayer expense.

    The administration is also planning additional capital injections, which it views as necessary to restart the market for lending. But that, too, raises concerns, given the low stock price of the banks and their capital needs. The government already owns a significant chunk of Citigroup and Bank of America, as well as American International Group Inc. and Fannie Mae and Freddie Mac. Injecting enough money to shore up the banks in exchange for an equity stake could nationalize chunks of the banking sector.

    "They'll try to avoid full-frontal nationalization. But I don't think that means they'll oppose having some banks become nationalized," Mr. Gallagher said.

    —Jon Hilsenrath and Joann S. Lublin contributed to this article.

    Write to Deborah Solomon at deborah.solomon@wsj.com



    Coming Soon- Stickman's Financial Reformation

    Stickman's "95 Theses": a Reformation of the Global Financial System

    On October 31, 1517 Martin Luther nailed his "95 Theses" on the doors of the Castle Church in Wittenberg, Germany as a protest criticizing the abuses by and rampant corruption of the Pope Leo and the Roman Catholic Church in general. (Neither the Pope nor the Church nor the were particularly amused). Especially annoying to Luther was the Church's practice of selling "indulgences" (a little cetificate that said you can buy your own way or that of beloved others out of damnation for a small contribution to help finance the massive renovation of St. Peter's Cathedral as well as other Vatican operating deficits). It was in effect like trading carbon credits or excess development rights-- a surplus of good works could be transferred to transgressors at prevailing market prices. It was intended to be a pay-as-you go plan but kept falling short of its targets. (In effect the Pope's ingenious fundraisng campaign led to the modern financial debt markets). But the virtually-unknown Luther didn't see it that way and wanted to reform these corrupt practices. Hence the Protestant-Catholic conflict began. And the world has never been the same since.

    For a little refresher for those who haven't committed Luther's "95 Theses" to memory, here is a link for your convenience  http://www.iclnet.org/pub/resources/text/wittenberg/luther/web/ninetyfive.html


    This small act of defiance by Luther (a halloween prank of sorts) led to a massive reformation of the the entire global order of everything. Luther's "who needs the middle men?" attitude has a resemblance to the global banking system. Perhaps we can learn a few things from Martin Luther and his "95 Theses." But Luther's Protestant movement resulted in the one of the driving forces of capitalism as the historian/ sociologist Max Weber identifies in his 1904 masterpiece, The Protestant Ethic and the Spirit of Capitalism. Perhaps we can use Luther's insight and create a Reformation 2.0 to address some of the corruption and abuses that have destroyed our once-brilliant experimental system of allocating resources known as capitalism that encouraged every man for himself. That experiment has failed.


    So new experiments are flowing from Washington on a daily basis trying to solve the daunting challenge of preservation of civilization. We intend to help separate the feces from the theses by looking through Martin Luther's lens (with a little humor thrown in for good measure) Gotta keep these guys honest. We've got a few good ideas of our own. We will invite readers to submit their ideas as well. If we can't fix this sucker with the new "95 Theses" and the Financial Reformation then what the hell good are we?

    Coming Soon from EPD


    EPD Best Book Ever on Irrational Decision Making Says the Wall Street Journal

    We're #1!!!

    Undefeated and Still Champion for 168 Years

    According to the WSJ "Extraordinary Popular Delusions and the Madness of Crowds" remains the Bible for Bubblists 168 years after its initial publication in 1841. Our namesake masterpiece and inspiration by John MacKay (and now-trademarked Financial Fountain of Truth) has been named as  the topper on the most recent WSJ list of the five best books on irrational decision making.   A moment of silence please as we congratulate ourselves for this great honor and  recognition as the all time best book on financial and other insanities. Paris Hilton has asked to accept the award in our honor at the WSJ Award Ceremony and make a brief statement on the condition of the world financial crisis.


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    Books on Irrational Decision-Making


    These books on irrational decision-making are eminently lucid, says Jonah Lehrer.


    1. Extraordinary Popular Delusions and the Madness of Crowds
    By Charles Mackay

    There is nothing modern about financial bubbles. In this classic work, Charles Mackay compiled an exhaustive list of the "schemes, projects and phantasies" that are a recurring theme of economic history. From the tulip mania of 17th-century Holland, in which 12 acres of valuable land were offered for a single bulb, to the South Sea Bubble of 18th-century England, in which a cheerleading press spurred a dramatic spike in the value of a debt-ridden slave-trading company, Mackay demonstrates that "every age has its peculiar folly." He notes that even the most intelligent investors are vulnerable to these frenzies of irrational exuberance: Isaac Newton is reported to have lost a small fortune after the South Sea Co. went bust.

    2. Judgment Under Uncertainty
    By Daniel Kahneman, Paul Slovic and Amos Tversky
    Cambridge, 1982

    It's hard to overstate the influence of this academic volume, which revealed many of the hard-wired flaws that shape human behavior. For one thing, authors Daniel Kahneman, Paul Slovic and Amos Tversky -- all of them psychologists -- almost single-handedly dismantled the assumption of "rational man," which had been the standard view of human nature since Plato. In experiment after experiment, the psychologists demonstrated that, unlike the hypothetical consumers in economics textbooks, real people don't treat losses and gains equivalently, or properly perceive risks, or even understand the basic laws of statistics -- with sometimes severe consequences. For example, the failure of many investors to properly weigh losses -- people are irrationally loss averse -- makes these investors much more likely to sell stocks that have gone up in value. This leads, over time, to a portfolio composed entirely of shares that are declining in value, which is why the stocks that these investors sell tend to significantly outperform the stocks that they keep.

    3. How We Know What Isn't So
    By Thomas Gilovich
    Free Press, 1991

    Thomas Gilovich is an eminent psychologist at Cornell University, but he is also a lucid writer with a knack for teaching the public about its own mental mistakes. Consider the hot-hand phenomenon in basketball: Most fans are convinced that a player who has made several shots in a row is more likely to make his next shot -- he's in the zone, so to speak. But Gilovich, employing an exhaustive analysis of the 1980-81 Philadelphia 76ers, shows that this belief is an illusion, akin to trying to discern a pattern in a series of random coin flips and then predicting what the next flip will bring. The same logic also applies to "hot" mutual-fund managers, who are wrongly convinced, along with their customers, that they can consistently beat the market.

    4. The Winner's Curse
    By Richard H. Thaler
    Princeton, 1992

    In 2000, the Texas Rangers signed Alex Rodriguez to the richest contract in baseball history after participating in a blind auction. If the team had consulted Richard H. Thaler's "The Winner's Curse," it would have known that such auctions invariably lead to irrational offers -- and, indeed, the Rangers' bid (a 10-year contract for $252 million) overshot the next highest offer by about $100 million. In addition to documenting how bidders at auctions operate, Thaler -- a behavioral economist at the University of Chicago -- examines other anomalies, such as the stock market's seasonal fluctuations (nearly one-third of annual returns occur in January) and the surprising unselfishness of people playing economic games. When given $10 and told to share the money with someone else, most people don't keep it all, or even most of it. Instead, they tend to split the cash equally, which is neither selfish nor rational. As Thaler notes, people have a powerful instinct for generosity, which can lead them to do things that flagrantly violate the model of Homo Economicus.

    5. Predictably Irrational
    By Dan Ariely
    HarperCollins, 2008

    Dan Ariely is a mischievous scientist: He delights in duping business students, getting them to make decisions that, in retrospect, seem utterly ridiculous. In "Predictably Irrational," an engaging summary of his research, Ariely explains why brand-name aspirin is more effective than generic aspirin even when people are given the same pill under different labels (paying more produces the expectation of better results, and the headache complies), and why the promise of getting something without paying for it -- such as free shipping, or a free T-shirt if we buy two other shirts -- prompts shoppers to spend more money than they would have in the absence of the offer. (In other words, we go broke trying to save a buck.) In one of his most famous experiments, Ariely showed how exposing people to a few random digits can later dramatically influence how much they bid for wine: Higher numbers lead to higher bids. The lesson, Ariely says, is that the rational brain is a feeble piece of machinery.

    Mr. Lehrer is the author of "Proust Was a Neuroscientist." His latest book, "How We Decide" (Houghton Mifflin), will be published next month.