We live in interesting times...

The Saga Of The Bearer Bonds

(In the stranger than fiction files: Two Japanese men were caught trying to leave Italy with $134 billion in US bearer bonds, whose origins are not yet known... Whose are they? Where did they come from? Are they real?)

Who needs whom?

There is some noise here about credit card companies finding ways to charge fees to people who pay off their balances each month: Credit Card Industry Aims to Profit From Sterling Payers

Credit cards have long been a very good deal for people who pay their bills on time and in full. Even as card companies imposed punitive fees and penalties on those late with their payments, the best customers racked up cash-back rewards, frequent-flier miles and other perks in recent years.

Now Congress is moving to limit the penalties on riskier borrowers, who have become a prime source of billions of dollars in fee revenue for the industry. And to make up for lost income, the card companies are going after those people with sterling credit.

To which I say, good luck. I pay off my balances each month, and if they really do start charging me fees, I will cancel my cards and just use cash instead. Maybe I am of little value to them, since I don't really ever pay interest or late fees, but many people act like I do, I'm not sure how this will get them that much more money.

Incidentally, a lot of free-market sympathy for them as businesses went away once I realized that the changes to bankruptcy law made their loans more secure. Charging 18% for unsecured debt is one thing; It's another to charge that for debt that has been in many ways secured by means-tested bankruptcy laws.

Also, the point behind this rather tone-deaf quote is wrong:

People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee even as they collect points for air travel and other perks.

“Despite all the terrible things that have been said, you’re making out like a bandit,” he said. “That’s a third of credit card customers, 50 million people who have gotten a great deal.”

Merchants have to pay fees in order to use credit cards, and guess who pays those fees? That's not much of a free ride.

The picture frame matters alot

Here's something to keep in mind with the relentless news cycle about how bad everything is: It isn't that bad. Yes, things are messed up and I appreciate that this is done to advance the political agenda, but the Hooverville "crisis" talk is way out of proportion and I suspect that the unintended consequences of our remedies will be more of a problem than the problems they are intended to fix.

In fact, my rule, if it doesn't exist already, is that social planning's intended and unintended consequences are comparable, and the way to bet is that the outcome is that it won't be better than you expect. Or, to put it glibly, government is kinda like chemotherapy.

Winter's coming

Via Spengler, here's a plot of two demographic age groups in the US and their ratio. He really should plot them on a zero to max scale, but I think we're turning Japanese, I really think so - at least in terms of our aging boomer population. The upshot is that I am not going to retire by selling a house. And the stock markets correlate well with the total population, which will level off and start to fall in the years to come - so where would you put your 401K?

Overall the implication is grim, although I think Spengler is too pessimistic about the US - he does have a pseudonym to live up to. I think the global US advantage will be maintained, which is a very tarnished silver lining, since it implies greater global poverty. This in turn implies that we can let young people immigrate in order to restore a semblance of a traditional age-distribution, but this is saving the wealthy (US) at the expense of the poor.

The other factor is that people are just as irrationally pessimistic in a recession as they are irrationally optimistic during a boom. We are also de-escalating in Iraq, and although there may be other storms brewing, there might be a peace dividend there too.

Political hypothesis

There is now a car-czar, or will be, to go along with our "drug-czars" and "education-czar" and "energy-czar" and "homeland security-czar". This is obviously kabuki jargon for "person placed in charge of a hopelessly daunting task that any examination of the political landscape will reveal to be essentially intractable without the socio-economic equivalent of Mt St Helen's blowing up."

So, is there anything or anyplace or anytime where the existence of a czar, with or without Faberge eggs, hasn't meant that the whole enterprise is doomed?

BTW, the automaker bailout is doomed. I don't see why bankruptcy is any worse for them than it is for the airlines. I'd be happy to list other reasons why I don't think it's a good idea, but that's sorta moot. You have to drink a lot of kool-aide to think that this "loan" will turn things around.

In any case, there's a political inevitability to it, even though it seems oddly capricious to me: our bailouts are going to be allotted like those service industry jobs where you tip them customarily, even though there are plenty of other folks who you don't. Waiters, yes; Grocery clerks, no. Cab drivers, yes; Bus drivers, no. Etc and so forth.

An unsustainable system must, by definition, come to a stop

The current state of GM, Chrysler, and Ford:

It's like a disgusting game of musical chairs where there are three people—a current employee, a manager, and a retiree—and the retiree is already sitting down in the only chair while the music's still playing.

NB, earlier, while the song was playing, management and the current employee destroyed one of the two available chairs. Same difference. See also Social Security.

apropos of nothing

A Flaw Appears in My Long Term Financial Plan

Mo' money, mo' problems: Cash windfall can lead to downfall -

"Roughly one-third of lottery winners find themselves in serious financial trouble or bankrupt within five years of turning in their lucky numbers, according to Chelmsford wealth counselor Szifra Birke."

Famously, Jack Whittaker burned through $300M in five years and wishes he hadn't won now. In his book on happiness, Daniel Gilbert mentions that about a year after winning the lottery, you return to your base level of happiness, which is also true about a year after someone has been paralyzed. And yet no one enters lotteries to become paralyzed (unless you count skiing).

Google This

Point:

Google 3Q Profit Soars 46 Percent

By MICHAEL LIEDTKE
AP Business Writer

SAN FRANCISCO (AP) -- Less than two weeks after its stock price smashed through $600 for the first time, Google Inc. showed why it might not be long before the Internet search leader's shares are flirting with $700.

Counterpoint:

The Microsofting of Google
Why two companies ought to surf drunkensailors.com.

BY HOLMAN W. JENKINS JR.
Wednesday, October 17, 2007 12:01 a.m. EDT

[...]

What Google and Microsoft do have in common could be called the curse of network effects, namely network costs.

Microsoft continues to pour billions into Windows, adding features most users don't know exist, while spending millions of man-hours to remain "backward compatible" with thousands of aging programs and devices used by ever shrinking numbers of customers.

Google, for its part, spends billions to refine its search engine while adding acres and acres of servers to catalog the world's ever widening surplus of ever less-interesting Web pages.

Combined with DoubleClick, Google could create an ever more compendious record of what users do on the Web. But even given the declining cost of storage, would this mountain really yield commensurate value in helping the company target users with ads they might respond to? Probably not. The devil theory depends on the likely mistaken idea that collecting and storing information on Web users has increasing, rather than diminishing, returns.

The two companies are similar in another way. Like Microsoft, Google has shown a Howard Hughes-like propensity to throw money in every direction in a quest to secure its privileged existence.

In Microsoft's case, think Xbox, the Zune music player, MSNBC, the MSN Internet service, as well as countless startup acquisitions that disappeared into the Redmond maw never to be heard from again. Lately Microsoft has decided the Web business of the future is advertising. Hence the $6 billion aQuantive acquisition.

Google bought YouTube for $1.65 billion and claims one day it will make money from advertising, but for now it bears the rapidly increasing cost of storing and serving billions of videos most of which are watched by nobody. Google has courted similar unrequited expenses to bring users free business software, email, WiFi, a forthcoming telephone, a bruited national wireless network, all in theory to be supported by ad revenues.

A law of nature that leads to fruitless spending? No, a law of corporate governance. With founders entrenched in a controlling position, such companies don't see their luck for what it is and channel their winnings to shareholders. Instead they squander their abnormal returns hoping to make lightning strike again, and end up with a collection of low- or no-return businesses to show for their trouble.

Personally, I'm going to stick to my lottery ticket investment strategy. It hasn't paid off yet, but I'm in it for the long-haul.

Superposition LOLCAT

Via the internet and the vacuum ground state.

The Secondary Directives

The Laws of Software Development. I had not heard of Zawinski's law,

Zawinski’s Law

Jamie Zawinski

Every program attempts to expand until it can read mail. Those programs which cannot so expand are replaced by ones which can.

On the job training

You do what you got to do: "Doc" Lipes Commandeers a Submarine Officers' Wardroom

Wheeler "Johnny" Lipes, had neither the formal training, the equipment, nor the urge to become a surgeon.

But when one of his ship mates came down with acute appendicitis 120-feet below the South China Sea, with enemy warships circling above - he had no choice. He had to do what needed to be done or his shipmate would die.

It was the first major surgery ever preformed aboard a submarine. And it was performed by a man who stepped up to the job.

A Question of Etiquette

So I went to pay for a DVD and fished a tenner out, which happened to be one of the older, small-portrait tens. The young woman at the check stand then looked at it closely. She rubbed it between her fingers and held it up to the lights. She looked at me suspiciously:
"So, this must be one of the old ones?" She asked as if I had just handed her a Confederate Dollar.
"Uh, yes," I replied with my usual eloquence. This didn't seem to be the right answer, as more finger rubbing and pursing of lips ensued.

I laughed, because (A) while I hadn't seen one in awhile, that bill was circa 1999, which isn't yet ancient history and so now I felt old, and (B) how is one supposed to respond to the implication that you are trying to pass counterfeit money? Anything I could think of to say seemed like the wrong answer (I am sure laughing hadn't helped), so I just stood there until she finally accepted it and I walked out.

The Axiom of Choice

Fun thing to think about for today: The Axiom of Choice. Math is a lot like Perry Mason - he gets you in the witness stand, and asks you if you like chocolate. It goes like this

1. You answer.
2. ???
3. You confess to the murder: "I'm not stupid! Could a dumb person have killed her like I did?!"

We are the Hamilton Burgers of reality [1]. Again, it starts innocently enough:

Let X be a set of non-empty sets. Then we can choose a single member from each set in X.

Which sounds fairly dry, but hang with me here. For one thing, the axiom says nothing about how to choose each element; It only says that it is possible to do so. It's easy to see this with finite sets or well-ordered sets (e.g., the positive integers), but the axiom also applies to sets like the real numbers, which are uncountably infinite and not well ordered (see the article for details) . This means that we accept the existence of a function, called the choice function, that we may have no idea of how to implement. And so?

One reason that some mathematicians dislike the axiom of choice is that it implies the existence of some bizarre counter-intuitive objects. An example of this is the Banach–Tarski paradox which says in effect that it is possible to "carve up" the 3-dimensional solid unit ball into finitely many pieces and, using only rotation and translation, reassemble the pieces into two balls each with the same volume as the original. Note that the proof, like all proofs involving the axiom of choice, is an existence proof only: it does not tell us how to carve up the unit sphere to make this happen, it simply tells us that it can be done.

Which would be a nice trick, because you wouldn't conserve mass, for instance. The paradox is generally thought to resolve itself because to it's not physically possible to cut a real, atomic object into the necessary pieces - but, it may not be as reassuring as you would hope:

At first glance, the Banach-Tarski result seems to contradict some of our intuition about physics -- e.g., the Law of Conservation of Mass, from classical Newtonian physics. If we assume that the ball has a uniform density, then the Banach-Tarski Paradox seems to say that we can disassemble a one-kilogram ball into pieces and rearrange them to get two one-kilogram balls. But actually, the contradiction can be explained away: Only a set with a defined volume can have a defined mass. A "volume" can be defined for many subsets of R³ --- spheres, cubes, cones, icosahedrons, etc. --- and in fact a "volume" can be defined for nearly any subset of R³ that we can think of. This leads beginners to expect that the notion of "volume" is applicable to every subset of R³. But it's not. In particular, the pieces in the Banach-Tarski decomposition are sets whose volumes cannot be defined.

Which is certainly good news for my investment in Krugerrands [2]... But it still unsettling that this paradox exists. But what about it's negation? Quoting from the Wikipedia article again:

On the other hand, the negation of the axiom of choice is also bizarre. For example, the statement that for any two sets S and T, the cardinality of S is less than or equal to the cardinality of T or the cardinality of T is less than or equal to the cardinality of S is equivalent to the axiom of choice. Put differently, if the axiom of choice is false, then there are sets S and T of incomparable size: neither can be mapped in a one-to-one fashion onto a subset of the other.

This is somewhat more than a curiosity too because many fundamental results are derived using this axiom. You can take an agnostic approach, and that's what many mathematicians choose to do (not unlike quantum mechanics), but it results in that many questions are then undecidable. Undecidable questions are okay, because at the basis of what we consider to be common sesible are many such statements that we accept as true and then move forward to derive more complicated results (trivial and non-trivial[3]). But it seems strange here that even if you assume the statement, either way you have paradoxical results.
--
[1] Random thought - which is more futile: Burger's 10-year prosecutor's losing streak, the Washington Generals million game losing streak versus the Harlem Globetrotters, or the Nazi's on the History Channel?
[2] Actually my long term investment plan is to buy lottery tickets where the take-home value of the jackpot divided by the odds of winning is greater than the cost of a ticket. It could happen.
[3] Any result you've derived is trivial; Anything I haven't is non-trivial.