Continuous Productivity

She is a Strikeout Queen

A female baseball player that throws a nasty knuckleball:

Geitner Plan Explained

One of the best explanations of the government involvement in attempting to stabilize the economy:

Q: What is the Geithner Plan?

A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.

Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?

A: Then we have worse things to worry about than government losses on TARP-program money--for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.

Q: Where does the trillion dollars come from?

A: $150 billion comes from the TARP in the form of equity, $820 billion from the FDIC in the form of debt, and $30 billion from the hedge fund and pension fund managers who will be hired to make the investments and run the program's operations.

Q: Why is the government making hedge and pension fund managers kick in $30 billion?

A: So that they have skin in the game, and so do not take excessive risks with the taxpayers' money because their own money is on the line as well.

Q: Why then should hedge and pension fund managers agree to run this?

A: Because they stand to make a fortune when markets recover or when the acquired toxic assets are held to maturity: they make the full equity returns on their $30 billion invested--which is leveraged up to $1 trillion with government money.

Q: Why isn't this just a massive giveaway to yet another set of financiers?

A: The private managers put in $30 billion, but the Treasury puts in $150 billion--and so has 5/6 of the equity. When the private managers make $1, the Treasury makes $5. If we were investing in a normal hedge fund, we would have to pay the managers 2% of the capital and 20% of the profits every year; the Treasury is only paying 0% of the capital value and 17% of the profits every year.

Q: Why do we think that the government will get value from its hiring these hedge and pension fund managers to operate this program?

A: They do get 17% of the equity return. 17% of the return on equity on a $1 trillion portfolio that is leveraged 5-1 is incentive.

Q: So the Treasury is doing this to make money?

A: No: making money is a sidelight. The Treasury is doing this to reduce unemployment.

Q: How does having the U.S. government invest $1 trillion in the world's largest hedge fund operations reduce unemployment?

A: At the moment, those businesses that ought to be expanding and hiring cannot profitably expand and hire because the terms on which they can finance expansion are so lousy. The terms on which they can finance expansion are so lazy because existing financial asset prices are so low. Existing financial asset prices are so low because risk and information discounts have soared. Risk and information discounts have collapsed because the supply of assets is high and the tolerance of financial intermediaries for holding assets that are risky or that might have information-revelation problems are low.

Q: So?

A: So if we are going to boost asset prices to levels at which those firms that ought to be expanding can get finance, we are going to have to shrink the supply of risky assets that our private-sector financial intermediaries have to hold. The government buys up $1 trillion of financial assets, and lo and behold the private sector has to hold $1 trillion less of risky and information-impacted assets. Their price goes up. Supply and demand.

Q: And firms that ought to be expanding can then get financing on good terms again, and so they hire, and unemployment drops?

A: No. Our guess is that we would need to take $4 trillion out of the market and off the supply that private financial intermediaries must hold in order to move financial asset prices to where they need to be in order to unfreeze credit markets, and make it profitable for those businesses that should be hiring and expanding to actually hire and expand.

Q: Oh.

A: But all is not lost. This is not all the administration is doing. This plan consumes $150 billion of second-tranche TARP money and leverages it to take $1 trillion in risky assets off the private sector's books. And the Federal Reserve is taking an additional $1 trillion of risky debt off the private sector's books and replacing it with cash through its program of quantitative easing. And there is the fiscal boost program. And there is a potential second-round stimulus in September. And there is still $200 billion more left in the TARP to be used in other ways.

Think of it this way: the Fed's and the Treasury's announcements in the past week are what we think will be half of what we need to do the job. And if it turns out that we are right, more programs and plans will be on the way.

Q: This sounds very different from the headline of the Andrews, Dash, and Bowley article in the New York Times this morning: "Toxic Asset Plan Foresees Big Subsidies for Investors."

A: You are surprised, after the past decade, to see a New York Times story with a misleading headline?

Q: No.

A: The plan I have just described to you is the plan that was described to Andrews, Dash, and Bowley. They write of "coax[ing] investors to form partnerships with the government" and "taxpayers... would pay for the bulk of the purchases..."--that's the $30 billion from the private managers and the $150 billion from the TARP that makes up the equity tranche of the program. They write of "the Federal Deposit Insurance Corporation will set up special-purpose investment partnerships and lend about 85 percent of the money..."--that's the debt slice of the program. They write that "the government will provide the overwhelming bulk of the money — possibly more than 95 percent..."--that is true, but they don't say that the government gets 80% of the equity profits and what it is owed the FDIC on the debt tranche. That what Andrews, Dash, and Bowley say sounds different is a big problem: they did not explain the plan very well. Deborah Solomon in the Wall Street Journal does, I think, much better. David Cho in tomorrow morning's Washington Post is in the middle.

Context

This is spectacular. I'm fascinated by human alarmist attitudes just because the news media tells them to be alarmist:

Manufacture a Baby

A company out in California is allowing you to pick the traits of your next child:

...a couple might want to have a baby with a darker complexion to help guard against a skin cancer if they already had a child who had developed a melanoma. But others might just want a boy with blonde hair.

His clinic is offering this cosmetic selection to patients already having genetic screening for abnormal chromosome conditions in their embryos.

Humans Like Being Lemmings

I have always been fascinated by human-herding mentality. The question of "loyalty" to institution, or party, or brand is of deep interest to me. Now, there is some scientific evidence to back up some of my thoughts:

Scott Wiltermuth of Stanford University in California and colleagues have found that activities performed in unison, such as marching or dancing, increase loyalty to the group. "It makes us feel as though we're part of a larger entity, so we see the group's welfare as being as important as our own," he says.

Wiltermuth's team separated 96 people into four groups who performed these tasks together: listening to a song while silently mouthing the words, singing along, singing and dancing, or listening to different versions of the song so that they sang and danced out of sync. In a later game, when asked to decide whether to stick with the group or strive for personal gain, those in the non-synchronised group behaved less loyally than the rest (Psychological Science, vol 20, p 1).

Psychologist Jonathan Haidt at the University of Virginia in Charlottesville thinks this research helps explain why fascist leaders, amongst others, use organised marching and chanting to whip crowds into a frenzy of devotion to their cause, though these tactics can be used just as well for peace, he stresses. Community dances and group singing can ease local tension, for example - a theory he plans to test experimentally (Journal of Legal Studies, DOI: 10.1086/529447).

Meanwhile, the powerful unifying effects of propaganda images are being explored by Charles Seger at Indiana University at Bloomington. His team primed students with pictures of their university - college sweatshirts or the buildings themselves - then asked how highly they scored on different emotions, such as pride or happiness. The primed students gave a strikingly similar emotional profile, in contrast with non-primed students (Journal of Experimental Social Psychology, DOI: 10.1016/j.jesp.2008.12.004).

Anorexia and Suicide

Someone who develops anorexia is 50 to 60 times more likely to kill themselves than people in the general population. No other group has a suicide rate anywhere near as high (Archives of General Psychiatry, vol 60, p 179).

Recently, psychologists have tried to explain why anorexia and suicide are so intimately connected, something which is helping to answer the wider question of why anyone would commit suicide. If this explanation holds up, it will give psychiatrists a new tool for screening patients and determining which of them are most likely to kill themselves, perhaps saving lives.

Suicide has always been a conundrum for psychologists and other researchers interested in human behaviour. Self-preservation is one of the strongest human instincts, so the drive to commit suicide must be even more powerful. But what causes it?

Suicide is, of course, linked to depression and hopelessness, but nobody has been able to answer the question why some people commit suicide and others, in similar situations, don't. The basic question, and the hopes of understanding the answer through studying anorexia is:

The vast majority of depressed, hopeless people do not commit suicide, so why do some do it?

In 2005, psychologist Thomas Joiner, a suicide specialist at Florida State University in Tallahassee whose own father committed suicide, set out to answer that question. By studying suicide statistics and paying particular attention to the groups with above average rates, Joiner believes he has found a common thread others have missed. "It was the first grand theory of suicide in quite a while," says Nock.

In essence, Joiner proposed that people who kill themselves must meet two sets of conditions on top of feeling depressed and hopeless. First, they must have a serious desire to die. This usually comes about when people feel they are an intolerable burden on others, while also feeling isolated from people who might provide a sense of belonging.

Second, and most important, people who succeed in killing themselves must be capable of doing the deed. This may sound obvious, but until Joiner pointed it out, no one had tried to figure out why some people are able to go through with it when most are not. No matter how seriously you want to die, Joiner says, it is not an easy thing to do. The self-preservation instinct is too strong.

There are two ways people who want to die develop the ability to override the self-preservation instinct, Joiner argues. One is by working up to it. In many cases a first suicide attempt is tentative, with shallow cuts or a mild overdose. It is only after multiple attempts that the actions are fatal.

The other is to become accustomed to painful or scary experiences. Soldiers and police who have been shot at or seen their colleagues injured or killed are known to become inured to the idea of their own death. Both groups also have a higher-than-normal suicide rate. Similarly, doctors and surgeons who witness pain, injury and death are more likely to be able to contemplate it for themselves - the suicide rate for doctors is significantly higher than for the general population. Joiner describes this as a "steeliness" in the face of things that would intimidate most people.

He Plans to Start a Hedgefund

All you have to do in life is take massive risks, fail miserably with other people's money, and ask for more money:

The fall of Boaz Weinstein, once one of Wall Street's hottest traders, speaks volumes about why financial firms still are reeling from the shattered global markets.

As a chess master, poker and blackjack devotee and top trader at Deutsche Bank AG, Mr. Weinstein made big bets using complex financial instruments, generating large returns for the bank and about $40 million in annual pay for himself. But in 2008 the group he ran saddled the bank with $1.8 billion in losses, erasing more than two years of trading gains.

The funny thing is, I have no doubt that he will be able to raise a substantial fund:

Last month, Deutsche Bank shut down Mr. Weinstein's operation and wound down many of his positions. He left the bank this week, with plans to start a hedge fund.

So, who really is to blame in these situations? The person that takes the money that others actively give him, or the people that continue to give him that money? The answer is obvious.