Stuff I'm Not Good At

Not really sure what I want to write about but I feel like writing. Well, not writing so much as ruminating. I don’t really feel like writing about the stuff I think about now’a days. Those things that I am relatively sure about have, I think, been adopted by most sane people. Those things that I am wondering about are so complex that I hesitate to write and expose my naiviete.

For instance, I topic of interest for me recently has been international finance and the Fed in particular. What role does the fed play and what is its purpose? We know that they set interest rates but why do they do so and what is the result. I won’t say that I called the sub-prime mortage collapse but I do think that I agreed with the correct people. The most fascinating part about this whole thing though is trying to figure out why the Fed continued to artificially lower interest rates even after the housing bubble became painfully evident.

Whats the big deal? Well, an amazing amount of money gets lent and traded back and forth every day. The fact that there are such things as day long loans between corporations and banks is amazing to me. This is however overwhelmingly a good thing. Money, with the advent of computerized banking, can flow with almost no resistance to the people who need it most. Unfortunately as the flow of money becomes more complex so does cause and effect.

When you purchase a mortage you are agreeing to pay back the money at a future time and with interest. Now, the bank that gave you the loan would really like to use that interest money now rather then 15 or 20 years from now when the loan matures. As a result a niche market has sprung up where a very large bank will “buy” these mortgages from smaller banks. Everyone wins! Smaller banks only get part of the interest that they would have collected but they get it now and the larger bank gets a fairly secure promise of income since the smaller bank assumes most of the risk in this situation. This larger bank then bundles a whole bunch of mortgages together and sells them again to other institutions.

This can happen several times as each bank takes alittle bit of the promised interest for themselves. This practice also reduces the risk associated with mortgages since once a whole bunch have been grouped together the law of large numbers means you can very accurately predict the percent that will default and therefor have a secure and stable income stream.

Here is where it gets even more tripy as far as I can figure it out. Once a bank buys a large hunk of mortgages it then uses this to leverage other more risky investments. In a sense, they are using these promises of future money to be able to inflate the current amount of wealth at their disposal and therefor the amount of loans that they can take out. This is not a bad thing because then the banks or companies can use these new loans to do good things like buy capital for manufacturing or research.

This all works really well so long as one can predict accurately the percentage of mortgages that will default and thus the future value of all this money that everyone is depending on. What happened here is that the small banks stopped caring so much who got loans because it was cheap for the people. Also, the market for mortgages skyrocketed as fully international and computerized money markets came into their own. Lastly, one needs to buy alot of low interest rate mortgages to get a certain amount of future income.

So people were eager to get low interest rate morgages and banks were eager to give low interest rate morgages because larger banks were eager to buy up these low interest rate mortgages. With all this easy *large sum loans* floating about it is not a wonder that the price of homes in many areas became so inflated. As the price of homes continued to rise it became possible for people to take out even larger mortgages backed by the new value of their homes. And I think you can see how this cycle continues.

It all came crashing down as people began buying homes with the expectation of quickly rising home prices and more importantly small banks began issuing loans with the expectation of quickly rising home prices. When interest rates started rising again and people who had variable interest rate loans starting defaulting on their loans the small banks said no problem, I’ll sell the home and recoup my loss. But when they tried to resell the home, they couldn’t get the price they were expecting. This means that they couldn’t give the money they had promised to the larger banks who had bought those mortgages oh so long ago and are now entitled to the money. The larger banks said oh shit because a much larger number of these mortgages were now defaulting then they had predicted.

So, now these larger banks are stuck with future obligations (essentially payments on loans that they took out) that were supposed to be mostly backed by these mortgages that have disappeared. The banks stop taking out loans because they are not sure of what they can pay back and further more stop buying up mortgages because they stop trusting them and the whole system grinds to a halt, which is exactly what happened about 2 months ago.

An interesting parallel is the sight Prosper.com. The premise of the site is that individuals can make loans to individuals. If you want to borrow money you put up an ad saying how much and at what percent interest rate. Then, people willing to loan money make bids as low as 50 dollars at a certain interest rate. As a result, a borrow get money from 50 – 100 different people and a loaner might have money invested in 50 – 100 different people. This spreads out the risk, theoretically, for the loaners. The website, in this case, is actually the one that makes the loan to the borrower and then sells parts of it to the loaners on the site.

What makes it interesting is that many people jumped in thinking wow, I can loan to poor credit people at a much higher interest rate then a bank would give me (15 – 24%) and do good at the same time by giving people with poor credit a chance. In reality enough of the people with poor credit have poor credit for a reason and have defaulted on their loans to dissuade alot of people from lending. Now, the only way to get a loan on the site as a borrower is to have either phenomenal credit or some other aspect of your financial history that is attractive to loaners.

This is what is happening now in the financial markets. It is becoming harder for people to get mortgages because people are realizing that giving loans to people with poor credit is a bad thing. Lucky, this fear seems mostly contained to the housing market at this time because business to business loans are still going strong.

Unfortunately Americans have gotten used to the idea that their house actually makes money for them and even more so is a liquid member of their wealth. As a result, we should see over the next two years a drastic increase in the savings rate. This is a good thing! Currently americans spend more then they make and a large part of this is likely because they feel confident that they can remortgage their house or sell to pay off the debt. As house prices fall due to both a renormalization of prices and a reduction in available buyers (the people who shouldn’t have gotten loans in the first place) people will literally see their nest eggs evaporate in front of their eyes and will become much more conservative in their spending.

Simultaneously, oil prices will continue increasing (which won’t be helped by the falling value of the dollar) and it is likely inflation will take hold as the increased cost of energy and they value of the dollar move to partially compensate for the over valuation of both the stock market and the housing market. What this means is that instead of housing prices and the stock market falling the dollar becomes worth less so a 300,000 dol
lar house that should be worth 200,000 dollars might still sell for 250,000 dollars but that 250,000 dollars is only worth $200,000 in 2007 dollars. Basically bad news.

On that note, tomorrow is National Novel Writting Month and I think I am going to give it a shot. I have no plot and no idea of what I am going to write but we will see:-) I am going to be posting what I write each day here on the website in an effort to keep myself honest. In anycase, I have written enough non-fiction here lets see what the other side of Euclid looks like 🙂 .

I met an interesting guy a month or two ago. Don’t remember his name or anything but he studied something about photography and the publics trust in it. Namely, he said that people tend to take photographs as snapshots of reality, truth on paper as it is. We both agreed that this is true and made small talk of different examples. The basic premise has been bothering me though. What is it that makes photographs so special. Photoshop’ed is now well entrenched in the english language so we clearly know what is going on.

I have to wonder if it is a general tendency to live “inside the box”. Be it a television, the boundaries of a photograph, or the lines of thinking drawn by a radio announcer, we have learned as a people to stay within the lines.

Seriously, when was the last time you saw a picture and wondered what wasn’t included? I don’t mean what was photoshopped out but something as simple as what the photographer chose to include within the viewfinder. I went on a ski trip with some friends in Colorado one year and someone went who didn’t really enjoy skiing. At one point we posed for a picture half-way up the mountain and she isn’t in it because she is 5 feet to our left on the ground and crying in frustration. There is no hint of this though in the picture… except for her absence.

Granted, if you looked at that photograph I wouldn’t expect you to to imagine that she was there but the basic premise that ALL of us were having a blast is clearly false.

I can’t watch television now because I am all too conscious of how little we are actually told and how much we trust the people who are presenting the information. For instance I just read an article today on bottled water. You might have heard how Pepsi is now going to start labeling its Aquafina bottled water as coming from a “Public Water Source”. The article ends by saying as much as 40% of bottled water uses tap water as its source. Sounds all well and good untill you start asking yourself what 40%. Is that a percentage of companies, or a percentage of actual sales. If 40% of bottled water companies use tap water then the actual amount of bottle water sold that is tap water could be anywhere from 90% to 10%, depending on which companies. The point is we don’t know.

More to the point, we don’t care.

I have wondered if this is a new thing or of it is something more basic. Obviously one could bring out Nazi Germany as a pre-television example. It is also likely that the catholic church was so successful for so long because it was the sole source of communication. So regardless of the urge to think this something to blame on our current environment, this may be something we just have to deal with.

Which begs the question: how have we dealt with it? Vietnam and the Civil Rights movement come to mind as possible times when we thought outside the box. I don’t think I know enough about history/culture that be able to answer that well. Any ideas?

I don’t entirely know why I am writting about this. There is nothing new about what I am experiancing. I suppose it is the oldest and most universal experiance… period. But, I have never experianced it like this.

That, of course, suggests that I have experianced death. My first came when I was pulled out of a line waiting to get on busses for a field trip in eighth grade. It was the end of the year and we were being treated to a day at the local bowling ally / miniture golf / go carts / arcade place. I even remember handing my little zip lock bag of quarters to one of my friends because I knew, in a sense, what the office secretary wanted to see me about. And yet, I didn’t. It was still a surprise because I never really saw my great grandfather towards the end. I just knew he was not well and really, death wasn’t something that happened to people I knew.

Then there were the car accidents. Each one creeping closer, first someone I barely knew. Then the kid who was cool and bad ass and yet still would talk to me if we had a class together. Adam Rusnak came next. I still remember the shock of losing someone you see everyday. Chemistry class was never the same.

Last was Vasu. I could write for years and still never capture what I felt after he died. So sudden, we were planning on going to India together just two months later. Then walking through a funeral parlor not wanting with every fiber of my body to be seeing and hearing it all.

But Grandpa R… knowing and yet not letting your self know. Little remarks about how its somehow funny that he still thinks that he will be able to drive again (although deep down we think he knows he wont). The daily regimend of pills and inhalers and exersizes and precautions and worries that is wearing down my grandmother. Conversations, if they last longer then 10 minutes, that are about everything and somehow nothing.

I have never felt like this. Death is not supposed to be like this. It is supposed to come up from behind and snatch those things away from you that you care most about. It teaches you to charish life and those around you. It gives meaning and urgancy and beauty to everything.

But how can you find purpose or take meaning from something that hasn’t happened yet but already has? You are stuck in a limbo of numbness and purposefull ignorance. Feeling the future fill the present and doing your best to look past it.

And perhaps that is why I am so upset. Death, for me, is not an inevitability but a game a chance. Role two dice and you will be surprised how long you can go before you role snake eyes. You can also be surprised how quickly they can appear. Regardless, there is no explicit end game. You role as long as you can.

That is what is wrong , it just doesn’t seem right to role expecting to lose.

A friend of mine described her research topic in lit theory (I think) as how our concept of the world has changed through the years. In the fifties and sixties it was a very observational culture where we sat in front of the TV and were told things. The rise of the internet has changed that in many ways that I didn’t understand at the time. However, it started me thinking about my own pet interest, group theory.

Briefly my theory of groups is that we need to feel as part of one. The smaller the group the better. About 150 is optimal (there is research in this). The actual size is not as necessary as the appearance, seeing a familiar face on the TV every morning is an alright substitute. Arching over everything though is this need for groups and classifications to feel content and safe.

I can’t honestly speak all that well about any time period prior to 1995. Most of what I know has come to be as charactures and hyperbole written by “the victors of history” if you will. On the otherhand there are some really interesting conclusions that we can make without extending ourselves too far.

Throughout the vast majority of human history all news was local news. If you got information it was by word of mouth or through the local religious/social instituion, which were generally one and the same. Even the advent of the printing press and mass literacy only increased one’s sphere of experiance by a few miles. Instead of knowing a burrough of London now one heard about the whole city. Regardless, the advent of radio and television soon changed this.

Television and radio differed from traditional media in one very important aspect, they had no mass. Newspapers and other print media must be printed locally so it makes sense to include local information and to put a local spin on things. Indeed, most medium sized cities had their own newspapers. Speaches and sermons are by nature highly local and individualized. Television and radio though could be broadcast across the nation giving something that the other forms of media lacked, a widespread shared experiance.

Suddenly the entire nation could listen to the green lanturn and talk about it at work or school the next morning. Radio was good but still tended to be local as the cost of opperating a radio station is comparably small. Television is a different story. Once television came into its own one had their choice of 3 channels to watch the news or programming. Traditional media still existed but you shouldn’t underestimate the remarkable hemogenizing effect this had on society. I believe that America, fresh out of the greatest war ever fought even embraced this. As the number of channels grew of course this image of hemogeny was deminished but not broken. The response to this massive groupthink was the cultural revolution of the late 60’s and 70’s.

This revolution likely started in print but reached critical mass through the radio. Radio was cheaper and more flexible then television but still had the reach that was required to give the required widespread shared existance that was needed. Music couldn’t help but be swept up in this whole tornado as radio was its primary distribution outlet.

The reason we are so concerned with the nature of the media we consume is that it defines us in ways that we don’t necessary recognize simply because it is a shared experiance. If you were to take a group of racially or religiously diverse people and isolate them together for a long period of time it is likely that they will split into what makes them common. These splits are more likely to fall along racial or other obvious traits like families with children. Men will group together and talk about the weeks football games and so on.

If prior to this you split them into mixed groups that each watched a different movie it is likely that, for a short period of time, this would overide the traditional groupings. Even the traditional groupings come from shared experiances of some origin. The point is that what we watch, listen to, and read has a profound effect on not just who we are, but on our perception of being part of a group.

What makes the internet so disruptive is that it is difficult at all to find people who have the same shared experiance as yourself. Fairly soon the simple act of being on the internet will no longer be new enough to qualify as a shared experiance. We will take it for granted like we take making toast for granted. Could you imagine someone comming up to you at work and saying, “So, made toast this morning. Ya, took some getting used to but I got it working after a few minutes. Even found thing cool new thing that lets you adjust how brown it gets!” The reason for this is the same as the cultural revolution of the 60’s, a group needs outsiders to define itself. Seriously, who hasn’t used a toaster?

This has led to the rise of MySpace, Facebook, and a myriad of other “social Insert Blank Here” websites. These provide a way of maintaining a sort of gestalt shared experiance with one’s friends. Indeed, one can say it is their reason for existance. Why else would Facebook introduce that creepy list of everything your friends are doing?

There are also thousands of political, philosophical, and other point of view blogs out there. No two are quite alike and each has their own unique audience. The internet has lower the barior to media creation and desimination so low that it is only with great effort that websites like Yahoo can maintain anything resembling a stable and truely wide spread existance. Even these sites are becomming more and more fluid as they grant users more and more control over the content.

In a sense we have returned to the time when all news was local only now we are not limited by geography.

The real question is where will this take us? Already I think it has limited our ability to “rise as one” simply because we are no longer “one” the way we used to be. I also think that it has a tendency to radicallize groups. Before television people were limited by geography and it was difficult to find shared experiances that were acceptable to the relatively random group of people you happen to live next to. Hense the experiances tended to be relatively moderate and conservative in most cases. This tended to mellow everyone out. Even if it wasn’t exactly what you belived in you still heard it everyday and that has an effect. Television originally wasn’t limited by geography but more by the number of distribution channels. This had the same effect as being limited by geography.

The internet though is limited in neither channels or geography. This is why it will fundimentally alter the way we form groups. No longer will groups be as clearly defined but rather they will form widely overlapping circles like a Ven diagram on crack.

I honestly have not idea how this will affect society but I have a gut feeling that it will be bad. My gut tells me that the most radical and hence “well defined” groups will have the most power, politically at least. There will be a constant struggle to organize the moderates into a coehesive group that can fight back and it will likely only happen as a reflex to damage already done.

In anycase, I have a feeling that governments will adapt rather then the other way around. Those that are less prone to being over taken by minorities will remain the healtiest while the least flexible will simply make too many bad decisions. In a sense the government needs to be able to give as groups a voice as possible so that when it comes time to make a decision they have to work together.

We may also see the rise of the small nation as they are better able to reach the consensuses simply because geography will play a more important role (remember, smaller group is better).

Therefore I make a prediction, 30 years from now the healthiest nations on the planet will be small (US state sized) countries with parlamentary
govenrments. Note that this does not include the United States of America.

In anycase, a question to end on: What groups do you take part in? What shared experiances define those groups? Are you ready for the revolution? (Ha! got you on that one didn’t I 🙂 )

PS I have focused on the internet but as cable and radio enter the digital age they will suffer from this too, just to a lesser extent. The rise of the 24 hour news channels is a great example of this.

Kind of out of character for this place but I spend some time looking into the whole high fructose corn syrup craze. For some reason in the last year or two fructose has become the “evil food de jouier” (pardon my french!) and high fructose corn syrup has been dragged along with it. In anycase, I hope it is helpful.

I looked into the fructose thing and it seems that it is both good and bad. It is good in the sense that unlike glucose it takes a significant amount of time to be metabolized so that it doesn’t stress your pancreas as much. In this sense it may help prevent diabetes but is has the very real benefit of providing a more even energy source then glucose alone. You may have heard of the Glycemic Index of food, it rates the rise in blood sugar immediately after eating that food. Low GI food is supposedly less of a shock to ones system since it is metabolized more slowly. The real benefit of a low GI diet is supposedly in balancing ones energy and mood throughout the day although I have never had the patience to test this out.

Whats funny is that Sucrose (table sugar or cane sugar) is broken down in the intestine into one molecule of glucose and one molecule of fructose and most commercially available sources of high fructose corn syrup also have roughly a 50/50 ratio of fructose to glucose. The higher concentrations require greater processing so are more expensive and since the chief reason for using HFCS is price… your probably not going to get the 90% pure stuff. The end result is most high fructose corn syrup that you eat is no more dangerous then table sugar.

Since fructose is over twice as sweet as glucose HFCS ends up taking less calories to make something as sweet then if you just poured table sugar into it. Where you do find the 90% fructose corn syrup is in “light” foods where sweetness is needed and the extra cost of HFCS-90 is worth the reduction in calories (probably reduces calories due to sweetener by 1/3).

Interestingly, it is difficult to find fruit with a fructose content greater then 50%, the highest being apples and pears. You are better off eating apples and pears a while before a run and say a banana, grapes, or cherries right after as a quick replenishment. The difference between the two is fairly significant with apples coming in at nearly 70 % fructose and the others in the low 40’s. Dates are a spectacular 38% ! This explains why I eat them like candy, instant sugar rush…

The evil aspects of fructose are harder to pin down but ultimately it doesn’t matter. I think most of the bad rap has come from the fact that HFCS is cheaper, easier to process, and goes bad more slowly then table sugar so it has allowed so many things to become sweeter more cheaply. In the end the moral of the story is eat less sugar, which we already knew. Doesn’t matter what you eat, half of it is likely to be fructose so just eat less of it.