Looks like the move to SLC is a go – will be in a new city with a new income soon…some people knock it but I can’t wait to catch that party bus to wendover
Monthly Archives: December 2014
Fiscal Crisis For Degens
Risk is really weird and sometimes counter-intuitive. Someone the other day opined to me that the individual borrowers were most at fault for the recent financial meltdown. I had to sigh, because that’s incorrect
Credit-default swaps were/are a really weird thing. Explaining it, holding in your brain, is kind of like something like the monty haul problem.
But, and I use the term basically loosely, basically the issue was confusing size and complexity with redundancy. Sometimes a system with more moving parts makes a risk more likely, not less.
For example, if you are trying to roll an 12 or 2 before you roll a 7, and you’re doing it on a twelve sided die, the odds are in your favor, if you’re doing it on two six-sided dice, the odds swing MASSIVELY to the house. Like not just a little, a lot. you go from 2/12 vs 1/12 to 2/36 vs 6/36 – you’ve gone from a clear favorite to a giant dog even though the problems look the same. I mean, hell, on 2d6 you can’t even get a one, right? So intuitively, two dice might seem better.
Well, a CDS is like that. It was presented (and for a time actually WAS) a way to insure against risk, but when they were over-bundled and the bundles re-bundled, a situation started piling up where the actual odds and actual ramifications of a problematic default were not in keeping with what people saw when they looked at it.
Essentially, to use another clumsy gambling analogy, imagine a situation where you have two roulette wheels next to each other. They’re doing a promotion where if you bet the table max of 100, you’re allowed to make a bet on one table on a color that pays 102 dollars on a 100 dollar bet, unless both wheels hit 0 or 00 on the same spin. otherwise, 0 is treated as black and 00 is treated as red. That would be the best felt bet in the casino – you as the player would make 1 a spin (actually two dollars every other but yadda yadda yadda), and lose 100 every 256 spins, for a true profit of roughly .60 a spin (255-100)/256) – that’s a better bet than anything else in the casino by far.
Now imagine they offer you the ability to bet 10 times as much, but only if they are allowed to add 2 more wheels and the 0s only kill if three of them hit…still seems like a good bet, so you do it.
And they offer to do it again, but this time it’s 100 times and they add 16 wheels, and four of them have to hit – you’re making money like a motherfucker now, so you’re going to keep going every time they offer to bump everything. In fact, you borrow from the casino – leveraging – to let you put even more in play on this sure-thing “investment” and you run up millions.
The problem with this progression is the number of wheels is actually adding up faster than you think, so the system is getting failure-prone fast than you’re profiting by your slightly incentivized bets. Somewhere around 128 wheels the odds of a sextuple are well past 50/50 (i’m not doing the math out to find out exactly where), and your 50/50 bet starts paying worse than a regular roulette wheel- your risk ratio is changing in the direction of going bust with each iteration, as your exposure goes up due to debt, while your security goes up dispute the actual risk, because your “portfolio” of chips you’ve won is so big.
Time passes.
You’re now losing more then you’re winning, but still in the green (you have a great track record) So what you do is you agree to swap risk with the player next to you – he hasn’t been playing as long and he only has 16 wheels to watch for zeros on. So you shake hands and say you’ll pool any wins or losses. He’s cool with that because even though you’ve started to lose quite a bit, you’re still sitting on millions of chips from when you were winning, and he wants to dip into that chip tray to try to bust the casino, so he does that (effectively borrowing your credit for his venture at the cost of pooled risk, which is abstract to him because you have so many chips in front of you he feels secure and courted by a powerful business partner), which allows him to pop the size of his play up into what he thinks is the super-profit zone, but is really the risk zone.
The problem is you feel you’ve decreased your risk by those two measures, but you’ve actually increased the risk for BOTH of you and jeopardized the entire casino – because eventually credit makes up so many chips out of their stock, that if you guys go bust and leave, they don’t have enough cash in play when other people cash out. What the system actually won from you is far exceeded by the overall lending risk taken to extract it. The conflation of an exponential growth of risk and investment with a linear addition of further risk protection created a bomb where failure was FAR more likely than the oddsmakers pricing the market (said they) thought.
That’s the crisis. Sort of. Missing a further layer of people who would be side-betting on you to fail and stressing the system even more, and the casino making the decision to itself leverage and pool risk with other casinos doing the same thing, and some casino hosts who were getting paid to bring the players in so they either “just” over marketed the special, or out and out lied about the odds… all badly explained by a poker player who evidently needs to do less poker and more “everything else” because he has started thinking of everything in casino metaphor.
Now here’s a key thing to understand, vis a vis who is “at fault” –
The individual homeowners aren’t the players or the casinos in the scenario – they’re the individual roulette spins.
Their specific risk ratio is only important to the specific ratio of odds on the axis of risk that would cause the perfect storm, because the profiteers trading on risk are going to adjust their market prices to insulate them from the costs of individual defaults.
So one form of law – the push for affordable homes – made the casino put out the 102 dollar bet that was a little unfair to it at the time.
Meanwhile, another form of law- bank purpose deregulation – let investment banks and personal banks commingle funds (the disastrous borrowing to play), while a third set of finance laws allowed the elaborate cloaking of risk as investment.
The law changes happened on different congressional and presidential watches for different reasons, so it’s genuinely hard to point a finger at any one lawmaker and go “this is your fault, you dumb motherfucker” although I can’t lie – the finger probably wavers closest to bush.
And I’m fucking sorry to say, that is the short version.
tl:dr: We should maybe shoot an MBA every once in a while; not all of them, just enough so they don’t get cute.
This Space Reserved for a Pun About Abs
Naturally we are to be outraged. He’s a phony, he’s just trying to get publicity, he’s insincere, he didn’t give every cent he’s ever made to the guys he beat up…
Just to be “that guy” for a minute…How successful are felons a)required to be as part of “rehabilitation” and b) allowed to be before seeking rehabilitated status is insincere?
Would the internet demand the sacrifice of Good Vibrations Earthmoving, LLC, in full, to the gods of the house of correction?
Cock a fuckin’ doodle doo
I woke up this morning feeling unusually good. No idea what has come over me, except the engine just turned over for the first time in a while.
I think it was Orion flying by. I think maybe the sound of it passing woke me up, on time, at the perfect spot in the REM cycle and shit just cranked.
I’ve been trying to hit on a perfect guided image for my daily attempts at meditation, couter-intuitive for my hard-cranking, fast churning monkey-house of a brain, and finally this morning, as I kept forcibly reminding myself, “Stop, don’t bring that stress here. Stop, only think about one thing. Stop, don’t follow every squirrel, steer the damn ship,” it finally hit me. My image is chips in racks. My image is the decimated strip at 4am in the off-season. My image is water on the pavement as I blast from SLC to Vegas in four hours flat.
This images bring me stillness. Wholeness. I realize that, indeed, if 6 was fucking nine, I’d have your world, and you’d have mine.
The volume knobs on things turn in the right directions. My mind is suddenly still, mystic, initiatory.
I look out on this town and it’s like a fucking zen garden built in a garbage dump and I feel perfect and I think, for the first time in a couple years,
“I’m a motherfucking card player, that’s who the fuck I am.”
Good times. Good times. Good times to come.