In order to ensure that this thread continues to meet TL standards and follows the proper guidelines, we will be enforcing the rules in the OP more strictly. Be sure to give them a re-read to refresh your memory! The vast majority of you are contributing in a healthy way, keep it up!
NOTE: When providing a source, explain why you feel it is relevant and what purpose it adds to the discussion if it's not obvious. Also take note that unsubstantiated tweets/posts meant only to rekindle old arguments can result in a mod action.
On February 21 2013 11:27 sam!zdat wrote: would be interested in any recommendations of texts, esp. pertaining to relationship between geography and flow of capital. preferably books, not articles. especially, further, dealing with problems of urban form, i.e. ghetto-formation, suburbanization, decay of inner cities, rust-belt formation... things like that
edit: also, in general, good books about economic history of the 19th and 20th centuries. pm me
The only thing I think I could reasonably find are academic journal articles. Sorry bro.
On February 20 2013 20:41 paralleluniverse wrote: I said that stress tests were one of the ways of dealing with tail risks. But there are others.
Insurance companies deal with catastrophes all the time, (e.g. the Japanese earthquake and tsunami a couple of years ago). Why don't they go bust? No, AIG doesn't count, because it was the investment division, gambling with financial instruments, that blew up, not their insurance business. The main reason is because insurance companies know how to manage tail risk.
Stress testing is one method. Another method is reinsurance, i.e. the insurance company buys insurance from another insurance company. The analogous concept in finance is using derivatives to hedge your position. Another is catastrophe bonds. The analogous concept in finance is a MBS. So why hasn't reinsurance and cat bonds destroyed insurance, the way that derivatives and MBSs have destroy finance?
Because natural catastrophes, of the sort that insurance companies deal with aren't correlated, whereas everything is correlated in finance. A tsunami in Japan doesn't cause a hurricane in New York and a volcano eruption in Italy, whereas a large bankruptcy causes contagion to flow throughout the financial system.
So this proves my point: it's not tail risk that was the main problem, it's correlation. It's possible to successfully deal with tail risk when things aren't correlated, just look at the insurance companies.
Disasters aren't tied together but insured disasters can have the same contagion effect:
Disasters lead to the insurance company selling assets to raise cash. Their asset sales drive down the value of the assets. As asset prices decline the insurance company loses its ability to make good on claims. Insured assets then become uninsured assets and their value declines. So on and so forth...
Now in the real world this is never a meaningful problem, but I think that's because insurance just isn't that big relative to the overall market and not that they have some superior structure.
Not really. Insurance companies are well equipped to deal with catastrophic natural disasters, In fact, that's typical business for them. They are able to successfully manage these tail risks, for example using some of the techniques I've described above.
They don't sell their assets when a massive catastrophe strikes, they have large reserves and good risk management.
On February 20 2013 20:32 paralleluniverse wrote: Financial math is not "flimsy mathematics". In fact, it's some of the most complicated and heavily research math out there.
sounds like some high priesthood shit to me man. If your math is based on stupid premises (like the efficient markets hypothesis) it's flimsy, I don't care how complicated it is or how many fancy symbols it has. It's still bullshit.
You say I rage against something I don't understand. Ok. Well. I'm an extremely intelligent person who doesn't want to devote his life to studying finance, but I've peen putting an entirely non-trivial amount of effort over the last year into understanding this stuff (because, you know, the total failure of this system has been a major event in my life), reading a lot of economic history and things like that, and I think it's a load of bunk, no matter how "complicated" it might be.
Don't tell me it must be right and I must be wrong, because it's too "complicated" for a silly child like me to understand. That's just some obscurantist bullshit. You tell me why I should trust any financiers, when they get to fuck over an entire civilization and laugh to the bank.
I don't have to understand all the technical details to know that you people are full of shit. Any idiot can see that the foundational premises of mainstream economic theory are philosophical non-starters. Rational choice theory? Efficient markets? please, tell me another
In fact, the more "complicated" you tell me it is, the less I trust you, because I don't think any of you are smart enough to deal with something that "complicated" (you can't be, because you think people are rational actors, and any idiot knows that's not true). I think how "complicated" it is is precisely the problem, because you toy with something you do not understand, and the rest of us pay the price. The more "complicated" it is, the more chances it has for History to come in and burn your little tower to the ground.
On February 20 2013 20:52 paralleluniverse wrote: Before you rage, I suggest you learn what it is that you're raging against.
I AM, you smug suit, I just can't express it that well. Recommend me a book.
When this first happened, and everybody was raging and occupying and stuff, I sat out. I said, "what do I know?" Then I learned some things, and NOW I'm raging. I got a right to be angry, because our world is FUCKED UP, and a big part of that is because of people who wear suits and have degrees in economics being fools and worse.
edit: I'm well aware that I'm out of my territory here. I'm not pretending to really understand this stuff. But what I don't do is trust some suit when he waves his hands in my face and tells me he understands.
Look
Before 2008, some people said "we have some complicated math, we understand everything, trust us."
Now they say, "we have some complicated math, we understand everything, trust us."
What the fuck am I supposed to think?
edit: I concede all questions about math, but I still think I'm right.
Given my post history, it's quite hilarious you call me a "suit" promoting Chicago School Economics. If that's what I believe, I would be like: "Vote Republican. We don't need more government regulation, we need to deregulate Wall Street. All government regulations cause market distortions, so we need to cut government to unleash the power of the free market. That's the key to prosperity and growth."
I don't disagree that finance has run amok and that this was one of the main causes of the financial crisis. I'm just saying, don't blame the Gaussian distribution, it wasn't really the problem. It was more so correlation.
On February 21 2013 05:07 corumjhaelen wrote: There is a huge difference between economics and physics. In physics you can take the law of a folling corpse and check it against an experiment over over and over, which means that our model has something to do with reality. Once we have checked those laws on simple models, making predictions on more complicated stuff makes sense. In economics, there is no simple experiment that I know of, capable of testing small hypothesis. You have to directly test your model against a very complicated reality. And given that the bridge seems to fall down over over and over, I'm tempted to say that the hypothesis might suck, not the calculations.
In economics, the simple stuff is done through micro. It doesn't translate 1:1 to macro, in the same way quantum and atomic physics doesn't translate 1:1 to Newtonian physics, but they do have general correlations. This is why most academic macro work has to have micro fundamentals applied to be considered legitimate, unless we have extremely good macro examples (like that of austerity vs stimulus in the case of near 0% interest rates right now).
On February 21 2013 05:14 sam!zdat wrote: it is not at all equivalent to an assumption in physics, it is a ludicrously fallacious assumption which exists only to allow us to build 'complicated' air castles that have nothing to do with reality, so we can go on pretending capitalism makes sense
The issues with complication we have in finance is the lack of regulation and strict standards that are applied in other fields. That can be blamed on a lot of people and organizations, but can't really be blamed on some idolization of capitalism.
this micro to macro translation is precisely the problem, when you have a far too simple conception of the sort of agents you are dealing with and their problems. aggregation problem
Don't take my word as an economist. I'm an engineer, so I only specifically know about the general and complex transformations in that context. I am aware of the transformations in other fields, but not intimately. At the very least, I can guarantee that they have the tools and experience to analyze situations we've seen over the past 5 years (and 100 years for that matter), it's just a matter of consolidation and competition of interests. Science and technology have the distinct advantage (or disadvantage?) of not being directly related to profit motive in areas of R&D, and thus don't suffer as much from misdirection. I mean, at worst, scientists are accused of "selling" climate change for grants, but economists can be given huge cash incentives to tote a line which is intellectually dishonest because that line can be sold for millions or billions of dollars in just 1 year.
That's what I see anyways.
there are real examples of micro into macro aggregation leading to hilarious results, if you allow for generous aggregation conditions. reverse ricardian equivalence, which is to say, present government spending leads to future taxation expectation (represented in a micro level, two period agent model), justifies the kind of austerity seen in the UK.
the rational choice theory centered micro-"based" approach to macro also puts the empirical horse behind the cart. empirical studies are cherrypicked to justify already made conclusions, rather than being a truly scientific search.
On February 21 2013 19:09 paralleluniverse wrote: I don't disagree that finance has run amok and that this was one of the main causes of the financial crisis. I'm just saying, don't blame the Gaussian distribution, it wasn't really the problem. It was more so correlation.
Fine. Sorry if you've been hit by some collateral rage. I interpreted your post to say "the Chicago school is dominant because it's obviously right, because of complicated math." You are of course correct that I don't have much of a technical grasp on the details of why they are full of shit, although I'm trying. Obviously I've overstepped myself here.
All I have is you on one hand saying "it's not this 'gaussian' thing, it's correlation' and Taleb on the other saying 'they can't measure the correlation correctly because they're using the wrong, gaussian, math.'
Since I've put some thought into complex systems and fractals, and I can look at a normal distribution and compare, it seems obvious to me that if you try to think about fractals using normal distribution, it's not going to work out. Sure you can layer your normal distributions on top of one another and approximate it, but you're just getting better and better approximations (and, according to Taleb, you are actually increasing your exposure to negative tail events by making the approximations better). But I obviously can't do any math myself and prove it, I can just listen to different people who tell me what to think. And if I try to repeat what I heard, I obviously just get shut down. It's very frustrating.
But isn't this part of the problem? That this stuff is so arcane as to be utterly beyond any sort of democratic control? It doesn't seem like people who are supposed to know about it know what they are doing, but if you try to express frustration at this state of affairs, it's just obvious that you know even less. So what are we supposed to do? Just shut up and get fleeced?
I'll try to calm down.
I remain extremely angry at the idea that one can apply micro principles to a macro system, that is obviously false.
edit: but it's obviously not PU's fault that the world is run by crooks, so I owe him an apology. Sorry, PU.
On February 20 2013 20:41 paralleluniverse wrote: I said that stress tests were one of the ways of dealing with tail risks. But there are others.
Insurance companies deal with catastrophes all the time, (e.g. the Japanese earthquake and tsunami a couple of years ago). Why don't they go bust? No, AIG doesn't count, because it was the investment division, gambling with financial instruments, that blew up, not their insurance business. The main reason is because insurance companies know how to manage tail risk.
Stress testing is one method. Another method is reinsurance, i.e. the insurance company buys insurance from another insurance company. The analogous concept in finance is using derivatives to hedge your position. Another is catastrophe bonds. The analogous concept in finance is a MBS. So why hasn't reinsurance and cat bonds destroyed insurance, the way that derivatives and MBSs have destroy finance?
Because natural catastrophes, of the sort that insurance companies deal with aren't correlated, whereas everything is correlated in finance. A tsunami in Japan doesn't cause a hurricane in New York and a volcano eruption in Italy, whereas a large bankruptcy causes contagion to flow throughout the financial system.
So this proves my point: it's not tail risk that was the main problem, it's correlation. It's possible to successfully deal with tail risk when things aren't correlated, just look at the insurance companies.
Disasters aren't tied together but insured disasters can have the same contagion effect:
Disasters lead to the insurance company selling assets to raise cash. Their asset sales drive down the value of the assets. As asset prices decline the insurance company loses its ability to make good on claims. Insured assets then become uninsured assets and their value declines. So on and so forth...
Now in the real world this is never a meaningful problem, but I think that's because insurance just isn't that big relative to the overall market and not that they have some superior structure.
Not really. Insurance companies are well equipped to deal with catastrophic natural disasters, In fact, that's typical business for them. They are able to successfully manage these tail risks, for example using some of the techniques I've described above.
They don't sell their assets when a massive catastrophe strikes, they have large reserves and good risk management.
Their reserves are assets.
Good risk management works for insurance companies because they can build large reserves (huge investment portfolios) and match the reserves to the needs of claims over time. That only works because insurance is small. It's not something you can scale up for the financial markets.
Edit: I'm agreeing with you here on the correlation is the problem front. Things are not always correlated in finance, they only become correlated when the disaster is large enough. The same, I believe, would be true for insurance companies. They only get to dodge it because the disasters are never large enough.
On February 21 2013 19:09 paralleluniverse wrote: I don't disagree that finance has run amok and that this was one of the main causes of the financial crisis. I'm just saying, don't blame the Gaussian distribution, it wasn't really the problem. It was more so correlation.
Fine. Sorry if you've been hit by some collateral rage. I interpreted your post to say "the Chicago school is dominant because it's obviously right, because of complicated math." You are of course correct that I don't have much of a technical grasp on the details of why they are full of shit, although I'm trying. Obviously I've overstepped myself here.
All I have is you on one hand saying "it's not this 'gaussian' thing, it's correlation' and Taleb on the other saying 'they can't measure the correlation correctly because they're using the wrong, gaussian, math.'
Since I've put some thought into complex systems and fractals, and I can look at a normal distribution and compare, it seems obvious to me that if you try to think about fractals using normal distribution, it's not going to work out. Sure you can layer your normal distributions on top of one another and approximate it, but you're just getting better and better approximations (and, according to Taleb, you are actually increasing your exposure to negative tail events by making the approximations better). But I obviously can't do any math myself and prove it, I can just listen to different people who tell me what to think. And if I try to repeat what I heard, I obviously just get shut down. It's very frustrating.
But isn't this part of the problem? That this stuff is so arcane as to be utterly beyond any sort of democratic control? It doesn't seem like people who are supposed to know about it know what they are doing, but if you try to express frustration at this state of affairs, it's just obvious that you know even less. So what are we supposed to do? Just shut up and get fleeced?
I'll try to calm down.
I remain extremely angry at the idea that one can apply micro principles to a macro system, that is obviously false.
edit: but it's obviously not PU's fault that the world is run by crooks, so I owe him an apology. Sorry, PU.
Again, it's not 1:1 from micro to macro. You're SUPPOSED to look at a rather large amount of evidence for macro and some controlled examples from micro, and the field should be peer reviewed in such a way that bogus claims tied to a flimsy micro case be thrown out. That doesn't seem to be the case, or at least the people that "matter" don't care.
And our response as the dolts that don't quite understand is to get mad when something goes wrong and demand measures are taken to guarantee it doesn't happen again. Sadly, that doesn't happen in finance for obvious reasons.
On February 22 2013 04:25 aksfjh wrote: And our response as the dolts that don't quite understand is to get mad when something goes wrong and demand measures are taken to guarantee it doesn't happen again. Sadly, that doesn't happen in finance for obvious reasons.
Haha well good then I'm on the right track then LOL
On February 22 2013 04:25 aksfjh wrote: And our response as the dolts that don't quite understand is to get mad when something goes wrong and demand measures are taken to guarantee it doesn't happen again. Sadly, that doesn't happen in finance for obvious reasons.
Haha well good then I'm on the right track then LOL
President Obama is riding a huge surge in popularity in public opinion surveys among Hispanics, who are overwhelmingly excited about his second-term efforts to pass immigration reform. Obama’s approval rating stands at 73 percent among Hispanics, a 25-point swing from his low of 48 percent in late 2011.
In particular, Obama enjoyed a major shift in support for his immigration policy. Some 63 percent of Hispanic respondents to a Pew Research/USA Today poll approved of Obama’s performance on the issue. In November 2011, only 28 percent approved of his work on immigration.
While Hispanic voters turned out in droves to elect Obama in November, many were upset over the record levels of deportations carried out by his administration. Obama’s inability to pass either comprehensive immigration reform or the DREAM Act, which would grant citizenship to young undocumented immigrants, over GOP opposition did not help his standing either — even as it hurt Republicans far more.
Led by senators like John McCain (R-AZ) and Marco Rubio (R-FL), Republicans are now trying to craft a bipartisan immigration deal that they hope will boost their standing with the community. But they’re starting from an exceptionally weak position: Hispanic respondents told Pew they favor Obama’s approach to immigration over the GOP’s by a whopping 73-15 margin.
Obama’s relative popularity could complicate Rubio’s recent attacks on the administration for drafting its own immigration plan, which he called “dead on arrival” in Congress and warned would inflame Republican opinion against reform.
President Obama is riding a huge surge in popularity in public opinion surveys among Hispanics, who are overwhelmingly excited about his second-term efforts to pass immigration reform. Obama’s approval rating stands at 73 percent among Hispanics, a 25-point swing from his low of 48 percent in late 2011.
In particular, Obama enjoyed a major shift in support for his immigration policy. Some 63 percent of Hispanic respondents to a Pew Research/USA Today poll approved of Obama’s performance on the issue. In November 2011, only 28 percent approved of his work on immigration.
While Hispanic voters turned out in droves to elect Obama in November, many were upset over the record levels of deportations carried out by his administration. Obama’s inability to pass either comprehensive immigration reform or the DREAM Act, which would grant citizenship to young undocumented immigrants, over GOP opposition did not help his standing either — even as it hurt Republicans far more.
Led by senators like John McCain (R-AZ) and Marco Rubio (R-FL), Republicans are now trying to craft a bipartisan immigration deal that they hope will boost their standing with the community. But they’re starting from an exceptionally weak position: Hispanic respondents told Pew they favor Obama’s approach to immigration over the GOP’s by a whopping 73-15 margin.
Obama’s relative popularity could complicate Rubio’s recent attacks on the administration for drafting its own immigration plan, which he called “dead on arrival” in Congress and warned would inflame Republican opinion against reform.
I wonder how much of that Democratic (Obama) support is simply due to how transparent Republican efforts are. I mean, if Rubio has to wave Obama off with a statement that essentially boils down to, "Shhhh, you might spook the other Republicans!" certainly, that filters down to parts of the population. At every turn, Republicans have pushed heavy on deportation and border security, and vilified any attempt to provide assistance to even the most exemplary of undocumented/illegal immigrants. Any push for immigration reform now seems like a move made out of political calculation instead of moral obligation.
with obama's 2nd term and him feeling "historic", it'll be interesting to see if he uses this wave of energy on immigration and how far he'll go with it.
On February 20 2013 20:41 paralleluniverse wrote: I said that stress tests were one of the ways of dealing with tail risks. But there are others.
Insurance companies deal with catastrophes all the time, (e.g. the Japanese earthquake and tsunami a couple of years ago). Why don't they go bust? No, AIG doesn't count, because it was the investment division, gambling with financial instruments, that blew up, not their insurance business. The main reason is because insurance companies know how to manage tail risk.
Stress testing is one method. Another method is reinsurance, i.e. the insurance company buys insurance from another insurance company. The analogous concept in finance is using derivatives to hedge your position. Another is catastrophe bonds. The analogous concept in finance is a MBS. So why hasn't reinsurance and cat bonds destroyed insurance, the way that derivatives and MBSs have destroy finance?
Because natural catastrophes, of the sort that insurance companies deal with aren't correlated, whereas everything is correlated in finance. A tsunami in Japan doesn't cause a hurricane in New York and a volcano eruption in Italy, whereas a large bankruptcy causes contagion to flow throughout the financial system.
So this proves my point: it's not tail risk that was the main problem, it's correlation. It's possible to successfully deal with tail risk when things aren't correlated, just look at the insurance companies.
Disasters aren't tied together but insured disasters can have the same contagion effect:
Disasters lead to the insurance company selling assets to raise cash. Their asset sales drive down the value of the assets. As asset prices decline the insurance company loses its ability to make good on claims. Insured assets then become uninsured assets and their value declines. So on and so forth...
Now in the real world this is never a meaningful problem, but I think that's because insurance just isn't that big relative to the overall market and not that they have some superior structure.
Not really. Insurance companies are well equipped to deal with catastrophic natural disasters, In fact, that's typical business for them. They are able to successfully manage these tail risks, for example using some of the techniques I've described above.
They don't sell their assets when a massive catastrophe strikes, they have large reserves and good risk management.
Their reserves are assets.
Good risk management works for insurance companies because they can build large reserves (huge investment portfolios) and match the reserves to the needs of claims over time. That only works because insurance is small. It's not something you can scale up for the financial markets.
Edit: I'm agreeing with you here on the correlation is the problem front. Things are not always correlated in finance, they only become correlated when the disaster is large enough. The same, I believe, would be true for insurance companies. They only get to dodge it because the disasters are never large enough.
Reserves aren't just investment portfolios. Regulation (and not wanting to collapse the company) prescribes capital requirements and they have to be sufficiently liquid. Insurance companies hold a lot of cash, but the point is that insurance companies have comprehensive and successful risk management, so, they don't go bust. Sure, insurance is smaller than finance, but there are still devastating and unpredictable natural catastrophes, like the 2011 Japanese tsunami.
On February 21 2013 19:09 paralleluniverse wrote: I don't disagree that finance has run amok and that this was one of the main causes of the financial crisis. I'm just saying, don't blame the Gaussian distribution, it wasn't really the problem. It was more so correlation.
Fine. Sorry if you've been hit by some collateral rage. I interpreted your post to say "the Chicago school is dominant because it's obviously right, because of complicated math." You are of course correct that I don't have much of a technical grasp on the details of why they are full of shit, although I'm trying. Obviously I've overstepped myself here.
All I have is you on one hand saying "it's not this 'gaussian' thing, it's correlation' and Taleb on the other saying 'they can't measure the correlation correctly because they're using the wrong, gaussian, math.'
Since I've put some thought into complex systems and fractals, and I can look at a normal distribution and compare, it seems obvious to me that if you try to think about fractals using normal distribution, it's not going to work out. Sure you can layer your normal distributions on top of one another and approximate it, but you're just getting better and better approximations (and, according to Taleb, you are actually increasing your exposure to negative tail events by making the approximations better). But I obviously can't do any math myself and prove it, I can just listen to different people who tell me what to think. And if I try to repeat what I heard, I obviously just get shut down. It's very frustrating.
But isn't this part of the problem? That this stuff is so arcane as to be utterly beyond any sort of democratic control? It doesn't seem like people who are supposed to know about it know what they are doing, but if you try to express frustration at this state of affairs, it's just obvious that you know even less. So what are we supposed to do? Just shut up and get fleeced?
I'll try to calm down.
I remain extremely angry at the idea that one can apply micro principles to a macro system, that is obviously false.
edit: but it's obviously not PU's fault that the world is run by crooks, so I owe him an apology. Sorry, PU.
OK, fair enough. I completely understand your frustration.
But for the sake of understanding and clarity, let me talk about this normal distributions vs "fractals" thing you've mentioned. Though I don't want to derail this thread for too much longer. I haven't read Taleb's book (although I've read about his book), so I'm not quite sure how you're thinking about this.
Here's what I think you think: When looking at a normal distribution (as in looking at a picture of a bell curve), it doesn't look anything like a stock price movement (jagged, rough, spiky, looks like a fractal). Therefore, the normal distribution is clearly wrong. Is that what you're thinking?
But, consider the following function: At 0 it's B=0. Let d be a small time increment like 0.01. To get the value at d, roll a normally distributed number, then add that to the previous value of B, to get the value at 2d, roll another normally distributed number and add that to the previous value of B, to get the value at 3d,... repeat. If you keep doing this, you get a Brownian motion which sort of looks like stock prices:
When people use normal distributions in finance, it's usually in this sort of context. There you go, a fractal, that looks like stock prices, made using the normal distribution. But does this model allow for catastrophic and large changes in the price movement that we occasionally see in real life? No, it doesn't. But if we replace the normal distribution above with, say, a Cauchy distribution, then you get large movements. Now it looks like this:
None of this tells us about how prices are actually going to move. Indeed, by the construction above, the movements are fundamentally random. But these aren't used to predict price movements in finance. They're mainly used as an input into models for pricing financial instruments. But those models have assumptions and problems of their own.
So the point of this post is to say, yes you can get fractals out of normal distributions. But just because you have a fractal doesn't solve your problems.
As for how the math is so complicated, well, this sort of thing is usually taught in undergrad math/stats. So to get a basic understanding of what the quants understand isn't too hard, if you have a math background. To understand fully what the quants understand is very hard and requires years of university-level education. To understand finance, to actually understand it, well... no one on the planet truly understands it.
President Obama is riding a huge surge in popularity in public opinion surveys among Hispanics, who are overwhelmingly excited about his second-term efforts to pass immigration reform. Obama’s approval rating stands at 73 percent among Hispanics, a 25-point swing from his low of 48 percent in late 2011.
In particular, Obama enjoyed a major shift in support for his immigration policy. Some 63 percent of Hispanic respondents to a Pew Research/USA Today poll approved of Obama’s performance on the issue. In November 2011, only 28 percent approved of his work on immigration.
While Hispanic voters turned out in droves to elect Obama in November, many were upset over the record levels of deportations carried out by his administration. Obama’s inability to pass either comprehensive immigration reform or the DREAM Act, which would grant citizenship to young undocumented immigrants, over GOP opposition did not help his standing either — even as it hurt Republicans far more.
Led by senators like John McCain (R-AZ) and Marco Rubio (R-FL), Republicans are now trying to craft a bipartisan immigration deal that they hope will boost their standing with the community. But they’re starting from an exceptionally weak position: Hispanic respondents told Pew they favor Obama’s approach to immigration over the GOP’s by a whopping 73-15 margin.
Obama’s relative popularity could complicate Rubio’s recent attacks on the administration for drafting its own immigration plan, which he called “dead on arrival” in Congress and warned would inflame Republican opinion against reform.
I wonder how much of that Democratic (Obama) support is simply due to how transparent Republican efforts are. I mean, if Rubio has to wave Obama off with a statement that essentially boils down to, "Shhhh, you might spook the other Republicans!" certainly, that filters down to parts of the population. At every turn, Republicans have pushed heavy on deportation and border security, and vilified any attempt to provide assistance to even the most exemplary of undocumented/illegal immigrants. Any push for immigration reform now seems like a move made out of political calculation instead of moral obligation.
Watching the town hall meeting with McCain was somewhat depressing. I have no idea how a compromise can ever be reached that actually accomplishes a path to citizenship when you have to pander to these kind of people. It's essentially a terminal catch 22, you have to cater to your base, but the base is no longer enough to win elections, and trying to appease it pushes you further away from moderate centrist voters that you need to win.
Some snippets from the meeting. Even though I disagree with McCain on just about everything, I have to give him respect for standing by his principles, even when it creates confrontations with his own voter base.
On February 20 2013 20:41 paralleluniverse wrote: I said that stress tests were one of the ways of dealing with tail risks. But there are others.
Insurance companies deal with catastrophes all the time, (e.g. the Japanese earthquake and tsunami a couple of years ago). Why don't they go bust? No, AIG doesn't count, because it was the investment division, gambling with financial instruments, that blew up, not their insurance business. The main reason is because insurance companies know how to manage tail risk.
Stress testing is one method. Another method is reinsurance, i.e. the insurance company buys insurance from another insurance company. The analogous concept in finance is using derivatives to hedge your position. Another is catastrophe bonds. The analogous concept in finance is a MBS. So why hasn't reinsurance and cat bonds destroyed insurance, the way that derivatives and MBSs have destroy finance?
Because natural catastrophes, of the sort that insurance companies deal with aren't correlated, whereas everything is correlated in finance. A tsunami in Japan doesn't cause a hurricane in New York and a volcano eruption in Italy, whereas a large bankruptcy causes contagion to flow throughout the financial system.
So this proves my point: it's not tail risk that was the main problem, it's correlation. It's possible to successfully deal with tail risk when things aren't correlated, just look at the insurance companies.
Disasters aren't tied together but insured disasters can have the same contagion effect:
Disasters lead to the insurance company selling assets to raise cash. Their asset sales drive down the value of the assets. As asset prices decline the insurance company loses its ability to make good on claims. Insured assets then become uninsured assets and their value declines. So on and so forth...
Now in the real world this is never a meaningful problem, but I think that's because insurance just isn't that big relative to the overall market and not that they have some superior structure.
Not really. Insurance companies are well equipped to deal with catastrophic natural disasters, In fact, that's typical business for them. They are able to successfully manage these tail risks, for example using some of the techniques I've described above.
They don't sell their assets when a massive catastrophe strikes, they have large reserves and good risk management.
Their reserves are assets.
Good risk management works for insurance companies because they can build large reserves (huge investment portfolios) and match the reserves to the needs of claims over time. That only works because insurance is small. It's not something you can scale up for the financial markets.
Edit: I'm agreeing with you here on the correlation is the problem front. Things are not always correlated in finance, they only become correlated when the disaster is large enough. The same, I believe, would be true for insurance companies. They only get to dodge it because the disasters are never large enough.
Reserves aren't just investment portfolios. Regulation (and not wanting to collapse the company) prescribes capital requirements and they have to be sufficiently liquid. Insurance companies hold a lot of cash, but the point is that insurance companies have comprehensive and successful risk management, so, they don't go bust. Sure, insurance is smaller than finance, but there are still devastating and unpredictable natural catastrophes, like the 2011 Japanese tsunami.
If their "comprehensive and successful risk management" is unique (can't be duplicated for finance) because of size and other factors than the relevance is lost. They don't know something special about risk - they just have more options to deal with it.
President Obama is riding a huge surge in popularity in public opinion surveys among Hispanics, who are overwhelmingly excited about his second-term efforts to pass immigration reform. Obama’s approval rating stands at 73 percent among Hispanics, a 25-point swing from his low of 48 percent in late 2011.
In particular, Obama enjoyed a major shift in support for his immigration policy. Some 63 percent of Hispanic respondents to a Pew Research/USA Today poll approved of Obama’s performance on the issue. In November 2011, only 28 percent approved of his work on immigration.
While Hispanic voters turned out in droves to elect Obama in November, many were upset over the record levels of deportations carried out by his administration. Obama’s inability to pass either comprehensive immigration reform or the DREAM Act, which would grant citizenship to young undocumented immigrants, over GOP opposition did not help his standing either — even as it hurt Republicans far more.
Led by senators like John McCain (R-AZ) and Marco Rubio (R-FL), Republicans are now trying to craft a bipartisan immigration deal that they hope will boost their standing with the community. But they’re starting from an exceptionally weak position: Hispanic respondents told Pew they favor Obama’s approach to immigration over the GOP’s by a whopping 73-15 margin.
Obama’s relative popularity could complicate Rubio’s recent attacks on the administration for drafting its own immigration plan, which he called “dead on arrival” in Congress and warned would inflame Republican opinion against reform.
I wonder how much of that Democratic (Obama) support is simply due to how transparent Republican efforts are. I mean, if Rubio has to wave Obama off with a statement that essentially boils down to, "Shhhh, you might spook the other Republicans!" certainly, that filters down to parts of the population. At every turn, Republicans have pushed heavy on deportation and border security, and vilified any attempt to provide assistance to even the most exemplary of undocumented/illegal immigrants. Any push for immigration reform now seems like a move made out of political calculation instead of moral obligation.
Watching the town hall meeting with McCain was somewhat depressing. I have no idea how a compromise can ever be reached that actually accomplishes a path to citizenship when you have to pander to these kind of people. It's essentially a terminal catch 22, you have to cater to your base, but the base is no longer enough to win elections, and trying to appease it pushes you further away from moderate centrist voters that you need to win.
Some snippets from the meeting. Even though I disagree with McCain on just about everything, I have to give him respect for standing by his principles, even when it creates confrontations with his own voter base.
Part of the problem is that the longer it takes for immigration reform the more people are going to get mad like in the video. It's not just about ideology here, states like Arizona have taken the brunt of the pain caused by illegal immigration. Until the problem is fixed (by whatever means) they have a right to be pissed.
@PU, Taleb's argument is that there's a deep flaw in using this sort of method to stack normal distributions on top of one another to simulate a fractal, but I'm not going to pretend like I can explain what that is. It made sense to me when I was reading the book (and it jibed with what I had already learned about complexity math and simulation in other contexts), but I lack the math to argue it myself. I think all I can do is recommend the book.
His point also is that there's also not really any other way to do it - I don't think you can, like, use fractal math as a replacement. His point is that we should be aware of the limitations of the maths we're using, and that we should, as a society, hedge in a more qualitative fashion against the kind of events which cannot be hedged against quantitatively using our models of prediction. We do this by emphasizing robustness over sheer efficiency.
edit: part of the problem has to do with the way that financial ceo's are remunerated, where they get big bonuses for exposing their firms to long-term risks in order to rack up short-term profits. They don't care if the dike falls to a hundred-year flood, because they're only around for two. après moi le deluge
EPT
![[image loading]](http://chrisladroue.com/wp-content/uploads/2011/03/BMpaths.png)
![[image loading]](https://almostsure.files.wordpress.com/2010/10/cauchyprocess2.png)
