Monday, May 28, 2018

The Nature of Money

Many people misunderstand the nature of money, and that misunderstanding leads to misunderstandings about "hard money", "fiat currency", and the nature of banking, including "fractional reserve banking" (FRB). In this post, I'll cover these topics and attempt to clear up many of those misunderstandings.

The Nature of Money

Money is not value itself, money is a near universal (within an economy), temporary store of value, it exists solely for the purpose of facilitating exchange/business. Barter is complicated because you have to find buyer and seller who each have something of value to the other one, and the items can be bulky. If buyer and seller don't have items of value to the other, there will be no exchange. Money is the solution to that by creating a universal, easily exchanged, easily carried, unit of value.

It is only necessary for money to maintain it's value until it can be exchanged for other goods. Ideally, its value should be fairly stable for years, however, most money is exchanged within a few weeks, so stability over a period of a few months to a year is more than sufficient for it to function as money. The longer it's value remains stable, the better.

Money is not wealth. The total wealth in the US is ~$95T. Total economic activity (as measured by GDP) is ~ $18.5T. But the amount of money in circulation is ~$1.6T. Clearly, money, economic activity, and wealth are distinct measures. Money supply and economic activity are related, but aren't the same. Money and wealth (stored value) are only very loosely related.

Hard Money vs Fiat Money

Hard money refers to money made of, or backed by, something of intrinsic value, such as gold, silver, copper, platinum etc. The problem with "hard money" is that any such "thing of intrinsic value" has a value that changes relative to other goods, as its supply and demand change. Gold, silver, copper, etc. all change in value relative to other items because they have non-monetary uses that dramatically alter the demand, and new discoveries of deposits (or new ways of extracting them from known deposits) increase the supply. That makes for a money of limited stability of value. When those metals were used only for money and jewelry, it made sense to use them as a form of money, because they were scarce and the demand was largely driven by use as money, while supplies were constrained and usually belonged to the govt/ruler. However, all of those have significant industrial uses now, as does every other conceivable element or mineral.

For something to be an effective hard money, it must meet these requirement:

  1. Have intrinsic value.
  2. Be scarce, or have limited access by any means other than the money issuer.
  3. Have no other demand for usage that could cause a supply constraint.

While #2 can be theoretically be enforced by law (aka fiat), #1 conflicts with #2 & #3. If something has no use other than as money, it has no inherent value. If it has competing uses, then it's either virtually unlimited in supply (which reduces it's inherent value), or it's subject to shortages and "increased value" due to the other demands. It simply can't exist in any meaningful way now. A well-managed fiat currency is actually more stable than any hard money can be. This is obvious when you grasp the nature of "hard money".

Money Supply and Fiat Currency Under FRB

Having established that hard money is not inherently stable, nor more so than a well-managed fiat (established by law) currency, that in fact, hard money is inherently limited in stability of value because it is subject to the same laws of supply and demand as all other goods, it is in fact less stable and thus less ideal than a well-managed fiat currency. It's now time to look at the nature of money supply with a fiat currency, which turns out to be significantly different from that of hard-currency.

The essential factor in maintaining a stable money supply is that money must never be introduced without the receiving party exchanging something of suitable value. As it turns out, this is the same as for any hard money, Thus, the amount of money in circulation is solely a representation of a portion of the wealth, in a conveniently carried and exchanged form.

To see this more clearly, lets look at the oft maligned fractional reserve banking (FRB) system. People deposit "money" into the bank, but the bank lends out more "money" than is on deposit. How does that not devalue the money in circulation? Consider each secured loan (we'll look at unsecured loans and limits to FRB shortly). In order to receive a loan, the borrower exchanges equity in some property for cash, thus making "liquid" some portion of the assets of that borrower. But notice that the total value of the property is unchanged, only which party has legal claim on the property. Now, from an economic view, it literally makes no difference if the bank used money that was deposited by others or whether they literally printed the money (e.g. issued a check), that money is backed by real property of value, exactly as hard currency is. As such, it makes no difference whether the bank lends out 1x or 10x as much as they have on deposit, because it's all secured by property of at least comparable value. The "money supply" has increased, but only because property was made "liquid" by the exchange. This is significantly different than with any hard currency, since the supply of the hard money material itself a constraint on the supply, and thus on the liquidity of the economy.

That additional currency now in circulation will stimulate economic activity (people don't borrow to hoard money, they borrow to buy and/or pay other debts). Likewise, the loan must be paid back, with interest, generating income for the bank to pay it's expenses, employees and shareholders, and to pay interest on the deposits, thus taking the borrowed money back out of circulation. FRB multiplies the ability to liquify property/equity, and increases the bank's ability to make money, and pay interest on, their deposits, effectively lowering the costs of banking.

Now, lets look at unsecured loans. Unsecured loans must be limited to a percentage of deposits, as there always exists the possibility that defaults could hamper the bank's ability to pay out deposited funds. Therefore, there must be a limit on the total amount of unsecured loans made vs total deposits. There is much more to consider with secured or unsecured loans, including creditworthiness of borrower, interest rates, demand accounts vs time deposit accounts, etc. but those are minutia not central to this discussion. The key is that there must be fairly strict limits on unsecured loans by banks.

Back to secured loans for the final portion. Clearly, defaults in either case will leave money out in circulation. For unsecured loans, that money comes out of the bank's profits, so it remains in balance. This creates a natural limit on the amount of unsecured loans, but that doesn't mean there shouldn't be legal limits as well. For secured loans, the bank foreclosing on and selling the property that secured the loan, brings in the money that was borrowed. Any shortfall comes from the bank's profits, thus creating a limit on the amount of secured loans that it's prudent to lend. History shows that bankers don't always act prudently when lending. This brings us to the realization that there should be legal limits on the percentage of deposits that may be issued as secured loans too. It will be a different limit than that for unsecured loans, but there should be a legal limit that prevents banks from being too imprudent in lending.

Thus we see that amount of money in circulation has no impact on the value of money itself, so long as how it enters circulation is controlled by the requirement that it always be exchanged for comparable value. It doesn't cause inflation either, although, the interest paid on loans and deposits are factors that indirectly contribute to inflation. The more interest borrowers pay, and the greater percentage of the economy that is driven by loans, will impact the rate of inflation.

Notes on Banks and Banking in an Economy

Banks occupy a special place in an economy. They don't themselves produce any products of value, but as they do have significant control of the liquidity of assets and the money supply, and they have deposits from many people. Therefore, their stability is vital to local, state, regional, and national economic activity. They also have the unique ability to crash an economy, as we have seen numerous times. As such, no bank should be allowed to exceed a certain percentage of the market/deposits for a given area (e.g. MSA, state, region, or nation), so there need to be established threshold market share at each level at which the bank incurs additional oversight or regulation, and a higher threshold at which the bank must divest itself of assets to get below the threshold. So, while FRB itself isn't a problem, it must be restricted by laws and regulations to limit the damage any bank can cause if it fails.

Related articles:

Tuesday, February 28, 2017

SNAP vs Corporate Subsidies, typical $50k family

If you see a post claiming SNAP (formerly Food Stamps) costs a typical $50k/yr taxpayer only $36, those numbers are simply wrong. Long story short, the corporate numbers and other numbers are calculated using two different and incompatible methods, so they can't be compared. And, both sets of numbers are wrong, based upon flawed calculation methods.

"SO, my monies aren't going to pay corporate subsidies?"

Some are, but not anywhere near that amount. Corporate subsidies are AT MOST 8x as much as SNAP ($600B vs $75B). Of that $600B, only $87B are "direct subsidies", the others are various tax benefits, so we're not actually paying them anything. So, in reality, it's $87B in corporate subsidies vs $75B in SNAP, or about 1.16x as much. Even 8x is a far cry from the 108x shown in the meme. 1.16x is just over 1/100th the of the difference claimed in the meme.

The actual numbers for SNAP are very hard to calculate, because there are many different ways you can calculate them that have valid claims, and they all give different numbers. But using these methods, SNAP costs that typical $50K earner somewhere between $106/yr and $700/yr depending upon the method, with corporate subsidies costing 1.16x as much.

The other numbers are similarly wrong, and are at least 3x as much as shown in the meme/original article. They're not even close to accurate.

Further analysis using actual numbers for a $50k taxpayer:

"A married person with one child making $50,000 a year will pay exactly $3,820 in federal taxes. Of those, $2100 is allocated to Social Security, and $725 is distributed Medicare. This leaves a whopping $995 to be used to pay for programs administrated by the Federal government."
Even ignoring the problems I pointed out previously, the total taxes paid is less than the claimed $4,000/$6,000 in "corporate subsidies", so clearly, the numbers are nonsense.

Above quote from this article (site no longer works) which explains how the numbers other than the $4,000 were calculated. As I said, that methodology is grossly flawed, but it's sufficient to prove the meme isn't even close.

The $6,000/yr figure comes from another source, and has even bigger issues than the $4,000/yr claim.

Here's the original article where the $36 and other claims in the meme come from.

Saturday, February 6, 2016

Capitalism and Minimum Wage

Contrary to popular belief, Capitalism isn't simply "buy low, sell high". Capitalism is founded upon several principles, including the free-market theory. One of the core principles of free-market theory is that you pay the full, unsubsidized cost of the goods and services you use. Subsidies create an artificial and unsustainable market. If you don't meet that condition, you don't, and can't, have a "market economy" that is central to Capitalism.

The labor a business uses requires a certain amount of money to live and maintain the health and well being of the person supplying that labor. That "minimal living wage", that is, a wage that pays the full cost of the “necessities” of life in that society, varies by location, but it is indeed a real, measurable amount that is NOT dependent upon the lifestyle of any individual, it's calculable based upon what is necessary for a typical family to live and remain as a healthy, productive part of that society, and it is already calculated for all parts of the USA (see related links). If you are paying less than that minimum living wage, then someone else must subsidize your labor. For purposes of this discussion, it doesn't matter who is providing the subsidy, the fact is that your business is being subsidized, and therefore violates one of the core principles of capitalism.

The "X job isn't worth that much" argument is nonsense.
If that job is necessary to the operation of your business, and it can't be automated (or costs too much to automate), then you must pay some person to do that job. Without that labor, you have no business. Therefore, it is inherently worth at least the cost of a "minimum living wage". If the cost of labor (or other costs) forces you to price your product above what people will pay or keeps you from making a profit, then you don't have a viable capitalist business model. That is how capitalism works.

Therefore, paying at least such "minimum living wage", is actually necessary for capitalism to be sustained. Any business that cannot make a profit while paying a living wage is unsustainable as a for-profit capitalist business. For-profit businesses with unsustainable business models should be allowed to fail, to be replaced by better business models. That's part of the fundamental principles of capitalism. Since greed and the "profit motive" have repeatedly proven they will be used to distort and manipulate the market for personal gain when possible, having laws requiring businesses/employ to pay at least that wage, are prudent, if not required, for capitalism to be sustainable.

Shouldn't minimum wage be left up to the market to determine?
A person does not have a right (legally or ethically) to enter into a contract that obligates/requires anyone else to subsidize his life, unless he has explicit permission from the person/entity paying the subsidy. Nor, does an employer have a right to request or expect any employee to be subsidized by anyone else (taxpayers, parents, charities, etc.). Ergo, no employer has a right to offer, and no employee has a right to accept, a wage that requires subsidies from ANY OTHER PARTY, without the consent of the person/entity providing the subsidy. So the market can and will determine how high wages are for any given position, except that the rate must not be less than the "minimum living wage".

Notes for clarification/completeness:
In capitalism, there are times when products are sold below cost, "going out of business", "clearance", "liquidation", "bankruptcy", "loss leaders", etc. but you'll notice that it's the "things" that are sold below cost, not the labor being paid less than a living wage. It's also not the normal course of business, all of those things are temporary in term, and all but "loss leader" items are one-time events when the business is failing/failed. No entity that relies upon subsidies should be operated as a for-profit entity.

Exceptions to the "minimum living wage" rule:
Some percentage of the population is not "able bodied" and/or has another form of disability. As a civilized society, we have said that government and/or charity programs will subsidize the living costs of these people. Similarly, teens/students living with their parents and/or seniors living with their family, may not need a full "living wage". In such cases, IF AND ONLY IF the person/entity providing the subsidy has agreed, then the person receiving the subsidy might be paid a lower wage consistent with their abilities AND the amount of subsidy provided.

Non-profit making activities:
The above is not to say that only profitable activities are valuable or worth pursuing, even in a capitalist society. For example, military, law enforcement, courts, and penal systems are necessary to society, yet they should never be organized to be profitable, as the profit motive calls for expansion and growth, and that is exactly what you don't want to encourage in those systems. It's not even appropriate to design those systems to attempt to recover their operating costs. Indeed, it's vital that such services be available to all, not just those who can afford to pay for them at any given moment.

There are also many types of activities that "serve the public good" which might not be economically viable as "for-profit" entities. Most government services, charities, and activities that serve the interests of society as a whole, are valuable and often necessary, and these activities are best operated as not-for-profit entities that rely upon taxes, fees, donations and/or other forms of subsidies for their continued operation. Not-for-profit entities, because they rely upon external subsidies, should be subject to caps on the maximum amount they can pay their labor, even/especially their most senior executives. That should be part of the terms or "costs" of operating on subsidies.

Expanded discussion and examples:
Labor is not a "thing", it's value isn't dependent solely upon how much you think it contributes to the company. Labor is a person, who must earn enough money to live on, and those costs rise over time, even if the contribution of their labor does not increase. Wages MUST increase with inflation.

Most "things", e.g. equipment, needs maintenance, and those maintenance costs increase over time. The same is true of labor. That the contribution of the equipment to your business does not increase over time, doesn't mean your maintenance costs will remain constant. The same is true of labor.

"Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them."
- Abraham Lincoln, 1861 in his first annual address to Congress.

It does not matter that you think the labor is only worth $5/hr. If it costs a minimum of $10/hr x40 hours/wk for "labor" to live, then you have to pay at least $10/hr, no matter how much you think the job is worth. In this regard, it's no different than buying a piece of equipment. You don't get to say "I'm only going to pay $5 for this $10 machine because I think it's only worth $5". You either pay $10, or you don't get the machine to use.

Minimum wage is intended to be a "living wage"

It has been from it's inception. The claim that it's "not supposed to be" a permanent, wage that can support a family is a relatively modern one invented by minimum wage opponents. But even a cursory look at history proves that is has always been intended as a sustainable income for working adults.

"It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By "business" I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level-I mean the wages of decent living."
- Franklin D Roosevelt, 1933 in his statement on the National Industrial Recovery Act, which established the federal minimum wage in 1933

    Related Links:
  • MIT Living Wage Calculator
  • Wikipedia article on the National Industrial Recovery Act of 1933
  • Wikipedia article" on Free-Market theory.
  • Wikipedia article on economic equilibrium, a core component of free-market theory and capitalism

Saturday, June 20, 2015

What is a Software Architect?

While there is not yet a universally accepted definition, there are a range of definitions and skills that are beginning converge on a definition. Here's how I define it, and where I think the industry is going with the definition.
Software Architect: A person who does the overall design work for a piece of software, including what core features and functionality it needs to have, and creating the overall design that can accomplish that in a manner that meets the business requirements, including cost, performance, capacity, and time-frame.
This typically includes specifying the modular design, the application programming interface, and may sometimes include specifying the tools, technologies, and and systems to be used to build it. It's analogous to what an architect does for buildings, creates the overall design, appearance, feel, function, materials, etc., but does not actually build it.

However, the architect's work does not end there. As it's being built, the developers and engineers are likely to have questions and/or suggestions for ways to improve it, and the architect must work with them to approve and incorporate such changes, or decide to omit them. There are likely to be changes in the requirements, features, and functionality from the managers/users that the architect must incorporate into the design as it's being built. The architect is also to verify that the implementation fits with the design and work with the implementers to ensure the modules all work together and that the overall system works as intended.

The Software Architect role may include the role of a Business Analyst, that is, gathering and documenting the requirements from users/management, or it may be more of a technical design role that works in conjunction with a Business Analyst, depending upon the qualifications of the Software Architect and the scale/scope of the project. On very large projects, there may be one or more Business Analysts, and potentially multiple Software Architects, with one being the lead architect.

How Does One Become A Software Architect?
In some environments, the person who is the Software Architect may also build/implement parts of the system. That's particularly true in smaller projects where the architect role isn't full-time, however, building the software is not actually the role of the Software Architect, that is the role of the developers/programmers. That one person may perform multiple roles does not alter the roles as I have defined them. In these instances, it's usually a senior programmer/developer that has demonstrated a level of proficiency with designing software over the years, not someone who is primarily a software architect. Indeed, this hybrid role is usually how someone eventually transitions into a role of primarily being a Software Architect.

The Ultimate Realization Of Software Architect.
As the architect becomes less involved in programming, and more involved with the design and business requirements, the specific technologies used to implement the designs become less important to the design. The computer systems, technologies, and languages used for the implementation become matters of cost, performance, reliability, convenience, and timeliness that, while important to the success of the project, aren't critical to the design, and can be interchanged or replaced as technologies and/or needs change. This is the ultimate realization of what constitutes a Software Architect.

What About Other Architect Roles?
This same concept can be applied to other areas of IT, notably, the roles of Database Architect, and Network Architect. As with Software Architect, these roles require extensive technical knowledge, as well as excellent understanding of the business needs the systems will fulfill, however, in most cases, the specific technologies used in the implementation won't be critical to the architecture. The Architect's job is to design a system that can be implemented using any of the available technologies, leaving the technology decisions as business decisions that may change, or be replaced, as the needs and the technologies change, without significantly altering the overall design. However, in the case of these roles, the architect is likely to have more of a hands-on role in choosing the technologies and may be more involved in the implementation than the "ultimate" Software Architect mentioned above.

Related Links:

Saturday, October 25, 2014

How to Fly From Denver to Baltimore in Under 12 Hours

I just got back from a business trip to Baltimore, it was quite an adventure. My own personal "Planes, Trains, and Automobiles", a comedy of errors.

I was supposed to fly from Denver International to BWI near Baltimore, it's only about a 3.5 hour flight. Flight was scheduled to leave Denver Aug 4, at 10:42am, flight UA 18, arrive BWI 4:12pm (2 hours time difference). I live ~ 30 mins from the airport, so I left the house at 9a (some of you might count that as Mistake #1, but I don't, although I might now count flying on United to be mistake #1)

Mistake #1 - I went to the drive-thru at a McDonald's on the way. It was fast, the order was correct, food was fine, so what's the problem? I'll get to that shortly.

Mistake #2 - I'm not very familiar with the parking at Denver International Airport, I was following the traffic and ended up in the close-in garage parking. It's $7/day more than the economy parking, but it's closer and I'm in a bit of a hurry so I just park in the garage. While this saved me a bit of time, it cost me an extra $21 for the 3 day trip, and as you're about to see, the time didn't help.

Delay #3 - I wasn't familiar with using United Airlines self check-in machines, so it took an extra 2-3 minutes to get my boarding pass.

Delay #4 - The security line is long, but it's moving quickly and I've got more than 45 mins, shouldn't be a problem. Down to 22 mins and just about to go through the scanner. Finally through security, I've got about 17 minutes until scheduled departure, off to the train to get to concourse B. Remember that couple minutes at McDonald's and at the self check-in machine? I sure could use those now. Train gets to me to concourse B, I've got 12 minutes until departure, so about 2 minutes to get to my gate.

Mistake #5 - I'm running to gate B18, the moving walkways help, but I'm not going to make it 10 mins before the flight. Get to gate B18, it's not my flight. Look at my ticket a couple more times before I notice that 18B is my seat #, the gate is in small print a few lines above. I need gate B52, and that's the direction I just came from, should have turned left instead of right.

Knowing it's too late now, I walk to gate B52. While on one of the moving walkways, I notice that gate B39 is a United flight to BWI, It's got my flight number and departure time, but my boarding pass definitely says B52. There is only an agent there, no passengers and the door is closed, if it's my flight, it's too late so I continue to B52 rather than jump over the wall of the moving walkway. I get to gate B52, it's not my flight, they changed my gate while I was going through security. For some reason, they don't announce gate changes in the main terminal where security is, so you don't hear them while you're working your way through security.

I head back to gate B39. The agent is still there, I inform her I'm supposed to be on the plane that is now gone. She checks flights and doesn't find anything direct to BWI or Washington Reagan/National. I can get to Washington Reagan/National on connecting flights arriving around 10pm, or BWI around 11pm. She has to go to her next gate, so I go to the customer service counter next door.

This agent finds the same options, and tells me I can go standby. It's another $50, but only if I actually get on the flight. If seats are available, I can confirm a seat for $150. I don't like the arrival times (or the cost) so I ask about flying into Dulles instead. Non-stop flight leaving in 40 mins, arrives Dulles at 5:09pm, a seat is available. That should put me in Baltimore by 7 or 8. I balk at the $150, she gives me a break, confirms me on that flight for $75. Gate is nearby. Finally things are looking better.

Mistake #6 - There is no #6, messed up in numbering them. 2015-09-12.

Delay #7 - Sitting on the plane at the gate, captain announces they've got a warning light showing one of the doors being open, have to wait a few minutes for maintenance to check it out. Ok, another 5-10 mins won't matter. Maintenance is quick to check it out, and we're rolling out to the runway.

Delay #8 - Captain informs us that traffic control is delaying our takeoff about 10 minutes, these things sometimes happen when you don't leave on time. Again, no big deal, I'll still get to Dulles around 5:30. We make up some time in the air, arrive at Dulles around 5:15, I'm off the plane around 5:30.

I check at the information desk to find out the best way to get to Baltimore. She's not sure, but they've got a flyer showing 8 ways to get to BWI. I know I can take the light rail from BWI to Baltimore, so I look at the list. Shuttle van is about $75, cab will be over $90, and that doesn't count tips. I can take the Metro (bus and subway) to a MARC train for a total of $10-$15, so I opt for that.

Delay #9 - I get to the bus, it's about the leave, I'm just in time. Fare is $6, exact change required, all I have are a $5 and some $20s. Back inside to get change, bus leaves. 30 mins until the next one.

I use that 30 mins to study the routes more carefully, get change, have a beer, and settle on a plan. I look at the menu, but nothing looks good, I'll eat in an hour or two when I get to Baltimore. I get on the bus, it's an express bus, only makes a few stops. The bus is moving well on the freeway, but it's a long distance, and it takes 40 mins.

I Follow the crowds into the subway station. I find the fare to my destination, pay, get my card, and head down to the platform. Train I need is arriving in 2 minutes, great. Things are starting to work well.

Delay #10 - It's supposed to be about a 34 min ride to my stop, it takes 50. I get off the the subway and the exit gate won't open, tells me to go to the "exit fares" machine. While waiting my turn, I see a note at the bottom of the fare chart, as of Aug 1, add $0.25 to the fares shown, didn't see that when purchasing my ticket. Remember that beer I had? I kept a quarter from the change, it's just what I need to get out of the subway.

Delay #11 - From here I'm supposed to take a MARC train to BWI. I don't see any signs for MARC, so I follow the crowds out and finally see a sign. I go in to get a ticket, train to Baltimore is just leaving, sure could use those couple minutes I lost on the exit toll and looking for the signs. It's now 7:57p. I can take an Amtrak at 8:57, arriving Baltimore at 9:30, or a MARC train at 9:11, arriving Baltimore after 10. I opt for the Amtrak.

Haven't eaten since the breakfast from McDonald's, I'm getting hungry. Snack bar and convenience store both closed at 8. Vending machines only take ones, and I'm out of change again. Stomach will have to wait a bit longer.

Mistake #10.5 – I know it's out of order, but I didn't know about it until this point, and it wouldn't have made sense for me to tell about it sooner. Instead of taking the subway to the end of the line as I did, I should have transferred a couple times and caught the Amtrak at Union Station. Probably would have cost more, but I could have caught the earlier train.

Amtrak is on time, I climb aboard and relax making sure I don't fall asleep. 9:30p arrive Pennsylvania Station in Baltimore. I'm here, finally.

Delay #12 - I've never been in this part of Baltimore, so I need to find out how far my hotel is, which direction, etc. I'm also pretty hungry by now. Penn Station has free Wi-Fi, open up my computer, find out that my hotel is 1.6 mi, straight south. It's dark, which way is south? Maybe I want to eat first, look up some restaurants, too far out of my way. After figuring out where I was and which way I needed to go, I opt to walk to my hotel.

I arrive at my hotel just before 10:30pm, eleven and one half hours after I left home, and with about $100 less money. To get to Baltimore, I drove, walked, ran, flew, and rode a bus, a subway, and a train.

An epilogue to this little adventure. On Friday the 6th, I took the MTA light rail back to BWI to head home. I had to change trains at one point, and either left my cell phone on the first train, or dropped it at the station where I changed trains. Now, my phone is somewhere near Baltimore, and I'm back home, tired and several hundred dollars poorer than planned.

Originally written and published in August 2010

Tuesday, August 28, 2012

Confessions Of A Math Addict

I have a confession to make. I am a math addict. My parents introduced me to it when I was about 3, and after I tried it a few times, I was hooked. By the time I was 4, I had moved on to the harder stuff, multiplication and division, and I don't just mean 5x3, I was doing the hard stuff, multi-digit multiplication and division, and I didn't need a pencil or paper, just straight to my head.

When my kindergarten teacher found out, wow! He marched me straight down to the vice principal and interrupted a meeting. Needless to say, the VP was shocked to find such a young math addict in his school. My teachers tried to help me, but I was always a step ahead of them. I was doing exponentiation by 2nd grade, algebra by 5th grade, trigonometry by 6th, it seemed that nothing would stop this addiction.

They kept trying to help me, but I just kept right on doing math. Sometimes my grades would drop because I was bored, or didn't like the teacher. They kept putting me in tougher environments, but I just kept on doing it. In jr high, a friend introduced me to computers. I realized these things could make it faster and easier to do really hard math. You know the story, "Hey Geoff, check this out...."

By the time I got to high school, it was really bad, joined a "math club" and started doing "number sense". And, I was completely hooked on computers. My junior year was the worst, I was taking 3 credits of math, second, third, and 4th period, every day, including "computer math".

I was so addicted by my senior year that when I only got a 760 on the SAT math, I decided to do it again because I should have gotten higher. The second time, I hit 800. I was up to doing AP Calculus, the really hard stuff, and still, no one could stop me. I didn't pay attention in class, didn't do my homework, and yet flew through every test they dropped on me. They couldn't catch me or stop me.

But it all came crashing down in college, the hard math there was only available at 8:30 in the morning, and my brain just wasn't working at that hour. They had me doing stuff called Calc II, Calc III, & Differential Equations, and always timed tests. But it wasn't the math that got me, it was those early hours. My brain just can't handle those early hours.

After college, I cut way back on the hard stuff, went back to the basics, including some prime number theory. But I was working as a computer programmer, so I was doing math at work every day, and usually at home on the weekends. I started experimenting with other types of math, hashing, encryption, compression, you name it, I probably experimented with it. It wasn't hard, but without a computer, it would have been very tedious.

Yes, I've been a math addict for over 40 years now, and I don't think I'll ever quit. Parents beware, introducing your children to math at a young age can lead to a lifelong addiction.

P.S. This is a true story, although some of the details might be exact, it's all from memory.

Sunday, August 26, 2012

Too Big To Fail, Never Again

I'm tired of hearing about the "onerous and oppressive regulations being imposed upon the financial services industry". They are specifically referring to the "Volcker rule" that is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Now, I'm not here to argue the benefits or weaknesses of the specifics of the Volcker Rule. I haven't read it's 300 pages, as I'm not in that industry, it may very well be a flawed piece of legislation.

I'm here to point out that the banking industry has only themselves to blame for this situation. First, they lobbied for, and successfully got key provisions of the Glass-Steagall Act repealed, allowing commercial and investment banks to merge and share assets and liabilities. These provisions were repealed as part of the Gramm-Leach-Bliley Act (GLBA) in 1999. This was strongly supported by Alan Greenspan, then Chairman of the Federal Reserve, the financial services industry, and particularly, by Sanford Weill, CEO of Citicorp, which later became the largest bank (Citigroup) when it merged with Travelers Group, and many others in Congress and the banking industries.

After passage and several mega-mergers of commercial and investment banks, they began engaging in the practice of making high risk sub-prime mortgages, funding the "housing bubble" of escalating prices, sold mortgage-backed-securities (MBS) to other investors assigning them a AAA rating, while simultaneously making investments that those MBS would go down in value. In short, they engaged in manipulation of the market for their own enrichment, at a cost of many hundreds of billions to millions of homeowners, and trillions to the overall economy. Only a massive USD$700 billion bailout saved them from bankruptcy.

And then there is the still pending possibility of another financial crisis from the "derivatives" market they created, a crisis that could very well be larger than the problems so far.

So, in summary, they lobbied for deregulation, got it, then proceeded to engage in risky, and possibly fraudulent practices that resulted in a loss of hundreds of billions or trillions of dollars to people who we not part of the investment scheme. And now, they want to complain about the new regulations being imposed upon them. They haven't even admitted fault for causing the problem, and none have been held financially or legally accountable for these practices. They were in effect, gambling with "our" money, and indeed, the entire US and world economy.

Sorry, but until they take responsibility for their actions and the damage they've done, anything they say about how "onerous and oppressive" these new regulations are will fall on deaf ears. They've demonstrated that they aren't trustworthy to self-regulate, nor hold themselves accountable for their manipulations. I, and I suspect most of the US public, have no sympathy for them, and no trust in their categorization of these new regulations.

Many of the primary backers of the repeal of Glass-Steagall, including Alan Greenspan, Sanford Weill, and others have since said it was a mistake, that "the big banks should be broken up", that "too big to fail" is too big a risk to the economy and the country, and that self-interest and self-regulation can not be relied upon in keeping the industry in line.
“I was an advocate of the deregulation movement and I made -- along with a lot of other smart people -- a fundamental mistake, which is that deregulation works fine in industries which do not pervade the economy,”
- Retired Federal Judge Richard Posner
"I made a mistake in presuming that the self-interest of organisations, specifically banks, is such that they were best capable of protecting shareholders and equity in the firms ...."
- Alan Greenspan, Chairman of the Federal Reserve when the Glass-Steagall Act was repealed in 1999 and he supported it's repeal, testifying to Congress on the banking crisis in Oct 2008.
“What we should probably do is go and split up investment banking from banking,” Mr. Weill, the former chief executive of Citigroup, told CNBC. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too big to fail.”
- Sanford Weill, former CEO Citigroup and one of the primary advocates for the passage of GLBA, quoted in the NYTimes article below.
They created this situation, now they have to deal with the consequences. And until they accept responsibility for it, nothing they say about the new regulations carries any weight. If and when they take responsibility for, or are held accountable for, their actions, there will be room to discuss what level of regulation is appropriate and necessary. But until then, they're simply not believable.

I'll conclude with a quote from a NYTimes article:
"In 2009, John S. Reed, who with Mr. Weill forged the megamerger that created Citigroup, apologized for creating a lumbering giant that needed multibillion-dollar bailouts from the government. Philip Purcell, the former chief executive of Morgan Stanley and David H. Komansky, the onetime leader of Merrill Lynch, two other main figures in the fight to repeal Glass-Steagall, have echoed similar concerns about deregulation."
- NYTimes
Update: 2015-10-17
Banks (including investment/financial services) occupy a special place in an economy. They have a unique capacity to boost, or collapse entire economies, based upon the actions of a few. It's fundamentally a risk to everyone to allow a private bank to become a significant part of any economy/market. For this reason, the restrictions on banking should be even more limited than anti-trust/monopoly laws for other industries, but the same principles should apply. See my post about free-markets for some thoughts on limits on market share in general, keeping in mind that more stringent limits should be applied to banks.