Sunday, December 19, 2010

Hybrid ownership and gasoline taxes

Any link?

Here is ownership as of February 2007 by state/MSA and here are gasoline taxes as of January 2007. API numbers may be more relevant as it combines local, state and federal taxes.

I don't see any correlation using the eyeball metric.

First snow and why I hate the Prius

Washington DC saw its first snow this winter last week on Thursday Dec 16th. As expected the Prius handled it badly. I first noticed the prblem the week after I bought the car last year when I was going over bumps and usually manhole covers. Now I find that it is not as isolated as I thought:

From a discussion:
It's a known condition that if you go over a bump violent enough to take a wheel off the road, it will trigger the traction control. That will delay application of the brakes. Several owners have reported this. It can happen on bumps you wouldn't think were that bad.

And whole pages devoted to this traction control problem.

Bottom line: I'll never buy a Toyota, much less a Prius. This fact that Toyota refuses to correct this problem is perhaps indicative that is become too American? My next car might be a Ford, which is an American company that has become more international.

We begin to sow the seeds for the next financial crisis

1. Revolving doors in the White House-Treasury-Wall Street complex:

LAST July Peter Orszag stepped down from his post as the head of the Office of Management and Budget. As budget director, Mr Orzsag helped shape the first stimulus package and, more visibly, the health-care reform legislation. Apparently, the market values this sort of experience. Last week, Mr Orszag accepted a senior position at the investment-banking arm of Citigroup, an institution that exists in its present form thanks to massive infusions of taxpayer cash. Exactly how much Citigroup pay Mr Orszag is not public knowledge, but swapping tweed for sharkskin should leave him sitting pretty. Bankers who spoke to the New York Times ballparked his yearly salary at $2-3m.

James Fallows rightly observes that not only is the revolving door between Washington and Wall Street unseemly, its frictionless gliding action suggests corruption is built right into the interface between our government and our great profit-seeking institutions. Mr Fallows hesitates to impugn Mr Orszag's personal character. Who can blame a fella for throwing open the door when extravagent opportunity knocks?!

But in the grander scheme, his move illustrates something that is just wrong. The idea that someone would help plan, advocate, and carry out an economic policy that played such a crucial role in the survival of a financial institution—and then, less than two years after his Administration took office, would take a job that (a) exemplifies the growing disparities the Administration says it's trying to correct and (b) unavoidably will call on knowledge and contacts Orszag developed while in recent public service—this says something bad about what is taken for granted in American public life.

When we notice similar patterns in other countries—for instance, how many offspring and in-laws of senior Chinese Communist officials have become very, very rich—we are quick to draw conclusions about structural injustices. Americans may not "notice" Orszag-like migrations, in the sense of devoting big news coverage to them. But these stories pile up in the background to create a broad American sense that politics is rigged, and opportunity too.

2. NYT:

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.

The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Drawn from giants like JPMorgan Chase, Goldman Sachs and Morgan Stanley, the bankers form a powerful committee that helps oversee trading in derivatives, instruments which, like insurance, are used to hedge risk.
In theory, this group exists to safeguard the integrity of the multitrillion-dollar market. In practice, it also defends the dominance of the big banks.

The banks in this group, which is affiliated with a new derivatives clearinghouse, have fought to block other banks from entering the market, and they are also trying to thwart efforts to make full information on prices and fees freely available.

A previous post on ICE is here. It referenced this article

Finding the most common element in an array using SAS

Found a need for this a while back - nothing fancy here - if there is a tie only the first most commonly occuring element is listed.

/* Create a data set of 1000 records. An array of 10 elements is also created - we want to find the most commonly occuring element */
data temp;
array a(*) a1 - a10;

do id = 1 to 1000;
do j = 1 to 10;
call streaminit(215582 + id * j);
a(j) = round(rand('normal',5,4)) ;
drop j;

data temp;
set temp;

array a(*) a1-a10;
call sortn(of a(*));
count = 0; mode_count = 0;
do i = 1 to dim(a)-1;
if a(i) = a(i+1) and a(i) ne . and a(i+1) ne . then do;
find_first = a(i);
count = count + 1;
else if a(i) ^= a(i+1) and a(i) ne . and a(i+1) ne . then do;
if count > mode_count then do;
mode = find_first;
mode_count = count;
count = 0;
/* The last elements are the most frequently occuring once we reach the end of the array and a mode has not yet been found */
if mode = . and count > 1 then do;
mode = a(dim(a));
mode_count = count;
/* If we reach the end of the array and count is greater than mode count then this must also be the most frequently occuring */
if count > mode_count then do;
mode = a(dim(a));
mode_count = count;
drop i;

/* Now let's check if it finds the correct ones */
proc transpose data = temp out=ttemp prefix=id;
id id;
var a1-a10;

proc means data = ttemp mode noprint;
var id1-id1000;
output out = checkmode(drop = _type_ _freq_) mode=cmode1-cmode1000;

proc transpose data = checkmode out = c prefix=checkmode;
var cmode1-cmode1000;

data c;
set c(drop = _name_);
id = _N_;

data ctemp;
merge temp c; by id;
if checkmode1 ne mode then flag = 1;

data wrong(drop = find_first flag);
set ctemp;
where flag = 1;

/* In macro form */
%macro array_mode(arrayname=);
call sortn(of &arrayname(*));
count = 0; mode_count = 0;
do i = 1 to dim(&arrayname)-1;
if &arrayname(i) = &arrayname(i+1) and &arrayname(i) ne . and &arrayname(i+1) ne . then do;
find_first = &arrayname(i);
count = count + 1;
else if &arrayname(i) ^= &arrayname(i+1) and &arrayname(i) ne . and &arrayname(i+1) ne . then do;
if count > mode_count then do;
mode = find_first;
mode_count = count;
count = 0;
/* The last elements are the most frequently occuring once we reach the end of the array and a mode has not yet been found */
if mode = . and count > 1 then do;
mode = &arrayname(dim(&arrayname));
mode_count = count;
/* If we reach the end of the array and count is greater than mode count then this must also be the most frequently occuring */
if count > mode_count then do;
mode = &arrayname(dim(&arrayname));
mode_count = count;
drop i;
%mend array_mode;

Pocket guides

I have never really had much use for pocket guides and I understand their 'pocket' size is so that I can carry it around and whip it out for a quick reference should I need it. But I wondered how I would ever use this and its related series.

Thursday, December 9, 2010

Some interesting papers

1. Limits to Arbitrage: Understanding How Hedge Funds Fail by Getmansky and Lo. The agent-based approach was interesting and yielded interesting (to me) insights. The paper is very rough and neither Andrew Lo nor Mila Getmansky have updated it. It occured to me that perhaps the agent-based approach is still a little ahead of its time despite all the talk about the failure of models.

... We propose that given positions are well diversified and notclosely correlated, leverage by itself does not lead to the collapse of a fund.Correlated positions in the absence of leverage might lead to a loss, but are notsubject to collateral collapse. However, the superimposition of both leverage andinduced high correlation between assets can lead to a collapse.

2. Evaluating the Impact of Development Projects on Poverty: A Handbook for Practitioners by Judy Baker. This is pretty much what it sounds like and the various evaluations undertaken by the World Bank in the annex was to me the most interesting part. Having been part of randomization projects (one clinical and one early childhood) I can attest to its complications and difficulties in terms of implementation and the annex shed some light on this. Various cost estimates were also illuminating - these ran much lower than the ones I was in and perhaps it was because these were in less developed countries. The stories one can tell from these projects could probably fill volumes and would definitely make one pause to wonder whether randomization really is the gold standard? I certainly do.

Costs of rubbernecking

On our drives to and from Northern NJ over the Thanksgiving break we encountered two rubbernecking delays. On our way there a vehicle fire already on the side of the road snarled Eastbound I-78 from the Jutland exit (at least that was where we were when we were caught in the backup) all the way to the White House exit. Really, there was nothing to see even though the fire was on our side of the highway. The westbound side of I-78 was snarled even worse, spilling on to I-287 when we got off. The folks there must be wondering what the delay was all about especially since by the time they get to the scene of the incident the emergency vehicles would have already gone. It is also unclear to me that the vehicles on westbound I-78 who slowed to take a look could really see anything.

Unfortunately, once the front vehicles slow down, plus the fact that it was the day before Thanksgiving and volume was starting to build up, there is just no way that traffic could have been eased once the first cars start to gawk. The first cars tend to slow down, well, because they are in front and they see nothing ahead of them so the costs of slowing down for them is small. Unfortunately, they are imposing substantial costs on those futher behind them.

On our way back there was a truck fire - this time, not even on the highway in PA I-83 in a truck stop. There was a lot of black smoke but this was off the highway and the emergency vehicles were on the local roads. The back up stretched from the merge of I-81 and I-83 all the way through almost to Harrisburg.

So what can be done? There is no way to tax rubberneckers especially those in the beginning who essentially cause hours of delays for those at the rear. Some googling led to the following:

1. Installing screens around the scene (doubtful that this would work)

2. An impact analysis; from the conclusion and future research section (emphasis mine):

This study is the first attempt to evaluate the rubbernecking impact of accidents on traffic in the opposite direction based on archived traffic and accident data. ... Barriers are an effective way to reduce the likelihood of rubbernecking in the opposite direction and the delay caused by the rubbernecking ... It is also necessary to investigate the role of human factor on rubbernecking. As indicated in the analysis of this study, motorists in peak period tended to create less rubbernecking than in other periods.

3. An example of negative externality in Chapter 6 of Krugman and Wells (or here).

What is corruption and who founded corruption

Was Nixon the founder of corruption, or so asked K1 after a discussion in school on the topic. As much as some people might like to think so, it is unfortunately not the case. Coincidentally, I found the following from WaPo on the trial of Tom DeLay:

... Thomas Jefferson's 1816 remark that "I hope we shall . . . crush in its birth the aristocracy of monied corporations which dare already to challenge our government to a trial by strength, and bid deiance to the laws of our country."

Lehman books and others

The “other” is Charles Gasparino's Sellout: How Three Decades of Wall Street Greed and Government Mismanagement Destroyed the Global Financial System and the Lehman books are Vicky Ward's Devil's Casino and A Colossal Failure of Common Sense by Lawrence McDonald.

Unexpectedly, of the three, the Gasparino book was the better. Unexpectedly also, the argument of the sub-title that government mismanagement destroyed our lives was not pushed as hard as I thought it would be, i.e., I thought that Fannie and Freddie would be denigrated and blamed but they were not blamed as loudly as I had expected. There is a trend throughout the book that the government actions essentially sowed the seeds for the next bubble – that when regulation clamped down on sector of the market e.g. junk bonds and Mike Milken, Wall Street merely moved on the the dot-coms and when that sector went bust, they just moved on to MBS. I thought that this book was actually a pretty good overview of the entire crisis.

The Lehman books were a bust. Vicky Ward's was better written and only the first half covered the crisis, with the latter part of the book devoted to Lehman's rise after its spinoff from American Express. It largely follows the lives of Tom Tucker, Joe Gregory, Dick Fuld, Chris Pettit whom she tries to portray as the person who was most responsible for its rise and the demise of Lehman was a rejection of Pettit's values. Its mostly a tale of betrayal as Pettit's demise set off a power struggle resulting in the rise of Dick Fuld and Joe Gregory who begin to live large. This was a nicely paced book and easy to read. MacDonald's book was a disappointment since I had expected an “insider” view. Unfortunately, MacDonald was one of maybe 5000 vice presidents in Lehman and was fired before the full Lehman crisis. His claim that Paulson hated Fuld's guts was not substantiated by other accounts (e.g. Ward, Wessel or Paulson). He also depicted the exit of Joe Gregory and Erin Callan as being a coup led by Bart MacDade which is not substantiated either. So much for insider views.

Friday, November 26, 2010

A reminder on too interconnected to fail

From AP on the Qantas the flight:

Airplanes are supposed to be designed with redundancy so that if one part or system fails, there is still another to perform the same function. That didn't always happen in this case, safety experts say.

... "What we have got to ensure is that systems are separated so that no single point of failure can damage a system completely," Woodward said. "In this situation the wiring in the leading edge of the wing was cut. That lost multiple systems."

However, Michael Barr, who teaches aviation safety at the University of Southern California, said a commercial plane can't be designed with certainty to withstand a spray of shrapnel, which can inflict damage anywhere. The proper focus, he said, should be on determining what caused the engine to fail and fixing that problem.

Is there anything financial regulators can learn from this?

Tuesday, November 16, 2010

Financial crisis event books

These are two: David Wessel's In Fed We Trust and Henry Paulson's On the Brink. Wessel's book is a much better read but the Paulson book complements the former. For instance, Wessel claims that George Bush was largely absent during the crisis as it unfolded but in some ways Paulson's book contradicts this. Paulson also provides the political drama and backdrop that were largely absent from Wessel's book. In many ways, his book highlights the political elements that were absent in many considerations of my earlier posts on the crisis. The only thing I found unbelievable was his claim that all along he thought that TARP would be used for asset purchases and the only reason he had not proposed it was it was politically unpalatable (at least that was how I read it).

One thing that both books made extremely clear to me was that despite the fact that I thought that the Fed and Treasury had powers to take over failing banks and replace management, they clearly thought they didn't. The role of lawyers in the Fed and Treasury was emphasized at critical points. Bernanke and Paulson sought their opinions even on whether bailing out AIG by invoking a clause in the Fed charter that allowed the Fed to step in when it deemed it was absolutely necessary was legal. Mark Thoma concurs:

“Since the government didn't have resolution authority for banks in the shadow system, it only had two choices when faced with the collapse of a large bank like Bear Stearns or Lehman. Let the bank fail and risk a domino effect that brings the entire system down and potentially creates a depression, or bail out the systemically important bank -- including management and equity holders (investors). [Some claim the government did, in fact, have other choices, but I don't think the key players in the Fed and Treasury believed that they had the authority they needed to take over the large banks, remove management, and put them through traditional FDIC-like procedures that impose losses on investors.] By choosing to bail out the banks, they also bailed out those who created the mess. This left the appearance that the wealthy and well-connected get bailed out, while the middle and lower classes get the bill. Typical households really can't see what they gained from the bailout since, for many, the counterfactual where the system melts down without a bailout is either hard to imagine or not believed. They don't understand, for example, why the government helping them to pay off loans wouldn't have helped banks just as much as a direct bailout. "Where was my bailout?" they wonder.”

Wessel's book was more enjoyable perhaps because it was more economics than politics. Characters like Jeff Lacker and Charles Plosser come out looking like naysayers – crying that the the crisis was not something to be worried about. Wessel seems to think that Bernanke's consensus style was sometimes a hindrance to getting things done. He refers to it as a economics seminar approach to decision making. I don't know which economics seminars Wessel has been attending (or Bernanke for that matter) but most of the seminars I was at in Rochester were nothing short of contentious. One speaker even refused to continue talking because he kept being challenged by an attendee. For instance, here's Andrew Gelman in his tribute to statistician Arnold Zeller (emphasis mine): “No matter who the speaker was, Zeller was always interrupting, asking questions, giving his own views. Not in that aggressive econ-seminar style that we all know and hate ...

What I was looking for in both books however was severely missing and is highlighted in the Thoma's piece. Neither Bernanke nor Paulson could clearly articulate what would have happened to the economy if the investment banks (and AIG and Fannie/Freddie) were simply allowed to fail. Intoning “God help us all” if the financial system collapsed is not a scenario. So in some ways, while I appreciated more the nuances of the bailout and why they did what they did I am still far from fully convinced that the bailout was necessary.

I think that when you are a participant you are biased toward believing in your priors. There is no doubt in my mind that both Bernanke and Paulson felt that the bailout was necessary. Likewise, I believe that if there were a crisis in sociology for instance, that there is a possibility that the entire field would collapse because fewer and fewer people are becoming sociologists, the field would be crying for a bailout as well (as would makers of horse drawn buggies or automobile makers – all intoning “God help us all”).

Nor were any of the books very good at linking how the collapse of the financial system affected Main Street via the unemployment rate. Were the effects psychological? E.g. “Oh my God, the financial system is collapsing, I better lay off all my workers!” or was it direct? E.g. “Oh my God, the commercial paper market has frozen solid and I better lay of all my workers!”

Friday, November 12, 2010

Cirque du Soleil Ovo

We had the chance to see Cirque du Soleil's Ovo about a month back and I enjoyed parts of it tremendously especially the parts on ants and grasshoppers. The clown acts were a little over the top I thought. Later I also had a chance to watch Alegria on DVD and came away thinking that Ovo was much better. Alegria also seems to have evolved since the DVD was made. The website indicates that there are now two contortionists instead of one.

I searched online for some literature on life with Cirque du Soleil but found very little. The clips at the end of the Alegria DVD gave the impression that all's well but I was more interested in things like how long do performers stay on with the show, what the training and practices are like, what it's like to raise a family on the road, etc. (Some information is available on Cirque's web site, including education for minors, benefits, etc - no 401(k).)

The Wikipedia entry was very informative for me. It seemed to indicate that as much of Cirque du Soleil's success might have been due to luck as it may have been due to hard work of Guy Laliberté.

I'm looking forward to their next show. This show played at the National Harbor and we ended up staying overnight at the Hampton Inns. The hotel was new so it was a nice place. In retrospect, waiting to take the bus back from the site to the hotel probably took longer than driving out of the parking lot although it was nice not to have to navigate home after a late night.

Sunday, November 7, 2010

Stiglitz and Davis reading

I found Freefall by Joseph Stiglitz more of a rant than anything else although some times buried within the chapters there would be a nugget of information or two. Unfortunately, they must not have been very valuable nuggets since I can barely recall what they were. I thought that overall the book was too much of score-settling than a rational discourse of the events. In one book (but fortunately not the same chapter) he criticizes the authorities for adopting a too big to fail policy but at the same time criticizes them for letting Lehman fail. This inconsistency annoyed me more than anything else and I found it hard to get through the rest of the book after that.

The tenor of the writing improves half way through the book and I think the few chapters or so hit the correct note on what the book should have sounded like. These are the chapters on policy recommendations and what the administration could have done better. I really wish he would stop beating the IMF tree and bringing up the Asian crisis. Yes, we get it but it really is beside the point here. I had thought that he would delve more deeply into the intellectual debate within economics and how free markets triumphed and even converted some one like Larry Summers but he didn't get into the academic part of the debate. This would be left to two other books (reviews of How Markets Fail and The Myth of the Rational Market later.)

On the other hand, Managed by the Markets by Gerald Davis was a very nice historical overview of how finance has managed to dominate the economy. I found it easier to read than expected and actually enjoyed it more than I thought I would. (Usually, history! Uggh!)

Irrationality or uncertainty

Decided to return to work full-time about a month ago and as a new employee I had to attend an employee benefits seminar. The major items in these seminars are health insurance (medical, dental and vision) as well as flexible spending accounts. I was befuddled by the array of choices and I wonder how many people are as well.

For instance if I had data on individual insurance plans of enrollees as well as their medical spending over the year as well as their alternative insurance plans, can I, based on the data, decide whether they are irrational or uncertain?

This is similar to the the observation that when faced with a decision on how to allocate their money in a 401(k), many people default to equal proportions and that many individuals (including myself) pick funds that are highly correlated and under-diversified.

Is this irrationality? It is certainly a large deviation from the plan of a perfect foresight infinite horizon agent but does the fact that we deviate from what dynamic programming tells us we should do (dang if I know since formulating Bellman's equation isn't exactly something I excel at) evidence of irrationality per se or computational limitations.

If it is the latter then this can be addressed by having asset allocation tools made available as many mutual fund companies now do. Likewise, tools to select health insurance can also be built based on projected spending and income - so does deviation from such recommendations reflect irrationality, hidden information or a combination of many factors?

Sunday, October 24, 2010

Technology frustrations

1. Kindle - finally broke down and got one but it wasn't all I was expecting it to be - sure all that great viewing and all that but:

a) What mattered to me was the native PDF viewer that I was perhaps expecting too much of - I could barely make out the page and had to rotate it to landscape except that it became the default for everything else. Can I just have it landscaped for PDF documents and not for MOBI or Kindle files?
b) Copying books from my computer to the Kindle was another frustration: Can't I create pointers and folders on the Kindle and have it actually obey what I created? For instance, I created a folder called Philosophy and moved some books into it. Except when I turn Kindle on the folder isn't what Kindle calls a Collection and I have to manually move it into a Collection called Kindle. And I have to do this one at a time! Can I move multiple books into a Collection? This is something I've still got to find out.

2) Touch screens and fat fingers - yeah, that's me. I got a Palm Pre which I'm pretty happy with. The reviews panned its battery life so I knew what I was getting into. Except that what I thought was the future of interface suffered from the obvious defect of the fact that a mouse pointer isn't quite as precise as a finger. I also got a chance to try the touch screen interface on an HP Touchsmart and a MSI Wind and found that minimizing a window using the upper right icons (which is what I'm used to doing) was harder than I thought. There is probably an easier way to minimize such as tapping on the menu bar or something but I suspect most people will gravitate to what they're most familiar with. One the plus side the price has come down from the $1000 or so to the $600 price range.

3) I'm in the market for either a desktop with low end dual core processor, 4GB RAM, 500 GB hard drive, DVD RW and TV Tuner and I cannot find it for under $400! Call me crazy, but I
would have expected that the price point was reasonable.

4) So with a new phone I have new plan - $29.99 for data and $39.99 for voice and I figured that I would be paying another $10-$20 for taxes etc but Verizon is also adding another $40 for "other charges"! Come on! This is crazy. To top it off I switched from ATT and had to endure two additional months of bills because of "retroactive/prospective" billing - I can't figure out which. Why can't bills stop when I cancel the service? These telcos are a bunch of ripoffs.

5) I'm also in the market for a portable hard drive and when I was back in Penang over the summer, the recommendations were either a Hitachi or a Samsung. Of course retail i.e. Best Buy/Office Depot/Staples only seem to offer Seagate or Western Digital which from the reviews I've read are not glowing. These guys seem to have the retail market locked up, so perhaps I'll go online and get another brand.

Thursday, October 21, 2010

Necessary conditions for bubbles

What are they? In a previous post I had suggested that the seeds to financial crises were sown by governments - the post singled out biotechnology and the War on Cancer. Lately, there have been signs that infrastructure such as gas lines, roads and bridges should be upgraded. In a previous post there were thoughts that the fiscal stimulus should have a larger infrastructure component. Meanwhile, Jeremy Stein points to renewable energy and its (futuristic) financing structure as a plausible scenario.

I would suggest only that some kind of government intervention in the form of subsidies or commissions are a necessary but not a sufficient condition. This is true in the current crisis as well in the form of the GSEs and despite strong protestations to the contrary. Something else is needed - just what it is would be good to know.

P.S. Some may claim that the Internet bubble occurred without any government intervention and I may have to concede on this point since I have not found any evidence of such. My response only would be that when the dot com boom was happening, the government fed the bubble by proclaiming that the high valuations were possible due to an increase in productivity (the so-called New Economy). Likewise, Bernanke's claims of a global savings glut was just a way of ignoring the problem.

Tuesday, October 19, 2010

Two books on biotechnology

I discovered two very different books on the biotechnology written in two different styles, yet each compelling in its own way. One was Gene Dreams by Robert Teitleman and the other was The Billion Dollar Molecule by Barry Werth. Teitleman's book is more of a narrative style about one company: Genetic Systems. The company was formed more or less from scratch by 'venture capitalists' who recruited a big name to build up the company: Robert Nowinski to find a cure for cancer using monoclonal antibodies. However, its dream of finding a cure for cancer was constantly being undermined by the need for cash-flow resulting in licensing deals and other projects that compromise on its original mission. All the while, venture capitalists and founders were waiting for the right time to either take the company public during the biotechnology fever that had swept Wall Street or to find a buyer for the right price. (See one review here. )

Written in a fly-on-the-wall manner, The Billion Dollar Molecule was a more compelling read. It is to biotechnology what Tracey Kidder's The Soul of a New Machine was to the mini-computer industry. Like Teitleman's book, the company, Vertex was founded to create cures through molecular structural design. It began with the dream of using FK-506 to build a molecule that would suppress the body's immune response to increase the likelihood that transplant patients could survive. Through all this the clash of personalities between the founder Joshua Boger and the academic community consisting of Harvard researcher Stuart Schreiber, Carnegie Mellon's Thomas Starzl who first used FK-506 and FKBP on transplant patients and was convinced (without clinical trials) of its efficacy reads like a novel.

Along the way, we find that finding that a molecule works is just the first step. The person who controls the synthesizing process and manages to produce the the synthetic product becomes one of the keys to the success or failures of the marketing of a molecule. Then finding how the molecule works is the next step: which receptor does it bind to, how does it bind, or what enzymes triggers the binding reaction all becomes part of the keys to finding (or not finding) a cure. Or perhaps its not the molecule but the protein that the molecule is part of - or perhaps its how the protein expresses. Here Werth also recounts the difficulties in trying to do molecular design – that a great deal of guesswork is involved in filling in the structure of the molecule through crystallography and other cutting edge methods. Everything sounds great in theory until we actually try to get it to work. Like Genetic Systems, the need for cash resulted in the company changing its direction mid-course: getting funds from Japanese companies required it to license its findings on FKBP and its structure and to go into AIDS research to see if it could yield technologies and findings that could be licensed. Two reviews are here and here.)

Interestingly, both books point the catalyst for the boom in the stock market for biotechnology to Nixon's War on Cancer which makes me wonder whether the role of the government in economic booms and crashes may have been over-discounted. Is there a role for the Human Genome Project in a later biotechnology rush? After all, the role need not be large – the formation of a commission to study a subject may be enough to trigger an entry into a segment of the industry.

The future is woman (?)

This article on whether we are on the verge of man's demise was interesting. At the risk of sounding inflammatory however, it could only have come from an American woman. It is easy to look around the devastation brought about by Men In Charge – the wars, financial crises, and countless other disasters like global warming from minivans and say that the time for women has come. We can look further than American shores and see the successes that women have had when they were in charge – the Indira Gandhis, Golda Meirs, and Chandrika Kumaratunga and ask if women have truly been more successful than men.

In contrast, in a separate article, Caitlin Flanagan's reading of Anita Shreve's Testimony leads her to write about today's adolescent women:

Today’s teenage girl—as much designed for closely held, romantic relationships as were the girls of every other era—is having to broker a life for herself in which she is, on the one hand, a card-carrying member of the over-parented generation, her extended girlhood made into a frantically observed and constantly commemorated possession of her parents, wrought into being with elaborate Sweet 16 parties, and heart-tugging video montages, and senior proms of mawkish, Cinderella-dream dimensions—and on the other hand she has also been forced into a sexual knowingness, brought upon her by the fact that, beginning at a relatively tender age, she has been exposed to the kind of hard-core pornography that her own mother has probably never seen; that her earliest textbooks on puberty have included, perforce, eye-opening and often upsetting information on everything from the transmission of HIV to the range and expression of sexual orientations; that she has been taught by her peer culture that hookups are what stolen, spin-the-bottle kisses were to girls a quarter century ago. She is a little girl; she is a person as wise in the ways of sexual expression as an old woman.

I found the celebratory feeling in one article and the despondent feelings in the other somewhat confusing. (More reaction to Caitlin Flanagan's article here.)

Summer reading

I'm not sure why certain books are considered summer reading versus non-summer reading but let's just call these what I managed to get through over the summer.

1. Arlington Road by Rachel Cusk
2. Mitford series by Jan Karon
3. Under the Tuscan Sun by Frances Mayes
4. Penelopiad by Margaret Atwood
5. China Road by Rob Gifford

Rachel Cusk's Arlington Road about one day in the lives of four women was riveting even though nothing really “happens”. This is truly the most remarkable example of what my writing professor always advised: “Show not tell” and through the events of the day, and how the women react to them, Rachel Cusk was able to show us their personalities and biases. I had this recommended via Half Changed World who unfortunately isn't blogging as much anymore.

The first four books in the Mitford series were enjoyable. (I bought the pack.) I kept having this strange nagging thought though: What if “terrorists” did not come from the mountains of Hindu Kush but from from places like Mitford, and instead of saying “God is Great” they would say “Peace be with you”.

Frances Mayes' Under a Tuscan Sun was disappointing though it's hard to say what I was expecting. Her tale of renovating a house in Tuscany and all the obstacles that came up were delightful yet it is difficult to say how really difficult it is – is language really that tough a barrier? From what I can tell it can't be all that difficult otherwise the renovation would have been even harder. In all the book left me feeling rather flat. Perhaps I'm just not as enchanted with Tuscany as I thought I would be.

Penelopiad was funny in parts (she calls Odysseus a liar) and enjoyable (and it was short!)

China Road is the only book I've read so far on China's transformation and it was extremely interesting. I had heard some of Gifford's podcasts/broadcasts on NPR and knew that he was a fluent Mandarin speaker. (I had caught the segment where he stands in for a preacher in a small town and delivered the Sunday sermon in Mandarin.) His travels across China and his recounting of his experiences were very well written. The only issue that I had was his very Western perspective on the plight of Uyghurs. While its true that the Uyghurs are being assimilated at an increasing rate – in order to move socially within the Han Chinese society, as well as due to Han immigration into traditionally Uyghur towns, their plight really isn't that much different from what happened to the Welsh or the Scots as Gifford points out. Yet why does he feel that the Uyghurs are being oppressed by the Chinese but the Welsh or Scots are not oppressed by the British or the Anglo-Saxons (or whatever?) What does he think of immigrants who begin to 'lose' their culture as they assimilate into the population of their host country? In many ways, I thought that his take on the Uyghurs was not so much an appreciation of these issues but more of a way to criticize the Chinese government.

Monday, October 18, 2010


Mark Bowden's article on the Conficker virus was fascinating except that it left out one important part and I searched for it but couldn't find it: How does it deposit its payload? Is it via exe, jpeg, scripting or what?

It seems like the Atlantic standards are starting to slip. See another question I had about an article here.

Friday, October 1, 2010

Megalomaniac industrialists bent on taking over the world

Every time I see this theme in James Bond or some Hollywood movie I have to suppress a chuckle. This scenario seems so highly unlikely yet Hollywood continues to pursue it. Then I read something like this New Yorker article on the Koch brothers and I pause. Do I revise my belief or should I perhaps think that the article is over the top?

Monday, September 27, 2010

Google reading

What struck me most about The Google Story - an entertaining story of Google and its founding was the universal belief by the founders (and almost all company founders) that by going to the stock market, they lose the ability to control the long term destiny of the company. They believe that the stock market focuses too much on the short term to the detriment of long term which invites the following question: Is the stock market wrong or is the theory that the market knows best wrong? Does the stock market really aggregate all available information (including long term visions of the company) or is it myopic and selective in the information that it incorporates?
Here is my belief: The stock market is inefficient because stock holders and investors have short term horizons at least shorter than the founders. Quarterly scorecards of fund performances accentuate this short term outlook. This inefficiency is made greater by day traders and algorithmic trading. Investors who buy and hold for the long term are the ultimate losers in this set up.

The issue of control ultimately resulted in Google deciding to auction its IPO instead of going through traditional channels. It also resulted in creating different classes of shares so that Brin and page retained control. I had expected to learn more about the IPO as well as its server farms but this book revealed little beyond what I had already read in the press and so this was somewhat disappointing. While it was mainly positive about Google, I thought it treated the Google-China issue fairly. I was extremely surprised to read how much revenue it obtained from advertising and how it went about doing it. Like many others I thought of Google as a search engine and the revenues were from licensing of its search technology.

Of course, I am now extremely aware of all the ads that pop up whenever I view a video on Youtube as well as all the sponsored ads on the search results. I am also uncertain how the market is responding to how far it has flung itself with all its various 'experiments' e.g. Android, Froogle, etc. As such, when I read the following article about Google's efforts to help the publishing industry, I was surprised. Again, I see this as a long term and uncertain strategy that would surely be punished by the market but I think that it's other successes has allowed this experiment to proceed without a penalty. Yet, I wonder, would any company other than Google be able to pursue this without stock market retribution?

Remembrances of a product of testing (but not accountability)

I just finished Diane Ravitch's The Death and Life of the Great American School System. (See Slate's review for an overview.) This is a more personal approach on the book.

This was a very enlightening and entertaining read and I shared the author's disappointment in the start stop nature of reform and the failure of the promise of testing and choice to reform schools. I agree with the author on many aspects of the book but the final chapter of recommendations left me wanting. Here again were the vague and untested promise that having a national curriculum would 'fix' everything despite the fact that she acknowledges that there is no 'silver bullet'. While not precisely coming out and saying this, a national curriculum forms the basis of the reform that she thinks will work and it is in this sense that I consider this to be another 'silver bullet' approach.

I am also in agreement that using tests for high stakes accountability reduces the test to be the end rather than the means toward continual and continuous improvement. I was never a fan of tests as accountability although like the author I am not against testing per se. After all, we do need to measure something but the act of measurement can reduce us to focusing on the measure rather than the greater goal. Like the author, and as a produce of a fresh water economics program I too was caught up by the excitement of 'market-based reforms' but unlike the movement at the time I never and still do not believe that paying teachers for raising test scores work – haven't we seen the effects of pay-for-performance on Wall Street? The accounting scandals, the back dating of options and the analyst recommendation scandals? Focusing only on test scores and paying districts, schools and teachers by the results of test scores only invites the creation of a nexus of ties to try to manipulate test scores to everybody's advantage.

After all, there are plenty of countries that are not paying their teachers by tests scores and their students are still outperforming U.S. students. As a product of an education system that emphasized testing, drilling, and test-taking skills I empathize with the author about how much learning really goes on. I hated it when I was in it but with the benefit of hindsight I do see the advantages of this system. The system I went through at the time had national testing at what is the U.S. equivalent of 3rd, 5th, and 6th grades. 3rd grade tests were low stakes perhaps to prime us for the onslaught of further tests to come. 5th grade tests were higher stakes with individual results aggregated to the school level and while there was no report card system back then, word-of-mouth was sufficient to tell us which school had a good performance. 6th grade tests determined which secondary school (we didn't have a middle-high school system) we were eligible to go to – so it was also a system were streaming by ability was the norm. In the 9th, 11th and 13th grades there were more testing and considerably higher stakes. The 11th grade (equivalent to the 'O' levels) and the 13th grade (equivalent to the 'A' levels of the British system) were incredibly stressful and it is surprising that the author does not tackle this in her book. In one paragraph she is favorable of the Japanese system yet ignores the same stresses that Japanese high school system puts on its students to get into the best universities.

The results of 9th grade tests pretty much determines whether a student will drop out from high school while failure at the A-and O-levels is not an end all. Some students choose to retake the exams or enroll in private high schools (whose quality at the time was suspect although I think they are much improved now) or vocational schools. In my mind, by the time I was in 10th grade I was already convinced that there was too much testing and looked at the more free-wheeling U.S. high schools with its electives and choice – in this case, choice by students as to what to study. (I recall going through countless 'Add Maths' problems doing integration and differentiation and learning different tricks to do them even though I had very little interest in the subject. It paid off in college however as my math skills were more advanced that most students in my classes.) As I look back on it now of course, I realize that this admiration was naïve – high school students in the U.S. barely learned anything by the time they were in high school and these electives was a way out for them.

Over the years as I've thought more about it and as I've watched K1 and K2 go through what I think is a very good school in an IB program whose pedagogy doesn't always enthrall me because I think they need to learn some things quicker than they are being taught – for instance, I think multiplication tables up through 12 really ought to be taught by 4th grade, I realize that there are benefits to teaching to the test, and drills and repetitions. There are basic things that everyone really ought to know.

I think rigor (i.e. drills, rote learning etc.) should emanate from the bottom beginning at around 3rd grade and through 9th grades and good performance should determine whether students get to do some electives (as a reward and as extra classes and not as a way out). I also think that the school year and school day is too short but that's another rant altogether. I also think that the expansion of AP into high schools is a healthy sign that standards are getting higher and that like it or not NAEP has become the de facto national curriculum in math and reading and efforts should be focused on teaching to that test especially at the 3rd and 5th grade levels.

Throughout all this and even now, parents still lament about teachers and schools in Malaysia. While there are private schools there has always been (and is?) a stigma attached to them as schools for failures or dropouts rather than viewing them as second chances. Moreover, what is interesting is that unlike the U.S. the parents there do not view competition or accountability as a solution to the quality of schools. There private tutoring (for those who can afford it and I was in many of these including the lower quality ones) is the answer to the race to the top.Nor do they seem to see streaming as a problem that widens the gulf between the haves and have-nots and as such the U.S. education is more egalitarian.

Unfortunately, the focus is and always has been the teachers and while I realize that other factors do matter I am unsympathetic to the author's view that teachers do not matter as much and this is mostly a result of what I observe in K1 and K2. Unlike them and the author I do not and cannot have a teacher that I can point to who most influenced me when I was in school. They did their jobs and they did them adequately and that is all I remember. I wonder what it could have been had I had such a teacher. It doesn't help the author when the press trumpets items in the news such as 'Teacher of the Year' or when Hollywood makes movies like 'Stand and Deliver'.

In the end, there really is no silver bullet and a more cooperative approach is needed and teachers really need to evaluate themselves and each other to learn what works. Here I think 'data driven' and classroom observations will supplement each other. Special needs students also need to be treated differently and the original vision of charter schools as schools within schools that experiments with different approaches is a vision that I would like see as an outcome (not as a competitive alternative). In fact, charter schools should only be formed to 'treat' slow learners, ELLs and special needs kids.

Sunday, September 12, 2010

Pay-as-you-go-Internet access

I noticed this in Penang and in Bangkok. You pay about USD150 for a modem and for 3GB and then you have the option to top up. This may be attractive if I were more familiar with the carrier's coverage and did not have access to hotel internet (or if the hotel internet was expensive as it was at Katathani). I also started noticing them in Washington when I got back but instead of a fixed bandwidth amount Verizon and ATT charges by 12 hours, week or month which is not very useful. In fact, it's downright useless.

Foreign exchange charges

Coming back from our trip, the major shocker was the bill – not so much how much we spent, but how how much the foreign transaction fees were. Our bank is charging us 1 percent of the amount. I don't mind paying a fixed transaction fee (the ATM in Bangkok was charging 150Thb per transaction) or a proportionate fee capped at say $10, but I hate having to pay a proportional charge especially when hotel bills run into the thousands. Does the marginal cost of a foreign transaction rise with the amount I spend? I hardly think so. If there is a bank out there that is NOT charging proportionately, I'd be willing to switch.

Phuket again

After Bangkok, we stopped over for another 2 nights in Phuket, this time at the Katathani. While the hotel itself is superb, the main reason being right on the beach, the food was extremely disappointing. The Thai food for a buffet was well below my expectations. The cultural/dance show that went with it was very enjoyable. On other nights, entertainment featured Filipino bands. The breakfast that was included in our package was uninspiring and uninspired. About the only thing going for the whole set up at the restaurant (the Chom Talay) was the fruit carvings.
The hotel was not too busy when we were there and the kids got to enjoy the various pools as well as the beach. We picked up quite a lot of trash that washed ashore – mainly plastic bags, although we also fished out a 12in flower pot. The beach is a public beach and umbrella/seating rentals at the beach ran at 200Thb per person for the two hours we were there. (We paid for two.)

We stayed at the junior ocean front suite which was very pleasant with good view although not as breezy as I had expected. The room looked like it had recently been upgraded (perhaps as recent as 2-3 years ago, based on the flat panel TV). Internet was not included and was at an exorbitant 500Thb per 24 hours (or 200 Thb for 1 hour).

All in all we will come back here if possible although we will probably try to eat in town or across the street.

Friday, September 10, 2010

Chipped credit cards

We encountered another problem with 'regular' credit cards again this trip – this time in Bangkok. (In our last trip we also had problems using our credit cards at Tesco, a superstore. There they kept having to call a manager which was a hassle since it held up the check out line and us(!) and we pretty much went there daily for supplies.) The hotel we were staying would not accept the card when we checked in and since it was a Sunday there was no manager available whom we could speak to. Fortunately, my brother-in-law offered to use his card since he lived in Bangkok. He paid for our deposit for our stay.

Visa and Mastercard really have not dealt with this problem adequately – they need to force the US banks to switch over. As the use of chipped cards expands the capacity to deal with unchipped cards is going to shrink proportionately – mom and pop operations in Asia and Europe that accept chipped credit cards may not have the know-how to bypass the use of a chipped card. Fortunately for us the hotel's IT folks came in later that week and 'fixed' their card reader so that we could pay our balance with our crappy US based credit cards.

Canceling credit cards is now on my to-do list. I am also exploring the possibility of moving our money off-shore to a country that does offer chipped cards.

Penang as a tourist destination

I've been pondering why Penang remains a tourist destination – it used to be the beaches and it certainly isn't that any more. For a while now (apparently unknown to me), it has been street food and staying at Gurney Drive made me aware of this. Every evening tour buses would disgorge hordes of tourists to the end of Gurney Drive at the roundabout to Tanjung Tokong and they would descend upon the food stalls near our apartment.

We tried the food there one night – it wasn't all good – mostly miss than hit and the stalls didn't look particularly appetizing.

What used to be knowledge by word of mouth – where the best char koay teow was, etc. has now been formalized into guide books for foods as well as top ten lists in newspapers. I discovered all this on this particular trip and was slightly overwhelmed at how much things have changed. Of course, the Internet has been playing a big role as well. Try googling 'penang street food' and all kinds of web sites and blogs complete with mouth watering pictures of dishes appear.

Penangites (and its tourists) are apparently undeterred by the effect of emissions on the environment where food is concerned. They are willing to drive miles out of the way in search of the best hokkien mee or whatever seems to be on their mind.

Wireless access frustration

Why is it that when I try to log onto an unsecured wireless network, all the internet adapter does is cycle through the channels without connecting to the Internet? Having Googled this problem it is clear that I am not the only one with the problem (and none of the proposed solutions that I could affect worked). The network shows up as an available network. The adapter is a Netgear external card. When I try it with the internal Broadcom adapter, the network doesn't even show up. What is even more interesting is that M's laptop running Windows Vista has no problem connecting to the network. (I'm running XP and we're connecting to the hotel's wireless network.) Tried updating the firmware and drivers but that didn't produce the desired effect.

This happened to me in Bangkok and I ended up buying another network adapter which worked fine.

Update: When I got back to the US I tried the Netgear adapter and it worked fine as well so I have no idea what the problem could have been.


We were in Bangkok August 7 – August 16 and stayed at the Sathorn Gallery. This was a spacious 3-bedroom apartment but unfortunately was not quite what we had expected. In the past we had stayed at serviced apartments and this is not a serviced apartment. For instance, there were no laundry facilities and while there was a 6-place dining set provided, there were no cooking utensils.

The location however is excellent – near the Taling Pling restaurant where we got food almost daily and close enough to the Surasak Skytrain station. It was also walkable to Silom near Silom Village where we also at. The sidewalks were being repaired at the time on Thanon Pun which made navigating the street slightly difficult. There was also a Vietnamese restaurant on the street which we tried and found to be pretty good.

One thing I like about being in Bangkok is its convenience – tuk tuks are easy to get, as are taxis (which to foreigners are fairly affordable). Now with the Skytrain and the subway, I think it's even easier now to get around. There are also 7-11's and Family Marts almost at every corner and block (or so it appears) where we can get daily supplies – mainly water. There was a 7-11 around the corner from us on Sathorn and a Family Mart about half a block down on Pun. The things sold here aren't always marked up either – for instance, I went to Silom to a pharmacy (Watson's) to get some Vaseline lotion thinking it would be cheaper there but when I popped by the Family Mart, I found that I had overpaid by almost 15 baht.

Thursday, September 9, 2010

Liquid chlorophyll

To drink! I saw a billboard for this in Penang. It's considered an anti-oxidant.

Coincidentally, I came across this article "Wheatgrass Juice and Folk Medicine" in the August 2008 Scientific American by Michael Sherman:

The recent medical controversy over whether vaccinations cause autism reveals a habit of human cognition – thinking anecdotally comes naturally, whereas thinking scientifically does not. ... On the other side are parents who noticed that shortly after having their children vaccinated autistic symptoms begin to appear. These anecdotal associations are so powerful that they cause people to ignore contrary evidence ...

Take wheatgrass juice ... if you can stomach it. The claims for its curative powers are bottomless.

While we're at this here are some other personal examples from my uncle who swears by the following:

1. Fruit wash when used on the skin can eliminate blemishes and acne.
2. The juices from discarded fruits and vegetable (when left to compost) is a very efficient cleaning agent (even for the skin).

Race and Ethnicity

Reading Rehman Rashid made me wonder what this term/phrase really means. It's on Census forms and various other official and school documents for K1 and K2. In the US I would fill in Asian and when working with public use data I've seen Filipino or even Malaysian as a race/ethnicity usually in the 'Other' category.

Curiously, in Malaysia where this question is always mandatory in all official forms (including religion!) I would have filled in Chinese. So race/ethnicity is relative to where we are, but does where we are define who we are, and does it also define who we are supposed to be as well what our roles are depending on where we are? Or is this question just another useless item on a questionnaire?

Pre-vacation trip reading

1. John Burdett (Bangkok 8, Bangkok Tattoo and Bangkok Haunts) – Enjoyable although less so with each subsequent novel. Burdett starts from gritty to weird to supernatural. I don't know about Thais but if I were one, I'd be insulted by his portrayal of Thai society – all cops are corrupt with the Army being worse than the police and all women in Bangkok are either prostitutes or are downtrodden maids. Men are either drug addicts or pimps and all farang are johns or of dubious character. Do Thai detectives really use regular and motorcycle taxis to get around? Burdett is either an astute observer of Thai society or has an inside track (probably the latter) – Thai society is extremely hierarchical though to the Western observer it is not entirely obvious. How long one wais to another signifies their rank in society, likewise in the way one person addresses another. One of the first things that Thais do when they meet each other is to try to determine who has seniority, theyby earning the honorific 'Pi'. Sometimes they try to do this discreetly by asking a friend of a friend or when all else fails, the direct method is used.

2. Mai Pen Rai means Never Mind by Carol Hollinger. Almost 50 years old, this book was still extremely enjoyable. Self-effacing and humorous, I get the impression that Carol Hollinger is not as helpless as she makes herself out to be – and this is true because as a farang in Bangkok who does not speak the language, she somehow manages to get a teaching job at Chulalongkorn University, drives herself all over Bangkok as well as goes on trips outside Bangkok without her husband while enjoying parties almost every weekend. She only devotes one chapter to raising her 7-year old daughter who was put into a British school and it almost seemed like her daughter spent more time in the company of maids and nannies than with her. I suppose this was what a liberated woman in the 60s was supposed to do.

3. Bangkok Days by Lawrence Osbourne. It's hard to tell how much of this dark travel writing is true but this book was more enjoyable than I had expected. It opened up a whole new view of Bangkok - drug addicts (ya ba), the seamier side of Klong Toey by the river where the slaughterhouses for poultry is, the relationship between Bangkok hi-so and their maids, Sukhumvit Road in a way that I would never have seen it.

4. Christopher Moore's Minor Wife. I picked this up on one of our trips and have only just gotten to it. Unlike Burdett, Moore's characters seem more real and gritty and depicts a harder, more scrabbled life of ordinary Thais (albeit from a farang view) than Burdett does. Burdett's characters and scenes seemed more air-brushed while Moore's are somewhat darker. His farang detective is more Sam Spade and at least the Thai police (while political and fight over jurisdiction), are not all corrupt or dishonest – just regular folks trying to do their jobs.

5. A Malaysian Journey by Rehman Rashid. This book brought back a lot of memories growing up although the author preceded me by 10 years. It also made me realized how sheltered and naïve I was growing up. Not surprisingly, a large chunk of the book deals with race relations and the New Economic Policy and the bumiputras. I am less optimistic than he is about race relations in Malaysia. This book cries for a sequel but does not appear to be in the offing.

What I hate most about Penang

I came upon this realization rather suddenly – the kiasu (literally "afraid to lose" or roughly, "mine is bigger than yours") attitude in Penang is just as prevalent and pervasive in Washington. And the traffic in Penang is worse than Washington. Egads!


After Phuket, we were in Penang from July 30 – Aug 7. Stayed at a condominium on Gurney Drive found via Holiday Lettings. It turned out to be a very well stocked place with a lot of movies to watch (I only got to see 3) and close to the Cold Storage in Gurney Plaza which was essential for groceries. In a spurt of environmental activism that surprised me – the shops in Gurney Plaza do not use plastic bags from Mondays through Thursdays so we either had to bring our own bags or carry our purchases. One could argue that this was no skin off their backs since these are the least busy days in the mall but it was the awareness and the desire to do something about it that surprised me. (We won't see this in Bangkok malls!)

The touristy things we did: Kek Lok Si, butterfly farm and batik factory up in Teluk Bahang. The butterfly farm was impressive – probably on par with the collection we sometimes see in Wheaton. The weather was very mild and it only rained one or two days while we were there. It was even cooler than in Washington. There was too much eating on this leg of the trip (as expected) – it has probably undone a year's worth of exercise and diet. (And the reason I started on exercise and diet was because of last year's trip!)

One meal we had was at the Hollywood Restaurant at Tanjung Bungah next to the another defunct restaurant (Sin Hai Keng? I forget the name now but the food there was much better than at Hollywood.) Sad to say, the beach fronting the restaurant has not gotten any cleaner. We used to play at a beach where the Spring Tide restaurant was and there used to be a large pipe that discharged effluents straight into the ocean. (The site is now a high rise condominium!) We used to think it was so cool to see a river of 'water' come into the beach and would stand near the pipe and let the 'water' wash over our feet!

The memory that I will probably have of this trip is sitting out on the balcony of the rental apartment and enjoying the view of the hills in Penang and the coastline of Tanjung Tokong with the cool breeze on my face – while brushing my teeth or having coffee.

One thing of note was that at McDonald's I saw three women – a Chinese, an Indian, and a Malay together – who seemed to be friends and I thought of Rehman Rashid's A Malaysian Journey.

Monday, August 30, 2010

Meanwhile in Washington

While we were in Phuket, Washington was in the midst of another power outage caused by thunderstorms. Need I say more?

By coincidence, one night when we were day, we lost power at the hotel, albeit for only about an hour. Apparently, a transformer down the road blew. According to M, when she was at the front desk asking about the power, a lady came by and said 'I heard an almighty bang and then the lights went out!'

As I wrote this I read that Washington has been beset by three more thunderstorms accompanied by widespread power outages. (See here for the storm the day after we left, here for the second storm, and here for the storm after. Or here for a roundup.)

It's great that I have been in 3rd world countries with no power interruptions! Looks like we left DC just in the nick of time. While this is may be an indicator of poor investment in the power grid, it is by no means the only infrastructure suffering from lack of maintenance – the Metro is having problems and water mains need to be fixed instead of the water authorities waiting for them to break before attending to them.

The usual things will happen – Pepco will be called to account for its handling of the power outages. After some apologies and how this summer has been 'unprecedented' and the county officials have had their outbursts and photo-ops things will go back to the way they were before. The problem lies in our willingness to accept things as they are before. This attitude can result in catastrophes such as poor responses to Katrina and the Gulf oil spill. We call these events unprecedented and excuse ourselves because we cannot perform any better. To say that we will try to perform better is not enough (nor is it enough to just learn from the past and hope the mistakes do not repeat.)

Deming calls this effort continuous quality improvement. (Note that Lexus calls it a relentless pursuit of perfection but did nothing much about it which accounts for the recalls this summer.) Yet, it is hard to get companies to continually invest in maintenance, repairs and upgrades. Economists will call this an incentive problem. One way to solve this would be to allow maintenance and repairs to be tax deductible, say 10 cents for every dollar and for upgrades say 50 cents for every dollar.

Deming would be against this however, if I read his philosophy correctly. Pick an area to improve on – for instance, for every storm the number of outages have to be lower and lower every year until it falls to zero. His philosophy would imply that the costs of fixing power lines from storms would in the long run more than pay for itself.

So is the problem short-termism (especially of the stock market) and long term? More on this in another post.


We were in Phuket July 26 – July 30 and stayed at the Pacific Club. I had expected Phuket to be fairly developed with high rise condos dotting the coast but was pleasantly surprised that it was not. Like M says, the atmosphere is very saabai saabai. Most of the time, we spent trying to overcome jet lag which was part of the plan. The hotel was not able to provide the 2-bedroom unit we wanted saying that the AC was broken but it turned out fine since we didn't really need all that space and it saved us some money. They also threw in one airport transfer for free which saved us an additional 1000 Thb.

We drove up to the Big Buddha and went to Nai Harn beach. The waves were bigger than I was accustomed to (perhaps because of the monsoon season) and it was great to see most of the farang tourists thrown themselves with abandon with each coming wave. The beaches were also extremely clean – apparently the Thais have learned something that Penangites have not.

We also managed to squeeze in a show – Fantasea which was part Vegas and part Circque du Soleil with animals (elephants, hens, pigeons, sheep, water buffalo) thrown in for good measure. K1 and K2 enjoyed this and the place was teeming with tourists – busloads (us included) were being disgorged prior to show time. Skip the buffet – to say that it was average would be generous. The best part were the baby elephants standing in the grand entryway ready to be stroked and touched as we file into the auditorium. After the show, they were also outside for photo-ops.

This being the monsoon season, it was no surprise to us that it rained daily and was incredibly humid even though it did clear up enough for us to venture out to the beach and the show. We also managed a walk into Karon town from the hotel. The town is small and caters mainly to tourists – laundry services, various food & drink establishments (which we did not try), and other smaller hotels. We mostly ate at the hotel – the breakfast was good (go for the Thai food) and also a restaurant up on one of Phuket's many hills as well as lunch by the beach

Sunday, August 29, 2010

Spontaneous order

This post on spontaneous order impressed MR:

Here's a video of a small town in Britain that turned its traffic lights off. Order ensued.

The major qualification here is small town. I'd like to see the lights turned off and order ensuing on Dupont Circle and Ward Circle before being impressed.

Why I'm (not) blogging

Left for three weeks to Thailand and Malaysia - with intermittent and slow Internet connections all throughout and then back with incredible jet lag. Thought I had devised a way by writing off line and then copying and pasting when I got a reliable connection but I just got lazy. The blogging was supposed to be a disciplining device to get me to write every day but it has not worked well and worked even worse while we were away.

I'll be posting the drafts that I half-wrote up while away but they need some clean up first.

Friday, July 23, 2010

Financial reform thoughts

I have none but others have so I thought I'd put them here. In my spare time I think I'd like to follow up on how the enacted reforms reflect what lawmakers (or lobbyists) think are the most important causes of the financial crisis:

1. Mark Thoma's roundup: I'd summarize his thoughts as that the law doesn't go far enough.
a) Consumer protection agency addresses the fraud issue, I think.
b) Exchange for derivatives addresses the lack of transparency/securitization issue.
c) Resolution authority doesn't really address a cause but just allows a better clean-up procedure.
d) TBTF isn't addressed at all though Mark thinks it should.
e) Proprietary trading, capital requirements, leverage limits are not really addressed or are too weak. (i.e. the compromise version of the Volcker rule)
f) Credit rating agencies appear to have been given a pass.
g) Executive pay is also not addressed. A clawback would have been interesting.

2. This article (HT: MR) on the derivatives exchange was interesting:

As the U.S. Senate recently debated a major financial reform bill in which the credit default swap, a kind of derivative, played a significant part, Senators Carl Levin (D-MI) and Jeff Merkley (D-OR) proposed an amendment to that bill that would have banned banks from proprietary trading. There were a lot of high-rolling bankers who did not want that amendment to pass, because it would have messed up their plans to repatriate foreign profits into the United States, untaxed, by trading in derivatives on their own accounts. The clearinghouse ICE Trust U.S. forms a central part of these plans.

What is ICE Trust U.S., and who owns it? ICE US Holding Co., which was established in 2008 as the parent of ICE Trust U.S., is located in the Cayman Islands. Yet none of the owners of ICE US Holding Co. are based in the Caymans. IntercontinentalExchange, Inc., which owns 50 percent of ICE US Holding, is headquartered in Atlanta, Georgia. Among the other owners of the Caymans company are Citigroup, Goldman Sachs, J.P. Morgan, Merrill Lynch and Morgan Stanley, which are headquartered in New York. Bank of America, which now owns Merrill Lynch, is based in Charlotte, North Carolina. Deutsche Bank (Frankfurt) and both UBS and Credit Suisse (Zurich) are also part owners.

... ICE US Holding Company L.P., Cayman Islands, which owns ICE Trust U.S., is “a blocking company” used to prevent the foreign subsidiary from being deemed as loaning margin to a “U.S. person” (namely, ICE Trust U.S.). “They are loaning the money to a Cayman Islands person”, he said. This means that banks can keep their profits abroad and untaxed, but still use them to trade on a U.S. exchange, making investments in U.S. credit default swaps while not paying tax on the collateral placed on the exchange. It’s precisely what Section 956 was designed to prevent.

... University of Michigan Law School professor Reuven Avi-Yonah, who frequently testifies as an expert witness on tax issues in congressional hearings, said the ICE structure ought to be examined by the public, even if it is legal. “Not only do we have an entity in a tax haven, but it’s also an entity with no substance, which is really a killer combination.” A former corporate lawyer, Avi-Yonah told me, “I am not sure the IRS would reject it, but that doesn’t mean it’s okay; Congress should take a look.”

This whole thing strikes me as hypocritical (approved by the Fed! no less - they're not going to win any friends here, me thinks), especially since there are all these proposals to prevent tax abuses.

3. John Cassidy on the evolution of the Volcker Rule (which led to the watered down version):

“There is a great amount of ambiguity about how the bill will evolve in practice,” Raghuram Rajan, a University of Chicago professor who was one of the few economists to warn about the risks of a financial blowup, told me. “It has tremendous promise, but also tremendous scope for disappointment.”

... Many independent analysts agreed, arguing that Bear and Lehman had been destroyed by excessive borrowing and by their sunny view of the subprime-mortgage market. Their proprietary-trading desks had not been the problem. Benn Steil, an economist at the Council on Foreign Relations, told me that, if bank deposit insurance didn’t exist, he would consider an investment with Goldman’s prop-trading desk safer than one with a Midwestern bank that would turn around and lend it to local businesses. If Volcker’s recommendations had been in effect before 2008, Steil said, “the crisis would have unfolded precisely as it did.”

Volcker countered that the Treasury’s approach risked exacerbating the likelihood of future bailouts. In proposing to grant the biggest financial firms special legal status as “Tier 1 financial holding companies,” the Treasury came close to designating them as too big to fail, thereby encouraging them to take more risks.

... Yet a larger question remains: Will the reform package be sufficient to prevent future bailouts? Among economists, there is considerable skepticism about the Volcker rule. “If you have the incentive to take risks, there are so many ways that you can do it, and banning one specific activity is not very useful,” Raghuram Rajan said. “If I am a bank and I want to load up on risk, I can give loans to walking wrecks, and that will give me all the risk I want.” In fact, prohibiting banks from proprietary trading could “give you false confidence that they are not taking risks when they are.”

... Volcker may have won the intellectual debate, but, as he readily concedes, the practical challenge lies ahead. Two years from now, when the Volcker rule goes into effect, some firms may well try to skirt it, by, for example, placing big proprietary bets and trying to define them as something else. Without the legislative purity that Volcker was hoping for, enforcing his rule will be difficult, and will rely on many of the same regulators who did such a poor job the last time around, particularly those at the Fed. If the Obama Administration had been able to force the banks to hold a lot more capital in perpetuity, this would not matter very much: a financial system with low leverage can survive the occasional implosion. But international negotiations on a new set of capital requirements are going slowly, and there is no assurance that they will yield meaningful results. If they don’t, once the next credit boom gets going, leverage ratios will start rising again.

In this area, as in many others, the Dodd-Frank Bill is at most a useful beginning. As Volcker told me, it doesn’t really deal with a number of issues that contributed to the crisis, such as extravagant Wall Street compensation practices, misleading accounting, and incompetent credit rating. Ultimately, it also leaves open the question of what would happen if one of the biggest financial firms got into the same sort of trouble that brought down Bear Stearns and A.I.G. As a legal matter, the federal government could now euthanize such a firm instead of bailing it out. But is the threat of closure credible? If in five years Goldman, say, were to suffer a catastrophic trading loss, then, regardless of whether it had given up its banking license, the Treasury and the Fed would come under great pressure to save the firm.

Is utility unbounded from below

This assumption is usually made in game theoretic versions of contract theory. If utility is unbounded from below agents play a game repeatedly then there is some path in which behavior can be enforced so that incentive compatibility holds. I may have phrased this incorrectly - it's been a while since I've looked at game theory.

Basically, all it says is that we can enforce good behavior with sufficient threats. On the flip side, one would also think that if faced with the possibility of dying, we would make a decision to preserve our lives. In equilibrium, with perfect knowledge and perfect rationality then workplace safety would not be an issue. Of course, we don't have perfect knowledge or perfect rationality so regulation is required. But can regulation perform better than a worker's private knowledge of workplace issues?

This post is basically in response to this NYT article on workers' concerns aboard the Deepwater Horizon before it blew up:

A confidential survey of workers on the Deepwater Horizon in the weeks before the oil rig exploded showed that many of them were concerned about safety practices and feared reprisals if they reported mistakes or other problems.

In the survey, commissioned by the rig’s owner, Transocean, workers said that company plans were not carried out properly and that they “often saw unsafe behaviors on the rig.”

Some workers also voiced concerns about poor equipment reliability, “which they believed was as a result of drilling priorities taking precedence over planned maintenance,” according to the survey, one of two Transocean reports obtained by The New York Times.

Tuesday, July 20, 2010

Children, marriage and divorce

Again from the New York Magazine:

... couples probably pay the dearest price of all. Healthy relationships definitely make people happier. But children adversely affect relationships. As Thomas Bradbury, a father of two and professor of psychology at UCLA, likes to say: “Being in a good relationship is a risk factor for becoming a parent.” He directs me to one of the more inspired studies in the field, by psychologists Lauren Papp and E. Mark Cummings. They asked 100 long-married couples to spend two weeks meticulously documenting their disagreements. Nearly 40 percent of them were about their kids.

If wanting children causes marriage, does having children cause divorce?

Sovereign defaults

In a post of what happens if things go really badly, I was surprised to see that the Asian economies that have a 5-year cumulative default probability (whatever this is supposed to be) of 10 percent or greater: Indonesia, Thailand, South Korea.

What I dislike about the graph is the following: Is there really a difference between 11 and 11.4 percent probability? Assuming that the model is estimated, where are the standard errors?

Another "feature" of these default models is the timing. When stuff happens we always wonder, why now? Why not last month? Why not yesterday? In many cases, it is the case that really nothing much has happened between the time economists say that these countries are in danger of defaulting and when it happens, e.g. Greece.

My guess is that there is some inattention or lack of focus by "people". You know the ones I'm talking about - they're constantly in crisis mode, switching their attention from one to another. When all is well, they're really not doing much. Then something is due e.g. a loan payment and they switch their attention to it and suddenly things aren't all that rosy and boom! Then when they're done fanning that one fire they decide to see what else they can torch and before you can say contagion, you're right smack in the middle of it.

I'd guess that if we looked at all the crises in history, very few have happened on holidays or during the summer vacations.

Unintended consequences?

1. I've never been a big believer of this but I can't make up my mind after this article:

In the surrounding steep valleys, hundreds of defunct silver and gold mines pock the slopes with log-framed portals and piles of waste rock. When water flows over the exposed, mineral-laden rock in and around the mines, it dissolves zinc, cadmium, lead, and other metals. The contaminated water, sometimes becoming acidic enough to burn skin, then dumps into nearby streams. So-called acid mine drainage, most of it from abandoned boom-time relics, pollutes an estimated 12,000 miles of streams throughout the West—about 40 percent of western waterways. ...

... But as these volunteers prepare to tackle the main source of the pollution, the mines themselves, they face an unexpected obstacle—the Clean Water Act. Under federal law, anyone wanting to clean up water flowing from a hard-rock mine must bring it up to the act’s stringent water-quality standards and take responsibility for containing the pollution—forever. Would-be do-gooders become the legal “operators” of abandoned mines like those near Silverton, and therefore liable for their condition.

2. Should FOIA apply to journalists?

... does the press always get to decide whose secrets trump? What bothers me most about the cult of the source is the press’s insistence on its right to ignore due process of law and refuse to reveal sources even after the issue has been fully litigated. Fine: appeal it up to the Supreme Court if you want, but in a democracy with an (all but) uncorrupted judiciary, if you ultimately lose, you should obey the law as it is, not as you would like it to be.

The Malaysian Connection

I had known about the letter from Malaysia in the anthrax case, recounted very well here and about Stephen Hatfill. What I hadn't known was this titbit:

His girlfriend was Malaysian-born—and a hoax package had been sent from Malaysia to a Microsoft office in Nevada.

The article does not explain how the subsequent suspect Bruce Edward Ivins managed to mail a package from Malaysia though I suspect these kinds of things are easily done.

The article was enjoyable though it was hard not to see why the FBI considered Hatfill a suspect (unless he was being set-up - I may be watching too much TV). In the end, this is a tale of how we can all buckle when the weight of one organization (not just the government) comes down on us.

China and Africa

A preface excerpted from The Atlantic:

“Statistics are hard to come by, but China is probably the biggest single investor in Africa,” said Martyn Davies, the director of the China Africa Network at the University of Pretoria. “They are the biggest builders of infrastructure. They are the biggest lenders to Africa, and China-Africa trade has just pushed past $100 billion annually.”

Davies calls the Chinese boom “a phenomenal success story for Africa,” and sees it continuing indefinitely. “Africa is the source of at least one-third of the world’s commodities”—commodities China will need, as its manufacturing economy continues to grow—“and once you’ve understood that, you understand China’s determination to build roads, ports, and railroads all over Africa.”

Davies is not alone in his enthusiasm. “No country has made as big an impact on the political, economic and social fabric of Africa as China has since the turn of the millennium,” writes Dambisa Moyo, a London-based economist, in her influential book,
Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa. Moyo, a 40-year-old Zambian who has worked as an investment banker for Goldman Sachs and as a consultant for the World Bank, believes that foreign aid is a curse that has crippled and corrupted Africa—and that China offers a way out of the mess the West has made.

Some additional links:

1. Via Chris Blattman
2. Foreign Affairs:

Why would the Chinese government push some of its labor- and energy-intensive industries to move to special economic zones in Africa, even as the U.S. Congress bans the U.S. Agency for International Development from financing any activities that could relocate the jobs of Americans overseas? Because Chinese planners want industrialists at home to move up the value chain. Polluting industries such as leather tanneries and metal smelters are no longer tolerated in many Chinese cities.

3. The Atlantic (interesting throughout):

Many Chinese agricultural initiatives are shrouded in mystery. In 2006, for instance, China offered a $2 billion soft loan to Mozambique for a project to dam the Zambezi River Valley, amid some of the continent’s most fertile soils. The following year, Chinese and Mozambican officials reportedly signed a memorandum of understanding allowing 3,000 Chinese settlers to begin farming in the area. But following a local uproar, Mozambique’s government denied all reports of the plan, and little has been heard of it since. ...

... The stop-and-go quality of major Chinese farming deals and the strong feelings that they’ve produced suggest that the honeymoon between the Chinese and Africans may not last long. During the course of my trip, land issues seemed to bring out the ugliest biases in the people I spoke to. “If you gave this land to Chinese people to work it, this place would be rich overnight,” said one Chinese woman immigrant, a middle-aged trader in southern Congo: “They’re too lazy, these Africans.” Many Africans, for their part, were intensely wary of Chinese immigration; Daniel told me that this was a particularly raw issue among many of his friends. Conspiracy theories echoed frequently. In Dar, for instance, rumors had spread that the new national sports stadium was part of a secret deal to grant land to Chinese farmers in Tanzania.

... Many Chinese fortune seekers had hired African work gangs to dig for copper, sometimes even in Lubumbashi’s red-clay streets. “They were profiteers and speculators,” said one local businessman. “Congo got nothing from them.” Most of them dug “no more than 20 feet deep, which requires no investment at all.” The government belatedly tried to reassert control, requiring all those who mined copper to smelt it as well, and to make more-substantial investments in equipment, in order to generate more jobs and tax revenue and to make the industry more sustainable. In response, small operators scrambled to build small, inefficient furnaces. In 2008, as prices tumbled from $9,000 a ton to a low of $3,500, the makeshift smelters closed down and the Chinese owners fled, leaving their Congolese workers unpaid and the landscape littered with industrial refuse.