It was Greek to me: June 2021

https://itwasgreek2me.blogspot.com/2021/06/next-crash-bubble-2021-historical-record.html

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([ the following is not an investment ... ])

Ray Dalio: Don't own bonds, don't own cash
https://www.youtube.com/watch?v=A-noFNHcrlM
https://www.youtube.com/watch?v=A-noFNHcrlM
6:08
Bloomberg new economy
Nov 18, 2020

printing and distributing money
do asset price and valuation make sense?
yields
bond market
the capacity of the central bank(s) to put liquidity into the system
economics of borrowing
leveraging
the financial flow, the market behavior is reflective of that
   ____________________________________
Ray Dalio breaks down his "Holy Grail"
https://www.youtube.com/watch?v=Nu4lHaSh7D4
https://www.youtube.com/watch?v=Nu4lHaSh7D4
4:42
investopedia
Apr 27, 2019

the "Holy Grail" is a sweet spot between diversification and correlation.
   ____________________________________
Why Grantham Says the Next Crash Will Rival 1929, 2000
https://www.youtube.com/watch?v=RYfmRTyl56w
https://www.youtube.com/watch?v=RYfmRTyl56w
38:26
Bloomberg Markets and Finance
Jan 22, 2021
   ____________________________________
([bubble market have I seen this before])

Jim Rogers warns stock bubble will grow in 2021: “I’ve seen this movie before”
Leisha Chi-Santorelli
Dec 29, 2020

https://www.marketplace.org/2020/12/29/jim-rogers-warns-stock-bubble-will-grow-in-2021-ive-seen-this-movie-before/

   ____________________________________
What's A Bubble? (Classic)
    Planet Money
June 30, 2021
8:42 PM ET
This episode originally ran in 2013.
In 2013, Yale economist Robert Shiller was asked if he would accept the Nobel Memorial Prize for Economics for his research on the stock market. He said yes. Then he learned he would be sharing the prize with someone else who studied the stock market, Eugene Fama at the University of Chicago. They were two of the three people who won the prize that year.
https://www.npr.org/2021/06/30/1011906325/whats-a-bubble-classic
   ____________________________________

____________________________________

p.241
Nobel Memorial Prize in Economics (which in fact is not even a Nobel Prize, as it is granted by the Swedish Central Bank in honor of Alfred Nobel──it was never in the will of the famous man).
     (Taleb, Nassim (2004)., Fooled by Randomness, 2nd edition, paperback)
(Fooled by Randomness: the hidden role of chance in life and in the markets / Nassim Nicholas Taleb, 1. investments, 2. chance, 3. random variables, 123.3 Taleb, p.241)
   ____________________________________
Nassim Nicholas Taleb, Fooled by Randomness, 2nd edition, hardcover, 2004

p.61
Robert Shiller
his 1981 paper may be the first mathematically formulated introspection on the manner in which society in general handles information.
volatility of markets,
he determined that if a stock price is the estimated value of “something” (say the discounted cash flows from a corporation), then
market prices are way too volatile in relation to tangible manifestations of that “something” (he used dividends as proxy).
Prices swing more than the fundamentals they are supposed to reflect, they visibly overreact by being too high at times (when their price overshoots the good news or when they go up without any marked reason) or too low at others.
p.61
The volatility differential between prices and information meant that something about “rational expectation” did not work. (Prices did not rationally reflect the long-term value of securities and were overshooting in either direction.) Markets had to be wrong.
p.61
Shiller then pronounced markets to be not as efficient as established by financial theory (efficient markets meant, in a nutshell, that prices should adapt to all available information in such a way as to be totally unpredictable to us humans and prevent people from deriving profits).
([ the so-called market is a sophisticated form of book making operation ])

p.275
Literature on bubbles:
Kindleberger (2001),
MacKay (2002),
Galbraith (1991),
Chancellor (1999),
Shiller (2000)

     (Taleb, Nassim (2004)., Fooled by Randomness, 2nd edition, hardcover)
(Fooled by Randomness: the hidden role of chance in life and in the markets / Nassim Nicholas Taleb, 1. investments, 2. chance, 3. random variables, 123.3 Taleb, )
   ____________________________________

BLUF - Bottom Line Up Front
FIRE - Finance Insurance Real Estate

should there be a crisis (a crash or prolong bear market to recalibrate [readjust] the valuation), then it is already happening.
looking at the data (the dots, pauses, spacing, and dashes).
If the media (the mainstream press) (investigative journalists) (the 4th estate) is on the beat, then you would see signals and noise in the news.
If you do not get any signals and noises from the reporters, do not beat them up. They are working class Joe and Janes, just like majority of the people.
It is more difficult to see the pictures or the big pictures because the ownership is more highly concentrated than before.
So the people who are working in the system, they have direct experience with their part(s) (aspect, point of view, perspective); inter-dependence on their role in the organization (system) they can see (grok, infer) quiet a bit, especially when supplement with insider reading of [within] their lane, and outside reading of beyond their daily role. Of course, time availability, information access ability, general afford ability would be [some of] the limiting factors to enable [and disable] these activities and personal development (understanding - reality - what is going on - what is happening) [not to mention, languages and cultural barriers] [by languages I mean the general definition of language like French, English, Russian, German, Japanese, Chinese, Arabic, Hebrew, Dutch, ...][, and then I mean the field specific or sub-disciplinary language to that of financial capitalism, comparable to the Courts, Judges, Judicial system, and Lawyers literally and figuratively speaks their own language with their own procedural process][a world within a world, another language within a language, a sub-culture within a culture][stories within a story - a collection of Middle Eastern folktales 1001 Arabian nights - One Thousand and One Nights (Arabic: أَلْفُ لَيْلَةٍ وَلَيْلَةٌ‎, ʾAlf Laylah wa-Laylah)[1]].

so looking backward 2006 was the first signal (publicly available signal - PAS).
I can only say this after the facts.

a side note:
You should know that there is usually a seven (7) years boom-and-bust cycle in the U.S. real estate market (residential housing price).
~~I do not really know, but it~~ [this] seems to repeat itself ~~this way,~~ historically.
~~I do not know what it is like in 2021.~~

https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Boom_and_bust

It took about 2 years from 2006 until 2008 when the mainstream press officially reported that, holy shit, the U.S. financial market is in a crisis.
In my view, the Fed (U.S. federal reserve central bank of New York) prop up the market for about 2 years.
what I did not know, is that the ECB (European Central Bank) was already pumping liquidity (blood) in[to] the financial system in 2007, resulting from BNP Paribas announcement.

resources:
https://en.wikipedia.org/wiki/Financial_crisis_of_2007–2008
https://www.bing.com/search?q=financial+crisis+of+2007-2008+chart

https://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

https://en.wikipedia.org/wiki/Economic_bubble

https://en.wikipedia.org/wiki/Tulip_mania
https://www.bing.com/search?q=tulip+mania+chart

https://en.wikipedia.org/wiki/South_Sea_Company
https://www.bing.com/search?q=south+sea+bubble+chart

https://en.wikipedia.org/wiki/Mississippi_Company#Mississippi_Bubble

https://en.wikipedia.org/wiki/Dot-com_bubble
https://www.bing.com/search?q=dot+com+bubble+chart

https://en.wikipedia.org/wiki/Robert_E._Wright

https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers

https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp

https://insight.kellogg.northwestern.edu/article/what-went-wrong-at-aig

https://www.institutionalinvestor.com/article/b150qdkrd30ggk/the-fall-of-aig-the-untold-story

https://www.insurancejournal.com/news/national/2008/10/10/94544.htm
https://www.npr.org/templates/story/story.php?storyId=5411422
https://en.wikipedia.org/wiki/Joseph_Cassano

https://en.wikipedia.org/wiki/Commodity_Futures_Modernization_Act_of_2000

https://blogs.jamaicans.com/key-players-in-scandal-raked-in-billions-of-your-money/

https://www.npr.org/templates/story/story.php?storyId=102185942

https://www.corpwatch.org/article/us-10-enron-players-where-they-landed-after-fall

https://en.wikipedia.org/wiki/Subprime_mortgage_crisis

https://www.stephenhicks.org/2011/12/15/subprime-mortgage-crisishistory-flowchart/

https://www.stephenhicks.org/wp-content/uploads/2011/12/subprime-flow-chart-995.jpg

https://www.bing.com/images/search?q=charts+of+market+bubble

https://www.bing.com/images/search?q=charts+of+market+bubble&form=HDRSC2&tsc=ImageBasicHover

https://en.wikipedia.org/wiki/Robert_J._Shiller

https://en.wikipedia.org/wiki/Animal_Spirits:_How_Human_Psychology_Drives_the_Economy,_and_Why_It_Matters_for_Global_Capitalism

https://en.wikipedia.org/wiki/Case–Shiller_index

http://www.econ.yale.edu/~shiller/data.htm

https://en.wikipedia.org/wiki/Irrational_Exuberance_(book)

https://en.wikipedia.org/wiki/United_States_housing_bubble

https://en.wikipedia.org/wiki/Fannie_Mae#2000s

https://en.wikipedia.org/wiki/Freddie_Mac#The_mortgage_crisis_from_late_2007

https://en.wikipedia.org/wiki/David_Kellermann

https://en.wikipedia.org/wiki/2020_stock_market_crash

https://en.wikipedia.org/wiki/Black_Monday_(1987)

https://en.wikipedia.org/wiki/2020_congressional_insider_trading_scandal
____________________________________

Theodore Modis., Prediction : society's telltale signature reveals the past and forecasts the future, 1992.

p.156
fifty-six-year economic cycle

pp.156-157
Ever since I became aware of the fifty-six-year {56-year} economic cycle, my concern was not whether a Wall Street crash was around the corner but rather what must one do when faced with an immiment stock market crash. My calculations suggested a crash around 1985, and the minimum precaution to take was stay away from the stock market.
p.157
And so I did. Month after month I resisted the temptation to buy stocks.   Colleagues at work would get excited about the bullish market. Favorable terms were offered to buy the company stock. People around me watched their money grow daily. I kept quiet, hoping to be vindicated by the eventual crash ── but nothing came. Months went by and the market was still growing. Years when by! Well into 1987 my colleagues had all gotten richer while I was feeling rather sour.
p.157
   I broke down. It was fall, the leaves were changing color, and I was going to the mountains for the weekend with a friend. I had had enough of holding back. I wanted to be like the others. Friday afternoon I called my bank with an order to buy. I left for the weekend with a feeling that I had finally escaped inaction. I had at last done something, something I would look forward to on Monday.
p.157
   Over the weekend I enjoyed extraordinary scenery, good weather, reasonable food, and friendship. But there were more important things waiting for me back at work. Monday, October 19, 1987, the stock market crashed. I was crushed. The amount of money I had lost was not so important, but the pain was excruciating. At the same time, on another level, my beliefs had been reinforced.
p.157
The system had behaved according to the plan, was if it had a program, a will, and a clock. I had access to this knowledge early enough. My error was due to human weakness; I had not been scientific. The clock was rather precise, but I should have allowed for an uncertainty of a few percent.
p.157
At any rate the crash was over and the stock market largely recovered in a few years.
p.157
But what remained the same was our general position in the long economic cycle: the recession years.
p.157
The flares in energy prices in Figure 8.3 can be seen as banners indicating the beginning of an economic downtrend, the end of which we have not yet reached. We will have to wait until 1996 before the growth trend turns around.
pp.156-157
1985
Monday, October 19, 1987   U.S. stock market crash (U.S.)
1996

(Prediction : society's telltale signature reveals the past and forecasts the future / Theodore Modis., 1. forecasting., 2. creation (literary, artistic, etc.)
3. science and civilization., CB 158.M63, 303.49--dc20, 1992
, )
   ____________________________________
pp.156-157

[ My calculations suggested a crash around 1985 ]
Monday, October 19, 1987   U.S. stock market crash (U.S.)
(pp.156-157, Theodore Modis., Prediction : society's telltale signature reveals the past and forecasts the future, 1992.)
   ____________________________________
Ron Suskind, The Price of Loyalty, 2004

pp.193-194
“Michele, if you look at the data point”, O'Neill said, racing between interviews in New York on September 17, “over the past forty years when the market has fallen sharply, it has risen within a year and a half.”
Michele was dumbstruck, “You actually got that from a factual analysis? Why didn't you say that?”
O'Neill shrugged. “No one asked.”

(Ron Suskind, The Price of Loyalty : George H. Bush, the White House, and the Eduction of Paul O'Neill, 2004)
   ____________________________________

https://tildes.net/~humanities/vpc/how_socialists_solved_the_housing_crisis_of_vienna_after_ww1_and_how_we_can_do_it_again

Title    How Socialists Solved The Housing Crisis
Authors    The Gravel Institute
Duration    9:00
Published    Jan 29 2021
https://www.youtube.com/watch?v=LVuCZMLeWko
https://www.youtube.com/watch?v=LVuCZMLeWko

4:00
How Singapore fixed its housing problem
https://www.youtube.com/watch?v=2cjPgNBNeLU
https://www.youtube.com/watch?v=2cjPgNBNeLU
Bloomberg

   ____________________________________
"as a crisis unfolds"

George Soros, The new paradigm for financial markets, 2008                  [ ]
p.82
United Kingdom, Spain, and Australia.

pp.82-83
p.82
the Federal Reserve lowered the federal funds rate to 1 percent and kept it there until June 2004. This allowed a housing bubble to develop in the United States. Similar bubbles could be observed in other parts of the world, notably the United Kingdom, Spain, and Australia.
p.82
What sets the United States housing bubble apart from the others is its size and importance for the global economy and the international financial system. The housing market turned down earlier in Spain than in the United States, but that passed unnoticed, except locally.
pp.82-83
By contrast, U.S. mortgage securities have been widely distributed all over the world with some European, particularly German, institutional holders even more heavily involved than American ones.

   << this biblio (book or codex) has no index >>
   (The new paradigm for financial markets : the credit crisis of 2008 and what it means / George Soros., 1. financial crises──united states., 2. united states──economic policy., 3. united states──economic conditions──21st century., 4. credit──united states., HB3722.S673 2008, 332.0973──dc22, 2008, )
   ____________________________________
Neil Irwin, The Alchemists : three central bankers and a world on fire, 2013

2007   August 9--BNP Paribas
1867   Walter Bagehot
1992   broke the Bank of England
2001   Bank of Japan, ZIRP (zero interest rate policy)
2005   Reghuram Rajan, Hyun Song Shin
2008   Before Asia Opens
2009   Mansion House Dinner
2010   QE2 [Over the next eight months, using newly created dollars, the Fed would buy $600 billion of longer-term debt U.S. Treasury bonds.]

     (Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013 )
(The Alchemists : three central bankers and a world on fire, Neil Irwin, p.324)
   ____________________________________
([ I have little to no knowledge of the characters, personalities, profiles, M.O. [modus operandi (often shortened to M.O.) is someone's habits of working] and the roles of (2021 modern form of financial capitalism) ])

Carroll Quigley, Tragedy and Hope: a history of the world in our time, publication date 1966, https://en.wikipedia.org/wiki/Tragedy_and_Hope

page 49 (pdf page 64)
In this continuing process, Britain's early achievement of industrialism gave it such great profits that these, combined with the profits derived earlier from commercial capitalism and the simultaneous profits derived from the unearthed rise in land values from new cities and mines, made its early industrial enterprises largely self-financed or at least locally financed. They were organized in proprietorships and partnerships, ahd contact with local deposit banks for short-term current loans, but had little to do with international bankers, investment banks, central governments, or corporative forms of business organization.

page 50 (pdf page 65)
This new stage of financial capitalism, which continued to dominate England, France, and the United States as late as 1930, was made necessary by the great mobilizations of capital needed for railroad building after 1830. The capital needed for railroads, with their enormous expenditures on track and equipment, could not be raised form single proprietorships or partnerships or locally, but, instead, required a new form of enterprise ── the limited-liability stock corporation ── and a new source of funds ── the international investment banker who had, until then, concentrated his attention almost entirely on international flotation of government bonds. The demands of railroads for equipment curried this same development, almost at once, into steel manufacturing and coal mining
─

page 50 (pdf page 65)
financial capitalism, 1850-1931

page 51 (pdf page 66)
The men who did this, looking backward toward the period of dynastic monarchy in which they had their own roots, aspired to establish dynasties of international bankers and were at least as successful at this as were many of the dynastic political rulers.

pages 51-52 (pdf pages 66-67)
In concentrating, as we must, on the financial or economic activities of international bankers, we must not totally ignore their other attributes. They were, especially in later generations, cosmopolitan rather than nationalistic; they were a constant, if weakening, influence for peace, a pattern established in 1830 and 1840 when the Rothschilds threw their whole tremendous influence successfully against European wars. They were unsually highly civilized, cultured gentlemen, patrons of education and of the arts, libraries, and museum collections still reflect their munificence. For these purposes they set a pattern of endowed foundations which still surround us today.

page 52 (pdf page 67)
Even after these banking families became fully involved in domestic industry by the emergence of financial capitalism, they remained different from ordinary bankers in distinctive ways:
(1) they were cosmopolitan and international;
(2) they were close to governments and were particularly concerned with questions of government debts, including foreign government debts, even in areas which seemed, at first glance, poor risks, like Egypt, Persia, Ottoman Turkey, Imperial China, and Latin America;
(3) their interest were almost exclusively in bonds and very rarely in goods, since they admired "liquidity" and regarded commitments in commodities or even real estate as the first step toward bankruptcy;
(4) they were, accordingly, fnantical devotees of deflation (which they called "sound" money from its close associations with high interest rates and a high value of money) and of the gold standard, which, in their eyes, symbolized and ensured these values; and
(5) they were almost equally devoted to secrecy and the secret use of financial influence in political life. These bankers came to be called "international bankers" and, more particularly, were known as "merchant bankers"in England, "private bankers" in France, and "investment bankers" in the United States. In all countries they carried on various kinds of banking and exchange activities, but everywhere they were sharply distinguishable from other, more obvious, kinds of banks, such as savings banks or commercial banks.

page 52 (pdf page 67)
This risky status, which deprived them of limited liability, was retained, in most cases, until modern inheritance taxes made it essential to surround such family wealth with the immortality of corporate status for tax-avoidance purposes.

page 52 (pdf page 67)
As a consequence, ordinary people had no way of knowing the wealth or areas of operation of such firms, and often were somewhat hazy as to their membership.

page 53 (pdf page 68)
This firm, like others of the international banking fraternity, constantly operated through corporations and governments, yet remained itself an obscure private partnership until international financial capitalism was passing from its deathbed to the grave.

page 53 (pdf page 68)
to be trusted with control of the money system; accordingly, the sanctity of all values and the soundness of money must be protected in two ways: by basing the value of money on gold and by allowing bankers to control the supply the money. To do this it was necessary to conceal, or even to mislead, both governments and people about the nature of money and its method of operation.

page 53 (pdf page 68)
As a consequence, many persons, including financiers and even economists, were astonished to discover, in the 20th century, that the gold standard gave stable exchanges and unstable prices.

page 54 (pdf page 69)
If we regard the relationship between money and goods as a seesaw in which each of these was at opposite ends, so that the value of one rose just as much as the value of the other declined, then we must see gold as the fulcrum of the seesaw on which this relationship balances, but which does not itself go up or down.

page 54 (pdf page 69)
   Since it is quite impossible to understand the history of the 20th century without some understanding of the role played by money in domestic affair and in foreign affairs, as well as role played by bankers in economic life and in political life, we must take at least a glance at each of these four subjects.

Carroll Quigley, Tragedy and Hope: a history of the world in our time, publication date 1966, https://en.wikipedia.org/wiki/Tragedy_and_Hope

   ____________________________________
([ the following is a bias view ])
([ cherry picking, selection bias, confirmation bias, .... ])
([ going back in time ])
([ if you were to be stand[ing] upstream at source of the data flow ])
([ you would be overwhelm[ed] with mixed signals and noises, all jumble together ])
([ looking back in the timeline, I do not know if any of these are signals ])
([ the strongest statement that I can make is that they are clues ])
([ possible clues within the context of the (2007–2008 Financial crisis) ])
([ possible clues within the picture frame of (2007–2008 Financial crisis) ])

p.303
In the end, a mammogram or a Pap smear is a portrait of cancer in its infancy. Like any portrait, it is drawn in the hopes that it might capture something essential about the subject - its psyche, its inner being, its future, its behavior. “All photographs are accurate,” the artist Richard Avedon liked to say, “[but] none of them is the truth.” (p.303, Siddhartha Mukherjee, The emperor of all maladies : a biography of cancer, 2010)

([ clues within the picture frame might or might NOT be accurate ])
([ and if the clues are accurate, they are not the truth ])
([ you are the detective, the investigator, Sherlock Holmes & Watson ])
([ why do we care about knowing ~~the truth~~ [what is going on] ])
([ because with hope, by knowing ~~the truth~~ [what is going on], we wish to explain and to understand ])
([ to ourselves and to others what happen[ed], ~~what is going on~~, why did it happened, [how] could it have been prevented, [how] could have it happened differently, how can we moderate the suffering of the children and those who care for them, .... ])
([ who, what, when, where, why, how, ..... ])
([ we seek understanding - in search for explanation and truth ])

([ bandwagon effect [the tendency for people to adopt certain behaviors, styles, or attitudes simply because others are doing so.],
   herd mentality [the tendency for people's behavior or beliefs to conform to those of the group to which they belong.
"the herd mentality of the investment community"]
   groupthink [the practice of thinking or making decisions as a group in a way that discourages creativity or individual responsibility.
    "there's always a danger of groupthink when two leaders are so alike"] ])

([ when some thing is hard to figure out ... ])
([ when it is hard to figure out, you simplified (chunking) ])
([ when it is hard to figure out, you draw a map ])
([ when it is hard to figure out, you make a chart ])
([ when it is hard to figure out, you step back to see the bigger picture ])
([ when it is hard to figure out, you look for where is the money ])
([ when it is hard to figure out, you follow the flow of the money ])
([ when it is hard to figure out, you monitor the [flow rate] of the money ])
([ when it is hard to figure out, you step away from the problem ])
([ when it is hard to figure out, you sleep on [it] ])
([ when it is hard to figure out, you go work on some thing else ])

([ this stepping away from the problem(s) (or sub-problems) (this is a process - like a learning process) and coming back to them later is best done after you and your partner have reached an impasse (a situation in which no progress is possible) and saturation [The mind has three elementary phases it goes through when it's thinking: saturate, incubate, and illuminate.]; there are at least two reasons why the step away method seems to work; one, after chunking, consolidation and information saturation, when you go do some thing else or you sleep on it, the subconscious mind is working mysteriously in the background; two, when you go do some thing else - a relaxing activity in the vegetable garden [nature] maybe - or a quiet walk in the woods, the mind becomes unstuck or forget some parts that was causing the deadlock; the mental block that was there disappeared; the method is not guarantee to work; however, from mining through historical data and the stories of creative problem solving [CPS] practices -- from math to poetry disciplines -- that pattern ... . ])
   ____________________________________
1974
Wickelgren, Wayne A 1938-
How to solve problems
1. mathematics─problems, exercise, etc.
2. problem solving
QA43.W52

pp.65-66
Incubation
p.65
When you have been going around in circles and wish to do something different to try to solve a problem, probably the most frequently given piece of advice is to put the problem aside for several minutes, hours, or days, and work on something else or get a good night's sleep before coming back to the problem.

p.65
   I must confess that incubation is not one of my favorite problem-solving methods, primarily, I suppose, because, when one is forced to use it, it indicates that all the other general problem-solving methods have failed.
p.65
However, when you have tried a large number of approaches to a problem with no success, there comes a point at which even the most skilled problem solver should undoubtedly put the problem aside for a few hours or days and come back to it later.
p.65
This is true even though a skilled problem solver may still be able to generate new ideas concerning how to solve the problem.

p.65
   Psychologists do not understand why incubation is useful in solving problems.

p.65
On the contrary, there are too many possible mechanisms for the beneficial effects of incubation on problem solving.

pp.65-66
   First, you may be quite generally fatigued after you have worked on a problem for a long time, and coming back to it in a fresher state of mind seems likely to be beneficial (though again we do not understand the mechanisms of general intellectual fatigue or the need for sleep and so on).

p.66
   Second, there may be more specific intellectual fatigue or interference in the use of your memory because of the large number of incorrect actions you have taken in trying to solve the problem.

p.66
The passage of time filled with intervening activities provides an opportunity for these interfering memories to fade away.

p.66
   Third, when you come back to the problem, you have an altered memory and new set of things on your mind as a result of the intervening activity. These new associations and new cues may well result in the retrieval of new ideas from memory concerning how to solve the given problem. This explanation is probably the single most plausible reason for the success of the method of incubation.

p.66
   There is a fourth, somewhat more exotic possibility, namely, that a person's mind goes on unconsciously working the problem all during the long incubation period. Either because the unconscious mind has a long time to work on the problem or because something special is added by unconscious problem solving, the problem manages to get solved in this way, when conscious problem solving has failed.

p.66
In any event, the unconscious problem solving may modify memory in a manner that facilitates conscious problem solving at a later time. There is not one shred of evidence for this explanation of incubation, whereas the first three possible mechanisms are all extensions of previously established psychological principles.

p.66
Nevertheless, many psychologists believe in unconscious problem solving. I am very skeptical on the matter, but that is primarily a matter of philosophical preference.

p.138
Whenever there is a single, clearly, and completely specified goal stated in the problem, you should seriously consider the possibility of working backward.

Wayne A. Wickelgren, How to solve problems, 1974

   ____________________________________
1997            Christmas 1997
                J.P. Morgan
                A broad index secured trust offering (BISTRO) is a proprietary name used by J.P. Morgan for creating collateralized debt obligations (CDOs) from credit derivatives.
                Initially created as a way for J.P. Morgan to hedge its credit risk
                BISTRO (1997) were the predecessor of the synthetic collateralized debt products that later grew in popularity.
                (BISTRO) was considered a landmark financial instrument at the time of its launch; it was believed to be one of the first synthetic collateralized debt obligation (CDO) instruments ever created.
                These debt products were credited with contributing to the 2007-2008 financial crisis.
                Consequences of Broad Index Secured Trust Offerings (BISTROs):: used credit derivatives to transfer credit risk in a portfolio.
                https://www.investopedia.com/terms/b/broad-index-synthetic-trust-offering.asp

               ([ you transfer the risk by finding a counter-party who will enter into a credit default risk contract - like a life insurance, a disaster insurance, or a health insurance - an insurance contract that protects you against a default in this particular situation ])
                ____________________________________
1997–2006       Lehman Brothers - rise of mortgage origination
                In 1997, Lehman bought Colorado-based lender Aurora Loan Services, an Alt-A lender.
                In 2000, to expand their mortgage origination pipeline, Lehman purchased West Coast subprime mortgage lender BNC Mortgage LLC.
                Lehman had morphed into a real estate hedge fund disguised as an investment bank.[2]
                From an equity position, its risky commercial real estate holdings were thirty times greater than capital.
                In such a highly leveraged structure, a three- to five-percent decline in real estate values would wipe out all capital.[citation needed]
                https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers
                ____________________________________
2000-2004       Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the September 11 terrorist attacks, the Federal Reserve lowered the federal funds rate from 6.5% in May 2001 to 1% in June 2003.2

                 May 2001 [6.5% fed funds]- June 2003 [1% fed funds]
                https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp

2000            Commodity Futures Modernization Act of 2000 (CFMA)
                The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that ensured financial products known as over-the-counter (OTC) derivatives remained unregulated.

2000            Joseph Cassano sold hundreds of billions of credit protection in the form of CDSs without having to put up any real money as collateral as this form of insurance had been deregulated with the Phil Gramm-sponsored Commodity Futures Modernization Act of 2000, signed by Bill Clinton.[6]
                https://en.wikipedia.org/wiki/Joseph_Cassano
                ____________________________________

2004            the Federal Reserve lowered the federal funds rate to 1 percent and kept it there until June 2004., p.82 (George Soros, The new paradigm for financial markets, 2008)

2004            FBI warning of a looming financial crisis
the warning from an assistant FBI director that the growing mortgage fraud caseload could signal a problem with potentially wide economic repercussions

2005            Bankruptcy Reform Act, aka Bankruptcy Prevention and Fraud on Consumers Bill
For eight years (1997), the credit card industry pushed for new bankruptcy laws, and thanks to their intense lobbying efforts and high political contributions, they succeeded. The changes make it harder for consumers to file bankruptcy and have eliminated some of the benefits of prior law for consumers protection.

2005            Derivatives contracts are exempt from normal bankruptcy law derivatives and other financial contracts
                http://economicsofcontempt.blogspot.com/2009/03/special-treatment-of-derivatives-in.html
                http://economicsofcontempt.blogspot.com/2009/03/special-treatment-of-derivatives-in.html

2005-2015       Afghanistan/ Iraq invasion (wars) (high intensity conflicts)
                (major operational tempo)

2006            In the summer of 2006, [Nouriel] Roubini wrote that the U.S. was headed into a long and "protracted" recession due to the "collapse" of house prices, which he noted were already in freefall.[23]
                https://en.wikipedia.org/wiki/Nouriel_Roubini#2006

2007            ‘On April 17, 2007, famed short-seller Jim Chanos and other hedge fund managers met under tight security at the World Bank in Washington for the G-8 meeting. Chanos and Paul Singer briefed prominent policy officials [including Gordon Brown] about the growing financial instability. They gave irrefutable evidence that a catastrophe was building. They told officials that banks were about to sink the global economy. They called for decisive action. And they were ignored.’

2007            June 15, 2007 :: The failure of the two Bear Stearns mortgage hedge funds in June badly rattled the markets, but U.S. Federal Reserve Chairman Ben Bernanke and other senior officials reassured the public that the subprime problem was an isolated phenomenon. (p.xxi, George Soros, The new paradigm for financial markets, 2008)

2007            Gramlich [ - Former Federal Reserve governor Edward M. Gramlich - ] went public with his worries in 2007 and published a book on the subprime bubble just before the crisis first broke.
                Edward M. Gramlich, Subprime Mortgages: America's Latest Boom and Bust, published 2007
                Charles Kindleberger
                Nouriel Roubini
(p.xix, George Soros, The new paradigm for financial markets, 2008)

2007            ‘August 9--BNP Paribas announces it is unable to value mortgage-related assets on the books of three funds it manages, sparking a freeze-up in money markets and a 95 billion EUROs intervention by the ECB (European Central Bank)’ (Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013 )
                [p.1, p.2, p.3]
                  [p.1]
                   Gigantic French bank BNP Paribas had announced that it was suspending withdrawls from three investment funds it managed. The funds were invested heavily in U.S. home-mortgage-backed securities that had become nearly impossible to value ([fraud]). Customers' money would be locked up until the bank could figure out exactly how much the investments were worth.
                  [p.2]
                   The three relatively obsure funds held only 1.6 billion EURO in assets.
                  [p.3]
                   By 10 a.m., the full Executive Board was on line. [Jean-Claude] Trichet was emphatic: "There is only one thing we can do, which is to give liquidity." The ECB, he insisted, must flood the banking system with euros. He was proposing that the central bank fulfill its traditional role as "lender of last resort," stepping in when private banks were pulling back, ... . The ECB would abandon its usual practice of pumping some fixed amount of money into the banking system and instead make an unlimited number of euros available to the banks that needed them. The technical term for what Trichet and the Executive Board did at 12:30 p.m. central European time is to offer a "fixed-rate tender with full allotment."
                   Translation: Come and get it, guys. We'll give you as many euros as you need at 4 percent. Some forty-nine banks took 95 billion EUROs.
                  (Irwin, Neil (2013), The Alchemists, the penguin press, new york, 2013 ) (The Alchemists : three central bankers and a world on fire, Neil Irwin, p.1, p.2, p.3 )

2007            (Why no financial panic? M3?)
(There should be a financial panic about now because of the huge spike in DJIA volume from 2001-2005.)

(Nouriel Roubini forecasts that the panic should happened about now.)
   ____________________________________
    Charles Kindleberger's book with Robert Z. Aliber;
    Manias, Panics, and Crashes: A History of Financial Crises;
    1978, 1989, 1996, 2000;
    published in 2005
   ____________________________________
2008 September Fannie Mae and Freddie Mac is placed into custodianship
                September of 2008, Fannie Mae and Freddie Mac were both placed into conservatorship of the Federal Housing Finance Agency (FHFA), which put Fannie Mae and Freddie Mac under direct government control. Today, the role of Fannie Mae and Freddie Mac has not changed very much.

                https://en.wikipedia.org/wiki/Fannie_Mae
                The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is a United States government-sponsored enterprise (GSE) (founded in 1938 during the Great Depression as part of the New Deal) - the corporation's purpose is to expand the secondary mortgage market by securitizing mortgage loans in the form of mortgage-backed securities (MBS)

                https://en.wikipedia.org/wiki/Freddie_Mac
                The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, is a public government-sponsored enterprise (GSE)
                The FHLMC was created in 1970 to expand the secondary market for mortgages in the US. Along with the Federal National Mortgage Association (Fannie Mae), Freddie Mac buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors on the open market. This secondary mortgage market increases the supply of money available for mortgage lending and increases the money available for new home purchases.
   ____________________________________
Simon Head, Mindless : why smarter machines are making dumber humans, 2014 [ ]

p.80
The US government──J. K. Galbraith's “countervailing power”──which might have set limits on the machine's operations, was in fact actively working on the machine's behalf.
p.80
mortgage-backed securities (MBSs)
underwrote the subprime mortgages, bundled them together, and passed them on to investment bankers as mortgage-backed securities (MBSs);
collateralized debt obligations (CDOs)
p.80
Simon Johnson and James Kwak, their book Thirteen Bankers
p.81
foundations, universities, pension funds, midwestern school districts, German regional banks, all very big losers once the MBSs and CDOs went bad.
p.82
Finally, the value-at-risk (VAR) indexes pioneered by Professor Philippe Jorion of the University of California were heavily relied on to assess the risk of CDOs.

   (Mindless : why smarter machines are making dumber humans / Simon Head., 1. technology──social aspects., 2. business──data processing──psychological aspects., 3. industries──technological innovations──psychological aspects., 4. ──Mental efficiency., 5. knowledge management., T14.5.H445 2013, 303.48'3──dc23, 2014, )
   ____________________________________
Simon Head, Mindless : why smarter machines are making dumber humans, 2014 [ ]

pp.82-83
Goldman's handling of the Wall Street crash during its critical, formative months between the middle of 2006 and the end of 2007 must be among the most heavily documented events in modern business history.
p.83
Pride of place in this bibliography goes to the Senate Permanent Subcommitee on Investigations' (the Levin Committee's) 266-page report on Goldman, “Failing to manage conflicts of interest: a case study of Goldman Sachs”, which is just one section within a 639-page report on the role of investment banks in crisis.4
p.83
The report draws on tens of thousands of e-mails subpoenaed from Wall Street firms by the committee and provides a day-to-day, and sometimes hour-by-hour, account of what went on at Goldman during those months.
p.83
A companion volume to the report is the transcript and video footage of the hearings before the Levin Committee, which took place on October 27, 2010, when Goldman's crisis team, from CEO Lloyd Blankfein down to the humblest traders, gave their side of the story.5

pp.202-203
   Notes to chapter 5: the case of Goldman sachs
   1. Joseph Schumpeter, Capitalism, Socialism, and Democracy (New York and London: Routledge, 2010), 117-118.
   4. US Senate, Permanent subcommittee on investigations of the committee on homeland security and govermental affairs, “wall streets and the financial crisis: anatomy of a financial collapse”, sec. C, “Failing to manage conflicts of interest: case study of Goldman sachs”, www.hsgac.senate.gove/imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf?attempt=2, 376-639.
   5. US Senate, Permanent subcommittee on investigations, “wall street and the financial crisis: the role of the investment banks”, hearings, April 27, 2010, www.google.co.uk
   6. Basis Yield Alpha Fund, Plaintiff, v. Goldman Sachs Group, Inc.
      SEC press release, July 15, 2010, “Goldman Sachs to pay record $550 million to settle SEC charges related to subprime mortgaged CDO”,
      http://sec.gove/news/press/2010/2010-123.htm.
   7. Goldman Sachs, “Risk management and the residential mortgage market”, http://online.wsj.com/public/resources/documents/goldman0424.pdf.

p.83
Abacus CDO
pp.83-84
But the Levin Committee's report and hearing provide, I believe, strong evidence that the deception and manipulation of clients eventually became an integral part of Goldman's trading strategy.6
p.84
By the early 2000s, Goldman's derivatives trading could no longer be called banking in any meaningful sense of the term, but had become an industrial activity, turning out virtual products whose fortunes depended on the efficient management and coordination of processes: the accumulation of mortgages and other forms of debt from bankers and brokers, their transformation into financial derivatives, and their selling on to clients.
p.85
   But once the housing market turned, the system collapsed. The difference between Goldman and other leading players on Wall Street was that Goldman saw it coming and was able to recalibrate its machine so that not only did it avoid the catastrophic losses that destroyed Lehman Brothers and crippled Citicorp, but it actually came out ahead.
p.85
But to achieve this Goldman behaved, I will argue, with ruthless cynicism, above all in deceiving and exploting its clients.
p.85
mortgage brokers as New Century, Long Beach, and Countrywide
p.86
mortgage-backed securities (MBSs): securities backed by housing mortgage, residential mortgage-backed securities,
collateralized debt obligations (CDOs): debt

pp.87-88
   One way of cutting through this obfuscation is to imagine for a moment that Goldman was a real industrial company making and selling real products, rather than a virtual industrial company making and selling virtual products.

   (Mindless : why smarter machines are making dumber humans / Simon Head., 1. technology──social aspects., 2. business──data processing──psychological aspects., 3. industries──technological innovations──psychological aspects., 4. ──Mental efficiency., 5. knowledge management., T14.5.H445 2013, 303.48'3──dc23, 2014, )
   ____________________________________
Simon Head, Mindless : why smarter machines are making dumber humans, 2014 [ ]

p.91
   The problem that then arose for Goldman was that in marketing the three kinds of financial derivatives, the company was acting as underwriter and placement agent and not simply as market maker or trader on its own behalf. As underwriter and placement agent, Goldman was subject to rules on fair disclosure that as market maker it was not.
p.92
The blurring of the distinction between market maker and underwriter was central to Blankfein's evasive strategy, as the following exchanges reveal:

p.94
To grasp the sheer chutzpah of Goldman's marketing, one needs to look at one of these deals in detail.
p.94
Timberwolf CDO between September 2006 and June 2007,
synthetic CDO
Basis Capital, an Australian hedge fund,
p.95
the pitch book
p.96
cash-flow analysis
p.96
p.97
“Goldman syndicate”, a subcommittee at New York headquarters responsible for coordinating sales efforts,
p.98
Meanwhile, the value of Timberwolf securities continued to fall.
p.98
Bank Hapoalim in Tel Avid, Israel, and a Korean insurance company call Hungkuk Life in Seoul.
p.99
Unbeknownst to Basis, 36 percent of the short interest on the Timberwolf CDSs was held by a single counterparty──Goldman. As the CDO lost value, Goldman made money.26
p.99
Timberwolf and Point Pleasant transactions.
p.99
extremely difficult to value.
p.99
residential mortgage-backed securities
p.100
overly negative and ahead of the market,
we could end up leaving some money on the table
p.101
According to a complaint filed against Goldman in New York courts by Basis in October 2011, Goldman consistently refused.31
“knowingly making materially false statements with the sale of Timberwolf” and Point Pleasant, another CDO.

   (Mindless : why smarter machines are making dumber humans / Simon Head., 1. technology──social aspects., 2. business──data processing──psychological aspects., 3. industries──technological innovations──psychological aspects., 4. ──Mental efficiency., 5. knowledge management., T14.5.H445 2013, 303.48'3──dc23, 2014, )
   ____________________________________
William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004

pdf page: 25/314 (filename: Engdahl_Century_of_War_book.pdf)
pp.14-15
p.14
In 1890, as a result of the near failure of the prestigious London merchant bank, Baring Brothers, arising from their huge losses in Argentine bond speculation and investment, and the ties of German banking to this Argentine speculation, a Berlin bank panic ensured, as the dominoes of an international financial pyramid began to topple.

p.14
   Berlin, and German investors generally, had been caught up in international railroad speculation mania in the 1880s. With the crash of the elite Baring Bros., with some $75,000,000 invested in various Argentine bonds, down came the illusions of many Germans about the marvels of financial speculation.

pp.14-15
   In the wake of the financial collapse of Argentina, a large wheat exporter to Europe, Berlin grain traders Ritter & Blumenthal had foolishly attempted to ‘corner’ on the entire German wheat market, planning to capitalize on the consequences of the financial troubles in Argentina. This only aggravated the financial panic in Germany as their scheme collapsed, bankrupting in its wake the esteemed private banking house of Hirschfeld & Wolf, and causing huge losses at the Rheinisch-Westphaelische Bank, further triggering a general run on German banks and a collapse of the Berlin stock market, lasting into the autumn of 1891.

p.15
   Responding to the crisis, the Chancellor named a Commission of Inquiry of 28 eminent persons, under the chairmanship of Reichsbank President Dr. Richard Koch, to look into the causes and to propose legislative measures to prevent further such panics from occurring. The Koch Commission was composed of a broad and representatives cross-section of German economic society, including representatives from industry, agriculture, universities, political parties, as well as banking and finance.

p.15
   The result of the commission's work, most of it voted into law by the Reichstag in the Exchange Act in June 1896, and the Depotgesetz of that July, was the most severe legislation restricting financial speculation of any industrial country of the time. Futures positions in grain were prohibited. Stock market speculation possibilities were severely constrained, one result of which has been the relative absence of stock market speculation since then as a major factor affecting German economic life.

p.15
   The German Exchange Act of 1896 established definitively a different form of organization of finance and banking in Germany from that of Britain or America──Anglo-Saxon banking. Not only this, but many London financial houses reduced their activity in the restrictive German financial market after the 1890s as a result of these restrictions, lessening the influence of City of London finance over German economic policy. Significantly, to the present day, these fundamental differences between Anglo-Saxon banking and finance, and a ‘German model’ as largely practiced in Germany, Holland, Switzerland and Japan, are still somewhat visible.3

3. Friedrich List. The National System of Political Economy (1885 edition. London: Longman, Green). Reprinted New York: Augustus M. Kelley, 1966.

William Engdahl, A century of war: Anglo-American oil politics and the new world order, 1992, 2004

https://drive.google.com/file/d/1e0PVSremXnuf4Nkn4cY0xW8hF8SaL72-/view
https://drive.google.com/drive/folders/1eon-LgnO0xBGwNocDzajA8hELTmWS1CR
   ____________________________________

William R. Clark, Petrodollar warfare, 2005                                 [ ]

p.18 (pdf 39)
Bretton Wood Monetary Conferences of 1944-1945

A plaque erected at the original conference site in Carroll, New Hampshire, states:

In 1944 the United States government chose the Mount Washington HOtel as the site for a gathering of representatives of 44 countries. This was to be the famed Bretton Wood Monetary Conference. The Conference established the World Bank, set the gold standard at $35 an ounce, and chose the American dollar as the backbone of international exchange. The meeting provided the world with badly needed post war currency stability.

p.18 (pdf 39)
Hence, it was the Bretton Woods Conferences that created the World Bank and the International Monetary Fund (IMF) to facilitate this noble goal. These two organizations were later instrumental in rebuilding both the European and Japanese infrastructures.

   (Petrodollar warfare : oil, Iraq and the future of the dollar, William R. Clark, 2005, )
   ____________________________________

Howard W. French., Everything under the heavens : how the past help shape China's push for global power, 2017.

p.279
a German economist at Bretton Woods institution in Washington remarked to me,
p.279
to create a new global or regional economic and political institutional arrangements
United States, World Bank in 1944;
Japan, Asian Development Bank in 1966;
Germany, European Bank for Reconstruction and Development in 1991;
China, Asian Infrastructure Investment Bank [in 2015 - operational]

   (Everything under the heavens : how the past help shape China's push for global power / Howard W. French., first edition. | New York : Alfred A. Knopf, [2017] |
China──foreign relations──21st century.| China──foreign relations──Asia.|Asia──foreign relations──China.|strategic culture──China.|geopolitics──Asia., LCC JZ1734.F74 2017| DDC 327.51──dc23, https://lccn.loc.gov/2016021957, 2017, )
   ____________________________________
Ha-Joon Chang, Economics : the user's guide, 2014

first published 2014
this paperback edition published 2015

pp.222-223
   In 1982, Chile got into a major banking crisis, following the radical financial market liberalization in the mid-1970s under the Pinochet dictatorship
   late 1980s, the Saving and Loans (S&L) companies in the US got into massive troubles,
   the 1990s started with banking crisis in Sweden, Finland and Norway, following their financial deregulation in the late 1980s,
   Then there was the ‘tequila’ crisis in Mexico in 1994 and 1995.
   This was followed by crisises in the ‘miracle’ economies of Asia ─ Thailand, Indonesia, Malaysia and South Korea ─ in 1997, which had resulted from their financial opening up and deregulation in the late 1980 and the early 1990s.
   On the heels of the Asian crisis came the Russian crisis of 1998.
   The Brazilian crisis followed in 1999 and the Argentinian one in 2002, both in part the results of financial deregulation.

p.238
; this is known as the reference group. We actually don't really care that much how well people who do not belong to our own reference groups are doing.*

p.39
The fact is that capitalism developed first in Western Europe.

p.41
this expansion involved expropriating land, resources and people for labour from the native populations through colonialism.

p.42
   Beginning with Portugal in Asia and Spain in the Americas from the late 15th century, the Western European nations ruthlessly move out. By the middle of the 18th century, North America was divided up between Britain, France and Spain. Most Latin American countries were ruled by Spain and Portugal until the 1810s and the 1820s. Parts of India were ruled by the British (mainly Bengal and Bihar), the French (the south-eastern coast) and the Portuguese (various coastal areas, especially Goa).

Ha-Joon Chang, Economics : the user's guide, 2014
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https://www.rollingstone.com/politics/politics-news/elizabeth-warren-vs-wall-street-194416/
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Hans Rosling, Factfulness, 2018                                             [ ]

p.221
Who should you blame?

p.221
   Similarly, resist the urge to blame the media for lying to you (mostly they are not) or for giving you a skewed worldview (which mostly they are, but often not deliberately). Resist blaming experts for focusing too much on their own interests and specializations or for getting things wrong (which sometimes they do, but often with good intentions). In fact, resist blaming any one individual or group of individuals for anything. Because the problem is that when we identify the bad guy, we are done thinking. And it's always always more complicated than that. It's almost always about multiple interacting causes──a system. If you really want to change the world, you have to understand how it actually works and forget about punching anyone in the face.

p.222
• Look for causes, not villians. When something goes wrong don't look for an individual or a group to blame. Accept that bad things can happen without anyone intending them to. Instead spend your energy on understanding the multiple interacting causes, or system, that created the situation.

• Look for systems, not heroes. When someone claims to have caused something good, ask whether the outcome might have happened anyway, even if that individual had done nothing. Give the system some credit.

   (Hans Rosling with Ola Rosling and Anna Rosling Rönnlund, Factfulness : ten reasons we're wrong about the world ── and why things are better than you think, 155.9042 Rosling, 2018, )

     •   “The failure to see the world as humanly made is
          called reification, which can also be defined
          as the tendency to see the humanly made world
          as having a will and force of its own, apart
          from human beings.   ...   But if we talk about
          technology as if it were a force in its own
          right, the people who do the building and
          choosing disappear.   ...   Reification keeps
          us from seeing that the force attributed to
          technology comes from PEOPLE choosing to do
          things together in certain ways.
          If we don't see this, we may forget to ask
          important questions, such as, Who is choosing
          to build what kinds of devices? Why?
          How will our society be changed?
          Who stands to benefit and who stands to lose
          because of these changes? Should we avoid
          these changes? Who will be held accountable
          if these changes hurt people?”; pp.21-23,
          Michael Schwalbe, The sociologically examined life, 1998.
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Bridgewater's Ray Dalio
Vanguard Emerging Markets ETF (VWO)

([ the following URL - page not found ])
http://www.institutionalinvestor.com/blogarticle/3433519/blog/bridgewaters-ray-dalio-explains-the-power-of-not-knowing.html

Bridgewater’s Ray Dalio Explains the Power of Not Knowing
By Raymond Dalio March 06, 2015 at 1:00 PM EST

To make money in the markets, you have to think independently and be humble. You have to be an independent thinker because you can’t make money agreeing with the consensus view, which is already embedded in the price. Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble.

Early in my career I learned this lesson the hard way — through some very painful bad bets. The biggest of these mistakes occurred in 1981–’82, when I became convinced that the U.S. economy was about to fall into a depression. My research had led me to believe that, with the Federal Reserve’s tight money policy and lots of debt outstanding, there would be a global wave of debt defaults, and if the Fed tried to handle it by printing money, inflation would accelerate. I was so certain that a depression was coming that I proclaimed it in newspaper columns, on TV, even in testimony to Congress. When Mexico defaulted on its debt in August 1982, I was sure I was right. Boy, was I wrong. What I’d considered improbable was exactly what happened: Fed chairman Paul Volcker’s move to lower interest rates and make money and credit available helped jump-start a bull market in stocks and the U.S. economy’s greatest ever noninflationary growth period.

This episode taught me the importance of always fearing being wrong, no matter how confident I am that I’m right. As a result, I began seeking out the smartest people I could find who disagreed with me so that I could understand their reasoning. Only after I fully grasped their points of view could I decide to reject or accept them. By doing this again and again over the years, not only have I increased my chances of being right, but I have also learned a huge amount.

There’s an art to this process of seeking out thoughtful disagreement. People who are successful at it realize that there is always some probability they might be wrong and that it’s worth the effort to consider what others are saying — not simply the others’ conclusions, but the reasoning behind them — to be assured that they aren’t making a mistake themselves. They approach disagreement with curiosity, not antagonism, and are what I call “open-minded and assertive at the same time.” This means that they possess the ability to calmly take in what other people are thinking rather than block it out, and to clearly lay out the reasons why they haven’t reached the same conclusion. They are able to listen carefully and objectively to the reasoning behind differing opinions.

When most people hear me describe this approach, they typically say, “No problem, I’m open-minded!” But what they really mean is that they’re open to being wrong. True open-mindedness is an entirely different mind-set. It is a process of being intensely worried about being wrong and asking questions instead of defending a position. It demands that you get over your ego-driven desire to have whatever answer you happen to have in your head be right. Instead, you need to actively question all of your opinions and seek out the reasoning behind alternative points of view.

This approach comes to life at Bridgewater in our weekly research meetings, in which our experts on various areas openly disagree with one another and explore the pros and cons of alternative views. This is the fastest way to get a good education and enhance decision-making. When everyone agrees and their reasoning makes sense to me, I’m usually in good shape to make a decision. When people continue to disagree and I can’t make sense of their reasoning, I know I need to ask more probing questions or get more triangulation from other experts before deciding.

I want to emphasize that following this process doesn’t mean blindly accepting the conclusions of others or adopting rule by referendum. Our CIOs are ultimately responsible for our investment decision-making. But we all make better decisions by maintaining an independent view and the conflicting possibilities in our minds simultaneously, and then trying to resolve the differences. We’re always in the place of holding an opinion and simultaneously stress-testing the hell out of it.

Operating this way just seems like common sense to me. After all, when two people disagree, logic demands that one of them must be wrong. Why wouldn’t you want to make sure that that person isn’t you?

Raymond Dalio is founder, chairman and co-CIO of Bridgewater Associates, the world’s largest hedge fund firm.
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GMO quarterly letter

first quarter 2014

Looking for Bubbles

https://drive.google.com/file/d/1x4wDHj_Da46CQqMIGpde3x2LhzEcqtne/view?usp=sharing

https://drive.google.com/drive/folders/1IW9zNqBlhZxMkjb4r-pq-k0a83aFv4r7?usp=sharing
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Beneficiary From Record Global Leverage
02/02/2012
http://www.zerohedge.com/news/presenting-only-beneficiary-record-global-leverage

Qui Bono

been saying this for three years, that the distinction in society is determined by those whose incomes increase with leverage, Vs those with real incomes, this is what causes the wealth inequality, which is promoted by the federal reserve. I even said it on this site two days ago with the papaer from the san fran fed on how it doesn't effect unemployment. tried to explain it to krugman so many times I can't count. this is why tax increases on this segment are deserved, because they benefit so much from this federal reserve tax payer subsidy.

Fix income inequality with $10 million loans for everyone!

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)
~ Sheila Bair, former chairman of the Federal Deposit Insurance Corp.

    “Under my plan, each American household could borrow
     $10 million from the Fed at zero interest.
     The more conservative among us can take that
     money and buy 10-year Treasury bonds.
     At the current 2 percent annual interest rate,
     we can pocket a nice $200,000 a year to live on.
     The more adventuresome can buy 10-year Greek debt at
     21 percent, for an annual income of $2.1 million.
     Or if Greece is a little too risky for you,
     go with Portugal, at about 12 percent, or
     $1.2 million dollars a year. (No sense in getting greedy.)”;
            ── Sheila Bair,
               former chairman of the Federal Deposit Insurance Corp.

Fix income inequality with $10 million loans for everyone!
By Sheila Bair
April 13, 2012

Are you concerned about growing income inequality in America? Are you resentful of all that wealth concentrated in the 1 percent? I’ve got the perfect solution, a modest proposal that involves just a small adjustment in the Federal Reserve’s easy monetary policy. Best of all, it will mean that none of us have to work for a living anymore.

For several years now, the Fed has been making money available to the financial sector at near-zero interest rates. Big banks and hedge funds, among others, have taken this cheap money and invested it in securities with high yields. This type of profit-making, called the “carry trade,” has been enormously profitable for them.

So why not let everyone participate?

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Think of what we can do with all that money. We can pay off our underwater mortgages and replenish our retirement accounts without spending one day schlepping into the office. With a few quick keystrokes, we’ll be golden for the next 10 years.

Of course, we will have to persuade Congress to pass a law authorizing all this Fed lending, but that shouldn’t be hard. Congress is really good at spending money, so long as lawmakers don’t have to come up with a way to pay for it. Just look at the way the Democrats agreed to extend the Bush tax cuts if the Republicans agreed to cut Social Security taxes and extend unemployment benefits. Who says bipartisanship is dead?

And while that deal blew bigger holes in the deficit, my proposal won’t cost taxpayers anything because the Fed is just going to print the money. All we need is about $1,200 trillion, or $10 million for 120 million households. We will all cross our hearts and promise to pay the money back in full after 10 years so the Fed won’t lose any dough. It can hold our Portuguese debt as collateral just to make sure.

Because we will be making money in basically the same way as hedge fund managers, we should have to pay only 15 percent in taxes, just like they do. And since we will be earning money through investments, not work, we won’t have to pay Social Security taxes or Medicare premiums. That means no more money will go into these programs, but so what? No one will need them anymore, with all the cash we’ll be raking in thanks to our cheap loans from the Fed.

Come to think of it, by getting rid of work, we can eliminate a lot of government programs. For instance, who needs unemployment benefits and job retraining when everyone has joined the investor class? And forget the trade deficit. Heck, we want those foreign workers to keep providing us with goods and services.

We can stop worrying about education, too. Who needs to understand the value of pi or the history of civilization when all you have to do to make a living is order up a few trades? Let the kids stay home with us. They can play video games while we pop bonbons and watch the soaps and talk shows. The liberals will love this plan because it reduces income inequality; the conservatives will love it because it promotes family time.

I’m really excited! This is the best American financial innovation since liar loans and pick-a-payment mortgages. I can’t wait to get my super PAC started to help candidates who support this important cause. I think I will call my proposal the “Get Rid of Employment and Education Directive.”

Some may worry about inflation and long-term stability under my proposal. I say they lack faith in our country. So what if it cost 50 billion marks to mail a letter when the German central bank tried printing money to pay idle workers in 1923?

That couldn’t happen here. This is America. Why should hedge funds and big financial institutions get all the goodies?

Look out 1 percent, here we come.

Sheila Bair is a former chairman of the Federal Deposit Insurance Corp. and a regular contributor to Fortune Magazine.

SOURCE:
https://www.textise.net/showText.aspx?strURL=http://www.washingtonpost.com/opinions/fix-income-inequality-with-10-million-loans-for-everyone/2012/04/13/gIQATUQAFT_story.html

Original story
http://www.rollingstone.com/politics/blogs/taibblog/free-10-million-loans-for-all-and-other-wall-street-notes-20120419
April 19, 2012

http://www.washingtonpost.com/opinions/fix-income-inequality-with-10-million-loans-for-everyone/2012/04/13/gIQATUQAFT_story.html
Published: April 13, 2012
By Sheila Bair
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   ▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀▄▀

McCusker, J. J. (1992).
How much is that in real money?: a historical price index for use as a deflator of money values in the economy of the United States

source:
       https://en.wikipedia.org/wiki/Rational_Software
<-------------------------------------------------------------------------->
A most dangerous method.

John Kerr (author), 1993 nonfiction book, A Most Dangerous Method: The Story of Jung, Freud, and Sabina Spielrein.

A Dangerous Method is a 2011 historical film directed by David Cronenberg and starring Keira Knightley, Viggo Mortensen, Michael Fassbender, and Vincent Cassel.
The screenplay was adapted by writer Christopher Hampton from his 2002 stage play The Talking Cure, which was based on the 1993 non-fiction book by John Kerr, A Most Dangerous Method: The story of Jung, Freud, and Sabina Spielrein.

https://en.wikipedia.org/wiki/John_Kerr_(author)
https://en.wikipedia.org/wiki/A_Dangerous_Method
    ____________________________________
Why talking (conversation - dialog) is a dangerous method?

Because when "you leave the safety of the world you know and enter the unknown.";

"In the Departure stage, you leave the safety of the world you know and enter the unknown.";

if you want (young or old) people to learn, you MUST provide a sense of safety; they might want a psychological safe room, a secure home base, ....

https://scottjeffrey.com/heros-journey-steps/
   ____________________________________
“Anything that’s human is mentionable, and anything that is mentionable can be more manageable. When we can talk about our feelings, they become less overwhelming, less upsetting, and less scary. The people we trust with that important talk can help us know that we are not alone.”

― Fred Rogers
   ____________________________________
In other words, when the fish companies are experiencing their greatest revenue, the fishery is most stressed. On the surface, profits are high, but below the surface (literally and metaphorically in the systems thinking iceberg) the fish population is collapsing.

source:
The necessary revolution : how individual and organizations are working together to create a sustainable world
Peter Senge,
Bryan Smith, Nina Kruschwitz, Joe Laur, Sara Schley
2008

p.172   The System-thinking Iceberg
p.173
four factors that influence any situations:
   events,
   patterns or trends,
   deeper systemic structures or forces,
   and the mental models or assumptions that shape these structures and force.
pp.174-177
p.173   events
The first level of the iceberg can be summed up in the question "What just happened?"
p.173
Immediate events are tangible, they catch our attention—much like a loud noise that suddenly causes us to drop everything and look up.
p.173
The problem is that events can so dominate our attention that we get stuck here and, as a result, miss the bigger picture entirely.
p.174
(???) When people are stuck at this level, they see only the tip of the iceberg and can do little except react as new circumstances arise. ([ this is also called, firefighting mode — essentially all you can do is to put out the fire, move from one problem to the next, from crisis to crisis. ])

p.174   patterns/trends
"What is happening over time?" Answering this question takes us a little deeper into the system, a little below the typical water surface.
p.174
But most players react to falling profits by fishing harder to maintain their revenues. If they do so, however, the fishery will collapse. (???)

p.175   systemic structures or forces
Ask, "What are the deeper forces driving these patterns or trends and how do they arise?"
p.175
In other words, when the fish companies are experiencing their greatest revenue, the fishery is most stressed. On the surface, profits are high, but below the surface (literally and metaphorically in the systems thinking iceberg) the fish population is collapsing.
p.175
So in order to avert disaster, companies must cut back their fishing at the very moment when the pressures to keep growing are greatest! (???)

p.176   mental models.
We all hold mental models——some shared across a society, others across a social class, a political party, an industry, a particular company, or even within our own family. What is often less clear is how these models affect, even dictate, our thoughts and actions and the thinking of those around us.

p.174
Ways of explaining reality

    **increasing leverage and opportunity for learning
    ||
    ||   Events                React
    ||   what just happened?
    ||
    ||   Patterns/Trends       Anticipate/expectation
    ||   what's been happening over time?
    ||   have we been here or some
    ||   place similar before?
    ||
    ||   Systemic Structures   Design/co-design/co-evolution
    ||   what are the deeper forces driving these
    ||   patterns or trends and how do they arise?
    ||   what are the forces at play
    ||   contributing to these pathways?
    ||
    ||   Mental Models         Transform/re-form/re-organise/re-call
    ||   what about our thinking
    ||   allows this situation to persist?
    \/
    figure 12.1

p.177
   Why is it so important to look beneath the surface at the deeper levels of reality? Because in our experience it is often the key to lasting change. When people or organizations pay attention only to the visible tip of the iceberg, they can only react to change as it happens—so at best, they survive the crisis. They often try to compensate for their lack of analysis of a problem with aggressive and "proactive" strategies. But being "proactive" from a reactive mind-set is reactive just the same. With long enough lever, boasted Archimedes, "I can move the world."

   (The necessary revolution : how individual and organizations are working together to create a sustainable world, Peter Senge, Bryan Smith, Nina Kruschwitz, Joe Laur, Sara Schley, 2008, 338.927 Senge, pp.172-177)

p.192
   Seeing the forces that arise from underlying limits also enables seeing into the future. Pierre Wack, one of the pioneers of scenario planning, used to say, "When it rains for a week in the foothills of the Himalayas, within a week the Ganges will flood." (???) This kind of specific prediction is only possible based on an understanding of the underlying system of water, limits to ground absorption, evaporation, and tributaries. Large amount of rain in the Himalayan foothills end up in the Ganges because there is nowhere else for the water to go.

   (The necessary revolution : how individual and organizations are working together to create a sustainable world, Peter Senge, Bryan Smith, Nina Kruschwitz, Joe Laur, Sara Schley, 2008, 338.927 Senge)
   ____________________________________
Donella H. Meadows, Edited by Diana Wright, Thinking in systems     [ ]

p.188
Summary of Systems Principles

Systems
    • A system is more than the sum of its parts.
    • Many of the interconnections in systems operate through the flow of information.
    • The least obvious part of the system, its function or purpose, is often the most crucial determinant of the system's behaviour.
    • System structure is the source of system behaviour. System behaviour reveals itself as a series of events over time.

pp.190-191
Source of System Surprises
    • Many relationships in systems are nonlinear.
    • There are no separate systems. The world is a continuum. Where to draw a boundary around a system depends on the purpose of the discussion.
    • At any given time, the input that is most important to a system is the one that is most limiting.
    • Any physical entity with multiple inputs and outputs is surrounded by layers of limits.
    • There always will be limits to growth.
    • A quantity growing exponentially toward a limit reaches that limit in a surprisingly short time.
    • When there are long delays in feedback loops, some sort of foresight is essential.
    • The bounded rationality of each actor in a system may not lead to decisions that further the welfare of the system as a whole.

Mindsets and Models
    • Everything we think we know about the world is a model.
    • Our models do have a strong congruence with the world.
    • Our models fall far short of representing the real world fully.

     (Thinking in systems : a primer, Donella H. Meadows, Edited by Diana Wright, sustainability institute, 2008, QA 402 .M425 2008, )
   ____________________________________
D-4405-1
    System Dynamics, Systems Thinking, and Soft OR
    Jay W. Forrester
    Germeshausen Professor Emeritus
    and Senior Lecturer
    Sloan School of Management
    Massachusetts Institute of Technology
    Cambridge, MA, 02139, USA
    August 18, 1992

Soft operation research (OR), in contrast with hard operation research (OR)

    In addition, the best alternative behaviors will often come from changing the system structure.

      Much of systems thinking uses causal loops—diagrams that connect
variables without distinguishing levels (integrations or stocks) from rates (flows or activity). Causal loops do not provide the discipline to thinking imposed by level and rate diagrams in system dynamics. Lacking the identification of level variables, causal loops fail to identify the system elements that produce dynamic behavior.

"... start from identifying the system levels [baseline] and later develop the flow rates that cause those levels [baseline] to change.";――(Jay W. Forrester, August 18, 1992; filename: System Dynamics, Systems Thinking, and Soft OR.pdf; other name, D-4405-1.pdf)

      I do not use causal loops as the beginning point for model conceptualization. Instead, I start from identifying the system levels [baseline] and later develop the flow rates that cause those levels [baseline] to change. Sometimes I use causal loops for explanation after a model has been created and studied. For a brief over-all presentation to people who will not be trying to understand the real sources of dynamic behavior, causal loops can be a useful vehicle for creating a general overall impression of the subject.

      One finds this after-the-fact use of causal loops in the very popular The Fifth Discipline (Senge, 1990). The book presents causal loops of various management situations. The reader may erroneously get the impression that one can look at real life, draw a causal loop diagram, and then carry through a penetrating description of dynamic behavior. Such a misleading assumption can occur if the reader fails to realize that the system archetypes and behavioral descriptions in the book are drawn, not from the causal loops, but from full system dynamics simulation models that had already been extensively explored by many different people.
   ____________________________________
embracing ambiguity
when it comes to determining to [the] truth
what's more reliable: ambiguity or unanimity
strangely enough, some times the closer you get to total agreement, the less trustworthy a result becomes

source:
5:10
How do you know what is true? - Sheila Marie Orfano
https://www.youtube.com/watch?v=xg5y6Ao7VE4
https://www.youtube.com/watch?v=xg5y6Ao7VE4
TED-Ed
Jun 10, 2021
   ____________________________________
Sidney Dekker, The field guide to human error investigations, 2002

p.54 (pdf page: 57/154)
By referring to procedures, physically available data or standards of good practice, investigators can micro-match controversial fragments of behavior with standards that seem applicable from their after-the-fact position. Referent worlds are constructed from the outside the accident sequence, based on data investigators now have access to, based on the facts they now know to be true. The problem is that these after-the-fact-worlds may have very little relevance to the circumstances of the accident sequence. They do not explain the observed behavior. The investigator has substituted his own world for the one that surrounded the people in question.

p.54 (pdf page: 57/154)
Referent worlds are constructed from the outside the accident sequence, based on data investigators now have access to, based on the facts they now know to be true.

p.54 (pdf page: 57/154)
The problem is that these after-the-fact-worlds may have very little relevance to the circumstances of the accident sequence. They do not explain the observed behavior. The investigator has substituted his own world for the one that surrounded the people in question.

p.56 (pdf page: 59/154)
PUT DATA IN CONTEXT

Taking data out of context, either by:

• micro-matching them with a world you now know to be true, or by
• lumping selected bits together under one condition identified in
    hindsight

p.57 (pdf page: 60/154)
robs data of its original meaning. And these data out of context are simultaneously given a new meaning──imposed from the outside and from hindsight.

p.57 (pdf page: 60/154)
You impose this new meaning when you look at the data in a context you now know to be true. Or you impose meaning by tagging an outside label on a loose collection of seemingly similar fragments.

p.57 (pdf page: 60/154)
    To understand the actual meaning that data had at the time and place it was produced, you need to step into the past yourself. When left or relocated in the context that produced and surrounded it, human behavior is inherently meaningful.

p.57 (pdf page: 60/154)
Historican Barbara Tuchman put it this way: “Every scripture is entitled to be read in the light of the circumstances that brought it forth. To understand the choices open to people in another time, one must limit oneself to what they knew; see the past in its own clothes, as it were, not in ours.”4

4    Tuchman, B. (1981). Practicing history: Selected essays. New York: Norton, page 75.

    source: The field guide to human error investigations, by Sidney Dekker, Cranfield university press
    filename: DekkersFieldGuide.pdf

   (Sidney Dekker, The field guide to human error investigations, 2002, )
<------------------------------------------------------------------------>
Sidney Dekker, The field guide to human error investigations, 2002

p.62 (pdf page: 63/154)

• Safety is never the only goal in the systems that people operate.
    Multiple interacting pressures and goals are always at work. There
    are economic pressures; pressures that have to do with schedules,
    competition, customer service, public image.
• Trade-offs between safety and other goals often have to be made
    under uncertainty and ambiguity. Goals other than safety are easy
    to measure (How much fuel will we save? Will we get to our
    destination?). However, how much people borrow from safety to
    achieve those goals is very difficult to measure.
• Systems are not basically safe. People in them have to create safety
    by tying together the patchwork of technologies, adapting under
    pressure and acting under uncertainty.

Trade-offs between safety and other goals enter, recognizably or not, into thousands of little and larger decisions and considerations that practitioners make every day. Will we depart or won't we? Will we push on or won't we? Will we accept the directive or won't we? Will we accept this display or alarm as indication of trouble or won't we? These trade-offs need to be made under much undertainty and often under time pressure.

p.63 (pdf page: 64/154)

   ****************************************
   *                                      *
   *   HUMAN ERRORS ARE SYMPTOMS OF       *
   *   DEEPER TROUBLE                     *
   *                                      *
   ****************************************

Human error is the starting point of an investigation. The investigation is interesting in what the error points to. What are the sources of people's difficulties? Investigations target what lies behind the error──the organizational trade-offs pushed down into the individual operating units; the effects of new technology; the complexity buried in the circumstances surrounding human performance; the nature of the mental work that went on in difficult situations; the way in which people coordinated or communicated to get their jobs done; the uncertainty of the evidence around them.
    Why are investigations in the new view interested in these things? Because this is where the action is.

    source: The field guide to human error investigations, by Sidney Dekker, Cranfield university press
    filename: DekkersFieldGuide.pdf

   (Sidney Dekker, The field guide to human error investigations, 2002, ) <------------------------------------------------------------------------>
Sidney Dekker, The field guide to human error investigations, 2002

p.111 (pdf page: 109/154)
People generally interpret cues about the world on the basis of what they have told their automated systems to do, rather than on the basis of what their automated systems are actually doing. In fact, people do not act on the basis of reality, they act on the basis of their perception of reality. Once they have programmed their ship to steer to Boston in NAV mode, they may interpret cues about the world as if the ship is doing just that. Evidence about a mismatch has to be very compelling for people to break out of the misconstruction of mindset. They have no expectation of a mismatch (the system has behaved reliably in the past), and such feedback as there is (a tiny mode annunciation) is not compelling when viewed from inside the situation.

p.114 (pdf page: 112/154)
     The pattern is typical because people in dynamic worlds always face a trade-off between changing their assessments and actions with every little change (or possible indication of change) in the world, versus providing some stability in interpretation to better manage and oversee an unfolding situation; creating a framework in which to place newly incoming information. There are errors of judgment on both ends. On the other, people can get fixated, they do not revise their assessment in the face of cues that (in hindsight) suggested it could be good to do so.

    source: The field guide to human error investigations, by Sidney Dekker, Cranfield university press
    filename: DekkersFieldGuide.pdf
   (Sidney Dekker, The field guide to human error investigations, 2002, )
<------------------------------------------------------------------------>
Sidney Dekker, The field guide to human error investigations, 2002

p.116 (pdf page: 114/154)
• Find out what organizational history or pressures exist behind
    these routine departures from the routine; what other goals help
    shape the new norms for what is acceptable risk and behavior.
• Understand that the rewards of departures from the routine are
    probably immediate and tangible: happy customers, happy bosses,
    money made, and so forth. The potential risks (how much did
    people borrow from safety to achieve those goals?) are unclear,
    unquantifiable or even unknown.
• Realize that continued absence of adverse consequences may
    confirm people in their beliefs (in their eyes justified!) that their
    behavior was safe, while also achieving other important system
    goals.

p.116 (pdf page: 114/154)
Borrowing from safety

With rewards constant and tangible, departures from the routine may become routine across an entire operation or organization.

   ****************************************
   *                                      *
   *   DEVIATIONS FROM THE NORM CAN       *
   *   THEMSELVES BECOME THE NORM         *
   *                                      *
   ****************************************

Without realizing it, people start to borrow from safety, and achieve other system goals because of it──production, economics, customer service, political satisfaction. Behavior shifts over time because other parts of the system send messages, in subtle ways or not, about the importance of these goals. In fact, organizations reward and punish operational people in daily trade-offs (“We are an ON-TIME operation!”), focusing them on goals other than safety. The lack of adverse consequences with each trade-off that bends to goals other than safety, strengthens people's tacit belief that it is safe to borrow from safety.

    source: The field guide to human error investigations, by Sidney Dekker, Cranfield university press
    filename: DekkersFieldGuide.pdf

   (Sidney Dekker, The field guide to human error investigations, 2002, )
<------------------------------------------------------------------------>
Acknowledgements

I want to thank those who alerted me to the need for this book and who inspired me to write it, in particular Air Safety Investigator Maurice Peters and Captain Örjan Goteman. It was written on a grant from the Swedish Flight Safety Directorate and Arne Axelsson, its director. Kip Smith and Captain Robert van Gelder and his colleagues were invaluable for their comments and suggestions during the writing of earlier drafts.

S.D.
Linköping, Sweden
Summer 2001
<------------------------------------------------------------------------>
Sidney Dekker, The field guide to human error investigations, 2002

p.4 (pdf page: 8/154)
Investigators intend to find the systemic vulnerabilities behind individual errors. They want to address the error-producing conditions that, if left in place, will repeat the same basic pattern of failure.

   (Sidney Dekker, The field guide to human error investigations, 2002, )
<------------------------------------------------------------------------>
Sidney Dekker, The field guide to human error investigations, 2002

p.20 (pdf page: 23/154)
Focusing on people at the sharp end

Reactions to failure focus firstly and predominantly on those people who were closest to producing and to potentially avoiding the mishap. It is easy to see these people as the engine of action. If it were not for them, the trouble would not have have occurred.

p.20 (pdf page: 23/154)
Blunt end and sharp end

In order to understand error, you have to examine the larger system in which these people worked. You can divide an operational system into a sharp end and a blunt end:

• At the sharp end (for example the train cab, the cockpit, the surigical
    operating table), people are in direct contact with the safety-
    critical process;
• The blunt end is the organization or set of organizations that supports
    and drives and shapes activities at the sharp end (for example the
    airline or hospital; equipment vendors and regulators).

pp.20-21 (pdf page: 23-24/154)
The blunt end gives the sharp end resources (for example equipment, training, colleagues) to accomplish what it needs to accomplish. But at the same time it puts on constraints and pressures (“don't be late, don't cost us any unnecessary money, keep the customers happy”). Thus the blunt end shapes, creates, and can even encourage opportunities for errors at the sharp end. Figure 2.3 shows this flow of causes through a system. From blunt to sharp end; from upstream to downstream; from distal to proximal. It also shows where the focus of our reactions to failure is trained: on the proximal

p.21 (pdf page: 24/154)
Figure 2.3: Failures can only be understood by looking at the whole system in which they took place. But in our reactions to failure, we often focus on the sharp end, where people were closest to causing or potentially preventing the mishap.

p.22 (pdf page: 25/154)
Why do people focus on the proximal?

Looking for sources of failure far away from people at the sharp end is counter-intuitive. And it can be difficult. If you find that sources of failure lie really at the blunt end, this may call into question beliefs about the safety of the entire system. It challenges previous views. Perhaps things are not as well-organized or well-designed as people had hoped. Perhaps this could have happened any time. Or worse, perhaps it could happen again.

    source: The field guide to human error investigations, by Sidney Dekker, Cranfield university press
    filename: DekkersFieldGuide.pdf

   (Sidney Dekker, The field guide to human error investigations, 2002, )
<------------------------------------------------------------------------>
David Priestland, Merchant, soldier, sage: a history of the world in three castes, originally published: London : Allen Lane, 2012
page 285
               This joint Marxian-Weberian sociological approach is extraordinarily insightful, and it is the foundation for this book. However, there is one weakness: it is overly concerned with social structures and organizations and has too little to say about subjective experience, ideas, and culture. If we are to understand power, we need to appreciate how members of power networks think and behave, and why their values might have a broader appeal beyond their own group -- the culture dominance that the Marxist thinker Antonio Gramsci called "hegemony." As I argue in this book, it is not only the political and economic power of business that explains the influence of free-market economics since the 1970s; it is also its ability to convince elites and electorates that its worldview is the correct one.

classical sociology tradition:       Carl Marx, Max Weber
         historical sociology:    Michael Mann, Charles Tilly
     French culture sociology: Pierre Bourdieu, Luc Boltanski
          political sociology: German American Hebert Kitschelt

    unexamined assumptions (doxa)
practices and dispositions (habitus)
         "proper behavior" (dharma)

pp.22-23
     banks of the world's great flooding rivers
     Sumer (city)
     Tigris and Euphrates rivers (Mesopotamia, Iraq)
     Nile (Egypt)
     Indus (Pakistan)
     Yellow River (China)
     Uruk, Mesopotamia, 50,000 3000 B.C.E.
     2300 B.C.E. Sargon of Akkad, agrarian empire, 4000 years
20th century   Qing China                1912
               Romanov Russia            1917
               Hapsburg Austria-Hungary 1918
               Ottoman Middle East       1923

people's occupations are related to their worldview? it does
argued: occupation experience,
        formation of political attitudes,
        gender,
        life stage,
        "class" -- property ownership,
        one's relation to the market,
        private sector (one's relation to the market),
        public sector employees (one's relation to the market),
        job hierarchies and education.

([it is important to point out that {The Market} is not a real thing; it is real in the sense that if you go looking for it, what you see is a network {a spider web of links and nodes} of exchanges, transactions, relationships, arrangements, contracts, price discovery, value investors, deceptions, frauds, scams, ponzi schemes, con game, musical chairs, and others; however, when the word or label {The Market} or {Market place} is used, what the financial media, Mainstream media, other media outlets, and ... are referencing is a fiction, an imaginary, a fantasy, a figment of collective illusion of pretend understanding that is called {The Market} -- that social-economic fuzzy {Market} does not exist; what exist is the daily packet flow of money (credit, debit, account payable, account receivable), goods, services, work activity, payment for food, payment for housing, payment for rent, payment for health care, payment for dental bill, payment for transportation cost, payment for salary worked, payment for education, payment for interest on debt, payment for sexual service, payment for taxes, fees, ... -- essentially a ledger of payment, money transfer, transaction, and exchange for goods and services.])

( Merchant, soldier, sage: a history of the world in three castes, David Priestland, 2012, p.285 )
____________________________________

Bina Venkataraman., The optimist's telescope : thinking ahead in a reckless age, 2019

pp.59-60
Thomas Mann, epic novel, The Magic Mountain, 1920s
reflecting on the vanity of frequent measurement.
In the story, patients cut off from society at the Berghof sanatorium in alpine Switzerland are instructured by medical staff to take their temperature four times a day in seven-minute increments. The reading give a tempo to each day and a report card to the patients on their performance. Meanwhile, the same patients appear oblivious to the passing of months and yours leading up to World War I. The act of measuring seems to reinforce their feelings of illness, and thermometers are carried as badges of honor by the infirm that the healthy are not deserving of. When the protagonist, Hans Castorp, proposes to leave the sanatorium, he asks the doctor whether he is well enough to do so, given his temperature chart. The doctor reveals in anger that the thermometer readings were meaningless from the start, a fiction that signaled nothing about the patient's condition. Meanwhile, the temperature taking served as false reassurance that hiding out from a society fraying into conflict was time well spent.

(The optimist's telescope : thinking ahead in a reckless age / Bina Venkataraman., New York : Riverhead books, 2019., decision making──social aspects. | risk──sociological aspects. | forecasting., ddc 153.8/3──dc23, https://lccn.loc.gov/2018046076, 2019, )
   ____________________________________
Theodore Modis., Prediction : society's telltale signature reveals the past and forecasts the future, 1992.

p.218
The french have a delightful fable written by La Fontaine about a busy fly that buzzes around the horses pulling a heavy carriage up a hill. Once at the top, the fly feels exhausted abut self-satisfied with his good work. The fable seems to apply to much of the behavior of decision makers.

(Prediction : society's telltale signature reveals the past and forecasts the future / Theodore Modis., 1. forecasting., 2. creation (literary, artistic, etc.)
3. science and civilization., CB 158.M63, 303.49--dc20, 1992
, )

([ show horse, trophy horse; work horse, working horse ])
([ a busy fly that buzzes around == for show ])
([ a busy fly that buzzes around == working ])
   ____________________________________

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends_accessible.htm
   ____________________________________

BANK OF ENGLAND
Speech
Tails of the unexpected
Paper by Andrew G Haldane (and) Benjamin Nelson

Given at “The Credit Crisis Five Years On: Unpacking the Crisis”, conference held at the University of Edinburg Business School, 8-9 June
8 June 2012
...

But as Nassim Taleb reminded us, it is possible to be Fooled by Randomness (Taleb, 2001). For Taleb, the origin of this mistake was the ubiquity in economics and finance of a particular way of describing the distribution of possible real world outcomes. For non-nerds, this distribution is often called the bell-curve. For nerds, it is the normal distribution. For nerds who like to show-off, the distribution is Gaussian.

The normal distribution provides a beguilingly simple description of the world. Outcomes lie symmetrically around the mean, with a probability that steadily decays. It is well-known that repeated games of chance deliver random outcomes in line with this disbribution: tosses of a fair coin, sampling of coloured balls from a jam-jar, bets on a lottery number, games of paper/scissors/stone. Or have you been fooled by randomness?

In 2005, Takashi Hashiyama faced a dilemma. As CEO of Japanese electronics corporation Maspro Denkoh, he was selling the company's collection of Impressionist paintings, including pieces by Cézanne and van Gogh. But he was undecided between the two leading houses vying to host the aution, Christie's and Sotheby's. He left the decision to chance: the two houses would engage in a winner-take-all game of paper/scissors/stone.

Recognising it as a game of chance, Sotheby's randomly played “paper”. Christie's took a different tack. They employed two strategic game-theorists -- the 11-year old twin daughters of their international director Nicholas Maclean. The girls played “scissors”. This was no random choice. Knowing “stone” was the most obvious move, the girls expected their opponents to play “paper”. “Scissors” earned Christie's millions of dollars in commission.

As the girls recognised, paper/scissors/stone is no game of chance. Played repeatedly, its outcomes are far from normal. That is why many hundreds of complex algorithms have been developed by nerds (who like to show off) over the past 20 years. They aim to capture regularities in strategic decision-making, just like the twins. It is why, since 2002, there has been an annual international world championship organised by the World Rock-Paper-Scissors Society.

The interactions which generate non-normalities in children's games repeat themselves in real world systems -- natural, social, economic, financial. Where there is interaction, there is non-normality. But risks in real-world systems are no game. They can wreak havoc, from earthquakes and power outages, to depressions and financial crises. Failing to recognise those tail events -- being fooled by randomness -- risks catastrophic policy error.

So is economics and finance being fooled by randomness? And if so, how did that happened? That requires a little history.

(a) normality in physical systems
(b) normality in social systems
(c) normality in economic and financial systems

p.3
He [Galileo 17th century physical experiments] found that random errors were inevitable in intrumental observations. But these errors exhibited a distinctive pattern, a statistical regularity: small errors were more likely than large and were symmetric around the rule value.

p.3
This “reversion to the mean” was formalised in 1713 by Jacob Bernoulli based on a hypothetical experiment involving drawing coloured pebbles from a jam-jar.1

p.4
Gaussian world
It suggested regularities in random real-world data. Moreover, these patterns could be fully described by two simple metrics -- mean and variance.

p.5
English statistician Francis Galton
Galton's study of hereditary characteristics provided a human example of Bernoulli's reversion to the mean.

p.5
This semanic shift was significant.

p.5
In the 18th century, normality had been formalised. In the 19th century, it was socialised. The normal distribution was so-named because it had become the new norm.

pp.6-7
shifting from models of Classical determinism to statistical laws.
Evgeny Slutsky (1927) and Regnar Frisch (1933)
They divided the dynamics of the economy into two elements: an irregular random element or IMPULSE and a regular systematic element or PROPAGATION mechanism. This impulse/propagation paradigm remains the centerpiece of macro-economics to this day.

p.6
Tellingly, these tests were used as a diagnostic check on the adequacy of the model.

p.6
As in the natural sciences in the 19th century, far from being a convenient statistical assumption, normality had become an article of faith. Normality had been socialised.

p.6
Kenneth Arrow and Gerard Debreu (1954)
the world were assumed to have knownable probabilities.
Agents' behaviour was also assumed to be known.
allowed an explicit price to be put on risk, while ignoring uncertainty.
Risky (Arrow) securities could now be priced with statistical precision.
These contingent securities became the basic unit of today's asset pricing models.

p.7
Black and Scholes (1973) options-pricing formula, itself borrowed from statistical physics, is firmly rooted in normality.

p.7
finance theorists and practitioners had by the end of the 20th century evolved into fully paid-up members of the Gaussian sect.

p.7
1870s, German statistician Wilhelm Lexis
The natural world suddenly began to feel a little less normal.

p.8
In consequence, Laplace's central limit theorem may not apply to power law-distributed variables. There can be no “regression to the mean” if the mean is ill-defined and the variance unbounded. Indeed, means and variances may then tell us rather little about the statistical future. As a window on the world, they are broken. With fail tails, the future is subject to large unpredictable lurches -- what statistician call kurtosis.

p.8
Assuming the physical world is normal would lead to a massive under-estimation of natural catastrophe risk.

p.8
The central limit theorem is predicated on the assumption of independence of observations.

p.8
A comparably self-similar pattern is also found in the distribution of names, wealth, words, wars and book sales, among many other things (Gabaix, 2009).

p.9
for equities once every 8 years.

pp.9-10
Systems are systems precisely because they are INTERdependent.

p.10
(a) Non-Linear Dynamics

p.10
In 1963, American meteorologist Edward Lorenz was simulating runs of weather predictions on his computer. Returning from his coffee break, he discovered the new run looked completely different than the old one. He traced the difference to tiny rounding errors in the initial conditions. From this he concluded that non-linear dynamic systems, such as weather systems, exhibited an acute sensitivity to initial conditions. Chaos was born (Gleick, 1987).

p.10
Lorenz himself used this chaotic finding to reach a rather gloomy conclusion: forecasts of weather systems beyond a horizon of around two weeks were essentially worthless.

p.10
Reversion to the mean is a poor guide to the future, often because there may be no such thing as a fixed mean.

p.11
The accumulation of leverage was a key feature of the pre-crisis boom and subsequent bust. Leverage generates highly non-linear system-wide responses to changes in income and net worth (Thurner et al, 2010), the like of which would have been familiar to Lorenz.

p.11
(b) Self-Organised Criticality

p.12
(c) preferential attachment

p.12
Keynes viewed the process of forming expectations as more beauty pageant than super-computer (Keynes, 1936). Agents form their guess not on an objective evaluation of quality (Stephen Fry) but according to whom they think others might like (Kim Kardashian).

p.13
The classic example in finance is the Diamond and Dybvig (1983) bank run. If depositors believe others will run, so will they. Financial unpopularity then becomes infectious.

p.13
(d) Highly-Optimised Tolerance

p.13
features -- non-linearity, criticality [man-made, self-organized, hybrid], contagion
This is particularly so during crises [self-organized critical state?].

p.14
(a) non-normality in economics and finance

p.14
tell-tale signs of intellectual infatuation

p.14
Tipping points and phase transitions have been the name of the game. The disconnect between theory and reality has been stark.

p.14
In 1921, Frank Knight drew an important distinction between risk on the one hand and uncertainty on the other (Knight, 1921). Risk arises when the statistical distribution of the future can be calculated or is known. Uncertainty arises when this distribution is incalculable, perhaps unknown.

p.14
Hayek criticised economics in general, and economic policymakers in particular, for labouring under a “pretense of knowledge” (Hayek, 1974).

p.15
(b) non-normality and risk management

p.17
Now ask what happens if the actual, fat-tailed distribution of GDP over the past three centures [300-years] is used. Under the baseline calibration, this raises the required capital buffer four-fold to around 12%.

p.18
(c) non-normality and systemic risk

p.18
systemic oversight agency
able to monitor and potentially model the moving pieces of the financial system.
Financial System Oversight Council (FSOC) in the US,
European Systemic Risk Board (ESRB) in Europe,
Financial Policy Committee (FPC) in the UK

p.18
This map could provide a basis for risk management planning by individual financial firms. As in weather forecasting, the systemic risk regulator could provide early risk warnings to enable defensive actions to be taken.

p.18
And as in weather forecasting, it is important these data are captured in a common financial language to enable genuinely global maps to be drawn (Ali, Haldane and Nahai-Williamson, 2012).

p.19
Economics does not have the benefit of meteorologists' well-defined physical laws. But by combining empirically-motivated behavioural rules of thumb, and balance sheets constraints, it should be possible to begin constructing fledging models of system risk.13

p.19
Regulatory rules of the future will need to seek to reflect uncertainty.

p.19
Less is more (Gigerenzer and Brighton, 2008)

p.19
The reason less can be more is that complex rules are less robust to mistakes in specification. They are inherently fragile ([complex rules --> complex system --> subsystems are interdependent --> errors show up within interaction between the different specialized subsystems --> error prone (not if there is error, but when will the error show up, given the self-organising critical condition) --> ... --> fragility is baked into the cake ??? --> how-to do rescue & recovery planning when systems crash (refer to as After the crash, what to do) ]).

p.19
In retirement, [Harry] Markowitz instead used a much simpler equally-weighted asset approach. This, Markowitz believed, was a more robust way of navigating the fat-tailed uncertainties of investing returns (Benartzi and Thaler, 2001).

p.20
fail-safe against the risk of critical states emerging in complex systems, either in a self-organised manner or because of man-made intervention.

p.20
structural separation solutions

p.20
Under uncertainty, however, that is precisely the point. In a complex, uncertain environment, the only fail-safe way of protecting against systemic collapse is to act on the structure of the overall system, rather than the behaviour of each individual within it.

p.21
Until then, normal service is unlikely to resume.

All speeches are available online at
http://www.bankofengland.co.uk/publications/Pages/speeches/default.aspx
<put additional URL here>
https://drive.google.com/file/d/1A18Z9AkjaUqQFs4HX_j32NqhU7IlrKPU/view?usp=sharing
https://drive.google.com/file/d/1A18Z9AkjaUqQFs4HX_j32NqhU7IlrKPU/
   ____________________________________

26:30
Malcolm Gladwell: Overconfidence & Economic Crisis - Notes From All Over
   https://youtu.be/BN4yTXGhU0Q?t=82
   https://youtu.be/BN4yTXGhU0Q?t=82
House of Cards (Cohan book)
   https://youtu.be/BN4yTXGhU0Q?t=132
   https://youtu.be/BN4yTXGhU0Q?t=132
institutional failure, cognitive failure
   https://youtu.be/BN4yTXGhU0Q?t=451
   https://youtu.be/BN4yTXGhU0Q?t=451
psychological failure
   https://youtu.be/BN4yTXGhU0Q?t=532
   https://youtu.be/BN4yTXGhU0Q?t=532
not incompetence, but over confidence
   https://youtu.be/BN4yTXGhU0Q?t=552
   https://youtu.be/BN4yTXGhU0Q?t=552
Gallipoli Campaign 1915, Ian Hamilton (British Army officer)
   https://youtu.be/BN4yTXGhU0Q?t=622
   https://youtu.be/BN4yTXGhU0Q?t=622
we are squandering our opportunity
   https://youtu.be/BN4yTXGhU0Q?t=757
   https://youtu.be/BN4yTXGhU0Q?t=757
miscalibration
   https://youtu.be/BN4yTXGhU0Q?t=808
   https://youtu.be/BN4yTXGhU0Q?t=808
illusion of control
   https://youtu.be/BN4yTXGhU0Q?t=863
   https://youtu.be/BN4yTXGhU0Q?t=863
two different kinds of over confidence
   https://youtu.be/BN4yTXGhU0Q?t=917
   https://youtu.be/BN4yTXGhU0Q?t=917
reach dangerous levels
   https://youtu.be/BN4yTXGhU0Q?t=980
   https://youtu.be/BN4yTXGhU0Q?t=980
over confidence problem gets thornier
   https://youtu.be/BN4yTXGhU0Q?t=1206
   https://youtu.be/BN4yTXGhU0Q?t=1206
Bill Bamber
   https://youtu.be/BN4yTXGhU0Q?t=1315
   https://youtu.be/BN4yTXGhU0Q?t=1315
evolutionary biologist
   https://youtu.be/BN4yTXGhU0Q?t=1367
   https://youtu.be/BN4yTXGhU0Q?t=1367
globally maladaptive
   https://youtu.be/BN4yTXGhU0Q?t=1450
   https://youtu.be/BN4yTXGhU0Q?t=1450
a lot more boring
   https://youtu.be/BN4yTXGhU0Q?t=1529
   https://youtu.be/BN4yTXGhU0Q?t=1529
https://www.youtube.com/watch?v=BN4yTXGhU0Q
https://www.youtube.com/watch?v=BN4yTXGhU0Q
The New Yorker
Published on Jul 22, 2014
   ____________________________________
Bina Venkataraman., The optimist's telescope : thinking ahead in a reckless age, 2019

p.55, p.56
Daniel Rozas, a consultant
a credit bubble
Rozas was not clairvoyant. Nor was he relying on any insider knowledge or elusive data. He was simply looking beyond the metric of the high repayment rates on loans, a measure being summoned by microfinance lenders as a sign that all was well in Andhra Pradesh.
Rozas is an American expat in Brussels, and we spoke by phone in 2016,
p.55
the capacity of the state ── the number of potential borrowers, depending on its population and other factors
p.56
He made some coarse, back-of-the-napkin-style calculations at the time and concluded that it was not at all reassuring that people were repaying loans. It could mean that they were doing so by taking on yet more loans pushed on them by eager microfinance field officers, not by generating income through new businesses. At some point, when peole could not get any more credit to pay back their high-interest loans to the lenders, the house of cards would collapse. Families would be drowning in debt they could not repay. Companies would fail.
p.56
“Frankly, the numbers there concerns me”, Rozas

pp.217-218
In the lead-up to the 2008 financial crisis and Great Recession, Moody's, one of the three major agencies that gave mortgage-backed securities a top-notch AAA rating ── used models with American housing data going back only twenty years when estimating the risk of default.
Nate Silver ... did not convey the true risk because it did not show how mortgage defaults could be correlated with one another, causing chain reactions.
The agency neglected information from decades prior, including the Great Depression, which could have shown the danger of people defaulting on mortgages as housing prices plummet. In 2007, ...
Two rating agencies, Moody's and S&P, had rated the securities as having a risk of default two hundred times less than what they actually had.
p.218
(The agencies, of course, also had perverse financial incentives, with investment banks paying them fees to rate their financial instruments, including high-risk mortgage-backed securities and collateralized debt obligations.)

p.218
History clearly deceives us about the future.

p.218
Thucydides, oft-cited history of Peloponnesian war between Sparta and Athens that “the present, while never repeating the past exactly, must inevitably resemble it. Hence, so must the future.”

p.218
in what way does the future resemble the past, and how should we use history to avert catastrophe?

(The optimist's telescope : thinking ahead in a reckless age / Bina Venkataraman., New York : Riverhead books, 2019., decision making──social aspects. | risk──sociological aspects. | forecasting., ddc 153.8/3──dc23, https://lccn.loc.gov/2018046076, 2019, )
   ____________________________________

The bankers' new clothes : what's wrong with banking and what to do about it / Anat Admanti and Martin Hellwig.

preface (BNC)
xi-xii
       Banking is not difficult to understand. Most of the issues are quite straight forward. Simply learning the precise meanings of some of the terms that care used, such as the word CAPITAL, can help uncover some of the nonsense. You do not need any background in economics, finance, or quantitative fields to read and understand this book.
        . . . .
       Do not believe those who tell you that things are better now than they had been prior to the financial crisis of 2007-2009 and that we have a safer system that is getting even better as reforms are put in place. Today's banking system, even with proposed reforms, is as dangerous and fragile as the system that brought us the recent crisis.
       But this situation can change. With the right focus and a proper diagnosis of the problems, highly beneficial steps can be taken immediately.
       Having a better financial system requires effective regulation and enforcement. Most essentially, it requires the political will to put the appropriate measures in place and implement them. Our hope in writing this book is that if more people understand the issues, politicians and regulators will be more accountable to the public. Flawed and dangerous narratives--"the bankers' new clothes"--must not win.

October 2012

speed limit (BNC)
p.191
       The same considerations that apply to trucks, airplanes, or nuclear reactors should apply to banks. Public safety must be the focus. A remarkable difference, however, between much higher equity requirements and safety measures in many other contexts is that high equity requirement are such an incredible bargain to society: the significant benefits of much more equity are actually free!
       If truck drivers had to drive more slowly or stop for thirty minutes every two hours and could not drive at night, they would drive fewer miles each day, and this might increase the cost of transportation. By contrast, increasing equity requirement from 3 per cent to 25 per cent of banks' total assets would involve only reshuffling of financial claims in the economy to create a better and safer financial system. There would be no cost to society what so ever.

shadow banking (BNC)
p.224, p.225
       . . . convenient narratives that downplay problems and . . . . warning of unintended consequences meant to scare politicians and regulators out of tightening regulations.
. . .
      . . . warning that tighter regulation might cause financial activities to move from regulated banking to the so-called shadow banking sector, where there is less regulation and possibly no regulation.52 A typical example is money market mutual funds, . . .
      The arguement that we should not have regulation because banks might evade regulation is somewhat perverse. It turns the failure to enforce regulation into an argument against having regulation at all.
      . . . Similarly, we do not give up on collecting taxes just because many try to take advantage of tax loopholes. Like law enforcement and collecting taxes, regulating banks and other financial institutions is essential for society, and enforcing regulation effectively is a challenge we must take on.
       . . . The reason has NOT been
(1) excessive regulation,
(2) the inability of regulators and supervisors to enforce the regulation as needed, or
(3) a lack of tools at their disposal.
Rather the source of the problem has been that regulators and supervisors have been UNWILLING to apply the tools they have had and to enforce regulations effectively.
       Regulators and supervisors, at least in Europe and the United States, have always had the authority to regulate and supervise deposit-taking institutions to maintain the safety of the financial system.

tax code, bankrupt, exemption (BNC)
pp.226-227
       . . . Paradoxically, the tax codes subsidize borrowing, but then capital regulation tries to reduce it. It is as if we provided tax incentives that encouraged reckless driving or pollution while at the same time enacting laws forbidding these behaviors. Giving banks tax incentives to borrow is bad public policy. The tax code should not interfere with financial stability; if anything, it should reduce the distorted incentives.
       Other laws also make it easier for banks to borrow too much. For example, many short-term debt contracts that are used in the financial system are exempt from normal bankruptcy procedures. These exemptions can play a role in enabling the type of “borrowing rat race” that we discussed in Chapter 10, which makes the banking system more fragile;57 they should be re examined.

Money market funds (BNC)
Note 46
p.299
       46. Money market mutual funds were first invented in the 1970s to circumvent Regulation Q, . . .
promise of stable net asset value
they are shares
their donomination . . . is assigned a stable value of $1.

U.S. money market funds (money market mutual funds)
according to BIS (2012, 68)
$2.7 trillion (United States)
$1.5 trillion (Europe)
$400 billion (else where)

“Reform Still Looms over Money Market Funds”, Financial Times, August 23, 2012

Money market funds are attractive to investors because they appear safe and liquid and they pay relatively high returns. In fact, they are shifting risk to others, eventually to the government and taxpayers, and at the same time adding to the fragility of the financial system.

healthy banking system (BNC)
Note 53
p.310
“Healthy Banking System Is the Goal, Not Profitable Banks,” Financial Times, November 9, 2010,
at least 15 per cent equity relative to total assets,
the use of risk weights,
ban on dividends,

TEXT and FULL list available at
http://www.gsb.stanford.edu/news/research/admatiopen.html,
accessed October 20, 2012.

Senators Sherrod Brown and David Vitter

Note 54
p.239
       We discuss the flaws in proposed capital regulations in Chapter 11. The tax code also encourages borrowing by allowing corporations to deduct interest paid on debt as an expense. Exemptions from normal bankruptcy provisions granted for derivatives and repurchase agreements used extensively in the finacial industry also encourage fragility. See our discussion of these issues in Chapters 9 and 10.

fail together or not at all (BNC)
Note 62
p.312
        Under Basel III as well as Basel II, there are three “pillars” of banking supervision.
Pillar 1 concerns capital regulation,
pillar 2 the professional quality of banking, and
pillar 3 “market discipline.”
Of these three pillars, pillar 1 is most important because it involves hard rules for capital requirements. Pillar 1 distinguishes assets depending on whether they are held in the “banking book” or the “trading book” of the bank; assets in the banking book are meant to be held until they are repaid, where as assets in the trading book are available for resale at an opportune moment. For each category, banks can choose whether they want to use a “standard approach,” with risk weights specified in the regulations, or, for credit risks, an “internal ratings-based” approach and, for assets in the trading book, a model-based approach to determine the capital required. The zero-risk-weights rule for government debt is given in the regulations for the standard approach to credit risk. A major flaw of the entire approach is that it assumes that risks are independent. Cor relations are neglected, for example, those due to the fact that mortgage borrows often are likely to fail together or not at all.

leverage (BNC)
Note 66
p.313
1996 amendment, Basel I, use own risk models, for market risks,
market risks--risks of changes in the market prices of investments
Basel II, use own risk models, for credit risk,
credit risk--the risk of default by a borrower or another partner in a contract
IMF (2008a) and Acharya et al. (2011) show that leverage had increased in the decade before the crisis.

Authors (BNC)

Anat Admati is the George G. C. Parker Professor of Finance and Economics at Standford's Graduate School of Business. She serves on the FDIC Systemic Resolution Advisory Committee and has contributed to the Financial Times, Bloomberg News, and the New York Times.

Martin Hellwig is the director at the Max Planck Institute for Research on Collective Goods. He was the first chair of the Advisory Scientific Committee of the European Systemic Risk Board and the cowinner of the 2012 Max Planck Research Award for his work on financial regulation.

“Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity Is NOT expensive,”
a paper,
Authors, Peter DeMarzo, Paul Pfleiderer, Anat Admati, Martin Hellwig, Stanford, summer 2010,

“Debt Overhang and Capital Regulation,”
article,
Authors, Peter DeMarzo, Paul Pfleiderer, Anat Admati, Martin Hellwig,

    (The bankers' new clothes : what's wrong with banking and what to do about it, by Anat Admanti and Martin Hellwig, © 2013, )
   ____________________________________

       During the 1970s, John B. Tipton wrote an article, titled ‘Banks on the brink’, in the magazine PLAYBOY, issue February 1975. I cite John B. Tipton, p.85::
       “America's banks are in trouble. Many of the largest and most powerful banks have been on a five year expansion binge, spurred by bankers convinced that bigger is better. In their pursuit of growth, they have jeopardized the safety of your money, not to mention the survival of the entire banking system. Americans, accustomed to entrusting their money to banks without the slightest worry, should begin to worry--now.”

John B. Tipton wrote, page 132- ::

       “This is what the financial world calls leverage: It increases earnings, but it also introduces a major element of risk into the formerly riskless business of banking. The conservative banker would have had to see just under 17 per cent of his loans default before his capital would be wiped out; the go-go banker's capital is gone if just over 7 per cent of his loans go bad.”

       ‘When the leaders of any industry conclude that the old rules no longer apply, that they have discovered new ways to make money that escaped the notice of their less clever predecessors, one of two principles applies: Either it is not true at all or it may be true as long as the new system is practiced only by the brightest, strongest leaders, the true innovators. When everybody jumps on the the band wagon, watch out. In the words of a leading Wall Street bank analyst, "All the followers are trying to play the leaders' game--and they just don't have the ability." ’

       “While the plummeting of conglomerate stock prices has few disasterous effects on the general economy, banks occupy a special position: Their problems are a source of worry not just for their shareholders but for everyone with a couple of hundred bucks in a special checking or saving account.”

       “Another worrisome matter is "capital adequacy." A bank's capital is what would remain if it paid off all its outstanding liabilities--deposits held by individuals and corporations, money it has borrowed from other banks and money it has borrowed from agencies of the Federal Government. This remainder--capital--is what the bank's shareholders actually own, but it is of interest to more than just the shareholders. Capital provides the margin of safety that ensures the ability of a bank to survive, even in a depression.”

       “Back in the 1960, the average U.S. commercial bank had liabilities that were only 11.3 times its capital. By 1970, this ratio had grown to 13 and by the end of 1973, to 14.5 times total capital. However, when we look only at the 30 largest banks, we find a still greater jump. At the end of 1973, their liabilities were 16.7 times their capital. For some of the very largest banks, the figures are still more lopsided: Bank of America, Bankers Trust of New York and Crocker National of San Francisco all had liabilities more than 30 times their capital, and the Union Bank of California and the Republic National of Dallas were very close to that level. This can have dangerous implications. Just before its serious troubles began, the now defunct Franklin National also had liabilities almost 30 times its capital. Even if it had had more capital, it would still have suffered the massive losses it did, but it might have been able to survive them.”

       “The tripling of the price Italy had to pay for oil took it off the marginal list and put it on the critical list. But it is not the only financial basket case among the nations of the world; Greece, Mexico and Peru together have a total debt to the banking system that exceeds their reserves.”

       “Andrew Brimmer (incidentally, the first black to serve on the board) ... the Fed already has the powers it isn't using and that new legislation alone wouldn't solve the problems.”

       “6. Banks are required to maintain special funds to cover potential losses from defaulted loans. These are called loan-loss reserves. These reserves are computed by a method that does not accurately reflect what may be the true condition of a bank's loan portfolio. As an example, last year the First National City Bank had a 32 per cent increase in loans outstanding but only a .25 per cent increase in its provision for future loan losses. The Chase Manhattan from the beginning of 1972 to the middle of 1974 increased its loans outstanding 79 per cent but its loan-loss reserves only 10 per cent. These banks, and all others, are following the letter of the law on this matter, but the law should be changed to require that any increases in exposure to loan losses be matched by equal increases in reserves. Otherwise, banks are misleading the public about their profit ability and possibly even their soundness.”

       John B. Tipton wrote in the last line of the article, titled ‘Banks on the brink’, in February 1975 PLAYBOY magazine::
       As one banker put it: “It's a game of musical chairs. There are more asses than chairs and everyone wants to be sure he's seated when the music stops.”
<-------------------------------------------------------------------------->
• James Galbraith ( James K. Galbraith )
•
• an essay Galbraith wrote in 2009 in the NEA Higher Education Journal, entitled "Who are these economists, anyway?"
• The End of Normal by James Galbraith
• https://www.kirkusreviews.com/book-reviews/james-k-galbraith/the-end-of-normal/
• Following the crisis of 2008, economists scrambled to “explain” the financial meltdown, variously blaming the government, banks or income inequality for the most severe setback since the Great Depression. Almost all have offered prescriptions for restoring economic health; almost all presume as normal a growth rate that, but for a blip in the 1970s, has persisted since the end of World War II. Galbraith (Government/Business Relations/Univ. of Texas; Inequality and Instability: A Study of the World Economy Just Before the Great Crisis, 2012, etc.) dissents. Throughout his discussion, he slaps around economists from the left and right, chiding them for their insularity, their reluctance to widen their perspective and their unwillingness to concede that their theoretical models rest on radically transformed ground. We face a far different future, he insists, with the world economy no longer under the financial or military control of the United States and its allies, with energy markets costly and uncertain, new technologies destroying more jobs than they create and the private financial sector no longer supercharging growth. Under these new conditions, preserving post-WWII growth rates is impossible. Instead, the most we can hope for is an era of “slow growth,” engineering the economy “to grow at a low, stable, positive rate for a long time” and adjusting ourselves “materially and psychologically to that prospect.” Some of Galbraith’s remedies are likely to draw fire—increase social services, decrease the scale of the military, increase the minimum wage—but his forceful prose and admittedly provocative suggestions invite argument. General readers may find some of his discussion a bit too insider-y, but students of economics will enjoy the robust, fearless rebuke he delivers to some of the discipline’s giants.
• increase social services, decrease the scale of the military, increase the minimum wage
• http://seekingalpha.com/article/2717925-book-review-the-end-of-normal-by-james-k-galbraith
     • Galbraith believes, instead, that slow growth will be a permanent state of affairs and therefore advocates a series of palliative measures to make the adjustment tolerable. If we want to use medical analogies, Galbraith is advocating a hospice, the modern Keynesians are advocating testosterone therapy, and [Ray] Dalio is advocating rehab. I find Dalio most persuasive, but I think that a shot of testosterone in the form of fiscal and monetary stimulus is needed as well.
• http://www.amazon.com/The-End-Normal-Crisis-Future/dp/1451644922
     • head wind against economic growth: (1) the cost of energy resources, (2) military spending, (3) the impact of digital technology on employment, and (4) financial fraud
        • (1) the cost of energy resources - ([ very low cost energy has been subsidizing the U.S. economic growth; of course, this growth has not been distribute evenly across the economy ]),
        • (2) military spending - ([ military spending generate economic activities, however part of the military products and services is an economic blackhole, the spending could be diverted (redirected) to improving quality of life, lower costs of living, and set a baseline for standard of living to a majority sector of society ]),
        • (3) the impact of digital technology on employment - ([ in general, technology displaced labour at a faster rate than creating new career track positions in the economy; the most dramatic example can been seen in food & animal growing industry in the United States ]), and
        • (4) financial fraud ([ yes, this is true; the case is clear ])
         • see [[Hyman Minsky]]
          • debt accumulation or the expansion of credit in the financial sector, beyond a certain point, tends to encourage following type of borrowers:
            • insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
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•
• Richard Koo
•
• Richard Koo - A "Balance Sheet Recession"
•   https://www.youtube.com/watch?v=HaNxAzLKegU
•   https://www.youtube.com/watch?v=HaNxAzLKegU
• Uploaded on Jun 8, 2010
• https://en.wikipedia.org/wiki/Balance_sheet_recession
• https://en.wikipedia.org/wiki/Kondratiev_wave
• old school : when current paradigm and mindset stop working : how would you know :
• Diagnosing the Causes of Economic Crises
•   https://www.youtube.com/watch?v=E0sRFEOGDmc
•   https://www.youtube.com/watch?v=E0sRFEOGDmc
• Published on Apr 10, 2013
• 33:36
• trauma toward debt, Japan is traumatize from spending
• if you tell a lies 100 times, then maybe, it might work
•
• debt Tue Sep 8, 2015 6:34am EDT
    BERLIN (Reuters) - German Finance Minister Wolfgang Schaeuble said on Tuesday that central bank policy could do little to help the economy when people and states take on too much debt.
    "Too much growth in credit does not solve any structural problems but leads to financial and debt crises. Central banks' monetary policy measures can do little to change this in the long run," Schaeuble told the German parliament.
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Charles Murray comment about the financial meltdown :
"In fact, I am so naïve about economics that I continue to think that we have a financial meltdown because the federal government, in its infinite wisdom, has for the last two administrations aggressively pushed policies that made it possible for clever people to get rich by lending money to people who were unlikely to pay it back."
http://www.hfcmn.org/userfiles/The%20Happiness%20of%20the%20People.pdf
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• http://www.amazon.com/Other-Peoples-Money-Business-Finance/dp/1610396030
    • tax and regulatory arbitrage (eg. avoiding taxes on cash held overseas but still paying dividends)
    • The two global banks with the largest derivatives exposures are J.P.Morgan and Deutsche Bank - the former is at around $70k billion and the latter at $55k billion. Most of these are hedged.
    • "The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else's goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people's own money." (From Brandeis' Other People's Money and How the Bankers Use It, 1914)
    • on Pages 259-260, noting that the complexity of modern finance "has been designed, and has operated, principally to benefit financial intermediaries rather than the users of financial services."
    • Epilogue, "The Emperor's Guard's New Clothes."
• http://www.nytimes.com/2015/10/11/books/review/other-peoples-money-by-john-kay.html?_r=0
    • John Kay: “exchanging bits of paper cannot make profits for everyone,” it is very likely that much of finance’s profit “represents not the creation of new wealth but the sector’s appropriation of wealth created elsewhere in the economy.”
• http://www.johnkay.com/2015/06/15/other-peoples-money-introduction
• http://www.oregonlive.com/opinion/index.ssf/2015/11/dangers_of_other_peoples_money.html
    • The right way forward, he argues, is to interrupt the flow of subsidy. Do that, and market forces will start to nudge finance in the right direction. This sounds straightforward enough but it has radical implications. It isn't just a matter, for instance, of requiring banks to hold more capital -- though that would be a good place to start. The problem is that, in Kay's view, the amount of capital needed to make banks safe, and hence to deny them the implicit subsidy of government protection, is probably beyond the market's capacity to provide.
    • "[The] perpetual flow of information [is] part of a game that traders play which has no wider relevance, the excessive hours worked by many employees a tournament in which individuals compete to display their alpha qualities in return for large prizes. The traditional bank manager's culture of long lunches and afternoons on the golf course may have yielded more information about business than the Bloomberg terminal."
• John Kay: "Other People's Money" | Talks at Google
    • https://www.youtube.com/watch?v=rkhxMdilxJE
    • https://www.youtube.com/watch?v=rkhxMdilxJE
    • financialization - people trading asset with each other
    • 28:27
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Nassim Nicholas Taleb, Fooled by Randomness, 2nd edition, hardcover, 2004   [ ]

p.54
The blow up, I will repeat, is different from merely incurring a monetary loss; it is losing money when one does not believe that such fact is possible at all.

p.54
Characteristically, blown-up traders think that they knew enough about the world to reject the possibility of the adverse event taking place: There was no courage in their taking such risks, just ignorance. I have noticed plenty of analogies between those who blew up in the stock market crash of 1987, those who blew up in the Japan meltdown of 1990, those who blew up in the bond market débâcle of 1994, those who blew up in Russia in 1998, and those who blew up shorting Nasdaq stocks.
p.54
They all made claims to the effect that “these times are different” or that “their market was different”, and offered seemingly well-constructed, intellectual arguments (of an economic nature) to justify their claims; they were unable to accept that the experience of others were out there, in the open, freely available to all, with books detailing crashes in every bookstore.
p.54
Aside from these generalized systemic blow ups, I have seen hundreds of option traders forced to leave the business after blowing up in a stupid manner, in spite of warnings by the veterans, similar to a child's touching the stove. This I find to resemble my own personal attitude with respect to the detection and prevention of the variety of ailments I may be subjected to. Every man believes himself to be quite different, a matter that amplified the “why me?” shock upon a diagnosis.

     (Taleb, Nassim (2004)., Fooled by Randomness, 2nd edition, hardcover)
(Fooled by Randomness: the hidden role of chance in life and in the markets / Nassim Nicholas Taleb, 1. investments, 2. chance, 3. random variables, 123.3 Taleb, )
   ____________________________________
•♥• Colin J. Campbell is a geologist. He is known for writing and speaking on peak oil phenomenon, and the New Energy Era.

    Colin Campbell (geologist)

    "But this peak has no real great significance, it is the perception and the vision of the long decline that comes into sight on the other side of the peak. That's really what matters." (speaking on the peak oil phenomenon, from End of Oil (2005))

    "It's quite a simple theory and one that any beer drinker understands. The glass starts full and ends empty and the faster you drink it the quicker it's gone." (on peak oil, in 2007) [7]

    "Banks had been lending more than they had on deposit assuming that tomorrow's growth was collateral for today's debt but failing to see that growth depends on growing, cheap, oil-based energy...So in short, Peak Oil means that debt goes bad." (speaking on the 2008 crash at the New Energy Era Form, 8 May 2012)

    http://en.wikipedia.org/wiki/Colin_J._Campbell
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([

personal note, year2013?

In 2005, Wall Street lobbyists, working at the behest of the banks, carved out a special loophole exempting Derivatives contracts from normal bankruptcy law.

     0. Derivatives
        0.1. Derivatives and other financial contracts
        0.2. http://economicsofcontempt.blogspot.com/2009/03/special-treatment-of-derivatives-in.html
        0.3. http://marginalrevolution.com/marginalrevolution/2008/09/derivates-contr.html
        0.4. It doesn't matter if they could have filed under chap 7 or 11. In both cases, derivatives are exempt and counterparties would have to liquidate all the positions and collateral immediately.
        0.5. http://www.stroock.com/SiteFiles/Pub339.pdf
        0.6. http://www.rollingstone.com/politics/news/the-watchdog-20100412?page=4
              0.6a. The second key, Warren says, is to close the loophole that Wall Street lobbyists carved out in 2005, when Congress overhauled the nation's bankruptcy laws. Before the latest crisis, Chapter 11 bankruptcy was a tool powerful enough to wind down even massive, interconnected institutions like Enron. But the loophole introduced in 2005 allowed the holders of derivative contracts to ignore the freeze on a bankrupt company's assets. The collapse of Lehman Brothers brought the entire economy to its knees, says Warren, because derivatives holders were allowed by law to make a run on the bank, hollowing out Lehman's carcass while the firm's other creditors were frozen out. The resulting panic sparked a market-wide contagion, which led to TARP. If financial reform doesn't shut down this derivatives loophole, Warren warns, "it's not real."
     1. The derivative is the differentiated form of something.
     2. a derivatives is a financial contract titled in tax haven location based on a treaty between two countries
     3. http://www.youtube.com/watch?v=m3im-iJdhv4&
     4. contracts, what is a contract?, a legal binding agreement between two or more parties where consideration is exchanged, and a promise of performance is made within a certain time limit or no time limit for that consideration, what is a consideration?,
     5. each derivatives are slightly kind of different
     6. can you insure that I get what I want in the future
contract, agreement
     7. a contract, an agreement based on an underlining instrument
        7.1 UNDERLINING instrument, examples of instrument
            7.1a other derivative financial conthstract
            7.1b commodities
            7.1c interest rate
            7.1d credit
            7.1e FOREX
            7.1f weather
            7.1g equities
            7.1h mortgages
     8. a contract, an agreement based on an instrument
        8.1. future/forward contract, agreement
        8.2. option, option is used as a hedge
        8.3. swap, instrument that has a floating interest rate; floating interest rate; swap that for a fixed rate, swap a floating rate for a fixed rate
             8.3a. An inflation swap is a financial bet that pays off according to the degree to which a consumer-price index exceeds or falls short of a pre-specified level at maturity.
     9. option, hedge, option to buy, option to [xxx], the right to exercise that option
     10. traded, trade, trade the derivatives
         10.1. trade this note
     11. problem, leverage, borrowed money
         11.1. counter party risk
     12. Benefit
         12.1. Derivatives can be used to shuffle cash flows through time in ways that current accounting rules prevent.
         12.2. It is a clever transaction that is initially difficult to comprehend and which hides a simple principle:
                        12.2a. advancing future cash flows to the present.
         12.3. most, if not all, derivatives are constructed to have ZERO tax liabilities, completely legal--the legality is not inherent in the essence of a derivatives financial contract in of itself, the legality is in the construction, the gaps and the holes that the legal framework rest upon, one example being, the contract is titled in a tax haven, most tax haven location is an Island, territorial
     13. Down side of derivatives contract
         13.1. "financial weapons of mass destruction"
         13.2. derivatives as "time bombs" for all parties involved (not a question of if, it is a question of when)
         13.3. use of derivatives to hide loans
         13.4. Secrecy, SECRET
                13.4a. over-the-counter
                13.4b. exchanges
                13.4c. swaps
                       13.4c.1. derivative swaps
                13.4d. secrecy of over-the-counter derivatives compared with swaps traded on exchanges
         13.5. use of derivatives to shroud reported earnings
                13.5a. advancing future cash flows to the present thus generating optimistic future earnings
                13.5b. use of derivatives to hide loans
     14. Buffett suggests that many types of derivatives can generate reported earnings that are frequently outrageously overstated. This occurs because their future values are based on estimates; this is problematic because it is human nature to be optimistic about future events. In addition, error may also lie in the fact that someone's compensation might be based on those rosy projections, which brings issues of motives and greed into play.
         14.1. http://www.investopedia.com/articles/optioninvestor/08/derivative-risks.asp
     15. http://www.zerohedge.com/article/what-stands-way-taxing-derivatives-1479-lobbyists
     16. “teaser rate,”
     17. Confidentiality Requirement
         17.1. handicapped, in part, by the terms imposed
         17.2. Gustavo Piga, a professor of economics at University of Rome Tor Vergata and author of “Derivatives and Public Debt Management,”
               17.2a. “In secret deals, intermediaries have the upper hand and use it to squeeze taxpayers,”
               17.2b. “The bargaining power is in investment banks’ hands.”

])
--

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→ Because I don't know what lies behind something, I cann't keep up, and at something of a disadvantage. And that's no way to live. To be uninformed and entirely at someone else's mercy. (Netflix streaming show, The Crown, first season, episode 7, “Scientia Potentia Est”)
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It was Greek to me

Wednesday, June 23, 2021

Next crash (bubble) 2021 - historical record

stochastic process (probability, random)

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