pop quiz for the day

(R) So, you just walked into Finance 101 and the professor hands you a quiz.

Don't worry, it's not a bad dream! It's multiple choice, so you've got good odds. Much better odds than the ratings agencies seem to have of rating things.

The assertion that pricing for various financial products (stocks, commodities, derivatives, etc) is normally distributed (ie, bell curve, Gaussian, etc) is best described as

a. True
b. False

If you chose B, you're correct! (Note, if you wrote in choice c. So wrecklessly false that the regulators should be fired and the corporate executives prosecuted for threatening our national security, that answer would also be acceptable. Please be aware the NSA has been notified of your opinion, so they can forward that to Goldman Sachs, who is requesting that the FBI begin an investigation of you.)

I've been doing a little reading of book reviews to add some items to my Amazon wish list (hint, it's right here), and I have enjoyed the commentary mocking our esteemed Masters of the Universe (no, not this).

I've never excelled at the probability and statistics arena. Perhaps that's part of what makes it so juicily delicious that the guys who thought they did understand screwed up so royally. Being part of a tail, an outlier, one develops an appreciation for other outliers. The way I figure it, if you can recognize when the professor puts up the data points for the test that you're an outlier and calculate that your score was in the bottom 5% because you were over two standard deviations from the mean, that should mean you understand the material. But alas, I digress.

The point of this diatribe isn't to look back fondly upon those lovely two semesters of stats ('Quantitative Business Analysis' in the Olin lingo du jour). Rather, the point is to serve as a reminder that common sense is a bedrock principle for designing policies in the real world. The mathematics itself is rarely flawed. Unfortunately, real people have a tendency to apply math in ways where the real world doesn't match the academic assumptions. When this is done accidentally, it's sad enough.

When this is coordinated policy at some of the most powerful corporations in the country, it's infuriating. And dangerous, a threat to our welfare and even our democracy.

Perhaps the most skewered comment by an executive back in 2007 when all this was unfolding was offered by David Viniar, Goldman Sachs' Chief Financial Officer. See if you can spot the crazy.

“We were seeing things that were 25-standard deviation moves, several days in a row,” said David Viniar, Goldman’s chief financial officer.

He followed that with, oh, and the Kansas City Royals are going to win the next 5 World Series.

For the book review from Naked Capitalism on Lecturing Birds on Flying, click here. For some handy concise definitions and charts, Risk Glossary is very nice. For regulators/executives/both I'm not too fond of, see Hank 'the banks are sound' Paulson, Gary 'don't regulate derivatives' Gensler, Ed 'AIG bonus contracts are sacred' Liddy, or Lloyd 'we're fully hedged but put me in the meeting anyway' Blankfein.

And those are just the recent Goldman visionaries.

Don't even get me started on Robert 'see, Dems can represent corporate America, too' Rubin, Larry 'don't ask who paid me money when it looked like I was going to be close to the new President' Summers, Tim 'I couldn't possibly be responsible for anything, all I did was run the NY Fed' Geithner, or Ben 'at least I'm not Alan' Bernanke.

/(R) That does feel a lot better.

Now if we could just please have our trillions of tax dollars back please.

i want my money back

(P, R) Well, my checks to the Department of the Treasury and the Missouri Department of Revenue cleared the bank yesterday. I'm passionate year round about responsible uses of public dollars, but tax time does serve as a nice reminder as it puts the specific numbers in front of you in a way that can't be ignored.

For fun, I thought I'd break out rough estimates of spending categories exceeding $1,000 in 2008. I realize not everybody gets worked up by numbers, but these kinds of things really make me mad.

What's my top expense? Rent? Car insurance? Utilities? My Roth IRA? Nope. Federal income taxes.

1. Federal income taxes: $5,600
2. Roth IRA: $5,000
3. Rent: $4,900
4. Europe/Other travel: $4,000
5. Payroll taxes: $3,500
6. Groceries/Eating out: $2,500
7. Missouri income taxes: $1,800
8. Other taxes: $1,600
9. Car insurance: $1,300
10. Utilities: $1,300

In case you're keeping score, my rough estimate of my total tax burden last year (income, property, sales, OASDI, and medicare) is approximately $12,500.

Now, what separates me from the conservatives like Grover Norquist is that I'm not opposed to taxation per se. I recognize that programs require resources, and the purpose of taxation is to raise revenue to pay for those programs. I happen to like courts and armies and fire departments and schools and roads and subways and sewers and parks and so forth. Indeed, most people understand that in order to have these popular services, we have to be taxed.

What's aggravating, what gets me ranting around tax time, is the unnecessary expenses, the waste, the programs that do nothing to invest in the safety and prosperity of our country. The Republican Party has taken an interesting strategic course, which is to talk about fiscal responsibility while doing the opposite. The enormous disconnect between rhetoric and reality from the GOP leadership has done much to put them in an amazingly restrictive demographic situation looking forward. And the Democratic Party has certainly shown progress. But what stands out is how little has changed since the Democrats took control of Congress over two years ago now. It's like celebrating cutting an alcoholic back from 10 drinks a day to 9. Well, that's great and all, but it's only progress if much more noticeable changes are around the corner.

From corporate subsidies to war profiteering to the costs of inaction on things like mass transit, energy, and healthcare, there is enormous waste and outright theft going on in our system. We devote massive resources to law enforcement efforts against petty criminals, and yet these master thieves walk around freely enjoying the spoils of their endeavors. Maybe it's one of those cases where being mugged personally makes it easier for you to get angry about the more impersonal kinds of muggings going on.

AIG has been mugging me every month since last September. The broader financial bailouts, from Goldman to Citi and on, will be mugging me for years to come. The Iraq war has been mugging me every month since 2003. The drug war mugs me a couple times a year. Farm subsidies, wealthy tax cheats, on and on, these are greater thefts than any petty criminal who steals a hundred bucks from your wallet. Over six million Americans are incarcerated or on probation or parole. We've done God knows awful things to 'high value' detainees all over the world. And yet the very people who have caused massive suffering and looting still walk around in charge of our government and the financial industry they wrecked.

And then that doesn't even cover the opportunity costs, the extra expenses we pay because we don't have good mass transit systems, passenger rail lines, freight rail lines, wind and solar energy, single payer health insurance, universal unemployment insurance, and all the other investments that actually make us better off.

It's probably unrealistic to ask the rich to play by the same rules as the rest of us. The Bernie Madoffs of the financial world will be the Lynndie Englands of the war crimes world, people who did bad stuff, but who can serve to be scapegoats for the larger perpetrators rather than compasses pointing to the larger perpetrators. But at least, stop taking my tax dollars. If you want me to bail out Goldman Sachs, sell me as an investor, not a taxpayer. If you want me to fund a trillion dollar defense industry, fund everything else that lavishly, too, from education to healthcare to employment services to affordable housing to energy to transportation to the environment to every other sector that produces a bigger return than another Reaper flying over Pakistan.

one week

I don’t know if I’ve been putting off writing this, but certainly I haven’t had the energy for it.

Not sure whether to build up with lots of drama, or just say it. So, I’m pretty much just gonna say it.

So last week I was robbed. At gunpoint, semi-automatic handgun. My wallet and phone were stolen.

It happened pretty fast, but it’s amazing how many times you replay that over and over and over. And over.

I’m fine, although still short two replacement credit cards and an ATM card. My Wash U ID and Wal-Mart gift card probably are gone for good. I know, serves me right for having a Wal-Mart gift card.

I’m not sure how to explain it, but it’s a little difficult to talk about. Something just so raw and vulnerable about it. You know it’s dumb, but nonetheless, it is. Julie was asking how I was feeling, and this is what I wrote back to her: I'm annoyed. frustrated. saddened. embarrassed. alone. It's really lonely between a wall and a gun.

I can describe the scene pretty well, what we did that evening and what happened during those couple minutes. But making it personal is hard.

Fortunately I’m ok and they ditched most of the wallet, which a security guard at the arch found. Julie and I had gone to dinner, and while she was upset that she wasn’t with me at the time, I’m really glad she wasn’t. Things could have potentially turned out much worse.