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Who should be on the Fed Bank Boards? #OpenFed
Please consider this a civic duty: nominate someone for one of the Fed Bank Boards.
Why? Because:
- these guys regulate the banks,
- they also decide on and implement monetary policy (things like interest rates),
- in times of trouble they also help bail out banks (think Tim Geithner, Lehman, and Bear Stearns)
- the current process is an old boy’s network.
If you haven’t been living under a rock, you might have heard that Jamie Dimon, the CEO of JP Morgan Chase, sits on the NY Fed Board. There have been a number of calls for his resignation or removal. But as Jonathan Reiss points out in this excellent Huffington Post piece, even better than removing Jamie Dimon and leaving it at that would be to call for all of the Fed Boards to be populated with people who represent the interests of 99% rather than their own narrow business interests. From his article:
…rather than complaining about individual cases, we should fix the process that appointed Dimon and will appoint his successor and 35 other directors to 3-year terms starting January 2013. There are systemic problems with how the directors are selected. The Government Accountability Office studied the bank boards and found they were neither diverse nor representative of the public despite a mandate requiring it. If we work now, this process can be greatly improved.
Did you hear that? The rules already stipulate diverse boards! From a Time article which picked up Reiss’s:
The fact is, the 1913 law creating the central bank was structured to avoid these conflicts. The Federal Reserve System is made up of 12 regional banks, each with nine board members — three of each of three “classes,” A, B, and C. Class A directors are to be from the banking industry and represent large, medium-size, and small banks. Both Class B and Class C directors are supposed to represent non-banking interests — labor, consumers, agriculture, and the like. But bankers select the Class B directors, and the governors of the Federal Reserve select the Class C members, in theory to help ensure their complete independence from the banking industry.
How well does the theory work? Take a look at the list of people on the NY Fed Board, in class C (ignoring classes A and B for now):
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Lee C. Bollinger (bio) Chair, 2012 |
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| Kathryn S. Wylde (bio) Deputy Chair, 2013 President and Chief Executive Officer Partnership for New York City |
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| Emily K. Rafferty (bio), 2014 President The Metropolitan Museum of Art |
A bit of background on Kathryn Wylde can be found here, where she was quoted defending Wall Street and trying to shame someone else into doing the same; the article calls for her resignation from the NY Fed. All three of them: Lee Bollinger, Kathy Wylde, and Emily Rafferty, are professional fundraisers. Which means they grovel at the feet of rich people (read: bankers) for a living. This is not the definition of representing “non-banking interests — labor, consumers, agriculture, and the like” I would come up with. In fact if I came up with a definition, there’d be a “no ass-kissing” stipulation.
Is this a problem just for the NY Fed? And why is it happening? According to Reiss:
Dodd-Frank commissioned a study of the bank boards of directors by the GAO. They found in 2010 of the 108 directors, only 5 represented consumers. Agriculture and food processing was better represented. Curiously, the GAO says that several reserve banks said it was “challenging” to find qualified consumer representatives who are interested in these positions. They attributed this to low pay (relative to corporate boards), restrictions on political activity and the requirement that they divest themselves of bank stock holdings. But I find it hard to believe that is the problem.
This is where you come in.
Reiss wants you to nominate qualified people for the local Fed Boards. He’ll compile the list and send them on to the reserve banks, since they seem to be having trouble finding qualified consumer advocates (for whatever reason they are only friends with rich bankers and their fans).
Some good news, the turnover is pretty high: the terms are three years, staggered, which means all 12 Fed Banks make 3 new appointments every year, and by custom nobody serves more than 2 terms. That means that within 6 years we could have a fairly representative board in each Fed if we do this right.
Tweet your nomination to the hashtag #OpenFed.
Jamie Dimon gets a happy ending massage at Banking Committee hearing
Do you guys remember how last week the #OWS Alternative Banking group, along with Occupy the SEC, wrote up some questions for Jamie Dimon, the CEO of JP Morgan Chase?
Yves Smith also posted those Alt Banking questions on Naked Capitalism, along with some commentary about the senators who were expected to be asking questions of Dimon. Among other things, she mentioned their connections to Wall Street money:
…this is likely to be at most a ritual roughing up. First, the hearing is only two hours, and that includes the usual pontificating at the start of the session. By contrast, Goldman executives were raked over the coals for 10 hours over their dubious collateralized debt obligations. The comparatively easy treatment is no doubt related to the fact that JP Morgan is a major contributor to the five most senior committee members. Per American Banker:
JPMorgan is Banking Committee Chairman Tim Johnson’s second-largest contributor over the last two-plus decades, according to the Center for Responsive Politics, which analyzes campaign giving from companies’ employees and their political action committees since 1989. The same is true for the committee’s top Republican, Sen. Richard Shelby, and its second-ranking Democrat, Sen. Jack Reed.
The committee’s number-two Republican, Sen. Mike Crapo, and its third-ranking Democrat, Sen. Charles Schumer, are not far behind their colleagues, with JPMorgan ranking third and fourth, respectively, among their contributors.
Second is that the format of these hearings, with each Senator getting only five minutes each per witness, makes it difficult for a questioner to pin an evasive or clever witness. It won’t be hard for Dimon to either run out the clock or bamboozle his interrogators. But he might, as he did in his hastily-called press conference announcing the losses, make more admissions to the effect that he and senior management weren’t on top of what the group was doing. That would support the notion that JP Morgan’s risk controls were inadequate, which would mean that Dimon’s Sarbanes Oxley certification for 2011, and potentially earlier years, was false.
Who wants to know what actually happened? To find out, go read Matt Taibbi’s Rolling Stones excellent article on the hearing, which is very much in line with what Yves predicted. One of my favorite lines from the article:
This is a guy who just committed a massive blunder with federally-insured money, a guy who is here answering questions because his company, at his direction, clearly and intentionally violated the spirit of the Volcker rule, and these clowns on the Banking Committee are asking Dimon for advice on how to write the rule! It was incredible. Can you imagine senators asking the captain of the Exxon Valdez what his ideas are for new shipping safety regulations – and taking him seriously when he says he doesn’t think they’re a good idea?
Stop and Frisk silent march today
It’s Father’s Day, and if you read the wikipedia article about the origins of Father’s Day you’ll find pretty much what you expect, namely it was started about 100 years ago (1910) and was only successful after the necktie and tobacco industries starting to promote it. In fact the only surprising thing I learned was that it was originally spelled “Fathers’ Day.”
Growing up, my mom always referred to these kinds of days as “Hallmark Holidays,” by which she meant that they were simply created by vendors wanting you to feel like you need to consume. For the record our family tradition is to give the celebrated person in question breakfast in bed but not to spend extra money.
It makes me wonder, though: what would Father’s Day be in the best of worlds, in some abstract place where it isn’t propelled by crude consumerism and sentimentality?
I got nothing. I’m too used to our shallow take on it.
But I do have a feeling that a nice first approach would be to join the Silent March to stop Stop and Frisk, today at 3pm: Assemble on West 110th St. between Central Park West/8th Ave. and Fifth Ave.
On being an alpha female
About 8 months ago I found out I’m an alpha female. What happened was, one day at work my boss mentioned that he and everyone else is afraid of me. I looked around and realized he was pretty much right (there are exceptions).
I went home to my husband and mentioned how weird it was that people at work are afraid of me, and he said, “No, it’s not weird at all. Don’t you realize that you’re constantly giving people the impression that you’re about to take away their toy and break it??”. No, I hadn’t realized that – and that sounds pretty awful! Am I really that mean? Then he told me I was an alpha male living in a woman’s body.
If you google “alpha male in a woman’s body,” (without the quotes) which I did, you come upon the phrase “alpha female” pretty quickly.
It came as a surprise to me – I’d always thought I am nice. But it wasn’t a surprise to anyone else; in fact when I mentioned my realization to my close friends, each and every one of them laughed out loud that I hadn’t known this about myself. One of my friends told me it was less that I was about breaking toys and more about how I call out people’s bullshit, which is something I have to admit I relish doing.
Upon further reflection I had to admit to myself that I am nice, but only to people who I think are nice themselves. So I guess that means I’m not just simply nice. And if I enjoy calling people on their bullshit, that’s not exactly nice either.
Over the past 8 months, I’ve been slowly observing my alpha femaleness, and at this point I can honestly say I’m comfortable with it. I own it now. It’s kind of fun to know about it, because of how people react to me, without me intentionally doing anything.
How I now think about my alpha femaleness is that it lends me authority. It’s a kind of portable power. Not always, of course, and sometimes I am in situations where I’m totally incompetent, and sometimes I run into someone who completely ignores my alpha femaleness or is themselves an alpha male and competes. I usually really like them.
I’ve also realize how much my life has been informed by this property; my life has been, for the most part, much easier than it could have been without this property. And I want to acknowledge that because most people aren’t like this and don’t have this advantage.
For example: I interview really well. I speak with perceived confidence even when I don’t feel confident, and that comes across well in interviews.
In fact all my life people have mentioned to me that “things seem easy” to me, even in situations where I felt completely insecure and flustered. I used to lift weights at the gym with my buddies in college, and they would not really spot me on the bench press because they were convinced I didn’t need help. I almost dropped the weights on my neck a couple of times calling my friends over from the other side of the room. So in retrospect maybe it was a sign I’m an alpha female, but at the time I was just baffled.
It’s good and bad. When people perceive you as more confident and more comfortable in a situation than you actually are, it’s about 80% good and 20% bad, and could be the opposite depending on the situation. It’s bad when it’s dangerous and you really don’t know what you’re doing (that happened to me when I was driving an ATV once, and luckily when I turned it over in a mud pit I didn’t actually break my legs, but I could have) and it’s totally convenient when you’re presenting stuff or in an interview.
Why am I mentioning all of this? Because I think it might help people, especially women in math or in tech, to learn to think a bit more like an alpha female, and I want to give some tips on how to do it. It’s like injecting a shot of testosterone at the right time.
These tips can be used in specific situations like an interview or a talk or at a work meeting. Feel free to ignore these tips if you hate everything about the idea, which I would totally understand too. In fact when I first learned about it myself, I was offended by it on a matter of principle, but I’ve come to think of it more like a mysterious part of the human experience, on the same page as pheromones and how women have the same menstrual cycle when they live together.
Tips on how to think and act like an alpha female
- When you’re asked to describe your accomplishments, talk about yourself the way your best friend would describe you. So in other words with pride and enthusiasm for your accomplishments, without being embarrassed. Don’t lie or exaggerate, but don’t underplay anything.
- Let there be silence. If you’ve finished what you’re saying and you’re done, wait for someone else to say something.
- If you want credit, give credit first. Generosity is, in my experience, contagious. So if you want to get credit for contributing something to a project, start out by talking about how awesome your collaborators have been on the project. This gets people thinking about credit in a generous way, and it also gives you authority for bestowing it as the first person who brought it up. Note this is different from what I see lots of people do, namely not mentioning credit themselves and waiting passively for someone else to raise it (and to share it).
- Ignore titles and hierarchy. Those things are silly. You can talk to anyone at any time if you have a good idea.
- If you want feedback, give feedback. This includes to your boss (see previous tip). If you want to find out how you stand with someone, the best thing to do is to tell someone else how they stand with you. People love hearing about themselves. This works best when you can say something nice, but it also works when it’s a difficult conversation.
- Define your narrative. When your standing is in question, put out your version of the story first, for a couple of reasons – one is that you define the scope of the question, and the other is that your narrative is now the standard, and any one refuting it has to refute it.
- When you’re in a meeting and want to bring your point across in a room full of alpha males, think about defending or arguing for an idea, rather than for yourself. It helps with gaining confidence in your argument.
- Of course it also helps if your argument is water-tight, so practice making your points in your mind, and write them down beforehand if that helps.
- Develop a thick skin. When you say what you think first, there are plenty of people who might take offense and jump on you and be vicious. Sometimes it’s just a show of power. Keep an observer’s eye on that kind of reaction, and don’t take it personally, because it’s almost never about you really, it’s maybe about their relationship with their mom or something.
- At the same time, what’s cool about putting yourself out there is that people react and often point out how your thinking is flawed or lazy and you get to learn really, really quickly. Learning is the best part!
Germany’s risk
My friend Nathan recently sent me this Credit Writedowns article on the markets in German risk. There’s basically a single, interesting observation in the article, namely that 5-year bond yields are going down while credit default (CDS) spreads are going up.
When I was working in risk, we’d use both the bond market prices and the CDS market prices to infer the risk of default of a debt issuer – mostly we thought about companies, but we also generalized to countries (although mostly not in Europe!).
For example with bonds, we would split up the yield (how much the bond pays) into two pieces. Namely, you’d get some money back simply because you have to wait for the money, so you’re kind of being compensated for inflation, and then the other part of the money is your compensation for taking on the risk that it might not be paid back at all. This second part is the default risk, and we’d measure default risk of a company like GM in the U.S., for example, by comparing U.S. bond yields to GM yields, the assumption being that there’s no default risk for the U.S. at all. Note this same calculation was typical in lots of countries, but especially the U.S. and Germany, which were considered the two least risky issuers in the world.
With the CDS market, it was a bit more complicated in terms of math but the same idea was underneath – CDS is kind of like an insurance on bonds, although you don’t need to buy the underlying bonds to buy the insurance (something like buying fire insurance on a house you don’t own). The amount you’d have to pay would go up if the perceived risk of default of the issuer went up, all other things being equal.
And that’s what I want to talk about now- in the case of Germany, are all other things equal? I’ve got a short list of things that might be coming into play here besides the risk of a German default.
- Counterparty risk – whereas you only have to worry about Germany defaulting on German bonds, you actually have to worry about whomever wrote the CDS when you buy a CDS. Remember AIG? They went down because they wrote lots of CDS they couldn’t possibly pay out on, and the U.S. taxpayer paid all their bills. But that may not happen again. The counterparty risk is real, especially considering the state of banks in Europe right now.
- People might be losing faith in the CDS market. There’s a group of people who call themselves ISDA and who decide when the issuer of the debt has “defaulted”, triggering the payment of the CDS. But when Greece took a haircut on their debt, it took ISDA a long time to decide it constituted a default. If I’m a would-be CDS buyer, I think hard about whether CDS is a proper hedge for my German bonds (or whatever).
- As the writer of the article mentioned, even though it looks like there’s an “arbitrage opportunity,” people aren’t piling into the trade. Part of this may be because it’s a five year trade and nobody thinks that far ahead when they’re afraid of the next 12 months, which is I think what the author was saying.
- There are rules for some funds about what they are allowed to invest in, and bonds are deemed more elemental and therefore safe than CDSs, for good reason. Another possibility for the German bond/ CDS discrepancy is that certain funds need exposure to highly rated bonds, so German bonds or U.S. bonds, and they can’t substitute writing CDSs for that long exposure.
- Finally, in the formula for how much big a CDS spread is compared to the price, there’s an assumption about how much of a “haircut” the debt owner would have to take on their bond – but this isn’t clear from the outset, it’s determined (as it was in Greece) through a long, drawn-out, political process. If the market thinks this number is changing the spreads on CDS could be moving without the perceived default risk moving.
My followership problem
David Brooks wrote an interesting and provocative column recently in the New York Times about leadership and followership, claiming our country has forgotten how to follow. First he talks about how we dismiss leaders, focusing only on the victims:
We live in a culture that finds it easier to assign moral status to victims of power than to those who wield power. Most of the stories we tell ourselves are about victims who have endured oppression, racism and cruelty.
Then there is our fervent devotion to equality, to the notion that all people are equal and deserve equal recognition and respect. It’s hard in this frame of mind to define and celebrate greatness, to hold up others who are immeasurably superior to ourselves.
I have to admit, I agree with him here. It’s hard for me to swallow the phrase, “immeasurably superior to ourselves” when I think about the role models we have today in politics and elsewhere. I think it’s smart that he’s keeping this stuff abstract, because any given example would seem kind of embarrassing.
He then goes on to make what I think is a great point:
But the main problem is our inability to think properly about how power should be used to bind and build. Legitimate power is built on a series of paradoxes: that leaders have to wield power while knowing they are corrupted by it; that great leaders are superior to their followers while also being of them; that the higher they rise, the more they feel like instruments in larger designs. The Lincoln and Jefferson memorials are about how to navigate those paradoxes.
This idea of legitimacy of power is key. The truth is, the last time I felt myself in the presence of legitimate power was when Obama was sworn in. Ever since then I’ve been pretty much despairing, although there have been moments of relief and hope, like when Occupy started. But overall, yes, I have become a major skeptic of authority.
But I’d argue, nobody wants to feel this way. We all want there to be legitimate authority, we want to stop worrying about the economy, or whatever, and get to work and think about nothing more complicated than our personal careers, or our kids, or our haircuts, knowing that there are honest and reasonable stewards doing their job in the background. But the environment is not conducive to such blissful ignorance right now. Not in finance, not in economics, and not in government.
I’m pretty sure it’s not our attitudes here that are the problem, although they may take some time to adjust if things spontaneously improved. I think it’s the system itself, combined with modernity.
The system has become too dysfunctional for leaders to lead well. Obama has not impressed, but I’d also have to admit he hasn’t been given that many opportunities to. There’s a reason people are hating on politicians these days, and when they again fail to come to agreement on the debt ceiling it’s not going to be getting any better.
Modernity has played its part too. One of the reasons it’s harder to glorify people nowadays is that we simply know too much about them. It’s kind of in the “everybody poops” category – and that’s not going away.
I think we need a new way of appreciating just authority, if and when it comes up (i.e. if we can somehow improve our dysfunctional system). Namely, we need to appreciate people are flawed and sometimes greedy or mean, but mostly trying their best, and set up systems that don’t tempt them to be downright corrupt. Then we need to trust just as much in our systems as the leaders we set up in those systems, and see if it can work.
Using retirement money now
This is a guest post by Micah Warren.
A few weeks ago the Census Bureau reported that more than half of all births in the US are non-white. The social implications are more widely discussed and reported, but the more interesting and worrisome fact is that overall births are sharply declining, especially among whites, ever since the recession hit.
My best guess is that the declines are mostly among the middle class, who are feeling squeezed by student loans, mortgage debt or inability to buy a home, stagnant incomes and employment uncertainty.
Since middle class Americans typically prefer to buy a house before popping out children, it’s fairly simple math: Years ago when the median house price to median income was a little above 2, and nobody was drowning in student loans, and you didn’t have to obtain advanced degrees to make a reasonable wage, most families could comfortably start having children by their late twenties.
Nowadays, the median house is 3 times the median income, people are finishing college/grad school later, have students loans which take a large chunk of what would otherwise be discretionary income, setting the time-line back 5-15 years. To most people, this means less kids. I took a different path, and am learning the hard way that I might have made a choice between a home and children in my (relative) youth.
I wanted to buy a house in my thirties, but savings has been hard to come by with three kids (including twins), student loans, high rent, on one income. I had planned on using retirement funds, until my benefits office, said, “sorry, you can’t touch that money.”
Why?
In their own words, “paternalistic reasons.” They don’t want me to jeopardize my retirement. My retirement has been growing at a very healthy rate, with employer contributions much higher than our discretionary income.
I griped around a bit and the common response seems to be that I would never be so foolish as to mess with the magic money in my retirement funds, to spend today. After all, if had invested $10,000 in Berkshire Hathaway in 1965, my holdings would be worth more than $50 million today, right?
Now I have two points in response to this.
- Pulling money out of retirement to put on a house may actually be a good idea for an individual.
- Individuals collectively pulling money out of retirement plans to put on houses is a good idea for the economy as a whole.
The individual
- Retirement funds are in for a tough road. Firstly, the global economy has hit the skids and will take a while to rebuild. Secondly, the aging population: as these guys from the Fed pointed out, the P/E ratio appears to be linked to the ratio of retirees to people in their prime earnings years. This report seems widely ignored and/or downplayed. About $18 trillion is in retirement funds which will be coming out of the market as baby boomers retire and age. Note that those in the financial services industry have a vested interest in convincing people their retirement funds will grow at a 10.8%, which is bats. Most retirement funds are in managed funds, which means that they are being eaten away by the typical 1.5% fees that fund managers take. That takes an optimistic 6% underlying growth rate down to 4.5% which is in the range of most mortgages
- Private mortgage insurance is expensive.
- Rent money is not equity in your home: 5-10 years rent saving for a down payment is a lot of money.
- Tax is tax. Your money will be taxed. Yes, it may be at a lower marginal rate when you retire, but you don’t know that. Further, because compounding is nonlinear, a small change in returns makes a much bigger difference than a difference in tax rates.
The economy
On the other hand, if we do pull money from retirement and put in on homes,
- Home prices may find a bottom sooner. Clearly, if more people like myself have money to spend on houses, more houses will be sold at better prices.
- Finance will have less money and markets will be more stable. (OWS rant ommitted)
- More young middle class people will have more babies. Healthier, well-fed, well-educated children will support the economy in the future. This is the main point here. The greatest investment in our future economy is children today. Money in an account does nothing, unless you still believe in trickle-down theory. The middle class is being depleted, and this will be made much worse in the future due to the simple reason that there will be less middle class children to squeeze. Things could get much uglier years down the road if the population continues to age and retire and expect the money they dumped in the retirement funds to be there without the economy to support it.
Bottom line: A large chunk of younger American couples/families are not able to buy homes and participate in the real economy (rather than just as debtors) and we are in danger of losing out on a whole generation of economic output. This spells a much bigger disaster for our retirement funds than the loss of $20K to home equity.
Instead of choosing a better living standard when our children are young, we are expected to (somewhat selfishly) leave money in a fund that has no guarantee of growth rate, which we have no guarantee will be alive to use, and while optimistically may be spent on glorious retirement, it is also quite likely these funds will be depleted in a few short months by end-of-life care. In the meantime, Wall Street plays puff-puff-give with the money.
I personally would gladly accept financial comfort while my children are young in exchange for a smaller chunk of money later, which gives me little comfort at all, because there is no earthly way to discern what this money will mean to me when I am 70. On the other hand, I can tell you exactly how much a 20% down payment on a $300,000 house is, today.
Questions for Jamie Dimon
Jamie Dimon is meeting with Congress today. Occupy the SEC and the Alternative Banking Working Group jointly wrote a bunch of questions for the Senators to ask him. Please read the letter and some interesting facts about the Senators scheduled to talk to Dimon today on this Naked Capitalism post.
I don’t trust politicians more than I trust bankers
There are certain people who are obsessed with the way money is created in the U.S. – I call them “money creationists”. Some of these people are friends of mine from Occupy, and I really enjoy and like them.
But I don’t agree with them, and here’s why. Because I don’t trust politicians more than I trust bankers. I mean, don’t get me wrong, I don’t trust bankers. But I really don’t trust politicians.
The reason this comparison comes up is this. The way money is created through the Fed lending window is described here, in an article that could have been written by my friends, although I don’t think I’ve met Gar. Pay attention to the following concept which the writer is proposing:
Why, you might ask, doesn’t the Federal Reserve Board simply “create” money (as it does all the time) and lend it at 0.75 percent to the government (rather than let the banks do it) to pay for important public goods and to settle its debts? (Our bridges are falling down; not a bad thing in which to invest.)
As soon as I hear this I think, holy fuck let’s not even go there! The image of unlimited cash machines directly bankrolling the whims of Congress is just too much. But wait, here’s where the money-creationists get really confused – they give themselves away in fact:
… if a “public bank” were set up that operates just the way private banks are run today, including making profits for the owners – who in this case would obviously be the public – i.e. the government.
What? When was the last time the public is the same thing as the government? In this universe, for whatever reason, politicians have been wished away and all we have left are well-meaning would-be bridge builders facing off against evil venal bankers. But that’s not the world I live in.
To my money-creationist friends: there are stewards of the government, and they’re called politicians, and they love money. They are just as corrupt as bankers. It’s not a good idea to give them a printing press. Let’s instead think of a way to persuade them to require reasonable capital requirements of the banks so they don’t get to do crazy shit, if they can get their hands off of financial lobbyist money for more than fifteen minutes.
Happy Birthday to me!
The mathbabe blog is one year old today. I want to thank all of you guys for making this such a wonderful and thoughtful year for me. I totally love and adore you readers, and commenters, and guest bloggers, and yes, right now I even have room in my heart for you trolls.
Tonight I’ll be performing again with Reno, which promises to be a hoot. Please come!
The fake problem of fake geek girls, and how to be a sexy man nerd
My friend Rachel Schutt recently sent me this Forbes article by Tara Tiger Brown on the so-called problem of too many fake geek girls stealing the thunder and limelight from us true geek girls.
The working definition of geek seems to be someone who is obsessively interested in something (I would argue that you don’t get to be a geek if your obsession is art, for example, I’d like to define it to be an obsession with something technical). She also claims that “true geeks” don’t do something for airtime. From the article:
Girls who genuinely like their hobby or interest and document what they are doing to help others, not garner attention, are true geeks. The ones who think about how to get attention and then work on a project in order to maximize their klout, are exhibitionists.
I kind of like this but I kind of don’t too. I like this because, like you, I have run into many many people (men and women) who loudly claim technical knowledge that they don’t seem to actually have, which is annoying and exhibitionistic. And yes, it’s annoying to see people like that doing things like giving things like Ted talks on “big data” when you seriously doubt they know how to program a linear regression. But again, men and women.
At the same time, there’s no reason someone can’t be both a true geek and an exhibitionist, and it seems kind of funny for a Forbes magazine writer to be claiming the authentic rights to the former but not the latter.
If there’s one thing I’d like to avoid, it’s peer pressure that, as a girl geek, I have to have a certain personality. I like the fact that girl geeks are sometimes shy and sometimes outspoken, sometimes humble and sometimes arrogant, sometimes demure and sometimes slutty. It makes it way more interesting during technical chats.
What’s the asymmetry between men and women here? According to Tara Tiger Brown, women think they’ll get attention from men by acting like a geek but my experience is that men don’t think they’ll get attention from women by acting like a geek.
I think this is a mistake that man geeks are making. For me, and for essentially all my female friends, being really fucking good at some thing is extremely sexy. Man geeks are, therefore, very sexy, if they are in fact really fucking good at something and not just posing. Maybe they just need to realize that and own it a bit more.
Next time, instead of apologizing for doing something nerdy, I suggest you (a man geek I’m imagining talking to right now) figure out how to describe what skill you mastered and talk about it as an accomplishment.
No: I’m kind of tired today, sorry. I stayed up all night playing with my computer. Should we reschedule?
Yes: Last night I implemented dynamic logistic regression and managed to get it to converge on 30 terabytes of streaming data in under 3 hours. And it’s all open source, I just checked in into github. That was awesome! But now I need to sleep. Wanna take a nap with me?
Personal Democracy Hackathon today
This Morning I’m going to the CUNY Graduate School of Journalism to pitch the Credit Union Findr Webapp to a bunch of developers at today’s Personal Democracy Hackathon. Hopefully they’ll be interested enough to work on our geo-problem of credit union eligibility, namely taking in an address and finding the credit unions you become eligible for through your address. All open source of course.
Update: We’ve got two teams working, one on our webpage and our geo-locator project. Woohoo!
Hangover cure
After a long night of vodkas and karaoke, there’s one sure method for feeling brand new once again, namely listening to Empire State of Mind, really loud, over and over.
At least I hope so.
p.s. The first year anniversary of mathbabe.org is coming up next Monday, please come up with suggestions for how to celebrate!
What if the bond markets priced in actual risk?
A friend sent me this article written by Daniel Gross, which talks about how taxpayers in Europe and in the U.S. are paying for the mistakes of bondholders. First he starts with Ireland:
When Ireland’s large private banks collapsed spectacularly a few years ago, the Irish government formally assumed the debts of the private banks. To ensure that bondholders of Irish banks would remain whole, the government undertook a massive bailout. To pay for it, it has inflicted vicious austerity on its populace.
He moves on to Greece:
As Liz Alderman and Jack Ewing reported in the New York Times this week, about two-thirds of the $177 billion in European aid to Greece given since May 2010 has been used to make payments to bondholders and other lenders. The upshot: Greece is imposing significant austerity on its citizens for the sake of preserving the value of bondholders.
And the U.S.:
Yes, it’s true that the U.S. in 2008 and 2009 acted to keep bondholders from taking big losses. The taxpayers formally assumed the debt of Fannie Mae and Freddie Mac without insisting bondholders take any haircut, just as the Irish taxpayers formally assumed the debts of their large banks. That was a big and expensive mistake. In a time of austerity, the U.S. government is channeling tax payer funds to make interest payments on bonds that were first issued by for-profit entities.
He points out that Spain appears to be taking the same approach, and that the actual people of Ireland and Greece are having second thoughts about paying all these bills, expressed through who they are voting for. I believe it’s left to the reader to wonder what’s going to happen to Spain.
Gross suggests a different tact for governments to use, namely to ignore old debt and to provide insurance for new debt issued by the banks and other private companies. The U.S. did this during the crisis, it was called the Temporary Liquidity Guarantee Program. His point is that we’ve made money off this program and we’ve let lots of really insolvent banks fail as well.
On the other hand, I’d argue, we haven’t let the big banks fail, so there’s a limit to its effectiveness (but I won’t blame this program for that, because that’s a problem of political will). And it’s of course not altogether clear that the insurance it sold was sold at market value, since if it had been, I’m guessing it wouldn’t have been such a boon to a given company to issue debt and pay for insurance versus just issuing debt at a higher risk premium. In other words, I think the “Liquidity” in “Temporary Liquidity Guarantee Program” is key.
But he’s got it basically right- taxpayers are definitely on the hook for risky bets other people took. And backups and guarantees by governments definitely skews the bond market. Specifically, big companies end up paying less than they should given their risk, and the taxpayers foot the bill in situations of default (which aren’t allowed to actually be defaults with respect to the bondholders).
So sufficiently big companies are paying too little for debt. That’s about half the story though. The other half is how normal people are paying too much for debt.
For example, with student debt, Bloomberg recently reported that private issuers of student debt are charging as much as credit card companies:
Tovar, who lives with her parents in the Chicago suburb of Blue Island, owes $55,600 to Chase Student Loans, a unit of JPMorgan, according to a May 17 statement provided by her. A loan for $24,794 carries an interest rate of 10.25 percent, as does a second loan for more than $2,619. A third for $28,187 has a rate of 8.97 percent. She has a balance of $42,326 in loans from a different lender.
Given that these loans are effectively undischargable through bankruptcy, what is the real risk for private issuers in getting their money back? What would a fair market price be for these loans? And why don’t we have a fair market?
Who will Regulate the Superheroes on Wall Street?
This is a guest post by Elizabeth Friedrich, a member of Occupy the SEC.
Wall Street has grown to celebrate superheroes like Lloyd Blankfein and Jamie Dimon for their superior management skills and keen business sense. We have come to praise and applaud reckless risk-takers on the assumption that the markets always know best.
Insider Wall Street leaders like Jamie Dimon are viewed to possess special powers. In fact, many believe that Dimon, who led JP Morgan out of the financial crisis, is a banking prodigy who could do no wrong. But even Dimon is helpless in the face of reckless risk-taking behavior by his employees, as shown by the trader Bruno Iksil who lost $3 billion dollars and counting as part of JP Morgan’s CIO office. “Star traders” like Iksil structure their trades in such a complicated way that the average person could never understand them. We have no way of knowing whether the hedges that the CIO office put on actually “hedged” the original position. Such complexity, conveniently, can also serve as a powerful tool to refute public outcry.
The question here is this: Why create such risk in the first place? Or, more importantly: Why create the type of transactions that require a superman to oversee them?
Since the Volcker Rule is still being finalized, banking institutions will continue to take on these risks as long as they are allowed or exempted to do so. However, banks should face the same consequences as the rest of society. The “London Whale” trades created massive disruptions in an already fragile market and, ironically, they have caused unrest and disgust in the hedge fund community – the very community that loves unregulated market competition. Why don’t we hold banks to their own standards and stop giving them a pass when they fail?
Occupy the SEC will be marching today calling for the S.E.C. to investigate Jamie Dimon for violation of the disclosure requirements of Sarbanes-Oxley Act. We will also recommend that the S.E.C. make a criminal referral to the Department of Justice. Many people are frustrated with the slap-on-the-wrist treatment that Wall Streeters enjoy; random petty criminals are sentenced to hard jail time but the trader who loses billions of dollars is told not to do that again. The JP Morgan Chase debacle is symptomatic of a broken regulatory system.
Even if there are no criminal charges against Jamie Dimon, the American public would have been well-served to see Wall Street have its day in court. The S.E.C. has to uphold its foundational principles: 1) public companies offering securities to investors must tell the truth about their business, the securities, and the risks involved in investing; and 2) people who sell and trade securities must treat investors fairly and honestly, putting their investors’ interests first.
It is fairly simple: if S.E.C. officials find out that a company has done wrong they have the power to investigate, issue civil penalties, and refer the case to the Department of Justice for criminal prosecution. As many financial experts and white-collar crime lawyers have said, the S.E.C. has not fully utilized its authority, as demonstrated by the treatment of Dick Fuld and Jon Corzine.
The function of a financial institution is not merely to manage risk, but to act primarily as the steward of society’s assets and smart allocation of capital. We hope that the S.E.C will help re-examine the priorities of Too Big To Fail financial institutions. Finally, the current culture corrodes and disrupts sound business practices and stunts the rehabilitation of our current financial system. The S.E.C. is an imperfect vehicle (as evidenced by its lackluster approach to its duties leading up and during the financial crisis) but it’s the only vehicle we have. If they don’t do their job – who will?
Occupy the SEC is a group of concerned citizens, activists, and financial professionals with decades of collective experience working at many of the largest financial firms in the industry. Occupy the SEC filed a 325-page comment letter on the Volcker Rule NPR, which is available at http://occupythesec.org.
Regulation is not a dirty word
Regulation has gotten a bad rap recently. It’s a combination of it being associated to finance, or big business, and it being complicated, and involving lobbyists and lawyers – it’s sleazy and collusive by proxy, and there are specific regulators that haven’t exactly been helping the cause. Most importantly, though, the concept of regulation has been slapped with a label of “bad for business = bad for the struggling economy”.
But I’d like to argue that regulation is not a dirty word – it’s vital to a functioning economy and culture.
And the truth is, we are lacking strong and enforced regulation on businesses in this country. Sometimes we don’t have the regulation, but sometimes we do and we don’t enforce it. I want to give three examples from yesterday’s news on what we’re doing wrong.
First, consider this article about data and privacy in the internet age. It starts out by scaring you to death about how all of your information, even your DNA code, is on the web, freely accessible to predatory data gatherers. All true. And then at the end it’s got this line:
“Regulation is coming,” she says. “You may not like it, you may close your eyes and hold your nose, but it is coming.”
What? How is regulation the problem here? The problem is that there’s no regulation, it’s the wild west, and a given individual has virtually no chance against enormous corporate data collectors with their very own quant teams figuring out your next move. This is a perfect moment for concerned citizens to get into the debate about who owns their data (my proposed answer: the individual owns their own data, not the corporation that has ferreted it out of an online persona) and how that data can be used (my proposed answer: never, without my explicit permission).
Next, look at this article where Bank of America knew about the massive losses on Merrill after agreeing to acquire them in September 2008 but its CEO Ken Lewis lied to shareholders to get them to vote for the acquisition in December 2008. The fact that Lewis lied about Merrill’s expected losses is not up for debate. From the article:
… Mr. Singer declined to comment on the filing. But the document submitted to the court said that Mr. Lewis’s “sworn admissions leave no genuine dispute that his statement at the December 5 shareholder meeting reiterating the bank’s prior accretion and dilution calculations was materially false when made.”
What I want to draw your attention to is the following line from the article (emphasis mine):
…the former chief executive did not disclose the losses because he had been advised by the bank’s law firm, Wachtell, Lipton, Rosen & Katz, and by other bank executives that it was not necessary.
Just to be clear, Lewis didn’t want to tell bad news to shareholders about the acquisition, because then he’d lost his shiny new investment bank, and he checked with his lawyers and they decided he didn’t need to admit the truth. That is a pure case of unenforced regulation. It is actually illegal to do this, but the lawyers were betting they could get away with it anyway.
Finally, consider this video describing what was happening inside MF Global in the days leading up to its collapse. Namely, the borrowing of customer money is hard to track because they did it all by hand. No, I’m sorry. Nobody does stuff with money without using a computer anymore. The only reason to do this by hand is to avoid leaving a paper trail because you know you’re about to do something illegal. I’m no accounting regulation expert but I’m sure this is illegal. Another case of unenforced regulation, or at worst, regulation that should exist.
Why do people think regulation is bad again? Does it really stifle business? Is it bad for the economy? In the above cases, consider this. The fact that we don’t have clear rules will cause plenty of people to avoid using all sorts of social media at all for fear of their data being manipulated. We have plenty of people avoiding investing in banks because they don’t trust the statements of bank CEO’s. And we have people avoiding becoming customers of futures exchanges for fear their money will be stolen. These facts are definitely bad for the economy.
The truth is, business thrives in environments of clear rules and good enforcement. That means strong, relevant, and enforced regulation.
Combining priors and downweighting in linear regression
This is a continuation of yesterday’s post about understand priors on linear regression as minimizing penalty functions.
Today I want to talk about how we can pair different kinds of priors with exponential downweighting. There are two different kinds of priors, namely persistent priors and kick-off priors (I think I’m making up these terms, so there may be other official terms for these things).
Persistent Priors
Sometimes you want a prior to exist throughout the life of the model. Most “small coefficients” or “smoothness” priors are like this. In such a situation, you will aggregate today’s data (say), which means creating an 
Kick-Off Priors
Other times you just want your linear regression to start off kind of “knowing” what the expected answer is. In this case you only add the prior terms to the first day’s
Example
This is confusing so I’m going to work out an example. Let’s say we have a model where we have a prior that the 1) 
Then on the first day, we find the 
How should we choose 
On the second day, we downweight data from the first day, and thus we also downweight the
However, we still want to remind the model to make the coefficients small – in other words a separate prior on the size of coefficients. So in fact, on the first day we will have two priors in effect, one as above and the other a simple prior on the covariance term, namely we add 
And just to be really precise, of we denote by 
![\gamma[X(1)^\tau X(1) + N(1) \cdot \lambda^2 I + N(1) \cdot (\lambda')^2 I]](https://s0.wp.com/latex.php?latex=%5Cgamma%5BX%281%29%5E%5Ctau+X%281%29+%2B+N%281%29+%5Ccdot+%5Clambda%5E2+I+%2B+N%281%29+%5Ccdot+%28%5Clambda%27%29%5E2+I%5D&bg=ffffff&fg=555555&s=0&c=20201002)
![+ \gamma[X(1)^\tau y(1) + N(1) \cdot \lambda^2 r]](https://s0.wp.com/latex.php?latex=%2B+%5Cgamma%5BX%281%29%5E%5Ctau+y%281%29+%2B+N%281%29+%5Ccdot+%5Clambda%5E2+r%5D&bg=ffffff&fg=555555&s=0&c=20201002)
An easy way to think about priors on linear regression
Every time you add a prior to your multivariate linear regression it’s equivalent to changing the function you’re trying to minimize. It sometimes makes it easier to understand what’s going on when you think about it this way, and it only requires a bit of vector calculus. Of course it’s not the most sophisticated way of thinking of priors, which also have various bayesian interpretations with respect to the assumed distribution of the signals etc., but it’s handy to have more than one way to look at things.
Plain old vanilla linear regression
Let’s first start with your standard linear regression, where you don’t have a prior. Then you’re trying to find a “best-fit” vector of coefficients 
Here the various 
How do we find the minimum of that? First rewrite it in vector form, where we have a big column vector of all the different 
Now we appeal to an old calculus idea, namely that we can find the minimum of an upward-sloping function by locating where its derivative is zero.
Moreover, the derivative of 
Adding a prior on the variance, or penalizing large coefficients
There are various ways people go about adding a diagonal prior – and various ways people explain why they’re doing it. For the sake of simplicity I’ll use one “tuning parameter” for this prior, called 
In other words, we can think of trying to minimize the following more complicated sum:
Here the 
When we minimize this, we are simultaneously trying to find a “good fit” in the sense of a linear regression, and trying to find that good fit with small coefficients, since the sum on the right grows larger as the coefficients get bigger. The extent to which we care more about the first goal or the second is just a question about how large 
How do we minimize that guy? Same idea, where we rewrite it in vector form first:
Again, we set the derivative to zero and ignore the factor of 2 to get:
Since 
which of course can be rewritten as
If you have a prior on the actual values of the coefficents of
Next I want to talk about a slightly fancier version of the same idea, namely when you have some idea of what you think the coefficients of 
We vectorize as
Again, we set the derivative to zero and ignore the factor of 2 to get:
so we can conclude:
which can be rewritten as
A low Fed rate: what does it mean for the 99%?
I’m no economist, so it always takes me quite a bit of puzzling to figure out macro-economic arguments. Recently I’ve been wondering about the Fed’s promise to keep rates low for extended periods of time. Specifically, I’ve been wondering this: whom does that benefit?
[As an aside, it consistently pisses me off that the people trading in the market, who claim to be all about “free markets” and against “interference” from regulators, also are the ones who whine for a Fed intervention or quantitative easing when bad economic data comes out. So which is it, do you want freedom or do you want a babysitter?]
Here’s the argument I’ve gleaned from the St. Louis Fed’s webpage. When the Fed lowers (short-term) rates, it makes it easier to borrow money, it makes it easier for banks to profit from the difference between long-term and short-term rates, and it potentially can cause inflation (and bubbles) since, now that everyone has borrowed more, there’s more demand, which raises prices. And inflation is good for debtors, because over time their debts are worth less.
One thing about the above argument stands out as false to me, at least for the majority of the 99%. Namely, many of them are already indebted up their eyeballs, so who is going to give them more money? And what would they buy with that money?
In other words, if the assumption is that everyone is getting easy loans, I haven’t seen evidence of this. Wouldn’t we be hearing about people refinancing their homes for awesome rates and thereby avoiding foreclosure? How many stories have you heard like that?
If not everyone is getting easy loans, and if in fact only the 1% and banks are getting those gorgeously low-interest loans, then it’s not clear this will be sufficient to spur demand and cause inflation. And inflation really would help the 99%, but only of course if wages kept up with it. Instead we have not seen high inflation and wages haven’t even been keeping up with what inflation we do see.
So let’s re-examine who is benefiting from low Fed rates. I’m gonna guess it’s mostly the banks, and a few private equity firms that are borrowing tons of money to buy up great swaths of foreclosed homes so they can turn around and profit on renting them out to the people who were foreclosed on.
I’m not necessarily advocating that we raise the Fed rates. But next time I hear someone say, “low Fed rates benefit debtors” I’m going to clarify, “low Fed rates benefit banks.”
One language to rule them all
Right now there seems to be a choice one has to make in languages: either it’s a high level language that a data scientist knows or can learn quickly, or it’s fast and/or production ready.
So as the quant, I’ve gotten used to prototyping in matlab or python and then, if what I have been working on goes into production, it typically needs to be explained to a developer and rewritten in java or some such.
This is a pain in the ass for two reasons. First, it takes forever to explain it, and second if we later need to change it it’s very painful to work with a different developer than the one who did it originally, but people move around a lot.
Now that I’m working with huge amounts of data, it’s gotten even more complicated – there are three issues instead of two. Namely, there’s the map-reducing type part of the modeling, where you move around and aggregate data, which, if you’re a data scientist, means some kind of high-level language like pig.
Actually there are four issues – because the huge data is typically stored in the Amazon cloud or similar, there is also the technical issue of firing up nodes in a cluster and getting them to run the code and return the answers in a place where a data scientist can find it. This is kinda technical for your typical data scientist, at least one like me who specializes in model design, and has been solved only in specific situations i.e. for specific languages (Elastic-R and Mortar Data are two examples – please tell me if you know more).
Is there a big-data solution where all the modeling can be done in one open source language and then go into production as is?
People have been telling me Clojure/ Cascalog is the answer. But as far as I know there’s no super easy way to run this on the cloud. It would be great to see that happen.
mathbabe 