A shiny new system

Last week, in a moment of weakness, I forgot my rule to never update the kernel of the host OS. Whether I've really followed it assiduously I don't really remember, but in hindsight it seemed like a good rule; because the following morning the system started but GDM didn't. I could ssh in from outside but no console. Being a bit of a newbie (or rather an oldie who hasn't yet learned his way around Linux), I didn't manage to figure out what had happened (probably something to do with the proprietary ATI/Radeon driver which I installed in another moment of weakness a year or so ago), or rather how to fix it. So, after a considerable amount of messing around, patience began to give way to a sense of needing to do something drastic. So I decided to replace the host Ubuntu 8.04 LTS system with Ubuntu 9.10.

The first big difference is support for software RAID right out of the box. This was excellent news, since the host OS sits on a RAID10 array and my data on RAID5, and keeping everything in tact took some effort when I moved from Fedora to Ubuntu 8.04 LTS.

Not everything went smoothly. VMware Workstation 6.5.3 doesn't install properly. The installer hangs when configuring VMware Player, and while there is a workaround, there are other issues. A patch needed to get it running with the 2.6.29 and later kernels only seems to work on 6.5.2 (for which the patch application script was written) and I wasn't able to modify it to work on 6.5.3.

So back to VMware Workstation 6.5.2; here there is a mouse / screen position problem. The mouse is 'lost' to the guest at the edges of the screen. Some searching suggested a GTK problem but fortunately VMware can be directed to use it's own shipped version of GTK (add "export VMWARE_USE_SHIPPED_GTK=yes" to /etc/vmware/bootstrap).

So far so good; 24 hours in and everything is back to normal.

At one point, before I found the mouse issue fix, I did contemplate going to Sun's VBox. It's pretty, but...

I converted my guests to ovf format; this required some editing of the ovf and mf files, the former because the sound card wasn't recognized by VBox import, and the latter because editing the ovf file means changing the SHA1 sums in the mf file. After converting the guests, I tried booting them: the Windows guest crashed, I think because Windows is rather fussy about its (virtual) hardware and perhaps the removal of the sound card was too much? I'm guessing here. The Ubuntu 9.10 guest came up but VBox doesn't have a video driver that presents the guest with a 1680x1050 screen so it took a while to get the guest to fill the screen. It was a bit flaky sometimes reverting back to 640x480, and once just scrambling the signal completely. All in all (and this is just my lay-persons opinion) it felt rather Mikey mouse compared to VMware.

So back to VMware it is. And now I promise I'll never install a propriety video driver again (yup, we've heard that before...).

Third party rating agencies

DPReview is a website that has been providing reviews of digital camera for 10 years. It is an example of how things can so easily go wrong.
I recently noticed that almost all the cameras they reviewed were "highly recommended". So I looked at all the reviews they have done since 1999 and an interesting trend emerges.

The graph show the average of ratings awarded each year using 5 for "highly recommended" to 1 for "below average". 14 of the 19 cameras reviewed in 2009 were "highly recommended".

This kind of 'grade inflation' is understandable; the site relies on equipment makers loaning them the cameras for (pre)review and doing so early so as to attract eyeballs to the site. Manufacturers are understandably more likely to lend equipment to sites that give them high marks. So getting hold of new cameras is easier if you give the makers better ratings.

However the value to consumers declines as ratings are compressed into the top category. Telling one from another is no longer a case of looking at the bottom line, but now requires making a subjective judgment (often based, in no small measure, on someone else's subjective judgment).

Ratings inflation also compromises the site's brand for integrity and objectivity. If the raters are basing their assessments on something other than their response to the product, namely the desire to get product to review and eye-balls to the site, how much faith can one place in what they write? (And to my eyes, some of what they write bears absolutely no relation top the test images they comparing.)

Of course, this kind of compromised objectivity applies not only to reviewers of digital cameras; the financial instruments that were the building blocks of the "normal accident" (Perrow, 1984) that befell our economic system last fall, were rated by supposedly impartial third parties - and look how well that worked out.

Bullwinkle Bear 1991-2009

After a short illness, Bullwinkle Bear, "Woodles" to her friends, succumbed to the dual ravages of kidney failure and diabetes.

A dear and loving friend, she helped me decide on a new career, shared the burden of many late nights reading, saw me through comprehensives, my thesis defense and data collection. After relocating to the US, she shared with me the joy of my time at Stanford, helped finish my thesis, find a job, begin teaching and navigate my way to tenure.

A constant companion, I will be very lonely without her company; my work buddy has left me to figure the rest of this out on my own. Than you, Woodles, for your love and devotion; you are forever with me in spirit.

The perils of socilized medicine

There is much ado from the political right about the perils of "socialized medicine". One of the claims used to support this position is that "big government" will be making decisions about the allocation of scarce resources. This is framed as violation of our civil liberties - apparently the right to acquire whatever scarce resources are available if one is willing and able to pay the market price. The government should not making these kinds of allocation choices.

Why then is there not a furore at the CDC's recommendation yesterday concerning the allocation of limited supplies of the H1N1 vaccine? In this not government rationing? Isn't this government interfering with our right to choose? No: it's just a recommendation. Those making the final decisions on allocation of the vaccine are doctors.

Oh, but isn't having doctors making allocation decisions (like who should get the heart transplant) based on something other that willingness to pay also a violation of our civil liberties? That sounds like socialized medicine all over again. It's all rather confusing.

Not at all: doctors - at least the good ones - will simply sell to the highest bidder like the any rational homo-economicus. And the others must therefore be... (gasp) ..."socialist".

Globalization and trade

Data from the World Trade Organization show that since the end of the Second World War there has been an exponential (in the mathematical sense of the word) increase in trade between countries (red line in the chart). One striking aspect of this is the lack of sensitivity to the price of oil (blue line), which seemingly contradicts Jeff Rubin's thesis in his new book "Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization". In fact there is a positive correlation (0.48) between oil prices and trade, which remains (0.43) when trade flows are lagged two years.

However, Rubin's predication is that oil will increase in price by an order of magnitude within a very few years - presumably then the current (lack of) relationship will change?

If he's right, then do we still have the infrastructure to reverse the off-shoring that has been going on steadily for the last decade or so? This is not just a question of physical assets, but skills, some of which take time to learn.

A fragile world

The world we inhabit for such a brief moment in time is fragile.

"There, contained in the thin, moving, incredibly fragile shell of the biosphere is everything that is dear to you". (Loren Acton)

In my next three posts to this site, I want to dwell briefly on three aspects of fragility: globalization and trade, the ecosystem, and human nature and civility. They are different but I contend linked. I mentioned the first a while ago, albeit rather briefly (if not cryptically) but want to return to it. The second ties into the first and my fear is that the third depends on events in the other two.

Risk postcript

In reading my prior post, one might interpret my observation as implying that bankers' decisions have less serious consequences than the decision of pilots. Unfortunately, that may not be the case.

Data collected by C. Pritchard (1990) suggests that suicides rise by 1.72 per million for every 1% rise in unemployment*, which has increased by 4.2% from May 2008 to May 2009. This would suggest that the deteriorating economy has contributed to about 1,700 additional deaths in the last year. This may be a conservative estimate since it does not take into account other factors such as home foreclosures. By contrast there were on average only 66** accident related aviation fatalities a year over the period 1989-2008, and only 16 per years between 2002 and 2008***.

However the point of my last post still stands; paying people more money does not seem to make us any safer.

* Panel data regression based on this data available on request.
** Deaths caused by an illegal act are excluded from the calculation.*** 2009 however is turning out to be a bad year - 49 died in the regional air crash in February in Buffalo, NY, the incident that prompted the Senate hearings mentioned below, and 228 perished in the Air France Rio to Paris flight on June 1st. Pilot error may have been a factor in the first; the cause of the second has not been determined.
Pritchard, C. 1990. Suicide, unemployment and gender variations in the Western world 1964–1986. Social Psychiatry and Psychiatric Epidemiology, 25(2): 73-80.

Compensation and risk

In testifying before a hearing of the Senate Subcommittee on Aviation Operations, Safety and Security recently, Roger Cohen, President of the Regional Airline Association asserted that there was no data to suggest any relationship between pilot compensation and the risk accidents due to pilot error.

The same lack of relationship between compensation and risk-taking that puts others in jeopardy seems to exist elsewhere; for example in some large banks and one insurance company. Despite high compensation, the senior managers in the cockpits of some of the nations largest financial institutions were unable to prevent a crash.

We seem unperturbed that those in whose hands we place our lives earn minimum wage, while those who look after the money seem to make more mistakes yet are paid a thousands times better (literally).

Perhaps the banks' shareholders might think about this next time they take a regional flight to a shareholders meeting.

Type-casting

There are no good or bad people, per se: we simple ascribe these generalizations to others based on

1. our experiences in interactions with us
2. our observations of their interactions with others
3. reports of their interactions with others

A person might behave well or badly towards you and yet behave in quite the opposite manner in relationships with others. Does this make them good or bad? We are surprised when hardened criminals do selfless things, or when philanthropists turn out to have been terrible parents. The problem is with our inability to deal with complexity, a matrix of relations rather than a vector of friends and enemies.

A fly by night rant

I'm a little tired this morning because I was woken at about 3:20am and couldn't get back to sleep. The cause of my insomnia was a comment made by a Fox "News" anchor that I found troubling (and regrettably consistent with my take on the channel's approach to broadcasting).

The comment in question involved the setting up of a segment following a commercial break which was to be devoted to ridiculing those (namely PETA) who suggested that President Obama's killing of a fly, and his seemingly indifferent attitude to the intentional ending of a life, might be something worth talking seriously about in terms of the questions it raises.

What bothers me about the Fox News anchor's comment (and its tone) is its lack of reflection. The implication was clearly "why the fuss; it’s only a fly". It is a predictable knee-jerk reaction to an organization that Fox likely labels "dangerous nutters" - yet in the organization's response was surprisingly low key.

Stripped to fundamentals, what we saw was the premeditated killing of a complex self-sustaining multi-celled organism. Fox chose to ridicule those who it imagined would take exception to the callous destruction of any complex multi-celled life-form - animals - while it vilifies anyone who entertains the possibility of destroying a non-self-sustaining single cell for any reason whatsoever - just because the latter is human.

It is this inability or unwillingness to make connections and consider comparisons between situations that might share some common underlying attributes that is troubling. It is the same kind of disconnect manifest in those who advocate killing doctors who perform abortions or suggest that right to life applies to embryos but not to those sentenced to death. Without taking a position on any of these questions, one inevitable conclusion is that the right to life is not absolute, but that it comes with implicit boundary conditions; what these are differs depending on who you ask.

It is this same lack of reflection that prevents one from seeing one person's terrorist as another's heroic freedom fighter, depending on ones vantage point. This could be said of those who fought a guerilla war to liberate the colonies from the British, the Basque separatists, the Taliban mujaheddin (who were widely seen as heroes during the Soviet occupation of Afghanistan but are now longer held in such high regard), the Irish Republican Army and even some who resisted the Coalition occupation of Iraq.

It is thoughtless compartmentalization - "that principle applies there but not here" - that allows a single person to hold two axiomatically contradictory positions. The typical workaround that allows inconsistency to be ignored is simply "oh, but that's different". The questions, too infrequently asked in the media, must be "How exactly are they different? and why does that particular distinction matter?" Ultimately, such unexamined contradictions reflect either intellectual laziness or indifference to a coherent ethical position.

All of this is not to say that killing a fly ranks along side water-boarding, the Iranian election, North Korea's antics, the regulation of the financial services industry, and health care reform; the fly, like Letterman's stupid joke, is not one of the pressing issues of the day. But it does offer a starting point for a discussion on the right to life that gets past the ideology dogma and into the realm of ethics and morality.

Quit "wining"

Wine, the windows emulator for Linux, is going nowhere - for good reason. Wine is an open source project relying on input and effort from volunteers. The Wine website explains the rational for the community's efforts (see also OS/2, Microsoft and Open Source) as aiming to provide an alternative to Microsoft's quasi monopoly in desktop operating systems by allowing those Windows applications to which we are now accustomed and find hard to do without to run under Linux. Yet 5 years after the release of Office 2003 SP1, the service pack install fails. Given the popularity of MS Office, appropriately described by Bill Gates as one of the "killer apps", this seems somewhate at odds with the community's mission.

Clayton Christian's work on the disk drive industry suggests why: the community listens to itself, not the larger market that it hopes to serve. It's hard to listen to the views of those with whom one as yet has no relationship but it turns out to be essential.

A quick look at the most popular Wine applications shows the problem. Of the 25, only two are not computer games, and both of these (Adobe Photoshop and Canon's Digital Photo Professional) serve one niche market. Together these two applications get only 7% of the community's 'votes'. Microsoft Office 2003 Installer gets only 5 votes (Final Fantasy XI Online Final Fantasy XI has 401) and is so far down the list that it doesn't even show up without filtering.

If the Wine community only works on projects its predominantly gaming community wants, few if any potential Office-under-Wine-under-Linux users will use Wine and thus will not join the community - and there will be no impetus to improve Office running under Wine. We have a vicious circle, ironically exactly the catch 22 situation that the Wine community talks about on it's "Why Wine" page. If Wine is serious about fostering an open source alternative to Microsoft's operating systems, it needs to break this cycle or end up like 3D0, a small footnote in history.

Not quite what they had in mind?

Allan goes on a road trip in his father's car and gets into an accident. He calls his dad who wires him the money to get the car fixed. However, Alan's dad says there will be conditions - he'll have to drive more carefully in the future and he may have to take more driving classes when he get home. Instead of fixing the car, Alan spends half the money on drink, drugs and hookers, and expensive gifts for his friends; with the rest he hires an attorney to prevent his father from forcing him to take additional driving classes when he gets back. The car, unsurprisingly, is not fixed.

Key

Allan	Banks receiving bailout money
Alan's father	Tax payers
Money to get the car fixed	TARP + ...
Road trip	Writing CDSs and buying CDOs
Drink, drugs and hookers	"Performance" related bonus payments
Expensive gifts	Dividends
Attorney	Washington lobbyist
Additional driving classes	Government regulation and oversight

Medical records

Medical research is expensive and inefficient. New drugs, for example, must undergo lengthy trials before getting FDA approval. But not all the problems emerge during these trials; the FDA has insufficient resources to retest drugs it has already approved, and is often unwilling to withdraw approval for drugs that are on the market on the basis of evidence that is often not collected in a controlled manner. This puts people at risk; fixing it by expanding the FDA's testing activities is expensive.

Electronic medical records offer a way of collecting information about drugs that would allow the FDA to see patterns in large sample studies (since the sample is the population). This will make drugs safer.

There are other benefits to electronic medical records. Not all research in medicine is done in carefully planned studies in teaching hospitals. Much, though it's hard to say how much, is done by general practitioners and specialists who read journals, have ideas, and try things out; for example, new combinations or dosage levels of drugs.

Collecting information about such 'in situ' clinical trials - in aggregate of course - provides additional research data for scientists seeking to better understand things such as the interaction of drugs and physiology, and the progress and virulence of diseases.

These are just some of the benefits that need to be weighed against the potential risks of sensitive personal medical data falling into the wrong hands. There are implications for the private insurance market, but that is another story.

Virtual Elegance

The machine on which I do my simulation was a Fedora 9 based system with 4 320GB drives configures in three RAID arrays. The OS itself was in a RAID10 partition spanning all 4 disks. The swap partition is a RAID0 array, again across all the disks. Finally a RAID5 partition holds my data and three virtual machines (2 Fedora guests and one Windows XP).

The system was crashing several times a day - the mouse and keyboard would freeze in the guest and the only way out was a hard reset. Since Fedora is not one of VMWare's supported OSs, I decided to try Ubuntu, which is. The question was: could I pull the Fedora host OS out from under all this without disturbing the RAID array with my data and my VM disks. The process was complicated by the fact that the Ubuntu installer does not have RAID10 support, and an intervention is needed during the installation to download mdadm and configure RAID10 from the command line.

Many years ago, when I worked for IBM as an SE, I used to extoll the virtues of VM for its ability to allow testing before going live to all my S/360 customers; 25 years later this advice was still valid.

I set up a guest with four virtual disks on which I set up RAID partitions (10,0 and 5) to match the host configuration. I installed Fedora on the RAID10 array and mounted the RAID5 partition as /data, exactly matching the host OS configuration. Next I made a copy of the disks so I could repeat the migration process several times. Then I started the guest using the Ubuntu installer iso image, went though the installation process. When I finished I restored the Fedora disks and started again. After running though the installation three times to a point where I felt fairly comfortable, I did the same thing on the bare iron - and to my surprise and delight it worked like a charm. The RAID10 array was reformatted with the new OS while the RAID5 array was untouched and reassembled.

This kind of major change close to the hardware would normally have been the cause of a huge amount of grief - for example discovering that there is no RAID10 support in the Ubuntu installer might have thrown me for a loop if I had been working directly on the host. It's also a one shot game as backing out of an installation is impossible once any partition changes have been made. Testing the procedure in advance with VMware was invaluable. The feeling I had was that of the magician who's just pulled the tablecloth out from under a fully set table of dishes, glasses and cutlery.

It truns out that Fedora was the cause of the problem. With Ubuntu 8.04 LTS, the system hasn't frozen in 6 weeks. I've used Fedora since the first release of Core 1. It feels odd not to be using it, but at the end of the day I have other work to do.

Corporate Jets - the business case

What would be the case for leasing a corporate jet?

• The CEO needs to work while he travels.

Actually most working professionals work when they travel so it must be something else.

• The CEO's time is worth more than that of most working professionals.

A CEO with a salary of $10M (the average for Standard & Poor's 500 company) might save time if there is no waiting in line and no waiting for scheduled flights. If this saves him or her 4 hours per day of traveling, and the CEO travels 3 days a week or 150 days a year, and typically works a 16 hour day, the cost of this CEO's lost time would be about $1M a year. This is not quite enough to pay for the cost of owning and operating a small jet such as the Hawker 800XP which comes to about $2.4 per year. But if one adds the CFO and the COO who might be traveling with the CEO or traveling on the days when he is not, and assume that they are paid half the CEO's salary one could argue that time savings could amount to $2m.

Interestingly Avicor, an aviation consulting company, does not make this claim. What they do suggest is that meetings in-flight are where the money is saved - you can't hold a confidential meeting in coach (or business class for that matter). Here it's the travel time that counts. If one adds in-flight time to the time saved on the ground, and if one assumes flight durations on average of 3 hours, the CEO's useful time might come to $1.75M; the CEO and the top management team together would then likely save the cost of the jet.

Of course this is predicated on two assumptions. One is that the jet is in almost constant use. And second is that there is no alternative. While flying coach may not work as an alternative, teleconferencing, for example Cisco's telepresence, may be a lower cost alternative. In which case the saving would be considerably less. But that's a calculation for another day.

A Principle Agent Problem at CNN

Last night I woke to hear John Roberts and Kiran Chetry talking about Oprah and her private jet. In an address to graduating students at Duke University, Oprah said (not unreasonably) that “It’s great to have a private jet. Anyone that tells you that having your own private jet isn’t great is lying to you.”

Chetry, speculated, as news readers are increasingly wont to do, whether this comment might change public opinion - which has been a bit of a downer for private jet industry - and thus go some way to rescure the beleagured small plane makers. This is a lamentable confusion between principals and agents.

There is a distinction that might help here: private jets are fine; corporate jets are another matter. Why? Because what individuals spend their own money on should generally be of no real concern to anyone else. Since Oprah owns her production company, when the company buys (or leases) a jet Oprah, as an officer of the company is spending money that belongs to Oprah, chte company's owner.

Executives of public companies who buy corporate jets are not spending their own money - they spending their shareholders' money. When companies are going broke and shareholders see the looming possibility that they will loose their entire investment in that company, it's understandable that they are unhappy with the people thy have appointed as their agents spending what remains of their money on what they may consider to be unnecessary luxiaries.

There may well be a case to be made that corporate jets do pay their way - but that is cost justification agents must make to their shareholders. Agents should not assume that they have the same rights regarding the way they spend the company's many as Oprah and others who own the companies they run do.

Integrity

After a scandal in the UK concerning MPs' bogus (and apparently fraudulent) expense claims broke in the Daily Telegraph, one MP named in the piece said in an interview that he was paying back the money he had claimed for 'fittings, furniture and household items'; he added "I just want those people I represent to know, whether they vote for me or not, that I have personal integrity".

So let me see if I have this right: if you dip your hand in the public coffers and then return the money after you are caught, this is integrity?

I would have though that integrity would have mean not committing the offense in the first place.

The table cloth trick

The machine I do my simulation work has 4 x 320GB drives arranged in a RAID10 array for the host OS, a smallish RAID0 array for swap space, and a RAID5 array for my data including the two VMs, one a Windows XP for writing the other a Linux VM for coding. I have been a Fedoa user since Core 1. The host OS was Fedora 8 and the guest Fedora 9. However, the system was crashing several times a day - the mouse and keyboard would freeze in the guest and the only way out was a hard reset.

Since Fedora is not one of VMWare's supported OSs, I decided I needed to try Ubuntu, which is. The question was: could I pull Fedora out from under all this without disturbing the raid array with my data and my VM disks. Ths process was complicated by the fact that the Ubuntu installer does not have RAID10 support.

So I thought back to my early days as an IBM SE and wondered what would I have done with VM (back then VM was an IBMoperating system product - perhaps it still is)? The beauty of VM was that you could run any operating under it to test stuff out before going live on the bare iron. With this in mind, I set out to create a virtual replica of the physical system under VMWare.

I set up a test Fedora guest with four virtual disks and set up raid partitions to match the host configuration. Some surfing turned up a procedure for breaking into the Ubuntu installation and starting the raid system and then mapping the drives before copying the files into the new file system and completing the install. This is the kind of process that often goes off the rails half way though and that's the point at which a hasty and often irreversible decision adds another day and considerabel hand-wringing.

I practiced this install three times from start to finish using this test Fedora guest VM, each time deleting the newly created Ubuntu guest and replacing it with a copy of the original Fedora one. When I felt fairly comfortable, I did the same thing on the bare iron - and voila, it's working.

For me this kind of major upheaval close to the hardware would normally have been the cause of a huge amount of grief; testing and practicing the procedure in advance with VMware was invaluable. (I feel rather like the magician who's just pulled the tablecloth out from under a fully set table of dishes, glasses and cutlery).

Now all that's left is to see whether Fedora was indeed the cause of the problem.

A Research Question

We are told, usually by financiers, that 'sophisticated financial instruments' like CDSs and CDOs are essential to the functioning of the economy. Yet the economy seems to have been doing quite alright before they were invented.

The chart above is a log plot of the Dow Jones industrial Average since 1928; '2' is the Dow at 100, '3' is 1,000, and '4' is 10,000.

The trend line sits quite nicely in the data. The R-squared for the trend line is 0.926; in other words a simple exponential growth function accounts for over 92% of the variance in the Dow. Of course high R-squared are normal in this kind of time series data. I also appreciate that small changes at the margin may be worth considerable sums of money. Nonetheless, intuitively the economy as a whole does seem to have been growing at a relatively steady pace for almost a century.

"Ahh" say the financiers, "but just look at the growth they generated in the last 15 years". Suppose we do that:

We do indeed see a sharp increase in the rate of growth. Of course this sharp increase in growth corresponds to the Internet bubble. It's followed by something of a correction. Over a longer period of course is the growth in the use of consumer credit and then, beginning at the turn of the century, the housing bubble. With the collapse of the banking sector and the shrinking availability of credit, the economy has retracted and the Dow has dipped well below its historic trend line.

Of course this is vastly oversimplifies things and, as they say in the advertisements, "the past is not necessarily a guide to the future". Nonetheless there is something rather compelling to the thought that "plus ca change...".

My rather simple view of economics suggest that GDP growth can come from two things: more people, and greater productivity. GDP per capita therefore can only change if productivity changes. I lump two things into productivity: gains from trade and specialization and technology. Leaving trade aside, this upswing in the last 15 years might reflect improvements in productivity from new technology; and new 'sophisticated financial instruments' might be seen as an example of a new 'financial technology'.

We should be wary of this explanation, however, on two counts. First a McKinsey study a few years ago suggested that the gains in productivity from new technology have been vastly overstated. Second, new sophisticated financial instruments might possibly be better thought of as bets or gambles than as technologies.

If they are bets, not useful technologies, then there will be no change to the trend line with their adoption, only movement around that trend over time. If so, the correction (which may be a little overdone) brings us back close to where we should be. More importantly, in the long run the impact of these 'sophisticated financial instruments' may be a wash.

So that's the research question for any budding macro-economists: are these instruments technologies or gambles? So to those who say these instruments are an essential part of the modern economy I would say "show me the data". Demonstrate their contribution to GDP; that is how much smaller, if at all, would the economy be were we not to have these instruments available to us? Some empirical evidence is needed, since all we have at the moment is hype and unsubstantiated assertions from interested parties. And that's never as good as real evidence.

More on AIG

Like many people I am concerned that employees and managers in the Financial Products Division of AIG, the arm of the company that wrote the under-priced CDSs, are receiving large bonuses. It is more all the more irksome because they are now being paid by US tax payers, many of whom are struggling with the fall out of AIG's bad decisions.

However, I am opposed to some of the suggestions being floated in Washington to recover that money, for example that of Charles Schumer, who is advocating new completely ad-hoc tax laws. This is the kind of response that makes people wary, indeed suspicious, of government. Such ad-hocary increases uncertainty and makes the Government look weak and capricious.

The time to argue about bonuses was before the money was handed over, not after the fact. Of course, as was I'm sure clear to many at AIG, they had the government over a barrel and the government would have found it enormously difficult to make the surrendering of bonuses a pre-condition of the bailout.

While AIG took excessive risks that have contributed the crisis, it did so because we (regulators, government and the electorate) allowed them to do so. Blaming a few fat cats is easy - they make wonderful scapegoats, but not all of the blame is theirs.

Stewart vs. Cramer

First let me declare my bias: I enjoy Jon Stewart’s show (sorry Dominie). Having watched it pretty regularly for 8 years, I think he does a better job pointing out inconsistency and illogicality in public figures than 90% of the serious television so called journalists (a reflection on the regrettable state of the broadcast media). And that was really his point last week.

Conspiracy theorists and Fox News junkies may impute to Stewart “a hidden agenda”; in some ways they are probably right - I imagine that his “agenda” includes such subversive ideas as a belief that hypocrisy, and unethical behavior in public figures should be called out. Is he “Fair and Balanced”? Probably not. Is Fox News? Of course not.

But this is all quite irrelevant. To dismiss Stewart because he is a comedian or because he probably votes Democrat is a superficial and misguided heuristic, because his substantive points have not been answered.

Cramer was shown explicitly encouraging ethically dubious market manipulation in his internet show; as an insider was may reasonably assume he had more knowledge than most about CDOs and CDSs; given is background and access to insider information, his advice on Lehman stock seems more to reflect the interests of his industry associates than those of the people his show claims to represent.

Stewart’s understandable outrage stems perhaps from seeing his mother’s 401k fall in value while those whose actions contributed to the collapse take home very large bonuses, something to which he alluded on the show.

Of course, some will argue that the problem was not just on Wall Street and I agree. Politicians of both sides contributed to relaxation of oversight regulation the evisceration of the agencies that should have been carrying out that oversight. And many people (encouraged I’m sure by unscrupulous real estate agents) made very foolish decisions that left them overextended. Yet someone who made a bad decision on their choice of mortgage looses their home; they don’t get a six or seven figure bonus (paid for by us, the tax-payers) as a reward for their poor choices.

AIG

AIG needs more tax payer money. While this seems a little like throwing good money after bad, what happens if we don’t? Here’s my lay-person’s take.

If AIG goes under, presumably it will not make good on its credit default swaps (CDS), the insurance-like products it sold to the banks. These CDSs were bought by the banks to protect the mortgage-backed securities they had written; in the event that the collateral (the properties against which the mortgages were written) turned out to be worth less than the mortgages themselves, their mortgage-backed securities (or collateralized debt obligations, CDOs) still had something behind them. If AIG doesn’t make good on its CDSs commitments, the banks’ CDOs are worth less than they currently and those banks will likely fail their ’stress tests’. Consequently, they will be forced into bankruptcy as well.

Some think this is a good idea (and perhaps in some ways they’re right), yet the cost to many could be horrendous. Without the banks to lend to business and consumers the economy will contract further, more people will loose their jobs, their houses, their 401k savings. Property prices will fall further, personal credit will be more difficult to obtain, consumption will decline, and the recession will deepen.

Of course, though keeping the banks alive may lessen the severity of the recession, we will have preserved the very system that was in no small measure to blame for getting us into the mess in the first place…