Catchin' Up

It's been awhile since I posted last, having been sidelined by taxes and then other things got backed up as well. There's a been a few things I wanted to post on but couldn't muster the energy, so I'll just run through some quickly now.

Tortured Thinking

So the news came out that we tortured Khalid Sheikh Mohammed, mastermind of the 9/11 attacks - and people are upset about that? What were we supposed to do with him - put him on Larry King and ask him if the sex occurred in the house? The fact that he wasn't gutted alive while being harangued by a mob of 9/11 widows speaks volumes about our national restraint. If they want to embarrass the Bush administration, why don't the Democrats look into something more interesting like who forged the Nigerian-yellow-cake documents?

America, the Humble

President Obama seemed bemused during the ritual, rhetorical flogging of America he witnessed at the OAS meeting, except when he felt they were attacking him personally, at which point he suddenly gets all huffy and declaims "Don't blame me, I was only an infant when those dead white guys pulled that shit!" He then accepted a gift from Hugo Chavez, a book that is apparently so bad it's been called the "idiot's bible." But since the book was written when he was in 5th grade, what the hell?

The New Haven 18

The Supreme Court heard arguments in Ricci v. DeStefano, where promotions were denied to 18 white (well, one Hispanic) firemen because, while they got the top scores on a promotion test, no black firemen were among the top scorers. Justice Ginzburg noted that having a written test that only white firefighters could pass sounds a lot like having a physical test that only male firefighters could pass. No one wanted to go near that one. Moderately-liberal justice Breyer seemed sympathetic to the firefighters' plight, but worried that deciding in their favor could lead to objective standards based on merit being used everywhere, and that thought was just too horrible to contemplate. Justice Kennedy, on the other hand, appeared eager to formulate an impossibly narrow, finely-tailored opinion that would grant relief to those specific 18 firefighters while assuring full employment to everyone working in the testing/diversity/equal-opportunity specialty for decades to come.

The Creme of the Crop

DHS secretary Janet Napolitano appears to have surged into the lead in the race to determine the most incompetent Obama appointee. One wouldn't have thought it possible to so easily overtake the blatantly unqualified Clinton or embarrassingly over-matched Geithner, but Napolitano has proven herself capable of astonishingly poor judgement. Charged with the defense of our borders, she has suspended arrests of illegal aliens, shown a lack of interest in building a border fence, insisted that the Canadian border is just as dangerous as the Mexican border, warned police across the nation to be on the lookout for foes of abortion and immigration, and assured us that the 9/11 hijackers entered the U.S. from Canada. It's like she's angling for a Southpark appearance.

Strunk and White Suck?

This came as quite a shock - but, according to a bitter, linguistologist (or whatever Ph.D's in linguistics are called) named Geoffrey Pullum, they do. Now I have always been a devotee of Strunk and White, going so far as to carry their little pocket bible Elements of Style around with me for a few years in case an SWPL-like grammar argument should break out. But I do admit I've had a devil of a time trying to follow many of their style prescriptions, such as avoiding the passive voice or keeping one's writing crisp and lean, so perhaps the professor has a point. But, surely, had only a small percentage, of all the people who have ever taken pen to paper or, fingertip to keyboard, read their simple, rules on commas, much misery, in this world could have, been avoided.

Ovaltine...Why Do They Call it Ovaltine?

Risk Management is a fraud. Well, ok, that's a bit of an overstatement. But generally when it comes to risk you either avoid it or you take it on in the hopes of a big payoff. For example, I don't do anything dangerous - outside of blogging and driving on Route 22 - so I face little personal danger but also miss out on any thrills (aside from what limited rush one gets from weaving around debris-flinging dump trucks inexplicably clogging up the left lane). Financially, it's the same thing - you can go for the big time and risk all or play it safe with low, steady returns.

So "risk management" has the air of trying to have your cake and eat it too. Insurance is an obvious exception. Insurance allows you to avoid unforeseen losses so you don't have to worry about more-or-less random risks. Insurance works best when there is a loss risk that is common (so there's a large pool of contributors) but uncorrelated (so one event is not tied to other events), has a low probability of occurrence, and where the probability in any given instance is near random but can be well judged in the aggregate.

So what's wrong with insuring financial instruments? Simple - the risk of a financial instrument is already built into its price (or the spread). Thus, there's nothing to insure against - you've effectively insured the product by the very act of purchasing it - unless the value of the instrument exceeds your loss capacity.

If you're a small bank and you've underwritten a $1million mortgage, then you are probably at some risk however sound the mortgagee's credit might be. This of course was the idea behind CDO's - securitizing a book of mortgages so that no single default would pose a threat. So then why the need to buy credit default swaps to cover these already securitized loans?

There are only two rationales I can imagine to justify financial risk management (as in the hedging of investments whose risks are well understood and priced into the asset itself). One is to make one's returns look more impressive than they actually are by using hedges to understate the actual risks of the underlying assets. The other is to defeat regulatory capital requirements by shifting the risk off to another entity (the hedge) which presumably does not have these capital requirements. This sounds to me what went on between the banks and AIG - AIG's CDS bets essentially allowed banks to pretend that their riskier CDO's were safe because AIG was insuring them. But since the riskiness of the CDO's was already built into their higher returns, what could AIG have possibly been insuring? Well of course now we know the insurance was fraudulent, but the fraud is built into the very concept of "risk management."

Music Review

If you are uninterested in my opinion of the performance by the New York Philharmonic of Tchaikovsky's Fifth Symphony last evening, please move on. Otherwise, I welcome your indulgence.

The performance was led by Charles Dutoit. The first half featured Stravinsky's Concerto for Chamber Orchestra and Prokofiev's G-minor Violin Concerto with Lisa Batiashvili, soloist. Both works, while composed in the thirties, are safely tonal. I used to like (or thought I liked) the modern, atonal works I'd hear - at least appreciating the musicianship I'd witness - but I've since lost all patience with them. It now seems the height of self-indulgent, snobbery. No doubt this merely reflects my ignorance-cum-aging intolerance, but in the category of no one is always wrong, I have to agree with Stalin: the listener is flabergasted by the deliberately dissonant, muddled stream of sounds. Snatches of melody, embryos of a musical phrase drown, struggle free and drown again in the din, the grinding, the squealing. To follow this music is difficult, to remember it impossible.

But these two works are quite followable and memorable. The Concerto for Chamber Orchestra pays rather obvious tribute to the Brandenburgs - one can hear little snatches of them throughout - with its playful, vigorous exposition laid out in fugal strands and tight ensemble playing. The Prokofiev violin concerto was a great showcase for the young violinist (and one of Uncle Joe's fellow Georgians), though I confess I lack the expertise (and familiarity with this work) to judge her playing. It's a beautiful piece, wonderfully orchestrated, and Dutoit had the Philharmonic playing in perfect balance throughout.

So to provide some balance to these two clever, savory pieces, the Philharmonic presented Tchaikovsy's Fifth in Act 2 - the audience, having eaten all their veggies, would be rewarded with a rich, fat, scrumptious dessert. And why not - we pay good money for these seats, let's indulge our guilty pleasures once in a while.

When Tchaikovsky followed his Fifth Symphony with his Sixth, he can be truly said to have gone from the ridiculous to the sublime. Tchaikovsky's Fifth is a sentimental favorite of mine - it introduced me to classical music. My parents had this in their collection and one day in sixth grade I decided to play it, and was instantly hooked. If you're going to get hooked by a work, this is the one because the Fifth is one long string of hooks - barbed might be the right term for it. It is so brimming with recognizable thematic material you might think you're listening to some posthumous compilation of favorite material culled from a lifetime's work. The themes comes at you from every direction - from the funereal to the martial dramatically transitioning into lush, brazen romance, followed by a show-tune ballad then a folk dance. It is in short one big gorgeous mess of a symphony, and Dutoit payed it fitting tribute by conducting one big rollicking mess of a performance.

Because the piece itself is so in-your-face, conductors will try to throttle back a bit as best they can. I heard the Philharmonic play it under Leonard Slatkin some years ago. Slatkin used to be the orchestra's principal guest conductor, so I'm familiar with him but only conducting this orchestra, but based on that alone I consider him the Greatest Conductor Ever. His interpretation of the Fifth provided a very tight, restrained though luxuriant performance that was to my ears pitch perfect. In his recording with the Chicago Symphony, Daniel Barenboim pulls way back, playing the orchestra off the work's most subtle effect - silence - in a way I'd imagine hard to replicate live.

But Dutoit apparently said "Screw that." No doubt the precision of the first two works was enough work for the limited rehearsal time. If these philistines in the audience want their Tchaikovsky's Fifth, then let's give it to them. And they did - there was no holding back, no worries about over-playing. The orchestra's principals, whose ensemble playing in the Concerto for Chamber Orchestra was so mesmerizing, now were determined not to let any other players outshine them. Despite the near ear-shattering volumes the orchestra managed to reach at times (the EU would not have approved), Philip Myers, the brilliant and prodigious horn player, made certain he would always be heard. Indeed, the symphony provides a number of showcase moments for the principal players that typically aren't so prominent but last night they all got their chance to shine. And while the playing was generally poorly synchronized and out of balance (the brass was absolutely overwhelming while the strings played at full tilt throughout), the individual efforts were impressive throughout.

And I had an absolute blast - don't mistake my comments above for snarkery - I'm just reporting facts - it doesn't mean I did not enjoy every minute of the performance, however unbridled and histrionic if might have been, and I was not alone. At times during the performance, I would think "This is such a mess. I wonder how the audience will react?" No worries there - the seats erupted as soon as the last blaring chord faded in an orgasmic ovation. After all these years, I still fool myself into thinking that the typical attendee at these concerts has any clue what's going on - that surely I sit amidst a sea of very knowledgeable patrons who would chuckle disdainfully at my limited expertise. In reality I'm probably at the 90th percentile in this crowd as far as musical knowledge goes, with the top 5% far exceeding my knowledge and the bulk of those in the bottom 80% knowing next to nothing - a flat then steeply climbing exponential curve. Of course the most knowledgeable are no doubt students going for free or a deep discount. Meanwhile the rest of us paid good money for our seats, so why shouldn't we be treated to a rousing rendition of an old favorite? Uncle Joe would have been pleased.

U.S. Marshals seize Madoff home, boats in Florida

Reuters: U.S. Marshals on Wednesday seized a $9.4 million luxury home in Florida belonging to disgraced Wall Street financier Bernard Madoff and his wife after earlier confiscating two of their leisure boats.

Yes! That's what I want to see - capped off with a life sentence - though I won't be satisfied until that bitch wife of his is cleaning toilets.

And that's what we need to do, but on a much grander scale. The Feds should have a very hefty database of names of people involved in the great scams of the last decade - mortgage brokers, mortgage company executives, CDO bundlers, over-the-counter CDS underwriters, mutual-fund managers with loose tongues, CEO's pumping their stocks - and all their likely possessions. Such a list should be very simple for the USG to compile, using available public records.

Just using existing laws, RICO for instance, we could just start confiscating these properties en masse. If the seriousness of our current financial situation combined with the enormity of the crimes not be sufficient to dissuade the judiciary from interfering, Congress could easily pass a law more explicitly authorizing this action. Given the shenanigans that went on, it's hard to imagine we couldn't successfully prosecute most of these cases, time being the only limitation. We can offer plea deals where the defendants agree to give up claims to the confiscated property should the prosecutorial load be too onerous.

If I were president, of course, I would direct every lawyer working for the government to be assigned to prosecution of the crooks involved in the Great Looting and securing their ill gotten gains. Maybe now that Obama is feeling a little intoxicated from the rush of firing the CEO of GM, he might find this kind of thing fun and give it a try. I would be most cathartic for the nation.