Mare Somniorum

“All the Devils are here, the hidden history of the financial crisis” is written by Bethany McLean (of “Enron, the smartest guys in the room”-fame) and Joe Nocera.  No, let me rephrase that, it’s “superbly written by”. Considering all the terminology, the history and the number of players, the book is amazingly readable. McLean first caught my attention with her work on Enron, which also became a very good documentary and her tone is very well suited to the material, yet again.

But, really, what happened?  Well, a lot happened.  ”All the Devils are here” looks at the US in particular, which outside of Iceland, isn’t such an odd thing.  The way the US has dealt with regulation and mixed big business and politics is if not unique, in a league of its own. However, it’s also clear that Wall Street does what Wall Street does, which is to maximize profits, pretty much at any cost to others, and that even the smartest people on Wall Street are very fallible humans and smart solutions weren’t.

When securitization came along, it severed the critical link between a borrower and a lender. Once a lender sold a mortage to Wall Street, repayment became someone else’s problem.  This was made even worse by a slightly worrying trend as firms gave bonuses for closing loans, without asking if they could be, or would be, repayed. It just wasn’t their problem. Interestingly enough, everyone thought it was someone else’s problem. Which, in a true sense of irony, made it everyone’s problem.

The people who bought the loan created CDOs (“collateral debt obligations”) of the loan, tranching the CDO to get parts of it rated triple-A pretty much no matter what loans were used to form the CDO. Considering the rating agencies had started taking payments to provide ratings for products to the companies making the products, rather than relying on member subscriptions and rate products for their members, this wasn’t surprising — even if it was quite unfortunate. The fox was suddenly guarding the hen house, and when the fox didn’t like the hens, it shopped around.

As loans started to dry up on 2005/2006 a vast majority of the loans being taken out were refinancing for cash, with home owners using their houses as piggy banks. “Fresh” loans were dwindling and internal inspectors started seeing defaults in the 25%-range on the first payment, it became obvious that the financial institutions wouldn’t be getting more loans to create CDOs with, which was a huge cash cow for Wall Street.  Seeing this well dry up was obviously bad.  The solution however, well, it was worse.

What do you do when you’ve got low-rated tranches of unsellable CDOs on your books, and no more loans to create new CDOs from?  If you’re Wall Street, you have an epiphany and create new CDOs from low-rated trances of your CDOs — synthetic CDOs. And then, magically, the CDOs consisting of triple-B or junk loans that no one wanted, get parts of its tranches rated triple-A. Copperfield couldn’t have done it better. The problem is just that doubling down against the house only works for so long.

Add credit default swaps to defend against CDOs going bust, with multiple parties (even those not owning the CDOs) being able to insure (read, “bet”) on the success or failure of the product, and the house of cards is getting very tall, very fast. Add players like Goldman Sachs who created weak CDOs on behalf of clients, then sold these bad products as a “good buy” to other clients, while themselves betting that the CDO will fail (which it would, spectacularly), and you can’t help wonder if smoke and mirrors is a much too nice description of what went on.

“All the devils are here” is “Inside job” with tons and tons of documentation and details.  If you have seen “Inside job” and became infuriated, “All the devils are here” will make you understand how it could happen.  No single drop is ever responsible for the flood.  There were a host of players, inventors of fiscal products, government agencies failing or ignoring their purpose (Fanni and Freddi, we’re looking at you) and a long-held faith in the self-regulation of the smart people at Wall Street.

Well, here’s a hint.  When someone at Wall Street suggests that a product making 5-6% annually has “zero risk” (and yeah, they didn’t mean “close to nil”, they actually said “zero” explicitly), you’re so deep into the rabbit hole that self-regulation or even a functional risk analysis is impossible.  As much as the book is about economy, it’s about group think and human cognitive fallacies.

And no matter what memes people wish to sell, there are no easy solutions. We can just hope that after spending thirty years to create a perfect storm we can get it right this time around. Considering how the stakes keep getting raised, we might not have another shot at failing.

“All the Devils are here” is a fantastic work. Buy it, read it, learn from it.

Quantum Mechanics and Experience tries to ask how we can reconcile the rules that governs quantum mechanics with what we experience in this world on a day to day level.  It’s a tall order and there are a fair few number of oddities that needs to be addressed. There is also a fair bit of math involved, but it’s presented mostly at the level of set theory and formal logic that isn’t too hard to follow.

Drawing on his physics background, Albert takes us through the quantum world while asking about concepts like causality and determinism. It’s a very interesting ride founded in a way that  a layperson can follow, even if ones definition of a layperson might vary.

It’s also worth noting that Albert doesn’t seek to give definitive answers.  He’s mostly explaining the issues and presenting possible solutions, some of which do differ from what other scientists expect from quantum today. None the less, it does illustrate the weird world that is quantum very well. It also seeks to at least attempt to answer questions, as opposed to just showing the oddities that go on at the quantum level.

Okay, so Albert doesn’t possess the greatest writing gift of all time.  At times, this does make such a dense book hard to read. The sentence structure might cause some headaches at times as well as the heavy use of parenthesis and footnotes that come and go. Also, when giving lists of concepts named by letters, those concepts are referred to simply by letter for quite some time.  Considering the informational density of the book, this will make you want to keep several bookmarks in your head to expand on the current thread in Alberts mind.

It’s could have been an easier read, and it could have been better. But for what it is it sits in a niche of its own and as such, picking it up is worth it.

So, meh, I’ve been lazy about updates.  Sorry about that.

Anyway, over the last year-odd the theme has been textbooks and poetry. Mostly.  And following the idea of reading things one doesn’t normally read, “Non-places, an introduction to supermodernity” by Marc Augé was picked up at a local bookstore not that long ago.  Social anthropology isn’t something with which I’m overly familiar, so the book was bought on a recommendation from the staff. As the title suggests, I was given the English translation.

The concept that Augé puts forward is how places aren’t really places anymore. Our modern world has created places that are physical locations we travel through, but never to. Malls, motorways, airports and similar constructs are all “non-places”, but so are computers, TVs and similar tools that warp space and time through themselves to do our bidding.  Your phone can now show you last nights news from the other side of the globe, while you’re waiting for the train at a local train station and Augé ponders on what this does to both the public and private experience.

In a world of excessive information and excessive space, we pick and choose what and where with impunity.  We effectively base our experiences in what Augé calles “non-spaces” in partial and incoherent bits with no attachment to the physical place at all. As an essay on what this does to us, “Non-places” is a fascinating work.  The language is originally french, and it does show — strongly at times. The translation feels fairly literal and doesn’t shy away from a very latin-inspired vocabulary. It’s also a very academic text in certain ways, expecting a familiarity with terminology and names that might require a reader to do some research on the side.

Either way, it warrants being read.  It’ll make you look at the world around you differently and think thoughts you probably haven’t thought before.