Monday, May 31, 2010

Much Ado about Practically Nothing

by Richard Crews
When the Universe was born in the Big Bang 13.7 billion years ago, all the matter that exists in the Universe today was created in the twinkling of an eye (less than a trillionth of a trillionth of a trillionth of a second).

Actually a good deal more than exists today was created, since matter and anti-matter were created in almost equal amounts, and they went to work annihilating one another. Luckily (I suppose) there was a slight excess of matter--about 1%--and that's what we see in the stars and Earth and everything else around us.

Well, not quite. It seems that most of the matter and energy in the Universe is "dark"--it can't be seen or otherwise observed by our usual senses and scientific instruments. In fact, only about 4.6% of the mass and energy in the Universe is observable (is not "dark energy" or "dark matter").

That doesn't seem to leave very much, does it? Only about 4.6% of the 1% that remained after matter and anti-matter were done with each other.

But that still doesn't take account of the calculation that most of the mass/energy left over from the Big Bang after the big matter and anti-matter shoot-out has been lost, during the ensuing 13.7 billion years, down black holes. Over 99.999% of the observable mass and energy in the Universe has collapsed into black holes.

Yup. Everything we feel around us and see in the night sky represents only about a bucketfull of the ocean of Universe that was originally created.

Sunday, May 30, 2010

Reality Testing

by Richard Crews
Many things we hear in life have to be "taken with a grain of salt" (a metaphor I will come back to). Particularly in our age of blogs and call-in talk shows, of TV's talking heads purporting to be pundits, and of loudly and colorfully proclaimed political and advertising distortions, the personal mental skill that psychiatrists call "reality testing" has never been so difficult or so important.

Example one: When I told my son, a hard-headed engineer (or I should say, an engineer who is a singularly hard-headed thinker) about the wonders I had just discovered of traveling wave nuclear reactors--one can use any old rotten nuclear fuel waste, fry it to generate energy without fear of explosion or meltdown, and wind up with barely noxious sludge--but, I had also learned, there were significant technical problems to be solved so that it might be ten years before commercial utilization--he readjusted my thinking; he said, "Ten years is a long time; it's the length of time scientists and engineers choose when they really don't have any idea how to accomplish something."

Example two: A friend once told me of a study he conducted in which he sent out letters to scores of companies complaining that he had found a bee in a bottle of their product. Some responded apologetically; some offered compensation; only one responded "correctly" that his contention was utterly ridiculous--there was no way a bee could get into a bottle (of Chivas Regal).

Example three: In the world of the very tiny, quantum mechanics rules, and some very strange things happen: a particle can be in more than one place at the same time; particles appear (are created) out of nothing and disappear into nothing; particles can be "entangled" so that even though they are millions of miles apart, if something affects one, it affects the other as well (at the same instant); events are only possibilities and probabilities until they are observed--they do not actually "happen" until someone takes a look at them. And more. Arthur C. Clarke, the famous author and science explanitor extraordinaire, said of the quantum world, "Not only is the universe stranger than you imagine, it's stranger than you can imagine."

Example four: The powerful healthful effects of homeopathy and acupuncture are indisputable to those who have experienced them. But they are preposterously in violation of all that modern science and medicine know about chemistry, physiology, and anatomy. The phrase "taken with a grain of salt" comes from the practice of dispensing a homeopathic remedy which amounted to some strange essence of a toxin diluted to less than molecular concentration (there was not a singly molecule of the original material in the remedy) along with "a grain of salt" so the recipient could taste the salt and would feel they had actually gotten something. (The therapeutic effects would be felt hours or days or weeks later.)

Each of us considers himself or herself to be a bit of an expert in the subtle and complex art of reality testing. Each of us has a lot--in the way of doubt and humility--to learn.

Wednesday, May 26, 2010

Our Cultural Triumphs

by Richard Crews
I have long pondered why our particular culture, of the many thousands of human cultures that have flourished on the Earth, has achieved the amazing accomplishments that it has.

To start the argument--and I think nearly everyone who reads this will find something in it to disagree with--I would characterize our culture, very roughly, as Western-European/American, Puritanism-driven, entrepreneurial, capitalistic, socialized democracy.

If you can somehow get your head beyond that rough characterization, here are some examples of our conquests. We have been the first and only culture to advance science and technology to the point of splitting the atom, walking on the Moon, designing computers that process many billions of bits of information per second, and overpopulating and polluting our planetary ecosystem to the brink of disaster.

Other cultural experiments (among, I would stress, the thousands of different cultures that have flourished on Earth) have had their striking accomplishments. The Inuits of the far north learned to thrive in the harshest of frozen wastelands. Buddhists of the Tibetan plateau created a spiritual community of loving equanimity beyond anything most of us can imagine. The Romans 2,000 years ago developed and ran for several centuries an administrative political system that pushed its influence throughout the "known world." Periclean Athens raised philosophy of social conscience to unheard of heights--they created the original naissance of our Western culture and built the foundations of democratic ideals and systems. But none of these cultures--nor any other, except our own--succeeded in splitting the atom, walking on the Moon, designing electronic computers, or pushing our planet to the edge of ecological disaster.

Carl Schramm, an American economist and entrepreneur interviewed yesterday by Charlie Rose, believes home-grown (not internationally imported) entrepreneurism is the keystone of building a Western-like culture. He says that as it has been imported to China and India over the past couple of decades, such entrepreneurism has raised up one-fourth of the world's population out of destitute starvation and has put those two countries on the brink of competing among leading industrialized nations of the world. He considers facilitating local entrepreneurship the essential ingredient of Western nation building.

The quintessential example of this over the past few decades has been the triumphant rise and Westernization of Singapore. Under the austere, progressive hand of Lee Kuan Yew who became the first prime minister of the new country in 1965, Singapore has grown from a weak, resourceless, impoverished, overpopulated, Asian island to one of the leading industrialized banking and commercial centers of the world. While many have criticized Yew's nepotism and heavy political and economic methods, he seems to have raised Singapore by facilitating in every possible way the inflow of world attention and capital to facilitate entrepreneurship.

Our culture is unique. Unique in its manipulation of nature, its influence in developing and spreading humanitarian ideals, and--most of all--its explosive invasion of every populatable nook and cranny of the planet. Why should this be so? What makes these accomplishments possible? Perhaps an understanding of the complex social, political, and economic factors that facilitate indigenous entrepreneurship can help explain this.

Monday, May 24, 2010


by Richard Crews
For many centuries philosophers have rhapsodized and expostulated on the importance of surroundings, or context.

Example one: If you write an equation or draw a pretty picture with white chalk on a blackboard, most of the area of the blackboard remains black. The area of background may exceed the area that conveys meaning or beauty by a hundredfold or more, yet without it there is no meaning, no beauty.

Example two: If you peek within a computer at the streaming series of ones and zeros that do the work of the computer--that carry the crucial information and relationships, and manipulate the crucial evolving changes that manifest as a word processor or interactive map or video game--you will invariably see long strings of zeros. Although one might think intuitively that there would be roughly as many ones mixed in as there are zeros--as many "YESes" as "NOs," as many "stop here and do something's" as "never mind, pass on's"--this is, in fact, not the case. This is the reason, for example, that compression software can usually reduce a computer file to one tenth of its original size, sometimes to one one-hundredth. A compression algorithm that simply says, each time it is appropriate, the equivalent of "skip 500 zeros here, and then go back to work recording the ones and zeros" can reduce the overall size of an ordinary file many-fold. Later, the computer file must be decompressed or "unpacked" again before it can be used. For the computer program to accurately find the "addresses" it needs to proceed with its task, there must be many strings of zeros filling in the cracks.

Example three: In the DNA that carries the genetic code necessary for life, there is so much unnecessary filler--so much "junk" DNA--that well over nine-tenths of the DNA could be removed from a cell without affecting the cell's ability to grow, metabolize, reproduce, and do all the crucial things that make it alive. In the human genome, for example. about 1.5% of the DNA codes for proteins and another 1.5% has some other known usefulness, but some 97% appears to have no function at all.

Example four: Scientists have recently succeeded in fabricating a "living" cell using a computer program that accesses bottles of chemicals sitting on a laboratory shelf. The artificial cell they created can grow, metabolize, reproduce and do all the things characteristic of "life." The computer program laboriously assembles more than a million chemical "base pairs" into the DNA code. Interestingly, the scientists saw fit to include along with the genetic coding the website where the listing of the full genome can be found, and a literary quotation as well (the James Joyce quotation, "to live, to err, to fall, to triumph, to recreate life out of life").

This seems so sophisticated to me that I call it "junque" rather than just "junk."

Truly, it seems, junque is a way of life.

What's Wrong with the New Financial Regulation Legislation?

by Richard Crews
As a result of the near-collapse of the U.S. (and world) financial systems in 2008, Congress is putting together the strongest, broadest regulation legislation since the 1930s. This legislation will go a long way toward stabilizing the financial industry. It increases the level of funding institutions will be required to hold, and increases visibility and regulation of their activities. But the new legislation has problems.

(1) Previously trillions of dollars in derivatives representing bets that the system would fail--bets that turned financial difficulty into catastrophe when things started to go awry--were hidden from view. Now they must be traded out in the open on an exchange. BUT certain kinds of derivatives that are used to hedge fluctuations in interest rates and commodity prices are exempted from this requirement. This exemption could be manipulated to cause serious problems.

(2) Bank regulators were lax; also, they often did the bidding of the banks they regulated. This has been addressed to a certain extent, BUT under the new system smaller banks still choose their own regulators.

(3) Some financial institutions became "too big to fail," that is, so big that their collapse would jeopardize the entire financial system--they had to be bailed out. There were debates about how to deal with this, BUT the problem has not been addressed effectively.

(4) A new, stronger consumer protection agency has been created, one that would, for example, restrict banks from lending to borrowers who clearly could not pay back the loans made to them. BUT the authority of this agency has been limited to banks with more than $10 billion assets. Small banks and non-banks are not covered.

(5) Credit-rating agencies that determine the riskiness and therefore the price of loans were both chosen by and paid by the institutions they rated, and were therefore inclined to give distorted favorable ratings. Rating agencies will now be chosen by an "independent" board. BUT it is uncertain how "independent" this board will be. Moreover, the fees are still paid by the banks being rated.

In general stronger legislation was favored by Democrats but opposed and diluted by Republicans under intense lobbying from some of their major contributors such as the U.S. Chamber of Commerce, the Business Roundtable, the payday lending industry, and the National Automobile Dealers Association.

Friday, May 21, 2010

Here Come the Midterms

by Richard Crews
The midterm elections are less than six months away. Historically, the midterms two years after a change of administration show a significant shift back to the party that was kicked out of power. The Republicans are certainly already counting their chickens--expecting to regain a majority in the House and make some gains--if not a majority--in the Senate.

If the economic recovery and job growth in the U.S. continue to be sluggish--as they probably will--this will put all the more fuel in the Republican fire. In addition the Greek debt crisis has highlighted the weakness of several other sovereign debt balances (Spain, Portugal, and Ireland, with Italy close behind). Weakness in the Euro and worldwide stock market jitters demonstrate worries about this and, in the longer term, about national debt problems and trade imbalances lurking many places around the world. All of these favor the Republicans in November.

But there are several factors weighing on the Democrats' side. For one thing, Obama has become more active, and he is a very popular and charismatic figure when he speaks out. The Republicans continue to lack any single, significant, charismatic leader. In addition, the Tea Party movement may fracture Republican support and divide it among several branches.

One huge unknown is whether the Democrats will be able to mobilize the new voters who swept Obama into office in 2008. Traditionally the midterms do not attract as much participation as presidential elections do, although the Internet and new high-tech communications have made this factor very hard to predict. Similarly, new Internet micro-money that fell so heavily to the Democrats two years ago, may do so again, including the newest modes--texting and text donating have not been tested in a national election.

And there is one enormous elephant lurking in the corner, one that I've seen no pundits mention yet in terms of its election impact. The oil leak in the Gulf of Mexico is massive beyond imagination, and because it is occurring a mile deep, much of the oil is gradually seeping upward and dispersing. As it invades the Gulf and shorelines around the tip of Florida and--joining the Gulf Stream--northward along the Eastern seaboard, it is likely to prove to be an ecological and economic disaster of 9-11 and Katrina proportions. As such it may well favor the Democrats. The electorate is reluctant to change horses in the middle of a crisis.

Tuesday, May 18, 2010

Separation of Church and State--Two Vignettes

by Richard Crews
When we lived in Fayetteville, North Carolina in 1969, our eight-year-old daughter attended public school. My wife and I dutifully went in to the parent-teacher's meeting when we were summoned, and found--to our relief and delight--that our daughter's second-grade teacher (whose name, through the merciful ravages of time, escapes me) was a huge black woman who just LOVED children--a veritable "Southern Mammy"--the kind of woman whom any child (or adult) feels safe just being around. Things proceeded without incident until one afternoon, a few weeks later, when our daughter mentioned in passing that her class started each school day by folding their hands, lowering their heads, and jointly reciting the Lord's Prayer.

Since my wife and I considered ourselves card-carrying (overly intellectual, East Coast) Liberals, we agonized about this breach of the Constitutional separation of church and state for many an evening, and finally decided to do something--to speak to the teacher and principal. Successfully--well, sort of. A couple of weeks later we learned that now each school day started with, "Everybody put your hands together and bow your heads--here we go--BESS, DON'T SAY IT!" Having succeeded in making our eight-year-old daughter totally stigmatized as a schoolyard pariah, we quickly backed off our principles and apologized to the principal and teacher, acknowledging that we had made a mistake.

Forty years later in the heart of enlightened and internationally integrated Silicon Valley, when I take the dogs for our morning walk, as we cross a field by a middle-school I sometimes hear the PA system blare out with the voice of some privileged student leading the school in the Pledge of Allegiance. It begins, "I pledge allegiance to the flag of the United States of America" and concludes, "with liberty and justice for all. Amen."

You have to admit that the Pledge seems sort of like a prayer--especially with that "under God" in there--especially to a kid. It sort of seems like it ought to end with "Amen," the Constitution notwithstanding.

Thursday, May 13, 2010

Fearful Communications Innovations

by Richard Crews
The Economist (5/13 "highlights") has a fascinating article about fearful innovations in communications.

Their point is a simple one (simple in principle although devilishly hard to assess or apply): "Communications innovations should be empowering rather than distracting or misleading."

The most charming part of the article is the list of examples of communications technophobia from history.

(1) "Socrates’s bugbear was the spread of the biggest-ever innovation in communications--writing. He feared that relying on written texts, rather than the oral tradition, would “create forgetfulness in the learners’ souls.… They will trust to the external written characters and not remember of themselves.”

(2) Enos Hitchcock voiced a widespread concern about the latest publishing fad in 1790. “The free access which many young people now have to romances, novels, and plays has poisoned the mind and corrupted the morals of many a promising youth.” (There was a related worry that sofas, introduced at the same time, encouraged young people to drift off into fantasy worlds.)

(3) Cinema [moving picture shows] was denounced as “an evil pure and simple” in 1910.

(4) Comic books were said to lead children into delinquency in 1954.

(5) Rock’n’roll was accused of turning the young into “devil worshippers” in 1956.

(6) Hillary Clinton attacked video games for “stealing the innocence of our children” in 2005.

(7) They continue: "Mr Obama is, at least, bang up to date with his reference to the iPad,* which now joins the illustrious list of technologies to have been denounced by politicians, and with his grumbling about the crazy theories circulated by the combination of blogs and talk radio. But such Luddism is particularly curious in Mr Obama’s case, given that--

(a) he is surgically attached to his BlackBerry,

(b) his presidential campaign made exemplary use of the Internet, and

(c) he has used YouTube to great effect to deliver his message directly to viewers, circumventing the mainstream media in the process."


* “WITH iPods and iPads and Xboxes and PlayStations--none of which I know how to work--information becomes a distraction, a diversion, a form of entertainment, rather than a tool of empowerment.” Obama in a speech to students at Hampton University on May 9th.

Sunday, May 9, 2010

Asperger Syndrome--Social Dyslexia

by Richard Crews
In the modern world kids have to learn to read and write. Some have a lot of trouble doing this even though they appear otherwise normal, even bright--they are cheery and active, they get along well with adults and other children, and they even have good problem-solving skills, good vocabulary, etc. But learning to read and write stumps them.

Confronted with this frustrating puzzle, psychologists and teachers did what clever and responsible humans have always done: they invented a word to cover the problem--"dyslexia," which means (using Greek word roots) "difficulty reading (and writing)."

The word "dyslexia" is rarely used in psychology or education circles today because, it turned out, difficulty learning to read and write can result from one or more of a large number of brain difficulties. A kid might not be able to visualize, remember, and interpret certain symbols (like telling a "d" from a "b" or a "p" from a "q"), or certain visual-auditory links (like "ph" and "f"), or meaning, grammar, or word usage patterns, etc. In fact, learning to read requires successfully stringing together a complicated series of brain steps. Most kids succeed in doing this just fine. Some--because of faulty wiring for a step or two--do not.

This is very understandable considering the complex wiring and programming of a human brain. In fact, it would be surprising if some of the millions of micro-steps in growing a brain didn't go awry from time to time.

The good news is that we humans have a natural inclination to seek out and practice ways around these difficulties. In computer science, these are called "work-arounds"--in a complicated computer program (like a word-processing or spreadsheet application) there are typically several different ways to accomplish the same end result. In addition the brain has a natural "plasticity"--parts of the brain can shift their functions as needed.

In retrospect it appears that the reason learning to read and write emerged as a special challenge from the basket of tasks a child is expected to learn in school is that, of all a child's learning challenges, learning to read and write requires the longest, most inter-dependent series of brain skills. Moreover, this understanding led to development of an array of special education techniques that can help kids learn the steps that are particularly difficult for them.

Similarly, of the various behavioral patterns a child is expected to master--from relating appropriately to the dinner table, the toilet, the dog, the garden, toys, or the backyard--interacting with other people is certainly the most complex and subtle. It is also the set of behavioral patterns that is most likely to come under close scrutiny.

Asperger's Syndrome is soon to be absorbed within the broader diagnostic term Autism Spectrum Disorders. The word "autism" means impairments of social interactions and communications. The word "spectrum" suggests that this is a wide array of clinical difficulties, from mild to severe. The observation that these are often accompanied by repetitious actions, temper outbursts, depression, or other psychological symptoms highlights the struggle the individual is going through. Their occasional accompaniment by extraordinary abilities of memory, calculation, attention, or other cognitive skills indicates that brain wiring has gone awry and compensatory efforts are hard at work.

The analysis of dyslexia, that is, of the difficulties children have learning to read led to an understanding of the many mental steps needed in order to read. Similarly, an analysis of Asperger's Syndrome--the hallmark of which is social disconnection or awkwardness--may lead to a richer understanding of the many mental steps that are required to master the subtle and complex social arts, and to step by step remediation techniques.

Saturday, May 8, 2010

Greek Debt Crisis--Wider Implications

by Richard Crews
Greece does not have a strong industrial (or post-industrial) economy. In terms of its place in international finances, it has some shipping and tourism but no strong manufacturing or other base. And it has been poorly managed politically and financially with rampant nepotism and corruption.

Nevertheless, Greece has developed standards of living comparable to its European neighbors including expectations for expensive government services. It has financed this by going into debt, a debt which it now cannot pay, leading to a $147 billion bail-out provided by the European Union and the International Monetary Fund.

This bail-out plus severe austerity measures within Greece (increased taxes, decreased government pay and services, raised retirement age, etc.) are expected to postpone Greece's need to "restructure" (that is, to partially default) on its sovereign debt for three or four years. Then the same problem will arise for Greece again--hopefully in reduced, better organized, and better anticipated form.

But Greece is a small country economically--its gross domestic product (GDP) is about 2.5% of that of the U.S. or of the combined European Union countries; it is less than 10% of Germany or Japan--so that Greece's sovereign debt problems are not directly very significant to the wider world economy.

However, there are two important wider implications. One is a cascade effect: if Greek bonds and Greek banks appear weak, money will flow out of them into financially stronger countries such as Germany and the U.S. And other countries seen as financially weak such as Portugal, Spain, Italy, and Ireland may suffer the same fate--they will have trouble (and extra costs) borrowing money to continue to finance their debts; there will be turmoil in international financial markets which could lead to financial, and hence political, crises around the world. Today there is rioting on the streets of Athens; tomorrow it may be far, far wider.

But disturbing as this prospect is, there is an even more ominous question: does the enormous expansion of sovereign debt around the world represent the ultimate financial bubble? A financial bubble--be it "dot-com" or "sub-prime mortgage" or any other--arises when a sector of the economy finances current needs through the expectation of future growth. Modern post-industrial economies such as those in the U.S.and U.K. (but also many other countries) have developed massive government debts based on the requirement that the economy will expand at least several percent a year.

But--as with dot-com stocks or real estate prices--national economic growth and expansion simply cannot continue indefinitely. Ultimately taxes must be high enough to pay the ongoing costs, and government services and expenses must be curtailed--and this is very politically unpopular. What will happen if major, first-world countries default on their debts? Worldwide bankrupt governments with spreading political firestorms is not a pretty picture.

Value-Added Tax

by Richard Crews
A Value-Added Tax (VAT) consists essentially of putting a tax on each stage of a production and distribution chain. For example, if a company digs something out of the ground and delivers it to a factory, the company is charged a tax (commonly a few percent) on its profit. Then the factory makes the raw material into some product and sells that to a distributor, and the factory pays a tax on its profit. Similarly, the distributor pays a tax on its profit. And finally, the retail outlets. So at each stage along the chain, the company that handles and processes and manufactures and distributes and finally sells something, pays a tax based on how much value the company added, that is, how much the overall price increased in its hands. Providers of services (such as accounting, legal, and medical) are also taxed according to their "value," that is, their fees minus their costs.

Although the VAT is not familiar to many Americans, it is widely used as a major source of government revenue throughout the industrialized world. Of the world's largest economies, the U.S. alone does not have a VAT. Within the European Union (E.U.) the largest economies have VATs (Germany, France, U.K., Italy, Spain, etc.). Outside the EU the countries with large national economies have VATs (Japan, China, Brazil, India, Russia, etc.). Our neighbors on the North American Continent, Canada and Mexico, both have VATs.

The U.S. government gets most of its revenue from Income Taxes and Social Insurance Taxes (Social Security and Medicare). In addition, some federal income is based on the value of real estate, personal property, and inheritance, plus some tariffs, fees, etc.

The VAT can be an enormous contributor to a country's income. For example, France (the historic home of the VAT) gets 50% of its national revenue from a VAT.

A VAT has some important advantages.

(1) Most of the costs of collecting the tax are borne by businesses rather than by the government.

(2) High sales taxes and tariffs encourage cheating and smuggling; a VAT does not.

(3) Most significantly, a VAT is more "hidden" from view than an income or sales tax, or payroll deductions. A VAT is therefore less likely to become a hot political issue.

The principle argument that has been leveled against a VAT is that it tends to fall most heavily on lower and middle income groups since they do most of the end-use consuming. A comparison with other common forms of taxation (income, payroll, sales, etc.) renders this argument moot.

Thursday, May 6, 2010

Political Hot Potato

by Richard Crews
Some people say that whichever party wins the current election in Great Britain will then be out of power for a generation. Why? Because no matter who wins they will have to raise taxes and cut government services.

The same may be pretty much true in the U.S.

Obama's successes--
--a spectacular overhaul and stimulation of the U.S. education system
--a rebuilding of U.S. foreign policy and relations
--a heroic but stumbling start at revamping the U.S. health-care system (which costs too much, has poor and uneven quality standards, and serves too few)
--significant environmental protections and energy shifts

He will probably also be able to get through--
--financial system regulations
--robust but humane immigration reforms (strong borders plus modified amnesty)

He will probably not be able to--
--more than scratch the surface of the U.S's. staggering infra-structure problems
--attack the U.S's. ridiculous tax laws (simplifying the income tax, closing loopholes, establishing a value-added tax)
--achieve any semblance of bipartisanship in Washington

As a result of heroic accomplishments addressing the load of problems that were passed to him on his inaugural plate, he (and the Dems) will be ridden out of town on a rail (starting this November and continuing two and four years thereafter).

Tuesday, May 4, 2010

New-Age Geography

by Richard Crews
When low-lying nations like Seychelles and Tuvalu slip below the rising ocean waves of global warming, will they continue to be sovereign nations? In other words, can a country still be a country if it has no dry land?

This is not a trivial question. Thousands of square miles of rich, shallow fishing reefs and mineral-rich shoals may no longer be protected within any country's territorial waters. (Why does the name Halliburton ring so loudly in my mind?)

In fact, what about national shorelines that recede--such as those of Bangladesh? Do a nation's 200-mile Exclusive Economic Zones recede as well?

In the 1990s I became aware of a proposed new country named New Utopia which was to be built as three skyscrapers on huge concrete pillars raised over three sea mounts (which were a few feet under water) in the Caribbean Sea well away from any nation's control. The developer was trying to raise a few million dollars seed money. His plan was to make sex, drugs, and gambling a nationally legal way of life, along with off-shore banking and tax havens and major international shipping, not to mention an array of beautiful, artificial sandy beaches and boating inlets, scuba-diving reefs, and luxury hotels. He had audaciously issued passports, printed money, and applied for membership in the United Nations (where he was politely rebuffed).

Some have proposed that the Moon be eternally protected international territory. Other have proposed staking land claims and selling lots there. Similar debates have raged concerning asteroids, alien moons, artificial satellites, and the like. But, with rising oceans, the challenges of new-age geography are, in fact, much closer to home.

Sunday, May 2, 2010

Goldman Sachs Scandal Explained

by Richard Crews
Goldman Sachs designed derivatives built of weak mortgages at the request of a big client who wanted to sell them short (essentially sell them with the promise to buy them later in the hope they would go down in value). So far, so good.

But GS also sold those same derivatives to other customers ("long" not "short"). This would also have been ok, BUT they did so without disclosing to those other customers that the derivatives had been specially designed to be weak.

In doing this, GS violated good business principles of "consumer protection." Customers have a right to be told by a vendor if the vendor knows the product they are purchasing is defective. In the case of a securities firm, this violates a responsibility called "full disclosure."

Moreover, securities firms (like banks, accountants, lawyers, and real estate agents) have a special duty to their clients, a duty called "fiduciary." That means they are legally bound to act in the client's best financial interests.

One further sin: GS also traded for its own account. This means they were buying and selling stocks, bonds, and various derivatives with money they held in trust for their clients. In other words, in some cases they were using the clients' own money to bet against the clients' financial interests.

Add to this--from outside GS--the lack of government regulation, the lack of sufficient requirements for financial disclosure, the "purchase" of bond ratings (which are supposed to be objective), and patterns of bonuses to executives based on short-term profits (despite longer-term losses), and the recipe for a huge, murky financial disaster is complete.