Knowledge Tramp

Rasputin's Penis or Sea Cucumber? You Decide...

2008-10-27T15:47:00.000-07:00

So when the Russian mystic and notoriously endowed womanizer Rasputin was killed after developing an overly "close" relationship with the tsar's wife there were rumors that he was castrated and his alleged severed penis was later worshipped by believers who thought it imbued special powers.

It disappeared and resurfaced in a Russian erotic museum but some have argued that this isn't a penis at all but rather a Sea Cucumber.

Decide for yourself and check it out HERE (graphic obviously).

Um, why doesn't someone just do a DNA test on it? I see a Playboy Channel/Discovery co-production happening here...

The Financial Crisis in Under 400 Words – Part II

2008-10-15T12:09:00.000-07:00

“Why it Happened “ Or “Other People’s Money”

So I’m following up to the excellent response I’ve received to Part I of this by expanding from a simple “what happened” to the why in a non-partisan, summary sort of way. This one is more than 400 words, but I’ll keep it short.

Here goes:

Looking at economic history, financial crises are preceded by asset “bubbles” or over-pricing that’s followed by a crash that wreaks havoc in the system. This applies across the board from the US in the 20’s, Sweden and Japan in the 80’s, Asia in the 90’s, to Dutch Tulipmania in the 1600s.

It follows 3 stages:

1) A loosening of credit standards and an over extension of credit. Demand increases too fast along with prices = bubble.

2) Something causes the price bubble to burst and prices drop quickly.

3) Borrowers default in droves, leading the lending institutions to fail.

Um… Sound familiar.

But let’s discuss why this happens.

The main reasons are “moral hazard” the “agency problem” and “risk shifting”.

1) The “agency problem” is simply the idea that other people don’t care what they do with your money as much as you do.

A person will take risks and pay a higher price with someone else’s money than they would with their own. They don’t care because the risk is mostly “shifted” to the lender. It’s inherent in any relationship where you give someone else your money and is a problem found throughout finance and economics.

So, borrowers with easy, unfettered access to mortgages will make reckless decisions with the money if they are not monitored correctly. Hell, it’s not their money, right? As a result, people began paying ridiculous prices for houses they really couldn’t afford with bad adjustable rate loans.

But the banks are supposed to stop this sort of behavior from happening by verifying the quality of the borrower and their future ability to pay, right? Why wouldn’t they?

2) The answer is “moral hazard” which is the idea that a person will behave in a risky fashion if there are no consequences to their behavior. The banking system is the ultimate moral hazard. Why?

The banking system cannot be allowed to fail. If it does we all suffer. Government intervention is the only route to save the economy in a financial crisis. It’s the last line of defense. That’s a fact and those who propose letting the system fall apart for “punishment” are completely ignorant of history. (See notes below) It’s cutting your nose off to spite the face. Like it or not, the government has to step in during a financial crisis.

The banks are run by people. People who’s pay is tied to their company’s performance. During the last seven years, because of the amount of risk taken making these loans and trading risky derivatives and securities related to them, financial services made record profits that were passed along to the people who ran the companies.

Now when the bubble bursts as a result of these people’s choices they still walk away with those millions and who gets to clean up the mess? The government. The risk is shifted from the banks and their executives to the government . And the government is paying with your money.

3) So ultimately, banks are unique in that profits are privatized and passed to the executives and shareholders and the losses are shifted to the government and by association, the taxpayer.

There is risking shifting down the line:

Borrower to Bank to Government to Taxpayer. Agency problem, moral hazard and risk shifting.

I don’t want this blog to be political and I’ll just say, I’m a shameless capitalist myself, but those who propose that a lack of laissez faire is what caused this is ridiculous.

When the risk shifting ultimately lands on the taxpayer, the government has to make sure that prudence and care is being taken to maintain the integrity of the system. There’s no other way, or this will inevitably happen… as it just did.

Two Big Notes

1) This is not meant to demonize the banking industry. My next post is going to be “Why you should still love the banking industry”. But the fact is there are unique moral hazards in banking unlike anywhere else.

2) For a very readable economic summary of bubbles and a simple historic explanation why governments need to intervene based on recent case studies of Scandanavia and Japan read:

Allen & Gale (1999) “Bubbles, Crises and Policy”, Oxford Review of Economic Policy, Vol. 15, No.3, pp 9-18

Cliff notes: Scandinavian countries intervened and recovered in a year. Japan didn’t and suffers arguably to this day…

READ PART I HERE

The Intelligence of Crows

2008-10-12T09:51:00.000-07:00

So crows are insanely smart it turns out... Like tool use, culture of learning from each other, scary Alfred Hitchcock smart. Joshua Klein discusses some experiments, scientific and anecdotal, proving the point on TED.

In Japan, a bunch learned to use passing cars to crack nuts and now teach it to their young. Another one on video fashions a hook out of wire to reach food. Others learn to put coins into a "vending maching" on their own . What's crazy is they do it without prompting. They figure it out on their own creatively. Which is better then many people I've met.

The Financial Crisis In Under 400 Words

2008-10-10T01:13:00.000-07:00

I’m getting my masters in Financial Economics right now so I decided I’d take a crack at summarizing this as simply as possible for those who don’t understand why what’s happening is happening.

Here goes:

Fed lowers interest rates after 9/11 economic woes.

Real estate boom begins due to cheap mortgage rates.

Shady mortgage brokers are able to sell doomed subprime mortages to unqualified borrowers due to a complete lack of oversight and regulation in the industry.

Many of the shady loans have a fixed rate for 2 years that will increase after that.

Instead of holding mortgages and collecting the interest, lenders pool them together into huge financial instruments called MBSs that pay a yield like a bond or savings account based on the income of the underlying mortgages.

The fact that they are selling the mortgages off and not keeping them makes lenders care even less about the quality of the loans they write. So they write more shady loans. A LOT more.

Real estate prices go through the roof since everyone and their homeless uncle wants to and CAN buy a house now. Demand is through the roof.

The buyers of the MBSs, huge financial institutions and investment banks like AIG and Lehman ignorantly think that real estate prices can’t go down too much because after all, it’s real estate and they ain’t making more of it.

(Cue Ominous Crisis Music HERE.)

All the low 2 year fixed mortgage rates go up and homeowners can’t afford them anymore. They start to default.

The huge financial institutions, like AIG and Lehman, are holding onto MBSs to the tune of billions of dollars, thinking of it as a safe haven for their money, the way you would think of a bond.

As the mortgages increasingly default, the value of the MBSs plummet along with the net worth of the financial institutions holding them. Word gets out to consumers and some rush to withdraw their money from consumer banks causing bank collapses.

Many financial institutions, broke and scared, panic and stop lending money to each other or anyone for that matter basically freezing the flow of money through the financial system.

Without cash flowing banks can’t carry on their normal operations and smaller businesses can’t get loans for their daily operations much less to expand or grow.

The entire economy freezes, the stock market plummets with future GDP and earnings growth prospects looking terrible.

And here we are…

SOLUTION:

More liquidity to grease the system and get it going again.
A restoration of confidence in the economy.

How to do that exactly is incredibly contentious and is what everyone is fighting about now.

That’s a very concise and of course simplistic summary of the past 7 years but should be enough to help you understand and hopefully be a little pissed off because you probably had nothing to do with it but are certainly going to be effected by it…

READ PART II HERE

English Word Origins

2008-10-09T12:15:00.000-07:00

Here's a great list of etymological tidbits for you word junkies out there...

English Word Origins

My favorite is the origin of "Lord" which evolved from "loaf-ward" which literally means the keeper of bread. It always comes back to some primal root when you look at the origins of culture and language. Fascinating stuff.

Learning Languages Effectively - Part 2

2008-10-09T11:20:00.000-07:00

Here is an amazing FREE resource for learning a language. It's essentially a social networking model that's been applied to language acquisition and it's really great.

http://www.busuu.com

It's comprised of lessons that you study, then take quizzes on, then do a reading comprhension exercise and then, most interestingly of all, complete a writing exercise which is then corrected and rated by another site member who is a native speaker of the language you are learning. Great, great idea for leveraging the need on both side of the globe to learn the other's language.

Users are very generous with their corrections and you should be too if you sign up.

Some other great language resources are the Rocket Language Series:

Rocket French!
Rocket Spanish!
Rocket German!
Rocket Chinese!

History of Beer

2008-10-09T01:26:00.000-07:00

In honor of my hangover, I'm posting on the history of beer which was originally considered more of a food than just something to guzzle for fun and get blasted on.

We know it started at least 6000 years ago because there's a Sumerian tablet that talks about how to make beer and a has a prostitute schooling a prudish non-beer drinker in the ways of Milwaukee's Best....

"...Enkidu knew not, what bread was nor how one ate it.
He had also not learned to drink beer. The whore opened her mouth and spoke to Enkidu: 'Eat the bread now, O Enkidu, as it belongs to life. Drink also beer, as it is the custom of the land'..."

History of Beer

Interestingly, medieval monks were rationed 5 LITERS of beer per day! That would make chores and meditation a lot less boring I would expect... And of course to this day some of the best beers in the world are brewed by monks in Belgium.

Learning Music Theory From Square One

2008-10-08T08:34:00.000-07:00

So if you weren't lucky enough to have had a music program in school and played clarinet for 8 years or have a closet composer inside you here is the place to start.

This is an awesome multimedia primer on music theory that will get you up to speed.

Music Theory Primer

We all love music but for those of you who really want to understand it intellectually, you'll love this site.

Also, if you are trying to learn piano which is the best way to learn music theory, try Rocket Piano which will vastly speed up your learning curve.

Learn Piano

The Anatomy of a Black Hole

2008-10-08T08:16:00.001-07:00

A sweet multimedia demonstration of how and why black holes form...

Anatomy of a Black Hole

Astronomy and astrophysics is always the thing that reminds me that our stable little oasis on earth isn't necessarily the only thing that's out there. Crushing vortexes that warp light and TIME are also possible which is weird, weird stuff when you try to wrap your head around it... It's almost impossible to really grasp with our silly monkey brains.

Why Loud Bars Make You Drink More

2008-10-08T07:56:00.000-07:00

I write this with a monstrous hangover and feeling like a bear took a crap in my head. In that spirit...

Psyblog has a really interesting post about how loud bars make you drink more. I'm an avid bar and club patron, but I've always hated really loud places because of the hindrance on communication with your friends and the fairer sex.

This post breaks down some scientific evidence that explains why club managers want louder music to stop you from communicating... Because you compensate by drinking and therefore dropping more cash... Interesting stuff.

Why Loud Music Makes You Drink More

Affect or Effect

2008-10-07T19:38:00.000-07:00

I've heard a number of explanations for which is better when in the "affect or effect" debate. Here is a pretty clear explanation for those who vacillate ambiguously between the two:

Affect or Effect

Also, check out this really comprehensive system for improving your grammar and really mastering the English language.

Confident Grammar

History of the Middle Finger

2008-10-07T19:11:00.000-07:00

Dammit... I fell prey to an excellent sounding urban legend once again and lost a bet.

The origin of the middle finger I heard was that it went back to the Hundred Years' War between the French and English where they would chop the archer's middle fingers off to prevent them from using the devastating longbow in battles. When the armies lined up the English archers would give the fingerto the French before unleashing a volley of

Bulldoodoo it appears.

The history goes back to ancient Rome it seems.

History of the Middle Finger

If you go to Iran be careful about giving anyone the thumbs up. I guess this is their equivalent to the bird.

Learning Languages Effectively - Part 1

2008-10-07T18:49:00.000-07:00

Trying to learn a language as an adult may be one of the biggest intellectual challenges you can take on. It requires dedication, diligence and the ability to break hard wire thought patterns and replace them with the abilty to structure ideas in a whole new way.

This "rewiring" process is one of the reasons that languages can't just be learned by reading a book. A multi-pronged, multi media approach is the best.

This will be the first in a series of posts about shortcuts for language learning for the average person who isn't a sponge like language learning freak like Giuseppe Caspar Mezzofanti who spoke 38 languages... fluently. Things were different before TV I guess.

Multi-lingual multi-tasker and author Tim Ferris who speaks six languages has some awesome tips for hacking the language learning process and speeding up the process to fluency.

This is one of the best practical primers out there on the subject and it's short, to the point and free:

How To Learn A Language in 3 Months

Enjoy!

Also check out the Rocket Series of cutting edge multimedia language learning products for an amazing learning experience...

Rocket French!
Rocket Spanish!
Rocket German!
Rocket Chinese!

2007-01-06T13:19:00.000-08:00