How was financial system destroyed?

Here is very informative, accurate and readable paper about how did the financial system brake down. You must have read many analysis and news reports but they mostly leave out some important technical details. So, it becomes very hard to pin point who and what was responsible for the crisis.

Beware of the technical financial jargon appears in the paper . You might have to do googling for usage of dozens of words. To get some basic definitions read Appendix A from this another paper. This another paper is written by a computer scientist to demonstrate that evaluating the quality of “structured financial deal”  was EXPTIME hard therefore it is not so bad that the finance guys couldn’t see the crisis coming.

Let me talk a bit about structured finance.  A definition of “structured finance”:

The essence of structured finance activities is the pooling of economic assets (e.g. loans,bonds, mortgages) and subsequent issuance of a prioritized capital structure of claims, known as tranches, against these collateral pools.

[Bold faced phrases are either jargon words or jargon usage of common word. You have to do a bit of wok to understand them.]

The natural question arise that why someone likes to engage in such complicated financial activity.  Many people couldn’t have bought into this if it was simply a greedy move by the bankers. Actually, there has been a strong argument in favor of structured finance. The argument was that structured finance reduces cost of asymmetric information between buyers and sellers. Usually, seller knows more about his product than the buyer. So, both will assign different price of the product. The difference in the assigned prices is the cost of asymmetric information. This cost is also known as lemon cost. The term was introduced by economist George Akerlof.

This asymmetry mostly happens when market is full of look-alike fake products. In this situation,  buyer naturally thinks that the product may be fake so he assigns less price to the product compare to actual worth. This leads to less efficiency in the market. As, seller will not sell the object at lower price and buyer will not pay the higher price. At the end somehow, the deal happens and seller agrees to sell his product at some-what lower price than he expected. So, seller is suffering therefore inefficiency in the market. Sometimes, buyer also suffers when he ends up buying look-alike fake product.

I don’t fully understand how this phenomenon works.  Moreover, how structured finance solve this inefficiency? May be! this phenomenon is result of mental gymnastics of economists and has least connection to reality like many economics theories. May be! That is why whole structured finance thing collapesed.

Combodiaization of Pakistan!

Remember Vietnam! At some point of time in the frustration of war in Vietnam, Americans started blaming Cambodia for providing logistic support to Viet-Cong(North Vietnamese) forces. They were not accusing the Cambodian government, not the people but just the land where viet-cong soldiers can walk through. So, American’s have to bomb Cambodia to teach a lesson to the land. Nixon called it ‘a mad man theory of war’. When bombing stopped, a communist army, led by Pol Pot, came out of the jungle. And the year zero begun.

I fear if the history is repeating itself in Af-Pak. Is the next pol pot coming? I have heard Pakistani Taliban are much worse than Taliban.

Conversations with history

Conversations with history is an interview series done by a UC Berkeley prof Harry Kreisler. They also have YouTube webpage. They have more than 100 interviews with very eminent people (academics, politicians, and public servants) of US and also outside of US. I am currently addicted to it. The selection of people is so diverse such that you can get into all sorts of political and social opinions and get to know the people who are behind those opinions.

Here are some samples

The Noam Chomsky: The sophisticated Left

Christopher Hitchens: The ex-left. Now! He defends Iraq invasion. Outspoken atheist

Robert Fisk:  Journalist for a UK news paper, He says “Yes! middle east people need freedom. They need freedom from us (western powers).”

David Harvey: A Marxist

Shashi Tharoor:  Ex-UN diplomat, minister in current govt of India.

There are many other gems in the list. Find yourself.

Passive Invasion of Goa!

I found following video on youtube. A news report of invasion of unarmed Indians into Portugal occupied Goa. Alas, it didn’t succeed and in this attempt 22 dead and 120 wounded. Later, India invaded Goa militarily and Portuguese surrendered. Start watching from 2m07s

It shows depth of the following of Gandhi then, which is very hard to imagine today.

Why don’t some people like Arundhati Roy?

Her sweeping generalization and oversimplification of the problems.  Here is a link to her interview with democracy now.

In her review of the recent conflict against Naxalits, She begun her narrative just before the MNCs started showing interest in the natural resources of the conflict region. She says MNC came in the region and start displacing local people. Local people are resisting this. So, Government is labeling them Maoist. This will give government an excuse to suppress the resistance with the military force. Her analysis strongly suggests a direct causal connection between MNC activities and the rise of Maoist resistance. Therefore, Globalization is bad. She didn’t mention the whole history of Moist resistance in India, which is a key point to understand the conflict. I guess not every problem is straight away reducible to ‘Globalization’.

This makes some people accuse her misrepresenting the reality. Sadly, I have to agree with them. Even though, I agree with general framework of her thought.

Operation Green Hunt: Blood bath is about to begin!!

Another military operation with another cool name. Now! India engages in ‘War against Naxals’. I was wondering why not ‘war on Naxals’.

A quick background, Central India has large area of forest, where huge tribal population lives.  They are 25% population of India.  They are poor and target of hyper social injustice. There people only know government in the form of the police. Police acts with full impunity. Police is hardly distinguishable from goons of land lords. I guess I don’t have to explain you that legal system is also fully rigged. So, this area is a lucrative market for selling communist revolution. During last 60 years, Maoist Communists (aka Naxals) have been leading armed rebellion. They literally want to overthrow Indian government. Their leadership might have been Maoist but most of their recruits hardly know who was Chairman Mao. Mostly, tribal young men join Naxals in a state of desperation. In result, there has been mindless brutal civil war between  police and Naxals.

Recently, this civil war has been escalated. There are multiple theories behind this escalation. One theory says( Tipping-point theory ), Naxals tried to assassinate Chief Minister of a state. In revenge, police unleashed its brutality on the tribes. So, tribal men started joining naxals. Other theory says (Vested interest theory), Government and corporations have developed great interest in minerals under these forest land. They are using one reason or another to force people out of the land. This new wave of brutality is giving Naxals a greater support among tribes.  There may be other explanations. I don’t know which one is true.

Now! Indian army is being deployed. 75000 soldiers will fight ‘Operation Green Hunt’. I am highly worried about upcoming events. Each time Indian arm forces are deployed within India, they are given a special ‘license to kill’. No accountability! Murderous military units are rewarded. If anyone demands accountability then he/she is either anti-national or naive.

I don’t know how to deal with armed rebellion if not military force. Government has to deploy armed forces. The problem is lack of accountability. Kashmir and Assam have left deep scars. There army has been given license to kill and problems haven’t been solved.

Please! Please! Please! Don’t raise armed forces beyond realm of doubt and accountability. It has not solved and will not solve India’s political problems.

Science, Scientist, and The People!!

Science is objective. Therefore, it has more predictive capacity of material world than common sense. Therefore, it is useful. Therefore, people has to pay attention to it. Therefore, society has to pay its bills. Science can be very useful tool for the society but if society doesn’t understand its nature then it can be totally ineffective tool. As it has become ineffective in environmental change debate.

The essential nature of science

Science is not so straightforward in practice. To gain a scientific knowledge, one has to go through following 3 challenges. Who is observing the objective reality?, How is the objective reality observed?, and What is concluded about the objective reality?

1. Who?

The objective reality can not manifest itself without an observer. A scientist along with some instruments is needed to observe the reality.  The integrity of the scientist and his instruments have to be assumed otherwise the reported observations have no value in scientific sense. This integrity can’t be fully verified. Moreover, one can say that it is impossible to fully verify the integrity of the scientist and his instruments.

2. How?

If a scientist embarks upon observing an objective reality then she has to make many decisions. She decides which experiments to conduct, which instruments to use, and which information about the objective reality to collect. The made choices are heavily depend on the person of the scientist. The difficulty is that all objective realities depend upon infinitely many factors. No matter how carefully the scientist design the experiments, it can’t take all those factors into account. So, it is impossible to fully observe the objective reality under investigation.

3. What?

After collecting those information about the objective reality. One has to make sense out of the information. At the final step, scientist has to supply considerably concise theory about the objective reality there is. For a given amount of information, there can be multiple explanation of the same objective reality. The scientist picks one explanation which makes most sense to her and reports it. So, it is quite likely that the produced explanation is not entirely correct.

How do in practice scientists deal with above 3 steps or 3 problem?

As we saw above that each of the 3 steps entails a kind of impossibility in achieving the desired goal. Following are the means using which  scientist deal with each of the problem.

1. Who?– Respect in the Community & Redundancy

It is fair assumption that if the scientist has high integrity then she will use the instrument with high integrity. One individual can’t deal with such a high standards of personal integrity all the time. It is human nature to get easily seduced to lose one’s integrity. Therefore, scientific work is done in the form of communities. For each distinguishable subject matter, e.g. Physics and Biology, communities are formed.  The individuals who belongs to the community observe an objective reality and report it back into the community. These reports are read by the community members and they critically assess the integrity of the report, i.e., assessing integrity of the observer. More often someone reports trustworthy facts, one becomes more respected. Meanwhile, other individuals of the community try to observe the same objective reality. This redundant work may verify the previous observations or some times they may show that previous work had mistakes. In result, we learn a set of observations which are correct ‘beyond reasonable doubt‘.

2. How?– Standardization

The community of scientist soon face the problem of the second step. They slowly achieve consensus among themselves that what and how much should be observed to gain confidence on collected observations. This standardized procedure is commonly referred as the accurate methodology of experiments. They refuse to accept reports which doesn’t comply with this minimum standard of methodology of experiments. Notice that this standardization of the observation procedure is not done by an individual but by some set of individuals. In result, we use a methodology which is useful ‘beyond reasonable doubt’.

3. What?– Regress and endless discussions

Scientist carefully examine collected data and propose the potential theories to explain the reality. They debate endlessly about these theories. They refute most of the proposed theories in their course of discussion eventually they left with few contending theories. This provoke more need of collecting observations such that we can conclude at the final theory and refute other contending theories. As these new observations come in, more mysteries unfold and more discussions provoked. This process is summarized by the philosopher Hegel as Thesis, Anti-thesis, and synthesis (Dialectic). Observe that this can be endless process or may take very long time to synthesize the final theory. So at any movement of time, we have a set of potential theories which explains the reality ‘beyond reasonable doubt’.

Perception of science in society

People in general are indifferent with how scientists work. They have seen significant benefit came out of scientific investigations therefore it is not a bad idea to pay for scientists. The problem comes on the surface when society demands actual advice on matters of the science. People in general demand definite answer from scientists with complete certainly. As we have observed, the scientist can only respond with a theory beyond reasonable doubt.

For example, people regularly go to Doctors and get advice for their health. A doctor can only tell his patient that if he takes this medicine then he may potentially get better. Unfortunately, most people take their doctor’s word as a word of certainly. If the patient doesn’t get better than he only curses the doctor and goes to another one.

Environmental change debate

People some times demand advice from scientists for public policies. Such as, up coming environmental disaster. People want to know how the environment is changing. How bad is the impact of human activity? How much time is left before this environmental change can’t be reversed? Is there any problem at all?

If really there is upcoming environmental disaster then people have to act collectively. This has triggered a great debate of environmental change. People ask scientist to come up with an advice. Some individual scientists produce articles which describes a potential theory which says that there are global events in environment which indicate significant change in Eco system of Earth.  The articles also suggest in controlling emission of green house gases, low exploitation of natural resources, and protecting wild life.

Some powerful people don’t like their suggestion. These suggestion may change the public policies which might take away fortune of these powerful people(owner ship of coal mines, forest land, or low production of oil). They start a reverse campaign against those scientists. They say the proposed theories are not full and final. These theories are simply potential theories. They conclude that these theories have no more value than personal opinion of the scientist who is writing them.

As scientists observe this move in the debate. They say that our theories has more value  than opinion. The scientific community comes together and publish a common statement about the theory they believe in. As we have discussed before that a proposed theory has to be accepted by the scientific community at large to become a scientific theory(or a theory beyond reasonable doubt).

In public eye, this appears to be a political action taken by the scientist. These statements are dismissed on the ground that scientific truth can only be stated by a single person not a community.

In result, voice of scientist is lost in this squabble over who? how? what? is trustworthy.

LTTE: Reconcile or Regroup

I was visiting london for this weekend. On Sunday in London, I saw a rally of south Indians. It seemed interesting. I looked carefully and I found they were waving LTTE flags. So, they were sri lankan tamils.

I went into the rally and caught hold of a Sri Lankan Girl distributing a news letter “Tamil Guardian” for free. Somehow, I started chatting with her. I asked her many questions,

“Look at that banner, It says Black July’83. what happened then?”

She told me story of 83′riots. Singhals(ethnic group) were suppressing Tamils(another ethnic group) and one day riots broke out and in result many dead..

“What is going on? I thought LTTE is dead.”

“No! It is not. It has been wiped out from Sri Lanka. But there are many supporters around the world.”

“What are you doing here?”

“We are here demanding fair treatment of refugee of recent war and reorganize the liberation movement.”

“Is it possible to keep Sri Lanka intact and keep tamils happy?”

“I am afraid not because Singali Govt will never treat us equal.”

“What is the mood here?  Tamil people are tired of war or they are still excited about LTTE.”

“You can see around. This is a small group. Some times we gather rally of millions.”

“What do you think about Prabhakran?”

She proudly said, “He faught for us. He led the resistance.”

“Do you rate him great man?”

“Humm…”

“Well! in the light of his crimes not only against the govt but also against tamil peoples…”

“Who else was leading? We had no other option.”

“Prabhakran killed all the oposition with in Tamils and even within LTTE”

“Ya! Thats true but still he led us.”

“As you acknoledge that he was not so great man. Why you guys making  a Myth of him here. Look! kids are wearing his T-shirt, yound men are wearing locket with his face on it.  Why do you guys have to create myth. Isn’t it truth good enough?”

“Are heros not everywhere? They help us to mobilize people for our cause.”

“I smell another phase of violence.”

“No! No! …”

Did I tell you that she was really beautiful.

Ganesha: The elephant God

Ganesha is one of the most popular God in India. Its statue has body of a chubby child and head of an elephant. You can find it everywhere. Almost all sects of Hinduism worship Ganesha. For foreigners, this God is cute and comic, which fits with current standards of coolness. Sometimes, you can find his picture in adverts in Europe.  Here is a picture, in which Ganesha is advertising for a super market.

Ganesha promoting Migros

So recently, I went to an Indian restaurant. I found a picture of Ganesha on the menu and  I started telling his elephant head story to others. I made grave mistakes in my story and an Indian intern caught me. I was bit embarrassed. Then, I went back and read about Ganesha. I found amazing things about Indian scriptures. I mainly read this book.

Ganesha was not the main God in early vedic tradition. Some claim that he didn’t even exist then. The main evidence is that he wasn’t mentioned in Ramayana and Mahabharata at all. His myths were invented in 5th century and became the pop God of the time. The puranas(mythical books) were written about him. Someone also came up with Ganesh GITA. There was also a cult which believed that Ganesha was the highest God.

The most interesting fact is that these puranas are inconsistent with each other. There are multiple versions of same mythical events.  For example, how was Ganesha born? Some sources say, his mother Parvati wanted a child but father Shiva didn’t. In a sex session, Shiva somehow feeds his semen to mouth of god of fire instead of her womb. This act made Parvati angry and she created Ganesha out of her neckless. From other sources, the sex session was interrupted by Vishnu, another God, and semen falls on the floor. This time Vishnu was complicit with Parvati. So, he does some magic and that semen drop became a child. This is one example. Every small piece of detail about him has multiple versions.

Its interesting! Next time I will tell people the correct story.

Justice or Civil War!!

The large game of geo-politics is hard to understand. When you listen long and hard enough, you start grasping the essence of arguments said all over the sources. The discourse over terrorism is like this.

Today, state powers all over the world fighting with terrorists. States attacks them with extreme brutality.  Such as recently, Sri Lanka wiped out LTTE, while killing 20000 people, allegedly. Israel tried to destroy Hamas in January, while killing 1300 people. You see two kinds of response of such state brutality.

First, the cheer leading response of destruction of terrorist organization. The cheer leaders celebrate end of an era of barbarism. They say now it is a new start. Lets finish off all the rest of them and we will live happily ever after.

Second, the angry response against the way in which these brutal anti-terror operations are conducted. The angry ones argue that terrorism doesn’t exist in the thin air. Its source lies in the injustice done against some people at some point of time by the state. Slowly, it fed anger in the  oppressed people and a terrorist organization was born. Terror groups do horrible atrocities on innocent people. No injustice can be justification of another injustice. So, these terrorist organizations need some dogmatic ideology from which they can draw moral justification of their terrorist acts. Islamic fundamentalism is one of those ideologies. When these terrorist groups become large enough, all one see is the epic fight between the ideologies of state and terrorists. Each one of them hiding behind their own moral justifications. The angry people say deliver justice instead of killing people. The terrorist problem will disappear. As Arundhati says, “Justice or Civil War!!”

The cheer leading group responds with the amazement of the naivety of above argument. They say, ” Do you mean we should not kill  these horrible criminals. Let them walk around and deliberately kill  our innocent civilians. Do you think these people are demanding some kind of justice?”

The members of cheer leading group are not lapdogs of the  state. They also say, ” Yes! injustice has been done in the past by the state but these terrorists have nothing to do with those injustice. They are driven by the dogmatic ideology such as Islamic fundamentalism. They want to impose those ideologies on you. Don’t be naive. Let the state first kill these terrorists then we will deal with the justice.”

Meanwhile, state powers keep killing 1000s of civilians in the process of killing bunch of terrorists.