‘Rational Decision-making’ Archive

Know You Don’t Know

Friday, August 9th, 2013


“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

I learned that quote as an undergrad from an EE professor. It’s widely attributed to the usual amusers: Mark Twain, Will Rogers, Artemis Ward, and others.

I don’t know who said it first. I only know who said it to me, for the first time that I can remember.

Investing is overflowing with things we know that ain’t so, things we may have known but forgot, and things we think we can surmise but can’t possibly know.

In his The BIG Picture blog, Barry Ritholtz elaborates and clarifies:

On the Value of Not Knowing 



They Were Just, Y’Know, Kidding.

Monday, July 8th, 2013

While some people are calling it the Housing Crisis or the Sub-Prime Mortgage Crisis, if it had been either of those things it would not have grown to the world-shaking scale it did.

It was more accurately a Garbage Debt Derivative Crisis. Lots of really bad loans were bundled together, and then sliced into various debt bond-like derivatives. Some were designated to take the hit first if there were losses– those were considered riskiest, and had junk bond ratings. Other slices took the next risk, then the next, until one reached the top slice that would only lose money if all the others had already been wiped out.

If you were dealing with normal mortgages or company IOUs or bundles of credit card debt, and all other aspects were equal,  it would seem far-fetched that that top slice could have a loss. It seems safe. It seems like it should get a very good credit rating.

Wall Street firms  employ a lot of math whizzes who can expand the previous two paragraphs into pages of stochastic calculus equations, modern finance jargon, and unintended consequences. The regulatory highest rung of these firms are the Ratings Agencies, which are supposed to look at the debt, the models, and the assumptions, then grant an appropriate credit rating.

All other things were not equal, the debts were casually obviously garbage, and still the Ratings Agencies gave some of the slices high ratings.

Matt Taibbi of Rolling Stone tells the story with a lot more astonishing details:

The Last Mystery of the Financial Crisis

P.S. Although as Matt describes the US DOJ is suing the Agencies for $5Billion, I don’t think I need to tell you that none of the Wall Street workers or executives have been indicted, despite the ample evidence that they knew they were committing fraud. Sheesh.


Do Jobless Benefits Make Us Lazy?

Sunday, July 7th, 2013

There’s no shortage of opinions from political conservatives and libertarians that jobless benefits cause people to delay looking for work.

Opinions are all very well. What about data? What does actual data say?

The WSJ’s Ben Casselman wrote a nice post for their Real Time Economics blog.


Are extended unemployment benefits leading to higher rates of long-term unemployment? A new paper from the Federal Reserve Bank of Boston suggests the answer is “no”—or at least, “not much.”

You can read the full article here:

Are Jobless Benefits Leading to Higher Unemployment?


The June 2012 Capital Drain newsletter is ready

Sunday, July 1st, 2012


I’ve just sent out the June 2012 Capital Drain newsletter. If you’re on the direct mailing list for that, you should be receiving it now.

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If you just want to read the letter, follow this link: June 2012 CapDrain.

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