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Long-Term, my ass

I recently read When Genius Failed, Roger Lowenstein’s chronicle of the rise (1994) and collapse (1998) of Long-Term Capital Management, a hedge fund staffed by Harvard and MIT Ph.D.s. The LTCM team developed “risk management” models that would allow them fund to “vaccuum up nickels” in massive (leveraged) quantities. The formula worked for a while, until it didn’t, at which point people started to realize that LTCM was leveraged out the wazoo, and that the value of its derivatives bets was literally incalculable.

Once the bottom fell out, the Fed had to coordinate a bailout of LTCM by the world’s leading banks. Many of these banks were treated as doormats by LTCM during its meteoric rise. Trust me; it’s a really entertaining story that Mr. Lowenstein tells. As David Pflug, Chase’s head of global credit, put it, “You can overintellectualize those Greek letters [in LTCM’s formulae]. One Greek word that ought to be in there is hubris.”

Two major issues — beyond the failures of “risk management” — struck me while I read the book. For one thing, LTCM’s collapse was precipitated by a series of regional financial crises in 1997-98. The final straw came when Russia defaulted on its foreign bonds in order to pay workers at home. This means, “Russia welched on its worldwide obligations because it barely had money to keep its government afloat.” And this occurred only ten years ago. So if oil futures didn’t rise 1000% in the past few years, how brazen would Russia be right now? (and if they drop significantly, where will Russia end up?)

The third issue was that the behavior of LTCM and the major banks sounded remarkably familiar to our current mortgage-driven crisis (right down to Lehmann Bros. suffering rumors about its underfunding and impending collapse). The exotic derivatives, the incalculable, illiquid assets, the “too big to fail” mentality: this could be 1998 writ large! Had these financial genii — and many of the major players involved in the recent Bear Stearns collapse also figure into When Genius Fails — managed to ignore every lesson from LTCM’s failure?

Near the end of the book, Mr. Lowenstein wrote:

Permitting such losses to occur is what deters most people and institutions from taking imprudent risks. Now especially, after a decade of prosperity and buoyant financial markets, a reminder that foolishness carries a price would be no bad thing. Will investors in the next problem-child-to-be, having been lulled by the soft landing engineered for Long-Term, be counting on the Fed, too? On balance, the Fed’s decision to get involved — though understandable given the panicky condition of September 1998 — regrettably squandered a choice opportunity to send the markets a needed dose of discipline.

That’s why I was really gratified to open today’s NYTimes and discover that Mr. Lowenstein has a great essay on exactly that topic, “Long-Term Capital: It’s a Short-Term Memory”! He does a good job of explaining the issues without getting overly technical (one of the complaints others have had about his book).

Give it a read; I bet you’ll dig it. (And get irate, when you start reading about the Fannie Mae / Freddie Mac seizure. . .)

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Maybe his brother can suit up!

I’m kinda astonished that the NFL season starts tomorrow night. I figure I’ll order up some pizza on the way home from Amy’s train and watch the Giants begin their defense of the champi —

— oh, who am I kidding? The Giants could go 3-13 this year and I won’t care! They beat the Patriots in the Superbowl and derailed The Perfect Season!

Anyway, I was just clicking around on ESPN.com and noticed that Baltimore’s starting QB Kyle Boller last year is gone for the season. I wondered who’s going to start for new head coach John Harbaugh, and I read the following sentence:

Boller entered the preseason competing for the starting job with Troy Smith and top draft pick Joe Flacco, who ultimately won the job because of Boller’s injury and Smith’s lengthy battle with infected tonsils.

So that means that Baltimore is starting a QB because one of his competitors wrecked his shoulder and the other got tonsilitis.

I know this team won a Superbowl with Trent Dilfer at QB (beating the Giants), but I have a feeling the Ravens fans will be covering their eyes and saying, “Nevermore!” a week or two into the season.

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Bear arms

We’ve had a bunch of bear sightings this summer. On my drive home from work two weeks ago, I saw a bear wandering around the soccer field of a local grade school. I called the police about it when I got home a few minutes later, since the field was right around the corner from their station.

That weekend, one of my neighbors told me that they saw a bear in the yard beside our house. When they looked an hour later, the bear was still there, just hanging out.

Last Tuesday night, during Rufus’ evening walk, one of my neighbors was raking up trash in the woods about 15 feet back from the street. He told me, “I live across the street. My wife called during my drive to work and told me that a bear had just picked up our trash can and was carrying it over to the woods for breakfast.”

Tonight, we decided to walk down to the local CVS during Rufus’ evening walk, so I could pick up a Cherry Coke. About a third of a mile from my house, I noticed a jeep parked on the side of the road. The driver reached out the window as if to tap a cigarette. We walked up to her car, and she said, “He’s over there. Do you see him?” Pointing again, not tapping a cigarette.

I thought she was talking about her toddler, with whom I’d seen her walking many times. I wondered why her toddler was meandering around in someone’s yard, while she and her husband sat in her jeep. I looked where she was pointing, and realized that there wasn’t any toddler to be found.

However, there was a very large black bear beside the house across the street, in the process of emptying a trash can.

I said, “Wow, that is one giant bear!”, took Rufus’ leash from my wife, and trotted briskly on to CVS. As we got over the next hill, Amy asked, “Is there a reason we didn’t just head back home?”

Seriously, that bear would’ve towered over me on its hind legs. “Because . . . I wanted to get a Cherry Coke?”

We kept walking. As we approached the drug store, a pair of kids (around 10-11 years old, I think) were playing with their skateboard and scooter. One said to us, “There’s a bear back up the street.”

I told him that we’d passed it already, and thanked him for the warning. Amy went into the store and got my Cherry Coke. She asked, “Should we walk back the same way, or try the back road instead?”

I pondered for a moment. We’d seen the bear beside a house that let out onto that back road, so I figured there was a 50/50 chance he’d have come out on that side by the time we got back. I decided we’d go home by our regular route. The two kids left with us. I figured the bear would go after them first, since they’re trashcan-sized.

We approached the area where we’d seen the bear, and I figured that if it was in the same location, about 35 or 40 feet back from the road, chomping on trash, the five of us would be fine. Rufus gave no sign of sniffing him out, but he didn’t react during the walk down the street, either.

A neighbor across the street from that house called to us, “Be careful! There’s a bear out!”

“We know,” one of the kids said.

“No, he’s right over there!” the neighbor said, pointing to a stand of pine trees about 10 feet from the road.

I turned and bolted up the front yard of another neighbor and rang his doorbell, Amy and the kids racing behind me. The man of the house, whom I believe is a policeman, answered the door, and I hurriedly said, “There’salargebearacrossthestreet. Isitokayifmywife,dogandthesetwokidsstayinsideforaminute? I’llgogetmycarsoIcanbringeveryoneupthestreet.”

He assented, but started looking over at the trees, trying to catch a glimpse of the big bear. He offered to drive us all, but I impulsively decided a good run was in order. I handed Amy the leash and sprinted (as best I can) back to the house. The bear had already retreated from view, probably heading to that ‘back road’ area. On the way, I warned a neighbor who was just taking his little terrier out, “Gotheotherdirection. Blackbeardownthisway.”

He let out a yelp and hurried back into his garage.

I got to the car and drove down to the house. The two kids were getting into one of their mothers’ cars, since she was out looking for them. Amy & I got Rufus in, thanked the gentleman, petted his dog (he and Rufus got to make friends while I was gone), and drove back to the house.

And that’s life in Ringwood. Come visit!

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Monday Morning Montaigne: An Apology for Raymond Sebond, Take 3

I made it through the longest portion of the Apology, dear readers! And while it was as depressing and sermonistically strident as the preceding 60 pages, some light popped up at the end of the tunnel!

This segment of the Apology — go back to previous installments of this series (1 and 2) for the background on this part of Montaigne’s essays — is titled by our translator as Man has no knowledge (pages 449-508 in this edition) and examines the failures and inconsistencies of philosophy to explain, um, anything. M. focuses on the Greeks, which makes given the state of philosophy at the time he was writing. He breaks out three schools of “wise men,” since his project is to show that the learning of man is worthless. Or, as he puts it:

To really learned men has happened what happens to ears of wheat: they rise high and lofty, heads erect and proud, as long as they are empty; but when they are full and swollen with grain in their ripeness, they begin to grow humble and lower their horns. Similarly, men who have tried everything and sounded everything, having found in that pile of knowledge and store of so many various things nothing solid and firm, and nothing but vanity, have renounced their presumption and recognized their natural condition.

Back to the three schools. We have:

  1. “Peripatetics, Epicureans and Stoics . . . [who] established the sciences we have, and treated them as certain knowledge,
  2. “the Academics . . . [who] despaired of their quest and judged that truth could not be conceived by our powers,
  3. “[Pyrrhonians and] Skeptics . . . [who] say that they are still in search of the truth . . . [and] judge that those who think they have found it are infinitely mistaken.”

M. starts out by denying skeptics their skepticism, concluding that their radical doubt is too aware of itself to truly be doubt. He also contends that their doubt is purely for argument: “They use their reason to inquire and debate, but not to conclude and choose.” To M., the doubts of the skeptics are about the branches, and not the root.

Throughout the section, the core of his argument remains that the nature of the infinite is so far beyond our senses that our reason can’t hope to grasp it. It’s only our faith that brings us close, while reason’s presumption separates us from that higher self: “All that we undertake without his assistance, all that we see without the lamp of his grace, is only vanity and folly.”

M. contends that, if forced to bestow a material body on the divine, he would have worshiped the sun, since “[besides] its grandeur and beauty, it is the part of this machine that we find farthest from us, and therefore so little known that [its ancient worshipers] were to be pardoned for regarding it with wonder and reverence.” He later remarks that it’s such folly to personify the diving that he’d prefer to worship a god patterned after a serpent, dog, or ox.

This point follows an entertaining segment where M. lists no fewer than 25 philosophers and each one’s view on God and the divine (some of which have multiple views on such). The point, of course, is that these were the greatest minds of their time, and they couldn’t settle on an idea of the divine.

From there, he lambastes them for coming no closer to an understanding of man. If anything, he opines, shouldn’t we have knowledge of ourselves?

It’s a long and exhausting chapter, especially when M. turns his attention to Aristotle. I was inclined to think he wrote that section in a particularly boring style to mimic Aristotle’s notes, but that may’ve just been my own wandering attention. By the time I reached its conclusion, I wondered why he needed to go on at such length, to dismiss so many targets, unless his commission was paying by the word.

* * *

I found myself greatly relieved at the conclusion, not only because It’s Finally Over, but also because it leads into a two-page passage that the translator titles Warning to the Princess (the Apology being written for Princess Margaret of Valois). In this brief segment, it’s as if the mask falls from M. He admits that the Apology is “so long a work contrary to my custom” and proceeds to distill his message:

People are right to give the tightest possible barriers to the human mind. In study, as in everything else, its steps must be counted and regulated for it; the limits of the chase must be artificially determined for it. They bridle and bind it with religions, laws, customs, science, precepts, mortal and immortal punishments and rewards; and still we see that by its whirling and its incohesiveness it escapes all these bonds. It is an empty body, with nothing by which it can be seized and directed; a varying and formless body, which can be neither tied nor grasped.

Indeed there are few souls so orderly, so strong and wellborn, that they can be trusted with their own guidance, and that can sail with moderation and without temerity, in the freedom of their judgments, beyond the common opinions. It is more expedient to place them in tutelage.

The mind is a dangerous blade, even to its possessor, for anyone who does not know how to wield it with order and discretion.

It’s not a sentiment I necessarily agree with, but I’m happy that M. is able to cut it down to a few paragraphs this way. Still, there are another 46 pages ahead comprising five more sections, so I’m afraid it’ll be another week before I can build up some enthusiasm for this project.

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The Deadliest Pick

I don’t venture into politics too often on this blog, but here’s my prediction for the Sarah Palin effect: it backfires on McCain because women will actually want to vote against her the more their husbands point out how hot she is.

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Dog days

Next month will be pretty hectic and I have a ton of vacation time piled up. So, since we’re not going anywhere for Labor Day weekend, and my Friday office hours are only 8am-1pm, I decided to take today off from work.

It’s been a pretty lazy day, except for going out to buy a new dishwasher and reading a dense section of Montaigne. Now (3pm) I’m just about ready for a new adventure, so I’m going to pack Rufus in the car, head out to one of the Ramapo Lake trails to see how the boy likes walking in the woods!

* * *

UPDATE: And we’re back! I took Rufus on the Macevoy trail, a half-mile stretch leading from a parking area off Skyline Drive up to the Ramapo Lake. I took my family — my brother, sister-in-law, their kids, Dad and his girlfriend — up there on July 4 last year. We had to take our time; in fact, Dad barely made it, but I was proud of him for surviving the trek.

Rufus, on the other hand, tried to make a sprint out of it, as is his wont. There’s no talking him out of that sorta thing. He made some friends on the way up, as is also his wont. A couple was walking down the trail, and the guy took Rufus’ friendliness as an opportunity to explain to his girlfriend why they need to get a big dog, not a little one like she wants. Ru did his best to sway her by leaning heavily against her. Unfortunately, I think he swayed her body more than her opinion, but she continued to coo over our boy.

I brought along two bottles of water, as well as one of his bowls, since he refuses to drink from the bottle/bowl I was considerate enough to buy for him. It’s not too hot today — around 78 — but he tends to hurry, and to stop and sniff at everydarnthing around, so by the time we reached the lake, he was panting a bit. At that point, a woman walked by with a beagle-ish dog, but she said it was pretty hyper and angry since getting into a doggie-altercation last month, and she was afraid he’d get Rufus upset. My boy was too tired to even disagree.

I got him to stand still long enough for some pix, and even got him to drink some water (after dropping half a dog-treat in the bowl), but I could see that he wasn’t happy to be out in the sun at that point. The trek back was a little more hazardous than the way in, because so much of it was downhill on rocks, but Rufus was a trooper. He tends to stay in front of me when we walk, but he paused in front of less certain paths, and waited for me to go by and show him where to step.

On the way we got back to the car, we encountered a family of incredible nordicity. I thought they’d escaped from the nearby Ikea, but it turned out that they were visiting family in the area. The parents and their 3 small kids all fawned over our boy, who wasn’t so exhausted as to reject the attention.

Back in the car, he was a panting wreck. But it’s only a 7- or 8-minute drive home, and he’s now sacked out comfortably on his bed, having drunk half a bowl of water. I walked in to see the Yankees beat the Red Sox in the bottom of the ninth. For what that’s worth.

So that’s my day off: some reading, some napping, some appliance shopping, some Yankees, and Rufus on a hiking trail. (UPDATE: and a cigar out on the deck, as I watch the sun go down.)

Click through the pic for the rest of the photoset!

“Oh, look at me! I’m doing my little French-maid-ears trick!”

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Sunshine

What’s in the Arts+ section of The Official Newspaper of Gil Roth today?

  1. a review of two biographies of Han van Meegeren, the famous Dutch forger of paintings,
  2. a review of Richard Todd’s essays on authenticity (nice complement/contrast to the forgery review),
  3. a review of a biography of Jacob Riis, the man who chronicled the horrors of tenement life in late 19th century Manhattan,
  4. a review of a book on the New Urban Renewal and today’s gentrification,
  5. Otto Penzler’s review of Anton Chekhov’s crime fiction.

Sometimes I think their editors say to each other, “Remember that thing Gil was muttering to himself about in 1997, when he thought no one was listening? We should assign an article on that topic!”