One North Carolina Insurer’s Disastrous Experience With Obamacare’s Exchange Tech

this point the problems that individuals have had shopping for and
enrolling in coverage through Obamacare’s exchanges are widely

But the federally run system operating in 36 states is also a
mess on the insurer side. Here, for example, is glimpse into what
it’s like for the largest health insurer in North Carolina, as
noted by the Charlotte, N.C. affiliate of
CBS News

Internal emails obtained by WNCN-TV show
that Blue Cross Blue Shield show that only 1,000 people had filled
out applications as of October 15th.

In fact, only one person was able to successfully use to enroll in the new exchange.

But even that single person has not paid, which means the
enrollment is not complete.

The emails suggest the “payment re-direct option” on government
servers isn’t working.

Blue Cross Blue Shield found the entire system is so filled with
glitches that the company decided not to upload data because it was
afraid false information might enter its computer system.

That’s how bad it is. The payment system is apparently
non-functional, which probably won’t make insurance companies
particularly happy. And the overall system is such a disaster that
at least one insurer is refusing to send in its data out of fear
that doing so would create even more problems.

You can see all the leaked emails,
via WNCN

from Hit & Run

Receiving criticism

When I was a younger man, just beginning my ministry, an older gentleman took me under his wing and gave me a warning and some advice. He said, “The profession you are entering means that you are going to receive more criticism than you can possibly imagine.” That was the warning.

The truth is that I had no idea what I was getting into. I didn’t attend church on a regular basis until the summer of my 15th year and, even then, I attended alone, either walking or hitching a ride to the church a couple of miles away.

read more

via The Citizen

Guest Post: Can We Support 75 Million Retirees in 2020?

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

All financial schemes for retirement are misdirections of the real challenge, which is creating enough real-world surplus to support 75 million retirees.

I received a number of interesting comments on my recent series on the insolvency of the Social Security Ponzi Scheme:

The Generational Injustice of Social (in)Security (November 6, 2013)

The Problem with Pay-As-You-Go Social Programs: They're Ponzi Schemes (November 5, 2013)

There are two questions here:

1. How can we sustainably pay for 75 million beneficiaries in 2020?

2. Are there sufficient resources, labor and capital to support 75 million beneficiaries in the manner that they were promised?

The first question presumes there are limits on the creation of 'free money," and the second presumes there are limits on the surplus generated by the economy that can be devoted to supporting retirees.

As a quick primer on Social Security: the program, paid by payroll taxes on earned income, has two funds: one for worker/retirees and survivors of workers, and another for disabled workers and their dependents.

As of 2011 ( Annual Report of the Trustees of the Social Security Trust Funds), there were 38 million retirees, 6 million survivors and 11 million disabled and their dependents drawing benefits from the program. The latest numbers from the Social Security Administration (SSA) show 57 million beneficiaries as of 2012.

Since there will be 53 million people 65 and older in 2020, and the number of survivors and disabled are rising as fast or faster than the number of retirees, we can project the program will have around 75 million beneficiaries in 2020, seven short years away.

(Given that the number of people choosing to retire early at 62 rather than wait for full benefits at 66 is exceeding SSA projections, this estimate is probably conservative.)

Reader D.L.J. proposed a solution that many believe would be sustainable: dispense with payroll taxes, illusory trust funds and borrowed money entirely, and just print the money and transfer it directly to retirees:


Now set aside your traditional view of 'how the system now works'.

What if each of the 50,000,000 retirees received a monthly check for $2500 for $30,000 per year. It doesn't come from a trust fund and it doesn't come from a working member of the workforce; it comes directly from the USTreasury. There are no bonds issued to raise the money, no interest to pay and no maturity schedule–just money credited to the accounts of the seniors.

Now, what if at the same time, there is no payroll tax to fund the, well, trust fund.

The 50,000,000 retirees would/could spend their $30,000 each into the economy to support the production of goods and services of 50,000,000 active workers providing an average contribution to income of $30,000 each. Of course the workers would actively purchase goods and services from one another as well.

Over the years, I have received many similiar proposals from readers, the key component being the issuance of cash by the U.S. Treasury rather than the Treasury borrowing money on the bond market via selling Treasury bonds.

The conventional economic concern with issuing freshly printed "free money" in this way is that this expansion of the money supply would soon trigger inflation that robs every holder of the currency. Expanding the money supply debases the existing stock of currency.

Since such a proposal has never been tried to my knowledge, we don't have any direct experiential data on the unintended consequences of direct distribution of newly created cash on a large scale. I suppose if an equivalent sum of money were destroyed or removed from the money supply, inflation could be controlled, but destruction of such a large sum of money elsewhere would have negative consequences for those whose capital was destroyed.

Perhaps there is some dynamic here I am missing, but to the best of my knowledge history suggests that inflating the money supply is only sustainable if the production of goods and services rises in analogous fashion. If the surplus generated by the economy remains flat, inflating the money supply leads to a depreciation of the currency being printed, i.e. inflation or theft by other means.

I conclude that this idea, however appealing, boils down to a "free lunch." In my view, a nation can only spend what it generates in surplus from labor and the productive investment of capital. Priting money is a short-term shortcut that raises the apparent surplus being generated but does not expand the actual surplus.

What if the surplus being generated simply isn't large enough to support 75 million beneficiaries in the manner that they were promised? Correspondent Philip C. explains that the money for retirement is the least of our concerns: it's the actual stuff needed for living/consuming that may be insufficient:

You point out correctly that there is no trust fund for Social Security payments. However it is easy to show that even if there were, the system could still not function. The reason is quite simple: the goods and services that retirees require (food, energy, medical, consumable goods, recreational, entertainment, etc.) in practical terms cannot be stored and therefore must be provided by the current working population.

Even if retirees had their Social Security pensions it wouldn&r
squo;t do them any good because the stuff they needed would be scarce and the good old law of supply and demand would price them out of the market. What young people would tolerate working in such an environment with such an onerous load?

It seems to me that the root of the looming disaster is not so much the Ponzi aspect, despicable as it is, but the unrealistic expectation that people can actually retire at age 65 (or whatever age) and continue to consume resources and the productive output of an ever decreasing working population.

Trust fund or no trust fund, the working population will be burdened by retirees; an important question is how long will they put up with it?


The social disruption will be of major proportions. Retirement ages will have to rise (they are already programmed to rise here in Australia in a couple of years) and expectations will have to be rationalised or there will be enormous stresses in our societies.

This seems to get at the heart of the matter. Money is after all a claim on real-world resources, goods and services. Printing or borrowing money into existence does not create more resources, goods or services to exchange for the money.

In this sense, all financial schemes for retirement are misdirections of the real challenge, which is creating enough real-world surplus to support 75 million retirees (not to mention the other 75 million people drawing government benefits). Census: 49% of Americans Get Gov’t Benefits; 82M in Households on Medicaid.

Printing or borrowing money are both attempts to get a free lunch; alas, there is no free lunch. We can only spend what we extract or generate in surplus, i.e. what's left after subtracting the costs of production, labor and capital.


via Zero Hedge Tyler Durden

Bernanke Explains It All To The IMF – Live Webcast

Ben Bernanke is participating in an IMF panel with Larry Summers, Ken Rogoff, and former Bank of Israel chief Stan Fischer… full speech below…


Live stream via BBG (if embed not working clck here)

Full Speech below:


The Crisis as a Classic Financial Panic

I am very pleased to participate in this event in honor of Stanley Fischer. Stan was my teacher in graduate school, and he has been both a role model and a frequent adviser ever since. An expert on financial crises, Stan has written prolifically on the subject and has also served on the front lines, so to speak–notably, in his role as the first deputy managing director of the International Monetary Fund during the emerging market crises of the 1990s. Stan also helped to fight hyperinflation in Israel in the 1980s and, as the governor of that nation's central bank, deftly managed monetary policy to mitigate the effects of the recent crisis on the Israeli economy. Subsequently, as Israeli housing prices ran upward, Stan became an advocate and early adopter of macroprudential policies to preserve financial stability.

Stan frequently counseled his students to take a historical perspective, which is good advice in general, but particularly helpful for understanding financial crises, which have been around a very long time. Indeed, as I have noted elsewhere, I think the recent global crisis is best understood as a classic financial panic transposed into the novel institutional context of the 21st century financial system.1 An appreciation of the parallels between recent and historical events greatly influenced how I and many of my colleagues around the world responded to the crisis.

Besides being the fifth anniversary of the most intense phase of the recent crisis, this year also marks the centennial of the founding of the Federal Reserve.2 It's particularly appropriate to recall, therefore, that the Federal Reserve was itself created in response to a severe financial panic, the Panic of 1907. This panic led to the creation of the National Monetary Commission, whose 1911 report was a major impetus to the Federal Reserve Act, signed into law by President Woodrow Wilson on December 23, 1913. Because the Panic of 1907 fit the archetype of a classic financial panic in many ways, it's worth discussing its similarities and differences with the recent crisis.3 

Like many other financial panics, including the most recent one, the Panic of 1907 took place while the economy was weakening; according to the National Bureau of Economic Research, a recession had begun in May 1907.4 Also, as was characteristic of pre-Federal Reserve panics, money markets were tight when the panic struck in October, reflecting the strong seasonal demand for credit associated with the harvesting and shipment of crops. The immediate trigger of the panic was a failed effort by a group of speculators to corner the stock of the United Copper Company. The main perpetrators of the failed scheme, F. Augustus Heinze and C.F. Morse, had extensive connections with a number of leading financial institutions in New York City. When the news of the failed speculation broke, depositor fears about the health of those institutions led to a series of runs on banks, including a bank at which Heinze served as president. To try to restore confidence, the New York Clearinghouse, a private consortium of banks, reviewed the books of the banks under pressure, declared them solvent, and offered conditional support–one of the conditions being that Heinze and his board step down. These steps were largely successful in stopping runs on the New York banks.

But even as the banks stabilized, concerns intensified about the financial health of a number of so-called trust companies–financial institutions that were less heavily regulated than national or state banks and which were not members of the Clearinghouse. As the runs on the trust companies worsened, the companies needed cash to meet the demand for withdrawals. In the absence of a central bank, New York's leading financiers, led by J.P. Morgan, considered providing liquidity. However, Morgan and his colleagues decided that they did not have sufficient information to judge the solvency of the affected institutions, so they declined to lend. Overwhelmed by a run, the Knickerbocker Trust Company failed on October 22, undermining public confidence in the remaining trust companies.

To satisfy their depositors' demands for cash, the trust companies began to sell or liquidate assets, including loans made to finance stock purchases. The selloff of shares and other assets, in what today we would call a fire sale, precipitated a sharp decline in the stock market and widespread disruptions in other financial markets. Increasingly concerned, Morgan and other financiers (including the future governor of the Federal Reserve Bank of New York, Benjamin Strong) led a coordinated response that included the provision of liquidity through the Clearinghouse and the imposition of temporary limits on depositor withdrawals, including withdrawals by correspondent banks in the interior of the country. These efforts eventually calmed the panic. By then, however, the U.S. financial system had been severely disrupted, and the economy contracted through the middle of 1908.

The recent crisis echoed many aspects of the 1907 panic. Like most crises, the recent episode had an identifiable trigger–in this case, the growing realization by market participants that subprime mortgages and certain other credits were seriously deficient in their underwriting and disclosures. As the economy slowed and housing prices declined, diverse financial institutions, including many of the largest and most internationally active firms, suffered credit losses that were clearly large but also hard for outsiders to assess. Pervasive uncertainty about the size and incidence of losses in turn led to sharp withdrawals of short-term funding from a wide range of institutions; these funding pressures precipitated fire sales, which contributed to sharp declines in asset prices and further losses. Institutional changes over the past century were reflected in differences in the types of funding that ran: In 1907, in the absence of deposit insurance, retail deposits were much more prone to run, whereas in 2008, most withdrawals were of uninsured wholesale funding, in the form of commercial paper, repurchase agreements, and securities lending. Interestingly, a steep decline in interbank lending, a form of wholesale funding, was important in both episodes. Also interesting is that the 1907 panic involved institutions–the trust companies–that faced relatively less regulation, which probably contributed to their rapid growth in the years leading up to the panic. In analogous fashion, in the recent crisis, much of the panic occurred outside the perimeter of traditional bank regulation, in the so-called shadow banking sector.5 

The responses to the panics of 1907 and 2008 also provide instructive comparisons. In both cases, the provision of liquidity in the early stages was crucial. In 1907 the United States had no central bank, so the availability of liquidity depended on the discretion of firms and private individuals, like Morgan. In the more recent crisis, the Federal Reserve fulfilled the role of liquidity provider, consistent with the classic prescriptions of Walter Bagehot.6 The Fed lent not only to banks, but, seeking to stem the panic in wholesale funding markets, it also extended its lender-of-last-resort facilities to support nonbank institutions, such as investment banks and money market funds, and key financial markets, such as those for commercial paper and asset-backed securities.

In both episodes, though, liquidity provision was only the first step. Full stabilization requires the restoration of public confidence. Three basic tools for restoring confidence are temporary public or private guarantees, measures to strengthen financial institutions' balance sheets, and public disclosure of the conditions of financial firms. At least to some extent, Morgan and the New York Clearinghouse used these tools in 1907, giving assistance to troubled firms and providing assurances to the public about the conditions of individual banks. All three tools were used extensively in the recent crisis: In the United States, guarantees included the Federal Deposit Insurance Corporation's (FDIC) guarantees of bank debt, the Treasury Department's guarantee of money market funds, and the private guarantees offered by stronger firms that acquired weaker ones. Public and private capital injections strengthened bank balance sheets. Finally, the bank stress tests that the Federal Reserve led in the spring of 2009 and the publication of the stress-test findings helped restore confidence in the U.S. banking system. Collectively, these measures helped end the acute phase of the financial crisis, although, five years later, the economic consequences are still with us.

Once the fire is out, public attention turns to the question of how to better fireproof the system. Here, the context and the responses differed between 1907 and the recent crisis. As I mentioned, following the 1907 crisis, reform efforts led to the founding of the Federal Reserve, which was charged both with helping to prevent panics and, by providing an "elastic currency," with smoothing seasonal interest rate fluctuations. In contrast, reforms since 2008 have focused on critical regulatory gaps revealed by the crisis. Notably, oversight of the shadow banking system is being strengthened through the designation, by the new Financial Stability Oversight Council, of nonbank systemically important financial institutions (SIFIs) for consolidated supervision by the Federal Reserve, and measures are being undertaken to address the potential instability of wholesale funding, including reforms to money market funds and the triparty repo market.7 

As we try to make the financial system safer, we must inevitably confront the problem of moral hazard. The actions taken by central banks and other authorities to stabilize a panic in the short run can work against stability in the long run, if investors and firms infer from those actions that they will never bear the full consequences of excessive risk-taking. As Stan Fischer reminded us following the international crises of the late 1990s, the problem of moral hazard has no perfect solution, but steps can be taken to limit it.8 First, regulatory and supervisory reforms, such as higher capital and liquidity standards or restriction on certain activities, can directly limit risk-taking. Second, through the use of appropriate carrots and sticks, regulators can enlist the private sector in monitoring risk-taking. For example, the Federal Reserve's Comprehensive Capital Analysis and Review (CCAR) process, the descendant of the bank stress tests of 2009, requires not only that large financial institutions have sufficient capital to weather extreme shocks, but also that they demonstrate that their internal risk-management systems are effective.9 In addition, the results of the stress-test portion of CCAR are publicly disclosed, providing investors and analysts information they need to assess banks' financial strength.

Of course, market discipline can only limit moral hazard to the extent that debt and equity holders believe that, in the event of distress, they will bear costs. In the crisis, the absence of an adequate resolution process for dealing with a failing SIFI left policymakers with only the terrible choices of a bailout or allowing a potentially destabilizing collapse. The Dodd-Frank Act, under the orderly liquidation authority in Title II, created an alternative resolution mechanism for SIFIs that takes into account both the need, for moral hazard reasons, to impose costs on the creditors of failing firms and the need to protect financial stability; the FDIC, with the cooperation of the Federal Reserve, has been hard at work fleshing out this authority.10 A credible resolution mechanism for systemically important firms will be important for reducing uncertainty, enhancing market discipline, and reducing moral hazard.

Our continuing challenge is to make financial crises far less likely and, if they happen, far less costly. The task is complicated by the reality that every financial panic has its own unique features that depend on a particular historical context and the details of the institutional setting. But, as Stan Fischer has done with unusual skill throughout his career, one can, by stripping away the idiosyncratic aspects of individual crises, hope to reveal the common elements. In 1907, no one had ever heard of an asset-backed security, and a single private individual could command the resources needed to bail out the banking system; and yet, fundamentally, the Panic of 1907 and the Panic of 2008 were instances of the same phenomenon, as I have discussed today. The challenge for policymakers is to identify and isolate the common factors of crises, thereby allowing us to prevent crises when possible and to respond effectively when not.



via Zero Hedge Tyler Durden

Here Are the 2013 Reason Video Prize Winners!


On November 6, 2013 in New York, Reason announced the winners of
the first-ever Reason
Video Prize
, which honors short-form video, film, and moving
pictures that explore, investigate, and enrich our appreciation of
libertarian beliefs in individual rights, limited government, and
especially human possibilities.

Top honors – and $7,000 – went to Drew Tidwell’s “I,
Pencil,” produced for the Competitive Enterprise Institute. Second
place ($2,000) went to Justin Monticello’s “Obama That I Used to
Know,” and third place ($1,000) went to Isaac Reese’s “Game of Food
Trucks,” produced for the Institute for Justice.

The other finalists were “Top DHS Checkpoint Refusals,” produced
by Mike Mills, and “Chrony Chronicles: I Want to Grow Up to be a
Crony,” by Owen Brennan, Justin Folk, and Robert Perkins.

Congratulations to all the finalists and thanks all who entered
the competition.

Click above to watch a playlist of all five videos,
starting with “I, Pencil.”

For more information on the Reason Media Awards, including the
winners of the Bastiat Prize for Journalism and the Lanny
Friedlander Lifetime Achievement Prize, go

from Hit & Run

Camus at 100: Rock On!

Interesting piece in the LA
Times about the 100th birthday of Albert Camus. Here’s a

Camus is famous for two works that plumb absurdity. In “The
Stranger,” Meursault senselessly kills a man — an act the absurdity
of which is revealed only when others demand in vain a reason. “The
Myth of Sisyphus,” in turn, considers the punishment meted out to
the mythical king of Corinth, condemned to spend eternity pushing a
boulder up a mountainside, only to watch it roll back down. Both
heroes overcome their absurd fate by embracing it, by making it
their own. We must, Camus concluded, imagine them happy.

But by the time the books were published in occupied France,
Camus was no longer happy with their conclusions. The absurd, he
scrawled in his journal, “teaches nothing.” Instead of looking to
ourselves for answers, as do his heroes, we must look to others. We
are, Camus recognized, condemned to live together in this silent
world. Our deepest impulse, once we realize the silence will never
end, is to refuse this state of affairs. To shout “no” to the world
as it is, to shout “yes” to the world as it should be.

Read the whole thing.

If you ever dug Camus (or still do), I highly recommend George
Existential America
(2003). From a

“To be existential,” writes Cotkin, “is to wrestle most fully
with the jagged awareness of one’s own finitude, with the
thunderbolt fact that my death will be my own, experienced by no
one else….To be existential is to recognize, in the face of all
these somber truths clutched close to our own sense of being, that
we must act.”

Cotkin’s most original insight is something that escaped Camus
and the others: “Existentialism, American style…jibes well with
American antinomianism, that willingness of the lonely individual
to rebel against entrenched authority in the name of his or her
most intense beliefs. Antinomianism, like existentialism,
challenges easy certitude, entrenched religion, and moribund
political assumptions.”

from Hit & Run

Too Much Faith Is Being Placed In Untested Theories

Submitted by Peter Tchir of TF Market Advisors,

A Pseudoscience Stuck in Place

I am growing more concerned by the day by the actions of the central banks.  It isn’t just that markets popped and dropped dramatically before and after Draghi’s rate cut, or that any policy seems particularly bad, just that the policies don’t seem to be working great, and are leaving a changed landscape that will need to be corrected, somehow, in the future.  I am quite simply concerned that too much faith is being placed in untested theories that may or may not work, or may or may not even be correct.

Here are a few things that concern me the most:

1. Central Bankers seem to rely on economic theories that have remained largely unchanged for years


2. Central Bankers seem of an age that they aren’t willing to incorporate theories that might change their favored models or might make those models too complex to be easily understood by those in charge (the Nobel prize committee has given out multiple awards for work in behavioral economics, yet central bank models seem to rely on pretty basic econometric models where behavior doesn’t rapidly change based on policies)


3. Central Bankers seem focused on domestic issues without really considering the ramifications and ripple effects that they potentially create

From Newton to Bohr

I liked Newtonian physics.  I could do the math easily and it was intuitive.  It was so easy that I took physics 101 right along with econ 101 because I needed some easy A’s.

But physics has changed.  The relatively simple world of Newtonian physics turned out to be inadequate to explain what was needed to propel science forward.  As comforting as it was to know that “each and every action has an equal and opposite reaction” that just doesn’t cut it in high end physics.

Personally, I started to lose interest and any real intuitive skills in physics around the time we learned that light is both a wave and a particle.  The math was getting more complex, but I could muddle my way through that.  What I lost was any instinctive or intuitive feel for what was being modeled.  I tended to focus on areas that I felt comfortable with, hampering any potential for intellectual growth.

Quantum mechanics really revolutionized physics. It was a new paradigm and you either had to adapt, understand it, or get some intuitive feel because brute force math might be enough to be adequate in the field, but not enough to excel.

I wonder why economics hasn’t had its “quantum mechanics” moment?

Did Keynes and Hayek really discover all there is to know?  Is Yellen’s beloved “Taylor rule” really the epitome of the “scientific” advancement of economics?  I realize there have been advances, but most seem to be “more of the same”.  No one seems to have challenged the central tenants of macroeconomics.

In physics, once Newtonian physics failed to explain the world, brilliant minds concocted experiments to test hypothesis.  This is what led to quantum mechanics.  The old theory was failing in that it couldn’t explain some observed phenomena, so it was ultimately supplanted by a new, much more complex theory, but one that explained much more of what was observable.

Why is that not happening in economics?  Personally, I don’t think economics has done a great job in explaining the world, otherwise we shouldn’t have so many periods of boom and bust globally.

Maybe it is the inability to experiment?  This is potentially a bigger issue than it seems at first.  We do experiment in economics, but it is a small group of elite, and mostly collegial economists who get to experiment.  Actually they get to put their beliefs into practice and then argue that the situation is better than if they hadn’t been allowed to implement their theories.  While costs and access can stop scientific progress, there certainly was a time that it was more readily available.  Hypothesis could be tested and failures catalogued and successes expanded on AND verified by repetition.  This capability just doesn’t exist in macroeconomics.  There are NO TWO economies that are identical except for the policies implemented.

Young professors could and did challenge the system in the hard sciences.  It is probably no co-incidence that most scientific Nobel prizes are awarded for work “conceived of” when the person was in their 20’s and “performed” in their 30’s.  That might be a generalization, but it isn’t entirely inaccurate.

Maybe economics is failing to attract good new people?  There may be something to this.  To some extent the economists that I know and respect the most (yes, I do like and respect some economists) had strong quantitative skills but an interest in business.  The didn’t want to be a “math” geek and liked working with the “real world”.  I am willing to make the conjecture that as computer science grew and the opportunities there grew, it was an even better match for many quantitative students who wanted something other than pure math, or physics, or chemistry, than economics.  Maybe even as MBA’s started looking for more “quants” even more people who would be the new economists didn’t pursue that?

Or maybe economists just ignore their own?  I have read a little about “behavioral economics”.  My take is that it demonstrates that people don’t always do what would produce the best “expected outcome”.  That the “rational man” that economic models are built on may not exist, and what is rational on a purely “economic” level might not be applicable on an overall evaluation.  We tend to hate losses more than we like winning.  How is that incorporated into the econometric global macro models used by the Fed?  The Fed runs the treasury/dividend yield model.  Yeehaw, except for the graphs that is nothing a good old fashioned HP12C couldn’t handle.  Why aren’t we incorporating some new techniques?  Maybe, because just like I hit the wall in physics at a certain point, the economists in charge have no interest in trying to incorporate things into their models that they don’t intuitively understand, might call into question their own body of “prestigious” work, and where quite frankly they might not have the technical expertise needed to incorporate them?

The Observer Effect.  Science understands that the act of observation can actually impact whatever is being observed.  Attempting to measure something affects the measurement.  First, I question how that plays into anything that is a “survey” or that is “subjective” in the first place.  How many purchasing managers hoping for better year-end bonuses say things are better than they are because they know their boss will like it, and at this point, they know the stock market will like it.  What about the “household survey” for non farm payrolls that we will get tomorrow.  Does it make a difference how you respond depending on your political party?  Does it amaze you that we still conduct door to door surveys to figure out how many Americans are working?  This is all a relatively minor effect, yet probabl
y real, and as far as I can tell, largely ignored at the “policy” level.

Learned Behavior.  Humans learn over time.  We are pretty adept and maximizing return while minimizing risk.  This is where I think economics does the worst job of integrating its own new theories.  QE seems based on a pretty simplistic model.  Provide more money, take risky investments out of the market, and the market will take that money and be encouraged to take more risk.  It will create asset price inflation which will encourage further real risk taking.  What if it turns out it is easier not to take the risk but end up with a pretty darn good reward?  How many companies took risk and a lot better off for it?  But how many have decided it is easier to do some financial engineering and let QE take care of their stock price?  How is that accounted in the models?  It probably isn’t and is probably too complicated, but we don’t try and predict the weather by licking our finger and sticking it in the air, yet economists seem in many ways content to run their policy on little more than that.

Equal and Opposite Reactions.  Such a basic concept.  It extends beyond science.  If you punch someone in the face, you can reasonably expect a certain reaction.  You might be able to qualify even that reaction based on the size and personality of the person you punch in the face.  Then why don’t we seem to use that in economics?  We live in a global economy apparently some of the time, but inflation is local wage driven only?  Hmm.  Bernanke, who claims protectionism was part of the problem with the Great Depression, basically told the Emerging Market countries (through lackey’s in Jackson Hole) that we will do what we need and they can worry about themselves.  Draghi cut rates today.  What does that to their currency?  Does that help or hurt what we have been trying to work on?  Central bankers all too often seem to act as though they are playing golf when the game is really chess.

Kasparov to Big Blue

Which brings us to chess.

Maybe the central bankers are aware that they are playing chess.  Maybe Bernanke is aware that each of his moves will cause another move by his “opponent” which he will then have to react to.  The problem is that if he is playing chess, and he is “thinking a few moves ahead” he is assuming too much, and making a classic mistake of expecting his opponent to fall into his “traps”

In the early days of “computer” chess, a modestly better than average human player could beat most computers after a few matches.  That was because of how computers evaluated the chess board.  There were far too many moves for a computer to analyze all the possibilities.  So they used “heuristics” to “score” boards.  They found ways to estimate how strong or weak a position was.  They could then “truncate” paths that lead to weak positions and explore only “strong” paths. The trick was figuring out what the computer was doing incorrectly.  To take it down a path that looked “strong” for several moves that could be then turned around.  The computer literally “fell for the trap”.

But “Big Blue” changed that.  It literally was so fast that it didn’t have to “truncate” paths early.  It could play out 200 million positions in a second and ultimately beat Kasparov.  That was back in 1997.

It was a sad day for many since it turned something that was elegant with a certain flair where imagination was respected and turned it into a brute force mechanical process.

I am not arguing that economics is something that is purely brute force, but I do think there are two lessons to be drawn from this:

1. Computer power and the evolution and development of computer power to analyze complex systems is useful and I am not sure we do enough of that, and


2. Don’t expect people to make the moves you want them to make, expect them to make the moves that they think are in their own best interest

That latter point is critical, especially as we now have rates at 0% in Europe, Japan, and the U.S.  We have QE programs in the U.K., the U.S., and Japan.  We have who knows what in China.  But each of these actions is causing other actions that may actually be the reason nothing seems to be working as well as it should in theory.

Do companies and executives really respond to QE the way the models predict or is their reaction different?  Maybe their reaction produces a better outcome for the company than the reaction the central bankers want and need out of those executives?

Too much of policy seems to assume certain moves will be made by other players when it is far from clear that those moves are either optimal for those other participants from their overall perspective.

As our balance sheet grows, as we create negative real rates, are we really sure we aren’t doing more harm than good, and what will the world look like 10 moves from now, or 50 moves or 100 moves?

Sadly, I don’t think anyone honestly knows.

What Does this Mean?

Mostly it lets me get this off my chest.  Somehow this topic has been bothering me a lot lately so I feel better having written about it.

But on a serious note, I think it is another reason to scale back positions.  Liquidity already seems abysmal, and this is a market largely supported by the faith that central bankers can continue to support it.  It is circular because the central bankers do keep getting forced to support it.  The longer this goes on, the greater the risk that we find that there is a problem, and that this “circularity” has been distorting values to the detriment of the economy and that the market loses this crucial element of support.

I find more and more people questioning the usefulness of central bank policy.  While I can see that the most likely path is a continued grind higher/tighter/better, it seems to me that there is growing doubt that the policies are working and any shift away from a full on love affair with central bankers is likely to be disruptive in a negative way.  I still think that is a low probability event, but that risk is growing and at this stage of the year, with so little liquidity, keeping risk low and even slightly bearish now is the right trade.


via Zero Hedge Tyler Durden

Smile For the Cop With the Smartphone and the Facial Recognition Software

Cop phoneYou look familiar—says the cop
with the smartphone. And never mind that
FBI specifications allow for a faulty match up to 20 percent of the
; local, state, and federal law enforcement officers based
in California’s San Diego and Imperial counties have quietly taken
to the streets with federally funded tablets and smartphones to
match the faces of people they meet with databased photographs. If
the experiment proves successful, in government terms, you can
probably expect the blend of cops, mobile devices, and facial
recognition software to come to a sidewalk near you.

For the Center for Investigative Reporting, Ali Winston

On a residential street in San Diego County, Calif., Chula Vista
police had just arrested a young woman, still in her pajamas, for
possession of narcotics. Before taking her away, Officer Rob
Halverson paused in the front yard, held a Samsung Galaxy tablet up
to the woman’s face and snapped a photo.

Halverson fiddled with the tablet with his index finger a few
times, and – without needing to ask the woman’s name or check her
identification – her mug shot from a previous arrest, address,
criminal history and other personal information appeared on the

Halverson had run the woman’s photograph through the Tactical
Identification System, a new mobile facial recognition technology
now in the hands of San Diego-area law enforcement. In an instant,
the system matches images taken in the field with databases of
about 348,000 San Diego County arrestees. The system itself has
nearly 1.4 million booking photos because many people have multiple
mug shots on record.

The little-known program could become the largest expansion of
facial recognition technology by U.S. law enforcement. Amid an
international debate over collecting and sharing huge amounts of
data on the public, this pilot program is putting that metadata to
use in the field in real time.

Managed by the Automated Regional Justice Information System
(ARJIS), a joint project of 75 government agencies, and funded by
the National Institute of Justice, the
Tactical Identification System
combines traditional mugshots
with controversial (and not entirely reliable) facial recognition
software, and puts it in the hands of police officers in the field.
The system deployed in California appears to draw only from booking
photos at the moment, but many states have already
linked facial recognition technology with their driver’s license
, multi-purposing everybody’s least favorite photos
into de facto police lineup images. Police lineup images with

uncertain access control
and, as mentioned, a high potential
for false positives. It’s probably safe to assume that, if the
Tactical Identification System approach is replicated elsewhere,
police mobile devices will be linked with that wider range of photo

So, when do police officers in San Diego and Imperial counties
whip out their smartphones to identify passers-by? During arrests,
of course, but also during other encounters with the public.

One Immigration and Customs Enforcement agent who provided a
testimonial said he used the device during a warrant sweep in
Oceanside. While on the sweep, the agent wrote, his “ ‘spidy
senses’ were tingling” about the immigration status of a neighbor
of the person he was pursuing.

He decided to run the man’s picture through the facial
recognition software. The agent discovered the man was in the
country illegally and had a 2003 DUI conviction in San Diego.

“I whipped out the Droid (smartphone) and snapped a quick photo
and submitted for search,” the immigration agent wrote in his
testimonial for the Automated Regional Justice Information System.
“The subject looked inquisitively at me not knowing the truth was
only 8 seconds away. I received a match of 99.96 percent. This
revealed several prior arrests and convictions and provided me an
FBI #. When I showed him his booking photo, his jaw dropped.”

You never know when your photo will be snapped. So remember to
comb your hair before going out in public.

from Hit & Run

BofAML Warns "Treasury Bears Beware"

The reaction to the non-farm payrolls report in the US Treasury complex has the bond bears out en masse this morning. A 10-12bps jerk higher in yield is nothing to sneeze at and certainly flushed more than a few uncomfortable longs out – but BofAML’s MacNeil Curry warns “treasury bears beware.” The completing 5 wave advance and confluence of support between 2.738%/2.759% says further yield upside is limited. Don’t be max short into these levels. There should be better levels to sell in the days ahead.



Source: BofAML


via Zero Hedge Tyler Durden