LIBOR and Self-Regulation

While the head has been cut off of the snake at Barclays PLC, with the CEO, Bob Diamond, the COO and the Chairman of the Board all resigning, the proverbially shit still has a far way to go before it hits the fan. Although the collusion between banks to set the rates, the implicit wink and nod from the Bank of England to get Barclays to lower their rate and, especially, the callous collusion between traders in various banks to rig the market so they could make more money are all shocking, how LIBOR (the London inter-bank offered rate) was set in the first place provided the biggest offense. As described in last week's The Economist:

For LIBOR, a borrowing rate is set daily by a panel of banks for ten currencies and for 15 maturities. The most important of these, three-month dollar LIBOR, is supposed to indicate what a bank would pay to borrow dollars for three months from other banks at 11am on the day it is set. The dollar rate is fixed each day by taking estimates from a panel, currently comprising 18 banks, of what they think they would have to pay to borrow if they needed money. The top four and bottom four estimates are then discarded, and LIBOR is the average of those left. The submissions of all the participants are published, along with each day’s LIBOR fix.

Emphasis added. This is patently Linsane as is it that anyone is surprised by this. The banks involved are only required to give an estimate, based on nothing else than what they think/feel is right, and people are surprised that this system did not work like gangbusters? The article goes on to point out that banks/traders were actually incentivized to rig the numbers as millions of dollars stood to be made based on where the LIBOR was at. I mean, I know hindsight is 20/20, but how did no one think about this beforehand? We are supposed to ignore the obvious conflict of interest and hope that those good chaps in the white shoe financial firms will work in everyone's best interest? This scandal again illustrates the ridiculous amounts of problems with self-regulation in banking. As much as folks like Jamie Dimon state that regulation will handcuff, prevent growth and curb stomp the entrepreneurial spirit because firms will not invest, why would anyone believe that self-regulation is remotely possible in an industry where tinkering with a few numbers or changing a few assumptions in a few projections can mean the difference in hundreds of millions, if not billions, of dollars?

Self-regulation is clearly not the answer, but government regulation has to be, if not effective, then at least competent. The Wall Street Journal pointed out last week that Tim Geithner was at least somewhat aware of these problems in 2008 and wrote to Mervyn King, the Bank of England Governor, suggesting possible changes that could improve the LIBOR. The simplest change, however, seems obvious: to affix the LIBOR to what it actually costs banks to lend and borrow. In most cases this process would become straightforward and could easily be backed up by hard data. The Economist concurs and goes another step:

Two big changes are needed. The first is to base the rate on actual lending data where possible. Some markets are thinly traded, though, and so some hypothetical or expected rates may need to be used to create a complete set of benchmarks. So a second big change is needed. Because banks have an incentive to influence LIBOR, a new system needs to explicitly promote truth-telling and reduce the possibilities for co-ordination of quotes.

The Economists recommendation, as delivered by Rosa Abrantes-Metz of NYU Stern, is to increase the number of banks on the LIBOR panel drastically so that the average is harder to game. That's all find and dandy, but we are long passed the era of the gentleman banker. In the 1970s and, especially the 1980s, with the rise of more aggressive money making schemes through hostile takes overs, LBOs and the development of overly complicated derivative trading strategies, gentlemen banks were replaced with ravenous financial wolves on the hunt for pure profit. Promoting truth-telling seems foolishly naivete. Hopefully, after one of these scandals, people will start to see and accept that.

IMAGE: The Telegraph Online

Is It Linsane Not to Match?

UPDATE: The New York Times is now reporting that, as of 4 PM today, the NY Knicks have essentially decided to not match the Rockets' offer.


In one man's opinion, well not just one as there's Stephen A. Smith (wait am I about to agree with Stephen A. Smith. *Shudder* Momma. I feel so cold. What's happening? Were the Mayans riight??), it is not, in fact, linsane.


First and foremost, for a Harvard guy of (apparently) good, moral, Christian upbringing, it is hard to believe that Lin was stupid enough to take Jim Dolan's assurances that the Knicks would match back to the Rockets in hopes of getting more money. I mean, don't get me wrong, in general this is a smart business move to leverage whatever information you have in order to further solidify your position and get more money. ShaoLin, however, was dealing with Jimmy Dolan. So go ahead and throw "general situations" out the window. OF COURSE, Dolan was going to take that personally as a breach of trust. He's a selfish, solipsistic man-child. Further, it backfired. Lin made no more money, I believe the offer actually went down from a balanced $28 million with $9 million a year, the Rockets just went the "poison pill" route and backloaded his contract in hopes that the Knicks would not match because of that monstrous $14.9 million (or whatever) third year. This would put the Knicks far over the cap in Lin's third year and cost them an additional, roughly, $35 million in luxury tax penalties under the new CBA.


Despite Bill Simmons' opinion, I don't think a ton of the actual Knicks fans care that much. Casual fans surely will be disappointed (only so many players have caused people's moms to comment on the Knicks; "How 'bout that Jeremy Lin, huh?"), but they'll also move on within a couple of days. Sure, Linsanity was an exciting run, but it was also a run primarily under Mike D'Antoni. There is no guarantee that Jeremy would be anywhere as good under Woodson's ingenius(ly repugnant) continuous Carmelo Iso, especially considering what a turnover machine Lin was. Unlike Jason Kidd, Lin doesn't have the cache to direct Melo; as any Knicks fan saw on more than one occasion last year. Simply put, the sample size was far to small to dedicate this type of money to the kid. As much as I despise everything about Dolan, and despite how much I distrust the front office to do anything that makes a semblance of sense, I cannot blame them from deciding against making what amounts to a $40 million gamble. And, yes, I hear y'all saying that worst case scenario is that Lin gets traded in the 3rd year as an expiring contract but who says that will work out. And who are the Knicks going to get in return so that the contracts work out? The league's love of expirings does little to take away from the gamble. 


If it's true that Lin is gone, I wish him all the luck in the world. He seems like a good dude and a hard worker, so I'd like him to succeed. But all the screeching from various sectors about how this is more Knicks front office ineptitude, or that Knicks fans should switch allegiance to Bk if Lin isn't resigned (ahem, pump thebreaksGrantland, ahem), needs to stop. If nothing else, you are not really a Knicks fans if you can't let front office ineptitude roll off your back like so many rain drops off a duck's and just hope for the better. And if Lin IS back. Eff it. Kidd's going to mentor him and we'll figure out year 3 later. Woot. Let's roll into '12/'13 'Bockers.


At worst, I can just continue to nourish myself on the Jimmy Dolan haterade. 

In recent days, two people briefed on the Knicks’ deliberations said it was unlikely the team would keep Lin. Yet both cautioned that the decision was not final and would ultimately be made by one person: James L. Dolan, the Madison Square Garden chairman.

Either way, win-win for me.


UPDATE: For a conflicting but still astute take on the now confirmed decision to not match the Rockets' offer to Lin, check out Jay Caspian Kang over at Grantland. We both agree though, wholeheartedly, that Jimmy Dolan, like many trust fund babies, sucks at life.


IMAGE: NBA.com

The Newsroom- A Critique of the Critics

Everyone has seen the complaints. Yes, the show is preachy as hell. Even the fucking song in the show's open credits seem preachy  in it's attempt to reach back to the simpler, more morally correct, broadcast news time of yesteryear; an attempt to copy Mad Men but to a much poorer effect. But everyone knows that Sorkin is preachy. Who cares?. And, sure, Sorkin always seems to come off as a world class doucher. But where is the surprise here as well? No one who's heard him speak denies that. It almost seems like the casual backlash always given to the popular for no reason a la Dave Matthews fandom in the 1990s. The fact of the matter is, in my humble opinion, its a fairly enjoyable show. It is hard to go too wrong when you are throwing Jeff Daniels, Emily Mortimer and Sam Waterston out there (I particularly like Waterston as the seemingly perennially drunk Charlie Skinner). Then you have the supporting cast of Dev Patel, Alison Pill and the somewhat surprisingly good Olivia Munn. 


I can certainly see how preachy could get annoying, but maybe what we need is some preaching. In the latest episode, Will McAvoy, although nominally a republican, comes out swinging hard against the Tea Party. But who is to say that that is so wrong. I found it particularly enjoyable and certainly wished that some of the questions he asked HAD been asked in 2010. We are now in the media world where objective news reporting and phrases like fair and balanced are now a punch line. Literally. By Jon Stewart nearly every night because of the unadulterated horseshit coming from certain sectors of the news media and the pussies in the rest of the news media  who treat all stories as if they were created equal. And this point was actually made, almost verbatim, through the show as I felt myself unconsciously nodding in agreement. Furthermore, I found the business argument presented by Jane Fonda's character extremely interesting and something that I don't think many people ever think about when consuming their news content. News media seems to get a pass these days and I think it is great that there is a show pointing out these flaws, albeit in a sometimes annoyingly quirky Sorkinian patois.


Anyway, in my view, this seems like much ado about nothing and very similar to the insanely nit picky questions raised about Girls, a phenomenal show, right off the bat. And, yes, maybe the critics who got to screen the episodes in advance are correct and the show falls off the map in next week's episode 4. I, however, plan on riding this one out for a bit and seeing where it goes. I think after the fawning critical love of many of Sorkin's previous shows, he deserves that much.


IMAGE: Jeff Daniels as Will McAvoy via hbo.com

NERD ALERT: Higgs-Boson Has Been Found?!???

Early last week, exciting news was released that scientists are both Fermilab and CERN were getting closer and closer to pinning down the location of the so-called "god particle," otherwise known as Higgs Boson. Then, this past Wednesday as America celebrate the 4th of July, nerds around the world had their own fireworks as they announced that Higgs Boson had indeed been found. With a 5 sigma signal, meaning that there is less than a one in a million chance that the findings are a fluke, scientists the world over could deem the particle found. Declared the "god particle" because of its relation to the "Big Bang," or the moment of the creation of our universe, this particle has been deemed crucial by physicists because they hope it can answer the previously unanswerable about the actual existence of dark matter, the possibility of additional dimensions or universes, and hopefully to finally confirm the unified field theory that finally brings beautiful symmetry between Einstein's theory of gravity and quantum physics involving subatomic particles. According to Peter Higgs, half of the namesake of the discovered particle:

"I had no expectation that I would still be alive when it happened," he said of the speed with which they found evidence.

"For physics, in one way, it is the end of an era in that it completes the Standard Model," he said of the basic theory physicists currently use to describe what they understand so far of a cosmos built from 12 fundamental particles and four forces.

Although this probably swept beneath the general public's rug of consciousness, it's kind of a big eff'n deal. It is WAY above my pay grade to truly describe what the Higgs Boson does (here is a good, and fairly simply explained, primer from the Atlantic) and why it is important, but here is the basic gist:

Scientists struggling to explain the theory have likened Higgs particles to a throng of paparazzi photographers; the greater the "celebrity" of a passing particle, the more the Higgs bosons get in its way and slow it down, imparting it mass; but a particle such as a photon of light is of no interest to the paparazzi and passes through easily - a photon has no mass.

So, essentially and more complexly, the exchanges between various fields and bosons, a general class of subatomic particle of which Higgs is a type, is called the Higgs mechanism, which is still not fully understood, and it is through these exchanges that particles gain mass (Thanks Atlantic Monthly!).


Phew. You still with me? Because at this point I'm just continuing to write to help myself fully understand. But that's all folks for now. Unless you want to really step up your nerd game and read the philosophic interpretation of our inability to readily grasp the workings of Higgs Boson. Because that's right here. You nerd...


UPDATE: In a closer reading of the material released, it is not entirely a settled matter that it is exactly the Higgs Boson that has been found (although many believe it is so). According to Reuters:

What scientists do not yet know from the latest findings is whether the particle they have discovered is the Higgs boson as exactly described by the Standard Model. It could be a variant of the Higgs idea or an entirely new subatomic particle that could force a rethink on the fundamental structure of matter.  

The last two possibilities are, in scientific terms, even more exciting. 

Sooo, definitely very exciting nonetheless. 


IMAGE: ibnlive.in.com

StewBeef's No-no

Old post that I did not manage to get to the past month. But that glorious screenshot is from Jon Stewart's self-shot video of his reaction to Johan Santana's no-hitter for the Mets last Friday that was aired on The Daily Show on Monday. As a fellow Mets sufferer fan, I know how he feels.

The Mets, very surprisingly after the loss of Jose Reyes, have been winning with an unheralded squad (outside of David Wright) and are currently in second place in the NL East, right behind the almost as surprising Nationals. The poster boy for this squad would have to be knuckleballer R.A. Dickey who just recently went on a historic run on 1-hit shut outs.

Long story short, much like Stew Beef, I love this Mets team and their equally unheralded manager, Terry Collins. I think it may be time for people to start meeting these Metropolitans and do some heralding.

Image: Daily Show screenshot via Huffington Post