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On the 2009 Nobel Peace Prize

Kenneth Tran — Fri, 09 Oct 2009 13:46:59 +0000

Is the Norwegian Nobel Committee a political activist body?

Here’s an excerpt of CNN’s interview with Norwegian Nobel Committee Chairman, Thorbjorn Jagland, right after he announced the 2009 Nobel Peace Prize result.

CNN: A great many people are delighted. Some people are shocked. He has been in office less than a year. Most of what he’s tried, he’s still just at a startup. Is the committee acting a little fast?

Thorbjorn Jagland: No, not at all. We want to promote what he stands for. And this is the long standing history of the Peace Nobel Committee. We want to enhance the ideals that Obama is promoting for.

So did he admit that the Norwegian Nobel Commitee (or the Peace Nobel Committee) is actually a political activist body that exists to promote certain agendas instead of recognizing good works that have been done? This doesn’t seem to agree with its formal constitution.

Global economic recession due to the one-child policy in China

Kenneth Tran — Tue, 30 Jun 2009 23:30:28 +0000

(Image source: The Economist)

Some western scholars (such as on Freakonomics and on Real Time Economics Blog) are now blaming the one-child policy in China as a reason of the global economic recession. Let’s see how the logic flows.

Preferences for sons together with the one-child policy and together with the inexpensive ultrasounds technology, many couples in China choose abortion based on the gender of the unborn children.
(1) leads to the surplus of unmarried men.
The marriage market becomes highly competetive. In order to get a wife, Chinese men now have to compete more vigorously.
Due to (3), families with sons have to save more so that their sons can look more attractive in the future. [According to the research by Shan-Jin Wei and Xiaobo Zhang, published on the National Bureau of Economic Research, in the areas where high boys/girls ratios are high, the saving rates are higher, too.]
(4) is the reason of the jump of savings in China over the last 2 decades. In 2007, a household in China saves 30% of their income on average, while this figure was 16% in 1991.
(5) leads to the surplus of cash of the Chinese. Meanwhile, half of the world away, Americans are more interested in spending. The purchasing demand in America is always high. The current Fed chairman, Mr. Bernanke,chairman pointed out that the surplus of cash in China lead to easy and huge long-term debts, with low interest rates, by the Americans.
Obviously, these low interest rates would gradually propagate into financial activities in the US and over the world. Most notable is in the mortgage business. [Last March, Alan Greenspan defended the Fed on the Wall Street Journal that the Fed was powerless to prevent the housing bubble due to "the decoupling of monetary policy from long-term mortgage rates".]
Due to the low interest rates and hence easy loans, Americans were more more encouraged to buy houses. This gives rise to the high housing prices trend and bad financial investments from housing. The housing bubble started from here.
The bubble could not grow forever and finally bursted when the interest rates starated to rise and the prices started to drop. This housing burst is the source of the credit crisis and later on the global economic recession.

Phew, this kind of reasoning is like blaming the butterfly in Brazil for causing the tornado in Texas [see butterfly effect] . On the other hand, with the population of 1.3 billion, it is increasingly visible that whenever the Chinese sneezes, the whole world catches cold.

Immigration Policy: US vs. UK

Kenneth Tran — Sun, 06 Apr 2008 17:29:08 +0000

To a large number of observers, the now financial center of the universe is London, not New York City (see this and this [1]). I’m sure many of you will find it ridiculous but well, whatever you believe doesn’t change the deteriorating reality. Let’s see why what is what from an immigration view point [1.5]. Historically, America was famous as the Disneyland for talents. It doesn’t seem to be the case nowadays.

US. H1B Program.

Suppose that you’re an international citizen. You will need to apply for an H1B visa in order to work in the US. It’s a complex program but generally speaking, here are some relevant facts to keep in mind:

You need a job offer and the sponsorship from an American company/institution in order to apply for the visa. Even if you’re a semi-superman but living in another country (or your country) at the time you apply for jobs, it isn’t that easy to get such an offer.
Let’s keep assuming that you’re a semi-superman. You still may have to enter the H1B lottery game to decide your fate. The lottery is very likely if you don’t hold an advanced degree (Master or PhD).

How many talents would be crossed out by this system? A lot, I assume. Moreover, this complicated and hilarious process does discourage many smarties and a good percentage of them just don’t give a damn working in the US.

UK. Points-based Immigration System.

The UK has a fundamentally different program called Highly Skilled Migrant Program (HSMP) [2], besides the usual work permit system. Basically, you earn points by your track record including education level, age (the younger the better), income, UK experience, etc.. If you have enough points (75), you are automatically qualified to enter and work/do business in the country. No a priori job offer needed. No sponsorship. No quota and no lottery.

If you’ve received a PhD (50 points) from a UK university (5pts) and you’re 27 (20pts), then boom: they (British people) red carpet to welcome you. If your PhD is from somewhere else, a little income will qualify you as well. Until recently, an MBA from a top business school would also give you the unconditional access. Try this HSMP calculator to see if you fit in this highly discriminating system.

Is it similar to America post World War II?

Footnotes

[1] The NYTimes and Fortune magazine articles were published in 10/2006 and 08/2007 (respectively), when the US economy was much stronger than it is now. There are also numerous other writings on this newly debated subject.

[1.5] The rising or London (or decline of NYC) and their immigration policies are correlated. However, this article doesn’t assert with confidence that one is the cause of the other. On the cause, some joked that the British merely benefits from the influx of Russian millionaires/billionaires.

[2] The HSMP is being phased out and replaced by a similar program called Points-based Immigration System – Tier 1.

UTexas is among schools having the lowest admissions acceptance rate

Kenneth Tran — Wed, 02 Apr 2008 18:03:23 +0000

For out-of-state and international kids, UT Austin (or UT) is among the toughest undergraduate schools to get in.

According to the new statistics by the admissions office (published on the Daily Texans newspaper), 29619 high school students applied to UT. Of these, 12665 were admitted and among them are 9252 Texas high school students admitted under the controversial Top 10 Percent Law.

That leaves 20367 other students having competed for the remaining 3413 spots. So, the admission rate for students not qualified by the rule above is essentially 16.7%, as low as of Ivy league schools. If you’re an admitted out-of-state or international freshman, you have every reason to feel proud of yourself.

However, the almost 10000 students automatically admitted may damage your education at UT. Everyone knows that there are so many high schools in Texas at which a retard can end up in the top 10%. Texas legislators really need to revise this stupid law immediately if they want UT competitive. Here are a few options:

Abandon the rule completely. I’d love to see this option implemented but it’s quite infeasible for a state school like UT.
Change the rule from Top 10% to Top 5% or Top 3%. This alternative is not the best but still much better than the current law.
Better yet, allocate the number of automatically qualified students for each specific high school according to its rating. It’s not expensive to compile/revise such a ranking every 2-3 years. Not only will UT admit the better students but this rule, if implemented, will also create incentives for Texas high schools to continuously improve to be competitive.

Subprime crisis: heroes and criminals

Kenneth Tran — Mon, 31 Mar 2008 23:15:56 +0000

The American subprime market meltdown started in the summer 2007 has caused a terrible shock wave effect on the US economy as well as on the world economy. Many financiers and financial institutions cried and blamed at each other for having caused this mess. But who are really the criminals, and maybe *heroes*, during this economic war time?

1. Black Swan Prophecy

Since the fall 2007, it’s very probable that whenever there is a crisis, people will cry out the name Nassim Taleb. The option trader who got his initial fame for pocketing of $35-40 million on the Black Monday (1987) is now even more famous as a best-selling author and as a philosopher of randomness as he calls himself. Since Bloomberg has recently repainted a glamorous picture of Taleb, I have not much more to talk about him.

Originally Posted by Bloomberg

On a freezing day in March 2007, Nassim Taleb walked into a conference room at Morgan Stanley’s Manhattan offices on 47th Street and Broadway to address a group of the firm’s risk managers. His message: Your models don’t work.
…
Only six months later, Morgan Stanley experienced its own rout. The world’s second-biggest mergers adviser announced in December that it had written down its subprime-related holdings by $9.4 billion after the firm’s traders misjudged how fast and far prices of the debt would fall. Their risk management had failed.

Is Taleb just a regular philosopher of randomness or is he himself an almighty prophet? What makes Black Swan popular may be not the philosophy itself but instead his inexplicable timing, from the 1987 crash to Societe Generale’s huge trade loss to Morgan Stanley’s $9.4 billion writedown (all described in Bloomberg’s article). Note that he published his Black Swan book in May 2007, just a couple of months before the subprime meltdown (which is a Black Swan event according to his theory) began.

It’s quite possible that Taleb is merely obsessed with Black Swans and make black-swan bets on everything. It just happens that when something extremely bad happens, the human reaction makes it even worse than it was typically modeled. That makes Taleb win big on average.

There’s undoubtfully a lot of hype about the guy right now. It’s just hard to decrypt this hype in its full glory. The only lesson we can take for granted from this controversial figure is: don’t be fooled by randomness.

2. The Criminals

Financial modelers (or quants) have recently been placed under strong criticism for the handling of the subprime market, for example as in Daniel Carroll’s article “When Quants Fail”. This is in some sense aligned with the comments of Julian Shaw in How I became a quant. I in fact highly rate Julian’s story out of a bunch of other stories in that same book.

Originally Posted by Daniel Carroll

People just get impressed with complex mathematics, especially when they don’t understand it. As a trained mathematician, I often have a hard time understanding why. I don’t, however, have a hard time understanding why these models fail periodically.

On the other hand, Professor Nicole El Karoui (see also a featured article about her on WSJ) had an interesting interview with Le Monde in which she affirms Mathematics shouldn’t be blamed for the mortgage bubble.

Mathematics and Sciences should never be blamed. The problematic reality is … most of us don’t fully grasp their true spirit. Perhaps more than 90% of mathematical reseach is trash or even totally wrong. In academia, this results in papers with low number of citations and then no one really cares about it. However, in an investment bank, an incomplete model (let alone bullshit models) may be disastrous. With the 1987 crash and the subprime meltdown in the pocket, quants on average may look more like monsters rather than protagonists.

The bigger criminals here of course would include the managers who gave too much power to their quants that are obsessed by and over-confident about their wrong models. Let me end this short discussion by quoting a nice summary of who and what to blame for the subprime crisis, posted on Wilmott:

We have to blame the whole system:

The managers (investors) that followed quants blindly just cos they can really do awesome maths
Central Banks that don’t understand a sh** about financial behavior and are the first to make a mess with the rules
Some Quants that are so arrogant that followed their models blindly just because it had a really nice fit to historical data. so they feel like Gods sometimes until they find they were fooled by randomness
Inputs and assumptions are more important than the mathematical quality of the model (of course this is also important to get the correct outputs)
University degrees in finance are not as well designed as they should be
Lots of people in Banks and Central Banks come from Economy, Engineering, Maths instead of Management and Finance (Management is really under rated nowadays)
People care a lot with complex models instead of looking for simple strategies that can make awesome trades. In management and Finance we say that complexity must me charged with extra fee. What we’re seeing was the opposite though. Complexity were being priced at low cost
Most people like mysticism and don’t believe in their skills. They are willing to put a lot of money in a black box trading algorithm or in a fund instead of investing by themselves
Greedy managers that don’t understand the risk-return trade-off
Trading bonuses which sometimes encourage traders to behave very differently than if they were to invest their personal capital

American Irresponsibility

Kenneth Tran — Fri, 14 Mar 2008 17:11:02 +0000

One of the few valuable writings on CNN recently: Too bad, Michigan and Florida.

“What do these stories all have in common?

A woman who says she lost more $1 million gambling in Atlantic City sues some casinos for $20 million, claiming they should’ve stopped her compulsive gambling.

People who bought houses they couldn’t afford with loans they didn’t understand want their lenders to change the terms.

Congress authorizes a war and then tries everything it can think of to get out of it.

Our country gets addicted to oil and then blames OPEC when it doesn’t like the price.

These stories prove how personal responsibility has all but vanished in America, and our government is leading the way.”

The Audacity of Hype

Kenneth Tran — Wed, 05 Mar 2008 04:28:51 +0000

Not all but 5 typical reasons why “Obama for President” is a joke.

Hypothetical (or “The Audacity of Hype“)
1. He has no specific plan for the country. You can’t lead a country by hoping. A president has to respond to the ugly reality (which was partly contributed by the Bush administration).
2. Withdrawing the troops from Iraq immediately without access to intelligence reports is a joke. Withdrawing and then sending them back again if the Al Qaeda is still there is even more hilarious.
3. “Yes, we can!”? This message is as empty as his agenda.
Misleading.
1. This is how he responded to Bush and McCain’s saying that the Al Qaeda is in Iraq: “there was no such thing as Al Qaeda in Iraq until George Bush and John McCain decided to invade Iraq“. This guy is more ready to be a historian than to be a president.
2. The only positive thing about Obama is that he so understands Americans, who applauded really hard for that stupid statement.
3. He has kept saying that he was against the war on Iraq from the beginning. Well, he wasn’t even in the senate during the time. He had no right/obligation to vote. And more importantly, he wasn’t feeded the intelligence reports. Any of such judgments, right or wrong, is thus immature. Should Americans risk their national security on a gambling table?
4. Mr. Obama constantly criticizes the politicians in Washington [for serving interest groups rather than the country]. He is, however, a real typical politician, thanks to his charming but empty rhetoric.
Not serving the country. What has he done in the last few years as a senator? campaigning real hard for his presidential race. Search “Obama missing in actions” for more news coverage.
Lack of experience. Experience does matter and matters a lot in making good judgments. Talking repeatedly about good judgments in handling national crises with an empty track record is purely vain.
Radical. A radical candidate, either too liberal or too conservative, may win his respective primary but will hardly get elected to the white house. It’s what Richard Nixon figuratively said.