[QUOTE=ewmayer;249229]

Anyway, all you need to know is that this week's government-mandated wealth-effect-stimulating asset-price target is Dow = 12,000. (On its way to 36,000 by the 2012 elections).[/QUOTE]

Why do you deprecate the DOW going up?

It's good for our IRAs.

[QUOTE=R.D. Silverman;249234]Why do you deprecate the DOW going up?

It's good for our IRAs.[/QUOTE]

I don't deprecate it at all, any more than I do housing prices going up. (Which is also an unmitigated good).

[QUOTE=ewmayer;249229] and so forth in a never-ending wonderful [url=http://globaleconomicanalysis.blogspot.com/2011/01/steve-keen-responds-to-world-economic.html]exponentially-increasing[/url] whirl of, um, wonderfulness.[/QUOTE]
The other day while I was reading about Austrian economics and a few other things to decide if I could formulate anything useful to say here, I ended up on Steve Keen's writings a few times and a time or two on Mish's. The blogosphere seems to have an attractor in the vicinity and I am stepping over to the dark side.

By the way I felt your response to my dimensional analysis comment aptly spotlighted the biggest problem. The easiest, simplest use of dimensional analysis is its' handiness in spotting errors when dimensional units don't balance in equations but the more significant problem is exactly what you mentioned. It is Rule 4 in this paper: [URL="http://www.tu-chemnitz.de/wirtschaft/vwl2/downloads/paper/froehlich/da-value.pdf"]Dimensional Analysis of price-value deviations[/URL] "Exponents and arguments of transcendental functions must always be pure numbers or dimensionless quantities"

Want to read an exercise in uselessness? The official defacto commission report on the cause of the fiscal crisis is going to be published this Thursday. (sound of trumpets playing a fanfare).

[URL]http://finance.yahoo.com/news/Financial-Meltdown-Was-nytimes-923562801.html[/URL]

[QUOTE]The report, aimed at a broad audience, was based on 19 days of hearings as well as interviews with more than 700 witnesses; the commission has pledged to release a trove of transcripts and other raw material online. The document is intended to be the definitive account of the crisis’s causes, but its authors may already have failed in achieving that aim.

Of the 10 commission members, only the 6 appointed by Democrats endorsed the final report. Three Republican members have prepared a dissent; a fourth Republican, Peter J. Wallison, a former Treasury official and White House counsel to President Ronald Reagan, has written his own dissent, calling government policies to promote homeownership the primary culprit for the crisis.

The commission’s report finds fault with two Fed chairmen: Alan Greenspan, a skeptic of regulation who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but then played a crucial role in the response to it. It criticizes Mr. Greenspan for advocating financial deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as “the prime example” of government negligence.

It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to go bankrupt in September 2008 after earlier bailing out another bank, Bear Stearns, with help from the Fed — “added to the uncertainty and panic in the financial markets.”

Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly it turned out — that the subprime meltdown would be contained, as the report notes.

Democrats also come under fire. The 2000 decision to shield over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s time in office is called “a key turning point in the march toward the financial crisis.”

Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now President Obama’s Treasury secretary, also comes under criticism; the report finds that the New York Fed “could have clamped down” on excesses by Citigroup in the lead-up to the crisis and, just a month before Lehman’s collapse, was “still seeking information” on the vulnerabilities from Lehman’s exposure to more than 900,000 derivatives contracts.

Former and current officials named in the report, as well as financial institutions, declined on Tuesday to comment on the report before it was released , or did not respond to requests for comment.

The report is likely to reignite debate over the outsize influence of Wall Street; it says that regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. The financial sector spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with the industry made more than $1 billion in campaign contributions.

The report does knock down — at least partly — several early theories for the crisis.

It says the low interest rates brought about by the Fed after the 2001 recession “created increased risks” but were not chiefly to blame. It says that Fannie Mae and Freddie Mac, the mortgage finance giants, “contributed to the crisis but were not a primary cause.” And in a finding likely to anger conservatives, it says that “aggressive homeownership goals” set by the government as part of a “philosophy of opportunity” were not major culprits.

On the other hand, the report is unsparing in its treatment of regulators. It finds that the Securities and Exchange Commission failed to require big banks to hold more capital to cushion losses and halt risky practices, and that the Fed “neglected its mission” to protect the public.

It says that the Office of the Comptroller of the Currency, which regulates national banks, and the Office of Thrift Supervision, which oversees savings-and-loans, blocked state regulators from reining in lending abuses because they were “caught up in turf wars.”

“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone awry,” the report states. “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”

Portions of the dissents are included in the report, which is being published as a paperback book (with a cover price of $14.99) by PublicAffairs, along with an official version by the Government Printing Office.

The commission’s chairman, Phil Angelides, a Democrat and former California state treasurer, has tried to keep the book under wraps, even directing the publisher to prevent bookstores from getting it before the eve of the Thursday release. He declined to comment.

The report’s immediate implications may be felt more in the political realm than in public policy. The Dodd-Frank law overhauling the regulation of Wall Street, signed in July, takes as its premise the same regulatory deficiencies cited by the commission. But the report is sure to factor in the looming debate over the future of Fannie Mae and Freddie Mac, which have been government-run since 2008.

Though the report documents fraudulent practices by mortgage lenders and careless betting by banks, one striking finding is its portrayal of bumbling incompetence, among corporate chieftains.

It quotes Citigroup executives admitting that they paid little attention to the risks associated with mortgage securities. Executives at the American Insurance Group, another bailout recipient, were found to be blind to its $79 billion exposure to credit default swaps, a kind of insurance that was sold to investors seeking protection against a drop in the value of securities backed by risky home loans. At Merrill Lynch, top managers were caught unaware when seemingly secure mortgage investments suddenly resulted in billions of dollars in losses.

By one measure, the nation’s five largest investment banks had only $1 in capital to cover losses for about every $40 in assets, meaning that a 3 percent drop in asset values could wipe out the firm. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found. The speculative binge was abetted by a giant “shadow banking system” in which the banks relied heavily on short-term debt.

“When the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost,” the report found. “What resulted was panic. We had reaped what we had sown.”

The report is dotted with literary flourishes. It calls credit-rating agencies “cogs in the wheel of financial destruction.” Paraphrasing Shakespeare’s Julius Caesar, it states, “The fault lies not in the stars, but in us.” Of the banks that bought created, packaged and sold trillions of dollars in mortgage-related securities, it says: “Like Icarus, they never feared flying ever closer to the sun.”[/QUOTE]It would be interesting to compare the mersenne forum financial threads of the last 3 years to this report just to see how much alignment they share.

DarJones

Barry Ritholtz professes himself to be "thrilled" and "vindicated" by the FCIC report:

[url=http://www.ritholtz.com/blog/2011/01/i-am-delighted-with-fcic-report/]I Am Delighted with the FCIC Report ![/url]

[url=http://www.ritholtz.com/blog/2011/01/fcic-what-caused-the-financial-crisis/]FCIC: What Caused the Financial Crisis[/url]

The reader comments to the above posts are also worth reading. My favorite is this one:
[quote]muckdog Says:
January 25th, 2011 at 11:04 pm

“What caused the financial crisis?”

I think the question should be “Who?”

There’s a guy who lives down the street named Bob. He bought a house in 2005 and immediately turned around and did a cash-out refinance, and bought two new cars, a boat, and kept some cash out. All in a non-recourse loan.

In 2008, Bob went and bought a house about 1/4 of a mile away with cash.

He stopped making payments on the old house, and left the keys on the counter for the bank. He kept the boat and cars.

So, I blame Bob for the financial crisis. It’s his fault. But he has a nice boat.[/quote]
One of our regular reader/commenters here is named "Bob". Hmmmmm...

Wrong Bob. Our Bob is still trying to attach the defibrillator to his IRA.

DarJones

[QUOTE=davar55;248810]So what are the dimensions of Money? How do we as
mathematicians define money? The economists can't.[/QUOTE]Today while reading [URL="http://www.math.vanderbilt.edu/~schectex/commerrs/"]Common Errors in College Math[/URL], I quite accidentally read an example that was too pretty to ignore (with square dollars and square pennies). So, here is my belated response:[QUOTE]Here is a cute example of dimensional analysis (submitted by Benjamin Tilly).

[I]Problem[/I]: Where has my money gone? My dollar seems to have turned into a penny:

$1 = 100¢ = (10¢)[SUP]2[/SUP] = ($0.10)[SUP]2[/SUP] = $0.01 = 1¢

[I]Explanation[/I]: Of course, the problem is a disregard for dimensional units. Strictly speaking, if you square a dollar, you should get a square dollar. I don't know what a "square dollar" is, but I still know how to [I]compute [/I]with it, and I know that a "square dollar" must be equal to 10,000 "square pennies", since one dollar is 100 pennies. Dimensional computations will not yield errors if we handle the dimensional units correctly. Here is a correct computation:

$[SUP]2[/SUP]1 = ($1)[SUP]2[/SUP] = (100¢)[SUP]2[/SUP] = 100[SUP]2[/SUP]¢[SUP]2[/SUP] = 10,000¢[SUP]2[/SUP].

It should now be evident what was wrong with the first calculation: 100¢ is not equal to (10¢)[SUP]2[/SUP]. It's true that the 100 is equal to the 10[SUP]2[/SUP], but the ¢ is not equal to ¢[SUP]2[/SUP]. Likewise, later in the computation, $[SUP]2[/SUP] is not equal to $.[/QUOTE]

More formally is the [url=http://en.wikipedia.org/wiki/Buckingham_%CF%80_theorem]Buckingham pi theorem[/url] of dimensional analysis.

This was beaten into our brains from very early on in our undergraduate engineering studies. Not just in terms of ensuring that one's formulations were dimensionally consistent, but also as a way to extract physically meaningful information from the set of physical parameters and variables involved in a problem one was studying. For example, in compressible fluid flow, the fluid velocity and physical properties are important, but not so much independently as by way of that nondimensional ratio called the Mach number. For viscous low-speed flows it's the Reynolds number. For rarified-gas flows, the Knudsen number. and so on.

But anyway, before we ever got to see our first real fluid-mechanical equation, we learned that the "invisible dimensional units" accompanying the various symbols were at least as important as the values and interactions of the quantities the symbols represented.

I have a nagging suspicion that they are not quite so rigorous in many areas of "economic science". Don't like this year's budget projections? Recalculate in Yen instead of dollars, and all of a sudden that earlier computation which indicated that more government stimulus was counterproductive because it took more than $1 of spending to produce $1 of GDP growth looks much more favorable.

Two more takes on the FCIC report from bloggers I respect:

1. Karl Denninger`s initial-takeaway is [url=http://market-ticker.org/akcs-www?post=178296]here[/url].

2. Mish`s take on the FCIC report is significantly less laudatory than Barry Ritholtz`s:

[url=http://globaleconomicanalysis.blogspot.com/2011/01/fcic-investigation-misses-big-picture.html]FCIC Investigation Misses the "Big Picture" Cause of the Crisis; Next Financial Crisis Brewing Already[/url]
[quote][b]Can You Get Good Regulation in the First Place?[/b]

Before the worry about "who might get in bed with who" even comes up, there is a presumption that you can get good regulation in the first place. Can you?

Please consider these points from the report:

* Alan Greenspan’s malfeasance — his refusal to perform his regulatory duties because he did not believe in them.
* Ben S. Bernanke failed to foresee the crisis.
* Bush Treasury secretary Henry M. Paulson Jr. wrongly predicted in 2007 that subprime meltdown would be contained.

Here we have an interesting situation where Greenspan, Bernanke, Paulson, and sponsors of financial institutions in Congress (notably Barney Frank), are supposed to write financial regulation that will work, when none of them could see the crisis coming, nor would they listen to anyone who did see it coming!

Yet, everyone is screaming for more regulation. The whole idea sounds preposterous because it is preposterous.
[b]
Preventing the Last Crisis
[/b]
Nearly everyone is running around like headless chickens screaming for more regulation to prevent another housing crisis. They don't have to. We will not have another housing crisis like this for decades if ever, whether another piece of housing regulation is written or not.
[b]
The Next Crisis
[/b]
I do not know what the next financial crisis to bring the global economy to its knees will be, but here are five likely candidates

1. Sovereign debt crisis in Europe
2. Sovereign debt crisis in Japan
3. Trade wars with China
4. Derivatives meltdown
5. Currency wars

Please note that not a damn thing is being done about any of those except the first one. Even then, regulators are avoiding the only thing likely to offer a permanent solution: writedowns of sovereign debt. Instead the EU is inflating money supply hoping to avoid the one thing likely to help!

The problem is we have a massive amount of debt that cannot be paid back, which means that it won't be paid back.

With that we have come full circle with still more rock solid evidence that the root cause of this mess is as I stated above (with a few small refinements to take in the global nature of the crisis).

1. Loose monetary policies by central banks worldwide
2. Fractional Reserve Lending
3. Governments' willingness to spend more money than they takes in[/quote]
[i]My Comment:[/i] Mish`s post linked above led to a mini-debate between him and Barry Ritholtz about the (Mish-alleged) role of [url=http://globaleconomicanalysis.blogspot.com/2011/01/missing-big-picture-part-ii.html]fractional reserve lending[/url] in the housing bubble and financial crisis.

The underlying problem has been for two decades (basically since George HW Bush said 'read my lips, no new taxes', then increased taxes and lost the next election) that governments are scared of raising taxes.

This is because the cost of raised taxes falls visibly on people who have billions in spare money, and, whilst some of them are reasonably honourable, others are prepared to spend dozens of millions of their spare money at various levels of surreptitiousness to try to arrange the debate such that raising taxes to cover Government spending is considered unthinkable.

This turned tax-and-spend into borrow-and-spend with the doom-laden consequences we see today. Eventually the bonds will need to be paid off, this will have to be out of tax revenue, and probably we in the West will have to spend a decade with 40% base income tax and 90% higher rate. We spent twenty years in states not far from that and survived.

UK Economy Stalls | State of the Union Redux
 

[QUOTE=fivemack;249384]This turned tax-and-spend into borrow-and-spend with the doom-laden consequences we see today. Eventually the bonds will need to be paid off, this will have to be out of tax revenue, and probably we in the West will have to spend a decade with 40% base income tax and 90% higher rate. We spent twenty years in states not far from that and survived.[/QUOTE]
Paid off ... or defaulted on. The default could either be of the "honest" overt variety, but what many countries (led by the shining example of the U.S.) are trying to do is the tried and true "stealth default" route of currency debasement. Whether that works in the face of all the other big debtors similalrly trying to debase their own currencies and consumers by necessity embracing frugality (i.e. producers unable to pass much of the resulting raw-goods inflation onto consumers) is going to be interesting to see.

And speaking of debtor nations...

-------------------------

[url=http://www.nytimes.com/2011/01/26/world/europe/26britain.html?src=me&ref=world]Britain’s Economy Stalls, in Setback for Cameron[/url]
[quote]LONDON — Prime Minister David Cameron’s coalition government received a sharp political jolt on Tuesday with the release of official figures showing that Britain’s economy contracted slightly in the last three months of 2010, prompting some economists to warn that the country was at increased risk of a “double dip” recession after four consecutive quarters of modest growth.

While the economic figures are subject to revision, the 0.5 percent shrinkage fell well short of the 0.5 percent growth many economists had predicted. And the wider message seemed clear: The slowdown placed the Cameron government’s $128 billion, four-year program of spending cuts and tax increases — policies on which it has staked its survival — at sharply heightened political risk.

The net effect of the new figures was to blunt the government’s momentum and to recast — at least until economic growth resumes — the role Britain has played in the global debate about the best way back to prosperity.

Under Mr. Cameron, Britain has led the way in embracing fiscal retrenchment, while President Obama’s administration has warned Britain and other European countries that they are at risk of tipping their economies, and possibly the Western world’s, back into recession by cutting deficits too soon and too steeply.

Spokesmen for the opposition Labour Party and trade union officials leapt on the new figures, saying they showed that the government had lost its gamble that it could impose the harsh austerity measures and still keep the economy growing. “Now, we are seeing the first signs of what the Conservative-led government’s decisions are having on the economy,” said Ed Balls, the principal economic spokesman for Labour. It has urged easing the cutbacks, with some of its lawmakers suggesting that their full impact should be spread over a longer period, perhaps as much as 10 years.[/quote]
[i]My Comment:[/i] Typical mainstream-economist claptrap of the "exponential growth is the natural state of a healthy system" variety. Decades-long debt-fueled inflationary spirals are no problem (in fact to be desired and promoted), but the slightest hint of the much-needed reversion-to-sustainable-GDP is a national crisis. And of course politicians are greatly at fault for continuing to falsely promise the impossible: "We can shrink our budget deficits and consumers can pay down debt while growing the economy", that sort of nonsense. Suuuuuuuuure you can.

--------------------------

For our U.S. readership (and you gol-durn furriners are welcome to read it, too), here is a take on the President`s "I am America, and So Can You!" truthiness and hopefultude-filled State of the Union address by - of all people - a former Goldman Sachs exec - which aligns fairly closely with my own "get real, dude" take:

[url=http://www.zerohedge.com/article/former-goldman-insiders-take-obamas-speech-and-america]Former Goldman Insider's Take On Obama's Speech And The Massive Pink Elephant In The Room[/url]