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Kingruv · 10-04-2009, 04:19 PM

The deleterious affect of confidence artists on the economy, economists and America.

When is an economist not an economist? When they become a fund manager.
(no matter what the fund is, local, state, federal, or private/public)

A man owns a coal mine.
As he looks over his operation he sees what he thinks is right.
Production is as good as he could expect. Prices are good.
Safety, always a concern, is good with low lost hours over time.
Labor problems and employee satisfaction are in pretty good shape.
Being an engineer he thinks, "There's always room for improvement" More production in less time. Better efficiency and lower maintenance costs.
"How do we gain here, trim there?"
So he calls his accountant and says, "What do the books say?" "How can we improve profitability?"
The accountant says "I'll have a look, give me a few days"
The accountant goes over all his ledgers and sees everything is in place as he knew it would be.
The next day he talks to the manager and says "Do you have time to give me a tour of the site? The boss wants to see where we can improve profits. I thought it might help if I actually knew more about whats going on. I don't know much about mining, labor, production and all you do. I'm just a book keeper."
The manager agrees and says "It might help to have a fresh pair of eyes on things"
The next day they go around every part of the mine site, from the mine shafts where miners are cutting away at veins to the pump houses and maintenance shops.
The accountant takes everything in, making notes, keeping his own counsel, asking questions only when he doesn't understand what he sees.
He notices that on one of the sections the coal trolleys bump where there is a bend in tracks spliced a bit off at the cutout to the old tunnel. There are chunks of coal laying to both sides of the track.
He walks over to the track as the trolley comes by and picks up a fist sized piece. The manager says, "I need to get that fixed, a lot gets knocked off here that miners don't get paid for." The accountant drops the chunks makes a note with a smile and a nod. They get to the surface and he says, "Thanks for the tour."
He thanks the manager and walks back to his office.

He goes over his notes looking at what the miners get per load and figures out how much might be getting lost they aren't getting paid for.
He looks at prices and thinks, "Hmmmm, in a few months thats quite a bit going nowhere."
Since the owner isn't around a lot and has a good crew and management, he is off and about, here, there and everywhere.
The next time he's in he asks his accountant how he liked the tour. "Did you learn anything? Do you have any recommendations?"
"Oh yes, I learned a lot about what goes on I never knew before. I'm still looking at things, but it seems like there is a high degree of optimization here. I'm not sure what can be improved." the accountant responded.
The owner thanks him for looking and says "Next time I'm in, we'll have to go play a round of golf, my treat." "Yes sir, thank you for the invitation. I'll look forward to it."
The owner leaves. The accountant writes a memo to the manager saying,:

"The time down for track repair is too expensive to justify for the small loss in coal. Once a week, have a different miner stop by and shovel the knocked off coal into the trolley waiting there. Send it up top for dumping."

He sends a memo to the yard manager. "There is a sampling program to begin now. Mark an older trolley with red paint on the corners and send it down to the junction of the new shaft and old cutout every Thursday. When it comes back full, deposit it in a cordoned area separate from the main dumps.
A special truck will come by for this once a month."

He calls his brother-in-law and asks, "Do you still have that old dump truck you bought from the sale here?" "Sure, What do you need hauled?" is his response.
"We're putting a special program in place. We need to keep certain loads separate and delivered on request. Can you use a little extra cash?"
"Always" he comes back.

The accountant draws up papers for a new business. "Oldfield Coal Corporation" files them with the state and he's the sole proprietor.
No one except the accountant knows everything happening. His brother-in-law knows a little, but isn't going to tell, he's getting his part.
The manager knows they are looking for little improvements so he thinks nothing of it. He's busy with everything else.
The yard manager knows there's all sorts of regulations so a sampling program seems reasonable.
The miners are rotated so often they rarely comment about 15 minutes early to get closer to the surface, maybe once day in 90. They get a little boost in pay without digging, so much the better.
The owner is too busy to know anything new is going on.

The above story is a fiction, (So far as I know).

BUT, THIS IS WHAT I SEE GOING ON IN THE ECONOMY, AND HAS BEEN FOR YEARS. Derivatives, hedge funds, all sorts of speculative investment offerings and hidden funds that are a real gamble, UNLESS you have some inside knowledge of what someone is going to do. Some losses can be expected most anywhere. When there are so many people involved pushing paper involving siphoning off money, it can only go for so long before there is a collision.
Notice, I didn't say, what the market will do, but what someone is going to do.
Market forces and personal actions are intertwined always. This goes to Will's comment about trusting psychologists. They deal with the whole person; greed, ambition, deceit, all the best and worst motives.
Economists think in terms, This is what we have, this is the way it works, this therefore is the model. Certainly, they expect greed and avarice.
But how can you anticipate deceit, conspiracy, hidden plans. You can't, therefore regulation is needed to remove this factor or at least penalize it to make it less volatile.
When you have the rule writers, regulators and financial bagmen all in the same club, going to the same class reunions, it's hard for the outsider to know whats going on let alone stop.
I'm not blaming every trader and fund manager for this. But there are way to many pirates now.
I know the story above is a over-simplification, but so much hidden in markets could barely be explained by the ones stealing it. I don't have a problem with small numbers calculus being used to get more out of whats there. But this is largely a case of the system being gamed and the public being conned.
By the time new rules are in place, they have a new con going. (Thats easy if the rule writers tell you whats going to be done ahead of time.)
If an economist starts getting it right all the time, the feds are going to start looking at him or her rather hard. I believe before it gets that far, the cons in trading have already sniffed out the wily economists and are offering “gainful” employment.
Just remember, in these days of anti-production, a lot of high brow types look on making money using almost nothing but words and paper as being heroic.

Guru, how much of my analogy affects the market?
I think it has brought the markets to critical mass. Like fission there is either capture and conversion to useful energy or melt-down or worse, explosion.
I know it is complex, complicated and interdependent, but I also know there is a cross-segment stealing America blind.
If this isn't stopped, WS will lose whatever semblance of integrity it has left. Some of it has been as serious as treason. (for the record I am a free-market libertarian, but dishonest markets aren't free)

If any of you have yet to read Halx essay on Understanding capitalism, do it now. It is excellent.

You will have found his post informative.

10-04-2009, 04:19 PM	#17 (permalink)
Kingruv Upright Location: NoVa	The deleterious affect of confidence artists on the economy, economists and America. When is an economist not an economist? When they become a fund manager. (no matter what the fund is, local, state, federal, or private/public) A man owns a coal mine. As he looks over his operation he sees what he thinks is right. Production is as good as he could expect. Prices are good. Safety, always a concern, is good with low lost hours over time. Labor problems and employee satisfaction are in pretty good shape. Being an engineer he thinks, "There's always room for improvement" More production in less time. Better efficiency and lower maintenance costs. "How do we gain here, trim there?" So he calls his accountant and says, "What do the books say?" "How can we improve profitability?" The accountant says "I'll have a look, give me a few days" The accountant goes over all his ledgers and sees everything is in place as he knew it would be. The next day he talks to the manager and says "Do you have time to give me a tour of the site? The boss wants to see where we can improve profits. I thought it might help if I actually knew more about whats going on. I don't know much about mining, labor, production and all you do. I'm just a book keeper." The manager agrees and says "It might help to have a fresh pair of eyes on things" The next day they go around every part of the mine site, from the mine shafts where miners are cutting away at veins to the pump houses and maintenance shops. The accountant takes everything in, making notes, keeping his own counsel, asking questions only when he doesn't understand what he sees. He notices that on one of the sections the coal trolleys bump where there is a bend in tracks spliced a bit off at the cutout to the old tunnel. There are chunks of coal laying to both sides of the track. He walks over to the track as the trolley comes by and picks up a fist sized piece. The manager says, "I need to get that fixed, a lot gets knocked off here that miners don't get paid for." The accountant drops the chunks makes a note with a smile and a nod. They get to the surface and he says, "Thanks for the tour." He thanks the manager and walks back to his office. He goes over his notes looking at what the miners get per load and figures out how much might be getting lost they aren't getting paid for. He looks at prices and thinks, "Hmmmm, in a few months thats quite a bit going nowhere." Since the owner isn't around a lot and has a good crew and management, he is off and about, here, there and everywhere. The next time he's in he asks his accountant how he liked the tour. "Did you learn anything? Do you have any recommendations?" "Oh yes, I learned a lot about what goes on I never knew before. I'm still looking at things, but it seems like there is a high degree of optimization here. I'm not sure what can be improved." the accountant responded. The owner thanks him for looking and says "Next time I'm in, we'll have to go play a round of golf, my treat." "Yes sir, thank you for the invitation. I'll look forward to it." The owner leaves. The accountant writes a memo to the manager saying,: "The time down for track repair is too expensive to justify for the small loss in coal. Once a week, have a different miner stop by and shovel the knocked off coal into the trolley waiting there. Send it up top for dumping." He sends a memo to the yard manager. "There is a sampling program to begin now. Mark an older trolley with red paint on the corners and send it down to the junction of the new shaft and old cutout every Thursday. When it comes back full, deposit it in a cordoned area separate from the main dumps. A special truck will come by for this once a month." He calls his brother-in-law and asks, "Do you still have that old dump truck you bought from the sale here?" "Sure, What do you need hauled?" is his response. "We're putting a special program in place. We need to keep certain loads separate and delivered on request. Can you use a little extra cash?" "Always" he comes back. The accountant draws up papers for a new business. "Oldfield Coal Corporation" files them with the state and he's the sole proprietor. No one except the accountant knows everything happening. His brother-in-law knows a little, but isn't going to tell, he's getting his part. The manager knows they are looking for little improvements so he thinks nothing of it. He's busy with everything else. The yard manager knows there's all sorts of regulations so a sampling program seems reasonable. The miners are rotated so often they rarely comment about 15 minutes early to get closer to the surface, maybe once day in 90. They get a little boost in pay without digging, so much the better. The owner is too busy to know anything new is going on. The above story is a fiction, (So far as I know). BUT, THIS IS WHAT I SEE GOING ON IN THE ECONOMY, AND HAS BEEN FOR YEARS. Derivatives, hedge funds, all sorts of speculative investment offerings and hidden funds that are a real gamble, UNLESS you have some inside knowledge of what someone is going to do. Some losses can be expected most anywhere. When there are so many people involved pushing paper involving siphoning off money, it can only go for so long before there is a collision. Notice, I didn't say, what the market will do, but what someone is going to do. Market forces and personal actions are intertwined always. This goes to Will's comment about trusting psychologists. They deal with the whole person; greed, ambition, deceit, all the best and worst motives. Economists think in terms, This is what we have, this is the way it works, this therefore is the model. Certainly, they expect greed and avarice. But how can you anticipate deceit, conspiracy, hidden plans. You can't, therefore regulation is needed to remove this factor or at least penalize it to make it less volatile. When you have the rule writers, regulators and financial bagmen all in the same club, going to the same class reunions, it's hard for the outsider to know whats going on let alone stop. I'm not blaming every trader and fund manager for this. But there are way to many pirates now. I know the story above is a over-simplification, but so much hidden in markets could barely be explained by the ones stealing it. I don't have a problem with small numbers calculus being used to get more out of whats there. But this is largely a case of the system being gamed and the public being conned. By the time new rules are in place, they have a new con going. (Thats easy if the rule writers tell you whats going to be done ahead of time.) If an economist starts getting it right all the time, the feds are going to start looking at him or her rather hard. I believe before it gets that far, the cons in trading have already sniffed out the wily economists and are offering “gainful” employment. Just remember, in these days of anti-production, a lot of high brow types look on making money using almost nothing but words and paper as being heroic. Guru, how much of my analogy affects the market? I think it has brought the markets to critical mass. Like fission there is either capture and conversion to useful energy or melt-down or worse, explosion. I know it is complex, complicated and interdependent, but I also know there is a cross-segment stealing America blind. If this isn't stopped, WS will lose whatever semblance of integrity it has left. Some of it has been as serious as treason. (for the record I am a free-market libertarian, but dishonest markets aren't free) If any of you have yet to read Halx essay on Understanding capitalism, do it now. It is excellent. You will have found his post informative.