Black SwaNS Everywhere

     After a one-day reprieve from total meltdown in the financial markets, news media cheerleaders for the most reckless gang of bankers in world history declared the crisis over on Good Friday (with the markets safely closed). Whew, that's a relief. Problem solved. And just in time for baseball season, too, so none of the Banker Boyz have to sell their sky box leases.  

Commodities Drop, Rally in Dollar, Stocks Vindicate Bernanke

 

      What is meant by "meltdown," by the way, since the word is used so promiscuously by myself and others. I'd define it as the shock of recognition that many big institutions are worse than flat broke and are therefore powerless to conduct normal operations. By "worse than flat broke" I mean they are so deep in hock that all the accountants who ever lived, in the life of this universe and several others like it, using the fastest parallel processing computers ever built, could not keep up with their compounding accelerating losses (now approaching the speed of light).

      The current vacation from reality on Wall Street may last a few more days, or even a couple weeks, but it seems as though a whole flock of black swan events is circling the sky over Financial-land and is about to blot out the sun. By black swan, I refer to the concept popularized by Nassim Nicholas Taleb in his recent book of that name, namely unexpected events of  great power that tend to change the course of history.
     For the moment, with the crisis "contained," and the Boyz getting ready to air out their Hampton villas for the coming season, we are once again primed to be blindsided by potent random events that nobody saw coming. The trouble is, there are enough potent potential fiascos already visible on the horizon.

      The mortgage fiasco is still just gathering steam as it moves from the non-payment stage to the default and repossession level on the grand scale. Even the political wish to bail out feckless mortgage holders will stumble on the mammoth clerical task of administrating the process, especially since we've barely begun to sort out who actually holds the mortgages after they've been minced into a fine mirepoix of securities off-loaded onto countless dupe "investors" ranging from municipal funds in obscure corners of foreign nations to countless public employee retirement plans.

     No matter how the authorities try to "nationalize" the sucking chest wound of bad mortgages, the body of finance will flat-line -- and the American public will get stuck with the bill from the intensive care unit. Those who, for some weird reason, continue to pay their way and meet their obligations, will be none too pleased to pay for misdeeds of the deadbeats and their banker-lenders. This portends a taxpayer rebellion, which may translate into a voter rebellion.

      It's too bad the current presidential candidates have been unable to address the unfolding economic nightmare. Their collective silence on the matter suggests that they don't have a clue what to say about it. As the nightmare plays out and black swans flock in to blot out the sun, and the hedge funds come a'tumbling down, and more big banks blunder into black holes, and businesses big and small across the land shutter up their operations, and the unemployment rolls swell, and families are thrown out of their houses even when bailouts are supposed to be saving them (but the bureaucracy can't get the paperwork done in time) -- well now, they are going to be one pissed off bunch of people. What will they do at the conventions? Our outside the conventions?

      In the deeper background of all this is the all-important oil story that nobody in politics or the media wants to pay attention to. Notice that in the fervid unloading of assets this past week, as investors dumped their positions in the commodities markets, the price of oil remained stubbornly above $100-a-barrel when it was all over on Thursday afternoon. Well, maybe they'll ratchet down a little further this week, but the trend line will prove to continue remorselessly upward in the months ahead.

      Peak oil is for real. The supply can't keep up with global demand, even if it dips in the USA. And more portentous sub-plots develop in the story every month. Export rates are falling at a steeper rate than depletion rates. The exporting nations are not only buying more cars and running more air-conditioners, they also need to use more energy to lift the oil they've got out of the ground.

      Another sub-plot is the fact that the equipment used world-wide to drill for oil and recover oil and move oil around the planet -- all that equipment is now so old and rusty that it can barely do the job, and it is going to start failing altogether unless investments are made to replace it, which nobody is making.

   By the way, Americans blame the familiar private oil companies for all the trouble with oil in their lives -- Exxon-Mobil, Shell, et al -- but they don't seem to know that oil nationalism is in the driver's seat now. The old private "majors" are only producing five percent of the world's oil. The rest is coming from the national companies -- Aramco, Petrobras, Pemex, et blah blah -- and the very operations of the oil markets are entering a phase of radical instability as they move away from auctioning their stuff on the futures markets and start making long-term favored customer contracts instead.

      The bottom line is that high prices for oil is hardly the only thing America has to worry about. Pretty soon the US will have to worry about getting the oil at any price -- meaning, we're in for shortages and supply disruptions sooner rather than later.

      Also unbeknownst to most of America, the financial markets reflect all this instability around the basic resource of oil because industrial economies like ours are set up in such a way that they can't run without cheap and reliable supplies of the stuff. So the least little twitter in the reality-based world of peak oil means that everything to do with money and capital investment will naturally go batshit, since our expectations for increased wealth -- i.e. "growth" -- are predicated on the activities driven by oil.

     It will be interesting to see what new machinations are unveiled this week. Whatever else this catastrophe is, it's a good show from the cheap seats.

Comments

[Johnny Rico]

"prove you really didn't do the things you are suddenly accused of doing."

I don't understand? Why do you need a passport to do this? It seems a credit card and social security number combined with basic address information have been good enough to steal someone's identity for some time.

To frame someone for murder, let's say, would require more than a passport.

So I'm not really getting where exactly the importance of the passport comes in here.

[Johnny Rico]

"gotta admit, the image of swans (of any color) blotting out the sun is poetry."

Definitely. And The fact that JHK is even mentioning the book is poetic justice for me.

I just want people to understand that Taleb's work is more complicated and deeper than simply the Black Swan (this is one small part of his work for which he titled his second book).

Probability, The Stock Market, Finance, The Ludic Fallacy, The Narrative Fallacy.

If you like the Long Emergency and you trust JHK's mention of this author, and you read, then do yourself a favor and pick up "Fooled By Randomness" or the "Black Swan."

I would love to have some people here who understand what I'm talking about when I say Lebanese cab-driver.

[thal]

asoka,

Correct. Except it could be a lot more than a pain in the ass.
That very fate could visit any of us. But, to single out State Dept access as something special ignores the waiter at the bar stealing my credit card data, backtracking and getting all the relevent information, or me being so careless as when, drawing monies out of an ATM, I end up dropping my receipt on the ground. Not that any presidential candidates would ever do such a thing (like using ATMs), but what about stolen laptops, hackers, etc.?

Here's my point, and at best, salient: It's all Identity Theft by One Means Or Another. I'm not trying to deny that there are many paths to get into, and game, the system. The State Dept., as are nearly all our institutions, is accessible by nefarious means, hey, you got a password?, sell the shit to the Chinese, or the Russians, of Uzbeckistanis.

When worth is measured by pixels (JHK's term, brilliant, by the way), who controls the poof-and-it's-gone of anyone's worth?

Certainly, not me. Why should I be paranoid?

[thal]

OK, JR, you've convinced me. I'll read Taleb. Pre-read, because the book is not at hand, I sorta already understand the Lebanese Cab Driver thing though. Some of the most productive conversations I've ever had were random events, and a high proportion of those were in cabs. What the Fuck? It may be true.

[Johnny Rico]

"Definitely not silliness. More like a pain in the ass."

Not to pick on you, asoka, but life is a pain in the ass. This is why God invented heroin.

(Bear with me, I've missed you, and want to make sure you're still in shape)

Let's say you are Barack Obama. Let's pretend someone steals or peaks into your passport file and maybe even steals your identity.

Question: which is more of a pain in the ass? That or being black? Or having a white grandmother or whatever.

It would seem (to me) that having his passport file broken into was the least disruptive thing that has ever happened to him.

I've had my car broken into, my apartment broken into, I've been mugged twice, and had my heart broken twice. You can have my passport. I'll send it to you. What's your address?

There's worse things. I'm just sayin.

[thal]

JR,

All that other stuff is fixable. Tell me about your heart being broken twice.

[Johnny Rico]

I just picked up my highly used copy of TBS. From the prologue(italics in asterisks):

"Think of the terrorist attack of September 11, 2001: had the risk been reasonably *conceivable* on September 10, it would not have happened."

You will love it, Thal. All his work is packed with stuff like this and detailed discussion about why this is. I feel Taleb is the most important philosopher of our age.

[thal]

I promise, I'll read it all.

[thal]

From Amazon.com
The Black Swan
Fooled by Randomness
Dynamic Hedging
The Volatility Surface

Gotta one-two-three ordinate choice?

[Johnny Rico]

Tell me about your heart being broken twice.

Actually there was a third time, but I figure the first doesn't count. Not when your are 17.

It sucks. There is no pain worse. Not even kicking dope. And unlike other pain, the memory fades but never quite goes away, and always catches you when you need it least.

...aw, shit, who am I? Barack Obama. Thal, you almost had me open up there :)

I don't think Black Swan is in paperback, but I would go with it if price is no object, otherwise fooled by randomness. I'm not familiar with the others, but I will be.

[thal]

Far be it from me to have you open up. Apologies. I should choose my provocations more carefully. Just asking. Some things seem more important to me personally these days. I promise to behave. I like you JR. Got the number one read. I'll read that first.

[thal]

The price is no object, but thanks for that consideration.

[Johnny Rico]

Thanks, Thal. We can discuss that stuff somewhere else. (my fault, I brought it up).

A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives. Ever since the Pleistocene, some ten millennia ago, the effect of these Black Swans has been increasing. It started accelerating during the industrial revolution, as the world started getting more complicated, while ordinary events, the ones we study and discuss and try to predict from reading newspapers, have become increasingly inconsequential.

-page xviii, Prologue

(I'm trying to find the Lebanese cab driver passage - but you are basically right)

[Johnny Rico]

Learning to Learn:

What did people learn from the 9/11 episode? Did they learn that some events, owing to their dynamics, stand largely outside the realm of the predictable? No. Did they learn the built-in defect of conventional wisdom? No. What did they figure out? They learned precise rules for avoiding Islamic prototerrorists and tall buildings. Many keep reminding me that it is important for us to be practical and take tangible steps rather than “theorize” about knowledge. The story of the Maginot Line shows how we are conditioned to be specific. The French, after the Great War, built a wall along the previous German invasion route to prevent reinvasion – Hitler just (almost) effortlessly went around it. The French had been excellent students of history; they just learned with too much precision. They were too practical and exceedingly focused for their own safety.

We do not spontaneously learn that *we don’t learn that we don’t learn.* The problem lies in the structure of our minds: we don’t learn rules, just facts, and only facts. Metarules (such as the rule that we have a tendency to not learn rules) we don’t seem to be good at getting. We scorn the abstract; we scorn it with passion.

- page xxi, Prologue

[Johnny Rico]

Thal, I can't decide for you, but I would do this. Actually go to the bookstore and read Prologue xxiii (Black Swan)

This is a kicker for me. MOU told me Borders was closing, so maybe you will have to go to Barnes and Noble.

I'm not sure how this will work - Borders is allied with Amazon.

I've still got 50 bucks left on my Borders X-mas gift card. I'm gonna wait til it's super-clearance.

Then I'm buyin Tucker Max's "I Hope They Serve Beer In Hell" for all my uncles and male cousins. Cuz Borders don't sell shotgun shells. (or beer)

I'm jus sayin.

[Johnny Rico]

This is Rico Time:

I post whatever I want, cuz nobody is watching.

Dave Chappelle on terrorists (2000- notice the year):
http://uk.youtube.com/watch?v=0amxfL3q50c

[Johnny Rico]

Goddamn that wuz racist!

http://uk.youtube.com/watch?v=M2GqRTgi5WI&feature=related

[Johnny Rico]

All those years I thought I liked chicken cuz it wuz delicious.

[Johnny Rico]

Happy Easter, CFNers. Hope y'all found eggs...err, or your basket... or Bunn Bunn ! Haha! Run! Bunn Bunn, run! They're trying to make soup outta you, little buddy.

Well. I keep trying to tell ya. You never wanna listen. They are some sick fucks ain't they? 20 feet then left 10 feet and never come back. I'll miss you. I'm serious, they will eat you. The Rico is always on your side, you know that. I couldn't kill a fly.

[asoka]

OK, let's up the ante a little and talk about what you can get from passport data that you cannot get from rummaging around to find someone's credit card statement in the garbage.

Getting the electronic passport data allows it to be used to produce a cloned passport or some other forged identity credential.

You are now placed in danger of remote identification, targeting, identity theft, AND impersonation by anyone who passes themselves off as you with a cloned passport using the electronic passport data.

Now, if the person decides to do anything with your identity credential that could label you as an "enemy combatant", you could find yourself awoken out of a sleep, renditioned in the middle of the night to a secret CIA torture prison with no rights whatsoever.

Cloning an identity credential is a step above stealing your credit card data to make false purchases, which is what is usually implied by "identity theft". Passport data makes it possible to clone the credential and fly internationally as you and do something Homeland Security might be interested in pursuing... and State Dept. contract workers have the access to your data.

[Johnny Rico]

"OK, let's up the ante a little and talk about what you can get from passport data that you cannot get from rummaging around to find someone's credit card statement in the garbage."

That's what I'm sayin, Baby. This is the Asoka I have lusted after for months. Speak the truth, Brother!

[Johnny Rico]

Outstanding, Asoka. This is exactly why I protect myself. (or try to)

[Johnny Rico]

Last days of Bunn Bunn

http://uk.youtube.com/watch?v=J7aGdLXvDOI&feature=related

[Holmes, I presume]

JR, I'm writing to you over at ZK (a bit off the current CFN topic) so take a look when you can. Thanks.

[Johnny Rico]

Word just in -

That little rascal rabbit is an American spy. He's been cutting cables to insurgent bombs for over three years.

Holy Easter Eggs, Batman!