Cheung on sub-prime

From 互不相干二三事

• 再转谈另一项。美国次贷带来的金融风暴，尽管求教过朋友，不明白的地方仍多。例如输掉了那么多的钱，究竟到了哪里去？想来不是昔日荷兰的郁金香危机的扩大版本。想到另一个可能，不能肯定。希望读者有以教我。
• 美国的经济学者反对政府救市，我站在哪一边举棋不定！其中一个困难，使我在众议院通过之前出弹弓手。是这样的︰如果政府不救，因为美国工会多，最低工资高，有福利也有失业金，市场暴跌可能引发百分之二十以上的失业率。三十年代的大萧条，出现过近百分之三十的失业率。这数字作研究生时吵过好一阵。有说是真的，有说是夸张了。面对难关，我宁可信其有。我认为佛利民的《美国货币史》对大萧条的解释──货币量应加反减──只对一半。更重要的一半是当时的劳工市场不够自由，工资下调不容易。朱镕基在九十年代推出严厉的宏观调控，经济增长依旧，是历史上非常重要的一课。当时中国劳工市场的合约够自由肯定是重点。我是因为朱老的政策经验而对三十年代的大萧条有了新的体会。
• 如果目前的美国没有上述的劳工市场的诸多约束，选择「不救」应该是明智之举。市场的运作会调整得快，而十年前亚洲金融风暴的经验，是市场下跌得快时回升也快。短痛是胜于长痛的。问题是美国的劳工市场沙石太多，一下子导致无数企业关门，责任政府负担不起。这样看，出资救市是可以理解的选择，不幸地短痛会换来长痛。
• 除非我读到的资料有重要的失实之处，我认为目前金融市场的不幸处境，不是短期可以清理的。格林斯潘支持出资抢救，但最近他在一间大学讲话，说会复苏得快。比我乐观。我衷心希望他对，我错。
  

1) Where the money went - I thought the money was mostly spent, on Iraq, on Walmart, etc. e.g. a 40-something couple in bay area sold their house for 1M and bought another at 250k in Colorado to retire. They pocketed 750k in cash pay the capital gain (which goes to Iraq), save some and "spent" some. Whoever bought that house became the loser.

2) In my view, the government spending 700bn is ok, but it should spend on the source of the problem (and at the right price). i.e. to provide credit directly or to buy real estate, not on the derivatives.

3) Cheung's view on labor market is mainly related to how one deals with deflation. If he is right, then the impact on China is minimal -- because China was on the path of inflation (and general economic growth where salary should be adjusted up otherwise), and China's labor protection is actually a lot weaker than that in US. (yes, i repeat that it is true that China is more capitalistic than US even before the bail-out)

4) The problem in the US (and why Paulson was able to hijack the congress) is due to the short-term behaviors among the US politicians. i.e. they are only concerned about the blames in the short term and would rather follow the majority to vote for the bail-out (which is a less risky decision with regard to their political career) 

-- this has very profound implication on political thoery regarding modern liberal democracy and accountability of politicians. While ensuring democracy with change of terms we have traded off long-term accountability for our politicans, is there any 'patch' to fix for this?

p.s. IMHO the widely talked about failure of free-marketing and liberal democracy is widely exaggerated, and the logics are flawed.

Nobel prize: the Japanese experience

The diligent Japanese have finally proven they are not just the engineers who could only innovate on the breakthrough of others. They still have very strong "pipeline" (candidate) who could win another in the next couple of days, e.g., the acclaimed writer Murakami Haruki (村上春樹).

So far they have won 16 Nobel prizes, of which 15 were Japanese citizens at the time of receiving the prize. The 16th Nambu who won the physics prize this year, was educated in Japan, became a professor in Japan, and moved to US only after his 31st birthday.

氏名	受賞年	部門	理由等
湯川秀樹	1949年	物理学賞	中間子の存在の予想。コロンビア大学在籍中に受賞。
朝永振一郎	1965年	物理学賞	量子電気力学分野での基礎的研究。
川端康成	1968年	文学賞	『雪国』、『千羽鶴』、『古都』等の作品。
江崎玲於奈	1973年	物理学賞	半導体におけるトンネル効果の実験的発見。IBM在籍中に受賞。
佐藤栄作	1974年	平和賞	非核三原則の提唱。
福井謙一	1981年	化学賞	化学反応過程の理論的研究。
利根川進	1987年	生理学・医学賞	多様な抗体を生成する遺伝的原理の解明。MIT在籍中に受賞。
大江健三郎	1994年	文学賞	『万延元年のフットボール』、『燃え上がる緑の木』三部作等の作品。
白川英樹	2000年	化学賞	導電性高分子の発見と発展。
野依良治	2001年	化学賞	キラル触媒による不斉合成反応の研究。
小柴昌俊	2002年	物理学賞	天体物理学、特に宇宙ニュートリノの検出に対するパイオニア的貢献。
田中耕一	2002年	化学賞	生体高分子の同定および構造解析のための手法の開発。
南部陽一郎[1]	2008年	物理学賞	自発的対称性の破れの発見。
小林誠	2008年	物理学賞	対称性の破れによるクオーク世代の予言（小林・益川理論）。
益川敏英	2008年	物理学賞	対称性の破れによるクオーク世代の予言（小林・益川理論）。
下村脩	2008年	化学賞	緑色蛍光タンパク質(GFP)の発見とその開発。

In fact, the Japanese have already won 4 prizes between 2000-2002 in consecutive years. 

One interesting coincidence is that it seems that they tend to win Nobels when the US is in recession (e.g., 1973-74, 1987, 2000-2002, 2008; the economy wasn't great in 1981 and 1994 either).

This is a very strong refute to the myth that Japan does not (know how to) innovate which was a very popular belief from the 1980s through even today. See, e.g., The New Scientist article published in 1989, "No-bells for Japan"

• "This worries policymakers even more than the league table of Nobel prizewinners does. Yoshihiro Miki, director of policy research in the government's Science and Technology Agency (STA), says that Japan has completed the 'catch-up stage' in its scientific development: it has closed the gap over the period since the end of the Second World War. To go further it will need fundamental changes to encourage its scientists to be creative. 'We need to have an environment where researchers can freely display their creativity and ability,' says Miki. "

A lot (11 to be exact) of "bells" for Japan have been awarded since, across all disciplines (except for the Economic Prize.  They even won an infamous Peace Prize - even though the Japanese were not involved in international political power game such as the Israelie-Palestine deal and the Vietnam cease-fire talk),  4 in the past few days.

It should be noted that most of the works for these prizes were accomplished before the 1989 article was written (when Mr Miki lamented). e.g. the Cabibo-Kobayahi-Maskawa matrix was published in 1973. The reform in Japan started in 1860's and the first Japanese Nobel (Yukawa) was awarded in 1949 (90 years later) for works that was done in 1935 when he published the "Yukawa potential".

What Japan has shown us is that fundamental education and a reasonably funded but propoerly managed (i.e. fair) academic system (which it enjoyed) play a much more important role than government directive or intervention (which the pundits derided) when it comes to innovation.

This bring to the question of China. So far there are 9 ethnic Chinese who have won the Nobel prize. None of them hold Chinese passport

• Only Gao Xingjiang's work was done entirely within China. (the only non-scientist, non-politician)
• Only 2 physicists (Yang and Lee) completed their undergraduate in China, Dan Tsui was educated in US. The other 3 physicists, Chu, Ting and Tsien were not even born in China
  
• The chemist, Lee Yuan-tseh was educated in NTU, Taiwan, which is basically the same system Yang and Lee went through
  
• The DL is a Tibetan grew up in India and the west, and the prize he received does not exactly reflect education and scientific/cultural advanceness (and some readers, including the DL himself or many Chinese nationalists, do not think he is considered Chinese at all)

... and the Japanese lessons for China

1. Can China foster an environment for innovation of the Nobel quality? Yes, it has produced Gao, and partially Yang and Lee -- there will be another Dan Tsui, another Y-T Lee once in a few years since there are so many people who went to the US for PhD and stayed behind
2. Were these prizes more like an anomaly of the Chinese education system? Yes, considering Gao is an outlier in the circle and Yang/Lee could not have done the same work had they stayed in China (and the 50 year-vacuum afterwards) -- China today is at best the 1960s of Japan when it got a couple sporadic prizes, so we have have one or two Nobel laureate in the coming decade, but the paths of these winners will be quite different from their peers
3. When will China be really part of the "Nobel community" (i.e. on par with Japan, Germany, Switzerland, etc)? Probably another 3 decades, if Japan's path is to be followed. The innovation in Japan started in 1970s (or late 1960s) and the harvest started about 30 years later. Today's China resembles Japan in late 1970s, in terms of economic development and education. Yes, China is on an accelerated path, but the corruption, poor management of its research and education system could more than offset the 'economic acceleration' plus the 'population scale' it may enjoy in the next 2 decades

The Wen Jia Bao Interview

Fareed Zakaria interviewd Wen Jiabao



part 2


The transcript

Reading list Sep 08

How about starting with an old post I wrote 14 months ago?

Pushing Ginnie Mae to China (當中國系水魚）

Question: did Mr Jackson know something we didn't know 14 months ago? (note especially how he talked about "the same credit risk")

---

now the reading list

The Red Cliff review was ranked top in Douban

To vote or not to vote
Corruption in the Construction of the Suzhou Museum? 
假如22个最难的汉字出现在一篇文章里

公元1949年之后中国称帝者一览

The sad truth about China's tainted products

Rebecca MacKinnon - western media did not conspire to 'demonise' China

The complete (though ever-changing) elite consensus over the financial collapse

The Home Team

转载 9月18日新闻联播观感

金比银铜重很多

福原爱现象

朝鲜必放说 - 张五常

兩個泛民神話就此破滅

China Shouldn’t Be Inscrutable - Fareed Zakaria

How Repressive Is the Chinese Government in Tibet?
Who Is Actually Exaggerating the Rise of China

Random thoughts on sub-prime and the intervention

video via incoherent thoughts

Some thoughts:

1) In a closed system, matters are conserved.

If the total amount of monetary supply (the ultimate source of demand) and goods (in this case real estate and hence its derivatives, i.e. structured financal products) do not change, the "equilibrium" price should be a constant.

i.e. whether it is $700bn or $70tr, whatever term attached to this fund, is not going to change the "equilibirum" price. what it will do though, is to re-distributed wealth through intervention, in this case, from the pockets of good investors to those of bad investors.

2) But the system is never really at its equilibirum point (it was above equilibirum for most of the past 3 years), though statistically it should spend most of the time around the equilibirum point. So the rationale for governemnt intervention is that it could fall way below the equilibrium price if no action is taken. The question follows, if that is the case, wouldn't some hedge fund start to buy in or are they all stupid?

3) Intervention: if the government should invene when the market is way below the equilibrium point, should it intervene when it is way above? -- i.e., to protect the average investors from buying at an overpriced point? why wasn't a similar amount given to the hedge funds who short the market 2 years ago?

4) HK 1998 vs USA 2008. 

The intervention in HK worked in 1998 (judging solely on results, ignoring issues such as market ethnic and proper governance) because IT WAS UNDERPRICED. Had the HK government intervened a few days early, it could have lost the gamble. Had it intervened a few days later, it could have profited more! It succeed not because it acted right, it succeed because it waited long enough and the price/timing was right.

The HK goverment was betting against a group of investors, who [might have] erred. We know how much it was paying for each piece of asset it acquired. We do not know whether the US government is betting against a group of speculator, or just the market ("gravity") -- see below.

For the $700bn plan, there is not a single indication of the price point the US government will enter. Since it is about structured financial products, the actual value of the goods could be zero. The only way this would work is, to restricted the fund to apply strictly to buying up properties, i.e. the underlying assets for these products, not the products themselves; real estates to be more specific if it has to, or something similar.

5) How do we know where the equilibrium point is? If we believe in statistics and the market force. the "equilibirum" (US) housing price should be around the average of the past 10 (or 15?) years, adjusted for inflation. 

Today, it is quite clear that it is out of the 'reasonable' bound. To be out of bound (and for a safe entry with taxpayers' money) the price should be about as far below the average as it had been once above that average (i.e. the around peak of the market)

e.g. (for those who believes in technical analysis there is a simple estimate -- though far from rigorous) Take the Case-Shiller Index (SPCSUSA), it moved between 85.71 and 185.45 for the past 10 years, the mid-point being around 135. The 2008 Q2 value was 155.32, today it is probably much closer to the mid-point of 135. To justify a value that is "way-below equilibirum" the index needs to fall signifcantly below 135, e.g., perhaps a bit more than 1 standard deviation.

(maybe adds inflation which had been low until very recently)

-- the same applies for those who want to invest his own money into real estate.

Entropy - what a difference a day made

It takes almost a whole month to clear up the sky between July 20 and mid August.

Now it takes less than a week to mess it totally up. This is the photo of the same location one day ago. My 'wishful thinking' was crushed, mercilessly. What a difference a day made... sigh

This is the second law of thermodynamic (and the concept of entropy) -- a simply illustration is that a drop of ink could dye a whole bathtub in seconds, but it is very hard to separate the ink and the rest of the water. To reverse the damage it takes energy, a lot more energy. e.g. days of thunderstorms for the smog, but in most cases the force of nature is not in place. (for that inked bathtub one can distill the water with a large 'coffee machine' very carefully)

This show what the challenge of undoing the pollution in China (and for that matter the rest of the world as well) will be.

Beijing Impressions

Clear sky on September 26, one week after normal traffic resumed.
1) Since the end of the Olympic (yes, during the 16 days of the Olympic, most of it was still either raining or misty, but visible changes, i.e. blue sky, emerged only towards the last few days), the sky has been largely blue.

The best days were between Aug 20-Sep 20, I had thought. What surprised me is that the sky had been particularly clear AFTER the Paralympic (i.e. normal traffic jam resumed after September 20)! Perhaps there is a time lag of about 15-25 days between the government measures and the results (traffic control started on July 20 but clear sky refused to emerge until almost a week after Olympic Opening, or a month after July 20)

There are a few possible reasons behind what made the sky blue

a) The weather -- it had been cooled and there had been rains in the past few days, washing away the smog, or the fall often presents clear sky as temperature cools down (but this does not explain the sky between 1995-2007)

b) Traffic is only part of the problems, the factories (and perahps others) contributed more to the haze (but then many factories resumed work, I suppose)

c) There is a time lag between the cause and effect as mentioned above (and it takes quite a few days to accumulate or clear the smog) -- perhaps the most plausible answer

d) (my wishful thinking) perhaps something permanent has been done (factory migration, etc) catalyzed by the Olympic -- wishful thinking are usually the less likely

---

2) I went to one of the most famed (and popular) restaurant a while ago. It is called Na Jia Xiao Guan (That little restaurant, literally). Very nice "indoor courtyard" setting with great food, reasonable price, unlike the notorious Lan Club which is a blatant rip-off targetting ex-pat. It is located on the street just behind Lan.

It is almost impossible to make dinner reservation, but early lunch are usually wide open. (this applies to many other restaurants, e.g. Da Dong)

The "Courtyard"
What I want to say about is not something like a food critique, but about how radical Chinese capitalism and hence management style could become. As illustrated by this customer feedback card, where you have the photos of all staff (including the manager) and you can pick any card to vote. In US I suppose this might lead to law suit from the employee(?)

The score card of Najiaxiaoguan
It follows that the service is very good, as is for many other restaurants in mainland China.

3) This picture is taken in a Hutong, which are plentiful in Beijing. The old residence had been utilizing the soil and space to plant various kind of agricultural products (like the Hulu / gourd / "zuchini" in this picture). One thing I had been wondering was why 99% of the trees on our streets (worldwide) do not bear fruit. I reckon that cleaning the ground may be a problem, but still ... here the Beijing residents did it inside the Hutongs.

Hutong agriculture

And the Gold Medal goes to ...... score 2563mg!

The old lady finally sang, announcing that 22 out of 109 companies has melamine adulterated milk powder.

Rank, Company, adulterated sample/total sample, mg of melamine per kg milk powder

1. shijiazhuang sanlu 11/11 2563mg

2. shanghai panda  3/5, 619

3. qingdao shengyuan 8/17, 150

4. shan fucheng 4/13, 141.6

5. jiangxi hero 2/2, 98.6

6. baoji huining 1/1,  79.17

7-22. lower than 0.09-68.2mg/kg

Megnniu ranks 7th, with 3 out of 28 samples doped, of which the worst has 68.2mg/kg

Yili has 1 out of 35 sample with problem, at 12mg -- i can buy the farmer adulteration excuse for Yili, even Mengniu. But for Sanlu, "kill me first" （打死也不信). btw, I wonder if the government would release the numbers for all the 11 Sanlu samples. If they are all as high, many more officials in Hebei will (should) lose their Wusha Hat.

(Full list)

It is pretty clear, from the cencentration of melamine figures that Sanlu adulterated melamine in the production process. The milk collectors might also be guilty of adulterating melamine, but the amount of melamine will never reach such concentration, nor did any other factory went that far. 2563mg/kg=2.563/1000 or 0.2563%!!!. I wonder if there is any real protein at all. This explains why only Sanlu had caused visible symptoms at such a wide extent.

三鹿也实在太狠了。

-----

品牌   抽样数 不合格数  三聚氰胺最高含量
　　1. 三鹿      11       11       每公斤2563毫克
　　2. 熊猫      5        3        每公斤619毫克
　　3. 圣元      17       8        每公斤150毫克
　　4. 古城      13       4        每公斤141.6毫克
　　5. 英雄      2        2        每公斤98.6毫克
　　6. 惠民       1       1        每公斤79.17毫克
　　7. 蒙牛       28      3        每公斤68.2毫克
　　8. 可琪       1       1        每公斤67.94毫克
　　9. 广东雅士利  30     8        每公斤53.4毫克
　　10. 南山       3      1        每公斤53.4毫克
       11. 麒麟       1      1        每公斤31.74毫克
　　12. 山西雅士利 4      2        每公斤26.3毫克
　　13 金必士      2      2        每公斤18毫克
　　14 施恩        20    14        每公斤17毫克
　　15 金鼎        3      1         每公斤16.2毫克
　　16 伊利        35     1        每公斤12毫克
　　17 奥美多      16     6        每公斤10.7毫克
　　18 艾克丁      3      1        每公斤4.8毫克
　　19 育宝        3      1        每公斤3.73毫克
　　20 磊磊        3      3        每公斤1.2毫克
　　21 宝安力      1      1        每公斤0.21毫克
　　22 聪尔壮      1      1        每公斤0.09毫克

LHC opponents sides with the See-See-P

Following some mis-guided pseudo-scientist's advice, there has been a law suit against a science project, the LHC near Geneva, Switzerland. And they had used See-see-P's argument that Rights = right to survive, and that the experiment is threatening to create a black hole which would engulf the whole earth, and therefore violates their rights to survive.

Fine, maybe they do agree with the government in China and maybe that is what 'rights' mean. I could go along with that, sort of. But the point is, there is a law in physics called energy conservation, and it takes much larger amount of energy to create a black hole large enough to engulf this world.

(Update)

Related links: 

1) "Anyone who thinks the LHC will destroy the world is a t---."

2) Scientists get death threats over Large Hadron Collider

3) The facts behind the anti-matter bomb fantasy

Maps: Caucasus, Georgia

How Russia occupied the Caucasus in early 1800s.

The ethnic Caucasus
The linguistic Caucasus
Topographic / political
Topographic
Topographic / elevation