I don't get mad, I get odd.

This started as a comment in someone else's FB post, and then I decided that it was enough of its own thing that I should put it here.  It was a post on the subject of gun violence and gun control.  The quote that inspired my reaction was, "It's time to get mad.  We do no have to be nice to these people."

I'm going to disagree with half of that.  True, being nice in this debate is not necessary.  But I think it is not time to get mad.  It's time to get compassionate.  In all of our emotionally-charged, highly-polarized debates, we have no lack of angry participants.  Let me ask you: how far has that gotten us?  Yeah, I thought so.

We need compassion.  We need understanding.  And if you think that taking the time to understand the opposing viewpoint is "losing the battle" then you have already lost.

Let's say you advocate for gun control, because you believe that reducing the availability of guns will reduce gun violence and the associated death, injury, fear, and other badness.  If you fail to recognize the fact that we do, in fact, have a constitutional amendment that guarantees a right to bear arms, you will fail.  My understanding of case law is that the current interpretation does in fact hold up the right of individuals to bear arms.  Which means that those who see gun control laws as an attempt to infringe on their constitutionally-protected rights have a valid point. Yes.  You need to acknowledge their stance as valid, even if you disagree with it.

You need to do that because it is both the right thing to do and the most effective way to get what you want.

Huh?

Follow along with me for a moment, folks.  When you dismiss as invalid (or unimportant) the gun rights advocate's concerns of the government infringing on constitutionally-protected rights, you will fail.  You will fail because you are ignoring an important and valid part of the debate, because it's inconvenient to have to accommodate it.  That's like saying I want to drive to London from New York and ignoring the fact that my car is not a boat, because it's inconvenient to admit I can't sail my car to the UK.  If I actually want to get to London, it is vastly more effective for me to admit that my car is not a boat, and either buy a ticket to fly in an airplane, or look for an actual boat.  If I lose sight of the end-goal because I find the current state of affairs distasteful, I'm going to fail to achieve my end goal.

Now, just as I can choose various options like a boat or a plane to get to London, we can have a debate about how the second amendment should be interpreted.  But that's a different debate. You can try to get it re-interpreted or you can attempt to change it, and there are legal processes for both of those things.  But any attempt to change laws and behaviors needs to accept the current legal state as it is and go from there.  Otherwise you'll end up parked at the bottom of the Long Island Sound.

This cuts both ways.  Are you a gun rights advocate?  Do you believe in the individual mandate interpretation of the 2nd amendment?  Do you not trust the government with a registry of who has what firearms?  Fine.

Understand that all over our country people are being shot and killed every day, and that people are really sick and tired of their friends and family getting killed, and they want solutions that will curb the violence quickly.  If you want to keep your guns, then you need to accept the need to find ways to reduce gun violence and be able to propose effective, politically acceptable solutions to the gun violence problem.  You might even need to be willing to bend a bit on what sorts of restrictions you could find acceptable.  Whatever approach you take, you have to accept people's concerns as valid, and be willing to offer solutions and compromises that address those concerns.

Again, you need to do this both because it is the right thing to do and because it is the most effective way to get what you want long term.

If you entrench too hard, you may find yourself suddenly and unexpectedly overrun when the tide of public opinion shifts.  Each time another mass shooting occurs, there's the chance that it is the spark that will light the blaze of righteous fury that overturns the second amendment completely.  Look at how quickly the Arab Spring overturned several governments.  And then look at what the excruciatingly oppressive government in Myanmar did in response.  Now, look at who's still in power there.  Yeah.

So, no, don't get mad.  Get compassionate.  Understand that we really all do want to make this country a better place.  We may disagree on how to get there, we may disagree on the priorities.  But we all want to live well, in liberty and the pursuit of happiness.

Legitimizing Education Reform

I've been thinking a lot about education reform and the Common Core lately.  I had a very interesting and enlightening conversation recently with someone who has some perspective from inside the system, and it's got me thinking.

So much of the debate about education reform is entirely unproductive.  Everyone has already decided what's right (themselves) and what's wrong (the other guy) and is simply shouting pre-canned arguments at the other side.  Okay, that state of affairs is not unique to education, but education is what I've been thinking about lately.

Maybe it's because I've got one kid who's out of public school and off at college, experiencing that very, very different environment.  Maybe it's because I've still got another kid in middle school who's dealing with common core math.  Since we need to help him with that math, I'm learning Common Core math, too.  And it seems strange to me.  Precise terminology.  Oddly specific phrasing.  But I'm starting to learn.

Anyway, I've been looking (as I'm prone to do) for the structural elements of the debate that, if repaired, could change the conversation for the productive.  I came across a discussion of the legitimacy (and effectiveness) of authority in Malcolm Gladwell's David and Goliath, and found that it clicked for me.  Specifically, it gave me some insight on why the rollout of the common core in NY has been so rough (at least in part):

This is called the "principle of legitimacy," and legitimacy is based on three things.  First of all, the people who are asked to obey authority have to feel like they have a voice -- that if they speak up, they will be heard.  Second, the law has to be predictable.  There has to be a reasonable expectation that the rules tomorrow are going to be roughly the same as the rules today.  And third, the authority has to be fair.  It can't treat one group differently from another. (ch 7 pp 207-208)

 What the state has done with respect to education reform in the past few years has violated all three of these things.

1. When criticisms of reform, testing regimes, and new standards have voiced their objections, they have frequently been blown off.  They've been told that they're being obstructionist, that they don't want accountability, or whatever, rather than acknowledging the valid portions of their concerns and engaged to discuss.  The teachers, the parents, even the administrators feel like they don't have a voice.
2. The rules are far from predictable.  The most egregious example of this is Cuomo's recent proposal to change the basis of teacher ratings based purely on the fact that the old system failed to flunk enough teachers.
3. The lack of fairness is a bit more subtle.  If all teachers are subjected to the same APPR, then it's fair, right?  Unless in fact the assessment ratings are dependent on a lot of factors that very widely between schools and school districts.  If the results of the assessments were in fact dependent solely on a teachers ability and performance as a teacher, then they would be fair.  However, there are so many external factors (income/poverty being the big one, but far from the only one) that drive the results just as much that there is no way it can be fair unless you have formulae that are so complex and convoluted that nobody could understand them.

As a result of this, Cuomo's legitimacy is compromised.  And as Gladwell points out, "when the law is applied in the absence of legitimacy, it does not produce obedience.  It produces the opposite.  It leads to backlash" (p. 222) Unfortunately, Cuomo's reaction to having his authority challenged seems to be to double down and declare war on the teacher's union.  If he was handling things properly, the teachers could be his ally in this effort, rather than an enemy. To get there, he'd need to swallow some of his ego and make some concessions.  He'd need to actually listen to people's concern.  He'd need to stop changing the rules of engagement capriciously.  And he'd need to open up discussion of the deeply flawed funding model that plagues public education in this state.

With that, and with a corresponding willingness on the part of teachers, parents, and districts to accept standards and accountability, we might start having a productive (if still difficult) conversation.

Failure

Dear Trumansburg Central School District:

Please, allow my daughter to fail. Allow my son to fail, too.  He might need it even more. In fact, while we're at it, I'd like all of the children in our district to be allowed to fail.

Sincerely,

Christopher Manly
Parent

What? Are you crazy?

I had an interesting chat with my daughter the other day, and it led to an insight for me. She was expressing frustration that on every project and paper and assignment, her teachers are generally walking her (and her classmates) through every step. By her description, she gets the assignment, assesses it, and then thinks, "Okay, I know how to do this."  And then, as the teacher walks everyone through what's needed, she starts to get frustrated and deflated.  What good does it do her to know how to do an assignment on her own when she won't be allowed to exercise her knowledge?  What good does it do her to be able to work independently if she's never allowed to work independently?

She's terrified that she'll get to college and not be able to write an essay on her own, because she feels like she's never been given the chance to try it in high school. That, my friends, is a problem.

As I thought about it a bit, I realized that we're in the midst of a cultural trend that is trying to eliminate the possibility of failure across the board. What else could be implied by the name "No Child Left Behind"? Education isn't the only place this is happening, but I think it's where it's the most noticeable. By trying to ensure that nobody falls behind, that nobody fails, we are diluting the meaning of success.

When I started my college career, my intended major was computer science.  Why?  Well, I'd done a lot with computers, I was comfortable with them.  I'd done programming.  I was "the computer guy." Everyone knew that, and nobody questioned it, least of all, me.  At the time, comp sci was really the only major that seemed to fit, and I didn't even look around for anything else. My first year went pretty smoothly, but in the fall semester of my second year, I failed linear algebra.

That made me stop and think.

I knew I could re-take it, and that if I dug in and worked more at it (I'll full well admit that my attention was not focused on it as it should have been) I could have passed the course and continued on down the road to being a computer scientist.

Except that I didn't want to.  I had no desire to re-take that class.  The math wasn't interesting to me, and I was losing interest in comp sci.

I ended up changing majors to Science and Technology Studies, an interdisciplinary humanities major focusing on the history, philosophy, and sociology of science and technology.  It was interesting, I could recycle some of my existing coursework towards the major and finish it on time.  I also got a job doing computer support in a departmental IT shop so I could start building a resume.  That was when I started to learn the difference between IT work (which I like) and computer science (which I don't).  In the end, that led me down the road of what has thus far been a successful, interesting, and dynamic career in IT.

What would have happened to me if I had not been allowed to fail?  I wonder.  I might have bailed out of comp sci anyway.  I'm not sure. But I do know that getting that 'F' was a turning point for me, and I have no regrets about the path I found in part as a result of it.

I also know that these days, I'm a lot more attracted to a challenge that has a certain amount of risk than something I know I can do.  If it's something that I know how to do, and I have no doubts that I can do it, it's a lot less engaging.

Now let me go back to my daughter's experience in school, where this all started.  We have a problem with students not being engaged in their schooling.  They feel like what they're doing isn't relevant to real life and won't help them when they get out of school. My daughter it itching to be done with high school and to move on to college, and at the same time is afraid that she's not prepared for it.  The classes that she's required to sit through are neither preparing her for the next stage, nor letting her prepare herself.  No wonder she's frustrated.

We need to stop walking kids through the same rote exercises.  We need to let the step out on their own, with real risk of failure, while the stakes are still low enough that they can recover gracefully and move on to success.  Will some fall behind?  Yes.  Will some go on much faster and farther? Yes.  Will some drop out completely?  Probably, but that happens now anyway.  Will most students be more engaged and challenged?  I think so.

It's time to start letting people fail again, so that they can start to succeed.

A little wine, a little beer

I've been watching the current round of debate on New York State allowing the sales of wine in grocery stores with some interest. I also watched the last time, when it got lobbied to death. I, for one, like the idea that if I want wine with dinner instead of beer, I can get it without a special trip to a different store.

Then, I stumbled upon the fact that Pennsylvania is debating the exact same thing, except with respect to beer.

Interestingly, the arguments for/against are more or less exactly the same in structure. The same the-world-will-end-if-we-allow-this prognostication by those opposed, and the same it-makes-life-better-and-gets-us-more-revenue by those supporting it.

What I found really interesting was one place where there were some real numbers around enforcement. One of the arguments against more permissive sales is that grocery stores will be less careful about carding people, making it easier for beer or wine to get into the hands of minors. There are already a few grocery chains in PA that can sell beer, by virtue of the fact that they allow on-premise consumption in their cafe area, and can thus fit into the "tavern" bucket of the existing PA law. (Yes, for those who aren't familiar with it, the current standard way to buy a six-pack in PA is to go to a bar, have a few on-site, and then drive home with your six-pack.)

The enforcement agency uses undercover minors to randomly test retailers. Of the grocery stores tested, none of them ever failed to card someone. Of the private distributors who are the current parallel in PA to the NY liquor stores? 40% failure rate. The argument that grocery stores will be more permissive simply does not stand up to actual data. Now, it's possible that in a more permissive environment the stats would change. I know Wegmans is pretty fastidious about carding people. Nonetheless, the little bit of real data that's available indicates that the argument is bunk.

In the end, I suspect the economics of the situation and various states' desperate need for revenue anywhere they can find it, will drive both of these bills to approval. But for now, it's interesting to see how the debate plays out.

Why our economic system needs more sex

A lot of people are resistant to the current round of bailouts because they amount to corporate socialism. Or because it rewards the jerks who ran the companies amok in the first place, and incents bad behavior. On the other hand, a lot of people are afraid not to bail out the companies that have screwed themselves up so badly because those companies are "too big to fail".

It's true, they are. So fix it.

The only mechanism this country has to break up an excessively large company is anti-trust laws. Certainly under the current administration, no corporation was going to get cut up using that knife, not when huge mergers of huge companies was the mantra.

The problem with these huge companies is not their size, but the lack of diversity they cause.

For those of you who's study of evolution in biology class wasn't stunted by folks who find it to be an affront to their religion, you may recall that a key component of the whole works is diversity. When selection pressures change, some species don't do so well. This is why global climate change is stressing ecosystems as we know them, and so on. Well, if you have a highly diverse ecosystem, some of the species will do just fine in the new ecosystem, and others will die out completely.

This is the natural order of things.

However, if a relative few species are able to excessively dominate and optimize themselves for the existing conditions, the ecosystem as a whole is less able to adapt to change in conditions. Then, when a drastic change occurs, the entire system collapses. Think dinosaurs and comets.

And so, we are stuck in a situation where our corporate ecology is insufficiently diversified. The entire ecosystem has been based on two things: cheap credit and cheap fuel. Cheap credit means it is too easy to borrow and too hard to save. Cheap fuel means it's cheaper to build stuff wherever labor is cheapest and then ship it to where it needs to go.

The only reason the US Auto industry didn't go into cardiac arrest several years ago is that relatively cheap gas made it acceptable to drive an oversized SUV (which were exempt from strict mileage standards due to being 'light trucks' instead of 'cars') and to load it up with luxury items (which give the manufacturer a better profit margin) and then cut the buyer a low-interest long-term loan that has a palatable monthly payment because it stretches things out for six years. On a car that will start to have serious problems before it's three years old.

I recently read an article that pointed out not only the consolidation of the US auto industry over the last century, but also the fact that the UAW has had a monopoly on labor for the US auto industry (except, of course, for all the plants run by non-US companies without unionized labor). Given that the UAWs pattern was to negotiate a contract with one of the big three, and then use that as a template for the other two, it means that effectively, the big three have had no ability to differentiate on their workforce.

So, how do we fix this? Because right now it's banks and auto companies, but before you know it, it will bethe media companies, the telcos, the airlines (who are still merging, see Delta and Northwest), and any other major industry in consolidation mode.

We need the ability, and political will, to prevent dangerous consolidation. If there is going to be a bailout of the big three, fine. But put them into receivership, throw out their contractual albatrosses, and break 'em up. Make Chevy compete with Saturn and Buick. While you're at it, split up the UAW. Give the union some competition for workers and businesses.

So, where is the sex in all this? Did you read all this way just to find it? Alas, there's nothing salacious here. Getting back to evolutionary biology: sexual reproduction is the source of diversity. The combination and recombination of different sets of genes makes for a diverse population. See here for a bit more on that, but companies need more cross-fertilization. US auto companies should be looking not only at how foreign auto companies work, but also at how other industries work and have succeeded. Hire in people from other places. Shake it up a little. Some ideas, some companies will fail. But in the end the system as a whole will be stronger and more successful, and more able to withstand the next downturn.

Thursday quickie

A couple of quick thoughts, following on the last couple of posts:

First of all, thanks to Uncle Mikey for pimping me over in Uncle Mikey Explains the Inexplicable. If you somehow stumbled here through some other pathway, go over and see his take on the game.

Second, if you're looking for a regular dose of what-the-heck-is-this-stuff in the finance world, but presented in a way that non-finance types can understand, check out American Public Media's Marketplace. I've been listening for the past year and a half because it's on the radio during what tends to be my evening commute. They do a really good job of making sense for the layman about how the financial world works. They also have a weekly hour-long show on Fridays call Marketplace Money that is focused on personal finance. Also very good stuff. It's probably running on your local NPR station, and it also gets podcasted.

Mortgage slaw

Okay folks, we all know we're in this mess because of mortgage-backed securities, right? Good. So what the heck is a mortgage-backed security, how did they become such a problem?

Mortgage-backed securities are a specific type of Collateralized Debt Obligation (or CDO). There are other kinds of CDOs out there, but they all take the same basic form, so let's illustrate with mortgages, 'cause that's what's in our epicenter right now anyway.

In a traditional universe, if I need a mortgage, say for $100,000, I go to my bank. The bank takes $100,000 from other folk's savings accounts and gives it to me. Over the next thirty years, I pay that back with interest, and the bank in turn pays interest to the folks with savings accounts (although they pay less than they take in, thereby resulting in the bank's profit). There's often more to it than that, but that's the general idea.

Now, if I default on my mortgage (i.e. I don't pay), the bank forecloses on my house, sells it off, and hopefully gets enough on that sale to cover however much of the loan I hadn't paid off. If they don't, they have a loss.

With a CDO, the bank takes a bunch of those mortgages (let's say 100 of them), and bundles them up into a corporate entity that holds them. That corporate entity sells bonds to investors (bonds == corporate loan borrowing). The people who took out the mortgages make their monthly payments, those payments are aggregated together and then chopped up and handed out to the folks who bought the bonds. (Of course, the bank skims some money off in between...it's good to be the middleman.)

What does the bank get out of this? An easy way to raise the money to fund more mortgages.

What does the investor get? An easy way to get a steady income while mitigating the risk because of the assumption that while one of those 100 mortgages may go bad, what are the chances of them all failing? (Insert hysterical laughter and 20-20 hindsight here.)

Now, the folks who play these games aren't entirely foolish. They know that there are risks involved. In fact, they built very complicated mathematical models to figure out the risks involved, and then bought insurance for the bonds just in case. This insurance helped get the bonds a AAA rating (the best) so they didn't look like risky investments at all.

Go a step further, now. The scenario I just described is oversimplified even compared to the simplest of CDOs. Many of them got sliced and diced again and again, fed into mutual funds, and so on. Which means it got very very very difficult to actually assess the risk involved. But people didn't care 'cause they were making money hand over fist.

Until the foreclosures started hitting in droves. Oops.

You see, these bonds were used to generate funds for sub-prime loans. These are loans for folks who's credit is shaky enough that they don't qualify for regular loans. Most of them were adjustable rate mortgages, many had "teaser" rates so that the initial payments were low enough that the person could pay, but the real payment kicked them in the butt. Folks fell behind. Went into default. Lost their house.

Eventually, enough houses got thrown onto the market that instead of climbing, house prices started falling. Now you've got folks who are upside-down on their loan (i.e. they owe more than their house is worth) and no hope of refinancing. The foreclosures cascade.

Now the folks on Wall Street start to look at these CDOs they have, and wonder how many foreclosures really are buried in them. They look and realized they really can't tell. And if there is one thing that will turn the bowels of a Wall St financier to water, it's uncertainty. Losing money is one thing. Not knowing how much you just lost...that's, well, unthinkable.

These are folks who had been trading around these CDOs more or less as cash. But now they don't want to buy them, because nobody knows if any one of them is a turd wrapped in pretty paper or not. Which means there is suddenly no market for this stuff. Which makes things sticky when the accounting rules say you have to value things at their current market price.

Which leads us to where we are now, where banks won't lend money to each other because the stuff they'd normally use as collateral for the loans (these CDOs and such) have essentially no value. At least not a value that can be trusted.

So that's the story of mortgage-backed securities, or at least as much of it as I can capture in one sitting.