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Moby Ben, or the Washington Super Whale

In February 2012, a number of hedge fund traders noted one particular index--CDX IG 9--that seemed to be underpriced. It seemed to be cheaper to buy credit default protection on the 125 companies that made the index by buying the index than by buying protection on the 125 companies one by one. This was an obvious short-term moneymaking opportunity: Buy the index, sell its component short, in short order either the index will rise or the components will fall in value, and then you will be able to quickly close out your position with a large profit.

But February passed, and March passed, and April rolled in, and the gap between the price of CDX IG 9 and what the hedge fund traders thought it should be grew. And their bosses asked them questions, like: "Shouldn't this trade have converged by now?" "Have you missed something?" "How much longer do you want to tie up our risk-bearing capacity here?" "Isn't it time to liquidate--albeit at a loss?"

So the hedge fund traders began asking who their counterparty was. It seemed that they all had the same counterparty. And so they began calling their counterparty "the London Whale". They kept buying. And the London Whale kept selling. And so they had no opportunity to even begin to liquidate their positions and their mark-to-market losses grew, and the risk they had exposed their firms to grew.

So they got annoyed.

And they went public, hoping that they could induce the bosses of the London Whale to force him to unwind his possession, in which case they would profit immensely not just when the value of CDX IG 9 returned to its fundamental but by price pressure as the London Whale had to find people to transact with. And so we had 'London Whale' Rattles Debt Market, and similar stories

The London Whale was Bruno Iksil. He had been losing, and rolling double or nothing, and losing again for months. His boss, Ina Drew, took a look at his positions. They found they had a choice: they could hold the portfolio and thus go all-in, or they could fold. They could hold CDX IG 9 until maturity--make a fortune if a fewer-than-expected number of its 125 companies went bankrupt, and lose J.P. Morgan Chase entirely to bankruptcy if more did. Or they could take their $6 billion loss and go home. They could either take their losses, or sing "Luck, Be a Lady Tonight!" and bet J.P. Morgan Chase on a single crapshoot. After all, what could they do if the bet went wrong and they had to eat losses at maturity? J.P. Morgan Chase couldn't print money. So Drew stood Iksil down, and the hedge fund traders had their happy ending.

In late 2008, the Treasury bond went haywire. The interest rate on the Ten Year Nominal Treasury bond fell to 2.1% in the panic--clearly overpriced. In the late 1990s with the debt-to-annual-GDP ratio on the decline the Treasury bond had traded between 5% and 7%. In the 2000s with a weak economy the Treasury bond had traded between 4% and 5%. With the Federal debt exploding even faster than it had around 1990, it seemed to hedge fund traders very clear that the long-term fundamental value of the Ten-Year Treasury bond probably carried an interest rate of 7%, or more--and was at the very least more than 5%. So smart hedge fund traders shorted Treasuries, and waited for the Treasury Bond to return to its fundamental value.

And they ran into the widowmaker.

So they scrambled around, wondering: "Why did the interest rate on the Ten-Year Treasury peak at 4%? And why has it gone down since then? And why won't it go back to its 5%-7% fundamental." And they looked around. And they found Ben Bernanke:

The Washington Super-Whale.

He had printed-up reserve deposits, and used them to buy Treasury Bonds, and in so doing, they thought, had pushed the price of Treasuries up well beyond their fundamentals. Yet rather than easing off, taking his lumps, and letting the market "clear" he kept buying and buying and buying and buying, leaving the hedge fund traders with larger and larger and larger short positions in Treasuries that had to be carried at a loss. And every year that they carry those positions is a -2% times the size of the long leg negative entry in their cash flow.

Bruno Iksil, they thought, had been pulled up short by his boss Ina Drew's unwillingness to bet the firm and risk bankruptcy. Ben Bernanke, they thought, ought to have been pulled up short by his regard for financial stability--by his promise to keep inflation at its target, for the counterpart to J.P. Morgan Chase's bankruptcy and liquidation would be the national bankruptcy that is another episode of inflation like the 1970s. But Ben Bernanke wasn't pulled up short by the risk of inflation. He had no supervising CEO. And he dominated the Federal Open Market Committee.

But what Bernanke was doing, they thought, was as unprofessional as it would have been for Ina Drew to tell Bruno Iksil: "You turn out to have made a large directional bet that we can sell unhedged protection and profit? Let's see if you are right: let it ride!"

And so they went public with the Washington Super-Whale, as they had gone public with the London Whale. Perhaps somewhere out there was an equivalent of Jamie Dimon who could tell Bernanke that it was time to unwind the Federal Reserve's balance sheet now? Jeremy Stein, perhaps?

From my perspective, of course, the hedge fundies' analogy between the London Whale and the Washington Super-Whale is all wrong--the hedge fundies are thinking partial-equilibrium when they should be thinking general equilibrium. CDX IG 9 has a well-defined fundamental value: the payouts should each of the 125 companies go bankrupt times the chance that they will. What Bruno Iksil does does not affect that fundamental value. He can bet, and drive the price, but he cannot change the fundamental.

But the Washington Super-Whale is different.

by Brad DeLong |  Read more:

Image: uncredited

It's a Wonderful World

[ed. Who knows if this is true or not? The fact that it's believable is enough.]

They are 1 percenters who are 100 percent despicable.

Some wealthy Manhattan moms have figured out a way to cut the long lines at Disney World — by hiring disabled people to pose as family members so they and their kids can jump to the front, The Post has learned.

The “black-market Disney guides” run $130 an hour, or $1,040 for an eight-hour day.

“My daughter waited one minute to get on ‘It’s a Small World’ — the other kids had to wait 2 1/2 hours,” crowed one mom, who hired a disabled guide through Dream Tours Florida.

“You can’t go to Disney without a tour concierge,’’ she sniffed. “This is how the 1 percent does Disney.”

The woman said she hired a Dream Tours guide to escort her, her husband and their 1-year-old son and 5-year-old daughter through the park in a motorized scooter with a “handicapped” sign on it. The group was sent straight to an auxiliary entrance at the front of each attraction.  (...)

Passing around the rogue guide service’s phone number recently became a shameless ritual among Manhattan’s private-school set during spring break. The service asks who referred you before they even take your call.

“It’s insider knowledge that very few have and share carefully,” said social anthropologist Dr. Wednesday Martin, who caught wind of the underground network while doing research for her upcoming book “Primates of Park Avenue.”

“Who wants a speed pass when you can use your black-market handicapped guide to circumvent the lines all together?” she said.

“So when you’re doing it, you’re affirming that you are one of the privileged insiders who has and shares this information.”

by Tara Palmeri, NY Post |  Read more:

Image: Reuters

Oh no...Tumblr to be Acquired by Yahoo

The board of Yahoo, the faded Web pioneer, agreed on Sunday to buy the popular blogging service Tumblr for about $1.1 billion in cash, people with direct knowledge of the matter said, a signal of how the company plans to reposition itself as the technology industry makes a headlong rush into social media.

The deal, which is expected to be announced as soon as Monday, would be the largest acquisition of a social networking company in years, surpassing Facebook’s $1 billion purchase of Instagram last year.

For Yahoo and its chief executive, Marissa Mayer, buying Tumblr would be a bold move as she tries to breathe new life into the company. The deal, the seventh since Ms. Mayer defected from Google last summer to take over the company, would be her biggest yet. It is meant to give her company more appeal to young people, and to make up for years of missing out on the revolutions in social networking and mobile devices. Tumblr has over 108 million blogs, with many highly active users.

Yet even with all those users, a basic question about Tumblr and other social media sites remains open: Can they make money?

Founded six years ago, Tumblr has attracted a loyal following and raised millions from big-name investors. Still, it has not proved that it can be profitable, nor that it can succeed on mobile devices, which are becoming the gateway to the Internet. Even Facebook faces continued pressure from investors to show it can increase its profits and adapt to the mobile world.

“The challenge has always been, how do you monetize eyeballs?” said Charlene Li, the founder of the Altimeter Group, a consulting firm. “Services like Instagram and Facebook always focus on the user experience first. Once that loyalty is there, they figure out how to carefully, ideally, make money on it.”

A Yahoo spokeswoman declined to comment. A representative for Tumblr did not respond to requests for comment.

If the deal is approved, Ms. Mayer will face the challenge of successfully managing the takeover, given Yahoo’s notorious reputation for paying big money for start-ups and then letting the prizes wither. Previous acquisitions by Yahoo, like the purchase of Flickr for $35 million and a $3.6 billion deal for GeoCities, an early pioneer in social networking, have been either shut down or neglected within the company.

Because of this, Ms. Mayer will face pressure to keep Tumblr’s staff, led by its founder, the 26-year-old David Karp, who dropped out of high school as a 15-year-old programmer. It is unclear whether all of Tumblr’s 175 employees, based in New York City, will move over to Yahoo.

At the same time, analysts and investors are likely to question whether buying a site that has struggled to generate revenue makes sense.

“This is not an inexpensive acquisition, but they’re willing to pay to get back some of what they’ve lost,” said Colin Gillis, an analyst at BGC Partners. “They want to be hip.”

by Andrew Ross Sorkin and Jenna Wortham, NY Times | Read more:
Image:Laurent Gillieron/Keystone, via Associated Press

Gioacchino Pagliei, “The Naiads” (1881).
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My Wedding Hair

Hi! Thanks for squeezing me in. I know you don’t have a ton of time, but I just wanted to give you a few notes on how I’d like to look on my big day. I’ve got something kind of specific in mind.

Definitely an up-do. Maybe like a kind of messy bun. I’m thinking—and stop me if this doesn’t make any sense—but a kind of homesteader vibe? Like a kind of “Little House on the Prairie,” “I’m gonna stand my ground and don’t mess with me or my kin” kind of deal? But, like, sexy. Like, it basically says, “I’ve got a ton of stuff to do, like shuck corn, and muck out a barn, but I’ve still managed to retain a femininity that glints in the most attractive and unexpected ways.” Like, picture a lady standing in a field with her dress flapping nobly in the wind, and maybe she’s holding a basket of wheat and squinting into the distance, and she’s like, Oh man, when is he gonna return, because I’ve borne so much already? Except I don’t want to look all weathered, just, like, super pretty but also like I have a ton of inner reserves? Does that make any sense? No?

O.K., let me put it this way. Have you ever had a watercolor teacher who is, like, a handsome older lady with all this effortless grace who always piles her gray hair on top of her head in the same way, with a few tendrils hanging down, because she just doesn’t have time for anything else? And she always wears a floppy denim shirt and you know her house has all this tasteful Southwestern stuff in it, and maybe she had an affair with a jazz musician and has seen a lot of sadness but she still has a playful spark in her eye and gives really frank hand jobs. Is this clarifying anything?

What? Did I bring any pictures? You’re in luck. Here is a patch of burlap. Here is a movie still, of Maid Marian in the Disney version of “Robin Hood.” Here is a photo of some wild horses.

by Emma Rathbone, New Yorker |  Read more:

Illustration by Gladys Perint Palmer

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NYers Furious Over Photos Taken Through Windows

[ed. You're kidding me, right? New Yorkers?!]

In one photo, a woman is on all fours, presumably picking something up, her posterior pressed against a glass window. Another photo shows a couple in bathrobes, their feet touching beneath a table. And there is one of a man, in jeans and a T-shirt, lying on his side as he takes a nap.

In all the photos, taken by New York City artist Arne Svenson from his second-floor apartment, the faces are obscured or not shown. The people are unidentifiable.

But the residents of a glass-walled luxury residential building across the street had no idea they were being photographed and they never consented to being subjects for the works of art that are now on display — and for sale — in a Manhattan gallery.

"I don't feel it's a violation in a legal sense but in a New York, personal sense there was a line crossed," said Michelle Sylvester, who lives in the residential building called the Zinc Building, which stands out with its floor-to-ceiling windows in a neighborhood of cobblestone streets and old, brick warehouse buildings.

Svenson's apartment is directly across the street, just to the south, giving him a clear view of his neighbors by simply looking out his window.

"I think there's an understanding that when you live here with glass windows, there will be straying eyes but it feels different with someone who has a camera," Sylvester said.

Svenson's show, "The Neighbors," opened last Saturday at the Julie Saul Gallery in Chelsea, where about a dozen large prints are on sale for up to $7,500. His exhibit is drawing a lot of attention, not for the quality of the work, but for the manner in which it was made.

by Jake Pearson, AP | Read more:

Image: AP Photo/Bebeto Matthews

Thomas Hart Benton, The Bicyclers, 1961-62.
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Fedora

Paris was the first to wear the fedora in the way of my thinking, but feels, as founders of a line sometimes do, like a decoy. Her adoption of the men’s hat wasn’t a bellwether so much as an accident, something she happened upon in her personal experiments with costume. Every day was Halloween for Paris. She was literal about social uniforms, and knew how to sexify them according to the rules of her own personal drag: sexy navy, sexy newsboy, sexy farmer, sexy cowboy. Familiar dress was cropped, ripped up, bedazzled, and always topped off with the attendant hat. On Paris, the fedora was sexy Fred Astaire, with a touch of Michael Jackson—something about how the brim offset the narrow slope of her nose, or how she managed to look like a wax replica of herself without appearing dead, as Michael, even while living, looked embalmed. Paris was literal, but the way a dream is literal: a walking wish fulfillment swathed in symbols so obvious they’re comic. All unconscious, she carried the therelessness of Los Angeles in her strut. It took someone with as little nuance as Paris Hilton to bring back the men’s hat as a symbol of modern female sexuality and confused morals. A subtler person would have chosen something else.

Lindsay’s hat was not this way—and to me, the hat began with Lindsay. I would like to know which Hollywood stylist put a fedora on Lindsay Lohan’s head because I think that person is a genius. Lindsay first began to appear in hats after the first cycle of her eating disorder, post-rehab, during her lesbian relationship with Samantha Ronson. It was Lindsay’s funny way of saying that she was the femme—because of course Ronson, a DJ with a UK skater-boy thing, would always out-butch her: tight pants, big shoes, greasy hair tucked back, vampiric dark circles. In photos Samantha was always snarling like a tough orphan, though under the soot and freckles you knew she had nice parents. Instead of just wearing lipstick to imitate a woman, Lindsay wore a fedora to imitate a man imitating a woman—imitating, more specifically, a sort of closeted ’50s homosexual whose excessive display of formal masculinity revealed how much of life was costume. On Lindsay the hat said: Yes, I am experimenting, but not in the way you think. Also: leave me alone. This is an essential quality of hats: they announce one’s desire to be unannounced. A hat is an advertisement for a disguise.

Lindsay courted the paparazzi with her hats, padding around West Hollywood like Carmen Sandiego on house arrest—her skin spray-tan orange with brown creases behind her knees and in the palms of her hands, arms covered in an anorexic down, silky scarves streaming behind her. In my memory they are always at the gas station, Lindsay and Samantha, arguing on the heels of a coke binge, in a car they’re about to drive in the wrong direction on the 110 freeway. Always in men’s hats. (..)

One rainy morning in March, a tall man steps onto the train wearing, on his head, a stiff cherry-red fedora wrapped in clear plastic. His shirt is soaked through, beads of water tremble on the plastic around this magnificent, impervious hat, and it’s amazing—like he’s playing with the action figure still in the packaging. To me it confirms that the hat is no longer an accessory in the sense of a tool (say, for keeping a head dry) but an accessory in the sense of a co-conspirator: hats are everywhere producing bafflement, everywhere punking everyone.

by Dayna Tortorici, N+1 |  Read more:

Image: Jemima Kirke as Jessa on Girls.

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David Alfaro Sigueiros, “Struggle for Emancipation”, 1961.
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Anke Merzbach
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Washington Gets Explicit: The Endless War on Terror

On Thursday, the Senate Armed Services Committee held a hearing on whether the statutory basis for this "war" - the 2001 Authorization to Use Military Force (AUMF) - should be revised (meaning: expanded). This is how Wired's Spencer Ackerman (soon to be the Guardian US's national security editor) described the most significant exchange:

"Asked at a Senate hearing today how long the war on terrorism will last, Michael Sheehan, the assistant secretary of defense for special operations and low-intensity conflict, answered, 'At least 10 to 20 years.' . . . A spokeswoman, Army Col. Anne Edgecomb, clarified that Sheehan meant the conflict is likely to last 10 to 20 more years from today - atop the 12 years that the conflict has already lasted. Welcome to America's Thirty Years War."

That the Obama administration is now repeatedly declaring that the "war on terror" will last at least another decade (or two) is vastly more significant than all three of this week's big media controversies (Benghazi, IRS, and AP/DOJ) combined. The military historian Andrew Bacevich has spent years warning that US policy planners have adopted an explicit doctrine of "endless war". Obama officials, despite repeatedly boasting that they have delivered permanently crippling blows to al-Qaida, are now, as clearly as the English language permits, openly declaring this to be so.

It is hard to resist the conclusion that this war has no purpose other than its own eternal perpetuation. This war is not a means to any end but rather is the end in itself. Not only is it the end itself, but it is also its own fuel: it is precisely this endless war - justified in the name of stopping the threat of terrorism - that is the single greatest cause of that threat. (...)

The genius of America's endless war machine is that, learning from the unplesantness of the Vietnam war protests, it has rendered the costs of war largely invisible. That is accomplished by heaping all of the fighting burden on a tiny and mostly economically marginalized faction of the population, by using sterile, mechanized instruments to deliver the violence, and by suppressing any real discussion in establishment media circles of America's innocent victims and the worldwide anti-American rage that generates.

Though rarely visible, the costs are nonetheless gargantuan. Just in financial terms, as Americans are told they must sacrifice Social Security and Medicare benefits and place their children in a crumbling educational system, the Pentagon remains the world's largest employer and continues to militarily outspend the rest of the world by a significant margin. The mythology of the Reagan presidency is that he induced the collapse of the Soviet Union by luring it into unsustainable military spending and wars: should there come a point when we think about applying that lesson to ourselves? (...)

And then there's the most intangible yet most significant cost: each year of endless war that passes further normalizes the endless rights erosions justified in its name. The second term of the Bush administration and first five years of the Obama presidency have been devoted to codifying and institutionalizing the vast and unchecked powers that are typically vested in leaders in the name of war. Those powers of secrecy, indefinite detention, mass surveillance, and due-process-free assassination are not going anywhere. They are now permanent fixtures not only in the US political system but, worse, in American political culture.

Each year that passes, millions of young Americans come of age having spent their entire lives, literally, with these powers and this climate fixed in place: to them, there is nothing radical or aberrational about any of it. The post-9/11 era is all they have been trained to know. That is how a state of permanent war not only devastates its foreign targets but also degrades the population of the nation that prosecutes it.

by Glenn Greenwald, The Guardian |  Read more:

Photo: AP/Carolyn Kaster

The Myth of Jackie Mitchell, the Girl Who Struck Out Ruth and Gehrig

On one side of the photo stood Babe Ruth, his portly frame draped in familiar Yankee pinstripes. Next to him was a small woman dressed in two-toned stirrups and a baggy baseball jersey, a ball cap shielding her dark, curly hair. The disparate pair was shaking hands. Joseph Wallace—author of two baseball history books and working on a third—had no clue what he was looking at. He was deep in the archives at the Baseball Hall of Fame in Cooperstown, thumbing through a generic file about women in baseball. He wanted to know more about the mystery lady ballplayer.

So he tracked down Tim Wiles, the Hall of Fame’s Director of Research. Wiles took one look at the snapshot and led Wallace to a small bookstore outside the library’s front door. On a shelf in the children's section sat a picture book, and its cover featured a cartoon pitcher who looked identical to the woman in Wallace’s photograph, down to the hat. Wiles said the woman’s name was Jackie Mitchell. A blunt title—The Girl Who Struck Out Babe Ruth—was splashed across the top in big blue letters.

The book told an amazing story. In the spring of 1931, a 17-year-old female signed a professional contract with a men’s minor league team in Chattanooga and, in the first inning of her first professional game, struck out Ruth and slugger Lou Gehrig consecutively. “She could put speed on the ball,” the book read. “She had control. And somehow, she could always guess a batter’s weakness.” Flipping through the pages, Wallace wondered how he’d never heard about Mitchell before, and why her triumphant outing wasn’t one of those canonical anecdotes fans of America’s most nostalgic game commit to memory. Eventually, a second thought entered his mind: Is there any way in hell this story could be true?

Andy Broome was similarly skeptical. A baseball card grader for Beckett Media and a Chattanooga native, Broome first heard about Mitchell’s feat from his great-grandfather, who talked about seeing the teen toe the rubber while he was a young man. In 2000, Broome became consumed by what he guessed was a tall tale. For half a decade, he scanned newspaper clippings, sought out collectibles from the April 2, 1931 game, and crisscrossed the country interviewing players who were still alive and had played with her, as well as friends and acquaintances who knew her later in life.“I was trying to find out, as much as I could, what was true and what had grown over the years from being retold countless times,” he says. “I went into it expecting to dig up the absolute truth about how everybody was in on it, and it was just a publicity deal.” After spending more time studying Mitchell’s life than anyone ever had, Broome reached a pair of conclusions. First, given the magnitude of the alleged achievement, the Mitchell paper trail was shorter than he expected. What evidence he could find didn’t necessarily support a hoax theory. “I went down as far as anyone has,” he says, “and I think it was a real deal.”

Here, thanks to decades-old newspaper reports, is what we know generally about the girl who struck out the Iron Horse and the Babe. Virne Beatrice “Jackie” Mitchell was born on August 29, 1913. (The 1920 U.S. Census indicates she was born in 1912, but there’s no reason to believe she would lie about her age as a young adult.) She was raised by her mother, who sold hosiery, and her father, a supportive and athletically minded optician who encouraged his daughter to swim and play ball at an early age. When Jackie was a toddler, the Mitchells moved to Memphis, and by coincidence, into the same building as Dazzy Vance, a Dodger great who won the NL MVP award in 1924 and struck out over 2,000 hitters in his 16-year career. Vance—then playing for the Memphis Chicks—took a liking to his tiny neighbor, teaching her how to throw a “drop ball,” now known as a sinker, among other tricks.

by Adam Doster, The Daily Beast |  Read more:

Image:Library of Congress

Spoiled Food to Energy

What happens to the 40% of food produced but never eaten in the U.S. each year, the mounds of perfect fruit passed over by grocery store shoppers, the tons of meat and milk left to expire?

At Ralphs, one of the oldest and largest supermarket chains on the West Coast, it helps keep the power on.

In a sprawling Compton distribution center that the company shares with its fellow Kroger Co. subsidiary Food 4 Less, organic matter otherwise destined for a landfill is rerouted instead into the facility's energy grid. Though many grocery stores have tried to cut down on food waste and experiment with alternative energy, Kroger says it's the first supermarket company in the country to do both simultaneously.

The technology that helps transform moldy chicken and stale bread into clean electricity is known as an anaerobic digester system. At the 59-acre Compton site, which serves 359 Southern California stores, more than 100 onlookers gathered Wednesday to watch the system go to work.

Several chest-high trash bins containing a feast of limp waffles, wilting flowers, bruised mangoes and plastic-wrapped steak sat in an airy space laced with piping. Stores send food unable to be donated or sold to the facility, where it is dumped into a massive grinder — cardboard and plastic packaging included.

After being pulverized, the mass is sent to a pulping machine, which filters out inorganic materials such as glass and metal and mixes in hot wastewater from a nearby dairy creamery to create a sludgy substance.

Mike Vriens, Ralphs vice president of industrial engineering, describes the goop as a "juicy milkshake" of trash.

From there, the mulch is piped into a 250,000-gallon staging tank before being steadily fed into a 2-million-gallon silo. The contraption essentially functions as a multi-story stomach.

by Tiffany Hsu, LA Times |  Read more:

Image: Christina House, For The Times

The History of Man

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Old street by atutitu09 on Flickr.
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George Christakis
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