The Winning Incentive

Today's NYT has a bumper crop of new data/facts surrounding the overarching themes of these endeavours. So, with minimal gloat, here they are.

First, there continues to be the Rightwing cabal trying to pin The Great Recession on the Dems. For the record, once again, Bush was President, Rehnquist/Roberts ran the Supremes, the House for the whole time, and the Senate save for 2 years. So, the mess is squarely Rightwing. I didn't keep a cite, but one knuckledragger asserted that The Great Recession was caused by QE. That's one deeply stupid pencil neck, or just vigorous liar.

One of the enduring myths from the Right was that the housing mess was caused by the Dems, citing the CRA quite often. What they don't admit is that the mortgage companies, CountryWide spectacularly, weren't banks and thus had no recourse to the CRA. Another myth was that the GSEs led the pack. Again, it was the privates, MGIC and the like, which led and the GSEs, seeing market share eroding, took up the sword.

What is new today, is documentation of how deeply corrupt the investment banks were in creating these loans. As asserted here, a lot, whenever the data don't make sense, follow the incentives. In the case of The Great Recession, it was the need to sop up all that idle money when American CxOs couldn't, or wouldn't, put fiduciary capital to work as physical capital.

Now, though, a trove of emails and confidential documents, filed in court, reveal the extent to which one of Wall Street's leading banks, Morgan Stanley, actively influenced New Century's push into riskier and more onerous mortgages, and brushed aside questions about the ability of homeowners to make the payments.

Who were these loans defined by and created to benefit? The answer to both isn't folks of marginal wealth and income. It's the CxOs.

But the bank remained an important backer of New Century to the bitter end. In March 2007, after other banks had withdrawn their credit lines from New Century, Morgan Stanley gave it $265 million in financing. Soon after that, Morgan Stanley withdrew the money. New Century filed for bankruptcy a few weeks later.

Should we blame all of the investment banks, commercial banks, mortgage companies, and private mortgage insurers? Getting close to, "Hell, yes".

Second, the USofA isn't the only country with a housing/investment problem. China's had one for a long time, for somewhat different reasons. It's long been the case, and known but not often mentioned in the mainstream press, that Chinese have fewer ways to get vig. Housing has been one, and by all accounts with the encouragement of Beijing. Generally, the only one. "60 Minutes" has video of ghost towns. Now, Joe Plunger (I don't know the Mandarin equivalent) can bet on stocks more easily. The inevitable result, of course, is more like a chain letter.

Although the Chinese leadership has long hoped to see a rebound in the country's stock markets, the current frenzy carries risks that could stick investors with heavy losses. Much of the trading is also being done on margin, or by using borrowed funds to buy shares. So the boom could unwind even faster if sentiment sours.

Not surprisingly, since China's capital market is largely closed, housing prices have moved in the opposite direction. It's largely the same Giant Pool of Money (again, no Mandarin), so the seesaw swings.

Third, is domestic, for now, Chinese smartphone market. Thanks to Foxconn, and the like, China is a major (if not majority) manufacturer of smartphone parts. Apple makes none of the parts in an iPhone, just so ya know. With all that capital sunk into part making, the time would come when marginal and variable cost pressures would win. Xiaomi is the result.

Xiaomi, founded in 2010, has overtaken both Samsung and Apple in China by offering inexpensive, high-quality phones through clever online marketing campaigns that appeal to China's growing ranks of young and affluent consumers. Around 500 million smartphones are expected to be sold in China in 2015, more than three times as many as will be sold in the United States, according to the research firm IDC.

Apple has always, at least since Jobs II, ignored all but the upper X% of demand. But you can't run an economy or even a sector that way. Especially in a time of out of control automation of production. Fixed costs eventually overwhelm materials and labour, so the need to shift widgets at any price rears that ugly head.

But the start-up smartphone maker's fast growth, competitive pricing and innovative marketing have struck a chord with Chinese consumers. The company hopes this approach will translate into success in overseas markets, too. Mr. Lei and his co-founders, who include the former Google executive Lin Bin, Xiaomi's president, are considering expansion into large developing markets like India and Brazil.

Correlation isn't causation, necessarily. Sometimes, but not always. For the quants, micros, and macros far less often than any of them would prefer. After all, a magic algorithm would be as valuable as Rumpelstiltskin. Data helps in predicting gross money flows, but even then, the meandering of that flow is caused by changes, generally implemented by those who stand to benefit first and most, in the rules/incentives. The only way to know you will spin straw into gold is if you know about the new incentives before anyone else. Just like the mortgage companies invented Liar Loans, and took their winnings up front, leaving the occupants and insurers up a creek without a paddle. All of those who chased the new rules were just lemmings headed off the cliff, although lemmings aren't actually that dumb. Disney made it up.

Marky Mark

No, not Wahlberg, although you should see "The Departed" if you've neglected it. No, this musing is all about real books, and how to really highlight them.

Years ago, I grew tired of the huge Marks-A-Lot type with the felt tip which broke down soon enough. I used the Pentel Data Checker for a long time, but they're harder to find in the flesh these days. I've got a supply of the yellows, if anyone's interested. I used them "upside down", using the back of the chisel to draw through the text.

I discovered that Noodlers make highlight inks (the page is for firefly yellow, which isn't called out in the swatches) for fountain pens. But two issues: only firefly is a bit fluorescent, and it fades rather quickly. The others are "just" semi-transparent inks, so far as I can see. The other thing is that the others are dark enough that the drawn line stands out enough from the page as to be distracting. I haven't found a pen/nib that I'm willing to pay for that's as wide as a traditional highlighter, so one highlights through the text, not over it. Firefly does blend well enough with white book paper that the meandering line still highlights but doesn't distract.

As to how to apply? Pelikan offers up broad nibs, but the pens are obscenely expensive, and may not ship with the broadest nib; purchase separately(!). Well, the M205 is a bit cheaper, if double broad is OK. Both way more than I wanted to spend, so I've ended up with Lamy AL-Stars with broad nib. I don't remember where I got them, but Goulet is an alternative to Amazon at about the same price.

I tired of the Noodlers firefly fading, and stumbled on Pelikan yellow. Now, that's more like it. Very bright, hasn't had a fading issue, so far.

Go read a real book. You'll feel better in the morning.

Baby You Drive My Car

Once in a while, a random comment on a random post on a random thread on a random site strikes me as worthy of a post here in these endeavors. What follows is such.

IBM's (and American corps generally) problem is that they've lost their marbles. Corps managements (the CxO class) are paid those big bucks because they are supposed to be smarter allocators of fiduciary capital into physical capital, and thus earn a real return. They've all, by and large, stopped doing that. There's a reason that up to $7 trillion is sitting in corporate coffers. Buy backs and dividends only move money from one subset of the 1% to another subset of the 1%. There's no growth, which all corps need, in the general economy. It's just circling the wagons against the 99%. A Robocop world, in fact. No idea how to generate real growth yields to accounting manipulation, aka financial engineering.

The latest scheme, not one IBM is party to that I've read, is 100+% car title loans to poor people. Such a great way to build growth into an economy.

Have a nice day.

Call Me Some Time

Thanks to r-bloggers, we get to read Dirk's rant on a Julia paean. Comments can't be made there, so here's mine.

While the post referenced by Dirk is bogus for the reasons Dirk decries, he's (purposely?) missing the point, one I've made once or twice along the way. To wit (and to woo): the R zealots continue to push R as both (not just one!!!) a Functional Language and an Object Oriented Language. Chambers demurs a bit in his book, but he's the exception. The OO bits are silly on the face, for anyone who's spent more than a semester's worth of time with an industrial strength OO language.

The Functional mantle is a bit murkier, and more deceitful, to my mind. Yes R has functions. So did/does Fortran, from which it sprang. So does every language on the planet, even 4GLs, although they tend to be called Procedures and the like. The point of the Julia post referenced is that R, native, bites the big weeny when asked to be recursive. The thing is, Functional Languages are all about recursion; they live by it. Be shitty at recursion, and you're shitty at Functional. It's that simple. There's a reason Rcpp (Dirk's baby, for those not up to speed) exists. But, just as Guido insists (last time I looked, anyway) that Python will never implement tail call optimization, so too, at the moment for R.

A Functional Language without explicit support for tail call will be fragile. Some structure will blow the stack or heap just when you least expect it.

So, yes, the post Dirk rants about is bogus, but that post's point is true: R isn't really a Functional Language if only because it misbehaves under recursion.

Kicked to the Curb

In some businesses, it makes sense to kick to geezers to the curb when downsizing. Newspapers isn't one of them since it takes a bit of time listening to the liars to figure out what a lie sounds like, but they do that nevertheless. This is Floyd Norris' last piece for the NYT. You should read it.

He opens with:

What happens when you turn over regulatory responsibilities to people who think there is really no need for regulation?

Of course, the Right Wingnuts will likely dismiss, and not bother to read, what follows. They're always right, of course.

To a significant extent, derivatives enabled risk to be shifted from those who understood it to those who did not. Securities deemed risk-free by the rating agencies turned out to be worthless. Much of the financial innovation that so impressed Mr. Greenspan had been designed to let banks find ways to reduce their capital levels without the regulators noticing.

And for the quants:

Bank capital rules came to allow the banks to use their own -- presumably sophisticated -- models to calculate how much capital was needed for any asset they owned. Countries like Ireland and Iceland developed large banking systems and were hailed for finding high-paying, nonpolluting jobs.

Naturally, they ended up polluting the global economic structure. And the cleanup Superfund comes from, in the case of Ireland, almost wholly on the backs of small taxpaying citizens. Moral hazard? Of course not, from the banks' point of view.

Peeing Into the Wind

Thanks to r-bloggers, thence this Revolution post, a skip to this post, finally to the posting on the "evils" of p-value. Yet again. Comments are closed, but between the piece and the pissing contest amongst the commenters it's a worthy source of the giggles.

One deborah mayo (no link) had this to say:

p-values are NOT likelihoods, however, they permit computations that Bayesian likelihoods alone cannot. They allow evaluating the probability that the testing procedure would have resulted in a less impressive departure (from the null) under the assumption the null is true, and also under the assumption of varying discrepancies from the null. It's a small part of the panoply of methods that use error probabilities. Guess what? Bayesians are the ones who only use likelihoods conditional on the observed value! So no error probabilistic assessments are possible. Oh, but there's a prior you say? No error control there either--just what someone believes, and very few scientists want to mix their prior beliefs into the study. The point of the research is to test claims--not beg the question by imputing prior beliefs!

So, yes, once again those villagers out to slay the p-value Monster begat by Dr. Frankenstein turn to the turgid ravings of an ancient Presbyterian minister. Oy vey!!

I Loves Olive Oyl

The problem with being dependent on data to make decisions: what do you do when there is no data? Well, punt. Let's turn our attention to the oil patch. Crude is quoted at $61/barrel (and change) today, and the blue-eyed Arabs in the Red states are whining poor mouth. Already. Gad.

Here's the dirty secret about oil, or any extractive resource for that matter: marginal cost pricing doesn't work in the short to medium term. Depending on the resource, even long term. The reason is that marginal cost <> variable cost. The latter is what determines whether to power the pumps on existing wells, or not. It is just the cost to run the motors, keep them running, and so forth. Marginal cost is how much to bring *a new* well into production. It's clear that the second number is much higher than the other. And, it explains why the Saudis are willing to keep the pumps running; an existing well is profitable at a very low barrel price. Yes, the petro companies would like to fully amortize all the sunk costs on a well, but they have no control over sunk costs. They're sunk, after all. You're not getting the money back. You kissed it goodbye long ago. So long as you get more for the crude than it cost to get it to the surface, you're ahead. It's just second-grade arithmetic. You could shut the well, hoping that the price will rise soon enough, but so do all the other owners. Who'll blink first? Shut the well, and you lose the moolah, but the other owners don't.

But being this is a .44 Magnum, the most powerful handgun in the world and would blow you head clean off, you've gotta ask yourself one question: "Do I feel lucky?" Well, do ya, punk?

How low Mr. Natural? Hard to say, since nobody seems willing to divulge the number. Easy oil comes from a fresh pipe with sufficient gas pressure to lift the crude to the surface from the deposit. All those gushers from old movies. Variable cost of a barrel from such a well: $0. Nada. Zilch. And so forth.

The Wiki explains the succession of involvement to get crude to the surface. One of the reasons Peak Oil came to be a meme was that USofA production was well (pun intended) into tertiary recovery. That costs rather more to lift. In any case, once the infrastructure to aid lift is in place, the variable cost is the electricity to run the pumps (into and out of the well) and the supply of material to inject. That's mostly water, which is ironic in the case of middle east oil, since there's so little of it nearby.

In sum then, there's money to be made from existing wells even at $50 or $60 a barrel. That's my guess, of course. And, it seems, for the Saudi's too.

Putin on the Schitz [update 2]

Incentive.
Incentive.
Incentive.

As always, when there's a disruption in the process which created the time series the quant relies on to forecast future values, ignore the time series and look to the changed incentive proposal.

By now all but the most self-absorbed Fox News watcher is aware that something is going on in resource extraction economies, both foreign and domestic. Yes?

The ruble seems to have steadied from its leap off the cliff, but the flight of moolah from Russia appears unabated, and so from Brazil as well.

Why might all this be? Of course, there's the simple finances of it: lower $$$/barrel of petro means lower $$$ for Vlad. Thus, the ruble drops relative to the Buck, and the Money Men decide that Vlad isn't the savior they told him he was. Not that Vlad actually put all that petro and gas in the ground with his own two hands, of course. Lower $$$ for Vlad means he has to call on his police state to keep the lid on. "How much gasoline for that bag of carrots?"
[update]
Here's a snippet from a CBS News report today

With the ruble hitting record lows, many Russians rushed to unload their shrinking bank accounts on high ticket items like refrigerators and dishwashers.

(Remember: trade is always barter, just that "modern" economies use currency as a kind of lube job.)
[end update]
You read similar here not too long ago. "His" interest rate gag won't work: domestic moolah is leaving by the boatload along with foreign. With the ruble now basically a worthless domestic currency, and Russia not nearly a self-sufficient domestic economy, Vlad could well go to war someplace. Stoke, once again, the vision of Greater Russia (USSR) for Real Russians. Stay tuned.

The fundamental problem for all extraction based economies is that, by the nature of the beast, they have to be fascist. And the reason for that is simple: the value lies in the ground, so control of the ground determines control of the resource, which means control of the moolah. That fascism may be direct, as in Russia where Vlad and his buddies "own" the petro, or it may be indirect, as in the USofA where pliant government moats "private" ownership. The USofA, you say? Beacon of democracy? Not so much in the resource states. The oil, coal, and farm states have been very Red since the Founding. The few that stole the land, not always knowing what resources lie within (beyond soil and timber and rocks), from the Natives wanted to keep the value unto themselves. Pliant local and state (and, on occasion, federal) governments saw to it.

While it does cost more to get the stuff out of the ground once the easy X% has been taken, the value of the stuff is determined by the use of the stuff in production. There is no value-add to extraction; I don't care what Vern Smith bloviates. In the case of petro, cracking towers turn raw petro into various different compounds, with attendant different uses. Value-add exists for that, certainly. If folks can't afford to use, or they need bags of carrots to eat, petro price drops.

So, what does this all mean Mr. Natural? It means that interest rates here in the USofA are about to tumble from their already painful (if you're a coupon clipper) lows. How can that be? All that Russian and Brazilian and such moolah is looking for a safe haven. That'd be us. All that USofA moolah that might have gone to resource extraction also needs to find another home. Treasuries are lookin' mighty good. Expect the next auction to dip even further (the 10 Year Note is 13 January; will be interesting here's a concise report). Supply and demand, Econ 101: mo money chasing diminishing number of chairs as the music plays on.
[update 2]

In a stunning analysis this week, Goldman Sachs found almost $1 trillion in investments in future oil projects at risk. They looked at 400 of the world's largest new oil and gas fields -- excluding U.S. shale -- and found projects representing $930 billion of future investment that are no longer profitable with Brent crude at $70. In the U.S., the shale-oil party isn't over yet, but zombies are beginning to crash it.

And, I'll bet most readers laughed out loud when I said that the next 10-year Note auction would be instructive??

Ides of December Nudge

Another in the desultory reminders that you need to read this guy.

Crazy Schizo Qaunts

OK, so back in 2012 the Right Wingnuts were blaming Obambi for hiking gasoline prices (and, by necessity, petro price). The lobbyer doesn't have a link to the advert, anymore, so here's the quote of note:

Since Obama became president, gas prices have nearly doubled. Tell Obama we can't afford his failing energy policies.

Today, Mr. Market, led by the same Right Wingnuts is going out of its mind over falling gasoline and petro prices: here (and, of course, nearly every news source).

U.S. benchmark crude scythed below $58 a barrel for the first time since May 2009 for a weekly loss of nearly 12 percent in the midst of a tumble whose severity and magnitude matched what happened during the 2008 financial crisis.

Makes one wonder who the USofA economy is run for? All of us?? Or hedge funds?

Those Crazy Quants

Regular reader, by now, is aware that I take the view that quantitative analysis is for both fun and profit, but that it should be attempted somewhat gingerly when the venue is human behavior. We get to make the rules up as we go along, unlike the other animals, minerals, and vegetables which live by God's (or Nature's, depending on your -ism) rules. The rules don't change. We ain't Brownian motion, fur shur.

Well, I just found this post on r-bloggers.

The eBook reprints several unpublished articles and reports from the Econophysics Group at ETH Zurich.

"Econophysics"???!!! And all this time, I'd viewed the Europeans as, generally, more astute. Guess not.

On The Fast Track

Recent musing said that BDUF was the way I understood how real engineers built real projects. Agile type projects didn't exist in the real world. Wrong. Sort of. Real engineers don't always BDUF, although the alternative isn't exactly Agile, either.

Of course, memory failed. Today came a story about Seattle's tunnel troubles, which jogged my memory. Nothing in the story references fast-track construction design and build, but that is the method which emerged from some space deep in the lower brain stem. I don't recall when I first heard of it, but fast-track construction projects have been around since the 1960s, apparently.

"A whole block just went down an inch," said Todd Trepanier, the administrator of the project for the State Department of Transportation, at Monday's City Council hearing. "We don't like an inch."

An inch? Well, yeah.

Anyway, here is piece on fast-track.

Most design professionals believe that only nonspecialized building types with repetitive spaces and standard construction make suitable candidates for fast-track construction. "In cases where you are doing a one-off, customized building, the more you speed up the construction time, the harder it is to get things coordinated, the less iteration in design, the more mistakes, and the longer punch list you will end up with," explains James Timberlake, FAIA, of Kieran Timberlake in Philadelphia...

In other words, since software projects are, kind of by definition, one-off, may be we shouldn't do them 'fast-track'.

Now, wouldn't you love to have this for application development?

Sarah Slaughter, CEO and president of Models of Construction Activities (MOCA) Systems, Inc. (http://www.mocasystems.com), has developed a microsimulation environment that models the entire construction process. It provides comparative information on design and construction alternatives at a high level of detail, usually experienced only during actual construction.

Finally, this paper includes a classic observation:

At one of my presentations, an audience member shared the quip that "If building engineers built buildings with the same care as software engineers build systems, the first woodpecker to come along would be the end of civilization as we know it."

Widget Wonderland

Three semi-related posts went past my eyeballs today. The thread which hangs them together is the value of value. How do we figure it?

First, Blankenhorn takes on Amazon, among my favorite fubar companies. As is often the case, the comment stream is as significant as the post. The poster child for the "we lose money on each sale, but make up for it in volume" approach. Either Amazon attains monopoly, i.e. pricing, power over retailing or it goes belly up.

Second, one Peter Greulich (not familiar) takes on IBM. Here the issue is both the danger of goodwill and the structure of companies. How to value IP, services from IP, and goodwill (e.g. the sale of WhatsApp)? IBM has been shedding real capital and real production for many years. It wants to see the ROI of software driven services. The WhatsApp home run as paradigm for Big Companies, if you will. So do many corporations. Good luck.

Third, Rob Hyndman takes on Data Science. What is it? Who does it? Is it just stats with a new name? Is it just OR, with a new name? Is it more, in some sense, than just stats (Janert says so)? Likely.

Taken together, some musings on the value of value. Micros and quants invariably practice reductio ad absurdum (in the second sense, and on themselves) by looking only at the financials and ignoring the real world aspects. How else would they have blessed liar loans? If quants and micros took the "science" part of data science seriously, may haps we wouldn't go through Great Recessions? One of the comments on the Hyndman post is on that point.

If science viewed thought as property, we'd still be cavemen.

Assume: Ass, You, Me

Some years ago, in the age of the Web 1.0, I worked for a sort-of start up (it was really owned by a long existing parent company). This was back in the days when servlets were built much as described in Jason Hunter's first edition. So, a while ago. But that's not quite the point.

Thanks to this bit of moaning on simple-talk (to which I'm considering adding some bile), I read this other bit of moaning which gave me this bit of spleen:

Perhaps more importantly, if you join or start a startup, you can knock the engineering out of the park and still end up flat fucking broke if the marketing people don't do a good job. But you're probably not going to demand that your accountants or your marketing people jump through bizarre, condescending hoops every day. You're just going to trust them to do their jobs.

Another, shorter sentence from the post, has joined the ranks of signatures. Coming to a browser near you soon.

Anyway, back to Web 1.0. This servlet implemented app was intended to be an extension to an existing app, made by some folks who bolted when the start up had gone belly up a year or so earlier. It got resurrected. Now, the original app built so-called course packs at Cornell (and Olbermann has just skewered it in worst person in the sports world, his alma mater; who knew?), which is to say articles and book chapters by professor/course. The notion was: let's make a web app which allows Joe Sixpack to build the "book" of his design. We'll have the content (or links, more often) and deals with storefront printing operations. Joe wants a "book" on Egyptian dynasties, so he picks a chapter or two from six books and five articles from journals. Sends the list to the storefront printer, and walks home with his "book".

What's wrong with this picture?

Now, this was before music publishers were bludgeoned by some Big Corp into disintermediating albums and pop music albums only have one or two songs that you want, anyway, right? The start up and the parent were teeny, tiny little fish in the publishing pond; no leverage. And most of the books were expected to be textbook types; possibly trade non-fiction but not novels. The notion was that these sorts of publishers, covetous of their copyright, would be willing to sell off bits of books, rather than the whole enchilada. Whether authors might benefit wasn't part of the discussion.

While the system got built, lo and behold, publishers refused to play nice. Why should they sell off for pennies what they could demand for dollars? It was their expectation, which turned out to be true at that time, that selling bits of books wouldn't offset the cost of slicing and dicing the books nor loss of the sale of whole books. The business model was never vetted; just assumed to work because the academic prototype worked. Never assume. Times have changed a bit. Perhaps someone will resurrect the app?

While Kevin Costner got famous for saying it, it ain't true, "if you build it, they will come". Sometimes, they just stay home and watch football.

A Giant Sick Koala

GlaxoSmithKline is a drug company that Wall Street hates. I don't follow it, except the occasional piece that appears in places I usually visit. One such piece is from the prolific Dana Blankenhorn.

The only reason I bother to mention it is his following observation:

[Dr. Moncef Slaoui, then the company's head of research and development] said that researchers should "gamble their careers" on the drugs they worked on.

This sounds good, if you don't know science, or scientists. Because scientists don't get into science for ROI. They don't get into science to "gamble their careers" on a clinical trial. They go into science to do science. They go into science to learn things, to discover things, to help mankind. What Slaoui wound up with, instead of a bunch of entrepreneurial scientists, was a bunch of backstabbing neurotics.

[my emphasis]

Sound like a recent musing? Yes, yes it does.

Prometheus Unbound [update]

The mainstream pundits, and the blogosphere too, continue to be perplexed by the refusal of open market interest rates to rise as they had hoped/wished/needed. So, it falls to moi to yet again 'splain some more.

The notion of moolah as commodity rests on the base assumption of trade in real goods: that supply and demand are functionally infinite, and that the "curves" result from individuals' (and remember, corps are people too) levels of psychic satisfaction. To put it yet another way: real demand requires only that "I" want another widget and have the moolah to pay "more" for that widget. The only limit is my satiation with said widget. On the other side, supply, Widget Corp. is willing to make widgets until Hell freezes over if enough folks want them. Availability of production inputs are assumed to be infinite in the sense that a source of supply always exists, at some price.

Now, when it comes to investment, the situation gets a bit gnarly. The MBA types, and most quants, don't distinguish between fiduciary capital and real capital. Most, likely, don't even acknowledge that the latter even matters. But, of course, it does and explains what's going on now. Financial engineering isn't real engineering; not by a long shot.

If we view moolah as an investment commodity, then the gnarl sets in. On the supply side we have retained earnings by business and non-consumption by the rest. On the demand side we have business. What's the motivation by business to take fiduciary capital (moolah, to you and me) and turn it into physical capital? One thing only (in a rational world, of course): that the plant and equipment so made will yield more profit than by not doing so. Nothing else. Financial engineering, so beloved by Wall Street and The City, doesn't count.

Note, however, the difference in the demand function betwixt consumer demand and capital demand: the consumer just wants a better hard on, but the CxO demands that the capital produce returns **not otherwise attainable**. The CxO, if s/he's rational, isn't maximizing some satisfaction function, but some very specific engineering breakthrough. In order to get that return the CxO has to know, or have a high probability, that the new plant and equipment are better than what s/he's got now.

Said plant and equipment may be something entirely new, such as a Swiss screw machine around 1870, or it could be off-the-shelf items not yet adopted by a business. Either way, unless such plant and equipment actually exist, there is no demand for the fiduciary capital. It will just sit around as retained earnings or used to buy back shares or buy bling for the CxO class. Since the MBA and quant class remain stuck in a 19th century mindset (Right Wingnuts all), they can't see that the arc of technology and resource availability has turned, at best, flat. If one considers the widgets we use today, how many implement a semantic that didn't exist before say, WWII? I'll bet a nickel that the number is 0. Capital has spent the last few decades in ever decreasing incrementalism. Ponder that for a moment. Near zero interest has not a thing to do with Big Gummints, but an utter void in the heads of the CxO class to find new, and useful, ways to turn moolah into machines.

This is the base reason so much fiduciary capital has been thrown at non-productive uses such as residential real estate. The Masters of the World are intellectually adrift. And we, as a species, know just about all there is to know about physical reality. Hell, we've found the God Particle. Once you've reached the edge of the World, there's no frontier to explore.

[update]
Sometimes ya just shouldn'ta oughta got out of bed. Left the punchline in the briar patch. So, here it is.

Widget Corp. can go buy more land, labour, and physical capital if it has the moolah. What it can't buy is any new Law of Nature (or God, depending on your -ism) or the brains to find it. Those two either exist, or they don't. These days, the chances that there remain any of the former get nearer and nearer to 0 and thus the chances to buy the latter (I wonder, would paying Newton or Einstein more moolah made any difference?) do too.

60 Seconds

That appears to be how much time and effort went into last night's "60 Minutes" piece on consumer credit card and ATM and such hacking. If you accepted the statements made, then you believe:
1) retailers and banks are doing everything humanly possible
2) Eastern European hackers are the Smartest Computer Folks in the World
3) breaches can't be stopped
4) Corps. should buy the services of that "security expert"

Here's what we actually know (and the "60 Minutes" reporter[s] would have if they did any reporting):
1) the POS breaches are due to antique versions of Windoze that Corps don't want to spend money to upgrade
2) Corps. routinely don't isolate valuable and vulnerable customer nets from the rest
3) hackers are using time honored methods to breach old versions of Windoze
4) banks are replacing OS/2 run ATMs, which are nearly bulletproof, with Windoze rather than secure certified *nix

I want to be clear with my point of view here. I think that migrating from OS/2 to Windows is the most stupid thing that can be done to an ATM Machine.

So, as with the coders who refuse to upgrade their skills to Organic Normal Form™ schemas, Corps. continue to run vulnerable systems for customer data just because it's seen as too expensive in time and money "to do the right thing". [Aside: if banks ran ATM networks as described by Allen Holub in "The Bank of Allen" series, none of these problems would occur, of course.] IOW, once again, the problem isn't tech it's politics. The restitution, if any, is a slap on the wrist. Just a cost of doing business. The restitution and fines for allowing breaches can be written off, so the taxpayer picks up most of the cost. The upgrades can still be put off. The CxO types still get their fat bonuses for saving on IT spend by not taking security seriously.