Byung Kyu Park's Personal Website

What do following Federalist Papers passages have in common?

Federalist No. 25:

All violent policy, as it is contrary to the natural and experienced course of human affairs, defeats itself. Pennsylvania, at this instant, affords an example of the truth of this remark. The Bill of Rights of that State declares that standing armies are dangerous to liberty, and ought not to be kept up in time of peace. Pennsylvania, nevertheless, in a time of profound peace, from the existence of partial disorders in one or two of her counties, has resolved to raise a body of troops; and in all probability will keep them up as long as there is any appearance of danger to the public peace. The conduct of Massachusetts affords a lesson on the same subject, though on different ground.

Federalist No. 39

On comparing the Constitution planned by the convention with the standard here fixed, we perceive at once that it is, in the most rigid sense, conformable to it. The House of Representatives, like that of one branch at least of all the State legislatures, is elected immediately by the great body of the people. The Senate, like the present Congress, and the Senate of Maryland, derives its appoint indirectly from the people. The President is indirectly derived from the choice of the people, according to the example in most of the States. Even the judges, with all other officers of the Union, will, as in the several States, be the choice, though a remote choice, of the people themselves, the duration of the appointments is equally conformable to the republican standard, and to the model of State constitutions. The House of Representatives is periodically elective, as in all the States; and for the period of two years, as in the State of South Carolina. The Senate is elective, for the period of six years; which is but one year more than the period of the Senate of Maryland, and but two more than that of the Senates of New York and Virginia. The President is to continue in office for the period of four years; as in New York and Delaware, the chief magistrate is elected for three years, and in South Carolina for two years. In the other States the election is annual.

Federalist No. 57

Are not these facts the most satisfactory proofs of the fallacy which has been employed against the branch of the federal government under consideration? Has it appeared on trial that the senators of New Hampshire, Massachusetts, and New York, or the executive council of Pennsylvania, or the members of the Assembly in the two last States, have betrayed any peculiar disposition to sacrifice the many to the few, or are in any respect less worthy of their places than the representatives and magistrates appointed in other States by very small divisions of people?

Whether it comes to such weighty matters as keeping of a standing army or the republican nature of the new federal government, or even down to smaller details such as the size of legislature, the Federalists—the same people who wrote the Bill of Rights—had a strong argument in their favor: the States were already doing what they propose the federal government to do.

Mitt Romney must have a better argument for his sins than the fig leaf offered by the Tenth Amendment (yes, part of the Bill of Rights). What the States can and willingly do, the federal government will eventually find the argument for itself to do itself. If Romney was justified in leading Massachusetts into mandated health care purchase, in like manner, the federal government will eventually be justified in following Massachusetts’ example.

And if Federalist Papers is too far removed in history to alarm you, consider this: a supermajority of States passed prohibition laws before the United States passed and ratified the 18th Amendment—and this was no more than a century ago. Where States go, United States will follow. It is inadequate for Mitt Romney to simply excuse that he was only a governor, not the President. Mitt Romney must repent and recant.

President Obama, as he is wont to do, misquoted the Scripture again for political gain:

“And I think to myself, if I’m willing to give something up as somebody who’s been extraordinarily blessed, and give up some of the tax breaks that I enjoy, I actually think that’s going to make economic sense. But for me as a Christian, it also coincides with Jesus’s teaching that ‘for unto whom much is given, much shall be required,’” Obama said, noting Jewish and Islamic teachings say much the same thing.

But that hasn’t been the most annoying thing about this incident. This is par for the course. I’m firmly convinced that Obama is, in fact, an atheist. An atheist sees no problem misusing the Scripture; they fear no punishment from God.

My main problem is the conservative reactions to it. These conservatives are supposed to Christians, and most of them didn’t even think to go to the actual Scripture to see if Obama used it correctly, rather than falling back on weak ad hominem arguments relying on Obama’s clear lack of divinity or making non-sequitur argument about other unrelated sayings of Jesus.

Well, I guess I should be glad at least some people had the right reaction. To recap, the context of the passage (see: Luke 12) isn’t dealing with mere material possessions; it’s dealing with our obedience to God. And what “unto whom much is given” refers to knowledge of the Law (so that we know what to obey), not any material possessions.

But really, conservatives, if they hold themselves out as Christians, well, at a minimum, they should be familiar with the Bible as Christians ought to be. Then they might even have been able to retort to the (atheist) president: “Did not the same Jesus say, ‘I tell you that to everyone who has, more will be given, but as for the one who has nothing, even what they have will be taken away’?” (See Luke 19.)

“And why not do evil that good may come?” —Paul of Tarsus, in a letter to the church at Rome

Or so Paul is quoted as saying. But this can’t possibly be right; Paul was the “Pharisee of Pharisees”, who regarded observance of the Laws as important above all else and (perhaps more importantly in distinction to Sadducees) feared supernatural punishment from above. And of course this quote can’t be right.

Similarly, Romney is recently quoted as saying,

“I’m not concerned about the very poor” —Mitt Romney of Massachusetts, in a televised interview with CNN

But this can’t possibly be right; to the great conservative consternation, this Massachusetts moderate upped their state’s Medicaid spending during his tenure. Why would he do that if he wasn’t concerned about the very poor? To reward state and federal bureaucrats for their support? Of course, the whole quote is, “I’m in this race because I care about Americans. I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it. I’m not concerned about the very rich, they’re doing just fine. I’m concerned about the very heart of the America, the 90, 95 percent of Americans who right now are struggling and I’ll continue to take that message across the nation.”

But really Romney should have known better. He’s a Mormon. And it was Joseph Smith (or the Holy Spirit; but that’s a … doubtable theological point) who refused to translate a second time from the same tablet, because slanderous sinners will twist your own words (in this case, that no two translations are usually identical word-for-word) to promote unjust ends. Every word he says should have been spoken with that possibility in mind; no 5 words should be strung together if they can be taken out of context to fit the purpose of unscrupulous politicians (or particularly dull news anchors).

And of course, the quote of Romans 3:8 above ends as follows:

“…—as some people slanderously charge us with saying. Their condemnation is just.”

They say history rhymes (something that Gingrich the historian perhaps might agree with), and Mitt Romney would do well to draw some lessons from History.

The time was 4th century, B.C., Athenians were in a struggle for supremacy (and later, survival) against Spartans. Spartan battle tactic was to draw Athenians out of their cities to fight in open fields, where Spartans had the advantage (Athenians were generally better at naval tactics). As part of that tactic, Spartans ravaged the field outside the city walls, in order to anger the Athenians into coming out for battle. Furthermore, there was a twist to their tactic: ravage all the land but those belonging to Pericles, the Athenian leader urging Athenians to pick their battlefield wisely, in order to put additional pressure on Pericles (you know, the good ol’ politics of envy that never quite dies). But Pericles had an answer for this tactic:

Whilst the Peloponnesians were coming together in the isthmus, and when they were on their march before they brake into Attica, Pericles the son of Xantippus, who with nine others was general of the Athenians, when he saw they were about to break in, suspecting that Archidamus, either of private courtesy or by command of the Lacedaemonians to bring him into jealousy (as they had before for his sake commanded the excommunication), might oftentimes leave his lands untouched, told the Athenians beforehand in an assembly, ‘that though Archidamus had been his guest, it was for no ill to the state; and howsoever, if the enemy did not waste his lands and houses as well as the rest, that then he gave them to the commonwealth,’ and therefore desired ‘that for this he might not be suspected.’ Also he advised them concerning the business in hand the same things he had done before, ‘that they should make preparations for the war and receive their goods into the city; [2] that they should not go out to battle but come into the city and guard it; that they should also furnish out their navy, wherein consisted their power, and hold a careful hand over their confederates,’ telling them, ‘how that in the money that came from these lay their strength, and that the victory in war consisted wholly in counsel and store of money.’

Thus inoculating himself from the politics of envy and effectively leading Athenians in the war effort, at least until his death in the plague.

Romney can similarly inoculate himself from similar politics of envy (although I don’t expect him to; Pericles was a leader for the histories—is Romney?). He can pledge his wealth (amounting somewhere in the hundreds of millions) to the U.S. Treasury, should he win the presidency. While he is the President, he will have the room and board provided, along with the salary; after his presidency, he will have a pension to provide for his retirement (this republic saw too many presidents, including Madison, the father of the Constitution, die broke).

If Mitt Romney wants to win the presidency so that he can lead America for better future, then he can do this. If he wants presidency for personal ambition (as Gingrich clearly does), he probably won’t.

Since it is likely that Democrats will hit on Romney’s Bain Capital record when the general election starts, I’d like to, well, anticipate some of the worst attacks that are sure to be forthcoming.

One I can imagine them doing (perhaps geared toward kindling their youth support) is rebranding the MILF acronym to mean “Mother I’d Like to Fire” (analogy to VPILF of last cycle, although I thought that was more tongue-in-cheek support than attack). The associated imagery here would be substantially similar to the Mediscare imagery of grandma being pushed over a cliff (although I’m not imaginative enough to think of a specific image … but I’m sure some liberal will).

What I’m still hoping for is that Mitt Romney’s talented campaign staff will have ready answers (both in debates and TV ads) to charges made by Gingrich (and will be made by Obama) that will work in the general election, not just GOP primary (where almost-reverent attitude towards free market made such attack risky on Gingrich & Perry’s part in the first place).

Amazon’s Prime library has been a great boon for expanding my normal reading materials (usually restricted to academic journals and, well, religious materials). One of the first on the list was The Big Short: Inside the Doomsday Machine which I just finished reading through.

At first I thought it was supposed to be a fiction (hey, I was just browsing through the list of books on the Prime library and didn’t do due diligence before checking out the book, free of charge), but, well, I guess it’s non-fiction—which I always interpret as the authors not admitting having made up the story (different and distinct from the story being a true one).

Well. It was an interesting story, written from a clearly anti-Wall Street perspective, which is clear in both the author’s choice of narrators (all of whom are either outside-Wall Street characters or those working against the Machine inside the Machine) and the telling itself—I recommend that you first read the Afterword to set your expectations properly before reading through the narrative; it’s not like there’s a big spoiler; everyone knows largely how the financial crisis of 2008 unfolded.

Some of that choice was inevitable: he was writing a story about short-sellers; because of the structure of the market, short-sellers form a minority, and, well, you know about members of minority and their inevitable persecution complex. But I found interesting how Mr. Lewis chose sore winners for his narrators—the “winners” whose stories he chose to tell were not happy that they won (again, some of that is inevitable part of being short a market; short-sellers may be willing to exploit a weakness but they cannot enjoy the general shared ecstasy of a bull market). Nearly all his “winners” become embittered and defeated in spirit through their experience as narrated in The Big Short, and their bitterness (at least as seen through Mr. Lewis’s eyes) is clear by Chapter 10. Assuming Mr. Lewis told at least their side of the story correctly (again, I’d recommend reading Afterword before other parts of the book), to pick only sore winners as champions of his narrative, it had to be a deliberate choice—part of the narrative Mr. Lewis wanted to tell.

And in fact, it’s that driving purpose that leads to certain … inaccuracies in the book. In particular, one theme Mr. Lewis wanted to drive was how big financial institutions misjudged the risk in the proprietary trades involving the sub-prime mortgage market and selling of CDSs. He drives that point in particular in relating the narrative of Michael Burry, who felt the CDSs he owned were not being priced accurately,

All through 2006, and the first few months of 2007, Burry sent his list of credit default swaps to Goldman and Bank of America and Morgan Stanley with the idea they would show it to possible buyers, so he might get some idea of the market price.
…
The data from the mortgage servicers was worse every month—the loans underlying the bonds were going bad at faster rates—and yet the price of insuring those loans, they said, was falling. “Logic had failed me,” he said.
…
In May [2006] he adopted a new tactic: asking Wall Street traders if they would be willing to sell him even more credit default swaps at the price they claimed they were worth, knowing that they were not.

Critical to this narrative is the idea that price of a security can change dramatically and discontinuously—what Mr. Lewis does not make crystal clear are the conditions necessary for such changes. The conditions which would prevent such change are actually spelled out in a verbatim quote in a teleconference by one of the characters that Mr. Lewis would consider a villain in his narrative,

MACK: Bill, I think VaR is a very good representation of liquid trading risk. But in terms of the (inaudible) of that, I am very happy to get back to you on that when we have been out of this, because I can’t answer that at the moment.

A liquid market would ensure any price change would be nearly continuous (especially in today’s markets, where futures market is closed for no longer than 30 minutes except over weekends). But ignoring that critical element, Mr. Lewis makes the following statement while trying to fit Cornwall Capital’s other investment activities into the overarching theme:

If in the next year, a stock was going to be worth nothing or $100 a share, it was silly for anyone to sell a year-long option to buy the stock at $50 a share for $3. Yet the market often did something just like that. The model used by Wall Street to price trillions of dollars’ worth of derivatives thought of the financial world as an orderly, continuous process. But the world was not continuous; it changed discontinuously, and often by accident.

I imagine Mr. Lewis’s chief mistake is in taking the black swan event and use that experience to draw conclusions about white swans. Stock options generally trade in a liquid market, it means stock prices—and hence option prices—generally change continuously, especially when futures market is included. It is silly for a far out-of-the-money long-term options to be sold at low option premiums, only if you assume that a short position on the option cannot be covered before the expiration date. But all traders know it is silly not to set a stop order on any short position on which loss is theoretically unlimited. Perhaps it’s Mr. Lewis’s experience as bond trader that limits his thinking, but stock options are not bought and sold to be exercised (unlike bonds which are often held ’til maturity)—as Dodd points out in Security Analysis, it is always more sensible to directly trade options and warrants than
to exercise them and then trade the underlying security—your capital outlays will be much less (and returns on equity higher) that way.

And if you take it as given that vast majority of options will not be exercised—that is, many contracts will be closed before the expiration date by the option writers buying back the options to cover their short positions if options somehow remain in-the-money (or near-the-money), there’s nothing silly about far out-of-the-money options being low-priced, regardless of the expiration date—as underlying stock prices move (nearly continuously, changing by less than 10% daily on all but perhaps 5 trading days out of the year) and it becomes more or more likely that out-of-the-money will become in-the-money, the contracts will be bought back.

But this little detail about liquid market fixing many of the problems with the preciseness of pricing model (because, let’s face it; financial markets are not normally distributed; like in many other cases, normal distribution is being used as a convenient approximation) would ruin Mr. Lewis’s narrative about how financial markets do not work, so it has to be ignored—or so I think, anyway.

But anyways. So long as one is not interested in getting a fair hearing of both sides (again, read the Afterword for a hint of that), the book is interesting enough—just remember that there are two sides to every story (like there are two sides to every trade), and you don’t get both sides from the same source (unless you are talking to an economist).

Freedom is in the air! U.S. forces are no longer occupying Iraq, and apparently neither are Occupy protesters occupying Berkeley. I just noted the scene on my walk to work today:

They may have occupied our land, but they never had our hearts and minds.

I just hope that the good people of America will continue to enjoy this positive freedom—freedom from unwanted and unwelcome protesters—in 2012.

BTW, I re-registered recently to change my party affiliation to GOP (the Libertarian party affiliation was never serious; I always voted like a Republican anyway), mainly so that I can vote in one of the few elections where my vote might actually matter—GOP presidential primary (I have no illusions; in a liberal state like California, my vote means squat in the general election).

Well. I’ll probably vote according to a pledge I made while not entirely being in control of myself, but, well, my vote (in aggregate with fellow like-minded Republicans) has a chance of making a difference.

I just hope GOP’s latest attempt at logistical sanity doesn’t result in an undeserved damage suffered by GOP (but then, anything could happen under Obama and Reid’s demagoguing; that’s what they do).

Doubtless 2011 has been a big year as far as global events go. Aside from symbolically important events (such as the Arab Spring and, just yesterday, the death of Kim Jong-Il), economically important events were unfolding this year, with lasting impacts—and they are still unfolding; two years from now, we might be marking 2011 as the beginning of the end for EUR, or five years from now, we might look back at 2011 as when EMU solidified into a more perfect “United States of Europe” (with or without U.K. which today appears to be a pariah of Europe).

I thought I would just note two rather ironic turns of events:

• Standard & Poors downgrades U.S. credit rating, and the treasury yields plunge, as “flight to safety” causes flow of funds to U.S. treasuries
• ECB refuses to print money by buying up sovereign debt (like the Fed’s QE2 in U.S.), and, in a response, EUR falls like a stone.

In both cases, simplistic analysis of what credit ratings mean (lower credit rating ought to equal higher risk of default, which ought to mean higher borrowing costs, i.e. yield) and supply-and-demand (ECB puts fewer EUR in circulation; EUR should be more expensive not cheap) would indicate the opposite of what actually happened, but, well, that’s the nature of the market. It’s a complex beast, where global forces push things in a way that’s not entirely predictable (as an aside, gold behaved like a safe haven earlier in the year (mostly anti-correlated with stock market indices), until some time in September when it flipped and started behaving like a risk asset (mostly correlated with stock market indices)).

And of course, there are still a couple more weeks left in the year, so who knows what more crazy things will happen …

Well, it’s a trick question. As Son of God, he would have as little regard for worldly institutions and ideologies as we have for whatever system ants have.

But apparently Bishop of Canterbury believes not only that Jesus would take a side, that he would somehow incur personal risk in doing so:

In a British magazine, the leader of the world’s 78 million Anglicans worldwide insisted that Jesus would be “there, sharing the risks, not just taking sides.”

The demonstrators pitched their tents outside the iconic cathedral in mid-October to protest what they see as the unfairness and illegalities of the global financial community.

In his article written for the Christmas edition of the Radio Times magazine, the archbishop said Jesus was “constantly asking awkward questions” in the Bible.

In the St. Paul’s encampment, Williams added, Jesus would be “steadily changing the entire atmosphere by the questions that he asked of everybody involved — rich and poor, capitalist and protester and cleric.”

The archbishop said that when Jesus said “give Caesar what belongs to Caesar,” he was asking “what’s the exact point at which involvement in the empire of capitalist economy involves you fatally.”

Let’s ignore all the inaccuracies and possible heresy by the bishop (does he not believe in absolute deity of Jesus Christ? Does he believe Jesus was only a man, if he was a historical figure at all?), and focus on his interpretation of the “Render unto Caesar” passage. The entire quote is: “Render unto Caesar the things which are Caesar’s, and unto God the things that are God’s”, in response to the trap question posed to Jesus asking, essentially, whether Romans had a right to rule the Judea.

This is a perfectly ambiguous passage that is open to many different interpretations (as Jesus’ primary intent was to give an ambiguous response, the setup of the trap being that whether he answered “yes” or “no” on the matter of Roman taxation, he would have faced political trouble), but one thing it does not address is the matter of capitalism (that is, market economy governed through use of a monetary instrument) and communism (that is, some societal structure where money—which is the primary point Jesus does bring up; the face on the money is that of Caesar—has no role).

But let’s pretend that it does and see whither such an assumption takes us. Jesus’ response is, literally, since the money is Caesar’s (i.e. the government’s), give it to Caesar, and give to God what is his. He does not make it clear exactly what is “things that are God’s”; in the narrowest scope, he could mean temple sacrifices (being made with God’s creatures) or, well, our entire being—time, devotion, etc.

Now, what is the real difference between a capitalist system and communist system? The difference is emphatically not that the government makes no demands of us in either case (that would be the difference between government and anarchy, not different systems of government). It’s the form of demand made on us. In a capitalist system, government primarily demands money from us—that, according to Jesus, we can give freely without feeling spiritually conflicted; it’s only money.

What would a communist government demand of us? It would demand first labor—that is, our time (and possibly devotion). Whereas a capitalist system cannot crowd out God (it can only demand the money we have; we can always take a vow of poverty so that we can devote ourselves better to God), a communist government can crowd out God by demanding so much of us, since there is not intermediary agency of money. And incidentally, historically, it always has, at least when a communist government existed for a length of time in a geographical region.

So, it ought to be self-destructive for the bishop to rail against the monetary system; it’s the monetary system that prevents worldly authorities from choking the spiritual life out of us. That is, well, if the bishop cared about our spiritual well-being, not his political influence—but then, I’m reminded of that one Yes, Prime Minister episode …