Month: February 2012

The mathematical equation that caused the banks to crash

The Black-Scholes equation was the mathematical justification for the trading that plunged the world's banks into catastrophe

Ian Stewart

The Observer, 11 February 2012

EXTRACT:

The equation itself wasn't the real problem. It was useful, it was precise, and its limitations were clearly stated. It provided an industry-standard method to assess the likely value of a financial derivative. So derivatives could be traded before they matured. The formula was fine if you used it sensibly and abandoned it when market conditions weren't appropriate. The trouble was its potential for abuse. It allowed derivatives to become commodities that could be traded in their own right. The financial sector called it the Midas Formula and saw it as a recipe for making everything turn to gold. But the markets forgot how the story of King Midas ended.

Read full article.

Phi Beta Iota:  For some time now we have been articulating a concern about the government's ignorance of computational mathematics.  This is part of the new craft of intelligence and financial as well as Internet counter-intelligence.  The full article is an extraordinarily understandable and complete review of the role that mathematics, combined with the absence of integrity, played in bringing down the world economy.  What the article does not emphasize is that it was government ignorance, government apathy, and government complicty that allowed the global financial catastrophe to happen despite 30 years of continuing warning.

See Also (by the professor author of the article above):

Seventeen Equations that Changed the World (European Paperback)

In Pursuit of the Unknown: 17 Equations That Changed the World (US Hardcopy 13 March 2012)

Five Equations that Changed the World: The Power and Poetry of Mathematics (1996 precursor by Michael Guillen)

Introduction To Computational Mathematics (2008, outrageously priced)

Pentagon's Budget Plan Said To Draw 40% Of Cuts From Weapons

By Tony Capaccio, Bloomberg News

Bloomberg.com, February 11, 2012

The U.S. Defense Department's fiscal 2013 spending plan draws more than 40 percent of proposed reductions from weapons accounts that contribute less than a fifth of the budget, based on Pentagon projections.

The military budget that President Barack Obama will send to Congress on Feb. 13 calls for $525 billion in spending, a reduction of $45 billion from previous projections. About $18.7 billion of the cuts would come from weapons procurement, according to data provided by an official who spoke on condition of anonymity because the budget hasn’t been submitted.

The breakdown shows the Pentagon is cutting weapons more deeply in an effort to limit cuts in personnel and benefits, according to Todd Harrison, a defense analyst.

“Compare that to spending on military personnel, which accounts for one-third of the budget but is only taking one- ninth of the cuts,” Harrison of the Center for Strategic and Budgetary Assessments in Washington, said yesterday in an e- mail. “Protecting pay, benefits, and end strength is a higher priority than modernizing weapon systems.”

The $98.8 billion the Pentagon will propose spending on weapons in fiscal 2013 compares with $117.5 billion it had projected for the same period a year ago. Through 2017, cuts in weapons spending would average about 37 percent of the annual reductions projected by the administration, according to a nonpartisan government analyst who also spoke on condition of anonymity before the budget submission.

Details behind the reductions will unfold over the next month as lawmakers and their staffs press the Pentagon for specifics and military officials outline their respective service budgets.

Cutting 100,000

A five-year plan outlined by Defense Secretary Leon Panetta last month calls for slowing weapons acquisition and reducing forces by 100,000. That plan already has been criticized by Republican lawmakers as cutting too many people.

“The president has abandoned the defense structure that has protected America for two generations, turning 100,000 soldiers and Marines out of the force,” California Republican Representative Howard “Buck” McKeon, chairman of the House Armed Services Committee, said in a Jan. 26 statement.

Few weapons systems would be canceled outright by the Pentagon.

“The absence of big program kills may suggest to investors that DoD investment fared relatively well,” Byron Callan, a defense analyst with Capital Alpha Partners LLC in Washington said in an e-mail. “These procurement figures suggest a tougher reality for industry. Even without big, iconic platform cuts, industry will still see some pain.”

Lockheed's C-130

One project being canceled is $4 billion to modernize the C-130 transport plane built by Lockheed Martin Corp.The Navy plans to cut eight of nine planned Austal Ltd. high-speed transports.

Read full article.

Phi Beta Iota:  In passing, the C-130 is the only aircraft in the inventory that can land virtually anywhere–this is important since the US Navy cannot get into 50% of the ports world-wide and the US Air Force is incapable of sustained diverse long-haul airlift.  Bloomberg skirts the hard truths to be found in an honest thorough analysis.

See Also:

Continue reading “Marcus Aurelius: Pentagon PSYOP on Spending Cuts + Meta-RECAP”

Spy Vs Spy: The Secret Wars Waged In New Spooks' Playground

London Times, 11 February 2012

Azerbaijan: This small country is used to being a listening post, but its position at the centre of activity in the present climate is a big cause for concern. Sheera Frenkel reports from Baku.

In a warm café in central Baku, Shimon sips his Persian tea and grimaces at the unusually large snowdrifts outside. Nearby is the building that houses the Israeli Embassy — and Shimon's unofficial place of work. In all the years he has worked in Azerbaijan, he has only been to the building once.

Shimon is one of dozens of Israeli Mossad agents who work in Azerbaijan at any given time. His familiarity and comfort in the country are obvious as he speaks about various towns and cities that he has come to know.

“This is ground zero for intelligence work,” he said, having agreed to talk on condition of anonymity. “Our presence here is quiet, but substantial. We have increased our presence in the past year, and it gets us very close to Iran. This is a wonderfully porous country.”

Continue reading “Marcus Aurelius: Azerbaijan, Israel, US, Iran, & Russia – a Look at “Ground Zero” for Old Ways of Spying”