Sunday, March 22, 2009

No Title

  • Why, every time I use self-checkout at the grocery store, does my machine tell me some form of "Please Wait for Attendant"? Can't they design these machines to be more robust?
  • I get that Madoff ran a Ponzi scheme and people lost something like $50 billion. What I don't understand is, where did the money go? Sure, maybe he lived high-on-the-hog, but I've seen no evidence that he could have spent billions of dollars. So where is it? It would seem that the money went to the investors who pulled money out and whom Madoff would have been forced to pay just to keep the scheme going. And so when I read this NYT piece entitled Madoff Had Accomplices: His Victims I expected a story something along the lines of this argument, but no. Continuing this line of thought, I wonder about the stock market as a whole. Those who get out early make a profit at the expense of those who don't. The market seems a big Ponzi scheme except with the wrinkle that there's a little real value added to some of the companies with time.
    Update: Freakonomics addresses these questions. Interestingly, they mention that Madoff, by not investing at all, hardly did worse than the market. We need a new Turing test for whether something is a Ponzi scheme or a market. They also suggest that the feeder funds (to which Peter refers in the comments) may indeed have to pay back some of their compensation. One can hope.
  • Saw the movie Religulous the other day. Not especially good, but certainly more than watchable. I've mentioned I'm an atheist, but generally supportive of unorganized religion. That is to say, I can see that people want to believe in something bigger than themselves, something to give meaning to a possibly meaningless world. This movie, if anything, made me more antagonistic towards religion of any kind. At one point, he points out similarities between the Jesus as Christ story with many others before it...I wasn't aware of the unoriginality of the story.
  • I was listening to Lisa Randall on NPR's Science Friday. I thought she did well, but at one point in the Q and A, I hear her say "First of all it's Professor," correcting what sounded like a young boy asking her a multi-part question. I had to back up to hear how he had addressed her and sure enough he said "Miss Randall." Not sure what to make of that. (I'm referring to a point about three quarters into the "broadcast" clickable in the upper left of the page.)
  • Not sure what to make of this "QuantumGravity" watch mentioned by Gizmodo.
  • Also at Gizmodo, ever wondered whether there's a correlation between college-aged sexual activity and major? At Wellesley perhaps? Somehow "physics" didn't make the chart, but I suspect we can all agree we do better than "Mathematics." Check it out.
  • Looking for a job? How about as a Quant with D.E. Shaw which had a recent listing in Physics Today. Not your thing? How about teaching Obama's children at Sidwell Friends School?


notevenwrong said...

The 50 billion was bogus, never existed, what did exist was the lesser amount (10 billion, 20 billion?) that people actually gave to Madoff. Some of that went to Madoff and his family personally, some to people smart enough to cash out in time, but most of it may have gone to the "feeder funds" that were raising money for him. Recall that these "funds of funds" do things like take a fee and 10-20% of the fictitous profits. It will be interesting to see if Madoff's victims will be able to recover anything from the main beneficiaries of the scam.

Dave Bacon said...

"Why, every time I use self-checkout at the grocery store, does my machine tell me some form of "Please Wait for Attendant"? Can't they design these machines to be more robust?"

Are you using a credit card? It took me a few times to figure out that if I used a credit card it always gave me this message.

Hoping the summer will bring more angry physics :)

Anonymous said...

I am not sure I agree with this analysis. Madoff, on paper, guaranteed his investors something like 12% return a year after fees & I gather he diligently showed this gain on his clients’ accounts. Thus to some extent the loss was a paper lose. He created bogus gains & these were wiped out when he went under. These bogus returns probably accounted for maybe $10B or $20B of the losses. While extravagant, 12% percent a year is not a completely ridiculous compounding rate so probably at least half & possibly more of the $50B was not bogus paper interest gains though. The rest of the principal that was invested needs to be accounted for.

The people who got out early did make windfall & unwarranted gains (they got to keep the unrealistic 12% annual gains & their principal) but I suspect most of the rest of the loss was probably from “coupon clippers”. Some number of the investors (& most of the charities I suspect) left the principal in their account & extracted their annual interest return each year. These clients got their money back at 12% a year yet on Madoff’s books they showed a never declining principal & in the end the books say they lost 100% of their principal. These clients lost far less than the books say & far less than they claim. Twelve percent was a completely unrealistic rate of return in just about any market so these clients were receiving gains above supportable market rates.

Sure these guys probably lived a higher life than they could really afford but they got to spend a fair portion of their principal. They thought they were the ant yet they were really the grasshopper. Sad but not as tragic as some are claiming. The really big losers of their principals were probably a small percentage of the total. These are the people who supported Madoff's life style.