As the share price goes, so goes the company

Citigroup's share price has plunged over the past week, from an already abysmal $10 to about $4. This gives it a market capitalization of $20 Billion, for a bank with $2 trillion in assets. This same behavior precipitated the takeover of Bear Stearns, Fannie/Freddie, and as I've written about before, in the UK.

Bloomberg has an article speculating on the takeover of Citi by the federal government:

The U.S. government may step in to rescue Citigroup Inc. after a crisis in confidence erased half the bank’s stock-market value in three days, according to investors and analysts.

The only possible justification for this would be Citi becoming insolvent. If any company is too big to fail, it's the the ginormous financial behemeth which is Citigroup.

But what the hell does the share price have to do with anything? Really? The only problem is if they don't have enough capital on hand to cover immediate obligations. As a fractional reserve bank they're vulnerable to bank runs, even if they're solvent (in theory). The shareholders would get wiped out, so if people were worried about Citi going under it would make sense to sell.

It doesn't work the other way, though. If the market thinks Citi is insolvent, so everybody sells their shares, that doesn't affect the capital they have on hand to meet liabilities. At all. A drop in share price could trigger other things, like creditors recalling loans, which would affect the capital ratio, but the share price itself is not something the government should care about.

Error rating: 7. MARKETS FLUCTUATE

-Enginerd

In a controlled, unrealistic setting, people behave differently

The Sydney Morning Herald had an interesting story a few days ago. Everybody knows that thin models are the way to sell things. But apparently, empirical evidence disagrees:

Phillippa Diedrichs created a series of mock ads, using regular models - typically size eight - and so-called "plus size" models, about size 12. She then presented three ads - for a hair-care product, a party dress and underwear - to 400 young people. She found there was no difference between their responses, with those who viewed the larger models reporting themselves just as interested in buying the goods as those who were presented with the skinnier women.

Got that? People rated themselves as no more likely to buy something? Well I guess that settles that.

Anybody who's ever had to study people knows that what they say they're going to do is different than what they actually do. The Bradley Effect is one example, Malcolm Gladwell in The Tipping Point also documents a case where showing people the effects of rabies made them say they were more likely to go to the health center to get a shot, but not more likely to actually do it.

The idea behind the experiment is a good one, but it would have to be structured in such a way as to see whether test subjects actually would spend money on the products. This is a faulty experiment from the get-go.

Error rating: 2. Hearts in the right place, but come on now. This is just a rookie mistake.

-Enginerd

Voting rights are sacred

There are 4 senate races still to be decided. Wired has a good article summarizing:

Voting machines that recently failed pre-election accuracy tests in Michigan are at the center of a disputed U.S. Senate race in Minnesota that hangs in the balance over fewer than 500 votes at press time.

It really amazes me that after 200 years we can't get elections right. In fact, we seem to have gone backwards. That's not really what I wanted to talk about though. The closing line:

Oregon uses mail-in paper ballots statewide that are read by a variety of optical-scan systems from ES&S and Sequoia Voting Systems. It's the first state that's gone entirely postal.

Lolz. There must've been a better way to phrase that. On the other hand, perhaps that was the best way.

Error rating: Either 0 or 4, depending on your sense of humor.

-Enginerd

I don't like it, so I choose to believe it can't happen

Well, Barack Obama will be the next president of the united states. I speak for about 52% of the country (and who knows how much of the rest of the world) when I say w00t! Now onto the criticism.

The Vancouver Sun just published a column explaining that Obama can't possibly deliver on all of his promises. I tend to agree that even with Obama's proposed taxes he can't possibly deliver universal health care, alternative energy, and a puppy in every house, the Sun seems to believe that he can't even raise taxes:

His plan to raise capital gains taxes, the first such tax increase since 1986, is a non-starter. Similarly, he will have to moderate his proposed tax increase for households with incomes above $200,000.

Um, what? He will have to moderate his plan to repeal the historic tax cut of 2001, which is set to expire in 2010 without renewal? Why, exactly will he have to do that? And what about raising the capital gains tax is a "non-starter"? A faulty spark plug, or a vague, unspecified problem which has yet to determined but will nonetheless ruin everything?

You know what else is a "non-starter"? Limiting executive pay. But it passed in the bailout.
In fact, the bailout itself was a non-starter according to Pelosi. While it's true the government put in some oversight, the plan that passed was pretty similar to his proposal.

Error rating: 3. This whole article is saying "no, that won't work" without saying why.

-Enginerd

Saying you don't want somebody elected is a political statement

In a grand display proving that racism is still alive and well, at least in some parts of the US, ABC news reports that a man has hung an effigy of Barack Obama in his lawn from a noose, in the shape of a ghost. Paraphrasing the report, "In an off-camera interview, he said that he do it for political purposes, but because he doesn't want an African American to become president".

I don't want charity, but please give me a hundred thousand dollars. I'm not sexist, but women are inferior to men. I don't want to say anything controversial, so I'm going to preface a political statement by saying that it's not political.

Honestly, what exactly does constitute a "political purpose"? I'm not going to give a precise definition, but I would say any public comment about a candidate for president is political. I'm not saying that's such a bad thing, there's nothing wrong with criticizing a candidates policies, experience (or lack thereof), or statements. But the statement he was making (assuming you believe the ABC news report) was that black people shouldn't be able to be president. How much more political can you get?

Error rating: 10. "I'm not trying to make a statement, but here's my statement." Honestly. This is of course predicated on accurate reporting by ABC news.

-Enginerd

PS They didn't mention the fact that the effigy had a star of david on the top of its head.

Market manipulation shouldn't be government policy

The weekends over, and that means the latest in the wave of world government clusterfucks rescue plans is being announced. The UK is partially nationalizing the Royal Bank of Scotland and HBOS. I can understand why that might be necessary (too big to fail, systemic risk, yada yada) but the justification given is the dumbest thing I've ever heard:

The Government was forced to take bigger stakes in the banks than it originally intended because of a dramatic slump in banks’ share prices last week. It also increased the amount of money it demanded the banks raise in an attempt to rebuild shattered confidence in the financial system.

That's stupid. Their share price is irrelevant. Look at their damn books, and see how solvent the bank is. Remember when people cared about assets and liabilities? A run on a banks deposits is reason for a bailout; a run on their stock most certainly is not. It gets better:

Mervyn King, the Bank of England Governor, has reportedly told the banks to ask for more than they need, meaning their capital position would be strengthened sufficiently to absorb shocks and a long recession

Take the money now, and because somebody might ask questions later. If we don't give "emergency" loans, disbursed over a period of days, people might actually be able to consider the consequences of our actions. Oy.

Error rating: 7. MARKETS FLUCTUATE

-Enginerd

You'd think our leaders would understand finance

The financial crisis is all everybody seems to be talking about these days, and the buzzword of the month is "bailout". British Prime Minister Gordon Brown is no exception. With regards to his attitude, CNN reports:

Sarkozy said the economic crisis required a global response, but Brown said that no strong bank should be allowed to fail for lack of solvency.

I am speechless. How exactly do you define a bank as "strong" without including solvent? Many individuals (and likely some companies) are technically "insolvent"; all you need is more debt than assets. This doesn't drive you to bankruptcy necessarily, if you have a job to bring in income to service your debts, you may do fine.

But for a bank, solvency is critical. They make money off the spread between interest paid to depositors and paid by borrowers. The only way to re-achieve solvency in any reasonable time is through high-yield (re: high risk) lending. Many S&Ls tried this; it didn't go well. Or you can hope that the loans you wrote off will somehow magically increase again in value. That's likely.

If a bank is insolvent, it should be shut down.

Error rating: 6. Shouldn't be shut down for lack of solvency? Double You Tee EFF?!

-Enginerd

We're doling out that "bad economy" line because the economy is bad

Donald Luskin at WaPo is apparently in the Phil Gramm camp, saying that the country has a lot of nerve bitching about the economy, and that it's really not so bad. In general, I actually agree, but with that rather crucial caveat that things are likely to get a whole lot worse before they get better. How much worse, nobody knows, but that's why we worry. A paragraph of the article which sums up the gist:

Things today just aren't that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression -- or exaggerated Depression comparisons.

First, companies which own or guarantee $5 trillion dollars of mortgage debt are more than "trouble spots". Remember when Bernanke said that certain housing markets are "frothy"?
I'd like to focus on one particular statistic he cites:

Here's another one not to be too alarmed about: Obama is flat-out wrong when he frets on his campaign Web site that "the personal savings rate is now the lowest it's been since the Great Depression." The latest rate, for the second quarter of 2008, is 2.6 percent -- higher than the 1.9 percent rate that prevailed in the last quarter of Bill Clinton's presidency.

Here's a graph of the personal savings rate (from the St. Louis Fed):


Pretty fair guess that that spike is from the rebate checks. Anyway, Obama might get the exact statistic wrong but he gets the idea right. The personal savings rate has dropped steadily since 1980. People don't have money to save anymore.

People can use truthful statistics to lie, simply by selecting noise points. Luskin needs to get a more complete data set. Or he's a liar.

Error rating: 3

-Enginerd

Short-sellers, speculators, and other bogey men

Assuming you spend lots of time on the intartubes (like I do), the SEC ban on short-selling financial stocks is old news:

The U.S. Securities and Exchange Commission took what it called "emergency action" Friday and temporarily banned investors from short-selling 799 financial companies.

The temporary ban, aimed at helping restore falling stock prices that have shattered confidence in the financial markets, takes effect immediately.

You may recall that they did this a few months ago. It bounced the stock market, in particular the financials, or maybe that was the FRE/FNM bailout. Who knows. Anyway, this particular market intervention appears to be having the same effect. The S&P 500 is up 98 points (8.5%) over the past two days. Again, that could also be the governments plan to take the losses themselves.

People always get this backwards. When a bubble inflates, it's seen as the economy growing, new wealth being created everybody winning. That's a lie. When it bursts, people complain that wealth is being destroyed. That's also a lie. It never existed in the first place. And they also blame short sellers and speculators, cause hey, everybody knows that profiting off the misfortune of others makes you evil. That's why everybody hates doctors.

Short sellers make markets more liquid, and more efficient. Naked shorting is a different story (and should be banned altogether), but there's nothing wrong with regular short selling. This is especially heinous because only financial stocks are being propped up, artificially inflating their values. It won't help them raise equity, because investors won't pay artificially inflated prices.

Error rating: 3. I know you mean well, but you're hurting in the long run. Plus, the people in charge of the economy are supposed to understand economics.

-Enginerd

There's a reason to date your articles

Apologies about the unusually long delay between postings

By now the story about United Airlines going into bankrupty is old news; both the fact that it happened 6 years ago, and the fact that through a series of unfortunate events, Bloomberg reported that it was happening again last week. Anytime something like this happens, the SEC usually stomps around a few times to find out what went wrong, and assure people that it will never happen again (lol). WaPo reports:

Now, the WSJ reports, the SEC has opened a preliminary investigation into how the story resurfaced. It may not turn into a full investigation but a lot of investors felt the impact Monday and those trades aren't being reversed.... The Tribune says the story made it into the current news flow because of one person visiting the article at 1 a.m. Sunday morning and that pushed the story into the business section's "most viewed" list, which is where Google News found it Sunday afternoon after someone else clicked on the link. In an interesting insight into Google News, the first inbound link came in three minutes later. But the major trouble began when Income Securities Advisors put it on Bloomberg News?and getting it there had nothing to do with bots.

There is an astonishingly simple way to solve this problem forever. Date your news articles. Print newspapers don't do this because the paper itself is dated, and dating every article would be redundant, but if you're going to post articles online, all you have to do is include a tag with the date. Ideally, the tag would be in format easily readable to both humans and computers (i.e., make 2, one in html unseen by humans and one at the top just below the headline) so that crawling newsbots could easily figure out what's new, and so could any human who read the article. In fact, most news articles you find online do this already, on account of not being idiots. It might be hard for a computer to easily figure out the date of the article, but that's where the html date stamping comes in.

Seriously, this is not a complicated problem. Error rating: 6. SERIOUSLY, THIS IS NOT A COMPLICATED PROBLEM. Nothing irritates me more than easily solved problems which have not been solved.

-Enginerd

The idiocy of John Stossel

Most people would say they are in favor of energy independence, because any type of independence sounds good. John Stossel isn't:

Most every politician and pundit says "energy independence" is a great idea. Presidents have promised it for 35 years. Wouldn't it be wonderful if we were self-sufficient, protected from high prices, supply disruptions and political machinations?

The hitch is that even if the United States were energy independent, it would be protected from none of those things. To think otherwise is to misunderstand basic economics and the global marketplace.

The US could never be completely protected from supply shocks, but if we could produce enough energy to supply ourselves, then we could outlast an energy embargo indefinitely. Maybe that's overkill, but it's true. While I see Stossel's point that energy independence might not be a good use of resources, he makes much more blatant claims about it being actively harmful:

To be for "energy independence" is to be against trade. But trade makes us as safe. Crop destruction from this summer's floods in the Midwest should remind us of the folly of depending only on ourselves. Achieving "energy independence" would expose us to unnecessary risks -- such as storms that knock out oil refineries or droughts that create corn -- and ethanol -- shortages.

This is confusing several things. Stossel makes the logical leap that in order to create energy independence, the US would have to ban energy imports, and then generalizes that to imports in general, bringing us back to his main point: free markets always best, any government intervention bad*.

Achieving "energy independence" would expose us to unnecessary risks -- such as storms that knock out oil refineries or droughts that create corn -- and ethanol -- shortages.

No, that would be energy protectionism, where we forbade import of energy of any kind. That's not the same thing.

The plan to create energy independence would be to invest in domestic supply. Taxing imports would certainly help, but since it would make gas more expensive it's not on anybody's to-do list. One of the merits to the argument is that if the US is running low on energy, this should spur the market to invest in new sources which are now profitable. So the US would produce more energy, but no government intervention needed. Any intervention would be using resources less optimally than they could be. TANSTAAFL (which, at least how I pronounce it, rhymes with "John Stossel").

One of the major drawbacks to this argument is that the free market won't take certain things into account: climate change, long-term political instability. Oil prices may have gone way up over saber rattling between Bush and Ahmadenijad this year, but we hated them and they hated us just as much in 2000, when oil was dirt cheap. And given that the time scales involved in either researching new technologies, or bringing new oil fields online, are at least 10 years.

Similarly, global climate change was anticipated decades ago by many who were called kooks. Even now, there's not likely to be significant change for another few decades. But changing now will be a lot easier than changing in 2040, because it can be done more gradually, and less damage will have been done in the interim.

The market typically doesn't think decades in the future.

Although Stossel is right that McCains $300 million prize for an electric car battery is stupid, because market incentives are strong enough to make the prize superfluous.

There's other stuff in the article about whether we're transferring wealth to the Middle East by buying oil. Stossel correctly points out we buy mostly from Canada and Mexico, but because our demand pushes up prices globally, we are transferring wealth to the Middle East indirectly. Also, since we get something for the purchase, are we really transferring wealth? Economics 101 would say no, but econ 101 assumes people are rational, have perfect information, and make perfect choices. So I could argue the point, but it's possible.

Error rating: 3. Article is really an average of 6s and 0s.

-Enginerd

*The fact the people equate "free markets" with "lack of government regulation" baffles me, but people always seem to think that.

No good deed goes unpunished, or TANSTAAFL

BusinessWeek has an article about California's public pension funds, and how following a socially conscious agenda allegedly has cost them money:

Eight years ago, then-state treasurer Philip Angelides launched his "Double Bottom Line" initiative, espousing a philosophy of profits and social reform. ... The strategy has been a drag on the returns of the funds, which overall have still trumped the S&P 500-stock index over the past five years. CalPERS, the largest pension fund in the U.S., left $400 million on the table by screening out investments in China, Colombia, and other countries. CalSTRS revealed that its cigarette ban cost it $1 billion in lost gains. With California home prices down nearly 40% in the past year and commercial properties off 15% , the funds' real estate bet could fizzle.

The first thing to notice is that the funds still outperformed the S&P 500. So relative to a completely passive investment strategy, the funds did perfectly fine.

What the article really says is that the funds changed strategies in 2000, and underperformed the returns they would've had if they hadn't changed strategies. Alright, fair enough. The slave trade was an extremely lucrative business back in the day, and if pension funds existed at the time, they likely would have invested in the slave trade.

It may be more moral for a poor person to make money immorally than a rich person, but to a point. Stealing a loaf of bread to feed your family is one thing, investing in companies which treat their employees like slaves is another. Now, I'm not saying that investing in tobacco companies or companies with questionable (at best) labor practices is the same as buying and selling slaves, but the principle is the same. You're making money off of other people's suffering. That's wrong, no matter who you are, or how much you need/want the money.

The article closes with a quote: Says Joel Kotkin, a fellow at Chapman University: "What you're seeing is good intentions going bad."

No, what you're seeing is the cost of good intentions. Nothing comes free, including being a good person.

Error Rating: 6. Really, BusinessWeek should be able to recognize that helping others often means hurting yourself.

-Enginerd

No, stock buybacks are not a scam

I normally agree with the angry rants posted at lewrockwell.com, so I was surprised at the most recent article entitled Stock Buybacks are a Scam, by Eric Englund. The gist of his argument is summarized thusly: a bunch of large financial institutions underwent major buybacks over the past 6 years*, and now all of their stocks are tanking. Therefore, stock buybacks are bad for shareholders. Stated that way, it sounds stupid, to anyone who remembers that correlation does not necessarily equal causation.

He makes other points, such as that if buybacks are so good for companies, shouldn't management execute them when times are so tough? But of course that would be stupid, because during tough times a company should watch it's balance sheet and hold on to cash for dear life. Therefore, stock buybacks are always evil. This type of paranoid ranting bothers me, because it distracts from more deserving paranoid rants.

When a company earns money, it has 2 basic choices: re-invest to grow the company, or distribute the earnings to shareholders (or maybe employees). In order to distribute the earnings, the company can just pay the money out in cash as a dividend, or repurchase shares to drive up the price and value of remaining outstanding shares. Prior to the Bush tax cuts, the latter choice was clearly optimal because dividends were taxed at a much higher rate than capital gains; nowadays they're usually taxed at the same rate, so the choice is less clear.

The basic idea of a stock buyback is that a company believes its shares are undervalued, and thus shareholder value can be increased by buying shares. The understand this, lets say that the shares were exactly correctly priced at 1 share = present value future earnings. Buying 1 share at $100/share doesn't gain or lose the company anything, it pays $100 for $100 of future earnings. If the shares were undervalued, say at $90, then the company pays $90 for $100 of earnings. Of course, the company is only likely to be undervalued during "tough times", so management needs to make sure they have enough working capital (as always), but any surplus should be invested as profitably as possible.

Seems like a good idea to me. The act of the buyback will drive up the share price, benefiting current shareholders. Englunds argument about weakening the balance sheet is true of any business activity which requires capital, also known as any business activity. Still, buybacks are only a good idea if shares are undervalued, and the capital used could not be reinvested more profitably somewhere else.

Englund closes with a story told by Buffett (how could anybody disagree with Buffett?), about a CEO who uses share buybacks to drive up the share price and hide the declining earnings of the company. This is a valid concern, but Buffett's point relates to executive compensation, and gave an example of a CEO making a killing even though the company's earnings declined, because the CEO drove up the share price through buybacks.

This is an example of how stock buybacks can be used to hide declining performance. Most investors only care about a companys' share price. As long as it goes up, they're happy. A company which spends all of its' earnings on buybacks to drive up the price is not growing, and what investors are losing is opportunity. This is a real cost, and an investor should not be happy about a CEO sacrificing opportunities for long-term growth to create short-term stock gains.

A buyback is intended to transfer earnings from shareholders, and that's exactly what it does. Dividends do the same thing, but I'd be surprised if anybody would call massive dividends a scam. Usually the opposite is claimed, since payout ratios have been decreasing over time. They're ways to return earnings to shareholders. Obviously, management needs to strike a balance between retaining earnings for growth and paying out earnings to shareholders.

Yes, buybacks can be used to cover up declining earnings, and as such, they can be used to mislead shareholders. That doesn't make them bad in general, just like hammers aren't inherently evil because you can use them to kill people. They're a tool, simple as that.

Error rating: 3. The entire argument is based on 7 companies which are going through hell right now, assuming correlation equals causation, generalizing from 7 companies all in a single industry to the entire stock market, and mis-interpreting an example from Buffett. On second thought, all that together adds up to a 4.

-Enginerd

* He gives figures for J.P. Morgan, Citigroup, Lehman, Merill Lynch, Morgan Stanley, Wachovia, and Washington Mutual

The time to worry about creating a moral hazard is when it's hardest

The most recent casualty in the never-ending credit crisis is IndyMac (times like this I'm glad the FDIC exists). There has been a great deal of talk of Freddie Mac and Fannie Mae going under. As Steve Pearlstein over at the Washington Post says, "We're nearing that delicate point in the cycle when even the usual cheerleaders have hung up their pompoms...".

However, the overall gist of his article culminates in one final paragraph:

"A financial crisis is not a morality play. What matters most isn't the precedents that are set, the amount of taxpayer money that's implicated or whether people are made to suffer fully for their financial misjudgments. In the end, what matters most is that we get through it as quickly as possible with an economy and a financial system intact."

I somewhat agree. There's no point in going out of your way to punish people for what you see as excessive greed. However, that's not really the concern. The concern is that taxpayer resources, either explicitly taken through taxation or implicitly through Fed money creation, are used to bail out institutions which brought destruction on themselves.

Nobody likes to hear it, but TANSTAAFL (there ain't no such thing as a free lunch).
During any crisis, there is a real temptation to do whatever is necessary right now and forget about the long term consequences. That is what Pearlstein is advocating. That type of attitude might lessen this crisis, but it inevitably bring about another one (check out this article on how this happened with Fannie Mae and Freddie Mac). It is shortsighted and frustrating.

The "bailout" of Bear Stearns is roughly how these things should go. The employees, and especially the shareholders, got royally screwed. Many employees obviously had no hand in the activities which led to a downfall, but when you work at a company you know your job security is dependent on more than just your performance, and the shareholders knew what risk they were taking. Whether the cost to the taxpayer (up to $29 billion) was justified remains to be seen, but there was no moral hazard created by this action*.

The only time when new structures can be put in place to minimize the boom-bust cycle is during the bust. During the boom, it's called anti-business. Now is the time when we need to focus our efforts on maintaining the long-term health and well-being of our populace, and if that means the complete destruction of our present financial system (it almost certainly doesn't, but painful reforms are likely necessary), so be it.

So, Mr. Pearlstein, I give you an error rating of 2. I know you mean well, and you're not totally wrong, but your priorities are a bit out of whack.

-Enginerd


*What many don't realize is the only people who got bailed out were Bear Stearns bondholders, i.e., people that lent them money. This is what will happen if the GSEs need bailing out. However, since the GSEs have $5 trillion of debt owned or guaranteed, that's basically everybody. For reference, the value of all publicly traded companies in the US was $20.5 trillion as of March 2007 (Seeking Alpha), so we're talking real money here.

Common Misconception

I, and many other people, have been trying to erase the historical basis for the calendar of much of the western world. From Conservapedia:

The term "Common Era" (CE) is an attempt to erase the historical basis for the primary calendar dating system in the Western world. "Common Era" has no real meaning, and even the origin of this term is unclear. The 1972 Webster's Seventh New Collegiate Dictionary has no entry for "Common Era."

Before going further I should point out that Conservapedia is basically full of shit on every article it contains. The talk page of this particular article contained many statements of people pointing out that this article is basically BS, and gets facts wrong to try to create a conspiracy which isn't there. Conservapedia appears to many conservatives a bad name.

According to Wikipedia (if you think it has a liberal bias, just check the references), C.E. has been used sporadically since 1615, first use by Kepler, although he used a latin phrase "anno aerae nostrae vulgaris", which roughly means "year of our common era" (I could be wrong with the translation).

My main problem, though, is with the idea that people who use the abbreviation C.E. are trying to destroy Christian culture in some way. The alternative to C.E. is A.D., which stands for "Anno Domini", or "the year of our lord". By using this abbreviation, you are implying that your lord is Jesus Christ. For any person not Christian, this would be blasphemous.

Yet there are many non-christians in the western world, who use the Gregorian calendar because it is the cultural norm. Any if C.E. stands for "Christian Era", you are rightly attributing the source of the calendar to the Christian religion. Everybody's happy. No need to start a crazy website, promoting this crazy conspiracy theory as well as Barack Obama being the first Affirmative Action President. So really, C.E. is perfectly fine.

Error Rating: 8. Would've only been a 6 for crazy conspiracy inventing, but they didn't even get basic facts right.

-Enginerd

Statistically speaking, god must exist

Well apparently I was wrong. The Qur'an logically must be correct, and therefore god must exist:

The Qur’an speaks about hundreds of things that were not known to men at the time of its revelation. Only in three options the result is .0017%. I leave it upto you, to work out the probability if all the hundreds of the unknown facts were guesses, the chances of all of them being correct guesses simultaneously and there being not a single wrong guess. It is beyond human capacity to make all correct guesses without a single mistake, which itself is sufficient to prove to a logical person that the origin of the Qur’an is Divine.

The 3 options mentioned are the Qur'an saying the world in round (known by the ancient greeks, and any sailor who's seen a ship sail over the horizon since the dawn of time), the fact that the moon gives off reflected light (given that you can see the features on it and not the sun or other stars, not too unreasonable), and the most unlikely correct statement, that all life is made of water.

It's difficult for me to point out how obvious it is that life on Earth is based on water. We drink it, we see animals drink it, we bleed liquid, we sweat it, animal meat is moist, corpses look different after they've had a chance to dry out...you'd really have to be a moron not to figure out that water is important.

The main logical error being committed here is assuming that prior to roughly 1700 A.D., people were complete idiots. Eratosthenes figured out the size of the Earth, in fact. The sad fact is that knowledge can be lost after being gained, and just because group of people knows something about the natural world, doesn't mean all of humanity knows it. This is still true, but was more true before books, newspapers, postal services, telephones, and the internet.

The other error is assuming that you need to be able to build an electronic computer, put a camera in a satellite, and snap a photo to figure out the shape of the Earth. You don't. See a ship sail away? The fact that it disappears from the bottom up (instead of to a point) means the Earth couldn't be flat. You can also observe the shadow the Earth casts on the moon during an eclipse. It's always a circle, something only possible if the Earth is a sphere.

Then there is the logical leap that, even given the Qur'an unlikely getting things correct, it must've been written by the creator. It could've easily been written by a more advanced Earthly civilization, or aliens. Or, even if it was written by a god-like entity, that's not proof that praying 5 times a day and stoning adulterers is correct or necessary.

Error rating: 6. Each logical error is slightly understandable, but there are several.

Suing our way to prosperity

What do you do when your favorite grocery store raises its prices? Do you try to waste less food, switch to generics, or stop buying bottled water? If so, move to Cuba you pinko bastard.

Here in America, when something bad happens, we pick somebody to blame and sue them. Case in point, Congress and OPEC:

The House overwhelmingly approved legislation Tuesday allowing the Justice Department to sue OPEC members for limiting oil supplies and working together to set crude prices, but the White House threatened to veto the measure.The bill would subject OPEC oil producers, including Saudi Arabia, Iran and Venezuela, to the same antitrust laws that U.S. companies must follow.The measure passed in a 324-84 vote, a big enough margin to override a presidential veto.

I feel dirty. This is the second time in the past few months I've found myself agreeing with Bush (other time was the farm bill). The White Houses view:

The White House opposes the bill, saying that targeting OPEC investment in the United States as a source for damage awards "would likely spur retaliatory action against American interests in those countries and lead to a reduction in oil available to U.S. refiners."

Yeah, that sounds about right. Although I'm pretty sure they got cut off before adding that "the Bush family derives most of it's wealth from oil, and so we're making a killing here. Cheney too."

Investigating the cause of current high prices would be a worthwhile activity, and is part of the bill, but Congress has already jumped to its conclusion and pointed the finger. The only effect will be to jeopardize our already tenuous relationship, and drive prices higher. Thanks for that.

Although the real reason for the bill is likely the same as the gas tax holiday. Congress wants to look like it's doing something helpful, but of course it can't.

Error rating: 5.

Winners never quit, except when they do

Many people have been calling on Clinton to quit the race. For quite awhile, in fact. Personally, I'm sort of on her side; the delegate count is very close, and she's closer in popular vote than in delegates. But she's been using dumb arguments. For instance, she's not a quitter:

"You see all those folks on TV, they keep telling me to quit," she said. "Well, I don’t know, maybe I was just raised with the kind of values you were raised -– you don’t quit on people and you don’t quit until you finish what you started and you don't quit on America. And I'm running for president because I believe that I would be the best president and I’m the stronger candidate to beat John McCain."

YOU'RE STILL IN THE SENATE! What exactly have you been doing there for the past 8 years? And what will you be doing there for at least the next 4 (assuming of course, she's not president)?

I've had this argument with people before. One friend of mine took a class in physics, and because it was hard, decided he couldn't quit and had to major in it. Phrased that way, it sounds sort of stupid, right? Did Romney give up on America? How about Huckabee? Or Edwards? Or Richardson? No, they didn't. They accepted reality, and decided how best to use their time and resources.

Her "best candidate to beat McCain" is much better, if people do the math. Democratic primaries are proportional, but the general election is winner-take-all. According to electoral-vote.com, Clinton beats McCain, but Obama loses. I'm surprised the pundits haven't noticed this. It's likely because they don't like doing math.

Anyway, error rating Clinton continuing to run because she's "not a quitter" instead of "I've done the math, I know my chances, and they don't warrant quitting": 3

-Enginerd

Soul Transplant List

Apparently, the ancient egyptians were right, the heart is the seat of consciousness. The Daily Mail reports:

They argue, in effect, that our hearts, livers and every single organ in the body stores our memories, drives our emotions and imbues us with our own individual characters. Our whole body, they believe, is the seat of the soul; not just the brain.

And if any of these organs should be transplanted into another person, parts of these memories - perhaps even elements of the soul - might also be transferred.

There are now more than 70 documented cases similar to Sonny's, where transplant patients have taken on some of the personality traits of the organ donors.

(Sonny received a heart transplant and fell in love at first sight with the donors wife)

Wow, 70 cases! That sure is a lot. No tangible medical evidence to speak of, no proposed mechanism for how organs might have memory, just anecdotal evidence of 70 cases out of many thousands*.

I think it's a load of new age crap that people would love to believe, but that's an unscientific thing to say. Who knows, maybe organs do store memories somehow, biology is pretty complicated. So if these people want to spend their time researching it, fine. But 70 cases is not credible evidence, and until they can propose a mechanism, it's barely science at all.

Error scale: 5. Could be right, be very, very weak evidence.

-Enginerd

* A little over 2,000 in the US in '06. Source: American Heart Association

Environmentalism is for commies

Todays installment comes from a site for small business owners, smbresource.com. It starts off with fairly reasonable statements:

The ethic of your business extends entirely from its profitability. If you're not profitable, you may be green, but you won't have any green, and neither will your employees.

I know it's selfish, but you can't expect a business owner, particularly a small business owner, not to put their business first. And there's nothing wrong with that. Things take a strange turn.

Those on the left, and those who don't run a business, find it easy to behave histerically towards the businessman who puts food on their very tables. They believe as they always have that the productive have a greater responsibility. It's hard to fathom this logic of why a hardworking productive person is responsible for the lazy, but we see it all around us.

You'd think this came from an article about welfare. But it doesn't; he's still talking about environmentalism. Environmentalists get angry at businesses for polluting, or for massive energy use which thereby causes release of CO2. The 2nd factor one can convince business owners to save power by arguing that it will save them money on electricity, but the first case is an externalized cost. Pollution needs to be regulated, and it most certainly is unethical to pollute your community.

My favorite part:

This is the ultimate desire of the "going green" crowd. They don't care about the environment, they just hate success, and in particular, success achieved in the way of productive business ventures.

Of course, we don't like what the opposition is saying, so we demonize them as much as we possibly can. It's the equivalent of saying "my teacher is just out to get me" when you get a bad grade. It would be lovely to think that people who oppose pollution in all its forms hate businesses and hate productivity, but it doesn't make dick for sense. They may put a higher value on endangered species, trees, or clean water than you do, but that doesn't mean they "hate success". Had me going for awhile there chief.

Error Scale: 2 & 9. 2 For most of the argument, 9 for the crap about how environmentalists hate businesses, success, Mom and apple pie.

-Enginerd

Cheap oil is a right

The Ayn Rand institute is very angry, and of course everyone was following 9/11. Nevertheless, some people react more strongly than others:

Fifty years ago, Truman and Eisenhower surrendered the West's property rights in oil, although that oil rightfully belonged to those in the West whose science, technology, and capital made its discovery and use possible. The first country to nationalize Western oil, in 1951, was Iran. The rest, observing our frightened silence, hurried to grab their piece of the newly available loot.

Natural resources are a bit tricky in my mind. Obviously, whoever invests in the infrastructure to harvest the resource deserves some compensation. But who really has the right to Irans oil? The industrial revolution sprung from the west, which made oil a valuable commodity, but does that give the descendants of those inventors the moral right to travel 'round the world taking whatever they need?

This author says yes. I have to say I'm a bit surprised, I would've thought the line of reasoning would be a bit different from the Ayn Rand institute, something more like "whoever has the ability to take it has the right", but I guess I haven't studied their philosophy enough.

A more logical approach would hold that the people of a country deserve the profits derived from their natural resources. The US creates inventions that the world runs on? The profits derived from selling those products is the compensation. Say we can't do that without oil? Well, then it would be in the best interest of OPEC (et. al.) to provide cheap oil. But of course, the market sets the price, and oddly enough people only bemoan the free market when the results turn out against them. People pay a fortune for pharmaceuticals from the US that cost pennies to produce? Well, you've got to let the market set the price, or else we'll have shortages. Oil is expensive? We deserve oil because we provide the world with so much else.

Error Scale: 3. More arrogant and hypocritical, but moral arguments are always debatable

-Enginerd

Let the masses rule? Impossible

So apparently some radicals think that the public should decide how best to govern the nation:

The foundation has posted its Transparency in Government Act of 2008 on the Web at publicmarkup.org and has invited the public to tweak, add to or criticize any aspect of the proposed bill. The goal, said Ellen Miller, executive director of the foundation, is to change the backroom, secretive way that legislation is typically passed in Washington.

Now, some people think this is a bad idea:

The idea was not as well received by Paul Miller, past president of the American League of Lobbyists. Miller says lobbyists are unfairly portrayed as backroom-deal makers.

There is more transparency in legislation than ever before, Miller said. But he disagrees with putting bills up for all to rewrite.

"I don't think the way you advocate is to put everything online and say, 'All right American people, weigh in on that,' because then what's next?" Miller asked. "Are we going to let the American people decide our defense policy, our trade policy, our immigration policy?"

I'm just going to assume he was quoted out of context, and meant something more like "Policy decisions require a broad base of knowledge and careful, critical analysis, that members of the public simply do not perform." But still, telling the public that they shouldn't have a voice in government decisions IN A DEMOCRATIC COUNTRY seems just a tad idiotic.

Error Scale: 4 (assuming there was some redeeming context)

The Error Scale

While I would love to post only mistakes which are logical errors in the mathematical sense, those are rarer, and much less amusing, than stories which are just dumb. For instance, you only occasionally see news stating that since toxic chemical cause cancer, and somebody has cancer, then they must have been exposed to toxic chemicals. It's quite common, though, for a reporter to find out that researchers have discovered a way to turn a normally attractive force, which allows geckos to stick to walls*, and turn that into a futuristic world of us riding flying geckos. But that's just an issue of the reporter being dumb, ignorant, lazy, and/or sensationalistic.

So in general, this blog will focus on cases of idiocy, ignorance, laziness, ridiculous sensationalism, and other types of nonsense not strictly related to syllogistic errors.

To aid in that endeavor, I have developed a simple scale on which to rate mistakes. As with all scales, it ranges from 1 to 10, with 1 being "might be right, but you said it was proven and it's not" and 10 being "the continued existence of this author is a near disproof of Darwinism".

Some examples of each level

1: "Measured atmospheric CO2 levels have been increasing in lock-step with human CO2 emission levels and global temperatures. Therefore, human CO2 emitted must be increasing atmospheric CO2, warming the Earth". While I actually do believe this, if some other factor warmed the Earth, it would almost certainly increase CO2 levels, which would then feedback warming the Earth more, and so on. Notice no humans were involved in this hypothetical situation.

5: "The vice president is not part of the executive branch." If you read the constitution without thinking too hard about this, it's obviously a false statement. If you agonize over the meaning of each and every word, you start to wonder. If you actually think about the consequences, as CREW did, of course it means there's some magical 4th branch, or that Cheney is should be subjected to all kinds of oversight. If you actually think for a second, you realize that 200 years of precedent put the VP in the executive branch.

7: "The streets are safe in Philadelphia. It’s only the people who make them unsafe." Mayor of Philadelphia. Gee, I wonder if he knows how to take something not perfectly, 100% literally? My guess would be not.

10: "We can't make pot legal. If marijuana were legal, people would smoke it." 'Nuff said

-Enginerd

* The Casimir force. It's quantum mechanical in nature, essentially the random variations in quantum foam don't cancel out completely at very short length scales.

How to prevent lawlessness

The Washington Post reports:

"A crucial yet overlooked deadline looms over the Iraq debate: Unless further action is taken, the war will become illegal on Jan. 1, 2009. ...
The most recent U.N. resolution expires on Dec. 31, and the administration has announced that it will not seek one for 2009. Instead, it is now negotiating a bilateral agreement with the Iraqi government to replace the U.N. mandate."

This is an interesting point, which I was unaware of. Much more interesting is the authors solution:

"There's a simple solution to all these problems: Extend the U.N. mandate for 2009. That would put the use of U.S. armed forces on firm international and domestic legal footing. And it would allow the next president and Congress time to consider the future in a deliberate way.

Reps. William Delahunt (D-Mass.) and Rosa DeLauro (D-Conn.) have proposed legislation to do just that. This initiative deserves bipartisan support. It represents the only practical way to confront the lawless unilateralism that the administration plans for New Year's Day."

This was a bit of a curveball. The logical progression appears to be as follows:

1. The U.S. occupation of Iraq becomes illegal Jan. 1, 2009.

2. The U.S. occupation won't actually have ended by then [implied, and I don't think anyone will argue that this is true].

3. We must change the law to make the occupation legal.

Classic government. Most other institutions are in a rather awkward situation when they break the rules; they actually have to face consequences. The government can, and according to the Post should, just changes the rules to fit whatever they decide to do at the moment.

Also, if your problem is "lawless unilateralism", pre-emptively making legal the action which was to be lawlessly and unilaterally imposed doesn't actually solve anything. You might just as well solve all crime by abolishing laws.

Pretty dumb, but the main problem the article is concerned with is the president exercising authority which he doesn't technically have, not the consequences of that authority. Sort of like a piano teacher telling their young student not to do drugs. Not a bad thing to do, just outside their authority.

On the error scale, I'd give it a 7.

The LHC and TEOTWAWKI

So, those wacky scientists are at it again, trying to destroy the world. The NYTimes reports:

"The world’s physicists have spent 14 years and $8 billion building the Large Hadron Collider, in which the colliding protons will recreate energies and conditions last seen a trillionth of a second after the Big Bang. Researchers will sift the debris from these primordial recreations for clues to the nature of mass and new forces and symmetries of nature.

But Walter L. Wagner and Luis Sancho contend that scientists at the European Center for Nuclear Research, or CERN, have played down the chances that the collider could produce, among other horrors, a tiny black hole, which, they say, could eat the Earth. Or it could spit out something called a “strangelet” that would convert our planet to a shrunken dense dead lump of something called “strange matter.” Their suit also says CERN has failed to provide an environmental impact statement as required under the National Environmental Policy Act."

This black hole business has been going around for awhile. The second somebody mentions black hole, people picture an interstellar vacuum cleaner which sucks up everything all the time.
For example, if our sun turned into a black hole, it would suck the Earth in and we'd all be dead, right?

Well, putting aside the process of the sun going nova (which actually would destroy the Earth), actually it wouldn't matter at all. A body's gravity is determined by it's mass, so if our sun were a black hole, we'd really be fine.

The tiny black holes which the LHC will produce will have the mass of a few protons, and will evaporate through Hawking radiation rather quickly. A black hole with the mass of a few protons has the same gravity as that many protons. Otherwise known as none.

As for the stranglets they mention, I admit I don't know anything about this. But, as the times mentions, we can look at cosmic ray interactions. The LHC will produce collisions at a bit over 1 TeV; that's 10^12 eV. Cosmic rays of this energy and higher impact the Earths atmosphere regularly.

So yeah, I'm not too worried about the LHC destroying the world. Except perhaps, the world of ignorance.

-Enginerd

The Original

I got the idea for this blog from here. The winner of the Creashun Finalists poster, all the way at the bottom. I'll reprint the text for posterity:

"According to God's Word, thorns came after Adams sin, about six thousand years ago, not millions of years ago. Since we have discovered thorns in the fossil record, along with dinosaurs and other plants and animals, they all must have lived at the same time as humans, after Adam's sin."

Caption:

Logic
You're doing it wrong