The value of uncertainty

At Edge.com, John Brockman recently had a fascinating conversion with Emanuel Derman, who noted that "many physicists and other scientists . . . have flooded Wall Street in recent years." Derman described their work as follows:

They are known as "quants" because they do quantitative finance. Seduced by a vision of mathematical elegance underlying some of the messiest of human activities, they apply skills they once hoped to use to untangle string theory or the nervous system to making money.

Derman then quoted particle physicist Heinz Pagels on the importance of maintaining uncertainty on Wall Street:

Mathematicians and others are endeavoring to apply insights gleaned from the sciences of complexity to the seemingly intractable problem of understanding the world economy. I have a guess, however, that if this problem can be solved (and that is unlikely in the near future), then it will not be possible to use this knowledge to make money on financial markets. One can make money only if there is real risk based on actual uncertainty, and without uncertainty there is no risk.

This quote fuels my suspicions regarding the unnecessarily complex nature of modern financial instruments.

Continue ReadingThe value of uncertainty

The college version of the subprime mortage mess

Investor Steve Eisman whose huge wager against the subprime mortgage market was described by Michael Lewis The Big Short has launched an assault on fast growing for-profit college industry. Here's the link at Mother Jones. According to the Eisman, for-profit colleges "raked in almost one-quarter of the $89 billion in available Title IV loans and grants, despite having only 10 percent of the nation's post-secondary students." Here is the main parallel between for-profit educators and the sub-prime lenders:

Eisman attributes the industry's success to a Bush administration that stripped away regulations and increased the private sector's access to public funds. "The government, the students, and the taxpayer bear all the risk and the for-profit industry reaps all the rewards," Eisman said. "This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper."
Here's another similarity between subprime lending and for-profit education

Both push low-income Americans into something they can't afford—in the schools' case, pricey programs that leave the students heavily in debt; what's more, the degrees they get mean little in the real world: "With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters—and I mean that literally—the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable."

In the Mother Jones article, Eisman pointed to the self-reported (and thus potentially under-reported) 50-plus percent dropout rate at for profit colleges as further evidence that they offer poor-quality education. After reading the above article, I referred to Wikipedia's article one of the biggest for-profit colleges: Phoenix University, subsidiary of the publicly traded Apollo Group, Inc. It offers "open enrollment," meaning that it requires "proof of a high-school diploma, GED, or its equivalent." Phoenix graduates only 16% of its students, compared to the national average of 55%. On the topic of de-regulation and quality of education, consider this:

The school was the top recipient of student financial aid funds for the 2008 fiscal year, receiving nearly $2.48 billion for students enrolled. In 2006, due largely to the efforts attributed to the Apollo group, the 50-percent rule (requiring colleges and universities to conduct at least half of its instruction in person in order to receive federal aid or collect federal student loans) was modified. It no longer classifies students receiving instruction through telecommunications methods as correspondence students.

The Wikipedia article offers a lot more information to feed the fires of my suspicion. I don't claim to know any more about Phoenix University than what I have read in these two articles. What I do bring to the table is that I investigated diploma mills as part of my job while I worked as an Assistant Attorney General for the state of Missouri; I don't like the smell of what I'm reading about these for-profit colleges. Based on what Michael Eisman has stated, it would seem to be a good idea for the federal government to tighten its standards for the types of post-secondary schools eligible for federal loans, and to take a much closer look at the quality of education received by the typical Phoenix University student. Is it really worthy of a federal loan guarantee?

Continue ReadingThe college version of the subprime mortage mess

A Graphical History of the Vaccine Brouhaha

I got this Stumble from our own Hank over on FaceBook. A concise and accurate look at the origins of the currently imagined link between autism and vaccines. The Facts In The Case Of Dr. Andrew Wakefield

Continue ReadingA Graphical History of the Vaccine Brouhaha

Overdosing on homeopathic drugs?

I recently ran across this 2009 article about a young woman who apparently tried to overdose on a homeopathic drug called "Traumeel." I'm not trying to make light of a sad situation, but only to use this example to illustrate the widespread ignorance regarding homeopathy. A good description of homeopathy was given by James Randi in his 2001 talk at Princeton: Note the math lesson beginning at the five minute mark. Homeopaths argue that the more dilute a solution is, the more powerful it is. At the 7:30 mark, Randi explains that a "30X" solution is so dilute that it reaches the "number of no return." "30X" is so dilute that it is the equivalent of placing 15 drops of water in a container more than 50 times the size of the Earth. Other homeopathic solutions are available in 1,500x solutions. How dilute is that? It's the equivalent of (12:00) smashing one grain of rice into a sphere of water the diameter of the solar system, shaking it up, and then further diluting that same solution 2 billion more times in an equivalent sized sphere. To bring the matter full circle, at the ten-minute Randi explains how he ate two entire packages of a popular homeopathic sleeping pill (sold at nationwide pharmacies) without overdosing. Believe it or not, the active ingredient was caffeine. At 13:30, Randi characterizes the people who sell these "medicines" "swindlers, liars, cheats, frauds, fakes, criminals." For more on homeopathy, now used by five million people world-wide, consider the many statistics in my earlier post and consider viewing this video by Richard Dawkins. At the 3-minute mark, Dawkins wryly notes that if water really had "memory" of the ingredients it formerly contained (as fans of homeopathy contend), what should we make of the fact that "in each glass of water we drink, at least one molecule has passed through the bladder of Oliver Cromwell." At the 5-minute mark, when discussing whether homeopathy theory is plausible, the Director of a brand new English hospital (who actually was trained as a rheumatologist) unleashes this whopper of a quote: "The fact is that I couldn't stop what I do even if I wanted to. My patients wouldn't let me. They say it helps." BTW, check out the not-so-impressive medical research by the manufacturer of Traumeel. The manufacturer's recipe of a British narrator uttering big scientific words is featured in this video, and it is doubtless irresistible to many potential purchasers. Here's a bit of much needed skepticism regarding Traumeel. Whatever you do, don't utter the word "placebo" to anyone who pays big money for these "medicines."

Continue ReadingOverdosing on homeopathic drugs?