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The "Mathematical Equation" Of Asset Bubbles

Tyler Durden's picture


Just when you thought the central planners had everything squared away in a tidy little package (the jobless rate is rising? Sell vol. Not enough iPhone 77.25S are being sold? Sell vol. Ben Bernanke's voice is shaking? Sell more vol. The Russell 2000 is up only 1%? Dump all the vol!), here comes the Harvard-based NBER ( the same people who determine the start and end of recessions), in conjunction with those economic wizards from Princeton, with what is actually an interesting paper discussing the nature of debt (as opposed to equity) bubbles, i.e., "Quiet Bubbles."

In the paper, the authors postulate the following about credit bubbles (an issue that is obviously quite sensitive in a day and age when central banks are responsible for the gross monetization of some 80-100% of government debt/deficits):

"greater optimism leads to less speculative trading as investors view the debt as safe and having limited upside. Debt bubbles are hence quiet—high price comes with low volume. We find the predicted price-volume relationship of credits over the 2003-2007 credit boom."

Sadly, the authors completely ignore the fact that there are some several hundred trillion in credit derivatives where the true impact of credit and interest rate bubble manifests itself, because as far as we recall when AIG blew up courtesy of a few trillion in CDS the outcome was far from quiet, not to mention tens of billions of synthetic structured products (or maybe everyone has forgotten the CDO3s 2006?), as well as one particular entity, the Fed, whose DV01 is now so large at $2.75 billion, the Fed not only will never unwind, but even the tiniest rise in rates will force the Fed to monetize even more as the alternative is a toxic spiral that explodes the Fed's balance sheet. In other words, perfectly logical things than anyone with some practical experience would note but certainly not the Ivory Tower denizens of Harvard and Princeton.

Yet where the paper turns from the merely wrong, to the supremely farcical, is when the authors Harrison Hong and David Sraer, decide to compile a formula that captures and explains the math behind, you know, bubbles - a purely psychological, and utterly irrational, concept, which demonstrates the same hubris best represented by those Marriner Eccles dwelling professors who believe that three programs can correctly predict and forecast the intangible that is the US economy. But hey - at least it has a ton of complex-looking integrals and variances, so it must be correct.

So for anyone who has dreamed of quantifying the irrational human condition, here is the bottom line of the professors' equation (this jumps straight to the conclusion and ignores the preceding several pages of just as meaningless gibberish):

QED indeed: with central planners like this, is it any wonder why the world, the real world - the one which much to the chagrin of Princeton and the Wachowski brothers, can not be explained by an equation or even inequality, is doomed?

Full "proof" for your LOLing pleasure (and the full paper can be found here):


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Thu, 01/03/2013 - 18:47 | 3120294 IvyMike
IvyMike's picture

Central planning cannot work. Which is why all businesses internally are run like little markets, with no centralized leadership.

Thu, 01/03/2013 - 18:49 | 3120299 Raymond K Hessel
Raymond K Hessel's picture

From the set of all people that exists in the world, there exists a set of people within the set of all people that exists in the world such that these people are completely totally fucking banal when it comes to treating humanity like a herd.



There exists Nazis, Progressives, Liberals, Neo-Cons, Warlords, Traffic Cops, Hall Monitors, TSA, KGB, CIA, FBI, Central Planners, Central Bankers, Bilderburgers, Burgermeisters, Soda-hating Mayors, ad infinitum.

Quod erat demonstrandum, motherfuckers!!

Thu, 01/03/2013 - 19:08 | 3120320 IvyMike
IvyMike's picture

Would you include genocidal capitalism in your list of City-Statist (Civilizationist) horrors?

City-Statism (civilization) has always brutally enFORCED its RIGHT TO TAKE.

"[The Native Americans] didn't have any rights to the land ... Any white person who brought the element of civilization had the RIGHT TO TAKE over this continent."

~Ayn Rand
US Military Academy at West Point, March 6, 1974

"Civilization originates in conquest abroad and repression at home."

~Stanley Diamond
In Search of the Primitive: A Critique of Civilization, p. 1

Thu, 01/03/2013 - 19:17 | 3120367 Shell Game
Shell Game's picture

I LMFAO when I hear people point to the evil white man for coming to the new world and squatting.  As if legions of our forebearers didn't do the same throughout the Asian, Europen and African continents, over and over again across time.  Nope.  It all started with the evil white man.  LOL!


Thu, 01/03/2013 - 19:21 | 3120382 IvyMike
IvyMike's picture

people point to the evil white man

Do you laugh your ass off at Ayn Rand?

She's the brutally racist City-Statist (Civilizationist) who said it. Read her again if you conveniently missed it.

Thu, 01/03/2013 - 19:55 | 3120463 Michaelwiseguy
Michaelwiseguy's picture

I have a PHD on this Asset Bubble topic, well at least a pre Dot-Com bubble CSI Hobbyist certificate, and I can conclusively tell you the equation is wrong.

The equation fails to recognize the "Taunting" factor that is crucial in determining how big the bubble can be grown to.

Blogs like Zero Hedge and housing bubble blogs serve to taunt and play with the financial levers of power testing their manhood, bruising their egos, and causing TPTB to do the exact opposite of good advice from blogs like ours, driving economic bubbles to astronomic levels, before bursting under their own bloated weight.

Remember the "Taunting Factor" when doing your calculations. I know what I am talking about. I have 13 years of blogging experience in this field.

Thu, 01/03/2013 - 20:44 | 3120607 Stackers
Stackers's picture

Is it me or are there an awful lot of "infinity" symbols in those equations ???

Thu, 01/03/2013 - 23:04 | 3120998 Harbanger
Harbanger's picture

It's the magical function in the differential equation.

Fri, 01/04/2013 - 00:19 | 3121113 economics9698
economics9698's picture

I remember this junk in grad school, these guys are brilliant as long as the economic growth is stable and linier, which of course begs the question, why the model and not a pencil and ruler?

Fri, 01/04/2013 - 00:32 | 3121135 Harbanger
Harbanger's picture

I don't see their brilliance, never did.  I only see social engineers and marketeers with formulas and studies custom made to fit their false preconceived notions.

Fri, 01/04/2013 - 03:19 | 3121278 SAT 800
SAT 800's picture

And don't forget, the result has to be pleasing to the head of the dept., also. In fact, this is the most important aspect of the project. This is how we get people like Bernanke; who Milton Friedman's wife thought was an inveterate "brown noser".  (Friedman was his professor).

Fri, 01/04/2013 - 09:11 | 3121531 mickeyman
mickeyman's picture

Even worse, they try to force you to live out their fantasy equations.

Fri, 01/04/2013 - 03:16 | 3121276 SAT 800
SAT 800's picture

I believe the fundamental problem is summed up as, "garbage in-garbage out". their assumptions are so bad that the whole thing is just tedious nonsense. But aside from that; it's just dandy.

Fri, 01/04/2013 - 03:22 | 3121279 SAT 800
SAT 800's picture

hey, you're a smart kid.

Fri, 01/04/2013 - 03:13 | 3121274 SAT 800
SAT 800's picture

No, it's not just you. there are an awful lot of "infinity" symbols in the equations. I like putting "infinity" in quotes; but I don't have time to explain why, right now. But it's alright, because it's just part of a system of arriving at conclusions about things that otherwise wouldn't submit to analysis. I hope this makes you feel better. I mean they're not really discussing the possibility of an "infinity" of anything; or anythings; it's just a formal process for examining things which are difficult to calculate. Like, how much paint does it take to paint a moving train that's constantly slowing down while the stripe you're painting is growing wider as a function of local gravity, for instance.

Fri, 01/04/2013 - 07:34 | 3121434 StandardDeviant
StandardDeviant's picture

Well, they're supposed to be continuous functions.

The part I'm having trouble with is, why does pi keep showing up?  Are there circles or spheres involved -- are they taking the "bubble" metaphor just a bit too literally?

Thu, 01/03/2013 - 20:48 | 3120629 SheepleInAction
SheepleInAction's picture

What's the address of your weblog?

Thu, 01/03/2013 - 21:02 | 3120677 Michaelwiseguy
Michaelwiseguy's picture

I can't be traced, but I will say, if the Internet did not exist, the bubbles would not get as big and devastating the way I like.

Thu, 01/03/2013 - 21:46 | 3120788 old naughty
old naughty's picture

Battle of the giants.

Mathematicians beat economists. Good.

Fri, 01/04/2013 - 01:51 | 3121192 Bad Lieutenant
Bad Lieutenant's picture


Perhaps, but maybe there's a shorter alternate version of what the math is trying to say: that a "bubble" is what results from the "short"-term misperception that the total amount of paper/electronic/promised wealth (i.e. not real/hard wealth) can be essentially redeemed by the the amount of real/hard wealth actually out there (over time).  Same thing really, just a little less symbolic and lends itself to conversation.

This unfolding Global Government Finance Bubble (as Doug Noland at prudent bear likes to call it, so I'll capitalize it) will be especially action-packed since the wealth categories/classes we're talking about basically encompass every traded unit of tradable wealth out there (including the classes that allow people to get food and have a place to live).

Keep your hands inside the car at all times.


Fri, 01/04/2013 - 00:15 | 3121106 SafelyGraze
SafelyGraze's picture

I have a PHD on this Asset Bubble topic, and I can conclusively tell you the equation is wrong.

The equation fails to recognize the "Hookers & Blow" factor that is crucial in determining how big the bubble can be grown to.

I know what I am talking about and have been blogging from nana's basement for over a year.

Fri, 01/04/2013 - 00:25 | 3121121 economics9698
economics9698's picture

Nana has some damn fine greens and ham hocks.

Fri, 01/04/2013 - 04:41 | 3121328 Bad Lieutenant
Bad Lieutenant's picture

Trying to think which greek letters we should assign to hookers and to blow.

Fri, 01/04/2013 - 12:04 | 3122203 Col_Sanders
Col_Sanders's picture

Alpha and Omega

What else?

Fri, 01/04/2013 - 16:22 | 3123573 Ruffcut
Ruffcut's picture

This fucking new math has Ben wrong.

Thu, 01/03/2013 - 21:25 | 3120746 A Nanny Moose
A Nanny Moose's picture

So the fuck what? Just because she got many things right, doesn't mean she got everything right. Not sure how this is relevant to.

Do we throw out Relativity because Einstein was a poor speller, poor student, and known philanderer?

Fri, 01/04/2013 - 00:29 | 3121130 economics9698
economics9698's picture

As was typical of Einstein, he did not discover theories; he merely commandeered them. He took an existing body of knowledge, picked and chose the ideas he liked, then wove them into a tale about his contribution to special relativity. This was done with the full knowledge and consent of many of his peers, such as the editors at Annalen der Physik

The most recognisable equation of all time is E=mc2. It is attributed by convention to be the sole province of Albert Einstein (1905). However, the conversion of matter into energy and energy into matter was known to Sir Isaac Newton ("Gross bodies and light are convertible into one another...", 1704). The equation can be attributed to S. Tolver Preston (1875), to Jules Henri Poincaré (1900; according to Brown, 1967) and to Olinto De Pretto (1904) before Einstein. Since Einstein never correctly derived E=mc2 (Ives, 1952), there appears nothing to connect the equation with anything original by Einstein.

Sun, 01/06/2013 - 02:38 | 3126647 S.N.A.F.U.
S.N.A.F.U.'s picture

"She blinded me with sci^H^H^Hbullshit."

Oh look.  Another jew-hating fucktard blindly repeating shit he found on the internet and knows nothing about.  Oh, but it must be true because it's referencing famous people and dates.  Like the Newton quote, which rather than indicating Newton had any idea about converting between energy and mass actually has to do with his corpuscular theory of light which postulated that photons were actually small particles -- a theory which was abandoned a couple hundred years ago because it doesn't cover basic photon behaviors like diffraction and interference.  And like saying "the conversion of matter into energy and energy into matter was known to Sir Isaac Newton" isn't anything other than a flat-out lie.  And because Newton had a simplistic idea that turns out has absolutely nothing to do with reality, that totally proves that Einstein's theory (which has to date held its own against all sorts of crazy tests) must just be a rip-off of Newton's glorious idea!

Thu, 01/03/2013 - 19:26 | 3120395 spastic_colon
spastic_colon's picture

ya, kinda like slavery, nobody really talks about after while the african families were willingly selling their family members to the europeans

Thu, 01/03/2013 - 19:51 | 3120455 IvyMike
IvyMike's picture

Ah, African based slavery, the first market of civilization.

Yeah, let's talk about it.

Thu, 01/03/2013 - 20:23 | 3120480 akak
akak's picture

Somehow, I get the feeling that you have been here before, and we have heard all this before --- are you sure that you do not in fact wish to harangue us all about "blobbing-up US 'american' citizenism" civilization?  You know, how "farming the poor and extorting the weak" is the eternal 'american' citizenism, er, civilization, nature?  Sound familiar?

Hey, it's the mattering thing!


PS: In the future, it might pay for you to be a bit less obvious in your attempts at monolizing the speeching means.

Thu, 01/03/2013 - 20:37 | 3120577 TheFourthStooge-ing
TheFourthStooge-ing's picture

The crustiest bit: this parangong of civilizationalism will appeared then during absenteeification of the George Dishwashington of citizenism.

For the tale of civilizationalism to be valuable, one has to checked validity of it.

Casting an hypothetical against reality is definitively a nasty thing for civilizationalists making interpretations whether or not the state has this or that priviledge.

Civilizationalism could have charm of battling wind mills.

Thu, 01/03/2013 - 20:52 | 3120635 akak
akak's picture

It's like the old saying: "When God closes a door, he opens a window --- and throws another citizenism/civilizationism turd onto the nearest roadside".

Thu, 01/03/2013 - 21:01 | 3120672 IvyMike
IvyMike's picture

monolizing the speeching means

Can't compete?

Thu, 01/03/2013 - 21:09 | 3120685 akak
akak's picture

With AnAnonIvyMike?

No fucking way!

Make me laugh!

Thu, 01/03/2013 - 22:29 | 3120903 Apostate2
Apostate2's picture

You made me laugh! Well done.

Thu, 01/03/2013 - 19:29 | 3120399 falak pema
falak pema's picture

actually it started wihth Helen of Troy.

That event meant we had reached a state where we were sedentarised into cities, we had arms and our worst enemy was the other guy; not the Dinosaur anymore. Paleolithic had gone Neolithic bigtime. 

WHite civilization went down that road faster and harder than anybody else. Thats for sure.

Urban armed civilization was ramped up by White men after they discovered the industrial revolution. 

But upto that age it was every man doing it an all continents. Now its WMD in your back yard. Awesome.

Thu, 01/03/2013 - 20:48 | 3120605 Shell Game
Shell Game's picture

So it all started with Helen of Troy, daughter of Zeus and Leda?  ;)

Fri, 01/04/2013 - 02:39 | 3121252 NewThor
NewThor's picture

It started with Prometheus. 

Fri, 01/04/2013 - 08:11 | 3121462 jlindesay
jlindesay's picture

Heard of the millihelen?  It's the unit of beauty required to launch one ship.

Thu, 01/03/2013 - 20:55 | 3120502 michael_engineer
michael_engineer's picture

Do the equations in this article somehow inherently make the possibly very incorrect assumption of steady state inputs for resources or do they account for possible declining inputs due to Hubbert like curves trends and the high grading extraction profiles we've been exhibiting for many decades now? Maybe that's where the FEDs other math models(Ferbus, Edo, and Sigma) are going wrong in assuming steady state conditions.

Thu, 01/03/2013 - 19:17 | 3120370 quintago
quintago's picture

"moreover", "similarly", "thus", "therefore". In college my buddies and I would always joke that the amount of bullshit spewed onto a term paper was directly proportional to the number of conjunctive adverbs it contained. Turns out, the same test also translates well to mathematical equations.

Thu, 01/03/2013 - 19:20 | 3120380 FEDbuster
FEDbuster's picture

When in doubt, bury them in bullshit.

Thu, 01/03/2013 - 19:22 | 3120386 IvyMike
IvyMike's picture

No evidence to the contrary? Poor dear. Whine away, loser.

Fri, 01/04/2013 - 00:15 | 3121108 perchprism
perchprism's picture


You are a stupid cocksucking commie faggot.  Congratulations.

Fri, 01/04/2013 - 06:14 | 3121379 IvyMike
IvyMike's picture

Psychologically projecting today?

Fri, 01/04/2013 - 05:37 | 3121367 awakening
awakening's picture

Technique #3 - 'TOPIC DILUTION'

Fun game Zh'ers I like to call "spot the troll".

Thu, 01/03/2013 - 19:07 | 3120335 IvyMike
IvyMike's picture

It's rather disingenuous to list brutal political systems without listing your own brutal political system, in one metric--genocide--the most brutal of all:

"[It] was, far and away, the most massive act of genocide in the history of the world." (prologue)

"During the course of four centuries - from the 1490s to the 1890s - Europeans and white Americans engaged in an unbroken string of genocide campaigns against the native peoples of the Americas."(p.147)

~David Stannard

That's what capitalism takes, same as communism. Natural Non-State peoples must be destroyed to make way for City-State society (civilization.)

Thu, 01/03/2013 - 19:11 | 3120351 EmmittFitzhume
EmmittFitzhume's picture

Concern Troll

Thu, 01/03/2013 - 19:23 | 3120387 IvyMike
IvyMike's picture

Are you for genocide all the sudden?

Thu, 01/03/2013 - 20:21 | 3120530 Shell Game
Shell Game's picture

No, only AnAnonycide..

Thu, 01/03/2013 - 20:39 | 3120584 TheFourthStooge-ing
TheFourthStooge-ing's picture


Fri, 01/04/2013 - 03:25 | 3121282 Dealyer Turdin
Dealyer Turdin's picture

Right of First Refusal to accept Roll on the Floor Rolling

Thu, 01/03/2013 - 20:45 | 3120611 akak
akak's picture

IvyMike, it is insulting and flat-out wrong to talk about "genocide" in reference to the post-European-invasion decimation  of the Native American population, the vast majority of whom died from diseases inadvertently brought to the New World by the Europeans (via vectors of which even the Europeans themselves were utterly ignorant).  There was no organized, premeditated plan, or plans, to wipe-out the Native American population, which in fact was to the disadvantage of the Europeans, forcing them to import negro slaves from Africa to make up for all the deaths of the Native Americans previously impressed into slavery.

Your attempt to label as "genocide" that which was clearly NOT is dishonest and disingenuous in the extreme.  Now let us see if you are willing to apply the same label to the ongoing cultural (if not physical) genocide of the Tibetans by their Han Chinese invaders and colonizers, and we will see just how far your intellectual honesty 'blobs-up'.

Thu, 01/03/2013 - 22:16 | 3120859 IvyMike
IvyMike's picture

You'd make a good apologist for Stalin.

Yes, there was premeditated plans to wipe out the Natives, you damned liar.

Thu, 01/03/2013 - 22:32 | 3120910 akak
akak's picture

I think your dishonesty and/or ignorance is blobbing-up again.

Thu, 01/03/2013 - 23:02 | 3120990 TheFourthStooge-ing
TheFourthStooge-ing's picture


You'd make a good apologist for Stalin.

Ah, back to Smith and his famous argument. I wonder who is right now, the guro of US citizen economics or his opponents?

Yes, there was premeditated plans to wipe out the Natives, you damned liar.

Ah, appeal to ignorance. US citizen night train. Made me laugh.

Fri, 01/04/2013 - 00:41 | 3121144 Buckaroo Banzai
Buckaroo Banzai's picture

Many American Indian tribes were brutal savages. They especially enjoyed killing defenseless women and children. They devised some of the most fiendishly brutal methods of torture ever invented.

It was a clash of two entirely different cultures. One of them had to go, unfortunately.

Fri, 01/04/2013 - 06:16 | 3121383 IvyMike
IvyMike's picture

Lies. They were relatively peaceful as Non-State people tend to be until City-Statism (Civilization) invaded.

Fri, 01/04/2013 - 07:21 | 3121421 Ghordius
Ghordius's picture

you both explain then the Iroquois League & Confederation and their influence on the US Constitution

Thu, 01/03/2013 - 20:29 | 3120554 Matt
Matt's picture

90% of the population of the "New World" were annihilated by the diseases carried by Cortez's crew and the rats and fleas and whatever else came over on those three ships before they burned them. A good portion of the remainder likely perished as an indirect result of suddenly gaining access to whiskey.


Thu, 01/03/2013 - 22:17 | 3120862 IvyMike
IvyMike's picture

You'd make a good apologist for Stalin's Holodomor. Nobody killed 'em, they just up and starved, right?

Fri, 01/04/2013 - 00:19 | 3121112 akak
akak's picture

Shut the fuck up you dumbshit troll.

You have not one clue what you are talking about, or else are relentlessly pounding a dishonest and disingenuous, group-guilt collectivist agenda.  Go pount your dishonesty and/or your ignorance up your racist ass.

Fri, 01/04/2013 - 06:17 | 3121384 IvyMike
IvyMike's picture

Ayn Rand's racist ass, you say?

She said whites could slaughter the red man for his land.

Read her quote, numbskull.

Thu, 01/03/2013 - 22:20 | 3120868 NumberNone
NumberNone's picture

You're an idiot.  You write as if the US settlers single-handledly beat every Indian man, woman, and child to death.  Do some homework and you will see that by the time the Pilgrims hit the shores the Indians had been so decimated by the plague brought to the America's by the Spanish that that the US settlers virtually walked across the US with little or no resistance from the remaining Indian population.  Most likely without the plague killing 90% of the Indian population the first US settlers would have had their asses handed to them and sent packing back to England.   


Fri, 01/04/2013 - 06:19 | 3121385 IvyMike
IvyMike's picture

Keep parroting City-Statism (Civilization) excuses for genocide, Statist.

Thu, 01/03/2013 - 19:13 | 3120357 SimplePrinciple
SimplePrinciple's picture

It's not banality.  It's more along the lines of "But hey - at least it has a ton of complex-looking integrals and variances, so it must be correct."

Fault the academic review process as dictated from above by academic accrediting boards.  The boards count articles in select refereed journals.  Peer reviewers are afraid of looking like idiots for not understanding complex and intimidating stuff, and so sign off.  More understandable, logical presentations are rejected as "obvious" or wrong.  So the competitive selection process inbreeds more and more of this mathematical assumption driven irrelevancy.  The end is only when the education bubble bursts, which could be the topic of these authors' next pub.  But only if incomprehensibly mathematicized.



Thu, 01/03/2013 - 19:24 | 3120389 IvyMike
IvyMike's picture

No inbreeding at the zerohedge echo chamber? LOL!

Thu, 01/03/2013 - 19:34 | 3120409 SimplePrinciple
SimplePrinciple's picture

Oh, I don't see the Peter Principle much here.  But I expect at the IMF, the more "rigorous" the paper, the higher the stature.  Capturing all the nuances of reality would hardly be the point.  Or perhaps it is somewhat the point, but only in the way of discussion among those pre-screened for mathematical gibberish expertise.

Thu, 01/03/2013 - 20:24 | 3120543 MSimon
MSimon's picture

QEDMF - sounds like another government agency

Fri, 01/04/2013 - 01:23 | 3121180 lewy14
lewy14's picture

Or another death-metal group (KMFDM).

Thu, 01/03/2013 - 19:22 | 3120385 Bunga Bunga
Bunga Bunga's picture

Central planning cannot work? You have this since 1913.

Thu, 01/03/2013 - 19:43 | 3120428 Shizzmoney
Shizzmoney's picture

Which is why all businesses internally are run like little markets, with no centralized leadership.

They USED to, but not anymore.  Especially the bigger ones.  They ALL strive to be run like banks and militaries, hence why they are CORPORATIONS.

Corporations are not businesses (even though under the "law", businesses are considered "corporations"....but only b/c the businesses have to, thnaks to the corporations' armed guards, the government.  They do this so they get the same treatment in a court of "law".).

Businesses create wealth, opportunity, and promise. 

Corporations are racketering models designed to protect and strengthen monopolies, and in the end, all they create is fail. 

The Federal Reserve will fail because it is a corporation.

Thu, 01/03/2013 - 22:26 | 3120892 jmeyer
jmeyer's picture

We don't have and never have had central planning of business. The USSR was the best example of that. They couldn't manufacture what we threw out.

Thu, 01/03/2013 - 18:48 | 3120295 Pegasus Muse
Pegasus Muse's picture

Sorry, your calculus is Greek to me.  The final equation suffers from two glaring omissions:  the Bernanke Beta Bullshit coefficient and a Ponzi Paper Power function. 

Thu, 01/03/2013 - 18:52 | 3120305 duo
duo's picture

Actually, fitting human behavior (200 million individual actors) can be approximated by Gaussian statistics, until it can't.  Then you are fvcked.

The only Greek you need to know is "molon labe".

Thu, 01/03/2013 - 18:55 | 3120314 Rainman
Rainman's picture

Equation say ' all you fiat belong to me'

Thu, 01/03/2013 - 19:28 | 3120398 nmewn
nmewn's picture

I bet if one dug into the fine print of this ridiculous nonsense we would find a government grant.

Chris Chistie should be outraged!...they stole HIS money ;-)

Thu, 01/03/2013 - 21:35 | 3120769 GMadScientist
GMadScientist's picture

If by "dig", you page one?

"Hong acknowledges support from the National Science Foundation through grant SES-0850404"

Thu, 01/03/2013 - 22:35 | 3120919 NumberNone
NumberNone's picture

All that bullshit and it's all backwards looking.  It can't tell me where the next bubble is going to happen, what stock to pick to long or short, who's going to win the SuperBowl, or how many golf rounds Obama is going to play this year.  Fucking worthless.  

Fri, 01/04/2013 - 01:38 | 3121197 lewy14
lewy14's picture

I wouldn't call it worthless. (It may be but I can't be sure at a glance).

The abstract is kinda interesting and the conclusion is potentially useful: equity bubbles are "loud" (high volume); debt bubbles are quiet (low volume).

So, frighteningly, evidence that the idea that we are _not_ in an equity bubble right now.

The model appears to be derived from very pedestrian stochastic calculus; the kind of math which Mandelbrot spoke of in The (Mis)Behavior of Markets as "appearing to be formidable". Not that I'm fluent or anything, but I don't kid myself that I'm a genius when I (tediously) work through a few lines.

The assumptions are also pedestrian: normal distributions, etc... still, even wrong/oversimplistic models are useful for deriving intutitive understanding (I'd call Black Scholes useful in this limited sense). They still teach Newtonian physics, after all.

Fri, 01/04/2013 - 10:17 | 3121711 DOT
DOT's picture

Looking backwards indeed. We won't be able to see around the corner, regardless of the model.

We may, if we pay attention, smell what is around the corner.  (I'm guessing it's a large and filthy fan)

Thu, 01/03/2013 - 18:49 | 3120297 Raymond K Hessel
Raymond K Hessel's picture


Thu, 01/03/2013 - 19:03 | 3120333 TumblingDice
TumblingDice's picture

It looks smart, which is all that matters in academia.

Thu, 01/03/2013 - 20:10 | 3120507 formadesika3
formadesika3's picture

Gee, I wish I had me one a them Princeton PhDs.

Thu, 01/03/2013 - 19:23 | 3120377 Shell Game
Shell Game's picture

I contacted Harrison Hong ( and David Sraer ( to provide rebuttal. Guess they down-arrowed you..  ;)


(edit: and apparently the entire thread.  lol!)

Thu, 01/03/2013 - 19:35 | 3120412 candyman
candyman's picture

I prefer George Bailey 's math in the Wonderful Life instead of this incredibly ridiculous banking experiment. At least George's worked.

Thu, 01/03/2013 - 19:37 | 3120418 chubbar
chubbar's picture

OT, but this report from Naomi Wolf is just fucking crazy (and infuriating) if true. Who the fuck is our gov't working for, or do I really need to ask?

"Only one month into the Occupy Wall Street demonstrations last year, plans were formulated to identify key figures in the movement and execute them with a coordinated assault using sniper rifles, new documents reveal.

The revelation — discussed in a heavily redacted FBI memo unearthed late last month through a Freedom of Information Act request — reveals that the Federal Bureau of Investigation was aware of plans for a violent assault on the peaceful protest movement but stayed silent on rumors of an assassination attempt only until now.

Information on the alleged plot to kill off protesters appears on page 61 of the trove of documents obtained recently by a FOIA request filed by the Partnership For Civil Justice Fund. On the page in question, marked “SECRET,” the FBI acknowledges:

An identified [redacted] of October planned to engage in sniper attacks against protesters in Houston, Texas, if deemed necessary. An identified [redacted] had received intelligence that indicated the protesters in New York and Seattle planned similar protests in Houston, Dallas, San Antonio and Austin, Texas. [Redacted] planned to gather intelligence against the leaders of the protest groups and obtain photographs then formulate a plan to kill the leadership via suppressed sniper rifles.

In the rest of the material obtained by the PFCJF, the FBI declines to mention any follow-up attempts to investigate the rumored assassination plot. Page 61, where the plot is discussed, was redacted heavily before it was handed over to the PFCJF.

“This correlation between the FBI, the Department of Homeland security and corporations in the New York stock exchange really showed who they are serving. It’s not the government in this case, it’s these corporations and a financial sector, and it’s certainly not the people,” independent journalist and activist Anna Lekas Miller told RT.

“The FBI is really just targeting ordinary people going about their daily lives as potential terrorists, and now people, who are participating in peaceful protests, are also characterized as domestic terrorists. So, I think the FBI is really picking and choosing who it categorizes as the type of civilians it wants to protect,” added Miller.

As RT reported when the documents were first published just before Christmas, other material released through the FOIA request showed the FBI and other law enforcement agencies labeling Occupy activists as criminal and domestic terrorists. This was the case from the beginning of their anti-capitalism and anti-corporate greed protests that started in September 2011.


“These documents show that the FBI and the Department of Homeland Security are treating protests against the corporate and banking structure of America as potential criminal and terrorist activity,” PFCJF Executive Director Mara Verheyden-Hilliard says. “These documents also show these federal agencies functioning as a de facto intelligence arm of Wall Street and Corporate America.”

But while police agencies were working to expose protesters for alleged crimes against the country, the demonstrators themselves were being faced with very real death threats.

“The documents, released after long delay in the week between Christmas and New Years, show a nationwide meta-plot unfolding in city after city in an Orwellian world,” Naomi Wolf writes for The Guardian. Not all that unsurprising, though, is how the very agencies that acted to suppress the protest movement made little announcement of plans to execute the very people involved in the group.

“[T]hreats of the assassination of OWS leaders by sniper fire — by whom? Where? — now remain redacted and undisclosed to those American citizens in danger, contrary to standard FBI practice to inform the person concerned when there is a threat against a political leader,” Wolf writes.

Thu, 01/03/2013 - 21:05 | 3120614 cougar_w
cougar_w's picture

Thanks for posting this.

I imagine such "tactical memos" are now fairly routine. Otherwise it seems unlikely that a random FOI request would trip over one.

It should be clear to all here that since the creation of the DoHS the American upper echelons of power stand ready and relatively willing (we'll eventaully see how willing) to kill people in order to maintain their version of "order". No doubt if the OWS folk had ventured into organized insurrection -- not out of the question given the times -- they would have been mysteriously killed from rooftops. It would be really easy to frame the killings as insider disharmony (we all know how unstable those radikal terroristas are) and done using nothing more complicated than police official press conferences describing their version of events. Most people today would simply accept the story and forget it while on their way to the Mall to buy more iCrap on credit.

I recently watched V for Vendetta and along with much else about the movie was impressed with how well the screenwriters captured this entire process. It was interesting that, in the movie, watchers of "the evening news" were smirking with open disdain at what they knew was blatant, open, graphic propaganda sourced by the oligarchs to create a fog of fear and indirection. Of course the real world is a decade away from having a healthy attitude about the MSM. But seeing this portrayed even fictionally still gave me some hope. Afterall a lot of people have seen this movie, and quite significantly it was my 17 yo daughter brought it home for all of us to watch on New Years eve.

Thu, 01/03/2013 - 22:29 | 3120900 TheFourthStooge-ing
TheFourthStooge-ing's picture

cougar_w said:

It should be clear to all here that since the creation of the DoHS the American upper echelons of power stand ready and relatively willing (we'll eventaully see how willing) to kill people in order to maintain their version of "order".

There is another aspect to this which, while not obvious, is clear upon reflection. Whether or not you agree with the methods and/or goals of the OWS people, no rational person could consider them a threat to the nation, let alone one that rose to a level which necessitated assassination. The existence of this memo reveals that the upper echelons of power are very afraid of something.

They are operating from a position of fear, not power, and this deep seated fear affects their judgement as well as their actions. This indicates to me that events are spiraling out of their control. Like a wounded beast, they are still dangerous, but the unintended consequences of trying to control nonlinear dynamic systems will be their downfall.

The giants will eventually fall; don't let one land on you when they do.

Fri, 01/04/2013 - 02:54 | 3121249 cranky-old-geezer
cranky-old-geezer's picture



"they will eventually fail" seems to be the biggest hope expressed here on ZH, followed by "reset and start over" and "restore the Constituion".

I see no historical evidence to support such a hope.  Roman empire degenerated till it ended.  Every empire before it degenerated till it ended. 

French revolution succeeded only because they stormed the palace, physically dragged the king & queen out tried them and executed them, which won't happen in America.  And things were in shambles long after that as rival factions battled for control.

You can point to Zimbawe and say they haven't collapsed.  But there's been no "reset and start over".  They're merely bumping along the bottom with 80% unemployment and massive shortages, just this side of anarchy, no evidence of any "reset and start over" on the horizon.  The people have been looted to poverty.  There's not enough wealth left among them to initiate a "reset and start over".

I see nothing about America that would give me any hope "it will be different this time".  Many here speak of some sort of "revolution" in the future because we have so many guns.  But the stream of government abuses has long since grown past the point where revolution should have happend, and it hasn't happended. 

Some hope for a catalyzing event like universal gun confiscation (which won't happen), having no problem with universal gun registration (which will happen), apparently unaware confiscation will occur piecemeal, one by one (along with prison) when unregistered guns are brought out and used.

Seems everyone is content to wait till we're looted into poverty like Zimbabwe (which is happening quietly as we speak), when there won't be enough resources left among us to mount any sort of revolution.

No, I don't see any evidence to support this much hoped for "reset and start over".  It never has happened before, and I see no evidence it will be different this time.

America will become like Russia, a two-class feudal society of rich government / banker / corporate oligarchs, everyone else serfs, maintained with heavy police-state oppression. 

I've accepted the reality America's time in the sun is over.  Thanks to the Founders, it was good while it lasted, but our children and grandchildren have no future in America.

Perhaps everyone else should.

Thu, 01/03/2013 - 19:54 | 3120460 miro1a
miro1a's picture

OH SHIT! They forgot to carry the one!

Thu, 01/03/2013 - 22:00 | 3120827 Larry Dallas
Larry Dallas's picture

All "equations" all prove to be bullshit in a manipulated market.


Thu, 01/03/2013 - 23:24 | 3121036 ball-and-chain
ball-and-chain's picture

I've never been good at math.

What's the equation for we're screwed.

Fuck you, cruel world.

Fuck you, Ben Bernanke.

Fri, 01/04/2013 - 11:39 | 3121993 mercenaryomics
mercenaryomics's picture


What's the equation for we're screwed.

Ctrl+P ---> inf

Academically pronounced control rho ad infinitum

Wed, 01/09/2013 - 00:38 | 3135198 MeelionDollerBogus
MeelionDollerBogus's picture

rho rho, rho yer boat, gently down the

aw fuck.


Nothing to see here, folks, move along, move along

Fri, 01/04/2013 - 08:56 | 3121508 Disenchanted
Disenchanted's picture
Recipe for Disaster: The Formula That Killed Wall Street



A year ago, it was hardly unthinkable that a math wizard like David X. Li might someday earn a Nobel Prize. After all, financial economists—even Wall Street quants—have received the Nobel in economics before, and Li's work on measuring risk has had more impact, more quickly, than previous Nobel Prize-winning contributions to the field. Today, though, as dazed bankers, politicians, regulators, and investors survey the wreckage of the biggest financial meltdown since the Great Depression, Li is probably thankful he still has a job in finance at all. Not that his achievement should be dismissed. He took a notoriously tough nut—determining correlation, or how seemingly disparate events are related—and cracked it wide open with a simple and elegant mathematical formula, one that would become ubiquitous in finance worldwide.


For five years, Li's formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.


His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.


Joseph Farrell writes more about David Li in his book:

Babylon's Banksters: An Alchemy of Deep Physics, High Finance and Ancient Religion


In this latest installment of his remarkable series of books of alternative science and history, Joseph P. Farrell outlines the consistent pattern and strategy of bankers in ancient and modern times, and their desire to suppress the public development of alternative physics and energy technologies, usurp the money creating and issuing power of the state, and substitute a facsimile of money-as-debt. Here, Farrell peels back the layers of deception to reveal the possible deep physics that the “banksters” have used to aid them in their financial policies.

Thu, 01/03/2013 - 18:42 | 3120258 Kitler
Kitler's picture

Thank god they have it theoretically all under control.

Let's kill them if they lie.

Thu, 01/03/2013 - 21:55 | 3120811 Itch
Itch's picture

It dosent bother me, because theoretically im rich.

Thu, 01/03/2013 - 18:37 | 3120260 Boilermaker
Boilermaker's picture

There is no "I" in TEAM but there sure as hell is "ME" in MONEY!

Thu, 01/03/2013 - 18:38 | 3120262 New_Meat
New_Meat's picture

Some TeXnologist has too much time on his hands. - Ned

Thu, 01/03/2013 - 18:38 | 3120265 Joebloinvestor
Joebloinvestor's picture

I take it you have never looked at a Calif. divorce.

All it is is a formula that the courts skew in favor for the female.

Thu, 01/03/2013 - 18:39 | 3120269 dumpster
dumpster's picture

3X3= 24

Thu, 01/03/2013 - 18:40 | 3120270 Muppet Pimp
Muppet Pimp's picture

We need to invent a shoe tying machine to sell to these fellas.

Thu, 01/03/2013 - 18:39 | 3120271 imbrbing
imbrbing's picture

I typed those formulas into the calc on my iPhone, the answer was 42.

In other words RUN!

Thu, 01/03/2013 - 19:15 | 3120360 saturn
saturn's picture

Shouldn't it be 23?

Thu, 01/03/2013 - 21:13 | 3120708 Esso
Esso's picture

Well, 23 IS exactly half of 42, so you're both right.

Thu, 01/03/2013 - 21:20 | 3120731 imbrbing
imbrbing's picture
the answer to life, universe and everything

Thu, 01/03/2013 - 23:51 | 3121072 swmnguy
swmnguy's picture

Right as usual, Hagbard. Never whistle while you're pissing.

Thu, 01/03/2013 - 20:11 | 3120509 GeezerGeek
GeezerGeek's picture

It would have been easier to simply ask what 6 time 7 was.

Thu, 01/03/2013 - 21:26 | 3120748 New_Meat
New_Meat's picture

$6 x 7 = run$

Thu, 01/03/2013 - 18:39 | 3120272 Aziz
Aziz's picture

Economic Collapse = F(Central Planning Failure)


Thu, 01/03/2013 - 19:18 | 3120373 Herd Redirectio...
Herd Redirection Committee's picture

Failure implies that collapse isn't the intended result.

Thu, 01/03/2013 - 18:40 | 3120273 Being Free
Being Free's picture

Ah Ha!  Now I get it.

Thu, 01/03/2013 - 18:40 | 3120274 AUD
AUD's picture

Finding the sum from negative infinity to positive infinity is irrational, so they got that part right.

Thu, 01/03/2013 - 18:41 | 3120276 TraderTimm
TraderTimm's picture

What's the integral of bankruptcy?

Thu, 01/03/2013 - 18:50 | 3120278 duo
duo's picture

Then I gotta repost this from WB7's 2012 review post if we're gonna do math here:

The ponzi gradient is the partial derivative of the fraud function in vector space, the three variables being criminality, profit (a potential field), and risk of being caught.

Since the financial universe coalesced in 1913, lines of equal fraud potential are orthogonal to criminal risk potential, so the dot product of these two vectors is zero in the presence of SEC porn.


Thu, 01/03/2013 - 18:41 | 3120279 Quinvarius
Quinvarius's picture


Thu, 01/03/2013 - 19:58 | 3120471 miro1a
miro1a's picture

The angle of the dangle is inversly proportional to the heat of my meat

Thu, 01/03/2013 - 18:42 | 3120280 Boilermaker
Boilermaker's picture

They forgot to account for gravity!!!!

Thu, 01/03/2013 - 18:50 | 3120302 OutLookingIn
OutLookingIn's picture

LMAO Love it!

Thu, 01/03/2013 - 21:58 | 3120821 Itch
Itch's picture

We omit that particular varible when the Printx^2 function is dominant...dont you know (frown)?

Thu, 01/03/2013 - 18:43 | 3120284 Freddie
Freddie's picture

Zimbabwe Economic Math.

Thu, 01/03/2013 - 18:44 | 3120287 Pairadimes
Pairadimes's picture

I can count the number of people in Congress who understand this formula on one penis.

Thu, 01/03/2013 - 20:18 | 3120522 Shell Game
Shell Game's picture

Oh, but the damage that one penis can do...

Thu, 01/03/2013 - 18:45 | 3120289 grunk
grunk's picture

To get the inflation that we're facing, divide by zero

Thu, 01/03/2013 - 19:00 | 3120328 caconhma
caconhma's picture

You cannot divide by Zero since then the inflation goes to infinity.

As a scientist, I can state that all these equations are BS since they do not into account the human nature. It is absolutely impossible to quantify human greed, fear, dishonesty, and stupidity.


Thu, 01/03/2013 - 19:05 | 3120338 grunk
grunk's picture

Everybody wants everything all the time.

Thu, 01/03/2013 - 19:06 | 3120340 Clowns on Acid
Clowns on Acid's picture

caco - " It is absolutely impossible to quantify human greed, fear, dishonesty, and stupidity."

No it isn't - the number is $1000 T and growing for the US alone. Sharpen your pencil, dude.

Thu, 01/03/2013 - 20:08 | 3120500 SaveTheBales
SaveTheBales's picture

Then this is a misprint.  From the looks of things, they divided by lim(0) to get the current inflation rate, but got the notation wrong.  Take off the lim, and it all works in the computer just like its working in real life...

Thu, 01/03/2013 - 18:46 | 3120290 imbrbing
imbrbing's picture

Is this the new IRS tax form?

Thu, 01/03/2013 - 19:32 | 3120407 SnobGobbler
SnobGobbler's picture

who the fuck still pays taxes...

Thu, 01/03/2013 - 18:54 | 3120292 Racer
Racer's picture

I am not a number, I am a free person

*Forced to take pills* I am a number, I am a debt slave

Thu, 01/03/2013 - 19:02 | 3120331 viahj
viahj's picture

"I am a meat popsicle"

Thu, 01/03/2013 - 18:47 | 3120296 booboo
booboo's picture

or how Rodney Dangerfield demonstrated in "Back to School" the business man knew more about the business of business then the Business Professor and proceeded to take his pussy. Ben will eventually lose his pussy too.

Thu, 01/03/2013 - 18:59 | 3120323 SilverIsKing
SilverIsKing's picture

When will Obama hire the Widget Czar?

Thu, 01/03/2013 - 18:48 | 3120298 OutLookingIn
OutLookingIn's picture

Mama loves 'Mumbo'!

Papa loves 'Jumbo!'

Together they love 'Mumbo, Jumbo!'

Which is exactly what that paper is all about. Economists who follow the party line (Keynes) expect the economy to act like the planets of the solar system, with everything moving to equalibrium. While the real economy acts more like clouds in a weather system. With plenty of chaos!

All together now! Mama loves mumbo...

Thu, 01/03/2013 - 18:50 | 3120303 ziggy59
ziggy59's picture

Answer... Au+Ag ---> Moon; $ ---> 0

Thu, 01/03/2013 - 18:52 | 3120306 IridiumRebel
IridiumRebel's picture

There is no mathematical equation for human nature. 

Thu, 01/03/2013 - 18:53 | 3120309 pragmatic hobo
pragmatic hobo's picture

you have to have complex equations to justify NSF grant ...

Thu, 01/03/2013 - 18:55 | 3120313 chasman
chasman's picture

Actually the equation is much easier than the one listed:

(Previous years accumulted Gov spending + Current Year gov Spending) + (Federal Reserve creation of phony Money)- (Gov Income from Taxes + All other Gov Income)

= Asset Bubble = Decline of America as the Limit of the Dollar approches ZERO


Thu, 01/03/2013 - 18:56 | 3120317 chump666
chump666's picture

I love science, but trying to quantify the human condition.  You'll end up like this guy George R. Price


Thu, 01/03/2013 - 19:10 | 3120347 Likstane
Likstane's picture

Nail scissors on your own cartoid artery?  damn, thats tough...He was supposedly a smart guy...don't you think he could have come up with a better plan?

Thu, 01/03/2013 - 20:02 | 3120478 chump666
chump666's picture

According to his biographer, it was his way of choosing that death - freewill etc, rather than other ways of killing yourself. An ultimate way of saying that we can't predetermine human decisions.  Something like that...

Fascinating story.

Thu, 01/03/2013 - 23:58 | 3121081 Likstane
Likstane's picture

Thanks for the turn on.  Bio- "The Price of Altruism"  looks like a possible read. 

edit-on second thought, maybe I shouldn't. I don't want to try and out do him with a can opener or something


Thu, 01/03/2013 - 18:58 | 3120319 THE DORK OF CORK
THE DORK OF CORK's picture


This is how the real world works
The banks create credit money in governments unit of account and also bend the ear of government for various tax / law concessions.

The assets utility is not important be it mortgages or fiscal debt……
As Riche boy (chief exec Bank of Ireland) said its all about the cash flow - or as I put it - farming the value hidden within fiat.


"we are not a pawnbroking business"


Thu, 01/03/2013 - 18:59 | 3120322 Wile-E-Coyote
Wile-E-Coyote's picture

The guy who wrote that was probably Autistic. Look he is over there rocking in his chair dribbling.

Thu, 01/03/2013 - 19:00 | 3120326 Bill D. Cat
Bill D. Cat's picture

Idiots forgot to carry the two .

Do NOT follow this link or you will be banned from the site!