Category: Geekdom

More Financial Trouble Fun Facts

bdp 2 Comments Geekdom

Live from the inside of this crisis, I thought I’d give you another (much quicker) fun fact.

The term Credit Default Swap (CDS) refers to basically an insurance contract that’s sold as a security (like a stock or bond). It goes something like this:

Mike D lends Sander $1,000,000 at 10% for a year. Ten seconds after he does that he realizes… dang! Sander is never going to pay me back. So he calls up Ryan and asks if he’ll issue insurance at 1% of the $1,000,000 a year, so if Sander doesn’t pay then Ryan will pay mike the difference and Mike will be fine.

This in itself is a pretty good idea, it’s not all that difference from your life insurance policy. The issue comes with two things:

  • The CDS market is totaly unregulated, anyone can issue a policy with no money backing it up.
  • You can buy a CDS against something you’re not exposed to.

So if we think about insurance policies, this would be the equivalent of you being able to buy insurance on Mike D’s car. Now if the whole town buys insurance on Mike’s car, there’s a sudden benefit to something bad happening to said car. That’s why you can’t do that to start with (amongst other reasons, I’m sure.)

So what does this all mean? It means, if I’m enormous hedge fund XYZ, I will buy CDS’s against (say) Goldman Sachs while simultaneously short selling GS. That means I benefit when GS’s price drops from my short sale, as well as my insurance policy (which is worth more as GS is in more and more trouble).

Additionally, I can CAUSE the price to drop by buying these policies (as more people buy policies, their price goes up, and that makes people think GS is in trouble and drives their price down.) I can also cause price drops by massive short selling.

This is one very good theory as to why businesses that are fundamentally sound were getting beaten up, and why short selling rules have helped.

So all of this is pretty scary, especially when you realize the current value of the CDS market is 55 TRILLION dollars.

Further reading.

Gamma Ray Burst

mike d. 0 Comment Features, Geekdom

Gamma Ray Bursts (GRB) are celestial events that are overwhelmingly intense. As a star dies a couple things could happen. Two scenarios are Supernovas and GRBs. During these dying processes, the inner core of the star collapses into a black hole and the outer core of the star explodes. Occasionally the forces work in such a way that two beams of terrifying power fire out of the ex-sun. These are Gamma Ray Bursts.

What is ‘terrifying power’?

Well, for one, GRB’s are visible across the universe. That in itself is pretty intense, but the power of a GRB is absurd. If one hit us squarely, and we were close enough to it, it would tear our atmosphere to bits, boil all our oceans, and impose one million times the lethal dose of x-rays and gamma rays upon us.

Thankfully for us, there are two characteristics of Gamma Ray Bursts that make them dramatically less dangerous.

Firstly, the beams are narrow. Very Narrow. only .4 degrees. As soon as you escape the hallway of fire, you’re safe.

Secondly, they have to be close to hurt us: no further than 1000 light years away.

Well, on March 18th, 2008 we witnessed one. We were staring right down the throat of a GRB. Thankfully, it was 8000 light years away so we didn’t fry. But it’s scary that we were hit at all. The likelihood of that is just so slim. So what happened on the 18th of March? Some of our big satellites quickly noticed the event and told all the other satellites to check it out. That they did and we got all sorts of information about Gamma Ray Bursts. It was visible to the naked eye and stands as the single most luminous event ever witnessed by humankind.

To be wittnessed so far away GRB’s must released a lot of energy. According to Bad Astronomy* a GRB releases “as much energy in a few seconds as the Sun will over its entire 10 billion year lifetime.”

Dang.

So do we have anything to worry about? Not really… Although there is one star, WR 104, that is within the 1000 light-year radius. It appears to be of the right age to go supernova, but even if it did… not ever star that explodes emits a Gamma Ray Burst. Also, we’d have to be aligned with the star in order for their to be a problem. Unfortunately… we are aligned with the star – within 16 degrees (wikipedia). Now, 16 degrees is a wide range for a mere 0.4 degree beam of untold death – still though, a little too close for comfort.

Don’t lose sleep on it though, we’re not in any immediate risk. Though if you wake up tomorrow and the oceans are boiling, you can probably suspect that WR 104 is the culprit.

(with the exception of one WR 104… which, if you suddenly notice that the oceans are boiling… WR 104 is probably the culprit)

*that astronomy link is where I got most of the data for this post.

Fannie and Freddie

bdp 7 Comments Features, Geekdom

Special thanks to BDP for this write up. Take it away BDP!

So you’ve all heard of Fannie Mae and Freddie Mac… I’ve been doing some research at work on the topic so I thought I’d give a very high level overview.

A Brief History Of…

Fannie Mae (FNMA – Federal National Mortgage Association) was started by FDR as part of the new deal… it was a government, not a private corporation.

In 1968 LBJ privatized Fannie into a Government Supported Enterprise, aka GSE, due to “fiscal pressures.”

Now that Fannie was a private corporation, Freddie Mac (FHLMC – Federal Home Loan Mortgage Corporation) was started in 1970 to eliminate Fannie’s monopoly. Fannie and Freddie are almost identical corporations.

Read more

Green Tao.

mike d. 0 Comment Features, Geekdom

Last week, I made a mention to a fun prime number theorem. That theorem is the Green Tao theorem. I’ve been trying to get enough information on it so that I could really put together a comprehensive review of the theorem… but I tried getting through the actual write up… and frankly it was a bit too dry for me.

On the surface, I suppose the theorem is reasonably simple. It states that for any number k there exist infinitely many arithmetic progressions of length k consisting of prime numbers.

Let’s look at some basic prime numbers.

2, 3, 5, 7, 11, 13, 17, 19

in this series, numbers 3, 5, and 7, are two numbers apart. 7-5 = 2 and 5-3 = 2.
Since there are three numbers in this series, k = 3

Likewise 7, 13, and 19 are equally spaced. With 6 integers between them. 19-13 = 6, 13-7 = 6
This series also has length k = 3

Ben Green and Terrence Tao (Mathematician Rockstars) are suggesting that you can find strings like this of ANY length.

So, if I took a number, say… a billion = k, this theorem states that yes there are a billion primes out there that have equal arithmetic spacing. That disgusts me with its insanity.

That means if you took an infinite number line, you could take a comb with any number of equally spaced teeth, and scale the comb up or down until you were able to place it on the number line so that every tooth aligned with a prime number. That blows my mind.

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