Under "Books I Enjoyed that won't set you back much..."
Steven M. Moore has two of his books (the Mary Jo Melendez books) on sale through this weekend, only via Smashwords. From his website:
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I've read them and I enjoyed both. If you're looking for a couple of good reads for $1.98, give them a look-see.
This book was, for me, one of those special reads. I could barely put it down. Bought it at a little indie bookstore on Mackinac Island (The Island Bookstore) with the intention of getting to it someday. Well, my son read the description and started it, and he could barely put it down.
I finished what I was reading and picked it up a couple of days ago. And that was it. Every spare minute I had I grabbed the book and read. Finished it this morning between patients, and I have to say that it kept me sucked into the story the whole time.
Anyone read it?
It's dystopian, in that the real world has devolved into a dirty, poverty-stricken dump. Wade, the first-person hero of the book, lives in something called "the Stacks" which are vertical trailer parks. Made me think of the way they park cars in NYC (we don't do 'em like that in Chicago) where you pull into an elevator of sorts and they hoist your car to the top, then put one under you, and another, and finally, the one on the ground. They stack up the trailers (even some VW minibuses) in metal frameworks, and people live in them. Cheap and efficient, but not very desirable.
Wade's truly happy in the OASIS, a massive virtual world where humanity more or less conducts their lives in this depressing world. It was designed by a computer nerd named James Halliday, who recently died (at the beginning of the book) and has set into motion a huge on-line quest, the winner of which will get his vast fortune and control of his company. An evil corporate entity, IOI, wants to win, and is hiring the best people they can hire to find this Easter egg, and they will literally stop at nothing, including murder, to get there first. But the true "best" egg hunters, known as 'gunters,' are guys like Wade and others who by some combination of luck and brains, find the first key after 5 years of no one having a bit of success in locating it.
I loved the 80's references (and 70's references; a lot of the movies and songs and even video games seem to be from the later 1970s as well as the 80's) and I loved the characters, and I loved the suspense of seeing how Wade and his compatriots would defeat the evil corporation and find the final key and win the game. Plus, there was the added suspense about just who some of these gunters are. I mean, all Wade ever sees is their on-line personas, and he clearly believes that it is enough to know whether he can trust them and be friends with them.
I liked the message at the end. It felt right.
I don't know if it's a great book, but for me, it WAS a great book, one I'll probably read again someday.
I've been thinking about dystopian and post-apocalyptic storytelling recently, and it dovetailed with some thoughts about Disney from a while ago. So I started thinking about the movie WALL-E. I wrote some stuff to a file a while back, and thought I'd put it up here.
It's been a while since we saw the Disney/Pixar offering WALL-E. I recall that when we saw it, I was expecting to be as charmed by it as I have been by most of the previous Pixar films, including such offerings as CARS, FINDING NEMO, TOY STORY (1 and 2), and RATATOUILLE.
And I think WALL-E was as good as those movies (and maybe better in a lot of ways), but not nearly as charming. I don't know how to explain it...I think those other stories all take the Disney formula (if you don't know that formula, no sense in trying to explain it) and used it with their own unique twists. And they've worked, so much so that they are really the class of Disney animation currently, and have been for a long time, since the days of BEAUTY AND THE BEAST and ALADDIN.
But - WALL-E presents a much more complicated story than any of those. It's FAR less happy than any of them, far less funny, and more touching in a lot of ways. It's also more of a dystopian SF adventure than anything I've seen previously done by Disney. (I wonder what that will mean to repeat business for this film - while I liked it, I can't see going back to the theater to see it with the kids like we have done for other Pixar films...)
(THIS SYNOPSIS LIKELY CONTAINS SPOILERS - READ AT YOUR OWN RISK...)
In case you don't know, Wall-E is a little robot whose name is an acronym (exactly for what, I can't remember-waste allocation something something - Earth). He's the last one of his kind to still be operational, to still be functioning in his task to clean up the waste and garbage left on the planet by humans as they've abandoned their planet for a life in space. He's a fairly low-tech looking thing, yet he has intelligence and self-awareness. He is lonely, as you might expect, with only a cockroach as company for who knows how many of the last 700 years. Yet he goes about his tasks diligently, compacting and stacking trash into skyscraper sized piles all around the city.
Into this world comes EVE, a sleek "female" robot whose "directive" is classified. Fortunately for Wall-E, she doesn't vaporize him immediately (I wondered about her defensive responses - was she programmed to find monsters on Earth? Why is she so quick to shoot first at anything that moves?) and after he follows her around for a long time, the pair of robots fall in "love", or something like love at least.
When Wall-E is showing her his treasures, artifacts from humanity's past that he's collected in his day to day toils, he presents her with something different - something he hasn't come across in a long time. A small living plant. EVE's response is dramatic. She seizes the small plant, places it inside of her metallic body, and goes into a sort of catatonia. On her body a green leaf flashes over and over. And sure enough, soon the ship that left her comes to collect her, and she is being delivered to wherever she came from originally. And of course, Wall-E can't let her go like that; he chases her down and ends up going on a trip through outer space to her final destination: the star cruiser Axiom with its cargo of humanity.
And herein lies more dystopian elements. Humanity has changed - low gravity and a life of leisure has turned them into a bunch of lazy blobs who are content to be waited on hand and foot by their robot tenders and don't even think about life or interaction with each other. Their captain is a pleasant but seemingly not too "bright" blob voiced by John Goodman. (John Ratzenberger makes his usual appearance as a passenger who is forced to interact with others by Wall-E's intrusion into their daily existence.) The Buy-N-Large Corporation is the benefactor in all of this - the corporation is the entity that built the robots, that sent humans into space to live while Earth is supposedly being cleaned up, and that promoted this lifestyle in the first place - a sort of bad guy who isn't really even there anymore.
Of course, Wall-E and EVE save the day, getting the plant to the proper place which results in the ship returning to Earth, against heavy resistance from the robots who now seem to embody the Corporation. It's a touching conclusion at times, watching the humans get back on their feet, literally and figuratively, and relearn the joys of living, as the captain watches Wall-E and EVE dance through the space around the ship, and as the passengers are forced to interact with each other and simply act to save themselves. The captain outwits his robot overseer in the end, and humans return to Earth, which is not really "ready" to receive them but which needs their attention to be reborn. All very optimistic, at the end, and positive.
It's a cautionary tale, however, warning against a lot of things - not the least of which is excessive consumption, corporate greed and a trend toward indoor (computers, video games, big screen tvs, etc.) entertainment vs outdoor activity. It seems to warn against technological achievement just for the sake of achievement, with no attention to the good or bad results of such achievement. Maybe most of all it warns against the current trend of not looking beyond tomorrow. I think there are some heavy social and political themes buried in the cartoon medium within which director Andrew Stanton and Pixar work best. Probably a lot more of them than I'm getting to here...I think someone could expand on a lot of these things and dig far deeper into this story than I've done.
And that, by itself, was very unusual for a Disney or a Pixar type story. So, while WALL-E was not nearly as charming or uplifting as other Disney fare, it was certainly deeper and more socially aware than almost anything they had done in this medium to that point in time.
We never did see it again in the theater, but we did buy it on DVD, and we've enjoyed it more than once on our own home screen. I've grown even fonder of the film as time has passed.
Maybe it's time to watch it again...
I knew Michael Lewis from his book Moneyball where he laid out the Oakland As' strategies using sabermetrics to draft and acquire players and to put together a major league baseball team. He was able to explain some of that in ways that are very easy to understand, even if I wasn't a big baseball fan (which I am). So when I saw this book by Lewis explaining the subprime mortgage crisis, I wanted to see if he could explain it in a way that made at least a little sense to me.
He was successful, at least in part. I always wondered how around 8% of total mortgages in this country could bring down financial giants. (I'm not sure of the accuracy of that 8% - it's just a number I've heard often.) I knew instinctively that there was more to it than that, but I didn't know what it was.
Lewis tries to explain what happened that made these homeowners' individual hardships come down on the very fabric of our capitalistic society, and he seems to say that it is really hard to spell it out because the ideas behind the whole thing are just totally ridiculous. First, that banks and mortgage lenders would do loans to people who could afford them in the short term but almost certainly would NOT be able to afford them in the long term. Then that they would allow these borrowers to continue to use the "equity" created by inflated home costs to fuel more debt and spending on their part. Then that they would allow them to not even pay INTEREST on these loans – rolling the interest into a larger principle amount somewhere in the future. These buyers had nothing invested in their homes except for fees and maybe a very small down payment (but often not even that). They weren't making ANY payments on the loans.
The banks and lenders didn't care, though, because they were selling the loans off to another agency as quickly as possible. And then big concerns on Wall Street were packaging these loans into bonds and selling off the bonds to investors. These bonds were backed by loans that almost certainly were not going to be repaid in full, and in the end, the holder of the mortgage was going to own a house, not a note from a borrower. And what happens when there's a huge supply of these types of houses and no buyers? Prices plummet.
But that's not all. Some smart investors bought insurance on these bonds. They didn't buy the bonds themselves - they bought insurance on stuff they didn't own. For this insurance they would pay a "premium" of maybe 2.5%. So for example, a 50 million dollar triple b rated bond backed by lots of terrible mortgages was insured for 1.25 million a year. The life of the bond is the same as the life of the mortgage - 30 years. So theoretically you could end up paying 37.5 million in premiums to insure this bond if it goes belly up. (Remember, this is a bond you don't even own.) But these smart investors recognized that the loans backing the bonds were mostly adjustable rate mortgages with teaser rates that lasted for 2 years and then the interest would rise dramatically. At that point, a lot of people who might be able to barely afford the payments on their mortgages now were not going to be able to afford them any longer. So they were figuring they'd have to pay the premiums for two years, then loans should start going bad and their credit default swaps (the insurance they were purchasing) would pay off for the full value of the bond. (The higher rated the credit default swap, the higher the premium charged.)
But someone had to be buying the other side of these credit default swaps - and for a long time that someone was the huge company AIG. (Sound familiar?) But not only AIG - many banks and big Wall Street firms owned the other side of these instruments. The things were generating a steady cash flow of premiums each month, and this was positive income. After all, they'd only become liable for the amounts of the CDS if the bond went to zero.
For those smart investors, there was no question that the bonds would default - the only question was "when?" And this is where I am now in the book - just finding out what happens when they start to default. The timing of this event was apparently artificially manipulated by the big houses and by their manipulation of Moody's and S&P rating agencies, so it didn't come immediately as the default rates of the underlying mortgages started to climb - but happen it did, as we all know.
Which begins to explain how a relative handful of mortgages in default could precipitate the near-collapse of our entire financial system. It wasn't the mortgages really. It was the greed that sold and resold these mortgages in the forms of bonds and securities which basically had no value, and the fact that it was perfectly legal to place bets (almost literally) on whether people could pay these mortgages or not.
I used to think simplistically, when I first heard about this stuff several years back, that they just needed a way to force refinances of these troubled properties. The best way to make them worth something was to keep their owners in them. As I read this book, I realize that it went far deeper, and it really didn't matter if they could refinance at lower rates, the bonds were still bad, and the bets placed were still going to bankrupt those on the wrong side of the bet. AIG "insured" way more of these CDS's than they had assets. Any sort of honesty, either in regulation from the government, or ethical action on the parts of Wall Street and the financial houses, would have prevented this from happening. Someone knew, as they packaged these mortgages into bonds, that they were essentially worthless, ticking time bombs set to go off two years from their inception.
It becomes obvious that Wall Street, not homeowners, ultimately built their own mess, and caused all the problems.
I read the entire book and I still can't say I understand it. Not all of it, anyway. I think this speaks to the opacity and complexity of what these bond traders did.
First, I'm not totally sure what a sub-prime mortgage is. It sounds like a mortgage that has a really low, below prime rate of interest. This would seem to be a good thing. A low interest mortgage is something I certainly would like to have. But later the author says, quoting one of his characters (a major player in this book, Steve Eisman) "A subprime auto loan is in some ways honest because it's at a fixed rate. They may be charging you high fees and ripping your heart out, but at least you know it. The subprime mortgage loan [from HSBC, who had bought Household Finance] was a cheat. You're basically drawing someone in by telling them, 'you're going to pay off all your other loans - your credit card debt, your auto loans - by taking this one loan. And look at the low rate!' But that low rate isn't the real rate. It's a teaser rate."
This was in response to a loan offered that suggested that they amortize a loan over 15 years but spread out the repayment over 30 years. Eisman and the author seem to agree that this changes the rate from 7 some percent to 12+ percent. I'm not ashamed to say that I don't get the math here. (Maybe someone can help me in the comments?)
Anyway, what happened in the mid 2000's is that they started making these subprime loans with adjustable rates, where the low intro rate was fixed for two years then would reset at whatever the rate was then. And the borrowers would then default at very high rates. These mortgages were being aggressively sold to people who couldn't afford them. Lewis gives the example of a migrant fruit picker making 14K a year who, through one of these mortgages, is able to afford a 750K house on a 30 year floating rate ARM. As Bill Murray would say in Groundhog Day, "Chances of default on this loan are 100%!"
Now I've seen it suggested that it's ACORN's fault (and by extension, since he did some work for them, President Obama's fault) when what it looks like is that the reason these were so aggressively marketed to people who clearly couldn't afford them was because the companies who were making the loans had the "essential features of a Ponzi Scheme: To maintain the fiction that they were profitable enterprises, they needed more and more capital to create more and more subprime loans." Their accounting rules allowed them to assume the loans would be repaid in full and not early. So they could book this as profit when they made the loans. Then the people who made the loans sold them off to the people who packaged them into mortgage bonds, so they (falsely) assumed that the risk was no longer theirs.
(Those companies were the first to go bankrupt when this whole crisis hit.)
Now onto the bonds themselves. A mortgage bond is "a claim on the cash flow from a pool of thousands of individual home mortgages." Failure to repay is only one of the risks with these bonds. Another risk is prepayment. Mortgage borrowers usually prepay or repay their loans when rates are falling and when they can refinance at a much lower rate. The owner of the bond, then, gets paid off in cash for that part of his investment, and this comes at a time when he least wants his money back, because it's not a good time to invest, when interest rates are coming down.
So brokers came up with a way to identify and use this risk: They carved up the payments into pieces, called 'tranches'. The buyers of the first tranch gets hit with the first repayments, so he gets a higher interest rate. The second gets a little lower rate, and so on and so on until the investors who buy the loans least likely to end before they want them to get the lowest rates.
With subprime mortgage backed bonds, the issuee wasn't early repayments, it was defaults. So they structured them the same way: The first level is the most likely to default, and they get higher interest rates. They then take losses until their investment is completely wiped out. Then the defaults start hitting the second level, and so on.
Even so, at first it was a trivial portion of US credit markets - only a few tens of billions of dollars of the total loans made. But later there was a lot more being made. "In 2000 there hadbeen $130 billion in subprime mortgage lending, and 55 billion dollars' worth of those loans hadbeen repackaged as mortgage bonds. In 2005 there would be $625 billion in subprime mortgage loans, $507 billion of which found its way into mortgage bonds. Half a trillion dollars in subprime mortgage-backed bonds in a single year."
Guys like Eisman, Michael Burry, and three young guys investing their own money at Cornwall Capital looked at these bonds, their underlying equity, and said to themselves, how can we "short" these things? There wasn't an instrument, but there soon would be: the Credit Default Swap. As I said in my last post on this topic, these were sort of like insurance. Perhaps a good analogy would be, say you walked over to your neighbor's house and looked at his SUV. You note that all four of his tires have nails in them. They're still inflated, but sooner or later they're going to go flat. So you call your insurance agent and say, "I want to buy insurance on my neighbor's tires." You don't own the tires. But you buy the insurance and when the tires all go flat and need replacement, you collect the money. Are you being reimbursed for any actual loss? No. It's your neighbor's loss. Does he get anything from your purchase insurance? Again, no. Not a penny.
Same here. These CDS's didn't help the homeowners and they apparently didn't help the people who bought the bonds. What they did was make whoever bought the CDS's rich.
Lewis does not vilify people like Eisman, Burry, and others. In a way they're the heroes of the story. Eisman is characterized as a "socialist" on Wall Street because he was one of the only people actually concerned with what these companies were doing to the poor who were the targets of their loans. For the rest, it was just a case of smart people who weren't really rich taking advantage of the stupidity and greed of the big Wall Street investment banks. The CDS's that they bought they mostly sold back to the banks at a huge premium, enough to make them wealthy by most standards. Michael Burry closed his hedge fund because of the way investors treated him when he was having moderately bad years waiting for his investments in these CDS's to pay off, then how they treated him when his persistence paid off.
Instead he uses them to offset the greed and incompetence of those big influential Wall Street types. That greed hasn't gone away. Has it learned the lessons it should learn about risk? Doubtful. The problem will come up again, in some other form.
I read the book twice, and learned a whole bunch, but I have to say there are some points on which I'm still a bit confused. I've touched on a couple of them in this blog post, but to tell you the truth, I'm not even sure how to STATE what's confusing to me about the whole scenario.
I suppose that sometimes, nonsense doesn't have to make sense and is inherently confusing. Maybe that's the case here.