Free for some people just means they are not footing the bill ... maybe

I see the following in the New York times today:

Health Plans Must Provide Some Tests at No Cost
By ROBERT PEAR

Published: July 14, 2010

WASHINGTON — The White House on Wednesday issued new rules requiring health insurance companies to provide free coverage for dozens of screenings, laboratory tests and other types of preventive care.

The new requirements promise significant benefits for consumers — if they take advantage of the services that should now be more readily available and affordable.

In general, the government said, Americans use preventive services at about half the rate recommended by doctors and public health experts.

The rules will eliminate co-payments, deductibles and other charges for blood pressure, diabetes and cholesterol tests; many cancer screenings; routine vaccinations; prenatal care; and regular wellness visits for infants and children. ...

I assume that the reporter no longer believes in the tooth fairy. The article is tailored as news, and placed in that section of the paper (Page A16) by the Times editors. It has a laundry list of wonderful tests and services that no 'right thinking' person can deny are useful and desired

But the suggestion is a 'promise [of new] significant benefits for consumers — if [only] they take advantage of the services' without a corresponding cost for getting there. No hint nor argument is made that such 'medical' services are unavailable for private purchase already

Indeed, at the end of the day, there is no support for the headline writers assertion of 'no cost' and the reporter is well willing to disregard the pesky question of how to pay for this largess. Clearly these tests are not free and when accounts are settled; these costs will either pass through in a rate base, or the provider will exit the market it cannot make money in, or the insurance market will wither and die as 'the government' provides an 'option' that picks up the tab ... . But the problem is -- 'the govenment' at whatever level likewise needs to get the money to pay for such happy healthiness, and from the very same pool of people 'benefitted'

It is not at all clear that the transaction friction of a single govenment payer works at all well, or that having no choice but 'insurance' through government once the private insurers die is a good thing at all. In watching the 'response' of the government to the oil spill in the Gulf, it is patently clear that government 'oversight' has slowed the response, as BP has become risk adverse to the (reasonable) prospect of being second-guessed at every turn, and so is seeking prior governmental approval before acting in the remediation. The ccase can be made that playing 'Mother may I?' has harmed the Gulf more than the prior approach

Do we really think that a central government single point of control is going to react as well and quickly as a local doctor on the scene, when Aunt Minnie is lying, dying under an oxygen tent and needs some immediate surgery? Under the current system, the doc knows that he'll get paid, perhaps only in part of what is billed as a 'list price' for a prodedure, but eventually from the present model

But that is the end game, anyway, right? Vote and mandate 'bread and circus entertainment' ... until the producers all surrender and act to stop being charged for 'free' benefits to the consumers

'The problem with socialism is that eventually you run out of the other peoples (willing to be robbed of their) money'

Revenge of the Jedi (Part II)

I wrote last week from memory about the use by the Basel II standard of a method, additively combining non-linear and correlated risk events

I see a post on the R-SIG-Fin mailing list from conference organizer Jeff Ryan, that the presentations from R/Finance 2009 are up

Page 4 on the PDF of the Klaus Rheinberger, et al. presentation nicely states the executive summary that this is 'problematic'. The work then shows a worked example

Let's call Basel II what it is -- a top down pronouncement on meaningless rules, written in a fashion that is willfully ignorant of the lessons from the US S & L 'hot money' and actuarially un-sound deposit insurance debacle 20 years ago, of LTCM as to correlated risks and 'being the market', and of the recent Credit Default Swap insurance blowup of AIG

Revenge of the Jedi

"The pen is mightier than the sword"

I posted a bit earlier today about the forgotten religion of Monetarism in the context of my weekend at a conference in Chicago. I had not heard mention of the faith, nor seen anyone but myself doing analysis using the old tools for a long, long time

I blogged a bit back about Jim Chanos' critique on CNBC of the new Mark to Market 'requirements' and the artificiality of the Basel II reserve requirement target value, Chanos suggesting a relaxation to a transition value of say 1.5 percent to 'conform' to Basel II in the short term. Two weeks ago, I had mentioned 'A Monetary History of the United States' (Friedman, Schwartz) to a friend wanting to understand how we got where we are; yesterday evening, I was discussing the Nixonian repudiation of Bretton Woods and the need to revisit Basel II, as I saw a clear demonstration that Basel II is defective at the conference. I do not have my notes at hand, the slide decks are not up yet, but I believe it was in the mixed currency risk analysis (Austrian, Swiss, and back to Central Europe as to residential property loans), which I believe Rheinberger gave entitled: 'VEC and GVAR Models using R' which exposed quite clearly that the 'experts' are using simple additive risk summing in Basel II, seemingly oblivious of the concept of the non-linear nature of correlated risks

The afternoon's email brings a report that Anna Schwartz is still out there as well

The old craft will live so long as a single practitioner remembers them

"Hokey religions and ancient weapons are no match for a good blaster at your side, kid."

The good fight continues; I'll keep swinging with the tools I know, thanks

---

p.s.: I do know the regular titles for the third and sixth released Star Wars films

'R' you experienced?

" ... To confer, converse, and otherwise hob-nob with my brother wizards ..."

I spent a productive weekend up in Chicago, at the R/Finance 2009: Applied Finance with R conference, which billed itself as the "first annual R/Finance conference for applied finance using R". The conference organizers and hosts are the 'usual suspects' on the 'R sig fin' mailing list; Jeffrey Ryan, Dirk Eddelbuettel, Dale Rosenthal, Brian Peterson, Peter Carl, Gib Bassett, and John Miller, assisted by the talented and imperturbable Holly Griffin of UIC. Pretty clearly most of this group code together regularly; see the committer list on the blotter module. The venue was at the 'other school' in Chicago, the one with a more practical interest in Economics and Finance

An aside about Chicago: Long ago, and far away, I was trained as a acolyte 'monetarist' by disciples of Herb Stein's CEA and the Fed, in the [University of] Chicago school [a fad, seemingly long forgotten by recent Economics and Finance grads, so far as I can tell]. Monetarism is a forgotten religion these days; the Fed stopped formally publishing its M3 series a few years ago, in light of the rise of what Bill Gross calls the 'shadow banking' system.

Luke: [The robot] claims to be the property of an Obi-Wan Kenobi. Is he a relative of yours? Do you know what he's talking about?
Obi-Wan: Obi-Wan Kenobi. Obi-Wan... Now, that's a name I've not heard in a long time. A long time.
Luke: I think my uncle knows him. He said he was dead.
Obi-Wan: Oh, he's not dead... Not yet.
Luke: You know him?
Obi-Wan: But of course I know him

Many of the organizers were known to me from my email correspondence or from observing their packages, and I had spoken with one (Dirk) two or three years ago briefly after the trading shim was first usable

Dirk seems to be a bundle of unbounded energy. His tools had solved a lot of data storage and visualization issues for me early on in our project. He led a push a couple years back to drill in many of the R add-on modules into the main Debian archives. I still hope to emulate his example in rpm space using R2spec and some post-processing scripts (Dependency enumeration is not quite perfect yet). Dirk has already mentioned in his blog the 'after-sessions' at Jak's; we closed the place down Saturday with useful brainstorming happening long into the night

I had resolved to travel to the conference to learn, and to stay quiet as to matters of FOSS and advocacy. I was almost even able to keep to that intent, save at the interstitial times. The formal presentations were amazing in their quality of content, competence of the presenters, and challenging to my old knowledge of Statistics and Mathematics. I even understood most of what the presenters were doing, and why, on the formal finance side and will re-read the slide decks with great interest when they appear to fill in the holes. One would have probably had to be there to draw much more from the decks, as the presenters were not doing the occasional 'stand and read' presentation one finds at some conferences, but rather largely used their decks as reminders of the points they wanted to hit and elaborate on in their presentation, and to state exactly the code and formulae in play. The committee have really set a high bar to reach for next year's event to top, and I look forward to it already

The pre-conference tutorials were worthwhile. I knew Jeff Ryan's work from xts and IBrokers of course, and gained insight into his mental roadmap on where the code is going and how it will get there. I think the enhancements he is trialling in xts will pretty clearly flow back upstream into zoo in general form; I had not heard of Dale before, but his breakout and presentation of an analytic approach on addition and testing of single constraints (I have covered scientific method and epistemology here before, and will again) served as a fine warm-up to the formal sessions

During the session breaks, at meals, and into the night, I had a chance for give and take at length with several of the committee, presenters, and attendees, to bridge what Patrick Burns spoke on -- the chasm between Practice and Theory

Part of the trip and my need for listen, was to get a handle on how to match the shim and R as a pair of heavy-weight co-processes, so that the user of the shim can hook in and use the wonderful tools already in R space. We'll most likely get there, but the timing is not clear. Having said 'we', permit me to make it clear that the heavy lifting will be done, if and when done, by Bill, and not me. At the prodding of Peter, who as I understand it regularly team codes with Brian, I have started the sign-up process for an account at r-forge, and will 'cut my teeth' on a simple connector or module, to warm up my skills as a co-development tester and 'guinea pig' consumer of the major task of integrating the shim

FIX rules the roost for being the 'lingua Franca' for interchange to exchange order, position and fill data with counter-party upstream brokers or exchanges (thanks here to the CME Foundation for partially funding the event). We will not soon be adding a compressed FIX connector to the shim, and certainly not before we attain our major milestone of a formal 'complete' first release.

Finally, a couple folks asked why we were playing down in retail space with the TWS and its vendor specific API. For a researcher, and for a small proprietary trader, we still find IB's API and services the most affordable, and substantially complete. It is a gateway to enable any interested researcher to do material research (the 'Theory') and strategy development and execution (the 'Practice'). For student academics, the availability of IB's 'trading Olympiad' program and the shim, and R offer all one needs for a better than free price

---

Update: We see also the summary of the event at Revolution Computing, an R vendor

I saw mommy, kissing Santa ...

I can see her lying back in a satin dress In a room where you do what you don't confess ... I could picture every move that a man could make Getting lost in her loving is your first mistake    -- Sundown, Gordon Lightfoot

It is always kind of a sad moment, watching a younger idealist encounter something that tears asunder their old mental model, and puts them on the path to being a battered, old, steel eyed mercenary. But with that loss of innocence, new doors open

One useful paradigm to look at the consumers of Enterprise *nix software is to break them into a partition of three major types:

1. Those that Have to have the 'Real McCoy', possibly for 'CYA' purposes, or because a upstream vendor says that they need the 'real' one as part of the 'silo' they will support without extra charge (if at all) to meet a performance SLA
2. Those who do not have a strong mandate, but are generally willing to pay the minimal incremental cost such a subscription adds to their bundle of functions, and
3. Those who will simply not pay for 'free' software: No how, no way; no, sir

The commercial enterprise Linux' have been generally successful in 'cannibal conversions' of enterprise consumers of 'olde skoole' proprietary Unix -- The morning's news has rumor that IBM is sniffing around JAVA. We covered the topic, and Ted T'so's proto-quant thought piece on this [Ted being on leave of absence from IBM to the Linux Foundation, as I recall] some months back, in the context of the future for software freedom

All the young idealists from the BSD side of the FOSS house saw their holdings of SUNW eroded away in recent years, the progressive shifts away from hardware, away from ksh v. csh language debates, into the tangled place of license issue and re-inventions of approaches on scaling, as their firm flailed with JAVA [v. rather than use the one true type safe modern OO language, c++ // sorry, could not resist], into databases with a product that will NEVER be Oracle DB, no matter how hard it tries

JAVA felt it had to move past Berkeley DB, and darn it, all the cool kids use SQL. ORCL is the only credible lead player in database space (IBM and DB2 are there of course, but databases are rounding error to IBM's financial statement). JAVA never could articulate the unique value proposition that picking up MySQL, AB, brought to the table, and let the acquisition languish, perhaps hoping that the database's engine in the 'LAMP' stack would pull in tier 2 conversion sales (see the next part, infra). I think they have pretty well demonstrated that "hope" is not a business strategy to follow

Then there is that second tier -- FOSS *nix in through the side door, and without formal support contracts at first. "Under the Radar", so to speak. [Note: The linked article is a bit 'snarky' about Bob's new venture: Lulu, but I find it a wonderful and reliable service, to convert 'print pre-flighted' PDF's to bound books, for cheap, fast and reliably. Highly recommended.]

Just as I might choose to burn up a laser printer to print a manual, and do home-brew binding, Lulu has found a value proposition that makes me 'buy' their service, rather than 'build' it myself. They have convinced me that outsourcing my printing to tier 1 is the 'right' decision. He has converted me to producing wonderful documents from TeX that his business handles the ink to paper, binding and delivery parts. It seems Bob is also 'whiteboxing' short run, 'just in time' print of conference manuals, and continuing education materials. A nice niche, but low barriers to entry

And then there are the 'No how, no way' school in tier three. This recent post in the CentOS forums, "leasing CentOS5 from DataCenter", caught my eye:

Recently we had a customer come to us asking how much we lease out CentOS for.
I thought this was an odd question - since CentOS is ... FREE

When in dialogue with them I learned they have a number of servers with a different provider that charges them $5.00 per month for the Operating system.

I thought this was a bit strange - and wondered - Is it even legal?

How can a datacenter lease out something that is free?
I could understand perhaps charging a setup fee based upon a customers requirements - this is a service --- but
for a datacenter to live off of the backs of someone else by charging for something that is free -

it just bugs me and rubbed me the wrong way -

Any thoughts - ?

Not sure why it bugged me so much - perhaps its because we write a ton of opensource software and could not imagine someone charging for the software itself.

Support / Installation / Service yes - but the software ... i thought thats what GPL protected folks from

This poster has missed the point of the GPL so widely, it is painful.

The GPL is perfectly fine with charging for software which requires that it be accompanied with an offer of access to the sources it was built from. This is what builds markets, and indeed, what makes CentOS possible in part. CentOS is fine with a redistribution and commercialization, so long as our marks and brand are not mis-represented. [Advert: The CentOS project would put a 'tithe' of that rental to good use -- money, machines, bandwidth, and so forth, but it is not mandatory.] A better question might be: Is the data center that employs that poster itself providing the GPL required offer of sources access, and meeting its duty to provide, when they provide binaries under 'lease'?

Someone may well come along and undercut a person selling GPL and related FOSS licensed software for less. I wrote a post encouraging people who 'cannot wait' for the CentOS 5.3 respin, or the updates which get stacked up, waiting for that stabilization process to end, encouraging them to 'outcompete' CentOS. I am fine with that. I know it won't happen generally [Scientific Linux is the closest credible 'fellow traveller' remaining on this highway; Hi, Connie and Troy] soon, as it is non-trivial to ship and support the full line product

The protection of the Four Freedoms under the GPL makes it inevitable that someone will make a run at commercializing FOSS; this is a 'Good Thing'. But then the trick is to provide value; that is, also provide design services, consulting, 'service after the sale', or build a support infrastructure, to make it safe to entrust one's most valuable assets to that software. I feel CentOS meets that test in the 95% case for tier 2; others may dial that number up or down, and do according to their risk tolerance

And with that, we are back to my post sending people with an external factor 'beating on them' about SLA's, to: Go Buy from CentOS' Upstream

---

Disclaimer: I hold direct positions in JAVA (minimal to get keep skin in the game, and to remind me to follow it) and ORCL, and have held IBM in my past; I regularly quote against IBM as to providing third-party *nix support services. I probably need to write a Caveats and Disclaimers post

SportsCenter for Quants

SportsCenter is familiar, has a friendly user interface, and is indeed omni-present -- We ate dinner last night at a sport bar, feasting on pub grub with my mother, my daughter, and her one year old son (and thus, my grandson), the baby. That young man is just getting walking fast down pat, preparatory to learning to run.

But he was also craning his head from side to side, sitting in the booster chair, to see past the adult's heads, for a good view of a panel television, following the fast paced clips

but ... What's a 'quant'?

A quant is a specialized kind of a geek, focused on studying, modeling, and seeking to understand Financial markets. They do this with an aim of being able to know just a little bit more, just a little bit sooner than other quants and other forms of market counterparty traders against whom they compete, to be able to arbitrage a profit from fleeting asset mis-pricings in a market by buying one that is 'too cheap' and selling the one 'too dear'. Profit !!

Part of my morning routine, is to check the overnight results of the markets in summary, and to get a preview of what is coming up as 'scheduled' events' for the upcoming trading day; of course, today's unscheduled exogenous external events are not previewed. I still need that time machine.

This morning, Jim Chanos of Kynikos Associates was on CNBC's Squawk Box [6 to 9 am, US ET], coming into the 8:15 release of the ADP Jobs data. For those of you who may not follow the Financial Layer, Chanos was the fellow who early on, clearly pointed out that the Enron empire and its emperor's had no clothes, in a quarterly conference call. He was called a rude name, but Enron could not thereafter hide from the truth of its frauds, and toppled in short order.

Chanos had the courage of his conviction (that Enron was overvalued) to sell 'short' Enron stock, and then later 'cover' and close the position for cents from the dollars he had received in the initial sale.

Today, anchor Joe Kernen and wingman Carl Quintanilla had a good ten minutes of give and take with Chanos. Good questions, and a very thoughtful and reasoned set of replies from Chanos.

Chanos asks the very sensible question of WHY a arbitrary minimal capitalization requirement is 'set in stone' at 2.5 percent, rather than say: 0.5 [under a convention called Basel II]. Economics 101 covers fractional reserve banking, and the multiplier effect; governmental (social) 'guarantees' and the moral hazard of 'too big to fail' in the US [compare contra, the last year in New Zealand] have removed market discipline by re-incentivizing leveraging in the last few years.

I say: Re-incentivized. Note that we went through all this in a smaller scale in the so-called S and L crisis only twenty years ago -- did no-one in government remember?

I was raised in a family that invests, reads and thinks about application of what we see in the WSJ and related financial press [I currently favor IBD], mailing lists, and newsletters, and historical literature about markets. Add training and practice as an Economist, and a lawyer, and developing quant tools, as well as having high power computing readily available all my life [currently, on a CentOS platform]. And so I am comfortable with Finance issues, and can work through what the 'correct' answers should be, by and large.

There is a large body of well written and often entertaining economic history -- I'll cover a bit in future posts -- which a geek will enjoy reading

Some geek friends who hang out in the side #centos IRC channels seem to feel helpless before market events. Treating CNBC as SportsCenter, and following the stars (and learning to recognize the rogues) is one way to gain confidence and financial literacy

Seven layer ISO stack, plus two

The Seven layer OSI model stack -- an ISO standard, palindromically -- characterizes how computer and data network (and thus internet) applications communicate between separate computers in a defined fashion. From the bottom up: Physical, Data Link, Network, Transport, Session, Presentation, and Application layers

Computer networking geeks use that the seven-layer stack, to specify and to analyze matters running from what a given voltage level means at the bottom (Physical layer), to how a email client retrieves email from a mailstore at the top (Application layer).

In preparing this piece, I find see reference some to mnemonic forms to get the sequence of the Layers correct that I did not know before:

The mnemonics "People Design Networks To Send Packets Accurately", "Please Do Not Throw Sausage Pizza Away", and "All People Seem To Need Data Processing" may help you remember the layers.
BambooWeb article

Some wags extend the definition thus:

Of course, above those seven layers are two more: the Financial, and the Political Layers, which also need to be functional.

The dis-functionality and friction of office politics, or perhaps of being unable to get funding needed for a more reliable and functional network infrastructure rather than a Bigger, Newer, Better computer to sit unused on a pointy headed boss' desk, each come to mind as obvious examples. In wider scopes, Financial may encompass Economics and Markets; Political expands to social interaction, policy and polity

It seems in at least one restatement, to also have added an explicit 'religious' layer as well under some restatements. I think one can perhaps subsume Religious into Political, but I can see the genesis of the historical tension to draw a difference between those asserting dominion over a person's earthly presence, and spiritual corpus.

Network technicians will sometimes refer euphemistically to "layer-eight problems," meaning problems with an end user and not with the network.

Carl Malamud, in his book [1991] book"Stacks," defines layers 8, 9, and 10 as "Money", "Politics", and "Religion". The "Religion layer" is used to describe non-rational behavior and/or decision-making that cannot be accounted for within the lower nine levels. (For example, a manager who insists on migrating all systems to a Microsoft platform "because everyone else is doing it" is said to be operating in Layer 10.)
BambooWeb article

I see also that people have adapted use of [pdf] the Political and Finacial Layers. No model is so good it cannot be twisted, abused and extended, it seems

Anyway, I lay this foundation to provide a kick-off target to point back to in future discussions of the Political and Financial layers of the stack

'Money for nothing, and the chicks for free'

The weekend started with a private email from a long time friend, wanting to rebuild a semi-FOSS mixed commercial and community project, and asking for some analysis of what such a project would entail. It turns out to be partially Debian based. We'll be talking later today on the matter to see if he needs some consulting services to get the project done.

Unrelated to that, I watch the mailing list traffic in another project, which is designed to be a short lifespan, bleeding edge 'proving grounds'. One of the perennial threads that resurfaces is a proposal to take one of the 'better' releases (under some unclear metric of 'goodness' -- time based is most often seen [consider Ubuntu's LTS every N'th release]), and for 'the community' to support it for a longer time frame.

A poster unfamiliar to me, Marc Schwartz, noted this over the weekend:

Keating quote in C|Net about the end of 'Fedora Legacy'

"Nobody has responded to our calls for help," Keating said. "There are a good number of consumers, people who will happily consume until the project ends; however they are not willing to actually do any of the work necessary to keep the project alive."

In other words, FL had a parasitic, not a symbiotic, relationship with its users.

If Scott is willing to do the heavy lifting and he has people that will step up with him to do the heavy lifting, then this project might have a chance. On the other hand, if people just want the output, but are unwilling to step up to contribute to the input, then this project, like FL will fail. It might take months, but it will fail.

At Owl River, we designed, built and offered a commercial general market product to work in parallel with our 'community side' work with first cAos, and now CentOS. Wings really never caught on, and neither did Ian Murdoch's Progeny venture, each offering commercial SLA post RHL updates offerings. Progeny closed its doors a couple years ago now, and the domain progeny.com looks to have been sold off to a domain linkfarmer.

As it turns out in our consulting, we seem to need just a few packages on top of a CentOS base, and related configuration. It is my thesis that it represents an uneconomic waste of cycles to spin yet another full blown distribution, rather than just solving the remaining ten percent of 'hard parts'. We meet our GPL obligations and our broader sense of giving back in support of FOSS by making our solution SRPM's initially built for customers freely available, and have do so for many many years.

The random drop-in posters on the mailing list, and in the CentOS IRC channel are of course whining that their free updates are slow in coming. How dare we have personal lives, take time to get married, etc.?

It takes discipline and a thick skin to NOT rush a poor product out, but the purpose of CentOS is to replicate its upstream, warts and all, with trademark elidement and the minimal stabilization to get the installer and update tool working properly with our updates mirror solution. We have other checklist items on this QA round as well, and frankly, it will ship when it ships.

For those who cannot wait: Go for it; the wiki documents a non-root build environment, and it is not a dark art to build a limited set of updates. The Source RPM's are freely available upstream. We have documented the comparison scripts long since.

You can solve the build, verification and stabilization issues just fine with just a few months work; if you start now, when the next point updates come out, you won't have to wait at all.

"Back, to the Future"

Doc: "You see, Marty, this time I really, really know what I am doing, so you can trust me on this one"
Marty: "Gee, I dunno, Doc"

Fannie Mae Eases Credit To Aid Mortgage Lending - 30th September 1999 (New York Times)

... In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

Yeah ... but THAT will never happen again. That 'S and L bailout' thing was a once in a lifetime event. Six Sigma, and all that. We're smarter than that now. It's different this time.

Sledding down the slippery slope

Mr Dooley reads the paper:

08:52 Facing shortfall, Massachusetts inquires about a Federal loan - NY Times

NY Times reports the Massachusetts state treasurer has asked the federal government about lending the state money under the same favorable terms given to banks and investment firms during the financial crisis ...

Call me old fashioned, but wasn't this result perfectly predictable [to the Fed, to Treasury, and to the Joint Economic Committee], once starting down the 'moral hazard' path?

It is too early for strong drink, but ...