Statistics, Index, and the Power of Information


Obama’s call for “TRUTH” is a simplified statement that calls into question the manner in which information is collected, the way it is presented and the manner in which it is disseminated to the public. 

Underlying this simple call for integrity is his assessment that information flow is fundamentally flawed and that a much needed correction will result in smarter policies that people will give credence to and lend their active support; and that the self-fulfilling negative prophecy we are all living can be turned into a positive climb in quality of life. If you already believe this and understand it, there is no need for you to read this article. If you think his statement is mere lofty rhetoric, you might want to consider my presentation here. For those who want further information, look for books by Von MIses and Rothbard.

The tools of power are all based in information. If the information seems reliable, then the policies foisted on us seem reasonable and even “right.” The basic tool in use today is the statistical index. There is something about an index that when published gains the credulity of the public and even those who know better. It is like a self-fulfilling prophecy.

American political and economic history can be viewed from many perspectives and themes. One of them is the ebb and flow of our collective perception of people, regarded sometimes as labor, sometimes as capital and sometimes not at all. 

The current business, economic and political environment has failed to advance or evolve very much for most of the people of the United States, even though women received the right to vote some 80 years ago, and blacks received the right to vote some 40 years ago. 

The tendency of certain people to accumulate great wealth and power in any society of any nature inevitably produces an inequality not only of results, but of opportunity. American voters, deprived of the education and information they need to know to make informed decisions, are easily manipulated into voting against their own interests.  An educated voter is a nightmare to any power broker, economic cartel, or political cartel.

When adults cannot find states, cities or even continents on a map displaying all the information with proper labeling, it is not hard to see how such people can be easily deceived. And those with power and wealth are eager to deceive them, gaming the electoral process into a utility to maintain and expand their wealth and their power.

The tools of power are all based in information. If the information seems reliable, then the policies foisted on us seem reasonable and even “right.” The basic tool in use today is the statistical index. There is something about an index that when published gains the credulity of the public and even those who know better. It is like a self-fulfilling prophecy. 

Whether it is Libor, the inter-bank lending rate index, the CPI, which supposedly measures inflation for consumers, or the indexes used to measure market dominance, we have drawn artificial lines in the sand which allow those in power to continue on their merry way while the rest of us wonder what hit us. 


  • The reality is that Libor, bond ratings, measurements of consumer prices, measurements of those employed, measurements of those unemployed, measurements of those underemployed, productivity, and unfair trade practices are all at substantial variance with reality. Thus the mortgage meltdown, the recession, and another opening of Walmart that kills thousands of jobs, hundreds of companies, thousands of opportunities for innovation, and diminishes our choices to dangerous or inferior products with virtually no service inside the store and no assurances of fair treatment once a sale has been completed. 
  • Walmart is able to achieve this feat and become one of the largest companies in the world by converting labor back into capital despite the 13th Amendment. As with all companies of great wealth they were able to purchase the rights to make their activities legal. In reality, those of us who live in the world created by this cash carry government policy making, we see that there is complete 100% market dominance by Walmart in each town it hits. 
  • But statisticians for Walmart just like the statisticians for the drug companies, look for a sampling that gives them the arguable position that what we see right in front of us, just isn’t there. We are deceived, or so they say. We are not looking at the “big picture.” True, nor should we look at THEIR big picture if we want OUR lives improved. There should be a healthy competition between accumulation of wealth and quality of life. In truth, we are at the bottom of the barrel on the level of that all-important competitive “index.”
  • By expanding and contracting the area “affected” by a Walmart store one can present a plausible argument that there is no significant effect on competition. We know different but there it is right there in black and white, by the numbers. 
  • By contracting the sampling on a drug study to a specific period of time where nothing adverse happened to patients taking the experimental drug, the drug is pronounced safe and then tens of thousands of people die because it wasn’t safe, as the REST of the data clearly showed. Management of disinformation is the way we are manipulated into voting against ourselves. Political slogans emanate from false statements from apparently reliable sources. And we are all deceived.


  • By hiring all graduates of regulatory agencies when they retire, a retailer or drug or oil company guarantees that the regulators will not look too deeply into the manner in which such an index is presented. Plausible deniability is the name of the game. The result is you and I get screwed. That is the story of antitrust, the FDA, and dozens of other agencies serving the business sector  to the nearly complete exclusion of the safety and welfare of the taxpayers in whose name they operate. It is the equivalent of a hostile takeover of government where the cash and carry system of legislation perpetuates not merely inequality but threats to the safety and welfare of our citizens.

“Inequality” (regardless of how you define the word “equal”) does and will exist in the most despotic regimes following ideology from Marx to Plato’s progeny producing the likes of John Locke and the scholars of the American Revolution. No regime can provide or assure a specific outcome for the life of one or any of its citizens. This article takes no issue with the inevitability of inequality.

Yet we have an innate sense of right and wrong even when we do wrong. We know that “all men are created equal” has a meaning even if we can’t all agree precisely what that means. We know that the U.S. Constitution was written to provide a framework for liberty and freedom but not for women, native Americans and slaves. Women and native Americans counted as zero and black slaves pulled slightly ahead of women at 3/5 of a person, as stated in our constitution. 

When the American Slaves were freed about 160 years ago it was, in an economic sense, a conversion of capital into labor. 

Slaves had been purchased and traded like bales of cotton or rice or tobacco; they were property, they were allowed no education, no free will, and of course no bargaining power. How would anyone go about “educating” a bale of cotton? It makes no sense. While mystics ascribe a soul to everything, whether we think it is alive or not not, most of us are quite tolerant at denying rights to a bale of cotton, even if it is burned, torn apart are thrown under a bus. In a word, if the cotton “feels” anything, we don’t care and it isn’t likely that we will care anytime soon or that we should. Something in most of us “knows” that the cotton is not worthy of our sympathy, nor do we sense any obligation to it.

The system made perfect economic sense: the cost of production was reduced to the absolute minimum, repairs of equipment and “other capital” (like slaves) were repaired until they were of no further use at which point they were discarded. And unlike other forms of capital, slaves reproduced, thus continually expanding the potential for production without further capital expenditures. 

Society organized around this system in such a way that no actual person worked, without being regarded as disgraced. Plantations were worked by slaves, managed by slaves and the wealth generated went exclusively to the Plantation owner. The threat of removing this system, depriving the owners of their possession of slave capital was a threat to the entire way of life that had evolved over 200 years. 

It makes sense only if you look at some data and not look at other information. The slave capital system was missing a key ingredient — a prospering rising middle class. The non-slave states had it and they did far better in the long run than any of the slave states many of which are still, 160 years alter, at the bottom of the barrel economically and in quality of life. Their resistance to allowing education to a significant population of former slaves was the equivalent of shooting themselves in the head.  It was an all or nothing mentality. Either the slaves would provide free production or we won’t help them do anything. 

The “information” Southerners were working with was that blacks were less than human. They thus deprived themselves of the single greatest resource they had to compete in a national economy and eventually internationally. Politicians looking for power found it easy pickings to tease voters into anger and resentment about the Civil War, about slavery, and about Jim Crow segregation. The politicians objectives were simple: maintain power. The rest of the people be damned. (which at the risk of political incorrectness, makes the Reverend Wright’s comment plausible, even if ill-constructed. He wasn’t wrong in what he said. Yet he missed an important point: 40-160 years ago he would have been tortured and hung for making a statement that passed only as a news story now).

The importing of tens of millions of Mexican laborers who had “illegal” status is an inevitable result of big business’ realization that the lock on the poor white and poor black populations was loosening. The grip of fear of discovery gave the leverage needed to convert these workers from labor to something as close to slave capital as would be tolerated in our society.

The mortgaging of America’s future, with all the inevitable taxes that implies, the culture of debt rather than savings, and the withholding and diminishment of education through all walks of life in America is the policy behind the tools of our re-enslavement. The risk now is higher and more widespread than in the 1790’s when women, slaves and native Americans were already discounted capital. Now the government and the business sector have us all targeted as potential “capital” instead of unhappy black men caught like animals and transported like capital with acceptable losses at 1/3 of the cargo. 

And the only thing that can stop them is a reversal of the institutionalization of ignorance. We have accepted too long the notion that we don’t know anything but that’s OK nobody else does either. We should all know more than we do, We should all treat life as an opportunity to educate, train and better ourselves. If we do, then everyone wins, including the business sector which needs the rising prosperous middle class to do business, whether it is here or abroad. Why don’t they know that? Because like you, they are just people trying to get the most they can right now. That’s human nature. That is the American way.

Treat every index with suspicion. Test all information against your own anecdotal experience. And don’t let anyone tell you they know more about your life than you do.

Mortgage Meltdown Casualty: Trust between banks — Time for Truth

Another casualty of the Mortgage Meltdown induced paranoia that is sweeping the credit and money markets: Banks no longer trust the indexes which they have relied upon for decades. In other words, they don’t trust each other. And they don’t trust the people who report on what is happening out in the financial marketplace. The simple fact is that they do NOT know how much they are paying or how much they are going to pay, or the actual trend lines in inter-bank lending. This basically slips the rug out of the entire credit infrastructure. 

What this means to the average Joe or Jane is that it adds uncertainty to an already chaotic marketplace. Uncertainty produces fear and fear produces increased risk aversion. Bottom Line: Interest rates are going up no matter what the central banks do. Loans will be harder to get. Asset values will decline because of the difficulty in obtaining financing that is usually associated with the purchase of those assets — like housing and mortgages. 

In terms of policy, it means that decision-makers in government and the private sector need to be honest and straightforward in their reporting of data.

Making lemons appear to be lemonade is going to further erode trust and confidence in the financial systems.


Pointing out sectors that have upticks does nothing to restore confidence in the overall system. Everyone understands that the failure here was systemic, not economic. Failure to address that issue will simply produce declining confidence in the markets until people start believing what they are told. They won’t believe it unless they can confirm it. And we all have access now to information that will confirm or deny the spin or reports that government and private sector leaders publish.

Time to fess up boys!!!!

N.Y. Libor alternate tries to avoid London’s pitfalls
Still, upcoming interest rate is unlikely to show bank risks have improved
SAN FRANCISCO (MarketWatch) — A New York-based measure of how much it costs banks to borrow money will try to circumvent problems dogging Libor, the London benchmark that sets rates for everything from adjustable-rate mortgages to interest rate futures.
Successful avoidance of some pitfalls that have undermined bankers’ trust in Libor, however, is unlikely to prevent ICAP Plc’s New York Funding Rate from mimicking at least one of its London counterparts’ key traits. That is, a gap with other interest rates that suggests borrowing conditions for the world’s largest banks are still quite stressed.
“At this point, the U.S. index won’t make much difference, but it may be a good idea six months from now,” said Brendan Brown, head of research at Mitsubishi (UFJ) Securities International, in London.
Bankers point to a raft of other indicators, from currency forward rates to swap spreads, to show that bank borrowing costs are still high even while other measures of credit risk have fallen. That discrepancy has been a source of nagging worry for investors and economists looking for proof that the worse of the credit crisis has truly passed.
In fact, an interest rate that side-steps some of the problems that have recently undermined investors’ trust in Libor may even show banks are paying higher rates than shows up in Libor.
A month ago, Libor made its steepest five-day advance since August after concerns emerged that some banks had been underreporting their rates, out of fear they would be penalized if outsiders knew how much they were paying for funding.
Icap (UK:IAPnewschartprofile) , a London-based inter-dealer broker that specializes in handling over-the-counter transactions like currencies and interest rates, is trying to discourage banks from fibbing about their borrowing costs by making its survey of 40 global banks anonymous.
Plus, rather than ask banks for the rate at which they can borrow short-term, unsecured loans — as the British Bankers Association does — ICAP will ask banks for their estimates of what the going rate is for the average bank.
There’s some urgency among banks, borrowers and the Federal Reserve to know just how costly it is for banks to tap the money market for their borrowings.
These funds are one of the main ways U.S. and overseas banks get capital for their own lending activities. If their costs are running high, they are likely to lend less, a headache for consumers and businesses that rely on flush conditions at banks to fund new mortgages, new auto loans, student loans, acquisitions and expansions.
And if the new measure does show Libor has been printing lower than the true cost of interbank borrowings, a lot of consumers and businesses with loans tied to Libor could get a nasty shock. It’s been estimated that loans and derivative contracts totaling roughly $150 trillion (more than $20,000 for every person on earth) are indexed or tied to Libor in some way.
In fact, the universe of financial instruments tied to Libor is so huge that some bankers are nervous that any efforts to tweak the way Libor is collected could make a bigger mess.
Libor “is extremely important,” said Terry Belton, head of fixed income strategy at J.P. Morgan Chase. “We would probably create more problems by changing it in a material way than we would solve,” he said.
Libor rises…
ICAP’s efforts to publish a new bank lending rate follows an unusual period where Libor as well as other bank lending rates have frequently topped central bank policy rates, meaning banks are paying more to borrow because of heightened credit and liquidity risk
The difference, or spread, between the three-month U.S.-dollar Libor and the effective federal funds rate rose to more than 80 basis points on Wednesday. Usually, dollar-denominated Libor tracks closely with the fed funds rate. See earlier story on Libor’s rise.
By other measures, costs for banks’ borrowing needs have also been rising. The spread between three-month Libor and overnight index swaps has been climbing since February. What’s known among credit analysts as the BOR-OIS spread gives a view of Libor that strips out expectations that central banks will raise or lower rates.
These spreads “are all signs that there is stress in the market,” said Eoin O’Callaghan, market economist for BNP Paribas in London.
Such signs of stress are worrisome for the Fed, which has $462 billion in special lending programs to financial institutions as it tries to get money flowing in frozen pockets of the credit market.
Notwithstanding efforts by the Fed and other central banks to “meet panic demands for liquidity” by making more funds available to financial institutions, still “many markets are not functioning normally,” noted Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, in a speech Tuesday.
In contrast to rates that reflecting bank costs, indexes that track perceived credit risk and rates paid by corporations have been tumbling. Markit’s index of high-grade, North American credit default swaps has fallen about 27% since late-March. The spread between safe-haven 10-yield Treasury notes and bonds issued by companies with Baa ratings, which indicate riskier but still investment-grade companies, has also narrowed since mid-March.
… But not by enough?
Amid these concerns, other measures of short-term borrowing, such as the over-the-counter market to buy currencies like euros or sterling for future delivery, also suggest Libor just may not be high enough.
The British Bankers Association gets the Libor “fix” by polling global banks including Citigroup’s Citibank (C

and Lloyds TSB Group (UK:LLOYnewschartprofile) every day on what they are paying for funds.

The group says it doubts its Libor panel banks are contributing to deliberate distortions of the rate. Still, it has brought forward a review of how the rate gets calculated. See related story. And banks may be paying more for their loans than Libor suggests for purely innocent reasons.
It’s just not that liquid a market, bankers note.
Plus, the massive and surprise losses resulting from the U.S. housing market collapse have created a lot of variation among financial institutions when they try to borrow money. Banks that are light on funding or carry poor credit are likely to pay a far higher rate in the forward currency market, for instance, than the Libor panel would reflect.
“This is a problem that is temporary in nature and reflects the dislocation in the financing market,” J.P. Morgan Chase’s Belton said. He predicts that as central banks inject more money into the financial system “and as things there improve, we’ll move back to a world where all banks in panel have similar financing rates.”
Banks are likely paying more to borrow money, whether that’s reflected in Libor or another indicator, simply because supply has dried up. Banks, mutual funds and corporations that lend in the bank borrowing market are keeping more cash to themselves.
“Confidence in and between banks has been dented significantly after the Bear Stearns Cos. (BSC

) episode. Investors and banks are reluctant to lend cash to banks, effectively wondering who the next casualty will be,” said economists at Societe Generale in a report.

In mid-March, Bear Stearns came close to collapse, causing fears of a run on Wall Street.
“Also, money market funds, which are liquidity providers, continue to fear redemptions and invest at very low maturities,” they noted.
New York fixing
Since the NYFR will be based on a survey, rather than actual transactions, there still will be no way of telling if banks are giving an honest assessment of borrowing costs.
“There’s not really an ultimate check on whether the rates banks are reporting are the right rates,” said Brown of Mitsubishi Securities.
One thing that will change, however, is the time zone.
The British Bankers Association gets the so-called fixing of rates at 11 a.m. London time, or about 6 a.m. New York time. That’s about three hours before banks in the United States can start borrowing money in U.S. dollars, so may not accurately reflect the price of costs facing banks trying to tap these dollar markets.
ICAP’s planned NYFR rate instead will query banks at 9:30 a.m. New York time.
ICAP’s planned rate will also attempt to give a better view of what’s going on in the market for dollar-based bank borrowing than one of its current measures, eurodollar deposits. It gets this data from bid-ask spreads ICAP users provide for these deposits and supplies it to the Fed, which publishes the bid rate daily on its H. 15 statistical release. Go to the Fed’s Web site.
As the financial markets have convulsed, those eurodollar deposit rates have increasingly reflected a wider bid-ask spread, perhaps skewing the published rate.
“Since August, and especially since Bear Stearns, our desk has been setting that range very wide to reflect that trading is a lot messier,” said Lou Crandall, chief economist at Wrightson ICAP, the New York research arm of ICAP.
“It made us look for a more objective way to say where rates are trading,” he said.
NYFR is designed to give a clearer snapshot of bank borrowing costs. But it’s not designed to become the next Libor, which is the benchmark for so many loans and derivatives, Crandall stressed.
“This is designed to supplement Libor, not replace it,” Crandall said. “The series we had been publishing was no longer adequate for that purpose.” End of Story
Laura Mandaro is a reporter for MarketWatch in San Francisco.
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