Category Archives: Uncategorized

Should hedge funds be allowed to short a country’s debt?

A few weeks ago, I wrote about how credit rating agencies had cut their outlook for Italy, and how this was being blamed for Italy’s borrowing costs going up. Well, Italy’s borrowing costs continue to rise, and this time it’s being blamed on the hedge funds. Whenever I see an article like this make the rounds on social media, I invariably see some of the same comments come up: “hedge funds shouldn’t be allowed to bet against a country like that, they’re making money on other people’s suffering.”

First, I think the moral arguments are misguided. When two companies compete with each other and one drives the other out of business, the successful company could be said to be making money on the other’s suffering. But our capitalist system accepts this as the price we have to pay for an efficient economy, and so I don’t see the big difference between that and countries. Should people not have been allowed to short Lehman Brother’s because its collapse would likely harm the American economy? Surely not, so why should Italian government debt be protected in this way?

Secondly, it’s important to realize that the process of shorting is a mutually beneficial arrangement for both the entity doing the shorting and the one lending them the bond. In order for a bond to be sold short, it must be borrowed, then sold, then repurchased and handed back to fulfill the borrow. The borrowing of the bond generates interest, which must also be repaid by the entity doing the short selling. So bond-holders have an incentive to lend out their bonds to short-sellers because this lets them generate interest and therefore income on their bond. If they were not allowed to generate this income, then the bond would be worth less to them and they would not be as willing to purchase it. This would reduce the demand for a nation’s debt and thus would increase borrowing costs, which is something we’re trying to avoid by outlawing short selling.

Third, how would such a short-selling ban be implemented, and what would that affect? The processes that go into a short sale: the borrowing, selling, and purchasing of a bond, are all legal on their own. You would have to write a new, more complicated set of laws therefor to outlaw short selling but not also outlaw these individual practices which seem good and legal. So once you add this new complicated regulation to the market, how many entities will decide that it’s no longer worth it to invest in Italian debt (which has these complicated regulations attached to it) and will instead just invest in German debt (which doesn’t have these complicated regulations). And even if you could ban short-selling EU-wide, then many organizations would just pull their money out of EU bonds and park it into American, British, or Japanese bonds. People think that countries have all the power in the bond market, that they can set the rules because financial institutions need to buy bonds to make a profit. But countries’ bonds are competing with each other, there’s always another bond market people can invest in, and if you want to save Italian borrowing, then scaring money out of the Italian bond market doesn’t seem like the right way to do it.

Finally, short selling is a necessary part of price discovery. Without short selling, markets would not so easily discover the true price of bonds, and so would operate far less efficiently. Again, let’s say you banned short selling throughout the EU. Empirical evidence has shown that banning short selling only increases trading costs and lowers liquidity. That means that if you banned short selling, there would be less money in the market to buy bonds anyway, which again is counter-productive to Italy’s current predicament. In terms of Price Discovery, the failure of price discovery would mean that all prices would tend to converge together, as there is no strong discovery mechanism to discern them. That means the price of Italian debt and German debt would likely converge because investors would not be able to discern their true prices. This would be good for Italy, in fact it is exactly what some people want to accomplish by banning short selling, it might make it easier for Italy to finance it’s debts.

…but it would be bad for Germany. Germany currently enjoys a distinct position as having perhaps the most highly regarded debt in the Eurozone. That makes its borrowing costs very cheap and makes it easy for Germany to finance its obligations. Now, if the EU wanted they could always ask Germany to help out Italy, in fact years ago there was a call for Common European Bonds aka Eurobonds. This proposal would mean that member states could take out bonds which were to be paid back by all members of the EU together, making it easier for states like Italy to get cheap loans (because they were leaning on the German economy) while making it more expensive for Germany to get loans (because they were propping up the Italian economy). It is important to note that this Eurobonds proposal was soundly rejected by the EU and by the Northern EU member states in particular. Absolutely no one was willing to make Germany’s borrowing more expensive for the benefit of Italy.

So with that said, banning short selling would only accomplish what has already been deemed unacceptable. It would cause liquidity problems in the Italian borrowing market, and it could only help Italian borrowing if it also hurt German borrowing due to obfuscating price discovery across the EU. So why even do it? If Italy truly truly needs help financing its debt, the idea Eurobonds would accomplish exact what is desired without harming the bond market.

I wish PBS Spacetime would do more planetary science

For those who don’t know, PBS Spacetime is an awesome youtube series where real-life astrophysicist Matt O’Dowd discusses the most fascinating facts and theories about modern physics. They’ve had videos on everything from String Theory to General Relativity to alien spaceships buzzing our solar system. I’ve loved almost every video and topic they’ve discussed but one glaring omission that I’d love to see more of is planetary science, especially the formation of our solar system.

Our solar system is a weird and wonderful place, and there’s plenty to talk about that they haven’t gotten too. I’m particularly interested in the topic of solar system formation. When I read articles about exoplanets and foreign stars, they often discuss the Hot Jupiters and Super Earths that might be orbiting those. These stories make our solar system, with it’s cold Jupiter and it’s regular-sized Earth seem kind of lame. But how abnormal is our solar system? Are we out of the ordinary, or very ordinary indeed?

One really cool set of hypotheses I’ve read up on are the Nice Model and the Grand Tack. I don’t have near enough astrophysics background to explain these, but together they paint an exciting picture in which, during the early formation of the solar system, Jupiter and Saturn began to drift inward on orbits closer and closer to the sun. Eventually they got to orbits that are much closer to Mars’ orbit than what they have at present, before orbital resonances kicked them back out again into their present orbits. These theories propose to explain a lot of questions about our early solar system: the smallness of Mars relative to the Earth and Venus, how the current gas giants could have formed and reached positions so far away from the sun, and even perhaps explain the Late Heavy Bombardment of the inner solar system. I’ve often been curious if they could also be an explanation for why our sun doesn’t have a Hot Jupiter aka a gas giant orbiting very very close to the Sun. As stated, Jupiter and Saturn migrated inward before eventually turning around and migrating back out again. If they had not stopped, might they have formed a set of Hot Jupiters? Did the Hot Jupiters around other stars migrate inward to their positions, and Jupiter and Saturn once migrated?

It’s a tantalizing topic for me which is why I’d love to see a PBS spacetime episode on it?

I plan to do NaNoWriMo

For those who don’t know, NaNoWriMo is National Novel Writing Month. It’s a simple challenge intended to get people writing instead of just thinking about writing. I know myself this is a struggle, I often feel like I have lots of good ideas but never actually act on them, it’s one of the reasons why I started this blog (although I’m realizing it’s harder than it looks to get good ideas out of my head and onto a document). The rules of NaNoWriMo are simple: write a novel of 50,000 words or more over the course of a single month (November, to be specific). I plan to try to do this myself, and might even publish on my blog the bits of my novel as I write it, if I think they are any good. I might not, who knows. But I feel like by writing my plans down here and now, I’m going to be much more likely to stick to them instead of planning in my head and then just… not doing anything.

Quick one today

its hard admitting that I failed and it’s hard to go back to the places where I failed but I still gotta keep pushing on. When I started a new job a few months ago I had dreams in my head of what my life would be like. When I lost that new job of course all those came crashing down. But what else can I do but try again? I’ll keep trying until I succeed, I promise.

Some questions about a new Miracle Cure for degrading “Forever Chemicals” such as PFAS

Earlier I was sent a wonderful article by the BBC about a new breakthrough in degrading “forever chemicals” known as PFAS. PFAS aka “perfluoroalkyl substances” are common chemicals used to make all sorts of houseware from paints to pans to wrappers. They are highly resistant to liquids which is why they’re so often used, but that itself makes them difficult to degrade. Because they are difficult to degrade, they stick around and have been linked to some harmful health effects if they are present at very high levels. This is why the new breakthrough is so important, the ability to degrade these chemicals before they build up to harmful levels would be very useful.

After reading the BBC article I went to the paper itself to understand the science behind the breakthrough. Now here’s where I have questions, because I am not an expert here I’d love if some actual science experts could help me understand this. To start with, PFAS is basically a long string of carbon atoms ending in a carboxylic acid, and attached to each carbon atom is a bunch of fluorine atoms. Prior research demonstrated that the carboxylic acid can be popped off using high temperature (120 degrees C) and a polar, aprotic solvent (water is protic, DMSO is aprotic, aprotic means that is can’t donate hydrogen bonds, which water does do easily). Once the carboxylic acid is popped off by this high temperature and specific solvent, then all the fluorine ions are readily removed by the addition of NaOH. In the main body of the research this step was simultaneous to the popping off of the carboxylic acid (aka at 120 degrees C), but later on the paper said that removing the fluorines could also happen at lower temperatures.

Now this is all very cool but one of my questions is: what happens to all those fluorines? And especially what will happen if we try to industrialize this process to degrade PFAS on a large scale? It appears that the fluorines remain as F- ions in the solution, but from my understanding if even a small amount of water gets into the solution, they will readily turn into HF, a very dangerous acid. If this process is scaled up, it seems conceivable that the concentration of PFAS will be increased in the reaction vessel to more efficiently use space and heat for degradation, meaning the concentration of fluorine following degradation will also be increased, meaning that the possibility for high concentrations of HF will also increase. So basically: is this process ready for prime time, or do we need to add another step to safely remove the F- ions? Fluorine as an atom is very hard to move around, requiring special permits and special containers, so I can’t imagine you can just package and ship it to some plant for re-use in new PFAS production. So what’s the next step? What’s a good way to remove or neutralize the fluorine so it can either be safely disposed of or sold for re-use? I’d love if any scientists could help me understand this.

Update: I’m learning Unity

I’ve always enjoyed video games and wanted to create my own.  I may never actually make one but at least this is a way to exercise my creative side.  My wish is to make a game called something like “Build the Biggest Boom.”  It would be a game all about the chemistry of fire and explosions.  It would start by teaching the player how explosions work, how they can be shaped to send their force in a specific way, and why some compounds explode while others don’t.  There would also be an element of simple engineering to create the devices which would how explosive charge and to detonate.  The game would proceed similarly to Kerbal Space Program where instead of trying to build rocket ships to go to the moon, you build bombs to create the biggest boom.  You do simple research which teaches you the basic chemistry of explosions and then put parts and molecules together in such a way to create bigger and bigger booms, both by creating better explosive materials (for instance nitroglycerin instead of gunpowder) or by making things explode more effectively (ex the shape of the bomb).  There could also be an element of designing explosives to fulfill a specific purpose, such as proximity fuses to only explode when near something or waterproof fuses to explode underwater.

That’s all well and good, but so far I’ve done only the following:

-Make a cube that goes up when space bar is pressed

-Make a box that creates cubes when return is pressed

-Spawn a bunch of going-up cubes with return, then send them up with space bar

-Created a ceiling to stop things from going up too far.  Turns out that to create a ceiling, you have to create a floor upside down.  Who knew

So I want each “cube that goes up” to eventually be a particle in an explosive reaction.  Instead of just going “up” I want them to gain a force proportional to all the other particles near them (as an analogy for every molecule releasing explosive energy) and therefore “explode” outward when the space bar is pressed.  From there I can do the stuff of having different particles have different explosive energies, and having shape charges and stuff.

Game design: should AIs play to win, or play for the player to lose?

I’ve been playing a lot of Sid Meier’s Civilization recently and have thought about this conundrum: should AIs in video games play to win, or just play to make the player lose?  These are two different strategies mind you, if each AI is playing to win they will act in their own rational self-interest to pursue their own goals.  But if they are just playing for the player to lose, they may instead act against their own self-interest in order to hurt the player.  I feel like I see this “play for the player to lose” strategy a lot in games against the AI but I don’t know if it’s accurate or just my imagination.

Consider for instance the early phase of the game: settling.  The player and AIs all are scouting and settling in an attempt to claim as much land as they can to grow and become stronger.  I often appear to see AIs make baffling settling decisions, settling on terrible land with zero fresh water, and their decisions only seem to make sense if they are simply trying to box the player in, not actually win themselves.  Settling is an expensive process requiring a lot of food and production, so you want to settle as good a city as you can.  On the other hand giving the player a lot of land for themselves lets the player grow stronger and be more likely to win as a result. 

The compromise seems to be that in games I have played, the AIs nearest the player will settle on marginal lands in the direction of the player, boxing the player in and preventing them from expanding.  Other AIs will then have more room to settle good land and actually attempt to grow stronger and win the game.  In this way the game becomes more difficult for the player, even though some AIs are making choices that aren’t actually in their own rational self-interest.

To be blunt, I don’t like this.  I think AIs make the most sense when they act in their own self-interest, rather than having a secret alliance against the player in particular, I think it makes the most sense and more accurately represents how a player would play as well.  But like I said I don’t have any hard evidence that the AIs act this way, maybe they settle bad spots because they’re just poorly coded in general.  But it sure does feel like they’re all in on it.

I can tell you a game that DEFINITELY has an anti-player bias and that’s the Total War series, which is part of why I stopped playing them.  In the Total War series, every AI that borders the player in any way is just a short step away from war.  This was fine and fun in Rome and Medieval Total War, where the economics of the game made world conquests like this fun, but in Empire and later Warhammer Total war it just gets tiring and unfun. 

To give an example: Empire Total War takes place starting in 1700s Europe.  France and England both have colonies in North America, and there’s a Native American tribe, the Huron-Wyandot in central Canada.  If the player plays as Britain, this tribe will inevitably attack Britain and stay peaceful towards France.  If the player plays as France, this tribe will attack France and stay peaceful with Britain.  This again isn’t so fun.  Like I said, the economics of this game make world conquest a boring slog rather than a fun romp like in previous interactions, but also this is a historical strategy game that in certain ways does attempt to model diplomacy and agency of historically relevant peoples and nations.  Shouldn’t it be possible for France to attempt an alliance with Native American peoples to counter Britain, just as France did in real life?  I think the game would be a lot more fun that way instead of being railroaded into an “everyone against the player” scenario no matter what country you play as.

Anyway those are my thoughts on AIs, anyone else know of a game that seems to have a strong anti-player AI?

I’ve been playing Pillars of Eternity, and I just wanted to tell someone about it.

Pillars of Eternity (1 and 2) is a fantasy RPG duology made by Obsidian.  Now everyone I’ve known always tells me Obsidian always has the best writing, but honestly I’ve never seen it to be true myself.  I remember booting up Fallout:NV (seen by some as their magnum opus) and thinking “THIS is the bad guy factions?  A bunch of technologically illiterate spear-wielding Roman cosplayers is supposed to be a scourge of the wasteland?”  And the game never did enough to justify to me that these cosplayers were indeed deserving of their status as world-conquerors in a universe where GUNS are plentiful. Instead the game just wants to go into excruciating detail of their evil deeds like it’s written by an edgy teenager, and then I read afterwards in interviews and the like that Fallout:NV was supposed to be “morally gray,” like wtf? 

So I’ve never played an Obsidian game for the writing, the way I’d play an Atlus game for the writing or a Bioware game for the writing.  Obsidian to my mind is best at making interesting systems and gameplay loops that I want to interact with, OR by using someone else’s assets to make a follow-up sequel. They’re good at those, but I don’t expect them to be the best writers.

So with Obsidian’s first wholly new IP since Alpha Protocol (criminally underrated and overrated simultaneously) I jumped into Pillars of Eternity.  How would Obsidian fair when they don’t have a publisher breathing down their neck? 

It turns out publishers aren’t evil and all Obsidian’s bad habits reared their ugly heads.  Let me start by saying I do like this game (I’m replaying it) but I don’t think anyone besides me would ever like it and I can’t think of a single person I know who I’d recommend the game to.  I like it because it is an extensively deep Dungeons and Dragons-type game with real-time-with-pause combat.  I LIKE that. 

But there’s FOUR different saving throws and EIGHT different damage reductions, plus about two dozen weapons and a hundred different status ailments that can occur to your character.  Are you charmed?  Confused?  Dominated?  Those are all different.  Are you hobbled, dazed, dizzy, sickened, weakened, fatigued? The list goes on and on and each one does a different thing using a different skill targeting a different saving throw. 

You can specialize in 1-handed weapons, sword n board, two handed weapons, and dual-wielding and they will all force you to build your character a little different.  And if you want to play a barbarian I hope you know that Intelligence increases the range and duration of ALL abilities meaning a dumb barbarian will rage for mere seconds and then get slaughtered while a barbarian with a PhD in Barbarity can rage for days slaughtering his enemies before him.  Obsidian doesn’t like dump stats so every single stat does something for everyone, a wizard needs high Strength or his spells do no damage, a priest needs high Strength or his heals heal almost nothing, etc.

With all that said it’s the type of game that takes hours just to understand the combat systems and if you’re not the type of person who will read every tool-tip and check both the in-game manual AND the forums to understand how everything fits together, then you are going to have a rough time of it and won’t even know why you’re losing battles until you’ve already replayed them a dozen times. So while I like the combat I can’t imagine how most people would.

But the writing in this game is just not good.  There’s too much of it and every character will talk your ear off at the slightest opportunity without saying much more than “our village of Schitzville is so morally gray that by solving all our problems you’ve just creating new ones.”  The game is a lot less smart than it thinks and that runs through both the first game and it’s sequel. 

It also feels like a game written by teenagers that is so desperate to show you how mature it is that in the sequel half the characters will end every one of their sentences with a sex joke or innuendo.  I’m an adult, most of my friends are adults, sex has not been a common topic of conversation since we were teenagers (or when most participants are blackout drunk).

Finally it makes me sad that although I like Pillars of Eternity 1, Obsidian basically made me never want to play another Obsidian game when they released Pillars of Eternity 2. 

For as long as I’ve known them, fans of Obsidian have said that Obsidian makes the best games but gets screwed by publishers and forced to release buggy, unfinished messes.  Well Obsidian was given a big crowd-funded budget with no publisher to answer to, and they were tasked to follow up on their own IP. And in the end, they made a buggy, unfinished mess.  Combat just didn’t work, the story went nowhere and was a blatantly unfinished sequel hook to drum up interest for a third game that will now never come.  I remember getting to the end and audibly said “that’s it?” when the credits rolled.  Nothing happened and nothing mattered, and now I just don’t care to play new Obsidian games.