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An Exact Scientific Birthday

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freeAgent
1 day ago
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Flight 447, Britney Spears, and Audi cars

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In 2009, Air France Flight 447 crashed while on route from Rio to Paris.  Data from the flight recorder suggest multiple problems led to the disaster.  In a stressful and confusing environment, one of the copilots moved a control stick in the wrong direction, which worsened the problem of the plane stalling.

After a major plane crash, investigators look at the “black box” to determine instruments settings—did the captain make the right decisions?  Thus, suppose the captain insisted that he or she had been unable to lower the flaps, while the flight recorder showed multiple examples of the flaps being raised and lowered throughout the flight.  In that case, one might doubt the captain’s explanation.

Similarly, it may be useful to examine central bank “black boxes”.  Do the movements in their policy instruments match the macroeconomic problems they faced and the goals they wished to achieve?  Do they match any explanation they provide for a failure to achieve those goals?

During the late 2010s, the Fed was fairly consistently undershooting its inflation target.  This led some observers to speculate that the Fed was unable to raise inflation. This is from a 2017 FT article:

Blanchard was prompted to recite his faith in the power of the Phillips Curve by former Fed governor Jeremy Stein, who wondered how central banks were supposed to raise their inflation target to 4 per cent when they are still undershooting the current target of 2 per cent.

Stein is implicitly suggesting an inability to raise inflation rates. But if we look at the Fed’s “black box”, we see nine rate increases between 2015 and 2018.  This rules out “instrument failure”, and instead leads to three possibilities:

1. Like the Flight 447 co-pilot, and like the Prime Minister of Turkey, the Fed was horribly confused.  They wrongly believed that raising the policy rate would boost inflation up to their target.  They pushed the instrument in the wrong direction.

2. Fed officials are corrupt, privately aiming for below 2% inflation even as they publicly insisted that they were targeting inflation at 2%.

3.  Fed officials were mistaken in relying on flawed Phillips Curve models that suggested that inflation would soon overshoot the 2% target without further rate increases.

In my view, the third explanation is the mostly likely, but at least we can rule out instrument failure as an option. The Fed was perfectly able to adjust its fed funds target.

Britney Spears informs us that one romantic affair might be an innocent mistake, but multiple affairs are the sign that you are dealing with a bad girl.  Perhaps this insight can be used when evaluating the black boxes of the Bank of Japan and the ECB.

In the early 2000s, the Bank of Japan apologists insisted that there was nothing the BOJ could do to boost inflation despite its valiant efforts.  But in the year 2000, our black box shows the BOJ raising its interest rate target, despite years of deflation.  Why did it do this?

The small increase in interest rates might have been an innocent mistake.  But the BOJ again increased its interest rate target in 2006, clearly demonstrating that (as Britney would say) the BOJ is “not that innocent”.

ECB apologists insist that the European central bank was unable to prevent the Great Recession.  But the ECB’s black box shows the ECB raising interest rates in mid-2008, right before the economy worsened dramatically.  The black box also shows two rate increases in early 2011, right before Europe fell into a double dip recession.

Of course we know that the level of interest rates is not a reliable indicator of the stance of monetary policy, just as the position of a control lever doesn’t tell you how the position of the airliner is changing.  But when we juxtapose the central bank instrument setting against the clear needs of the economy, we do have evidence of intent.  One mistake might be an innocent error, multiple BOJ and ECB mistakes were evidence of an overly hawkish central bank.

In 1986, CBS News informed us that Audi cars had a problem with “unexplained sudden acceleration”.  One hint that this was actually human error was the fact that hitting the brake seemed to make the problem worse.  In a car, the brake and drivetrain are completely separate systems, making it very unlikely that a mechanical failure could cause the car to accelerate after hitting the brake.  Investigators later speculated that Audi had placed the brake and accelerator pedals a bit closer than usual, and that some drivers had hit the accelerator while intending to hit the brake.

I think of this example when considering Fed apologists who claim that there’s nothing the Fed can do about high inflation, as it’s caused by supply chain problems.  If we look at the Fed black box for 2021, we see a central bank holding their policy rate near zero for the entire year, and continuing (even in 2022!) to inject more and more money into the economy via QE.

Central banks often plead innocent when accused of making major policy errors.  Fortunately, we have independent evidence from central banks black boxes, which clearly demonstrate that they are “not that innocent”.

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freeAgent
1 day ago
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Turns Out the Crypto Bros Who Bought Jodorowsky's Dune Book Aren't Sure How Rights Work

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Late last year, a rare copy of one of the pitch books legendary director Alejandro Jodorowsky made to pitch his vision for an adaptation of Dune went to auction. Expected to sell for around $30-40,000, it went for around a baffling three million dollars, thanks to an ether-backed collective known as TheSpiceDAO. Now,…

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freeAgent
2 days ago
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It seems like DAOs tend to collect idiots.
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Where did the $800 billion Paycheck Protection Program money go?

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The Paycheck Protection Program (PPP) provided small businesses with roughly $800 billion dollars in uncollateralized, low-interest loans during the pandemic, almost all of which will be forgiven. With 93 percent of small businesses ultimately receiving one or more loans, the PPP nearly saturated its market in just two months. We estimate that the program cumulatively preserved between 2 and 3 million job-years of employment over 14 months at a cost of $170K to $257K per job-year retained. These estimates imply that only 23 to 34 percent of PPP dollars went directly to workers who would otherwise have lost jobs; the balance flowed to business owners and shareholders, including creditors and suppliers of PPP-receiving firms. Program incidence was highly regressive, with about three-quarters of PPP funds accruing to the top quintile of households. This compares unfavorably to the other two major pandemic aid programs, enhanced UI benefits and Economic Impact Payments (i.e. stimulus checks). PPP’s breakneck scale-up, its high cost per job saved, and its regressive incidence have a common origin: PPP was essentially untargeted because the United States lacked the administrative infrastructure to do otherwise.

That is from a new NBER working paper by David Autor and many others.

The post Where did the $800 billion Paycheck Protection Program money go? appeared first on Marginal REVOLUTION.

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freeAgent
2 days ago
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This is not great.
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Journalist bluffs his way into a senior Binance job worth $220K per year

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An undercover journalist recently bluffed their way into a senior job at crypto exchange Binance — fooling a hiring process that included four separate interviews.

As detailed in fintech blog Disruption Banking, reporter Harry Clynch responded to a Binance job advert for a “Senior Regulatory Advisor – Futures Business” last year.

He submitted a fake resume and LinkedIn profile under the name of Daniel Somerset. Clynch claimed to be an anti-money laundering expert working in the advertised role for Binance competitor Coinbase.

“I was keen to investigate how serious Binance really is about cleaning up its act, and how robust their regulatory recruitment processes are,” wrote Clynch. “So I decided to apply for the role under a fake name and with false credentials.”

Considering the seniority of the role and Binance’s seemingly endless bad press, Clynch assumed he’d fail at the first hurdle. “I envisaged crumbling when asked some complex question about derivatives licensing regulation.”

But four interviews later, Binance offered him the job with a salary of £160,000 ($218,500) and promised a sign-on bonus of £60,000 ($81,900) in Binance Coin (BNB) after six months.

It seems pretty easy to secure work as a compliance worker at Binance.

Compliance is a work in progress

Considering the ease at which Clynch secured his senior regulatory role, Binance may be finding difficulty in putting together a team of regulatory experts from scratch.

Binance last year pledged to hire regulatory experts after warnings from swathes of watchdogs worldwide, as well as probes from the US Internal Revenue Service and Justice Department.

Many governmental agencies allege that Binance enables money laundering and tax evasion. Recent hires at Binance include former securities regulators in Canada after a subsidiary incorporated in Alberta.

Binance has hired former Russian and Ukrainian officials to fill senior regional posts. The firm is also pursuing meetings with US officials; Zhao expressed confidence that SEC chair Gary Gensler will “do the right thing” toward crypto businesses.

Still, there’s apparent flaws in Binance’s job hiring process.

“The fact that a journalist can successfully pass off as such an expert on four separate occasions and be offered a senior role in Binance’s regulatory team, suggests that their expertise in compliance might not be as strong as claimed,” Clynch told Protos.

“Tens of billions of dollars pass through Binance every day. For this reason, it is crucial that Binance demonstrates the utmost seriousness when it comes to regulatory affairs,” he added, our emphasis.

Bloomberg reported on some of Binance’s troubles with US agencies in May last year.

Despite regulatory difficulties, Binance claims its regulatory team is a top priority. Chief exec Changpeng Zhao claims he’s spent most of his recent time on compliance.

Binance’s headquarters left China for Tokyo in 2017 due to a Beijing crackdown on crypto exchanges. It’s currently registered in the Cayman Islands with indications of interest to relocate to Dubai or Bahrain.

To date, nobody is exactly sure where Binance’s servers are located, which likely has regulators scratching heads over which jurisdiction is responsible for keeping the exchange in check.

The exchange’s terms of service is bound by the laws of Hong Kong. Binance executives are also incredibly difficult to locate, making it nearly impossible to serve them legal documents.

Binance says it would’ve booted journalist from job… eventually

But now, Zhao says Binance is advising the United Arab Emirates on blockchain regulation.

So, as Binance works on regulatory compliance and educating national governments about crypto, it must button down its hiring process so unqualified candidates like Clynch don’t slip through.

For what it’s worth, Binance did respond to unknowingly hiring an investigative journalist for a senior compliance job (via Disruption Banking):

“All roles at Binance are offered on a conditional basis and are contingent on meeting thorough background checks to verify experience after an offer is accepted,” said the company. “This candidate falsified his background and work experience.”

Binance has turned to employing US Senators as advisors to help it navigate compliance.

Read more: [Binance staff exploited users’ crypto trades for personal gain, whistleblower]

“While he was offered a position, like any other company, after signing he would have had to pass our background check which is conducted by an independent third-party. His fraudulent statements and falsified work history would have been easily flagged.”

For Binance’s sake, let’s hope that’s true.

Follow us on Twitter for more informed crypto news.

The post Journalist bluffs his way into a senior Binance job worth $220K per year appeared first on Protos.



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freeAgent
2 days ago
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Volvo C40 Winter Range Test Ends With Severely Limited Power

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The car was able to maintain only 27 km/h (17 mph) at 3% SOC on the highway.

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freeAgent
2 days ago
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Not a great showing from a Swedish brand.
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