Good genes

David Brooks:

I’d say today’s meritocratic elites achieve and preserve their status … mainly by being ambitious and disciplined. They raise their kids in organized families. They spend enormous amounts of money and time on enrichment. They work much longer hours than people down the income scale, driving their kids to piano lessons and then taking part in conference calls from the waiting room. [bold emphasis mine]

Oh, those clever elites!  They can multitask!  If only poorer people could learn to sit in a waiting room and take part in conference calls at the same time, then their kids would be successful too!  Unfortunately, poorer people can only perform 1 task at a time (at most).

If I work 2 hours in front of a computer doing stimulating work for high pay, and you do 1 hour of work moving heavy furniture on a hot day for low pay, I worked longer hours than you did!  You lazy f*ck!  And if I come home from work with the energy and money needed to engage my kids in fun, enriching activities, and you come home too tired and poor to take them to  and/or afford piano lessons, then I am the superior parent.   Further, while you’re at home cooking dinner (because you can’t afford a personal chef), I’m watching my kids perform, while networking over my cell phone at the same time, because, you know, my job involves networking. 

No excuses

David Brooks is a strong proponent of ‘no excuses.’  What ‘no excuses’ means is that he does not want to hear about anyone’s circumstances (the Haiti earthquake would not have been as damaging if Haitians were not so “progress-resistant”).   In my view, the phrase ‘no excuses’ is an attempt at censorship.  It’s a way for people with privilege to live a guilt-free existence.

David Brooks believes that it basically comes down to some people working hard and others not.   Essentially, there are good genes and bad genes.  This belief that the elite are that way because of their genetic superiority is pervasive in elite circles (no surprise), including academia.  Unfortunately for the Brooks’ of the world, reality is not that way.

When people talk about a good genes, like genes for altruism say, what they really (should) mean is:  this gene is part of a network that, when the right combinations of them are on (expressed), tend to lead to more acts of altruism in the environments we’ve studied.  Everything is gene-environment interaction.  Even things that people would think of as purely genetic, such as whether a guppy is colorful and has descended testes, are in fact affected by the environment.

I happen to enjoy my job and am well paid.  But I can point to particular events in my life that, had they gone differently, could have put me  in a much different situation.  I could have ended up with a much lower paying, more stressful job.  In that case, I probably would not be as good of a parent.  I wonder why it is so hard for people to acknowledge that the reasons that they succeeded when someone else failed, was at least in part due to things outside of the control of either person. Rather than implicitly boasting that they have good genes, they could instead boast that they had good gene-environment interactions.

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Virtual reduces actual?

The Supreme Court recently struck down California’s ban on the sale of violent video games to children (7-2).   While I’m happy with the decision, I can’t help but wonder why the law was passed in the first place.  Why do people think violent video games are bad?

Even this BBC article, which lists video games as a possible reason for the large drop in violent crime over the past 20 years, still made the assumption that violent games encourage violent behavior.  They argued that the “incapacitation effect” of video games might  “offset any direct impact the content of the games may have had in encouraging violent behaviour. “

Isn’t it possible that getting to live out violent fantasies virtually reduces actual violence?  This is similar to the idea that access to pornography prevents rapes.   I’m not saying that it does, but it seems like a possibility.

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We know what works

Imagine if a sports columnist wrote this about the local basketball team:

we know how to make the team better:  get better athletes working with the best coaches under the best system with the best trainers supported by the most involved fans

That’s a heck of a plan, huh?

Here is Times’ columnist Thomas Friedman on how to fix public schools:

…what we know works: better-trained teachers working with the best methods under the best principals supported by more involved parents.

Cue the applause lights

(h/t)

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Sudden unintended acceleration and gullible media

The Toyota sudden unintended acceleration (SUA) problem has been setting off my skeptic alarm for some time.  Too much of it just doesn’t make sense.  For example, it rarely happens and no one seems to know why.

In general the media haven’t been very skeptical of these reports.  Instead, they’re all just bashing Toyota and even the National Highway Traffic Safety Administration.  The worst of this came the other day, when there was that story from California about the runaway Prius that had to be stopped by a California Highway patrol officer (link).  When I saw that story on the news (and it was all over the news) I immediately thought “that’s an obvious hoax by someone who heard about the Toyota SUA problems and wanted attention or to get in on a lawsuit.”  Yet, the story was presented uncritically by the media.  Of course, it turns out that it was a hoax (link).

Anyway, I’m glad to see that people are starting to question whether the SUA problems are real.  For example, here and here.  Megan McArdle notes that the majority of the drivers in these incidents were over 55, were probably starting up their vehicle from a complete stop when the crash happened and about a third of them were immigrants.  She concludes:

At any rate, when you look at these incidents all together, it’s pretty clear why Toyota didn’t investigate this “overwhelming evidence” of a problem:  they look a lot like typical cases of driver error.  I don’t know that all of them are.  But I do know that however advanced Toyota’s electronics are, they’re not yet clever enough to be able to pick on senior citizens.

Also mentioned is the fact that there have been SUA scares in the US in the past.  For example, the media fueled the Audi SUA scare in the 80s (link):

60 Minutes aired a report titled Out of Control on November 23, 1986, featuring interviews with six people who had sued Audi after reporting unintended acceleration, including footage of an Audi 5000 ostensibly displaying a surge of acceleration while the brake pedal was depressed. Subsequent investigation revealed that 60 Minutes had not disclosed they had engineered the vehicle’s behavior — fitting a canister of compressed air on the passenger-side floor, linked via a hose to a hole drilled into the transmission — the arrangement executed by one of the experts who had testified on behalf of a a plaintiff in a then pending lawsuit against Audi’s parent company.

Audi contended, prior to findings by outside investigators, that the problems were caused by driver error, specifically pedal misapplication. Subsequently, the National Highway Traffic Safety Administration (NHTSA) concluded that the majority of unintended acceleration cases, including all the ones that prompted the 60 Minutes report, were caused by driver error such as confusion of pedals

Another interesting aspect is when these fatal crashes occurred and the years of the cars involved.  I’ll cover that in my next post.

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No Excuses

Let’s take a look at David Brooks’ Haiti column

This is not a natural disaster story. This is a poverty story. It’s a story about poorly constructed buildings, bad infrastructure and terrible public services.

Yes, if Haiti was a wealthier country the damage would not have been nearly as bad.  I agree with that.

Over the past few decades, the world has spent trillions of dollars to generate growth in the developing world.

The world has spent a lot of money in the developing world, but it’s unclear to me if the goal was to generate growth.  Well, growth in the developing world at least.   As stated in this editorial:

The World Bank, IMF and WTO were not created with poverty alleviation primarily in mind. They were designed at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, in July 1944, to fulfill quite another agenda. To cite Henry Morgenthau, then US Treasury Secretary and president of the conference, the purpose was, “the creation of a dynamic world economy,” to sustain the domestic American economy’s continuous expansion by ensuring it sufficient access to foreign markets and raw materials.

…

The decision-making structures of all three institutions [IMF, Word Bank, WTO] continue to ensure that the major industrialised countries, led by the United States, and influenced by their corporations, set the agenda.

Now, it’s possible that the major industrialized countries (meaning, powerful interests within those countries) really do want to get rid of poverty in places like Haiti.  It’s possible, I suppose.  If that’s how the world worked.  But really, don’t powerful groups have to look out for their own interests first? (otherwise the leaders of those groups will get replaced by people who will)

Let’s not forget that our involvement in Haiti has not exactly been one of generously giving aid, trying to help them get out of poverty.   Ted Rall summarizes:

Despite having been bled dry by American bankers and generals, civil disorder prevailed until 1957, when the CIA installed President-for-Life François “Papa Doc” Duvalier. Duvalier’s brutal Tonton Macoutes paramilitary goon squads murdered at least 30,000 Haitians and drove educated people to flee into exile. …

Upon Papa Doc’s death in 1971, the torch passed to his even more dissolute 19-year-old son, Jean-Claude “Baby Doc” Duvalier. The U.S., cool to Papa Doc in his later years, quickly warmed back up to his kleptomaniacal playboy heir. As the U.S. poured in arms and trained his army as a supposed anti-communist bulwark against Castro’s Cuba, Baby Doc stole an estimated $300 to $800 million from the national treasury, according to Transparency International. The money was placed in personal accounts in Switzerland and elsewhere.

Under U.S. influence, Baby Doc virtually eliminated import tariffs for U.S. goods. Soon Haiti was awash predatory agricultural imports dumped by American firms. Domestic rice farmers went bankrupt. A nation that had been agriculturally self-sustaining collapsed. Farms were abandoned. Hundreds of thousands of farmers migrated to the teeming slums of Port-au-Prince.

The Duvalier era, 29 years in all, came to an end in 1986 when President Ronald Reagan ordered U.S. forces to whisk Baby Doc to exile in France, saving him from a popular uprising.

Peter Hallward also summarizes our involvement there:

This poverty is the direct legacy of perhaps the most brutal system of colonial exploitation in world history, compounded by decades of systematic postcolonial oppression.The noble “international community” which is currently scrambling to send its “humanitarian aid” to Haiti is largely responsible for the extent of the suffering it now aims to reduce. Ever since the US invaded and occupied the country in 1915, every serious political attempt to allow Haiti’s people to move (in former president Jean-Bertrand Aristide’s phrase) “from absolute misery to a dignified poverty” has been violently and deliberately blocked by the US government and some of its allies.

Aristide’s own government (elected by some 75% of the electorate) was the latest victim of such interference, when it was overthrown by an internationally sponsored coup in 2004 that killed several thousand people and left much of the population smouldering in resentment. The UN has subsequently maintained a large and enormously expensive stabilisation and pacification force in the country.

Anyway, regardless of how cynical you are about the aims of the IMF, World Bank and WTO, let’s at least agree that Brooks is making a strong assumption (that the world was generously trying to help Haiti).

Next, Brooks says

The countries that have not received much aid, like China, have seen tremendous growth and tremendous poverty reductions. The countries that have received aid, like Haiti, have not.

True, but the causal arrows are probably in the opposite direction of what he is suggesting.  If one country is given aid and another isn’t, these countries are probably different in many ways.  How could this not mostly be confounding?  [n general Brooks makes causal statements too frequently.  see my comment here for example]

Next, Brooks says this:

As Lawrence E. Harrison explained in his book “The Central Liberal Truth,” Haiti, like most of the world’s poorest nations, suffers from a complex web of progress-resistant cultural influences. There is the influence of the voodoo religion, which spreads the message that life is capricious and planning futile. There are high levels of social mistrust. Responsibility is often not internalized. Child-rearing practices often involve neglect in the early years and harsh retribution when kids hit 9 or 10.

We’re all supposed to politely respect each other’s cultures. But some cultures are more progress-resistant than others, and a horrible tragedy was just exacerbated by one of them.

What evidence does he have that Haiti’s culture contributed substantially to their poverty level?  He made a very strong statement, one that would be difficult to prove even with careful study.  But there was no careful study here, just a lazy attempt at finding a causal explanation based on crude differences between countries.

Brooks continues:

In this country, we first tried to tackle poverty by throwing money at it, just as we did abroad. Then we tried microcommunity efforts, just as we did abroad. But the programs that really work involve intrusive paternalism.

These programs, like the Harlem Children’s Zone and the No Excuses schools, are led by people who figure they don’t understand all the factors that have contributed to poverty, but they don’t care. They are going to replace parts of the local culture with a highly demanding, highly intensive culture of achievement — involving everything from new child-rearing practices to stricter schools to better job performance.

It’s time to take that approach abroad, too. It’s time to find self-confident local leaders who will create No Excuses countercultures in places like Haiti, surrounding people — maybe just in a neighborhood or a school — with middle-class assumptions, an achievement ethos and tough, measurable demands.

“Harlem Children’s Zone … are led by people who figure they don’t understand all the factors that have contributed to poverty, but they don’t care.”  It sounds like HCZ is  like a boot camp, where kids are given tough love and teachers will accept No Excuses.  But wait a minute, the HCZ web site doesn’t paint that picture at all:

Harlem Children Zone’s Single Stop program was initiated as a tool to reduce poverty within the zone’s 100 blocks. Each week at various sites, Single Stop provides clients with access to a broad assortment of useful services. Free of charge, workers offer advice about securing public benefits, access to legal guidance, financial advice, debt relief counseling and domestic crisis resolution. All of the guidance is provided through confidential, one-on-one sessions.

They are trying to reduce poverty??  What happened to No Excuses?

More:

Harlem Gems is an all-day pre-kindergarten program that gets children ready to enter kindergarten. Classes have a 4:1 child-to-adult ratio, teach English, Spanish and French, and run from 8 a.m. to 6 p.m. HCZ runs three pre-kindergarten sites, serving 200 children.

Hm, this Tough Love No Excuses^® program has a 4:1 chid-to-adult ratio.  I wonder if that contributes to it’s success far more than the ‘fact’ that it’s run by “people who figure they don’t understand all the factors that have contributed to poverty, but they don’t care.”

More:

Harlem Peacemakers, funded in part by AmeriCorps, trains young people who are committed to making their neighborhoods safe for children and families. The agency has 86 Peacemakers working as teaching assistants in seven public schools, serving 2,500 students.

Having 86 volunteers (funded by gov’t) in 7 schools couldn’t hurt.  Tough Love, man.

I could go on and on.  This HCZ sounds exactly like the kind of touchy-feely holistic approach to child development (starting at birth, working with parents, low child:adult ratio) that have been ridiculed by the right wing, No Excuses crowd for so long.

If you really want to see No Excuses programs in action, watch the documentary Hard Times at Douglass High.  Watch that, and then tell me if you think No Excuses applied to the Principal of that school.

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Thomas Friedman

Every once in a while I read Thomas Friedman.  Usually I regret it.  But his Dec 1 column… wow!  He sounds delusional, even for him.  Check this out.  Here’s the first good quote:

If we become weak and enfeebled by economic decline and debt, as we slowly are, America may not be able to play its historic stabilizing role in the world.

A stabilizing role?  America?  Really?

A then there’s this:

The reason there are so many frustrated and angry people in the Arab-Muslim world [sic], lashing out first at their own governments and secondarily at us — and volunteering for “martyrdom” — is because of the context within which they live their lives. That was best summarized by the U.N.’s Arab Human Development reports as a context dominated by three deficits: a deficit of freedom, a deficit of education and a deficit of women’s empowerment. The reason India, with the world’s second-largest population of Muslims, has a thriving Muslim minority (albeit with grievances but with no prisoners in Guantánamo Bay) is because of the context of pluralism and democracy it has built at home.

Hm.  Maybe the reason India doesn’t have prisoners in Guantanamo is because we didn’t invade India and throw a bunch of their citizens, many of whom committed no crime, into that prison.  Besides, that’s a pretty weak argument.  Isn’t there also deficits of freedom, education and women’s empowerment in other countries, including countries that we support, but for some mysterious reason they don’t want to lash out at us?  Perhaps something else is going on… Hm…  It couldn’t be that we support Israel, even when they are committing war crimes (link).

As you might have guessed, I saved the best quote for last.  Friedman, on why we invaded Iraq

To me, the most important reason for the Iraq war was never W.M.D. It was to see if we could partner with Iraqis to help them build something that does not exist in the modern Arab world: a state, a context, where the constituent communities — Shiites, Sunnis and Kurds — write their own social contract for how to live together without an iron fist from above.

Yes, a good way to ‘partner’ with a country to help them write a ‘social contract’ on ‘how to live together’ is to invade that country and kill 100,000 civilians.  And of course, it was a great plan for getting Shiites, Sunnies and Kurds to live in harmony.

But, awwww, isn’t Tom Friedman a nice guy?  He supported the invasion because he wanted everyone to live in peace.  At least, that’s what he says now.  But in 2003, he said this in an interview with Charlie Rose:

We needed to go over there basically, and take out a very big stick…  What they needed to see was American boys and girls going house to house, from Basra to Baghdad, and basically saying “which part of this sentence don’t you understand?  You don’t think, you know, we care about our open society? You think this bubble fantasy [terrorism bubble], we’re just going to let it grow? Well, suck on this, ok.” That Charlie, is what this war was about. We could have hit Saudi Arabia, it was part of that bubble. Could have hit Pakistan. We hit Iraq because we could. That’s the real truth.

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Palin

I agree with this:

Then there’s the Associated Press, putting 11 reporters on the task of “fact checking” her book.  I put the words in quotes because the CJR notes that much of this herculean feat is not checking facts, but quibbling with interpretations or sentimental boilerplate about the hearts and minds of Alaskans.  But the deeper question is how come Palin’s book gets a team of fact checkers, when books by other politicians get the standard gloss?

There seems to be an unhealthy obsession with tearing her down.  And really, guys, if you’ll just back off a little, she’ll do the job for you.  Have you seen that resignation speech?  How about we all act like she’s a former governor and vice presidential candidate, rather than Public Enemy #1?

and this:

Sarah Palin may well have been the worst candidate in presidential/vice presidential history. She was grossly unprepared to discuss national issues. She misrepresented her Alaska career in ways which set new world records.That said, all good pseudo-liberals know what to say when asked about Palin’s vile new book. Palin’s a mean girl, we know we must say, using oddly gender-tinged language even as we complain about Newsweek’s sexist new cover. After that, we feign indignation about Palin’s assaults on the “little people” in McCain’s campaign. In particular, we shed big tears over poor Steve Schmidt and Nicolle Wallace. We boo-hoo about their mistreatment.

…

Let’s get clear: Salon lets people “fact-check” books they haven’t even seen. They trash the author for “bizarre passages” which they completely misconstrue.

…

As we’ve noted, Palin was a horrible candidate. In our view, she remains a person with very poor judgment about the nation’s problems. But inside the pseudo-liberal world, this week has brought a set of screeching complaints about all manner of pointless trivia—including complaints by “book reviewers” who haven’t seen the book they’re critiquing!

My complaints are:  the media give her more attention than is warranted (compare with other former vice presidential candidates, for example); and despite the fact that she gives the media plenty of valid things to criticize her about (her policy statements), the media hold her to a completely different standard.    Giving her too much attention and making a victim out of her is not going to help the progressive cause.

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Current events

Did you know Sarah Palin has a book coming out and Carrie Prejean has a sex tape?  If you didn’t know that, you must not pay attention to mainstream left-leaning media.  For example, Prejean and Palin occupy significant space on Huffington Post everyday.  On Countdown with Keith Olbermann, not much else is discussed.  Take last Thursday’s show for example (transcript).  Here’s how he starts the show:

Which of these stories will you be talking about tomorrow?

…The House Democrat pushing an anti-abortion agenda, threatens the majority who aren‘t, threatens Senate Democrats—as Bart Stupak risks the lives of 44,000 Americans who die each year for want of insurance.

…

George W. Bush finally found something he may have done wrong: the bank bailout.

…

That president is surprisingly silent on Afghanistan.  This one insists none of the options his military has given him are satisfactory—demands a new set.Sarah Palin on “Oprah Winfrey,” and here come the tease sound bites—the Katie Couric interview, McCain‘s advisers told her it was a good interview and she should do more, she, of course, knew better.

…

“Worsts”:  Lou Dobbs says he was the victim of a vast conspiracy—by invisible aliens; a Colorado state senator compares the president to a 9/11 hijacker, and the senator hasn‘t even resigned yet.And the self destruction of Carrie Prejean, part eleventy billion.  The solo sex tape, she was 20 when she made it, says the guy she made it for.  And it was one of many tapes.

Take a look at his list of topics that we might talk about tomorrow.  Some are important, such as Afghanistan and health care reform.  Others are just tabloid stories.

If you go through the transcript, what you’ll see is that he did spend some time talking about each of these issues.  When he talked about health care, he made sure to keep reminding viewers that Palin and Prejean talk was coming up.  He was most excited about the possibility of more than one Prejean sex tape:

And, just as Carrie Prejean announced she regrets silencing herself during the latest interview with liberal bias media trying to silence her -  to say nothing of all of those sex tapes, plural.  OK, I made the last part up.

…

Carrie Prejean, back on autopilot, appearing in front of another camera, and self-circumscribing her First Amendment rights.

HA HA HA HA.  Get it?  Autopilot?  Camera?  HA HA HA.

And then he had long segments on Palin and Prejean.

Let’s recall that Carrie Prejean was in some beauty pageant and became a target of criticism because of her answer to a question about same sex marriage by judge Perez Hilton (yes, Perez Hilton, which should tell you how seriously to take the competition):

Well I think it’s great that Americans are able to choose one way or the other. We live in a land where you can choose same-sex marriage or opposite marriage. And, you know what, in my country, in my family, I think that I believe that marriage should be between a man and a woman, no offense to anybody out there. But that’s how I was raised and I believe that it should be between a man and a woman.

I don’t have the same opinion as she does, but what she said didn’t offend me in any way.

She’s 22 years old and is not some influential figure on the national scene.  There is no reason to discuss her, ever.  Yet, every night Olbermann mocks her and excites his viewer with bikini pictures and sex tape talk.  Huffington Post can’t get enough of her either.

I understand that making fun of the intelligence of attractive women, while showing them in a bikini or in short-shorts, might increase ratings and web site hits.  Nevertheless, I am disturbed that the most influential left-leaning news web sites and shows give these topics so much attention.

Not to mention that we are engaging in a cultural war when we attack a young, Christian woman on a personal level, just because we don’t agree with her opinion on same sex marriage.   While we sneer at people with less education and/or stronger religious views than us, we fail to make a case for a progressive agenda. As Bob Somerby put it:

We love the idea that we’re the smart ones—although it’s clear that we aren’t. We love the idea that we’re the moral ones—that the other tribe spills with racists. And in part because we love this war, we have been wholly unable, in the past fifty years, to build a case for health care reform. We’re the smart ones, we love to insist—and yet, our latest plan for health reform is melting down into a joke.

(We didn’t see the abortion fight coming! How strange, since we’re so smart!)

We live with a cosmically awful health system—a system characterized by needless deaths and comical levels of looting. But despite our brilliance and our moral grandeur, we can’t figure out how to make voters understand the need for large-scale reform. For fifty years, The Interests have spread their false messaging all around. (European health care is a disaster! They have to wait in lines!) Despite our own acknowledged brilliance, they have beaten us blue in the process.

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Cable news shows

Thursday evening I turned on Hardball, and I heard Chris Matthews ask the following questions to Richard Haass (President on Council for Foreign Relations):

MATTHEWS:  Whose side are they [Pakistan] on, us or the terrorists?

MATTHEWS:  If tomorrow the Golden Gate Bridge was blown up, the Sears Tower was blown up, the Empire State building was blown up, the Capitol building in the United States was blown up, at the loss of tens of thousands of people dead, would they cheer in the classrooms in Pakistan?

Sigh.  I decided to change the channel.  Crazy Glenn Beck was on.  He was playing connect four, revealing a chalkboard that was hidden behind a curtain*, and saying things that I didn’t understand.

Those are the choices.  A loud mouth who asks absurd, hateful questions, or an emotional, theatrical loud mouth who is somewhat entertaining when he’s saying things like: “is government better at setting prices than people’s salaries?” and “they [the founding fathers] would be proud of the tea party movement” (actual quotes from Thursday’s show).

–

* on the chalkboard we learned that people in the Obama administration are for things like social justice.  Outrageous!  No wonder he is telling people to take up arms against the government.

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Financial markets

I’ve been reading some of the stories on Deep Capture regarding our financial system, naked short selling and the mainstream financial media.  Naked short selling is described here:

You and I enter a stock trade. You buy a share of stock from me.  You hand over your money, and I hand over the share of stock. That is called, “settlement.”

It may surprise you to learn that there are loopholes in our nation’s regulations that permit some people, when it comes time to settle, to hand over nothing but an IOU. 

…The general idea is that, if someone sells shares it turns out he cannot deliver, he can create these IOU’s and send them on as though they were real shares, giving himself time to clean up whatever error he is experiencing, and sending the real shares a couple days later.

There is no system in place to alert you to the fact that you sent me your money and received nothing but an IOU. The system treats these IOU’s just as though they were real shares. Your brokerage statement will say that you got shares, even though I never sent anything but an IOU. You can sell them, and that IOU will pass on through the system into someone else’s account.

The problem is, suppose I (having mastered these loopholes) start using the system’s “forgiveness” strategically? Suppose I find a company that is likely to need capital to expand, or simply survive, in the near future? They plan on raising that capital by issuing shares of stock to the public…  Imagine that I target one of them, and deliberately go out selling that company’s shares into the marketplace, yet instead of delivering stock, I deliver nothing but IOU’s. I flood the market with them, always standing ready to sell more than anyone wants to buy. My IOU’s are anything but temporary: they drift around in the market for weeks, months, and eventually years. If anyone gets mad and tells me that I have to deliver real shares against one of the IOU’s I sold, I say, “Sure, I’ll deliver shares against that IOU,” but what I deliver is … just another IOU. Eventually I flood the market with so many IOU’s that people end up reselling them, and they go and on until there are more share-IOU’s bouncing around than there are actual shares.

If…I choose a tiny company, and I generate more IOU’s than there are shares of stock in the company, then the market in those shares will crack… Once cracked, the stock becomes next-to-worthless. And if I manage to issue enough IOU’s in my target company’s stock that it cracks and becomes near-worthless, they become barely an obligation at all. Who cares about millions of IOU’s, if those IOU’s are for something with infinitesimal value?

I walk away with my winnings. The company, however, is in a fix: they planned on issuing stock to raise capital, but now their stock price has been destroyed through my manipulations, and they cannot raise capital. Maybe they run out of funds and disappear, or maybe they go into hibernation mode in order to nurse what capital they have.

A big part of the story was the role of the media.  If I weren’t generally so uninspired by the competence of the media, I might be surprised at how easily they were manipulated.

One person that was particularly emphasized in the research was CNBC’s Jim Cramer (link):

As was becoming my custom, at the end of the quarter I wrote a lengthy shareholder letter explaining what was going on in the business, where my colleagues were doing well, where I was screwing up, and projects the company needed to accomplish in the future. In that letter I mentioned, “Gross profit,” a term about as common in the discussion of financial statements as, I’d estimate, the term “wide receiver” is in discussions of football (in the case of my letter, 2.5% of the letter concerned gross profit).

The day our earnings press release appeared (with my letter embedded in it), Larry Kudlow & Jim Cramer of CNBC invited me to appear on their TV show. I had been on Kudlow & Cramer once or twice by then and they seemed like smart, decent fellows, so I agreed, and drove to the studio in Salt Lake City from whence one does remote interviews. This interview was different from our prior ones, however, in that they attacked me aggresively. The basis of their attack was my use of the mysterious phrase, “Gross profit,” in my discussion of Overstock’s financials. Cramer in particular berated me as if he had caught me in some heinous incantation. They gave me a brief moment to respond, then quickly signed off.

As I drove away from the studio feeling somewhat mystified, my cell phone rang. The caller was a man from deep within Wall Street “smart money” circles, someone known widely within the hedge fund community, who has been friendly to me, and even has looked out for me when he could. He speaks in charming if profane emphatics.

He said, “You know what just happened, don’t you?”

“What do you mean?” I asked.

“You want to know what just happened? I’ll f—ing tellyou what just happened. Here’s how it works. Those two guys are part of the short-seller community. Cramer especially is part of this ring of hard-charging short-sellers on Wall Street. I’ll bet you anything that one of his buddies is short your company. Whoever it is saw your earnings release, saw you blew your numbers away, got on the phone to Cramer and said, ‘Don’t you dare let this thing start moving. Don’t you f—ing darelet this move!’ So Cramer goes on TV and screams that nonsense at you. I bet my last f—ing dollar that’s what happened.”

Cramer pretty much admitted to his crimes here.  In his book, he also admitted to talking up stocks he’s invested in.

Anyway, I’ve been reading this stuff, and was pleasantly surprised to see Jon Stewart’s interview with him.  See here and here.

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