-Caveat Lector- from: http://www.aci.net/kalliste/ <A HREF="http://www.aci.net/kalliste/">The Home Page of J. Orlin Grabbe</A> ----- ------------------------------------------------------------------------ Russian Follies Yeltsin's Rivals Say His Illness Makes No Difference (because he's still dead) MOSCOW, Jan. 18, 1999 -- (Reuters) Several likely candidates to succeed Boris Yeltsin as Russian president shrugged off his ill health on Monday as a long-standing problem and said it would not affect their political strategies. Yeltsin was taken to hospital on Sunday with a bleeding stomach ulcer, the latest in a series of ailments that have driven him to the sidelines of Russian political life. The illness revived speculation that he would not be able to serve out his term until mid-2000 and raised the specter of an early presidential poll before then. If Yeltsin were to be incapacitated, a new election would have to be held within three months, giving candidates little time to prepare. But leading candidates said word of yet another presidential ailment had not changed their calculations. "The president's poor condition is not news to us," Communist Party leader Gennady Zyuganov told reporters in the Duma, where his faction controls the most seats. He repeated the Communists' long-held view that Yeltsin should hand over more powers to Prime Minister Yevgeny Primakov, and said the government and parliament should consider solutions to the power vacuum at the top, including early polls. "Since 1995 Yeltsin has not been able to work for a single complete week," he said. "The less he interferes in day-to-day life and real politics, the faster the country will return to health." Duma speaker Gennady Seleznyov, a Communist who is not expected to run for president, said Yeltsin's illness "in no way alters the situation in the country." "If the president should suddenly require any serious treatment, for that circumstance we have a constitution where everything is written out, and there is a prime minister, so nothing should be unclear," Itar-Tass news agency quoted him as saying. Moscow Mayor Yury Luzhkov, another possible presidential front runner, also said Yeltsin's ailment was "not unexpected," but raised the question of whether Yeltsin should resign. Luzhkov, shown on Russian television during a visit to Sweden, said the issue of Yeltsin's ability to lead the country "requires an answer, and society and the country must hear from the president how he intends to solve the problem." "The president must make up his mind," he said. A spokesman for Gen. Aleksander Lebed said the governor of the Siberian Krasnoyarsk region and likely presidential hopeful would probably not comment on the situation in Moscow. "This has been going on for years and there is nothing new to say. We have more serious problems of own here in Siberia, where we have serious problems with fuel deliveries," spokesman Mark Denisov said by telephone from Krasnoyarsk. Reuters, Jan. 18, 1999 Reflection LTCM and Low-Probability Events by J. Orlin Grabbe When hedge fund Long Term Capital Management lost 44 percent of its capital last August, and in September had to be bailed out by a consortium of banks organized by the Federal Reserve Bank of New York, it was the victim of "low- probability events." These events included Italian bond prices diverging from, instead of converging to, German bond prices, and US Treasury bond prices rising relatively faster than corporate and municipal issues. Two of the founding shareholders of LTCM were Robert Merton and Myron Scholes, Nobel-prize- winning economists. I find it ironic that in the only extended conversation I have had with Merton, he was dismissive of probability distributions involving just such low-probability events. In grad school at Harvard, I was working on a category of "infinite variance" distributions that seemed to characterize financial markets better than the more commonly known "normal" or Gaussian distribution. Saying the variance is "infinite" is another way of saying that sample variance is not a useful way to measure risk in a probability distribution, since any measure of variance will jump about at random, and eventually diverge to infinity as the sample size is increased. Market prices, such as exchange rates, commodity prices, and interest rates, have proportional changes that are too "leptokurtic" to represent drawings from a normal or Gaussian distribution. That is, by reference to the Gaussian distribution, they have (1) a greater proportion of very small deviations from the mean; (2) a greater proportion of very large deviations from the mean (namely, those "low-probability events"); but (3) a smaller proportion of intermediate deviations from the mean. Imagine two erratic drivers driving along a highway. The mean location of each is on the center line. Let the Gaussian distribution represent the proportion of time the first driver spends on each part of the highway. If the second driver has a leptokurtic distribution, this second driver spends relatively more time close to the center line and relatively more time driving in the ditch than does the first, but spends proportionately less time driving on the shoulders. Non-existent (infinite) variances may seem odd, but as Benoit Mandelbrot, the creator of the mathematical concept of fractals, has noted: "Variances are an acquired taste." One day I walked down Massachusetts Avenue to MIT, to talk to Paul Samuelson, since he had written a couple of papers in the area. He asked me some questions, and among other things suggested I talk to Merton, since, as Samuelson eloquently put it, "He is an expert on the alpha equals two case." (In the distributions I was looking at, having the alpha parameter equal to 2.0 represented the single instance the variance was finite; in fact, it corresponded to the Gaussian distribution.) Naturally I jumped at the opportunity to worm my way into Merton's office (he was then teaching at the Sloan School of Management at MIT), but found him to be largely dismissive of non-Gaussian distributions. I eventually came to suspect that Merton's bias against non- Gaussian distributions, particularly those with infinite variances, despite the empirical evidence of such distributions in financial markets, came from his reliance on a powerful result in stochastic calculus called Ito's Lemma, which was uniquely helpful in deriving option-pricing models. Ito's Lemma requires variances to be finite. In my mind there is a strict different between what one does as an exercise (and I have frequently used Ito's Lemma myself) versus what one believes to be the case. But I don't think Merton ever paid much attention to the difference. And I think that the low-probability events Merton ignored came back to haunt him through Long Term Capital Management. Liberty, February 1999 Crisis in Brazil Brazil Unexpectedly Increases Interest Rates Real continues to fall The Brazilian central bank announced a surprise increase in interest rates last night in an attempt to calm investors after the Real weakened further against the dollar during trading yesterday. Directors of the central bank held an impromptu meeting to discuss interest rates when the markets closed yesterday. They had earlier confirmed they would let the currency float, but would intervene in an "occasional and limited form" if there were any "disorderly" movements. The decision to maintain the floating rate came after Brazil on Friday became the latest emerging economy to abandon a currency peg against the US dollar in the face of a new speculative attack which began last week. Since August, the country's reserves have fallen by more than $40bn in an attempt to defend the fixed-rate regime, which had been the centrepiece of the government's anti-inflationary strategy. The Real weakened yesterday to close at R$1.59 to the dollar, 10 per cent down on Friday's close. However, share prices on the Bovespa index, which soared 33.4 per cent on Friday on news of the float, rose to close a further 5.4 per cent up, as equity investors continued to believe that the devaluation would permit interest rates to fall sharply. The central bank said its decision to raise the prime lending rate from 36 per cent to 41 per cent, which is valid until March 3, was designed "to minimise excessive exchange rate volatility and consolidate price stability". The central bank's decision came after Pedro Malan, finance minister, said yesterday that interest rates might have to rise in the short term to limit inflationary pressures from the devaluation, which has seen the Real weaken by more than 25 per cent over the last week. Speaking in Washington after three days of meetings with officials from the International Monetary Fund and US government, he said: "The only way interest rates will fall is through progress on the fiscal programme." Additional budget cuts would be made if needed, Mr Malan added. Odair Abate, chief economist at Lloyds Bank in S�o Paulo, said: "His comments are an indication that the government's priority will be to control inflation." Some analysts believe the level of interest rates will become the subject of an intense political battle. Mr Malan admitted that the terms of Brazil's $41.5bn aid package, led by the IMF, would need revision, but said the government was not seeking an early release of the second tranche of money, which will be available in February. Michel Camdessus, managing director of the IMF, said a delegation from the Fund would shortly be visiting Brazil to establish "a new macroeconomic and monetary framework". Fund officials also believe that high interest rates could be required to stabilise the currency. The Financial Times, Jan. 19, 1999 Commodity Futures The CFTC Doesn't Believe in the First Amendment by Declan McCullagh WASHINGTON -- Ever thought of slapping up a Web page devoted to gold prices? Got an urge to vent about those overpriced pork bellies? Be careful. Unless a public-interest law firm wins a trial scheduled for 29 March, you could face a US$500,000 fine and five years in federal prison. That's the penalty a little-known federal agency called the Commodity Futures Trading Commission (CFTC) has ordered, and the Institute for Justice is hoping to overturn the decision with a First Amendment lawsuit. US District Judge Ricardo Urbina rejected the institute's request for summary judgment at a hearing Thursday, saying he needed more information -- and a full trial -- before ruling on the case. CFTC's "Interpretation Regarding Use of Electronic Media" requires anyone who wants to publish opinions on commodity futures to ask for a license -- a tedious process that includes fingerprinting, fees, audits, and a background check. Publishing without registration is a federal felony. "They're opinions. You can't license someone who's giving their opinions," Institute for Justice staff attorney Scott Bullock said after the hearing. "This shows the federal government is actively trying to regulate the Internet outside the context of indecency, which has received most of the attention." Bullock was referring to the well-publicized and ultimately doomed Communications Decency Act, which restricted online indecency. Its successor is the subject of a trial in a Philadelphia federal courtroom next week. The Institute for Justice -- a nonprofit group staffed by free-market litigators -- sued the CFTC in 1997. The lawsuit claims that requiring a person to register as a "commodity trading advisor" -- even if the person does not manage funds or offer personal advice -- violates the First Amendment's prohibition on government licensing of the press. Plaintiffs in the suit include Internet publishers, authors, and subscribers. CFTC in 1996 updated its regulations, which already applied to newsletters, to include the Internet and computer software. The agency defends the rules as a necessary "cornerstone of the regulatory framework enacted by Congress" to protect consumers. The regulations say anyone who, "for compensation or profit, engages in the business of advising others" through electronic media such as the Internet must register with the government. As an example, the agency says an owner of a Web site with "a list of hyperlinks" recommending other Web sites must register -- or go to jail. Giving the Institute for Justice a boost in their lawsuit is a similar 1985 Supreme Court case that said "petitioners' publications fall within the statutory exclusion for bona fide publications" under Securities and Exchange Commission rules, though the justices did not rule on First Amendment grounds. Congress in 1974 created the CFTC to regulate futures contracts for commodities, including oil, natural gas, currency, electricity, and agricultural products. Wired News, Jan. 14, 1999 ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRL gives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credeence to Holocaust denial and nazi's need not apply. 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