Many school systems and entire states are beginning to require algebra for all of its eighth grade students.

I can’t help but to feel that this is a well-intentioned, but poorly reasoned solution to the problem.  The problem is very starkly cultural.  It’s just plain uncool to work at being good at math.  If we do nothing to change the culture, will shoving every eighth grader into algebra class just be an exercise in learning about pain tolerance?

Or perhaps I’m wrong, and a shock to the system is the only way forward.  I just can’t help escape the feeling that there are more inspiring avenues to success.   On the other hand (I know…I ran out of hands early in this post), not a lot of people seem confident enough in my business model to take it on themselves.  I do hope I can encourage them shortly.

The MIST Academy Winter class schedule has been posted.  This includes Introductory, Intermediate, and Advanced classes in both Birmingham and Huntsville.  We may still add Math Explorers classes for elementary school students.  In fact, I have met with a retired elementary school gifted teacher who comes highly recommended and taught several of my current students.  I like what I have seen and hear of her experience, personality, and philosophy.  If we can work out the right schedule, and there are interested students, we will add those classes to the schedule as soon as possible.

Yesterday I ran into Wes Gordon, the calculus teacher at Vestavia Hills High School who is in charge of testing writing for the tournament.  He mentioned that the test drafts are nearly ready, and that in writing the tests he had the goal of inspiring of larger range of participants.  In other words, high scores in the 50s or 60s is not likely.  The early problems will be easier, and more students will have problems at their level to work on.  I have little doubt that this will improve the math competition experience for a lot of students.  The Vestavia tournament is one of the few math team events of any kind during the first semester in Alabama, and it has traditionally been one of the toughest.

They’ll still keep some of the tougher problems around for the top students to battle over, so the score distributions should be good.

I hear a lot of people denigrate the idea that IQ is meaningful, yet every time I start reading into the literature, I find all kinds of reasons why IQ is most certainly meaningful.  For instance, it certainly does correlate to actualized earnings later in life (along with career options, and I would guess social status as well).  Though it is certainly true that more than a few absent-minded professors have lacked the wisdom to achieve great productivity, and many other distributions of personality traits throw data all over the grid.  Yet still, the positive correlations exist.  But the fact remains that IQ is just one of many measurements, not entirely arbitrary, that has correlation with capacity and actual achievement of human success.

I was just reading about psychometrics because a teacher mentioned to me that she is studying it.   The study of personality and intelligence testing is a subject I find very interesting.  Like all sciences of studying people, it’s an imperfect one, but once we conceive of it, it behooves us to study it as a species, and see what kinds of benefits we derive from it.

Much has been written of moral hazard in the markets these past weeks.  However, moral hazard can often be hard to identify.  The reason is that the people exhibiting immoral behavior are not well enough educated to understand the problem.

Case in point:

A little less than a decade ago, I was discussing the housing bubble with a colleague before most people knew about the mistakes being made in the mortgage industry.  He shared with me a personal anecdote about low collateral loans.  He put little money down on his mortgage, and was forced to pay PMI insurance.  Of course, the insurance premium eats away at his investment, so he wants to get rid of it as soon as he possibly can.  A housing adjuster overhears him talking about the problem one day and offers (for an ordinary fee) to have his house appraised.  After all, in the rising economy, housing prices were rising quick.  Perhaps that house was worth so much more than it was a year ago when it was bought that the remaining principle on the loan was less than 80% of the new value of the house, in which case the home owner could stop paying PMI.

My friend had his home price reevaluated twice before he had to stop paying PMI.  The adjuster understood his incentives.  He gets paid more if people know that there is a good chance he can take away their PMI payment.  He has an incentive to help people get over the top.  After all, what’s 5% here or there — the house will probably be sold for well more than that inflated price a few years down the road, right?

Who is to call adjusters out on this scam?  Certainly not local governments who rake in additional dollars in property tax values.

As much as anything I mean this story to underscore the truly complex nature of the mortgage crisis and the ways in which moral hazards manifests itself.  The accounting of the true costs is as invisible as the hand, but mathematical modeling savvy at least gives us a better glimpse.

Wall Street Trading

Two stories from my days working for hedge funds:

(1) When I traded bonds for D.E. Shaw, I was responsible for trading bonds and swaps in and out of a massive interest rate convergence trade. Part of the reason interest rates would get out of line on the Japanese yield curve is that teacher pensioners predictably bought bonds on the same part of the curve. Every so often a massive amount of money would come into the market all at once to invest for teacher retirement and the bids and offers would adjust to account for shortened supply of particular bonds (the bonds that represented the investment horizon for teachers who might retire in year X). I would then short those bonds, buy others, and hedge both directions with fixed-versus-floating interest rate swaps. The result was a “box trade” in which my firm would theoretically not suffer if the whole fixed income market went up or down (relative moves on the yield curve made our day or hurt us).

The game could be likened to waiting for the rich dumb poker player to sit down at the table.

(2) When I went to work for equity option trading leader Susquehanna, we were explicitly taught to view trading as poker. In fact, many of the traders there played in high level poker games and they taught “class” at the tables in the back of the office after market close. I believe a couple of them won bracelets at the WSOP, and somebody in my office (Ace Kaplan) found himself at the second-to-last table of the main event during his first entry in 1999. There were also a couple of world champion backgammon players on staff at various times.

Much of every trading day was waiting for motivated buyers/sellers/players to come into the market and take on positions that we could then play against using a sophisticated set of software tools and working understanding of first and second derivatives of stock prices (with respect to time). We were also well drilled in recognizing fundamental relationships between options that required no math beyond decimal/fraction arithmetic, but that’s another story.

We played poker. That was the game. We played against other players.

You might think that this game is more sophisticated than a regular poker game. Maybe it is, a little, but the decision-making processes are nearly identical. It’s about making consistently good decisions to take advantage of people who provide you with the opportunity to profit (the so-called “fish” in poker). Though it’s fair to point out that Wall is not a zero sum game the way that poker is. You can profit from somebody’s hedge, which lowers their own portfolio volatility leading to robust investments — and thus the world goes ’round.

Wall Street Bailout

Arnold Kling likens then $700 billion bailout to putting a mountain of chips in the hands of a loser, and watching the sharks move in for the kill.

I think that’s a pretty good analogy.

The damage is done in terms of the overall health of our economy. Putting that much money within reach of people who spend several score hours a week learning how to game every penny is not a solution. It’s a waste. There are better investments in financial recovery. Yes, an enormous amount of liquidity is gone — but is that the liquidity we need? The liquidity of low credit buyers?

I’m not sure what the answer is to all this, but isn’t bankruptcy a better option? That’s where the people bailing out the company get equity in return for the good assets, while the people who took excessive risk lose the keys to the car.

I tend not to get political much in this journal, but I feel strongly that a mathematical modeling perspective of this crisis is positively influential.

This week I will begin administering the Rocket City Math League to students who do not participate in the competition at their schools.  This is a free event run by the Grissom High School math team, sponsored by Mu Alpha Theta.  I plan to have sixth graders compete in the Pre-Algebra division, even though they will not have been completely prepared.  So far the sixth graders I have show an ability to work a very high level, and they are prepared to solve many of the problems.

I just built a page for the Grissom Math Tournament.

Few people recognize that being socially awkward is largely a function of societal pressures.  Often, the smart kid is socially awkward…when placed in a culture that does not value intelligence.  Of course, we could recount the anecdotes of a thousand famous leaders including CEOs and innovators who started down the path of life socially awkward.  In fact, several of their faces are carved into Mt. Rushmore.

When I look around at American culture and wonder how our culture dipped, over the course of two generations, from being by far the most well educated and technologically sophisticated among large nations…to depending on hordes of H1B vias in circulation to provide intellectual capital to churn our yet faltering economy…it’s not hard to understand why.  I just have to listen in to the women next to me making fun of her own son to her friends…for being the president of his middle school’s chess club.

It’s not often when the fact that the world didn’t end makes the news.