The Western Experience

If you’ve read the ‘About Me’ part of the blog, you already know I’m not a galaxy. Good start. To be a bit more explicit, I’m human, male, grew up in Kolkata till end of college, went off to the US, lived in the West (USA and UK) for about 12 years, and came back to India for good (Yes ! Really !!).

It seems de riguer for an NRI, or ex-NRI, to write an angsty piece about their life in the West and make grand extrapolations to the experience of ‘all Indians’. (It’s generally considered totally uncool to just say, “Ya, life was/is very chilled out t/here”). So, here it comes.
Ok, to begin with, I didn’t feel I was abandoning my parents and cultural roots, I wasn’t appalled by the ‘lack of family/spiritual values’, I wasn’t in the least bothered by women in tank-tops or couples snogging in public. For all that, there’s Jhumpa Lahiri.

But here’s what did bother me.

I grew up on a pretty rich diet of English books and movies. Tintin and Asterix comics, Famous Five, Hardy Boys, Sherlock Holmes, Agatha Christie, you name it. Then there was Star Trek, Mickey Mouse and Spiderman on TV, and the big surge of Hollywood films during Christmas was always eagerly anticipated. Being a bit of a geek (just a bit?), I was heavily into science fiction and fantasy, which are genres of literature almost completely dominated by North American and British authors. Then there were all the great popular science authors, once again, mostly American or British.

So, to cut it short, I grew up absorbing, enjoying and admiring many of the products of western culture, and I believe my experience of quite typical of urban, middle-class Indian children (extrapolations have begun!).

It was a shock, therefore, to go to the West, and find that this feeling is absolutely not reciprocated.

To the average urban, middle-class westerner, India is invisible. Some people may have heard of Gandy (“what was that? Oh, Gandhi”), some New Age types have some curiosity about Indian religion (“chakra, chakra, not shakra”) and you get asked whether you like ‘curry’ (“curry is not a dish, idiots! Its like asking, Do you like soup?”). But apart from that, there’s just a very vague awareness of India as a land of starving people and cows, and nowadays, telemarketers and IT nerds. And there it ends.

Once, this sank in I re-read my beloved science and SF authors and realised with great disappointment that this was true of them as well. People like me were never part of their intended audience, and in fact, probably outside their mental horizon altogether. A very notable exception was Arthur C. Clarke, who often introduces Hindu and Buddhist names and themes into his novels. Carl Sagan dwells at some length on Indian cosmological speculations in Cosmos. But that’s about it.

And then I started seeing it in all the English books and movies I grew up with. Here I’d been thinking, like any eager reader, that the authors were ‘talking to me’, so to speak. But no, they weren’t. In fact, they had no idea that people like me might even read their work, just like all the ignoramuses I kept meeting in everyday life!

Now I’ll make a grand extrapolation and say that my experience is quite typical of Indians arriving in the West. And this is a problem. Most of us grow up with an awareness that our country has a vibrant culture with deep roots and this is a source of pride. To suddenly end up in a place where all of that is completely ignored or peripheralized, feels like, well, Arthur Dent looking up the Hitchhiker’s Guide and finding that the only entry under ‘Earth’ is ‘mostly harmless’! (If you didn’t get that reference, er..., let’s just have a chat sometime, ok?)

People react to this in different ways. Some decide that the best way to regain importance is by trying to act as ‘western’ as much as possible. Nowadays, their numbers are dropping and good riddance. Others embark on private crusades to raise India-awareness. As a result any unfortunate westerner in the vicinity is subject to long lectures on ‘glorious Indian culture and traditions’ (and subsequently avoids any Indian event like the plague.) Many get into an angry defensive crouch – “If they can’t be bothered about us, screw them! We can’t be bothered about them either”. Kind of difficult if you are living in their country, so what happens is a gradual tendency to segregate into rather claustrophobic all-Indian communities.

Of course, the circus really begins when the next generation comes along, but that’s a can of worms to be opened elsewhere.

Why Science Will Never Accept God

Amidst all the clamour of the science/religion debates, one persistently hears the accusation from the religious camp that scientists do not want to believe in God.

Scientists, claim the believers, are being obdurate – they have decided to shut their minds to God’s existence and would stretch their theories to any length to avoid the possibility of divine involvement. Is there any truth to this ?

On casual inspection, the claim is patently false. There are any number of scientists who have produced excellent work while being devoutly religious. And to my knowledge, there is no stricture against scientists holding religious and/or supernatural beliefs. Humans hold all kinds of personal beliefs and scientists are no exception.

However, the accusation begs a deeper question. Namely, is the scientific method itself incompatible with God? Or, in other words, can God ever be a valid scientific hypothesis?
I think the answer to the latter is No.

To begin my argument, science works by making careful observations of nature and framing hypotheses to explain those observations. The hypotheses are then used to make further predictions which are then tested by observation and experiment.

This is admittedly a gross simplification of the scientific method, and in reality, the scientific enterprise does not proceed in a linear fashion. Guesses, prejudices and misunderstandings abound. Theories are ignored on first publication or dismissed by prominent scientists, only to resurface decades later and gain prominence. However, for the purposes of our argument, the observation- hypothesis-testing model of the scientific method suffices.

Now to begin with, there is no observational evidence for God, of course, or this whole debate would be moot. So we need to ask if God can be a good scientific hypothesis. Indeed most theist-atheist arguments traditionally start with, “What made the universe?”

So: Observation: Universe, Hypothesis: God, Test: ????

This is the point where the problem arises. An unwritten rule in science is Occam’s razor – We choose the simplest possible hypothesis to explain a given fact. In accordance with this, the basic ingredients in scientific models are as elementary as possible.

For example in physics, the typical entities in models are particles and fields, - mathematical constructs whose behaviour is completely described by a handful of numbers. For all the intimidating math in theoretical physics, the models contain nothing remotely as complex as even a virus!

Now let’s take a look at God.

God is the Supreme Being, “omnipotent, omnipresent and omniscient” according to the Abrahamic religions, “ the infinite, immanent and transcendent reality which is the Divine Ground of all matter, energy, time, space, being, and everything beyond” according to Hinduism.

Very impressive indeed, but from a scientific viewpoint, extremely problematic!
Such a being is the polar opposite of simple and elementary. In fact, almost by definition, this is the most complex entity that can ever be hypothesized in a model. Thus, by Occam’s razor, every possible alternative should be considered before suggesting God as an explanation. On an infinitely long list of conceivable explanations for a phenomenon, God would be right at the bottom !

So much for Occam’s razor. How about predictive power?

If God is your hypothesis, what’s the prediction? Well, everything - after all, there’s nothing an all-powerful being can’t do. And nothing - because His Omnipotence is certainly not obliged to do anything! Thus, the God hypothesis produces no testable predictions.

Awe inspiring and humbling though the idea of God may be, as a scientific hypothesis it is useless.

So if God is no good as a hypothesis, how about a proof by observation? Once again, trickier than it seems.

Certainly, it is possible that we may observe supernatural phenomena, though none have been documented to date with any credibility. Water turning into wine, or people walking on water, or statues drinking milk for instance. These would be completely contrary to our current understanding of the world, and scientists would be forced to admit that ‘something else’ was at work. But even so, how would we know this was God, the Supreme Being, in action and not some more mundane creature, such as a genie or an asura?
Similarly, even if we had incontrovertible evidence that our universe was intelligently designed, how would we know it is the Mind of God that designed it? Maybe it’s just an alien schoolboy in a metaverse which was itself sneezed out by the great green Arklesnoozer in a meta-metaverse and so on.

In some ways, this is akin to the problem of figuring out if the universe is infinite or just really large. We can keep going and always finding more, but it can still be that the end is just beyond our horizon....

So, where does all this leave us? Not, I think, with the conclusion that science has disproved God, as some may claim. In fact, from what I just said, science cannot prove or disprove the existence of God, because the God hypothesis makes no testable predictions. But since science is the best way we know of producing reliable, objective knowledge, it is unclear how we can ever resolve the issue.

For this same reason, God will never be part of an attempted scientific explanation of anything, though people may, and will, of course continue to believe in Her for other reasons.

All I can say is that, to date, we have succeeded in explaining all observed phenomena within the framework of elementary entities behaving according to elegant mathematical laws. It is possible that these laws were designed by a transcendent intelligence beyond the universe. But this is by no means inevitable, or the only possibility.

Furthermore, there is no way to scientifically test claims about beings beyond the universe, since all our observations and experiments are necessarily confined within it.

So, this may be a good time to invoke the eminently sensible proverb, “Whereof we cannot speak, thereof we should remain silent.

Harry Potter and the Half-Baked Flick

SPOILERS GALORE !!! READ AT YOUR OWN RISK !!!

Right off the bat, let me admit that Harry Potter and the Half Blood Prince is a cut above the previous five movies. But only because the others are so lame.

The movie starts off at a brisk walk with storm clouds gathering above London and Death Eaters streaking out like sooty comets to wreak havoc in the city. By half-time it looks like it might even run. Then it shoots itself firmly in both feet to collapse in an anticlimactic heap. In what follows I will assume, that you like myself, have read and loved the book (and preferably, all the books.) So, I’ll abandon the usual refrains of “Harry Potter and friends are back in a deeper, darker, scarier, more adult, more mature, ...... yakkety yak yak”.

In a bizarre inversion of quality, the film shines precisely where the book fails and vice versa. Anybody who has read the series (or is it just the old and cynical ones like me ?) tends to agree that Rowling’s depictions of teenage romance and angst are by far the most annoying aspects of Book 4 onwards, and a general lowering of overall standards. However, the romance bits of the movie are genuinely entertaining and often very amusing. Jessica Cave delivers a hilariously over-the-top performance as the lovestruck Lavender Brown. Rupert Grint’s idiotic grin as Ron under the effects of love potion has to be seen to be believed. Also very amusing are Harry and Ginny’s awkward attempts at romance, continually interrupted by the bumbling Ron.

Unfortunately that’s where the good news ends. Now for the bad.

The central thread of the Half-Blood Prince book is a series of revelations about Voldemort’s life, seen in Dumbledore’s pensieve. Dumbledore is demystifying Voldemort – showing Harry that the Dark Lord is not an invincible superbeing as he wants all to believe. He is just a man, who was once a child, and then a teenager. In a fascinating series of snippets, we read about his ancestors, obsessed with heritage and wizard pride. We see him as a boy already inclined towards cruelty and domination, a teenager ever adept at flattering teachers to get the information he needs. We find out about his obsession with objects of antiquity and value. Then the final revelation and the key to bringing down the Dark Lord – the multiple Horcruxes, each created by murder, which bind him to the world.

All this is replaced by two hasty scenes totalling not much more than 5 minutes!!
Then the chilling scene of locating the Horcrux locket – the huge underground lake, the deadly potion in the basin, Dumbledore screaming in terror and agony, then lying in a faint begging for water... Once again,very clumsily done. To begin with the sets look so obviously fake,that disbelief is hard to suspend. The lake looks tiny. Dumbledore flails about a bit all right, but in half a minute, looks quite fine. When he asks Harry for water, it seems he’s just being lazy.

And now the finale.

I remember how it felt when reading the book. The Dark Mark hovers above Hogwarts. Harry suddenly finds himself petrified beneath his invisibility cloak. He watches, helpless, as a visibly weakening Dumbledore faces Malfoy, who has come to kill him. But the old wizard is completely unfazed. He is sure Draco’s heart is not in it. In fact, yes, Malfoy is losing his nerve and lowering his wand. All’s well after all...

Then four Death Eaters burst in. Tension once again. Dumbledore remains composed but now the outcome is far from certain. Then Snape enters. At this point I know all will be fine. Dumbledore trusts Snape. Snape will surprise the Death Eaters and rescue him, he’s the ace in the old man’s sleeve.... Snape kills Dumbledore !!! What the ****** ???!!! While this is yet to sink in, we find Hogwarts in chaos. Death Eaters are battling the students and the Order of the Phoenix. Spells fly everywhere and pandemonium reigns, while the Death Eaters make their exit. And as a last, shocking revelation, Snape is the Half Blood Prince, whose potions book has helped Harry all year round !

That’s the book. Now for the film.

They come back to Hogwarts all right. Then Dumbledore tells Harry to stay out of sight. No petrifying spell, no cloak. Enter Malfoy, enter Death Eaters, enter Snape. No build up, no tension, nothing. Snape does the Avada Kedavra almost as an afterthought. And all the while Harry just watches with the moronic, vacant expression that seems to be Daniel Radcliffe’s trademark. Then the Death Eaters sort of saunter out with Harry obligingly following behind, with no attempt to attack them, raise the alarm, or create any resistance. And I’m thinking, “Is everyone finding this as stupid as I am?”

Bellatrix Black trashes the great hall and sets fire to a couple of buildings. Nobody wakes up, nobody notices. Is everybody in Hogwarts on drugs or what? Only when the Death Eaters are well out of the building, does Harry challenge them and get his butt thoroughly kicked. Serves him right for being such a retard!

Ok, that’s it. The film ends shortly in a total anticlimax. I don’t know if this is a deliberate ploy in order to get a PG rating, but every previous Harry Potter movie shows the same tendency to downplay and rush through the darker, chilling parts that make Rowling’s books such a pleasure to read. It is unfortunate that the Half-Blood Prince movie makes the same, tired mistake and leaves you with the same insipid taste in your mouth.

The Credit Crisis -----Continued

Penetrating all the jargon in finance articles has been tough, but I

think I've done it.
So I'm going to write it up here.

The subprime mortgages and defaults are the easiest part to understand, but wasn't clear to me what exactly the investment banks had done and why everyone is panicked.

Now I think I do.
It’s all due to the invention of new financial technology (yes, we quants are called financial engineers officially).

Its an instrument called the Credit Default Swap (CDS) and its heavyweight cousin, the CDO.

I've been working in this area doing models and all the last few years, but the big picture was never made clear to us all this time. Turns out, the models were window dressing, it was mainly a lot of fraud.

Here goes...

Credit Default Swap - Part I

The CDS is a very simple instrument.

The idea is, suppose you have XYZ company which is BBB rated (very bad shape). Now you own $1m worth of XYZ bonds and you are getting interest. But problem is, XYZ can go bust any day and you'll lose $1m.

So, big investment bank, let us refer to it as Evil I-Bank, offers you a credit default swap on XYZ.

The CDS on XYZ specifies that you will pay a quarterly premium to Evil I-Bank, (usually specified as a percentage on the underlying, in this case, $1m). In return, if XYZ goes bust, Evil I-Bank, pays you $1m.

Typical insurance scheme.
So how can that cause a crisis ?

Because, rather than just insurance, CDS can also be used for speculation.


Credit Default Swaps – Speculation

So, now suppose you are a speculator. You know that XYZ is BBB rated, so could go bust any day.

How do you take advantage of that ?

Well, the standard way is to short XYZ stocks. You can even short XYZ bonds (though more complicated).

But there's a problem with that. You need someone to lend you the XYZ stock to short it, and there's only a limited number around.

Maybe $10m max, since XYZ is a small company. Ditto with bonds.

But now you have a new means. Simply get into a $10m CDS with Evil I-Bank on XYZ company. You see, one doesn't need to actually own any XYZ bonds to set up a CDS on XYZ !

Its as though, I can buy car insurance which will pay me if my neighbour has an accident.
And so can all of you.

Thus, previously if XYZ went bust, the max total loss to anybody is $10m.

Now it can be $1 billion, $10 billion, who knows ? Because everyone can set up a CDS to bet against a company and many people did.

This is the leveraging everyone's talking about.

But on the other hand, why were the I-banks so eager to set up CDS's with whoever wanted them.

Weren't they liable to lose a lot ?

Enter the CDO.


CDOs

Collateralized Debt Obligations (CDOs), the hot product of the last few years, engineered by all us math/physics PhDs.

The idea is suppose you are Evil I-Bank.
You have 100 BBB rated companies like XYZ. You've just sold $10m worth of CDS on each. So, now if they all go bust, you can lose $1billion. What do you do ?

Answer: Slice it up !

So, you create a "0 to 3%" slice. (technically, tranche)

Which means you go to a client and say, Look, I have an asset based on 100 underlying companies. Now I'm going to pay you a quarterly premium. In return every time a company in this pool goes bust, you pay me $10m, but *only up to the first 30m dollars* (so that's 3% of 1bn). Of course, the client will want a high premium for bearing this risk.
But lets go on.

Then you have a "3 to 7%" slice. So, you pay another client a somewhat
smaller premium. The idea is in return he will start paying you back when the total loss
to the underlying portfolio exceeds 30m (i.e., from when he 4th company goes bust), but stops at 70m (so from 8th company onwards, not his problem).

And so it goes, till you usually have a 15 - 100% slice.

This total scheme of slices is a CDO.

So, now here's the deal.

Note that every time one of the 100 XYZ companies defaults, you have just passed the loss onto one of the clients of the CDO.

And in return you can pay them a part of the quarterly premiums you were getting from the people who had CDS on the XYZ companies !

So, the more CDS's you sell on one end, the more CDO's you can sell on the other.
Perfect !

But is it really so great. Who wants to take these slices ??


CDOs and the ratings debacle

Its all in the ratings.
If you have a basket of BBB rated companies, not many people will want to buy into those.

But now what if you've sliced and diced it the way I described ? How much are those slices worth ? What's theirs rating ?

Underneath all the high math, here's the heart of the business.

The I-banks managed to convince the ratings agencies hat the 15 - 100 % slices were AAA !! You'd get interest on those, but it was extremely unlikely that more than 15 of the 100 companies would default, so as good as having a bond of a blue-chip corp !

And this is the crux of the crisis. Any type of long term investor, like a pension fund, wants to invest in AAA securities. But these are generally hard to find, expensive, etc.

Now I-banks had a way to (spuriously) manufacture them out of thin air. Simply, sell tons of CDS on crap companies to speculators and charge them high premium (because these are BBB rated).

Join them together into CDO's. Sell the 15 - 100% slices to long term investors. Since, these are AAA rated, you pay them a low premium and they are happy. Voila ! Money for nothing !

And long term investors were snapping these up, so big bonuses and party time.

What about the 3-7% slice etc. These are bought by hedge funds as a way of getting easy cash in the short term. Hedge funds always need quick, short term cash


All fall down

So, that's the big picture.

Once things started going south and companies went bankrupt, losses were magnified gigantically by the proliferation of CDSs.

The AAA rated CDO slices built on the CDS turned out not to be AAA after all, so the long term investors are collapsing.

Hedge funds are dying by the thousands as the earlier slices get hit.

I-banks are hit hard. After all you think you are well hedged. But what happens when the pension funds you duped go down and *can't* pay the losses you passed on ?

Plus they have to mark to market, which means the books start showing big losses long before companies actually collapse.

All because of the CDS, which allows you to 'take out insurance on your neighbours life'.

There's still an estimated 45 to 60 *trillion* worth of CDS liability which can be called in as recession deepens and more companies fall.
No one knows how corresponding CDO slices are placed...

The Credit Crisis in Brief

In the beginning, the Universe was created/ hatched from the Multiverse/bootstrapped itself into existence.Eons later, on a puny planet circling an in significant yellow star in the outskirts of one of hundreds of billions of galaxies, arose a race of ape descended life forms so primitive that they thought digital watches were a neat idea. As if that wasn't bad enough, they then thought it would be even cooler to trade trillions of dollars worth of dodgy financial securities called credit derivatives.

As a result, we (Ooops! They are Us!) find ourselves in the biggest financial crisis since the Great Depression.Being one of the ape descended life forms involved in the trading of these instruments- albeit, in a fairly minor capacity - I decided to write a little piece summarizing the reason for the current debacle in what I hope is a sufficiently intelligent-layman-friendly fashion.

Keep visiting my blog, as I shall shortly come back with the entire story.

Song of Creation - Rigveda

There was neither Nothingness nor Being,
Nor the skies above, nor the heavens beyond.
What covered it ? Where was it ? In whose keeping ?
Was there water then ? Water in depths unfathomed ?

Death was not then, nor immortality,
Nor any sign of night or day.
The One breathed alone, self sustained,
The One there was, and no other.

Darkness there was wrapped in darkness
All was ocean, swathed in gloom.
The One came to be, alone in the void
Born at last from fire within.

Desire arose in the beginning then
Primal seed of the nascent mind.
Sages searching their hearts with wisdom
Know that which Is, is kin to what Is Not.

Across the void shone the light piercing
What was above and what below ?
Mighty forces surged, fertile, creative
Power raged above, earth heaved below.

Who truly knows ? Who can speak forth ?
Whence it was born, whence came creation ?
The gods themselves were born after
Then who can say whence it came to be ?

How came to be this vast creation
Whether it was made, or formed itself
He who sees all from highest heaven
Verily he knows, or perhaps he does not….

***

What better way to start off a blog ?

The above is my (semi)-translation of the Nasadiya Suktam, one of my all-time favourite poems from the Rigveda. I found several translations on the Internet (not a single one by an Indian!), all somewhat unsatisfactory and mutually contradictory in places.

So I got hold of the original and where the translations conflicted, I was able to use my admittedly limited knowledge of Sanskrit to give what I hope is a more accurate rendering. Then I tried to make it all a bit more poetic – always a risky proposition.

What you saw was the final result.