Economic Illiteracy
One of the most amusing bits about the 9-11 Denial Movement is the absolutely staggering amount of economic illiteracy out there. In some cases this is not surprising. For example, nobody really expects Dylan Avery to be very conversant in matters economic; he's a 22-year-old kid who didn't go to college (according to Vanity Fair). To him the notion of $160 billion in gold stored beneath the World Trade Center is completely plausible, because he doesn't have a clue as to what that would mean in reality.
But there are others--Morgan Reynolds, for example, who don't have the excuse of youth and inexperience--who should step in and lecture the economic illiterates. That this doesn't happen is just more evidence that the 9-11 Denial Movement is a cult rather than a group searching for the truth.
I listened today to (mp3 file) a stunning interview between two Canadian 9-11 Deniers, Dr Joe Hawkins and David Hawkins (apparently no relation), a member of our old friends the Scholars for 9-11 Denial. It's filled with nutty economics, perhaps not surprising, given this explanation by DH (15:50):
When I taught as a mechanical engineer, and of course people tend to buttonhole you and say, "Well, what do you know about economics, etc?" Well, I know a great deal of economics because money is energy and energy is money. Right? And the way energy moves through complex physical organizations is very similar to the way money moves through complex financial organizations.
For example, get this rather bizarre example from DH of how fiduciaries controlling pension funds supposedly could make money (17:40):
"If they sell on the 10th, that was Monday, the 10th of September, 2001, if they sold NorTel shares for future delivery, or Enron shares, let's say, to be delivered in November at $27, they take the $27 now. If they know that someones going to fly a plane into the buildings, and the stock market is going to panic, and all the scandals inside Enron are going to be revealed, come November, when they have to deliver the shares, they dip into the union pension funds, and they force the union pension funds trustees to sell them shares to them, but by then, they could buy them at 27 cents!
There are almost too many fish in that barrel. First, why would anybody pay $27 now for shares two months from now but not take delivery until then, unless of course the stock was worth something more than $27 at the time?
Second, why Enron? Enron wasn't impacted by 9-11 as far as I know; obviously energy prices might decline a bit with economic slowdown, but they're hardly the company to short on 9-10 on the basis of foreknowledge of the attacks. They were engaged in lots of fraud but a heck of a lot of that was common knowledge as of August 15th.
Third, the last part doesn't make any sense at all. In fact, there is no requirement to actually tender the stock in a situation like this; it is just necessary to adjust the final payout on the transaction for the value of the stock itself. And anyway, if the trustees were left holding the bag on Enron stock that was worth 27 cents, then they should be happy to sell it for that price because that's its value.
But it gets worse. Here's another handy-dandy scheme to make money right on the heels of the last one (18:45):
Or, if you are a big insurance company or the client of a big insurance company, and you happen to know that someone's going to fly a plane into the building, you can insure that building. Right? Which is what they did. Guess who insured it? It was the big union pension funds, including the Teachers and the Teamsters, quietly took out huge insurance on those buildings through their mortgage broker.
Okay, my jaw is dropping to the floor here. Once again we have this absolutely ridiculous idea that the way for an insurance company to make a lot of money was to insure the World Trade Center. Hello? When an insurance company insures a building and it is destroyed, the insurance company loses money. A lot of money. The fortunate thing from the insurance company's standpoint is that not a lot of buildings are destroyed every year, so they have spread the risk over many properties. But make no mistake about it, every single insurance company that took on part of the World Trade Center's insurance coverage wishes they hadn't, and it's insane and stupid to argue otherwise.
Second, the pension funds did not "insure" the building; David Hawkins is blurring two distinct roles. GMAC (which Hawkins refers to as the mortgage broker) provided the loan for the up-front payment required by the Port Authority Ground Lease to Silverstein. In all probability the loan was participated out to several pension funds. GMAC, as has been well documented, insisted that the property be insured for more than Silverstein had initially desired, to make its loan as secure as possible. GMAC and its participants in the loan did not insure the buildings; they required that they be insured with casualty insurance companies.
There's more; in the next section of the interview David Hawkins is explaining about remote controlled aircraft, but you know how it is; I'm already thinking he's a nut. His areas of expertise at the Scholars are listed as:
Forensic economics, Joint-venture enterprise, Management and network design.
Good Lord!
posted by Pat @ 5:53 PM
9 comments
9 Comments:
I have little to no clue about complex economics, but even I can see that this guy is a putz. I am not surprised, unfortunately
Well as a qualfied "scholar" in this field (at least I will be when I graduate next year) he is an idiot. That makes absolutely no sense.
Oh, an aside, the real money was made shorting the index futures. Somehow the 9/11 commission forgot to look there.
Actually I have argued that on previous posts. How would you investigate it though? Are you going to arrest everyone who sold an index or stock short for the previous 6 months?
And yes, he did do a crappy job of explaining short selling. Not because it is a difficult subject, but because he is incoherent. That is one of the most rambling pointless interviews I have ever heard.
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Roger, technically he appears to be describing selling a call option--note a price, and a delivery date, but where he gets the idea that you can then cash in $27 a share is beyond me. This is not quite the same thing as short selling and if it were, you would not get $27 a share; rather any reputable broker would require that you put up a substantial amount to cover the downside risk.
I am sure the insurers salted off the top amounts of the policies to major reinsurers. I am also sure they did not make a bundle of money on the deal. And anybody that made money as a broker by selling off their portion of the risk would have done so if the towers had not been brought down, no?
"It's called short-selling. It happens every day... He didn't do the best job of explaining it, probably because he knows everyone is too dense to understand it anyways."
What kind of excuse is that? He provided a nonsensical explanation because he was speaking to an audience of idiots, but the doesn't prove he has no idea what he is talking about?
"They were the best one to short by all appearances. Their stock went to zero, most other stocks did not. Erego, they were the best short."
Ergo Worldcom. Most people consider Enron a fraud, and you are quoting Skilling to convince us otherwise?
"In regards to the insurance scam. Insurance companies insure things and then sell the policies to reinsurance policies."
Yes they could (and probably did) reinsure. But check the financials, and you won't find profits for insurers in 2001, you'll find losses.
"By the way there was a shitload of gold in the WTC. Probably not 160 billion, but a lot."
Probably not? So its still possible they had $160 billion? Please.
"I'm out... No more finance talk"
I hope.
It's called short-selling. It happens every day. You sell somebody else's stock, with the commitment to buy it back at a later date, and deliver it to the account from which you borrowed it to sell.
He was not describing short selling, which does not have a date certain for returning the borrowed shares. And he was not describing purchasing a put, which only generates the premium up front. He was making stuff up because he's actually, clinically an idiot. At best.
Further, the "crux" of his scheme has pension managers placing the front half of whatever he is describing for their own account and settling the back end by inducing a trade in the pension accounts which they manage. The time from doing such a thing to getting caught is approximately one trading day. Pat kind of joked about it in this earlier post, but in fact most people who have a mind steered toward evil would indeed rather engage in a conspiracy to kill three thousand of their fellow citizens than trade against an account they manage which is governed by ERISA.
The scenarios DH describes are ridiculous on their face.
As to the insurance thing, he's also an idiot. For one thing, when you're talking about policies this large one usually gets the reinsurers involved from the beginning (as indeed happened in this case). For another, no insurer with foreknowledge of the attacks would have underwritten more insurance than the end client wanted, financiers be damned. For another another, no one with foreknowledge of the attacks would have left the policies in such sloppy condition at the time of the attacks, such that there was actionable doubt whether two planes made for two "instances" under the policies. The entire story of the insurance on the WTC is evidence against the 9-11 deniers, as if more was needed.
Again, the scenarios DH describes are ridiculous on their face. And again, it's because he is actually, clinically an idiot. At best.
Finally, the 9-11 commission may not have mentioned it (the also didn't mention the possibility that four identical airplane-shaped meteors caused 9-11), but of course the SEC looked into index futures trading in conjunction with the attacks. They also looked into treasury and treasury derivative trading and about a bazillion other things.
Gentlemen (where's that Abby, anyway),
I agree with almost everything said here... (in this post and the related comments).
I'd like you invite you to view the 911truth wetpaint wiki site. It's not my creation. You can probably turn it on its head if you want.
Here' an entry I made on Hawkins.
Probably not? So its still possible they had $160 billion? Please.
If I remember correctly, the ammount was something like $350 million, most of which was recovered from the wreckage during the cleanup proccess.
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