As our nation teeters on the edge of a fiscal cliff and our world is headed for an abyss from which we may never recover, I ask for honesty and introspection. 

Before the election, we were asked to stay the course. The economy was improving, but more time was needed for the recovery to be complete. Since the election, with four more years assured, we find ourselves on the precipice of financial disaster. The solution? Tax rich people more and cut an entitlement or two. (Is the military an entitlement?)

I am not ashamed to admit that even though I understand the concept of Gaussian copulas a lot better than I did six months ago, the information has not gelled together into a cohesive whole in my mind.

From what I've read, let's say x1 is a distribution that isn't normal and x2 is a distribution that isn't normal either. Our goal is to find the correlation between these two distributions, but this can only be done indirectly by relating each of these distributions to two standard normal distributions.

I'm getting most of this from John Hull's book, 'Risk Management and Financial Institutions.' Hull provides the most coherent explanation of everything I've read.

Politics took a back seat to Hurricane Sandy from the storm's inception until Election Day. Then the election day coverage was exhausting and disappointing for conservatives who were hoping for a Romney victory. President Obama argued strongly that we needed to stay the course, that it would be wrong to go back to the failed Bush policies of the past, that what he was doing was working, and that no one, not even Bill Clinton, could have engineered a recovery from the worst recession since the Great Depression in four short years. (He originally promised to do it in three.)

After the devastation of Hurricane Sandy, I found myself pausing before writing this blog post about the auto industry. As everyone knows, many cars were flooded with so much water, they were rendered inoperable. This was true for cars that were parked on the street as well as for those that were parked in garages. Some people lost their homes and others their lives during an eight hour period of unspeakable tragedy.

The residents of New York and New Jersey are still recovering. Many homes and businesses are still without electricity. And the gas stations that are actually selling gasoline have lines of cars that stretch out for blocks. 

An excerpt of David Stockman's new book, 'The Great Deformation: How Crony Capitalism Corrupts Free Markets and Democracy,' was published in Newsweek a couple of weeks ago. Stockman is not impressed with Mitt Romney's skills as a job creator, but rather than exploring the validity of this statement from a political perspective, I would rather examine Romney's behavior in the context of understanding private equity firms from a more informed point of view.

I understand Stockman's premise: Romney is not a grower of jobs, all the companies he touches go bankrupt, he came in at the right time (between two recessions), etc. It's the details I don't understand.

The Stable Marriage Problem is not a problem for everyone. Being in love means that we've chosen the woman or man we want to be with, and if all goes well, the object of our passion desires us just as much.

Wouldn't it kill the mood if we believed that an economist can come up with an algorithm that determines who should be married to whom? Fate and serendipity and destiny are thrown out the window in favor of a mathematical formula.

D. Gale and L.S. Shapley wrote an article that was published in the January 1962 issue of The American Mathematical Monthly in which they propose exactly that. The article was called "College Admissions and the Stability of Marriage." Here's how the article begins:

Ten years ago, the issue of embryonic stem cell research was controversial. I was torn in both directions. The thought of being able to treat diseases and illnesses by implanting or injecting cells that could develop into any mature cell was a dream come true, providing hope for sufferers of Parkinson's Disease, cancer, heart disease, and other debilitating afflictions. Initially, my one reservation was whether it was morally appropriate to develop an embryo for the purpose of curing illness. The embryo would not survive; I wished that embryos did not have to be sacrificed in the pursuit of a greater good.

The Wizard of Oz was one of my favorite movies as a child. Beyond the talents of Judy Garland and the rest of the cast was the movie's message that was so profound, it has stayed with me all these years. The Cowardly Lion was looking for courage, but he discovered that when he looked within, that courage was already there. The Scarecrow and Tin Man were also searching for qualities that were nestled within them as well. The Wizard was wise enough to notice what others couldn't see, even though his wizardry was an illusion for the masses. When his curtain was thrust aside, Dorothy and her companions saw a man and nothing more.

Why has the price of crude oil been going south? According to yesterday's Wall Street Journal,

I thought that QE3 would lead to higher oil prices as the dollar continues to lose value and the price of mortgage backed securities, with an artificial push from the Fed, goes up more briskly  than it would if left to its own devices.

Saudi Arabia wants oil prices to go down, according to the article. And the slower US economy leads to a reduction in demand, which leads to lower prices.

Quantitative Easing 3 is upon us. Here is the explanation from The New York Times:

[quote]In September 2012, the Fed announced a new round of bond purchases, but with a difference. For the first time, it pledged to act until the economy improved, rather than creating another program with a fixed endpoint.

In announcing the new policy, the Fed sought to make clear that its decision reflected not only an increased concern about the health of the economy, but an increased determination to respond – in effect, an acknowledgment that its approach until now had been flawed.