Quotes – Machiavelli On The Risks To Innovators (#innovation)

And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new.

~Machiavelli

Notes – Reading Popper: “The Open Society And Its Enemies”, Introduction (#philosophy, #criticism)

Notes from a shared reading of Karl Popper’s “The Open Society and Its Enemies” (available at Amazon.com), to be updated as read and discussed. An introduction to Popper, his life and his ideas can be found at the Stanford Encyclopedia of Philosophy

Popper sets up a dichotomy– the Closed Society of tribal authoritarianism, and the Open Society of individual reason and critical rationalism. He claims that there are potent intellectual forces trying to always return civilization to the Closed Society and that the Open Society is relatively new as a cultural phenomenon and still in its infancy (implying it requires special protection and pleading).

He advocates “piecemeal social reform” through a democractic social structure as opposed to “Utopian social engineering” which is an ancient, totalitarian project most recently (as of his writing) guided by historicist philosophy. It’s interesting he felt the need to attack historicism as you would think the end of the two world wars effectively destroyed the power structure of the Prussian monarchy built upon that intellectual foundation.

Popper says he will concern himself with the method of science. Specifically he says that in the social realm the methodology of predicting and knowing the future is flawed and impossible and implies a determinist metaphysics he can’t abide by. He stands against predictivism and it seems he is also going to make an argument that the predictive methodology of physics and other natural sciences has been transferred, uncritically, to the social realm where it does not apply due to human will. However, curiously he does not say he is offering a scientific refutation but only a personal one intent on showing the “harm” of historicist thinking. What an odd position for a scientific philosopher to take!

Popper wants to show the barrenness of following Great Men unquestioningly. He wants to turn people away from philosophies built on the disappointment with reality not reflecting their wishes. Ultimately, it is about personal responsibility and many of these popular philosophies wish to deny it to everyone but the Great Men.

I may be putting the cart before the horse here but I think it’s interesting that Popper offers democracy as a salve for totalitarianism because it offers a “peaceful way to share power”. But democracy isn’t peaceful. It’s built on the gun. Popper only knew a little about economics in his own time, despite being so physically and intellectually close to many great economists (such as Mises!) I think that replacing democracy with the market would greatly improve his thesis in terms of both consistency and explanatory power.

Notes – Original Issue Discount (OID) Tax Implications, Lessons Learned (#taxes, #investing)

In the process of carrying out the KV Pharmaceuticals capital structure arbitrage trade of 2012, I got caught with my pants down a bit as I didn’t think to sell the convertible notes before they stopped trading. As a result, I missed an opportunity to lock in a capital loss for tax purposes at the time, which would’ve helped shield some of the income I made on the puts and thus made the trade as a whole more tax efficient.

Instead, I got a double-whammy of tax inefficiency for my ignorance, a chicken that finally came home to roost in tax FY2013 as the CPA assisting me with my tax preparation informed me that I ended up owing an additional sum beyond amounts withheld in prior periods due to Original Issue Discount (OID) interest income related to my defunct KV Pharmaceuticals play!

At first I was shocked and dismayed– the company went into bankruptcy and the securities were eventually removed from my account entirely earlier this year. How could I owe taxes when I never earned any cash interest and will never get back even a penny from the securities I stupidly held onto?

I talked about it with my CPA (who double-checked with his partner) and then spoke to a rep at TD Ameritrade and the matter is decisively not going to turn out in my favor. I learned that when a bond goes into default it often switches from cash interest basis to accrual interest basis in the eyes of the IRS, and like any good group of thugs they want their blood now, not later. In other words, I owe federal income tax on “accrued interest” I not only never received but never will receive. Because the securities were removed from my account in 2014 and not 2013, it looks like I accrued interest income due to me even though we clearly know right now that I’ll never get it.

Instead, I get a stepped up cost basis on the securities (in the amount equal to the accrued interest not received) so when I finally report the loss for FY2014 taxes, it’ll be a total loss of X + Y instead of just X. I get to shield additional future income with the X + Y amount but I paid real cash up front for the privilege.

If I had known better, I would’ve executed this trade such that the gains and losses all occurred in the same period in 2012. I also probably wouldn’t have gotten into a trade in the first place whose money-making mechanics I generally understood but about whose technical execution and tax implications I was grossly ignorant.

Another expensive lesson learned!

Quotes – Anti-Fraud Ethics (@nntaleb, #ethics, #fraud)

If you see fraud and don’t shout fraud, you are a fraud.

~Nassim N. Taleb, “Ethics

On Conspiracy (#conspiracy, #snowden, #NSA)

I’ve spoken to a lot of people who deny the existence of various conspiracies behind well-known human events because they believe it’d be too hard to keep a secret with the assumedly large number of people who would have to be in on it to pull off the original act.

I want to ignore the possibility, which I’ve raised, that secrecy isn’t even necessary because many times people will ignore or not recognize criminality right in front of their face (ie, the ongoing, millenia-long fraud of the State).

Instead, I want to reflect on the following current events. Nearly every week for the past several months, new information about global national “security” apparatus spying has come to light thanks to the efforts of Edward Snowden and his allies. Each one of these stories are billed as surprising revelations not previously known.

I don’t think there has been any specific disclosure of how many people at the various agencies fingered are involved in each of these various schemes but it seems safe to say they are “numerous.” I don’t know what kind of upper bounds a person would put on the number of members of a conspiracy required to keep a secret but I’d have to believe, given that these agencies occupy fairly large office buildings and other campuses around the country and the world, that the number of operatives exceed those thresholds.

How, then, did these programs manage to remain a secret?

To take this further, how do “intelligence communities” manage to operate at all given that they, too, are “numerous” and their entire model operates on the assumption that secrets can be kept despite their numerosity?

If I were to venture a guess, I’d say the answer lies with recognition of the fact that people have strong incentives to keep secrets concerning criminal or otherwise socially-reprehensible activity they’re engaged in. Especially when such activity constitutes their “job” which provides food for their families, or, even more powerfully, when such activities line up with their ideological beliefs, whose faithful following gives their lives purpose and meaning.

I think it unwise to overly discount the economic likelihood of conspiracy.