The US Credit Crunch

Bankruptcy of Lehman Brothers; bailout of AIG. How did this happen?

Let’s ask Warren Buffett, investment guru:

If [AIG] had never heard of the word derivatives, they’d be doing fine. They’d be going to work in the morning and they would have no troubles … I said they were possibly financial weapons of mass destruction, and they had them. They destroyed AIG. They certainly contributed to the destruction of Bear Sterns and Lehman …

… I would say the biggest single cause was we had an incredible residential real estate bubble. I mean you can go back to tulip bulbs in Holland 400 years ago … human beings going through combinations of fear and greed and all of that sort of thing, their behavior can lead to bubbles … 300 million Americans, their lending institutions, their government, their media, all believed that house prices were going to go up consistently … lending was done based on it, and everybody did a lot of foolish things.

Saving the best for last:

… they had all these types from Wall Street, you know, and they had advanced degrees, and they look very alert, and they came with these – they came with these things that said gamma and alpha and sigma and all that. And all I can say is beware of geeks, you know, bearing formulas …

Source

Warren Buffett: I Haven’t Seen As Much Economic Fear In My Adult Lifetime – Charlie Rose Interview – 1 October 2008

Why the Honda City is ugly

Ok, the Honda City is not that ugly; I just thought it would make a great headline. But still, the Honda City is not exactly everyone’s dream car. Are Honda designers not talented? Surely they could come up with a better design? Yes, quite easily, I’m sure. It’s just that Honda is applying a slightly different twist on the basic microeconomic principle of price differentiation.

Price differentiation means selling the same product at different prices in different markets. The ultimate objective is to charge each buyer the maximum that he or she is willing to pay. However for the car industry this is not possible; it might even be illegal. By having different categories of the same basic product, sellers attempt to implement price differentiation, but in a justifiable and completely legal way.

I read somewhere that a computer hardware manufacturer has two versions of a laserjet printer: the difference is that one is faster than the other. In reality, the two models are exactly the same, except that one has been deliberately programmed to have lower throughput. Of course, the “faster” model is priced higher. So customers who are able to afford it will go for the perceived higher-end product. This way, the printer manufacturer will get more revenue than if it were to sell just the one model.

Thus, the City is not looking as good as it could be because Honda does not want people who could afford the Accord or the Stream to be content with the City. The fact is that the Accord, the Camry, the Perdana V6 and such carry very high profit margins. Honda, Toyota, Nissan et. al. are no longer content to be mere volume producers of low-margin cars – by making their entry-level models not very desirable, they ensure that people strive to upgrade to their higher-margin offerings.

Air Crash Investigation

I’m not sure why, but I love watching Air Crash Investigation on the National Geographic Channel. Maybe I’m fascinated with how passenger airliners can be both awesome and fragile at the same time. They’re huge, majestic, and chock-full of gizmos and gadgets and instrumentation; and yet, a small glitch or mistake can cause them to simply fall from the sky and leave absolutely no survivors.

Here are those that I’ve seen:

1. Aloha Airlines Flight 243 – “Hanging by a Thread” – Metal fatigue causes part of the roof to be ripped off. A stewardess is sucked out of the plane. A survivor reports having seen cracks on the fuselage when boarding the 737.

2. Flash Airlines Flight 604 – “Vertigo” – Night-time flight; the aircraft rolls into the sea a few minutes after take-off. Investigators attribute it to pilot error (spatial disorientation) but Egyptian authorities disagree, citing mechanical failure.

3. Helios Airways Flight 522 – “Ghost Plane” – This one is rather eerie. The pressure setting is configured incorrectly causing everyone on board to lose consciousness, including the flight crew. Cabin recordings show that the pilot and co-pilot were trying to diagnose the problem but were unable to think straight due to lack of oxygen. After radio contact was lost, fighter jets were scrambled to intercept the Boeing 737. In the last moments, the fighter pilot witnessed someone entering the flight cabin and trying to regain control of the aircraft. Minutes after that, the plane crashed into a mountain, killing all 121 on board. It was later surmised that the mystery person was a flight attendant who was wearing a portable oxygen mask.

4. Turkish Airlines Flight 981 – “Behind Closed Doors” – Faulty design leads to a cargo door blowing out in mid-flight. The resulting explosive decompression damages the DC-10’s hydraulic system, causing all control to be lost.  This is a tragic case of negligence as the airplane manufacturer was in fact aware of the design flaw but did not make the necessary improvements.

5. Air Canada Flight 143 – “Gimli Glider” – This is my favourite (if ever is there such a thing as a favourite disaster; anyway, in this case, there were only a small number of minor injuries). Air Canada had only just converted from imperial to metric. Not only did both ground crew and flight crew miscalculate the amount of fuel required, the fuel gauges were out of order: the plane runs out of fuel mid-air. Fortunately the pilot is also a glider pilot and knows how to fly a plane without engine power. Approaching the runway too fast, he executes a forward slip, a manoeuvre used only on small planes, the first (and perhaps the only) time being performed on a 767. The CG reconstruction helps us fully appreciate this feat – the airplane is shown flying sideways, and only correcting just before touchdown. After this incident, the scenario was programmed into a flight simulator; nobody has ever managed to pass the test. Therefore passengers of Flight 143 were fortunate that the only pilot who could have saved them was actually flying the plane at the time.

Local Trivia

Has a Malaysia Airlines plane ever crashed? Yes, in fact: flight MH653 on 4 December 1977. A Boeing 737 was hijacked under “mysterious circumstances” and plunged almost vertically into a swamp in Tanjung Kupang, Johor, instantly killing all 100 on board.

Ramadhan

I would like to wish a Happy Ramadhan to all Muslims all over the world.

From Wikipedia:

Ramadan is a Muslim religious observance that takes place during the ninth month of the Islamic calendar, believed to be the month in which the Qur’an began to be revealed. It is the Islamic month of fasting, in which Muslims don’t eat or drink anything from sunrise until sunset. Fasting is meant to teach the person patience and humility. Many scholars are of the view that competing in sports or exercise should be refrained during the daylight hours since it causes one to be more thirsty, and thus, less patient. Most people who keep fasts choose to exercise in the night after the fasts are broken.

p/s.: Now where the heck is my Hari Raya mp3’s collection, anyway?