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Goat Fodder [May. 2nd, 2010|03:16 am]
I thought this up in the tub, it was stuck in my head.

"That's really nerdy." - Jamie
"I don't know what you're talking about, 3am is a fine time to be tie-dying things!" - ...also Jamie

How banks work

Why does a bank pay you interest? They make it back on loans.
Why doesn't a bank offer huge % and charge hue %? Because the bank of Canada has a set amount it will offer to loan/borrow at that other people and banks could always go to.

What's the deal with this thing about banks making money out of nothing? If you count the money you have as the difference between what you have and what you owe then the banks don't make money out of nothing. However, if you could money as something you can spend in order to get goods and services then it's more complex.

Take this last question from the perspective of the bank, pretend for a moment you're buying a Savings Bond for $100 1. When you buy this bond, you exchange $100 cash for a ticket that says that someone owes you $100. From your perspective, you still have $100 in assets, it's just gone step more abstract than you're used to. From the perspective of the entity you lent the money to, their balance sheet still shows zero; they have $100 in cash, but they also have -$100 because of outstanding debt that will need to be paid off at sometime.

HOWEVAH!!!!!!!! The cash can be spent (exchanged for goods or services), but what about the bond? The bond just says "The bearer is entitled to $100 at (sometime soon)", and in our simple world1 that's as good as cash. Surely the bond can be spent as well! So this means, by some clever financial innovation, that $200 in spendable capital now exists where only $100 did before. Both the bond and the cash represent the same $100, and this only holds together because everyone involved in the transaction knows that at sometime the bond will be traded in for cash and then cease to exist, leaving us with the original $100.

We didn't make wealth, we just made the wealth that already existed more liquid (able to be poured into goods or services). This isn't really a new concept. You likely have said something in the past along "I have $200 in Magic Cards" or "This My Little Pony is worth $60", which means that your collections are in a sense an abstract form of money because you could, with some difficultly, turn them into cash.

The only difference is that in the case of the bond, we created something temporary that has a more definite value (that is, its value is agreed upon more closely than bits of cardboard with art and little plastic horses) but is significantly less fun to play with on a day off. This is how abstract money works.

This bond is one of the more straightforward types a financial derivative that exist, which where all the hubbub about fractional reserves and Illuminati start. You see, with financial derivatives, people can have more spending and saving power without a government having to print more money (which dilutes the value of the money that's already out there; remember, gold is valuable because it is rare) This cool because companies can get what they need to operate and grow more smoothly, which often involves hiring people. However, this sucks too because it means that as more financial derivatives are built then more and more spending power is loaded onto each actual real dollar.

When it got to the point where roughly $25 of spending money was loaded onto each $1 of cash (because complex derivatives can be redeemed for simpler derivatives, we can get a ratio of more than 2 to 1), a few of those derivatives couldn't be redeemed because the cash (or asset like a house) that it represented was no longer there (or worth the stated value) and people quickly became less certain how much all these derivatives were really worth. Since these derivatives were only as valuable as people agreed they were (read: were willing to buy them for), their value really did go down. This is how a market crash works.

1 For simplicity this bond is completely certain to be paid off, can be redeemed at some set time soon after like a week, and that the bond pays no interest. Adding factors like interest, risk, and discount rates would be dull and just won't fit in a single Math For Goats episode.

How to make fractals (from what to install to what to punch in)

It bothers me that through all of university I was never given the chance in class to learn how to make a fractal. Sure in a couple of classes we worked through a bit of the theory involved in them, but we never had a lesson on/ assignment for making a pretty fractal. In this episode, we're going to install all the necessary software to make fractals, as well as write the code in with a minimum of theory and have some rendered fractals that the viewer can experiment from and fiddle with to start exploring this field on their own.

Statistical Significance / Correlation

Turbo Burrito - Makes you go really fast! (500 sold)
Turbo Burrito - Food the way you want it, caffenated! (501 sold)

Statistical Insignificance: That extra 1 sold could easily be just random variation.
Practical Insignificance: A difference of 1 sale (0.2%) is nothing you can make a new adveritising campaign around.

A campaign for depicting babies as screaming and nasty in January-June, during which period pregnancy rates go down.

Correlation: Preg rates when down from the start of the campaign.
...is not Causation: ... but we have no way to say that this is BECAUSE of the campaign. As it turns out people get pregnant less in the summer when it's hot to f***.