Saturday, October 18, 2008

The False Dichotomy

So my last post wasn't really about dichotomy. It was about mathematicians and the choices that crop up because they have artificially chosen to exclude the middle ground in their thinking. Despite what people may think, math is only a small part of logic; a mere subset.

In formal logic, there is a logical fallacy known as the False Dichotomy. People often try to assert in their thinking that once a dilemma has appeared then it can be solved with either A or B. It was caused by option one or option two. Things can occasionally be pigeon holed with either-or's, especially in math, but real life is not simple.

When does a person become bald? Do you have to pull out one hair? Ten? Ten thousand?

Of course, the problem lies in different people's interpretations of the word bald. It's not a precise concept. Very little in our day to day lives is a precise concept, yet we run our lives as though most everything is

black versus white,
good versus evil,
republicans versus democrat,
or even alive versus not alive. (Something that should be as dichotomous as it gets!)

As I said before, it makes things simple and tidy, but in reality, it serves only to complicate things further.

Life is a continuum. Everything is a shade of gray. If people want to consider themselves as being a member of a sophisticated species, they really need to learn to accept this. Actually, we all need to learn to accept this.

Because mathematicians have bifurcated their logic, some incredibly sophisticated issues have crept into the foundations of mathematics forcing them to be careful about the way they work their own special brand of magic. The same thing is happening to people every day, only their world isn't even based on an excluded middle.

Take the discussion Charles and I had about the financial crisis. The end of that didn't get blogged about here, but in short, my premise was that it was primarily caused from deregulation. I have since learned that some of it was also due to new securities that were completely unregulated (a not too distant issue). In an effort to simplify the view, I lumped in a whole lot. Deregulation and lack of regulations which covers a whole lot of bipartisan territory. The video Charles offered into evidence tried to make the issue a republican versus democrat issue. The video cherry picked information from the late 70's, somehow managed to skip all of the 80's and early 90's, exploded with more cherry pickings in the mid to late 90's, and cleverly tied it all together to make it look like Obama was Satan's little nephew by marriage.


Can people seriously believe that the current financial crisis is solely due to democrats? Or even republicans for that matter. Are people that limited in their world view? (I'm not meaning to pick on Charles here. I'm directing that to the fool that made the video. The premise of which was that the predatory lending was regulated. An assertion for which he appears to present a great deal of data, but he never actually links it together properly to be able to draw said conclusion.)

Is it really so hard to believe that the crisis is due to unchecked greed that we have to blame one side of the political aisle to make ourselves feel better? Do people really need things to be so black and white for their lives to go on?

Of course, the False Dichotomy doesn't appear in just the economic/political realm. Take your pick on any issue and you'll find it. Rather than trying to embrace some sort of middle ground, where most of us lie, extremists force the issues to remain black and white, thus keeping the issue alive.

I understand some issues will never die. Some issues are so evenly distributed, they will always be issues. Kim and I have talked at length about abortion and this is one of those issues. I challenge anyone to find accurate statistics on the U.S. population's opinion on this issue. Most polls have percentages of pro-lifers in the mid to upper 40's and pro-choicers in the low to mid 40's with the rest in the "pro-choice but we need more restrictions category". (Though I am fundamentally a pro-lifer, I have thought quite a bit on the issue in terms of what I am willing to accept. I have drawn my lines in the sand, as arbitrary as they are, and I guess this puts me in the third category.)

I have seen other polls broken down into more restrictive categories and this really only serves to makes things more confusing. If you check out polls with five or more categories, you really begin to see that this issue is a weighted normal curve. (Weighted a bit heavier on the pro-life end where there are a higher percentage of people who oppose abortion under all circumstances versus a small percentage that want abortions under all circumstances. This makes sense because the gray in this issue comes from under what circumstances should we allow abortion.)

The middle ground on this issue is far too complex and unlike the former issue which is all about money, this one is about life and death. When push comes to shove, at the end of the day, I am sure we'll all be able to agree that the greedy people on Wallstreet, regardless of their political affiliation, need to be reigned in.

Who needs to be reigned in on an issue regarding life and death? The death bringers? If that is always the case we need to reign in the republicans who keep pushing for these middle eastern wars. When Kim and I were watching the VP debate Palin made a comment about how we need to win these wars. As opposed to what? The unspoken dichotomy of losing these wars? How about we don't start these wars? Wait, was this war a republican versus democrat issue?


charles said...

Pat is picking on me.... Waaaaa. Stop, Pat, Stop.

Can you explain to me how quasi governmental animals like Freddie and Fannie can sell “completely unregulated” securities to overly regulated financial institutions?

Can you also tell me how these “completely unregulated” securities were often backed by regulated mortgage insurance?

Can you tell me how these “completely unregulated” securities could be sold over the regulated securities markets and through the regulated brokerage companies?

You have extensive training in the world of absolute values and reason but nothing in politics is absolute and it is certainly not based on reason. And often nothing is as it seems.

There is no difference between the Republicans and the Democrats. The last time there was any real difference between the Republicans and the Democrats was 1933. Up until then there had been a real discussion about the roll of government intrusion in the lives of the citizen.

Doc Brown said...

I'm glad you're willing to finally admit that there is no difference between the democrats and republicans.

You are correct in that nothing is at it seems. In fact, your second premise is wrong:

Can you also tell me how these “completely unregulated” securities were often backed by regulated mortgage insurance?

They were not backed by regulated mortgage insurance. They were backed by unregulated credit default swaps. Since swaps were a new concept, they were completely unregulated, but were supposed to be like insurance. Read here for more info:,4670,MeltdownInsuranceorBets,00.html

Please note the sentence: Because the market is unregulated, the size of the credit default market is difficult to estimate.

The current estimates are about 62 trillion dollars, and is a result of the simple fact that for someone to buy insurance they must have a vested interest in the insurable property. Anyone could invest in the swaps, meaning that if a security went bust, it was possible that hundreds of investors that were betting on the default would be able to collect the full amount of the security.

Not mentioned in the article is the fact that all the mortgages in this country are valued at 12 trillion dollars (91% of which are not in default). Where did that other 50 trillion dollars of mortgage investment come from? The answer is from these unregulated swaps. Had they been regulated like insurance, most of these "side bets" could not have been made.

Your third assertion:

Can you tell me how these “completely unregulated” securities could be sold over the regulated securities markets and through the regulated brokerage companies?

There are more regulations covering one table of blackjack in Las Vegas than cover the securities markets. Your assertions that these institutions are already over regulated do not hold water. Just do a search for "unregulated swaps" and all the hits will tell you that these markets are not regulated properly.

So I guess my answer to this question is: I don't know the specifics, but they are, and should not be.

I'm not going to bother with your first assertion as I have just said, the financial institutions are not "overly regulated". I'm sure you can make arguments in areas where they are regulated unnecessarily, but in the context of this discussion, the mortgage buy-out, they are unregulated.

As for Fannie and Freddie having governmental ties: This is immaterial as they were not singularly governmentally run, which means they can dabble in the unregulated markets like any other financial institution.

If you want to debate the merits of having the government invested in the private banking industry, that's a separate discussion. It'd probably go great with why are there private investors (some of them foreign)involved in the quasi governmental animal called the FED?

charles said...

Pat, couple quick points:

1) Having worked for candidates for both parties I have always thought that there wasnt a difference between the two major parties. "Finally admit"? No, always recognized.

2) The orginal mortgages were generally backed by mortgage insurance which is regulated.

Doc Brown said...

As for 1), Good on you!

As for 2), the original mortgages are a near moot point in the buyout. It's another case of inappropriate naming by the government/media (never paid attention as to who really named it) the buyout isn't buying out the mortgages, it's a band-aid for these unregulated securities.

The original mortgages can be refinanced or foreclosed upon and will eventually work itself out. The securities that were never worth the paper they were printed upon are the real issue.