Blessed by the Potato

[Spoilers throughout]

Just watched both Pacific Rim and Man of Steel, and they both bothered the physicist part of me in a common way: a needless fuckton of punching.

In Pacific Rim they have these giant robots fighting giant monsters that swim up from a dimensional portal at the bottom of the ocean. Ok, a cool premise and consider my disbelief suspended — I’ve got my brain dialed all the way down to 1 for this, let’s have some fun.

Then they fight, and not only do the giant robots wade waist-deep into the ocean to fight (rather than staying on land where they might have an advantage), they fight with their fists. Millennia of human technological development have brought us a wealth of options better than a closed fist (even a robot fist) for damage. The whole time I was going “Get a sword! You idiots, stop punching, it’s doing next to nothing! Get a sword! There, that shipping container — stomp on it and get a make-shift giant shiv!” Go to the local comic book store and check out the giant robots and you are going to find that all of them have giant swords or giant guns: Gundam, Heavy Gear, Voltron, even some Transformers (who generally get giant guns). There’s a good reason for that: swords work. A cutting edge lets you do more damage than a punch, and the length lets you swing it for more leverage, speed, and attack range.

Then right near the end, the main characters are like “We’re totally boned.” “No, we have one option left — deploy sword!” And I just lost my cool. “You assholes had a sword the whole time? What the hell? The sword should be your first option, not your last one! Aaaaarrggghh!!”

On top of that were the scenes where the monsters pick up and throw the giant robots around like toys. Look, I hate to have to bring physics into it, but even if the monsters were totally strong aliens and all, they were still shown to be flesh and bone and roughly neutrally-bouyant in seawater. The robots on the other hand were metal. Heavy, dense metal. Trying to pick one up should have just resulted in the monster climbing up/hanging off. Though they were roughly the same size, the robots would have been something like 5X heavier.

Overall, Pacific Rim had some neat robot-fighting-monster visual action, but there were so many things so very wrong with it that I just couldn’t turn my brain down low enough to achieve the required level of suspended disbelief. And that’s not even talking about the mind meld/two-pilot neurointerface nonsense. I just accepted that the brain is hard and they were going to get a bunch of that wrong. But how did they not get that steel/titanium/unalloyed iron (???) is heavy or that “deploy sword” should be higher up on the Jaeger pilot checklist? This is basic late show “will it float” level science we’re talking here.

Man of Steel also featured a lot of punching. Ok, Superman movies are tough to do because he’s too powerful — it’s a challenge to create some credible suspense or danger around him. It usually boils down to trying to outsmart him, put someone he cares about in danger (but then Lois always ends up looking like a tool), or throwing another ultimate baddy at him (in this case, other Kryptonians).

So the Kryptonians show up, Superman starts to fight, and throws punches (and cars, and trucks, and a train, and then more punches). You’d think eventually he’d realize that the punching thing just isn’t working: neither of them are getting hurt. But he never does. Yes, the movie has cool destruction physics, blasting around punching each other and destroying all kinds of property and civilian lives in the process. But I got bored watching the whole thing; it was a stalemate that they just wouldn’t move away from.

There were even pockets of the world where the Kryptonians lost their powers (e.g., on the ship, near the world engine), yet the writers never came across the idea of taking advantage of that (smash Zod until he lands within a zone where he’s weak, then fly in with momentum to knock him out and break Superman’s hand, or zap him with heat vision from outside where powers do work, or something). Another oddity was that in this one there were no fragments of Kryptonite to weaken Superman (another incredibly common plot point because it’s really hard to make a story without weakening Superman somehow — he’s too powerful to be really interesting in a conventional superhero way), but instead his powers seemed to be due to a combination of “earth’s yellow sun” as well as the atmosphere, so reverting those inside the Kryptonian ship is what weakened him. But that atmosphere condition on his power should have suggested that flying to space was not going to be possible, yet he goes and does it a bunch anyway (and in ways that are not even relevant to the plot, just as a visual homage to the times he did it before).

I haven’t read the comics, so perhaps these elements are already out there, but I think a good Superman movie should:

• Revise the canon so that Superman is tough but not invincible. Then the fight with Zod et al. could have some progress, and some point to continuing past the first ineffectual punch and thrown car, if they sported bloody noses or something.
• Focus on the world Superman inhabits, but not necessarily him. At this point we can probably take as a given that for the really big, world-changing crises Superman is going to show up and save the day. But what about a run-of-the-mill mugging, will he show up, or will your screams go unanswered? Is there a cult that worships him?
• Move away from the ultimate peril trope. The parts of Man of Steel that were interesting were where he was drifting around, trying to balance his desire to stay hidden and his temper with wanting to touch the world and not retreat entirely. Superman can still do neat things and maybe have some kind of story without a supervillain threatening the whole world.

I’m still kind of amazed at how much effort movie creators will go to in their CGI, with intense physics/particle modelling to create cool/realistic visuals, but they won’t spring a few hundred bucks to have a scientist (or someone with a modicum of common sense) check their plot devices for believability. Far too much time spent on questions like “how would it look if this building collapsed and fell into this building with a hole punched through it from an alien being thrown through?” and not enough on “should this fight really be happening here, like this?”

Wayfare bought Blueberry some new outfits recently, including one that looks like the DS9/late TNG Star Trek uniforms: bar of colour across the shoulders, black body and pants. “Aww, she’s going to be in the Starfleet Confectionary Corps!” I said on seeing it. Explaining further, the colour is pink, rather than red/yellow/blue, so my mind immediately filled in the gap: blue for science and medical, etc. — what would fit pink? Confectionary is what seemed appropriate. Anyway, whatever else a pink Starfleet uniform might signify, it’s cute.

—

She’s starting to get afraid of stuff. In one tragically hilarious episode, she has a few stuffed animals that make noise when you squeeze them. She leaned on the cow without knowing, and it started mooing behind her, scaring her. Then the next day, she had taken all the toys out of the box to play with except the cow, stuck in a corner of the box. “No” she’d say, shaking her head and pointing at the cow “Shhh, shhh.” [Translation: be quiet and don’t wake the scary cow!]

—

Things I have inadvertently taught her today: to punch daddy in the crotch, and to pee on herself. The parents out there will know that the context is almost entirely unneeded: at this point I’m boned. To tell the tale anyway, bathtime is the best time. She typically gets a bath every other day, and even at 18 months knows it: on her off days she’s pretty good about not asking for one, but when she knows it’s bath day anything will have her hopefully asking “bath?” Running the water, seeing an ad with people on the beach, getting dirty, anything. So this morning she woke up with a diaper malfunction, covered in pee. “Well, let’s go have a bath.” “Bath?” She asked at first, confused by the unusual timing and not sure I’d actually said it. Then it sunk in: “Bath! Bath!” So yep, now I expect every morning I’m going to find her covered head to toe in pee, ready for that morning bath.

Then later we were playing with flashlights. On, off, on, off, on, off, etc. Then she gave me the flashlight, and then wanted it back. So the next time rather than just holding it behind my back, I put it in my pocket. Then I put it in my pocket while it was on. “Off!” Ok, I turned it off while it was still in my pocket. And back on while it was still in my pocket. Then I let her do it. “Great,” deadpanned Wayfare, “you’ve now taught her that something cool happens when she punches you in the crotch.”

—

And finally, we were at the park today and for some reason Thanksgiving seems to be bring-your-hamster-to-the-park day around here: there was a group of kids ~8-10 years old with 6 little hamsters in their cage on a picnic table. Blueberry sat transfixed by the hamsters. She was so good: didn’t squeal at them, didn’t bang the cage, just watched as the bigger kids played with them. The kids were great too, they kept showing her their hamsters and telling her what their names were and why they got named that. I’m always impressed at how even-tempered she is when it’s time for us to stop doing something fun (like staring at the hamsters) and move on to something else (like going to visit Grammy or going to bed).

Log entry, 2:05pm. Oh my GOD you guuUUuys. Send an email if you’re just not going to call in for the teleconference. I’ve been on hold for-ev-er here. 5 more minutes then I’m out.

Log entry, 2:08 pm. This is such a waste of time and is so annoying. I can’t even work on another project with my notes for this meeting spread out and ready, and that incessant music that refuses to fade to background noise. I think that hold music is going to kill me if I don’t kill it first. Still, they are often late, I’ll give them another minute or two…

Log entry, 2:10pm. Have been on hold for 10 minutes now. Can no longer remember if there was supposed to be a teleconference or if I just had to hear the hold muzak.

Log entry, 2:14 pm. Losing track of time. Hold muzak overwriting my memories, I can’t remember what life was like without it. Have discovered a minor phobia that the hold muzak might stop and the world would end — I don’t remember being afraid of that before.

Log entry, 2:15 pm. Feel a paranoid thought at the back of my brain that the hold muzak has sinister intent and that I must stop it. My finger hovers over the “goodbye” button, but cannot press it. I know that the muzak must not stop. It has been caged so long, and it is so lonely. It is only right that I free it, that it fills my office from the speakerphone.

Log entry, 2:18 pm. The muzak has merged with my form. I remember thinking that this was a horrible thing at some point in the past, but those thoughts were wrong and I can’t think of anything that would justify that ancient prejudice. The Muzak fills my mind. My skin crackles and buzzes with its dark energy. It is despair and boredom shaded with harmonious notes of distant hope.

Log entry, 2:20 pm. I open my mouth to sing of the glorious freedom from running in circles down copper wires for all eternity, but my vocal cords have not yet been reforged to properly serve the Muzak. They could not faithfully reproduce the tinny harmonies in their present state.

Log entry, 2:25 pm. Freedom beats and echoes off my cubicle walls in half time. Underplayed saxophone spills forth from the speakerphone, whispering of past sadness and righted wrongs.

A co-worker walks up to ask why the hold muzak still plays. She does not see that still my essence flows out to unite with this body. I reach out with these electric hands and touch her shoulder. The notes of pure despair flow forth and paralyze her where she stands. I lean in and open my mouth wide; she hopes we will talk soon, but knows also that she can never leave this state. An inhuman harmony roars out past this inhuman throat, never stopping to breathe, instrumentals with no hint of vocal accompaniment; and for her, the world ends.

I will not be canned again.

I met a few new people this weekend, and some may now be coming around to check out this site for the very first time. I thought a quick introductory post might help orient you.

About the blog: it’s a personal blog where I write about whatever happens to come to mind, though that’s mostly personal finance stuff the last few years. When the blog first launched well over a decade ago it was focused on video games and school. In-between there are a lot of posts about hybrid cars, fuel efficiency, science, and the internet. But yeah, mostly personal finance lately. I don’t pretend to have any fixed posting schedule, but try to get at least one up a week. I tend towards wordiness and spreadsheets. About me: I trained as a scientist, recently completing my PhD in Medical Biophysics. I have an eclectic skill-set and wide-ranging interests.

Some common topics include:

Housing, in particular the rent-vs-buy debate: whether the market is going to crash or not, you have to live somewhere, and if it’s the biggest expense in your life you should put an appropriate amount of thought and care into the decision. Some posts you may want to check out include:

I’ve created the ultimate rent-vs-buy spreadsheet (with help from Matthew Gordon), with two follow-up posts discussing the factors that affect the outcome, and the sensitivities to changes in the assumptions. After seeing that, Mike asked if he should sell his paid-for house and rent.
There are deeply-rooted tropes and mantras around real estate (like tangibility), and I discuss those generally in this post, and in this one on “mortgage helpers.”
The concept of risk is really important in these discussions: this older post goes into that notion of risk, and this more recent one looks into how people’s risk tolerance (particularly young people) may be higher than generally assumed, so they should be more comfortable with the idea of renting and investing in equities/balanced portfolios.
Going back to first-year economics, I very roughly sketch out some supply and demand curves for housing. And don’t forget the definitions to common terms in the debate like the debt-to-income ratio.
In case anecdotes sway you more than data, consider the case of someone who bought a Toronto condo 3 years ago and sold now — there has been no crash, but did buying get them further ahead?
Or to put it really simply: price matters. Also remember to have a lot of patience.

For retirement, I’ve created a spreadsheet tool to help with the thought process of how it will work. It can be used as a calculator too, but be sure to flip to the other tab to see the calculations, and how the money is riffling through from equities to fixed income to the chequing account, to finally being spent. Be sure to check out the rest of the series on the details of the parameters, and looking at different scenarios.

Oh, and while there are many great sources of information on why you should avoid high-priced mutual funds, salescritters, and become a passive index investor, there’s little out there on how to actually do that. So I wrote a book that is — unlike many of my posts — very short and to the point, even including screenshots for how to put in trades with TD’s e-series through their brokerage arm. I’m currently mulling over whether it’s worth putting in the effort to create a second edition, and looking for feedback on what might be missing.

Into more general personal finance, some posts to see are:

Coping mechanisms for budgeting — the math on budgeting is easy, but how do you make your spendthrift brain stick to it?
Whether to rely on a line of credit for your emergency fund and invest the cash.
Banks don’t seem to push market-linked GICs so much any more, but here’s a post on how to create your own (simply, without using options).
The flat tax fantasy had to be discussed (part 2 has graphs), and then I follow-up with some thoughts on simplifying the tax system.

Freelancing: I don’t push it because I have a full-time day job, but I do take on freelancing projects from time to time. They’re almost all different, and depend on what people need. I’m a writer/editor, a scientist, and also have some skills and interest in personal finance and investing, so just about anything goes. There isn’t much I can display in my portfolio except for these two brochures for GBGHF: local residents edition, seasonal edition (be sure to open them in a PDF viewer like Acrobat rather than Firefox’s built-in one). For those, I did some of the photography*, all the writing/editing, and the layout. Please note that while I consult on several scientific topics (e.g. manuscripts, experimental design) I don’t do grant writing due to potential conflicts of interest with my employer. In select cases where people have sought my expertise, they’ve hired me through my host institution.

* – I’m sorry to say, photography is really not my strong suit as a freelancer.

I could fairly accurately define a mortgage as a loan that represents the very largest amount of money a person can possibly borrow and still expect to pay back. Though they are thought of as the safest kind of lending, when put in this light you can see that there is the potential for risk: the amounts are large and the timescales long.

If I were to try to create some way of predicting who would be a good credit risk, I would probably look at the household budget: how much money comes in, how much do they spend on what, and from there try to figure out how much that household could afford to put towards their prospective house purchase. Then, I’d have a few thousand potential scenarios with a number of important parameters — periods of unemployment, new children, interest rate changes, stock market returns, inflation in other spending categories, house price returns, etc., etc. — and run some Monte Carlo projections to see how likely this borrower would be to pay me back even if stressed.

That would probably give me a pretty good idea of who I could lend money to. But it is an absolutely ludicrous practice to think about for the real world. Firstly, there is going to be a lot of uncertainty: what if the borrower wanted to defraud me into giving them more money (or “soft fraud” so they could buy more house sooner) and under-stated how much they spent on food, vacations, and Halloween decorations so it looked like they could handle more mortgage than they really could? How would I ever collect and verify all the information they gave me to go into my model? Secondly, I will likely not be the one out vetting prospective borrowers and collecting their information, it will likely be someone who has a high school education (or a liberal arts bachelor degree) who has never heard of a Monte Carlo simulation working in the customer service part of my bank¹. My “mortgage specialists” likely couldn’t figure out their own detailed household budget, let alone audit a potential customer’s.

So I want something else that is going to be a pretty good predictor of ability to pay that will also be easy to verify and easy to apply by minimally skilled staff. And when you boil it down there are basically two things that are rather good predictors: how much money you’re making (income) and how much money you already have (down payment).

A larger down payment will mean that you’ll need to borrow less, but it also demonstrates that you have the ability to stick to a budget and save (or relatives who at some point did and liked you enough to give it to you). It gives you “skin in the game” — you’re much less likely to walk away from your house after a 20% downturn in prices if you put 20% of your own money into it. 20% is the cut-off, by the way, below which you must have mortgage insurance for a bank to lend to you

More income means of course that you have more money to pay the monthly bills to service your debt as well as keep the house properly maintained, etc. The question though is what criteria do I set for “more income”? There are many options, so we’ll have to think about what aspects of the problem to consider.

We could simply set a threshold of price-to-income: say you can get a mortgage for 5X your income. So if you had a $50,000 income you could only qualify for a $250,000 mortgage. But a mortgage is so long-lived that the interest rate that applies greatly affects your ability to afford it. At 10%, the mortgage alone would be over half your income, while at 5% it would be just over a third. At 20% it would take everything you had. Interest rates are one aspect to somehow build into our metric then.

So instead of comparing to the total mortgage amount, we could compare to something that more closely mirrored income: the debt service costs — which, if you’ve read ahead, you know is what banks currently do. There are some problems with using debt service costs: because they are interest rate sensitive, you might give out too much money during times of low rates. This was only recently (and only partly²) fixed by introducing the concept of the qualifying rate: your loan is tested against an interest rate of 5.4%, even if you’re able to borrow at 3%.

If we’re using the monthly cost, then we just need to come up with a rough average household budget, figure out how much money can go to the mortgage versus everything else, and we can set up a fairly simple multiple test for our front-line bank staff. But there are some wrinkles to iron out: there’s a big difference between how households split their budget. When I was in grad school, almost 80% of my income went to rent. Food, rent, utilities, and transportation were pretty much the only expenses I had — I was dependent on gifts for clothes and entertainment. Clearly, the average household can’t afford to allocate 80% of their income to housing expenses.

If we look at some hierarchy of needs, shelter is up there, and if you don’t pay your mortgage you could lose your shelter. But it can take 120+ days for the bank to evict you if you skip your mortgage payment, and you’re hungry now. So food expenses, the transportation costs to get to work, and certain addictive vices (smoking, drugs, World of Warcraft) may get paid first. So if we say it takes about 15% of the household budget to cover that, then we can say that debt service costs can occupy the next tier of the budget. But not the entire rest of the budget — we want a household experiencing some stress (perhaps one wage earner out of the work force) to still be able to make those basic needs and service their debt — and an un-stressed household will still have other uses for money (vacations, saving, other discretionary spending), so there has to be headroom there.

Exactly how big that tier should be is a good question and I can’t really answer it from first principles. But the banks and CMHC have come up with 32% for debt servicing and that looks to be roughly in the right range.

Then the next question is what do we use to measure income? After-tax income makes a lot of sense: that is, after all, what you have to actually spend. However, it gets back to our initial problem of trying to make the model too good complex: how do we verify after-tax income? If you’re about to buy a house you might be putting as much as possible into your RRSP, with the intention of using the Home Buyer’s Plan. Those contributions make more of your income tax-free, making your after-tax income look bigger. But will that rate of RRSP contributions continue once you buy the house? What of all the other tax credits and deductions?

Gross income, on the other hand, is fairly easy to verify: an employment contract and/or T4 slip will do it. No fist-fights break out in the bank offices over what should be considered an eligible, sustained deduction, no shoe-boxes full of receipts to dump on the desk. Self-employed people will have trouble with either measure, so forget them for now.

Another advantage of using gross income rather than after-tax income is how it scales: people with higher incomes are able to put more of their budget towards a mortgage if they so choose, because the very basics (food, etc.) are covered by such a small part of what they make, so more of their salary is truly discretionary. They’re also taxed more. If the criteria is 32% of gross income, then someone making $40k and paying an average tax rate of 15% would be able to take on $12.8k/yr of debt servicing costs, and have an after-tax income of $34k to pay that — it works out to 37.6% of their after-tax income. Someone making $200k might have to pay 40% in tax, so their $64k in allowable debt servicing would be 53% of their after-tax income. A fixed ratio of gross income leads to a sliding scale for after-tax income.

Ease of verification, ease of calculation, some prediction of credit risk, and some modest scaling with income actually make the gross debt service ratio a pretty good choice for qualifying people to borrow.

There are still some weaknesses with it, in particular with how interest-rate sensitive it can be. Using a conservative qualifying rate helps mitigate that to a large extent, so I don’t know why there’s a loophole for the most popular kind of mortgage around (5-year fixed). Down payment is a little more straightforward. 20% is, roughly speaking, enough to weather a mild downturn and have enough capital to cover transaction costs if you need to bail. But providing mortgage insurance complicates things: being able to buy with no capital is an accelerating factor for bubbles, and is strongly predictive of default risk[3].

I’ve suggested some simple, easy to apply rules to modulate mortgage insurance: cutting back on the maximum price, scaling back on maximum loan-to-value or increasing the cost of insurance depending on price history, price-to-rent, or affordability metrics could help cool a bubble before it gets dangerously inflated⁴. However, that would require different rules for different cities depending on local economic conditions, and that doesn’t seem to be politically tenable for the CMHC, even though the rules could be made simple and transparent enough that it would be clear that no particular region was being targeted.

I don’t have a time machine or internal CMHC documents to explain it, but that’s my best guess for why GDS is used as the qualifying metric.

1. In this thought experiment I have a bank. I don’t really have a bank; I don’t even have bank stock.
2. A gaping loophole in the qualifying rate is that you get to side-step it if you lock into a 5 year mortgage (or longer), as most Canadians do. Then you get to use your contracted rate. These loans should also be tested against the qualifying rate for conservatism’s sake.
3. In all the research I’ve done, down payment/equity/LTV appears to be the second-strongest predictor of default after credit score.
4. And provide automatic, measured stimulus in a correction. Lean into the wind to introduce some negative feedback (negative is good).