We mortals pride ourselves as rational beings, but we act emotionally. We get attached to previous positions, and will discount or filter evidence rather than change our minds. We read the news for confirmation rather than information.  We are so inundated with information that we rely on emotional instincts to make quick decisions.

Our first instincts are emotional and we tend to then, and only then, rationalize our first decisions. I call this emotional rationalism. Marketers understand this very well.

When you add risk into our thought process we can become even more irrational. Risk is probability plus outrage or fear. Thus the chance of a 911 attack may be small but the outrage of that act may lead us to take extreme measures to prevent such an occurrence from happening again. We spend far more political capital to prevent gun deaths than deaths from swimming pools, which are far more common.

The Age of Reason did not stop wars and hatred; it just changed the institutions that expressed them. Anti-Semitism of the church simply became anti-Semitism in the halls of education and government. Hatred towards those who opposed established faith became even more bitter when it was applied to those who opposed established norms of reason.

Academic credentialism, as distinct from intellectual depth, is not immune to emotional rationalism. Academics will become attached to their theories even when they conflict with the realities of the world they attempt to explain. The world of experience will translate to the world of theory much better than the reverse. Once someone gets a theory in their head it is hard to get them to see the world objectively again.

Thus academics descended on Wall Street with sophisticated models to explain investment behavior. Long Term Capital, a hedge fund from the 1990’s was held in awe because of two PhD Nobel Prize winning economists on its board. Its first few years showed impressive results and helped it attract billions of dollars of capital. But Long Term Capital made bets on Russian bonds and went from a net worth of billions to bankrupt in a matter of a few months. In typical academic fashion the quants explained that the move on Russian bonds was a ‘25 standard deviation event’, so far outside the realm of a rational model that it could not be predicted.

A 25 standard deviation event is a way of saying the odds of this were as remote as getting hit by a meteor while playing the back nine at Augusta National. It is another way of saying that no rational person could be expected to have foreseen this. This is what happens when theory trumps experience. Our world is filled with the outcomes of ‘25 standard deviation events’.

But these same theories brought down a bigger house of cards only ten years later. Debt pools were assembled that were so complicated that when the underlying assets such as a mass of very crappy mortgages collapsed, the credit markets froze because nobody could figure out what any of these pools were worth. The reason these toxic assets are so hard to clean up is because our brightest accounting and financial minds cannot figure out what they are worth.

We still fail to understand the principles of probability and how our emotions filter and distort our reality. As Nassim Taleb notes in his book by the same name we are “fooled by randomness.”

We can discern the various probabilities of a specific outcome of a roll of a pair of dice, because the universe of outcomes is clearly limited and knowable. The same is true of guessing the chance of any combination of cards from one or multiple decks. Cards and dice are a world on known unknowns.

But making bets on the outcomes in the world of global finance is something wholly different. There is no limit to the combinations and outcome of hundreds of national policies, billions of investors, with millions of financial products, subject to the fears and exuberance brought by wars, inflation, and old fashion human greed. This is the world of infinite possibilities, the world of unknown unknowns. This is a world better served by a philosophical understanding of risk embedded in a world of experience than a delusional faith in theoretical models proposed by credentialed academics.

Yet we have still failed to understand this fundamental reason for our recent credit collapse and we are making the very same mistakes, only this time in the government sector. We still swoon for the sound of intelligence over experience.

A car ‘czar’ brags that he has no experience in the automobile business, but “business is business”. Steve Jobs at Apple was replaced by an executive from the soft drink business; Jobs was brought back- you can now Google the story on your iPhone.

In a subject as massive and as filled with unknown unknowns as global climates we are making bets with familiar delusional certainty and even declaring that the “debate is over”. I may not know which end of the test tube the cork goes into, but I would feel a bit better about reordering our entire economy and social structure based on a fifty year climate prediction if we could predict the weather next week.

Many blame the financial collapse on greed and capitalism, but these flaws have been with us forever.  As Thomas Sowell noted, blaming the financial collapse on greed is like blaming a plane crash on gravity; it is true but not a very useful description.

With some months to now reflect and study the causes of the credit collapse, we cannot hide the central role the government played in the disaster. Had Fannie Mae not guaranteed the crappy mortgages they could not have been assembled into vehicles earning AAA ratings and become acceptable to global investors on such a grand scale. We have been fleeced at the gaming table but the casino owners , the dealers, and the pit boss were all government bureaucrats. They just reserved the high roller tables for Wall Street.

As we watch and hope the government will reform the excess of Wall Street, we should be more concerned who will reform the excesses of government. We should ask how they plan to solve a problem by repeating the very same mistakes that caused it.

An airline was hijacked to Uganda by  terrorists with 95 Jewish hostages on June 27th, 1976. On July 4th three planes landed in Israel with most of the hostages rescued after one of the most audacious  and successful raids in military history.

Three hostages were killed in the battle and the only IDF casualty;  Yoni Netanyahu, the brother of Benjamin Netanyahu, Israel’s current prime minister, was killed by a Ugandan sniper.

Yoni Netanyahu

This digital recreation shows the raid but the film “Raid on Entebbe” starring Charles Bronson and Peter Finch (Yaphet Kotto played a great Idi Amin) better captured the intense emotion involved in the Israeli’s decision to execute the plan.  Training was top secret and when the Knesset finally approved the mission the planes were half way there.

The success of the Israeli mission inspired other counter terrorist actions by other nations.  It is a reminder that terrorism can be fought and beaten. It is another great reason to remember July 4th.

Anti-Semitism continues to prove to be the most adaptive hatred as well as the oldest.  Its most recent incarnations have drifted more to the left. This is a relatively recent development, spurred by the closer affection the Christian evangelical community has developed for both Israel and the more conservative part of the political spectrum.

A few years ago evangelical leader John Hagee made one of the most impassioned speeches in support of Israel I have ever heard at a national AIPAC meeting.  The American evangelical movement has largely (but not totally) moved away from the Jew as an object of scorn or heresy to be saved and converted, to a people to be respected.  There was Ann Coulter’s comment about the view of Jews as ‘unperfected Christians’ or Pat Buchanan’s references to a conspiratorial nature of Jews that supposedly got us involved in the war in Iraq.  These were both offensive and factually incorrect.  Jews and Israeli affiliates went out of their way to avoid any semblance of influence in the run up to the U.S. invasion of Iraq. Ambassador Dore Gold (at that same AIPAC meeting) commented that while they saw Iraq as a problem they felt Iran was the bigger threat. Israel had unilaterally destroyed the Osirik nuclear reactor in Baghdad in 1981.

But the transgressions from the right that were anti-Semitic in nature have become increasingly dwarfed by the anti-Semitic outpourings from the left for years.   This is hard to explain as mere sympathy for the underdog status of the Palestinians since the 1967 war.  Israel is far more socially liberal than its neighbors who seek to destroy it.  Israel offers far greater free speech, women’s rights, gay rights, and religious freedom than any of its neighbors.  Its contribution to the arts, sciences and commerce dwarfs the rest of the combined Arab world. Yet it remains the only country in the world where threats to its very existence is tolerated in international circles and especially from the floor of the United Nations.

Modern anti-Semitism masquerading as anti-Zionism has become much more tolerated on the left.  Every Israeli act to defend itself is condemned as disproportionate or inhuman.  Just days before her infamous comment Helen Thomas was working from her respected seat in the White House Press Corps and referring to Israel’s ‘massacre’ of  innocents on one boat out of several of the Gaza flotilla. She made no comment about the 41 South Korean sailors that were ‘massacred’ weeks earlier intentionally by a North Korean gunboat.  I doubt the North Koreans were armed with paintball guns.

Her contemptuous dismissal that the Jews should return to Germany and Poland ignores the basic fact that more Israelis came from the Middle East- ejected from the lands they inhabited for thousands of years- than from Europe. But as we continue to observe, such hatreds do not listen to reason or fact, they only seek excuses.

Jewish Women from Yemen

Helen Thomas’ venom for Israel has been typical of many from the media and the left for years.  I have often wondered if there was line where even the left would not cross when it came to Israel.  Well apparently there was and Helen Thomas found it.

Her comment was as offensive as suggesting that black people should be shipped back to Africa. To their credit there was no defense of her comment from the left. In fact they were quick to reject her comments.

Statistically there is a significant and important difference between saying that many anti-Semites are liberal and saying that most liberals are anti-Semites. Perhaps we can even thank Helen Thomas for drawing a line that even liberals cannot ignore. While it may be politically fashionable to criticize Israel, at least Jews may now be recognized as having a right to be in the land they have built and defended as a state for over sixty years; but as a homeland for thousands of years.

Perhaps in this case an extremist has served to draw a rational line.

In Israel and Its Liberal Friends WSJ columnist Bret Stephens asks what if the standards of friendship Israel’s ‘friends’ claim is the source of their criticism was applied to the Palestinians as well.

an excerpt

Finally there’s the fact that liberalism has become a politics of easy targets. Liberals have no trouble taking stands against abstinence educators, Prop 8 supporters or members of the tea party. But when it comes to genuine bigots and religious fanatics—and Hamas has few equals in those categories—liberals have a way of discovering their capacity for cultural nuance and political pragmatism.

From the Jerusalem Post Online
Lebanon breaks Israel’s hummus world record
By ASSOCIATED PRESS
09/05/2010 12:53

Excerpt:

Lebanese cooks have whipped up more than ten metric tons of hummus, breaking a world record previously held by rival Israel on Saturday.

The gigantic serving of the popular Middle Eastern chickpea paste is the latest shot in the two countries’ ongoing war to assert ownership over the dip.

Some 300 Lebanese cooks on Saturday prepared the huge batch of hummus that weighed in at 22,046 pounds (10,452 kilograms), more than doubling the previous record of around 4 metric tons set in January by cooks in Abu Ghosh.