# C[omp]ute

Welcome to my blog, which was once a mailing list of the same name and is still generated by mail. Please reply via the "comment" links.

Always interested in offers/projects/new ideas. Eclectic experience in fields like: numerical computing; Python web; Java enterprise; functional languages; GPGPU; SQL databases; etc. Based in Santiago, Chile; telecommute worldwide. CV; email.

© 2006-2015 Andrew Cooke (site) / post authors (content).

## The Davalos Affair For Idiots

From: andrew cooke <andrew@...>

Date: Sat, 25 Apr 2015 18:55:44 -0300

..

This is a loose translation of

I cannot guarantee the truth of what is written below for two reasons.
First, my Spanish is imperfect.  I am particularly unsure of technical terms
(eg "impuesto de primera categoria").  Second, I don't have the general
knowledge of Chilean politics necessary to check the details given (I am
translating partly to learn about these things myself).  So please use the

* Another Tax Fraud http://acooke.org/cute/AnotherTax0.html
* The SQM Affair For Idiots http://www.acooke.org/cute/TheSQMAffa0.html
* The Penta Affair For Idiots http://acooke.org/cute/ThePentaAf0.html

I generally translate the names of government institutions and common
Chilean details (like boletas), but leave untranslated names of companies
and political parties.

present in the original.

Andrew

Introduction

In the following column I [ie Matias Godoy Mercado] hope to explain and
critically analyse the "NueraGate Affair".  I prefer to call it the "Davalos
Affair".  Others call it the "CAVAL Affair", from the name of the company
involved.  It's just a question of taste.  The last few days [written
2015-02-16] the press have been all over this case.  The government has had to
face this offensive, which has included the resignation of President
Bachelet's son, Sebastian Davalos.

In the first part I will try to explain, simply, the details of the case.
What happened?  To whom?  When?  And, most importantly, how?  Although perhaps
there is not a convincing answer to the final question.

In the second part I will critically analyse the seriousness of the case.  And
yes, it's serious.  Leave the politicking and the politics (which are not the
same) aside, this case is a serious threat to the economy of the country.
Some accuse me of exaggerating.  It's possible they are right, but strong
evidence and (I believe) common sense suggest that it has damaged an important
pillar of the economy: confidence.  I would like you to read in detail how I
think this case damages the country's economy, with the hope that future cases

The Davalos Affair For Idiots

Really, there's not much to explain.  Sebastian Davalos is the oldest son of
President Michelle Bachelet.  A political scientist, he was given the post of
"Director Sociocultural de la Presidencia."  Normally this position is given
to the First Wife.  Sebastian Davalos is married to Natalia Compagnon, also a
political scientist.  Keep Natalia in mind as the column develops.

The story starts here.  Natalia is the owner of the company Exportadora y
Gestion Caval Limitada.  Sebastian Davalos works in that company as Head of
Projects.  This company, despite having few assets, managed to obtain a loan
from the Bank of Chile of 265,980 UF, or approximately $6,500m [USD 10m]. To obtain this credit the company paid for the services of a long serving manager of current accounts of for important people in Chile's history, including Augusto Pinochet Ugarte. With this money the company bought 44 hectares of land in the Machali commune, VI Region. The Deal So far, so good. A credit, buying land. OK. The key is that this week the sale of this land will be closed. Exportadora y Gestion Caval Limitada will sell the 44 hectares en Machali to the developer Ruta 68. This deal will allow Caval Ltda to pay back the loan, which with interest, amounts to$7,000m, giving a profit of $2,500m. So Banco de Chile and Caval Ltda made very good business. Now, how? How can a company with few assets get a loan for$6,500m?  The
Davalos factor.  In some way, this small company managed to get a meeting with
one of the owners of Banco de Chile, Androniko Luksic.  That meeting included,
of course, Sebastian Davalos.  After the meeting, with one of the owners of
the bank, they were told of the approval of a "bullet" loan.  A bullet loan is
one in which the debt is repaid in a single repayment at the end of the
period.  In this case, after 180 days.  Caval Ltda got what it needed for the
perfect deal.

Use of Privileged Information?

The criticism starts here.  Caval Ltda bought land for $6,500m and sold it for$9,500m.  In less than 6 months the land increased in value by over $3,000m. How? It turns out that for several years people have been expecting a change to the planning regulations for the VI region, which would reevaluate much of the area, particularly in the Machali commune, which is considered the upscale area of O'Higgins. One thing is to expect. Another is to know. There are two economic concepts that I'd like to introduce at this point in the column: certainty and the use of privileged information. Individuals take decisions under different levels of uncertainty. If you throw a dice, there's the certainty that you will throw a 1, 2, 3, 4, 5 or 6 with equal probability. Let's suppose that one night Snoopy decides to go to the casino "Peanut's Dreams." Snoopy goes to a table where they're playing dice. Snoopy will win a lot of money if he places a bet on the number rolled. The risk is high, because any number has an equal chance of being chosen. But let's suppose that Snoopy knows that the dice is loaded, in favour of the number he will chose. It lowers the risk, right? The problem now is that to throw the dice he has to gamble, but he doesn't have the resources. No worries - his friend Charlie Brown, is son of the President of the Republic, and is friends with the people at "Peanut's Dreams." So now Snoopy has everything. Thanks to his friend Charlie Brown he can get the money to bet, and he knows that the dice is loaded. A done deal. Snoopy is Natalia Compagnon and Charlie Brown is Sebastian Davalos (to be completely clear). In many countries, to bet when you know the winner with certainty, is a crime. In Chile the punishment is a fine. In the US the law is more severe - you can be jailed. To bet on a winner with certainty is called "use of privileged information." The person who leaked the information and the person who uses it for personal or third party gain can both be prosecuted. In this particular case it has not (yet) been proved that privileged information was used. But attention is focused on the relationship between Natalia and the eldest son of the President of the Republic, with all that implies about access to information. Common sense says that no-one asks for a load of$6,500m to gamble.  More than
that, common sense says that a profit of $2,500m is not just luck. Common sense says that that there was access to privileged information, given the high political position of Davalos. Common sense says that Luksic would not have approved such a large loan for a simple bet. The Principle Of Equality Why is the use of privileged information a crime? There are people that excuse it. There are even people that say it shouldn't be a crime. Important considerations, but the evidence is clear: it is a crime. But why? It's believed that the use of privileged information works against the equality of market participants. I agree. There is an inequality. There are people that know more and benefit. Those that don't know, don't benefit, or arrive too late for the benefit. It's not fair. It leads to the idea of an injustice. But more than the moral argument, there are economic arguments, too. A market where only some gain (generally a minority) and the rest lose (generally a majority) - what is the point of investing? Imagine a casino. A few win and everyone else loses. The ones that win, win big. Why would you continue going? Because you hoe to win one day, because you have the hope that one day it will be you. But what happens if it's always the same people that win? Would you still go? You can apply this to the economy. A market where only a few win, and many lose, is not an attractive market. This motivates social unrest against institutions, against the bank, against the economic system in general. This discourages investment (particularly foreign investment) and reduces job creation. In the end it's not just that people lose because they don't win, but also they don't have the money to return to the table. Access To The Bank When you ask for a loan the banks evaluate your risk and solvency. Both variables help assess you risk of default. Generally, they look at your assets, or the assets of a cosigner. Many good business ideas - innovative, profitable - fail to get financed because they have no assets. So how did Caval Ltda get a loan of$6,500m?  The certainty.  In this case the risk of
default dropped significantly with the presence of Sebastian Davalos.  Not in
terms of assets, but in in terms of the economic, financial and accounting
information that he provided in his meeting with Mr Luksic.  It's not chance
that, after that meeting, the credit was approved.

Unfortunately, not all Chileans have the same luck.  Companies with similar
assets to Caval Ltda, or more, can't find loans from the banks.  A "bullet"
loan to a PYME [small or medium business]?  Dream on.  This isn't a crime, but
it feeds the point mentioned earlier: inequality.

Economic Growth?

One final point.  Here there was a transfer of land.  Was there any creation
of jobs?  No.  Was there increased production?  No.  The only positive
economic effect of this operation is the spending on goods and services that
the Davalos Compagnon family can make with the profits, or the tax that
government can claim from deal [technical details I do not understand about
exactly what that tax is].  The rest is smoke.  No salaries were raised, no
production was increased.  This is called "false luxury."  It's not a
criticism, but something to bear in mind.  A simple transfer of money.
Because what the family Davalos gained was paid for by Ruta 68.  Maybe the
shareholders of Banco de Chile gained something.

Conclusions

This part is typically where I am most angry.  Here I will summarise and throw
to the bank, and no economic growth.  A crime and three disincentives for the

Talking of which, my postgraduate thesis was on this: "The Use Of Privileged
Information In The Chilean Stock Market."  I analysed more than 400 price
changes.  En a little less than 25% of the cases there was statistical
evidence of the use of privileged information.  What signs?  Unusually large
profits.  Like this, like the profits of the Davalos Compagnon family.  The
family of the son of President Bachelet, or the daughter in law, if you prefer
that link.  This means that the use of privileged information is common.  This
is surely because of the flexibility of the law.  The fines that have been
charged were not sufficiently exemplary, to the point that the son of the
current President is possibly involved in such things.  Incredible.

The economic harm is regrettable.  The sensation of unfairness, the growth of
inequality, the unequal access to the bank, the lack of any economic growth
from the action, are all consequences of this type of conduct.  Inequality is
a brake on economic growth.  Evidence shows this.  Countries that are more
transparent, that are more harsh in punishing these actions, encourage
confidence and the growth of their economies.  More jobs, higher production,
better education, etc.

To end.  A call to the authorities.  The Ministry of the Interior and Public
Security, Rodrigo Penailillo, indicated that the case was closed with the
resignation of Davalos.  A sign of immunity.  President Bachelet has
repeatedly talked about the fight against in equality, identifying as a focal
point the Chilean education system.  Yet the action of her own family, in this
case, doesn't only illustrate the inequality that exists in Chile, but also
obtains huge benefits from it.  The end of inequality begins at home.  If not,
where?

## Previous Entries

### Not The Onion: Google Fireside Chat w Kissinger

From: andrew cooke <andrew@...>

Date: Fri, 24 Apr 2015 17:17:15 -0300

https://www.youtube.com/watch?v=wooGL__-OvA

> In recent years, many of us have gone from reading books to quickly
> digesting lots of information online through short headlines. But when you
> learn things in fragments, you lose nuance and context

...like chatting with war criminals?

Ewww.

Andrew

### Bicycle Wheels, Inertia, and Energy

From: andrew cooke <andrew@...>

Date: Sun, 19 Apr 2015 17:44:45 -0300

Introduction

It's common to hear that larger bicycle wheels accelerate more slowly because they have a larger moment of inertia. But a thread on Reddit raised interesting questions that pushed me to think more carefully about the physics involved.

Physical Model

First, we need a model for a wheel. I will ignore the hub, and consider just two components - spokes and "rim and tyre together" (for simplicity I'll sometimes refer to the latter as just "rim" below, but the tyre is obviously important too).

(I'm excluding disks because I am not sure how they are made. I may return to them later).

I'm assuming that spokes are of length $$r$$, while the rim and tyre are of length $$2\pi r$$. That is an approximation - the spokes are shorter, and the rim is slightly shorter than the tyre, and of finite depth. But it's likely good enough.

Masses and Moments of Inertia

To get masses I'll use linear density for all the spokes (summed). In other words, $$M_S = r \, \rho_S$$. Similarly, for the rim, $$M_R = 2 \pi \, r \, \rho_R$$. So the total mass $$M = r \, (2 \pi \rho_R + \rho_S)$$

The moment of inertia of the rim, $$I_R$$, about the axle is simple, just $$M_R r^2$$ or $$2 \pi r^3 \rho_R$$.

The moment of inertia of the spokes is a little more complex because they are not a disk (the effective density decreases with radius). So let's go back to basics:

$I_S = \int_0^r x^2 \rho_S \, dx = r^3 \rho_S \, / \, 3$

So the total moment of inertia of the wheel is $$I = r^3 (2 \pi \rho_R + \rho_S / 3)$$.

Energy

To accelerate a bicycle to velocity $$v$$ we need to expend energy in both accelerating the centre of mass and in rotating the wheel. When the bike is moving with velocity $$v$$ the wheel rotates with angular velocity $$\dot\theta = v / r$$. The total energy required is

$E = \frac{1}{2} (M v^2 + I \dot{\theta}^2) = \frac{1}{2} v^2 \left[r (2 \pi \rho_R + \rho_S) + r (2 \pi \rho_R + \rho_S/3)\right] = 2\,rv^2(\pi \rho_R + \rho_S / 3)$

It's interesting to express this as a ratio relative to the energy from the centre of mass alone. This gives the factor of "extra work" because the wheel rotates:

$X = \frac{2\,rv^2(\pi \rho_R + \rho_S / 3)}{rv^2 \, (2 \pi \rho_R + \rho_S) / 2} = \frac{4\pi \rho_R + 4\rho_S / 3}{2 \pi \rho_R + \rho_S}$

Discussion

First, pretty clearly, $$X>1$$. In other words, as is commonly known, rotating mass hurts. It's close to twice as "bad" in terms of the total energy required to reach a particular speed.

Second, $$E$$ increases with $$r$$. That means that larger wheels mean you need to do more work. But how much more?

There are two ways to look at this. One way is to note that because $$X > 1$$, a larger wheel is worse than you would expect from the weight alone. The "effective mass" is almost twice as bad. But the other way is to note that, perhaps counter-intuitively, that relationship is only linear. You might expect increasing wheel size to hit you "quadratically" - more than you'd expect from the effective mass alone. But it doesn't. And one way to explain this is given in the Reddit thread I linked to earlier - for a given speed over the ground, a larger wheel rotates more slowly.

Andrew

### Another Tax Fraud

From: andrew cooke <andrew@...>

Date: Sun, 19 Apr 2015 15:52:51 -0300

..

This is a loose translation of an article in La Tercera, 2015-04-19.
The online version can be seen at

This translation is unofficial, amateur, and made mainly to help improve my
Spanish.  Please do not rely on this for any important detail.

Andrew

The Sophisticated $8,000m (US$13m) Tax Fraud

* The accused used a complex network of companies to avoid paying taxes for 6
years.

* Fraudulent tax invoices were exchanged between companies.

By Felipe Diaz and Victor Rivera [original byline]

At the end of Q3 2014, before false tax invoicing was a common topic of
conversation, the Tax Office (SII) detected a series of irregular returns from
a group of investors who planned to defraud the State of $8,638,098,553 between 2005 and 2011. So started an investigation of one of the country's largest tax evasions, both by total amount and number of people involved. On October 21 2014 the SII lodged a complaint with an investigating Judge [7th Juzgada de Garantia de Santiago] against 5 people for tax evasion [delito tributario sancionado en el articulo 97 no 4] - the submission of maliciously incomplete and incorrect tax declarations. According to the SII investigation the accused had "created fictitious companies whose only function was to increase IVA [VAT / Purchase Tax] credited to other companies owned by the same group, decreasing the taxable income declared to the authorities" [I'm unsure on the exact details]. Evidence was provided to the Public Prosecutor [Fiscalia Centro Norte] and Police (Financial Crimes Division) [Brigada Investigadora de Delitos Economicos Metropolitana (Bridec) de la PDI]. Modus Operandi According to the investigation, the first network of companies was constructed between 2005 and 2008 by the accused Luis Mardones Sanches, together with Fernando Nanjari Alvarez, acting as legal advisor, and Fernando Kiblisky Budnik, as financier. They created 6 companies (staffing agencies): Servicios de Personal Urbe DA; Servicios Integrales de Personal SA; Productora Nacional de Servicios SA; Gamma Servicios de Personal SA; Global Work SA; and Delta SA. The aim, according to the complaint, was to "provide false invoices to companies Delta SA and, finally, Cicorp SA (administered by the accused Miguel Sepulveda Eljatib and his legal representative (and company lawyer) Mario Cartes Eljatib)." Similarly, "Cicorp SA, in turn, provided false invoices to Telecommunicaciones Siglo XXI SA, Intercity Service, Nuble Ingenieria SA, Constructora Perez y Gomez SA, who all charged for supposed computational services, for plans and three dimensional models. These companies were controlled by the accused Miguel Sepulveda Eljatib and Mario Cartes Eljatib." During that period, according to SII estimates, the fraud amounted to$5,675,257,345.

Between 2009 and 2011 the formula was repeated.  Some companies were
continued, and Bristol SA, Agency SA, and Laborum SA were added, as staffing
agencies, providing services to Delta SA and Milenium SA, which in turn
invoiced for non-existent services to Efco Servicios Generales SA.  The amount
involved over this period comes to \$2,962,941,208.

The complaint ends with "all the details above, taken together, show
irregularities involving all the companies, with the aim of avoiding tax on
sales and services, using false invoices on non-existent commercial
operations [again, not sure I have this exact]."

Response

La Tercera tried to locate all the involved, succeeding only in contacting the
lawyer of Cicorp SA, Mario Cartes.

Via email he said that "I am not the legal representative, nor a member or an
investor, in any of the companies mentioned in the complaint.  I also have no
relationship with the other people listed, except Miguel Sepulveda, who is a
relation, and I have been lawyer for him personally, and for his company,
Cicorp SA."  He added that "with respect to the objections made against
providers to Cicorp SA, I have cooperated completely since 2009, when I
delivered to the SII all the accounting and tax details they requested, and so
I expect that when the investigation is complete the situation will be
clarified."

From: andrew cooke <andrew@...>

Date: Sun, 19 Apr 2015 14:02:36 -0300

A paper I should read some time

Andrew

### Spanish Accents For Idiots

From: andrew cooke <andrew@...>

Date: Thu, 16 Apr 2015 08:18:30 -0300

My homework.

http://acooke.org/accents.html

Andrew

PS I am taking spanish lessons from a phonologist (wife of a friend) and it's
really helping.

### Aluminium Cans

From: andrew cooke <andrew@...>

Date: Wed, 15 Apr 2015 20:35:08 -0300

https://www.youtube.com/watch?v=hUhisi2FBuw

How the pull-tab works, at the end, is particularly interesting.

Andrew

From: andrew cooke <andrew@...>

Date: Wed, 15 Apr 2015 18:14:50 -0300

http://www.reddit.com/r/DIY/comments/32ouoq/why_cant_i_spray_paint_anything_and_have_it_look/

Andrew

### Female View of Online Chat From a Male

From: andrew cooke <andrew@...>

Date: Tue, 14 Apr 2015 13:28:40 -0300

https://np.reddit.com/r/truecreepyPMs/comments/3298o8/this_is_a_post_that_some_of_you_are_asking_me/

ANdrew

From: andrew cooke <andrew@...>

Date: Mon, 13 Apr 2015 06:35:19 -0300

No idea how complete it is, but a couple of interesting looking titles I would
like to read at some point.

Andrew

### S4 Subgroups - Geometric Interpretation

From: andrew cooke <andrew@...>

Date: Sun, 12 Apr 2015 20:48:24 -0300

Interesting discussion / example -

Andrew

### Fucking Email

From: andrew cooke <andrew@...>

Date: Sat, 11 Apr 2015 19:37:44 -0300

I spent a day translating an article on SQM from Spanish to English.  The
email contained, as an aid to formatting, a line with a single dot, at the
start.

People as old as me may remember that a single dot is also how you terminate a
message using the primordial Unix mail command.  And it seems that somewhere,
in the layers of abstraction that current email is built from, that is still
interpreted as the end of the message.

Andrew