Belligerati

« September 2008 | Main | November 2008 »

October 31, 2008

It is astonishing how much repitition they use

Posted by OneEyedMan at 11:33 AM | Comments (0)

October 30, 2008

Which is more fair

It seems women pay more for private health care:
[W]omen pay much more than men of the same age for individual policies providing identical coverage, according to new data from insurance companies and online brokers.
Women Buying Health Policies Pay a Penalty

The argument against:

We should not tolerate women having to pay more for health insurance, just as we do not tolerate the practice of using race as a factor in setting rates.

The argument for:

Insurers say they have a sound reason for charging different premiums: Women ages 19 to 55 tend to cost more than men because they typically use more health care, especially in the childbearing years
...
In general, insurers say, they charge women more than men of the same age because claims experience shows that women use more health care services. They are more likely to visit doctors, to get regular checkups, to take prescription medications and to have certain chronic illnesses.
...
Thomas T. Noland Jr., a senior vice president of Humana, said: "Premiums for our individual health insurance plans reflect claims experience — the use of medical services — which varies by gender and age. Females use more medical services than males, and this difference is most pronounced in young adults."
...
"Many state insurance laws require insurance policies to cover complications of pregnancy, even if they do not cover maternity care," Ms. Leif said. Insurers say those complications generate significant costs.

I think the analogy between gender and race here is misleading. It is true that in many situations involving rights we reject attempts to make distinctions between the sexes just as we we do between races. However, there is an essential and irreducible difference in the physiology of the sexes that does not exist between races. Ignoring a statistically irrelevant number of people with chromosomal anomalies and hermaphrodites, there are sharp genetic and physical differences between men and women where race appears to have little genetic basis to speak of excepting a few cosmetic genes. Even so, the darkest Caucasians are darker than the lightest Africans.

Those opposing this should be careful what they wish for. It is true that there are some women who are uninsured today but would purchase insurance if they could pay the average rate that would result if all men and women paid the same rate. Notice though, that by that same argument some men would be paying more than their insurance was worth to them and would drop their insurance. And because they are likely to be near the indifference point anyway, they are likely to be younger and healthier men with no family history of chronic disease. So the pool would have relatively more women than before (who we know are more expensive) and contain relatively fewer healthy men who are very cheap. That could easily make a unisex pool of people more expensive to insure than the total of the two pools separated by gender. That would mean raising rates even more, and more healthy people leaving the pool.

I've said this before in advocating that genetic tests be used to determine insurance rates, but it bears repeating. Using good scientific and actuarial data to price insurance would allow us charge more accurately (closer to the cost of provision) for insurance. This would lower the price of medical insurance for the vast majority, even those of use with minor genetic problems. Lower insurance prices would encourage many people to buy their own insurance. If we want to insure care for those with a rotten spell of genetic luck we could then provide just that select group with insurance. The current system, where we try to lump everyone in huge groups and ignore the actual causes of medical billing is insane.

PS
One woman makes the point that the expected expenses of her uninsured neonatal care has kept her from having children. She has insurance but it doesn't cover that. That is how it should be. Insurance should be used to insure. That is, to protect against unforeseen But for this woman being pregnant is a choice, and lumping in medical care by choice with medical insurance just makes insurance more expensive for those not choosing to consume more and a smaller fraction of insured people.

Posted by OneEyedMan at 10:28 PM | Comments (0)

With some surprise The Economist endorses Obama

In contrast with the NY Times endorsement of Obama, The Economist's endorsement has gone back and forth between the political parties. Going backward, they endorsed Kerry, Bush, Dole, Clinton, no one, no one, and Reagan. It seems that they don't care for two term presidencies. If newspaper endorsements serve much of an informational purpose then this sort is valuable. Willing to choose among all the candidates and willing to say a pox on both your houses.

I may weigh the decisive factors differently. I may wonder if The Economist is slipping away from its free trade mild libertarian roots into the full-blown soft-socialism of the modern western intellectual. Nevertheless, they say interesting and thoughtful things often enough to make me interested in hearing what they have to say. And isn't that all one can ask for in a newspaper?

Posted by OneEyedMan at 8:29 AM | Comments (0)

October 29, 2008

What book should shall I write? vs. Which book shall I write?

Mr. Bloch, professor of mathematics at Wheaton College, has woven an elegant, ingenious, scholarly interpretation of Borges's text that contradicts the disingenuous "unimaginable" of his title. In 1967, Borges told the French critic Georges Charbonnier that he had kept two ideas in mind when writing "The Library of Babel." The first was a commonplace, an exposition of the combinatory art that has enthralled mathematicians from Archimedes onward, and a conceit amusingly described by Lewis Carroll in "Sylvie and Bruno": that since the number of words in any given language is finite, their possible combinations -- i.e., books — are finite also, and that therefore, in the near future, writers will no longer ask, "What book shall I write?" but, "Which book shall I write?"

A Universe of Books: Borges's 'Library of Babel'

What an amazing idea, Gödel's incompleteness theorem meets book writing. It suggests that the only way to write a book that no one else could have written is to include within it a word that no one else could have coined. Many of our greatest authors have also been generous contributors to the lexicon and perhaps this is why.

This article was from the now defunct NY Sun, and it saddens me that this is likely the last of their interesting articles I'll enjoy.

Posted by OneEyedMan at 7:56 AM | Comments (1)

Both parties are firmly tied to anti-intellectualism

Anne Applebaum is a friend's favorite Op-Ed writer and he sent me a recent piece, Why I Can't Vote for John McCain: I admire the man, but his party has been taken over by anti-intellectual extremists.
Which he described as "[N]ot great, but a fair assessment."

To which I reply:

I certainly see the Republicans as having their share of problems. However, the Democrats too have their share of policies that our at odds with intellectual thinking and the scientific method.

However, isn't the rejection of free trade by the majority of the Democratic party a sign that they don't care much for science either?
To name a few more, how about Democratic opposition to nuclear power when the coal plants we do operate pump massive amounts of radioactive material into the atmosphere?
Is the position of so many Democrats on gun control willful ignorance of the law of supply and demand? Criminals have high demand with respect to legal punishment and law-abiding folk have low demand. Indeed it may be upward sloping, yet somehow they say we are going to guns out of the hands of the former by licensing and restricting the later.
Which party leads opposition against incentive pay for public school teachers? Is that willful ignorance of the economic of the principle agent problem?
The Democrats insist on keeping our corporate income tax among the highest in the world in ignorance of our most basic distinctions between the incidence of a tax and the point at which it is collected.

I say you should vote for the candidate who's policy positions are closest to your own, however that position was arrived upon. Sure, you can't guarantee that they'll vote the way they say they will, but this is the most reliable way to minimize voter's remorse.

Posted by OneEyedMan at 7:47 AM | Comments (0)

October 28, 2008

If more people felt this way, we wouldn't be in this mess

She always tells me, Mommy, when we can have our own place? I tell her, look, I don’t have any education and I don’t have very good job to have my own place. It’s better you try to go to college and get a better education and try to have better job than I do and then you can have your own place. That’s all I can tell her.”

After the House Is Gone

This quote lays bare a truth at the heart of the mortgage mess, that poor people with little prospect for income growth usually cannot afford to own their own home. That the credit markets were such that they were permitted to do so for a short while is a significant reason we are in this mess. Surely it was good for some, who bought modest homes at reasonable prices they could afford. They received a great boon, and weighed against the distortions in the economy from too much effort spent on housing and the terrible damage it did to the banking industry, it was a bad deal.

Another interesting phenomena in the same article manifests in another family.

Last month, Mrs. DeCicco, 32, was laid off from her $35,000-a-year job managing a hotel business center in Orlando, and the family moved north where Mr. DeCicco, 28, a security guard supervisor for SecurAmerica, could earn $13 an hour instead of $10. The bank that had financed their $85,000 house in 2004, and refinanced it for another $65,000 two years ago, told them that it would not even consider allowing them to sell it for less than its value, Mrs. DeCicco said, until they began missing payments. So the couple abandoned the house last month, and are now two months in arrears.

Say she kept her job. That's a family income of $55,000. They borrowed $150,000 against they value of their home, presumably it was worth at least that. This is actually a reasonable burden for loan servicing. Many people can afford 3-4 times their income in home if they get the right financing. However, it seems that they didn't set anything aside for a rainy day. I know that's difficult on a tight budget, but surely they could have found a few dollars. In fact:

Mr. DeCicco’s income and his wife’s unemployment checks barely cover basic living expenses, she said, but the couple is still paying $200 a month for a storage unit in Wappingers Falls, where they keep most of their possessions. These include a four-piece marble and mahogany bedroom set for which they paid $8,000 after they refinanced their house two years ago. Mrs. DeCicco recently posted an ad at craigslist.org offering the set to any landlord who would accept it in lieu of a security deposit and first month’s rent. So far, no one has expressed interest.

They probably could have had an IKEA set for $1,000, and with the $7,000 in savings they had they could have afforded the down payment on a rental apartment or perhaps staved off default for a year while she looked for a new job. A major lesson here is that when you are house poor (too much house for your total net worth) you are very sensitive to movements in housing prices. Before you buy expensive contents for your home, make sure that you have enough savings to allow you a thorough job search. Given how exhausting and time consuming a job search is, the last thing you want is to have to look for a new home at the same time. Especially when your credit is shot because they foreclosed on your old home .

Posted by OneEyedMan at 5:29 PM | Comments (0)

Unintended consequences

Many have remarked that the ancient American cars still on the roads of Cuba is a testament to the powers of human ingenuity and the inability of communism to deliver automobiles to the people. With that firmly in mind, I draw your attention to the new fuel efficiency rules for taxis in NYC. The rules require that "new black cars that enter service beginning Jan. 1 must carry a fuel economy rating of at least 25 miles a gallon in the Environmental Protection Agency’s city test cycle; the requirement steps up to 30 m.p.g. a year later. A 25-m.p.g. rule took effect for New York’s 13,000 yellow taxis in October." Unfortunately, there are no cars that fit the bill.

There’s only one problem: no new full-size sedan comes close to 25 m.p.g., let alone 30 m.p.g., in city driving. The Lexus LS 600h L, the only large hybrid luxury sedan, is rated at just 20 m.p.g. in the city. It costs more than $100,000, a price that makes it a non-starter for independent drivers who are used to paying $15,000 to $25,000 for a used Town Car or $40,000 for a new one.

And then we learn that these old cars (grandfathered into continued service) can me made to last:
With a basic design that dates to the ’70s, the Lincoln Town Car is built on a heavy steel frame, akin to old-school S.U.V.’s -- one reason for its city fuel economy rating of 16 m.p.g. But the things that make Lincoln a dinosaur also make it a favorite of drivers and fleet operators: the Town Car is a simple, spacious and durable tank that’s inexpensive to buy and repair. Drivers say they routinely put 250,000 miles or more on a Town Car in brutal city driving before having to rebuild its V-8 engine or its transmission.

"You can buy a Town Car even with 100,000 miles on it and it will run forever if you do the maintenance," said Salah Eldamarany, a driver with Legends Limo and Car Service in Brooklyn.

Black-car drivers say that while some customers are supportive of hybrids and would sacrifice some room or amenities to ride in one, others would not be satisfied if a Town Car stand-in was not as luxurious and roomy.

So you'd expect that people would hold onto the old cars as long as they could, maintaining them like the Cuban cars until held together by the rust and paint. The government noticed that this would be a problem.

For operators who are not ready to get rid of their Lincolns, the city plan includes a phase-in retirement period. Essentially, six-year-old Town Cars will be steadily removed from service, with virtually the entire fleet converted to the 30-m.p.g. standard after 2013. Operators who license a new 2009 Town Car before Jan. 1 will be able to operate it the longest, for five years, before it is forced to retire. Several drivers said that they and colleagues are rushing to buy Town Cars before the January deadline to delay the switch as long as possible.

With gas prices having fallen to a recent lows, I bet this last mandate will have the real bite, where mostly it is those owners that have to replace their cars complying with the new rules. But I also expect real pressure from the many taxi and limo drivers to repeal this rule (or allow old cars to continue service) once the smaller operations are forced to buy the less luxurious and more expensive cars with higher maintenance costs.

I guess a few years time may allow more hybrid choices, including in the town car, so technology may provide an out. Another possibility is a partial engine idling system:

Buying a vehicle that is powerful enough to handle the most severe loads imposes the full-time penalty of a big, thirsty engine.

That inefficiency may be relieved somewhat by the emergence of technology that enables engines to shut down some cylinders when the power demand is minimal, reforming a gluttonous V-8 into a thriftier, part-time 4-cylinder. This development, effectively adapting engine size to suit the task, continues a trend toward variable engine controls already under way.

Systems to adjust the engine size -- or more precisely, the number of cylinders in use -- will appear this year on models from three automakers, all incorporating mechanisms to idle half the engine's cylinders by shutting off the fuel injection, the sparkplugs and the valves for intake and exhaust.

General Motors calls its system Displacement on Demand, DaimlerChrysler's name is Multi-Displacement System and Honda's label is Variable Cylinder Management.

Cylinder deactivation is an effective way to reduce fuel consumption because only a small fraction of a vehicle's maximum horsepower -- typically less than 30 for today's aerodynamic cars -- is needed to maintain highway cruising speeds.

ldilocks V-8's, Always Just Right
If half the engine means twice the fuel efficiency (that would seem the upper bound) then this would get them the efficiency they need since the town cars are rated at 17 / 25 mpg. However, given that the only large hybrid luxury sedan is rated at just 20 / 22 mpg, I wonder how much can be squeezed out there by idling.

Source:
Fuel-Efficient Black Cars: A Taximoron?

Posted by OneEyedMan at 7:52 AM | Comments (0)

This could be a real force for good in the world

Google Inc., Yahoo Inc. and Microsoft Corp. will announce Tuesday that they have agreed to a common set of principles for how to do business in nations that restrict free speech and expression, as the companies seek to combat criticism that they have helped enable censorship in those countries.

Under the new principles, which were crafted over two years, the technology titans promise to protect the personal information of their users wherever they do business and to "narrowly interpret and implement government demands that compromise privacy," according to the code. They also commit to scrutinizing a country's track record of jeopardizing personal information and freedom of expression before launching new businesses in a country and to discussing the risks widely with their executives and board members.

The document -- introduced under an entity known as the Global Network Initiative -- was crafted by a group of participants including human rights groups like Human Rights First and Committee to Protect Journalists. Nonprofits the Center for Democracy and Technology and Business for Social Responsibility also participated. The companies agreed to have their compliance with the new principles monitored by independent experts.

Google, Yahoo, Microsoft Set Common Voice Abroad Principles Aim to Define Conduct With Nations That Restrict Speech, Lack Privacy Protections and Censor Search Results

I doubt that this will influence compliance in China, where there is simply too much money on the line and the country is simply too strong to have to put up with any nonsense from foreign corporations. However, I could see this working with smaller and less powerful countries, and that certainly would be an improvement. But I wonder if this will only apply to tin-pot dictatorships or these companies will have the courage to stand up to anti-free speech issues in Europ and campaign finance issues in the US. I'd like to think so but I doubt it.

Posted by OneEyedMan at 7:46 AM | Comments (0)

What's he doing?

"There really is nothing more a central bank can do for domestic economic stability than make sure that inflation remains low and stable over long periods." Ben Bernanke
Central Bankers and History

The temptation to just do something about a problem is really a terrible one. Between the ignorance of the public, fear by officials of blame by the public and pillory by history, and experts desire to show their brilliance and relevance, we have a systematic bias of overreacting to bad news with terror driven action. But we know that such fear happens, so government in stable times should do more to limit our power to act impulsively in time of panic.

Posted by OneEyedMan at 7:08 AM | Comments (0)

October 24, 2008

Without Surprise the NY Times endorses Obama

I wonder if McCain got even a single vote on the editorial board.

The NY Times has a cool info-graphic showing who they nominated and who won each presidential election where they endorsed someone:
New York Times Endorsements Through the Ages

The point of endorsement is to show you that the opinion of a thoughtful, open minded journalist is worth listening to. If their opinion doesn't change then presumably it isn't informative. To that end, I found it amusing that the last time the New York Times endorsed a Republican presidential candidate over the Democrat the year was 1956 and the candidate was Eisenhower.

They've endorsed the non-Democratic candidate 13 times of the 38 elections they've had an published endorsement. Interestingly, their endorsed candidate has won 22 of the 37 completed elections they've opined upon. I know the point of endorsing is to help pick the winner, not predict it, but their recent disgust with the Republicans has made the last 50 years unkind to them, picking the winner in just 5 of the last 12 elections.

Posted by OneEyedMan at 11:36 AM | Comments (0)

October 23, 2008

That's what they say now

Amid growing challenges to its role as the pre-eminent force in college admissions, the College Board on Wednesday unveiled a new test that it said would help prepare eighth graders for rigorous high school courses and college.

The test, which will be available to schools next fall, is intended only for assessment and instructional purposes and has nothing to do with college admissions, College Board officials said.

The new test, called ReadiStep, can be completed within two hours and is divided into three multiple-choice sections of critical reading, writing skills and mathematics.

It will cost less than $10 per student, College Board officials said, and schools and districts will pay for it. College Board officials described the test as voluntary and “low-stakes,” and said the results would be shared only with teachers, parents, students and schools.

College Board Will Offer a New Test Next Fall

If the test is a usual measure of academic progress and aptitude, and it catches on, I seriously doubt exam results will remain private. Expect school districts to want to see it, private schools to use it for admissions, and competitive summer programs to select on it.

Posted by OneEyedMan at 1:56 PM | Comments (0)

October 22, 2008

In case you were ever wondering

Today I had to convert a SAS data file (formatted in sas7bdat) into a CSV format. For a bunch of annoying reasons I couldn't get the data into a computer with SAS to export it into a text format so I could work with it in my favorite applications. To make it worse, my work computer is a linux machine.

I found a usable solution. On a tip from devshed.com I installed the SAS viewer for windows using Wine. I had to choose the older version ( SAS System Viewer Release 8.2.1) because the newest version used the the .net framework. It installed and ran without a hitch.

Just open the file using File-Open. Then choose File-Save As Text and choose your favorite text format. That's it. All and all pretty easy and everything worked the first time.

Posted by OneEyedMan at 4:29 PM | Comments (0)

Saigon Grill to close?

It seems that those strikers outside the Siagon Grill have won. The NY Times is reporting that Saigon Grill Must Pay $4.6 Million to Workers. A NY Post article on the same topic reports that "The court papers say that some of the workers did collect $3,500 to $4,000 a month in tips."

California (I guess like NY) is a state where the minimum wage does not include any tips as part of the job. Which actually means that the minimum wage in waiting and delivery is actually much higher than the minimum wage. Seems like there is a great natural experiment in there if you could get the tipping data. Unfortunately, tax fraud by those in the cash economy makes that difficult.

Saigon Grill is a pair of restaurants with tasty food that always seems to be able to accommodate a group at reasonable prices. They are both seem pretty successful in that they attract crowds and everyone seems to have eaten there. But $4.6 million is an awful lot.

I wanted to do a back of the envelope calculatin to see if they could possibly have the sort of profits to pay. The average restaurant profit margin is about 4%. Let's say we double that because many restaurants are unprofitable. The average bill there has to be about $20, but call it $15 over their 17 years of business. To make $4.6 million to repay the legal fees would be $4,600,000 / ($150 per meal * .08) =3,833,333 meals. They've been open since 1992. Let's assume they've been uniformly successful and they opened on January 1st and that we are at the end of 2008.
That makes for about 225,000 meals a year or since they are open seven days a week, 617 meals a day. My understanding is that this a reasonable number of covers for one large, busy restaurant, so for two such restaurants it is easy. It would seem they could afford the suit, they probably have learned twice as much. Of course, if they are only of average profitability then this seems close to the total profits they every made.

Posted by OneEyedMan at 7:06 AM | Comments (0)

October 21, 2008

Could Dick Cheney have been right?

Serious people have mocked V.P. Cheney for asserting that the VP is part of the legislative branch and not the executive branch. I'm no lawyer and certainly it could be so ridiculous that it is deserving of ridicule. It certainly doesn't seem to make a sense. After all, if the president is the head of the executive branch, how could the VP be part of the legislative branch.

Not so fast it seems. Arthur Schlesinger, Jr., a liberal (part of the JFK administration) historian wrote an essay (Is the Vice Presidency Necessary?) which among many points about the vice presidency argued that for many years it essentially was part of the legislative branch. Here is the relevant excerpt.

But cannot Presidents give the Vice President serious work to do? Until rather recently they thought themselves constitutionally forbidden to do so. Most Presidents and most Vice Presidents have believed with Truman (in 1955) that the Vice President "is not an officer of the executive branch" and with Eisenhower (in 1963) that the Vice President "is not legally a part of the Executive branch and is not subject to direction by the President."

The notion of having the Vice President at Cabinet meetings, for example, is relatively new. In 1896 Theodore Roosevelt wrote that it would be desirable "to increase the power of the Vice-President . . . . It would be very well if he were given a seat in the Cabinet." But, when he became President himself after a brief interlude as Vice President, he did not give his own Vice President, Charles W. Fairbanks, a seat in the Cabinet or anywhere else. Vice President Thomas R. Marshall presided at Cabinet meetings when Wilson was at Versailles. But, since he regarded himself as a "member of the legislative branch," he questioned the propriety of doing so and carefully explained to the Cabinet that he was acting "in obedience to a request" and "in an unofficial and informal way." Harding was the first President to make his Vice President, Calvin Coolidge, a regular at Cabinet meetings. Coolidge expected his own Vice President to follow this example; but Charles G. Dawes rejected any such entanglement with the executive as a "wrong principle" and in due course supported from his office on Capitol Hill farm legislation that his President opposed and eventually vetoed. Franklin D. Roosevelt, who from the time of his own vice presidential candidacy in 1920 had cherished the hope of making something of the office, re-established the idea of attendance at Cabinet meetings, and it became routine thereafter. Truman got Congress in 1949 to make the Vice President a member of the National Security Council by statute. But Vice Presidents continued to operate out of an office at the Hill. It was not till Kennedy became President that a Vice President was given space in the Executive Office Building.

Posted by OneEyedMan at 4:23 PM | Comments (3)

Life finds a way

I was amazed to learn that an odd sort cancer is killing off the Tasmanian devils. Unlike say stomach cancer which can be caused by the bacteria helicobacter pylori or mononucleosis with Hodgkin lymphoma, this is an actual infectious cancer where the cells spread to other devils. This is more like an infectious version of the hardy cervical cancer of Henrietta Lacks, whose cells have lasted more than a half-century beyond her death.

I wonder if these cells will mutate into something less dangerous and more infectious before the devils go extinct. On another note, how did they get this cartoon

from this animal?

Posted by OneEyedMan at 8:09 AM | Comments (0)

Stock buy-backs do the same thing

ON Oct. 13, the chief executives of nine large American banks were called to a meeting at the Treasury Department. At the meeting, Secretary Henry Paulson offered them $125 billion from the federal government in exchange for shares of preferred stock. The chief executives accepted his terms.... the agreement allowed the banks to continue paying dividends to common shareholders.

Although there are many things to like about the government’s plan, the failure to suspend dividends is not one of them. These dividends, if they are paid at current levels, will redirect more than $25 billion of the $125 billion to shareholders in the next year alone. Taxpayers have been told that their money is required because of an urgent need to rebuild bank capital, yet a significant fraction of this money will wind up in shareholders’ pockets -- and thus be unavailable to plug the large capital hole on the banks’ balance sheets.

Moreover, given their own equity stakes, the officers and directors of the nine banks will be among the leading beneficiaries of the dividend payout. We estimate that their personal take of the dividends will amount to approximately $250 million in the first year.

Bank executives may argue that it is necessary for them to maintain dividend payments to support their stock prices and to make further capital-raising possible. This argument is dubious. In recent years, the fraction of American public companies that pay dividends has fallen drastically, to a level of around 20 percent. The ranks of the companies that do not pay dividends include some of the most profitable and (until recently) best-performing market darlings, like Google.

These companies have come to recognize what finance academics have been preaching for decades: for financially healthy firms, there is no particular imperative to pay dividends every quarter, because retained cash can always be paid out to shareholders later, or used to repurchase stock.

So why would the banks want to maintain large dividend payouts when they’ve had such a hard time borrowing, are starved of cash, and the credit markets believe that they run a significant risk of defaulting? Shouldn’t these distressed banks be marshalling all of the financial resources available to them to ensure their viability?

....
Each dollar paid out as a dividend today is a dollar that cannot be seized by creditors in the event of bankruptcy. For a distressed company, dividends are not in the interest of the enterprise as a whole (shareholders and lenders taken together), but only in the interest of shareholders. They are an attempt by shareholders to beat creditors out the door.

.
This Bailout Doesn’t Pay Dividends

Ah, but stock buy black plans (taking firm cash and buying shares on the stock market, hopefully boosting the stock price of the remaining shares) would do the exact same thing. They bleed the firm of its cash, increase its leverage, and reward shareholders at the expense of creditors. I'm surprised they wouldn't want a moratorium on that as well. Maybe that is a good idea or maybe it is a terrible imposition on firm operations, but since buy-backs care policy substitutes for dividends they'd best be dealt with jointly.

They provide an interesting tidbit:

If the government is unwilling to take this step, then the boards of the banks should take it upon themselves to do the right thing. They may even have a legal obligation to do so, because courts have ruled that directors of financially distressed firms have a fiduciary duty to creditors as well as to shareholders.

Even if this is true (and I've never heard of this before), short of incriminating emails showing a desire to loot the bondholders and other creditors, the business judgment rule would seem to shield executives who perpetrate dividend plans to "support their stock prices and to make further capital-raising possible.".

Posted by OneEyedMan at 7:55 AM | Comments (0)

October 20, 2008

The past is a different country

I'm reading The Great Contraction chapter of A Monetary History of the United States and I came across the following bizarre footnote.

Annual Report of Superintendent of Banks, State of New York, Part I, Dec. 31, 1930, p. 46.
For two and a half months before its closing, Joseph A. Broderick, New York State Superintendent of Banks, had sponsored various merger plans—some virtually to the point of consummation—which would have saved the bank. Governor Harrison devised the final reorganization plan, the success of which seemed so sure that, two days before the bank closed, the Federal Reserve Bank had issued a statement naming proposed directors for the merger. The plan would have become operative had not the Clearing House banks at the last moment withdrawn from the arrangement whereby they would have subscribed $30 million in new capital funds to the reorganized institution. Under Harrison’s plan, the Bank of United States would have merged with Manufacturers Trust, Public National, and International Trust – A group of banks that had a majority of stockholders and directors of the same ethnic origin and social and financial background as most of the stockholders and directors of the Bank of United States—with J. Herbert Case, chairman of the board and Federal Reserve agent of the New York Bank, as head. The decision of the Clearing House banks not to save the Bank of United States was reached at a meeting held at the New York Bank and was not changed despite personal appeals by Broderick and New York State Lieutenant Governor Herbert H. Lehman. Broderick, after waiting in an anteroom for hours despile repeated requests to be allowed to join the bankers in their conference room, was finally admitted through the intercession of Thomas W. Lament, of J. P. Morgan and Company, and Owen D. Young, a director of the New York Federal Reserve Bank. Broderick's account of his statement of the bankers follows in part:…

My guess this was code for they found gentiles to buy a gentile bank and that there would be no need to put Jews in charge of a WASP institution. The fact that such ethnic and class profiling would work its way into an official report of a government regulatory body shows how different things were within living memory. About four years after this report was published the Blue Eyed Girl's grandfather (still with us and in his 90's) changed his name from Isadore to Gerald. He did so on the recommendation of a college professor who told him that he'd never get far with a Jewish name.

Posted by OneEyedMan at 10:48 AM | Comments (0)

Weird analogy

Tyler Cowen uses the following odd analogy to describe the recently ended environment of extra risk taking:

Greater risk-taking was driven by investor hubris and collective delusion. Banks and other financial institutions bet against the possibility of bad times and in the short run those bets paid off handsomely. But in the long run they were disastrous.

For a simple analogy, imagine betting against a sports underdog every year. You may win consistently for a while but eventually you will lose all your money when the odds turn against you. In essence, banks were betting against extreme volatility, which sooner or later does arrive.

Three Trends and a Train Wreck

Because the track takes its vig off of every winning bet, one would expect that any betting strategy would turn against you. Long shots just as well as sure thinks could bankrupt you. There is some statistical evidence that long shots have been systematically over bet upon, but I doubt most of those strategies are trade-able nor are they persistent phenomena. If you bet money over and over again and you'll lost it.

Cowen could well be correct that firms and investors took risk for which they were uncompensated. That would be tough to prove. How would you distinguish the following investors:
1) An investor who had a disastrous bit of bad luck but thought the models were true. That is he was taking on less risk due to diversification and his position as a senior creditor
2) An investor in the same thing and who was betting the the risk of disaster was low. That is, he thought the models were false but that the ways in which they were not true were unimportant the the possibility of disaster low.
3) A third investor in that same asset who thought that the possibility of disaster was moderate but that the payment was adequate for that risk of disaster.

Of the three, only the third could reasonably be described as an excess risk taking. My guess is that categories one and two contain most of the investors in the problematic assets.

Posted by OneEyedMan at 7:32 AM | Comments (0)

October 16, 2008

Yeah, but who is counting

But for all of the McCain campaign’s manufactured fury about vote theft (and similar claims from the Republican Party over the years) there is virtually no evidence -- anywhere in the country, going back many elections -- of people showing up at the polls and voting when they are not entitled to.

The Acorn Story

This reminds me of a project I did as an undergraduate on the Historical Origins and Difficulties in Statistical Modeling of Fingerprinting. Many had claimed that since no two people had ever been found with identical fingerprints, that there wasn't a problem with the fingerprinting system. I said:

"The theoretical grounding for the uniqueness of fingerprints is disappointing, and poorly grounded. The vast majority of arguments for the uniqueness of fingerprints fall into two categories. First, is the theological argument that G-d never creates any two identical things (or the slightly more scientific argument that we can trust the random processes involved to combine in an unique manner or that all objects are unique when examined in sufficient detail.) The other attempts to argue from evidence, since no one has ever seen a match then there must not be any. The problem with this argument is that we cannot extend it to say that no two fingerprints have ever matched. None of the major classification systems would detect if two fingerprints on two sets of prints matched but the rest did not. Therefore, we do not really know if no fingerprints match. Unfortunately, juries have sent criminals to their death by reaching this false conclusion"

It turned out this wasn't quite true, it could be that if they matched on the very first finger of the classification system that you would find a match on that finger. But one could have a later finger in the filing system that doesn't match, and at least in theory your pointer finger of left hand could match the print on the pinkie on my right hand.

I'm reminded of this story because no one is counting fraudulent registration in a way that would indicate if it were a problem. Given the simplicity of voter fraud (just register to vote in multiple districts under different names) one would imagine it is easy to avoid detection. If you tried to vote as another real person and they had already voted (or were to try to vote that day), you made a fuss or dressed distinctly to be detected, or tried to vote multiple times at the same polling place then you'd be noticed. But you can't infer the size of the undetected fraud from the size of the detected fraud. The ones we detect probably are not representative nor do we know the attempt rate. Therefore, we are not measuring the true extent of registration fraud and the measurements of what we do catch don't describe the extent of the problem.

Posted by OneEyedMan at 10:27 PM | Comments (2)

October 14, 2008

Modern farming ain't all bad

The follow are quotes from an article in the NY Times by Michael Pollan: Farmer in Chief. I found it interesting and informative, but I think he was't fully honest.

Did you notice when you flew over Iowa during the campaign how the land was completely bare — black — from October to April? What you were seeing is the agricultural landscape created by cheap oil. In years past, except in the dead of winter, you would have seen in those fields a checkerboard of different greens: pastures and hayfields for animals, cover crops, perhaps a block of fruit trees. Before the application of oil and natural gas to agriculture, farmers relied on crop diversity (and photosynthesis) both to replenish their soil and to combat pests, as well as to feed themselves and their neighbors. Cheap energy, however, enabled the creation of monocultures, and monocultures in turn vastly increased the productivity both of the American land and the American farmer; today the typical corn-belt farmer is single-handedly feeding 140 people.

I'm pretty sure that even in the absence cheap energy we would still have large monoculture farms. It is true that crop diversity lowers the risk to the farmer at the cost of efficiency from economies of scale. But America has lots of farms, and those farms are in lots of places. What America may only need diversification in is across farms, not within them to insure food safety. For a while large industrial conglomerates were all the rage in the American investment community. People liked how smooth and stable they seemed to be. But their managers couldn't be experts in all these things and so they did many things poorly. A modern farm in America is a large firm, with complex capital and requiring skilled human labor. To study every crop would surely mean knowing less about producing each one. Plus, farmers have used animal and human waste, bone meal, and bat guano for fertilizer for a long time. It takes a lot more than just seeds and sun to make a modern farm or a productive organic one.

But if taking the animals off farms made a certain kind of economic sense, it made no ecological sense whatever: their waste, formerly regarded as a precious source of fertility on the farm, became a pollutant — factory farms are now one of America’s biggest sources of pollution. As Wendell Berry has tartly observed, to take animals off farms and put them on feedlots is to take an elegant solution — animals replenishing the fertility that crops deplete — and neatly divide it into two problems: a fertility problem on the farm and a pollution problem on the feedlot. The former problem is remedied with fossil-fuel fertilizer; the latter is remedied not at all.

The big problem here is that there isn't enough animal fertilizer. To produce enough clover and manure to produce the required fertilizer to feed the teeming multitude, massive tracts land now natural would have to be brought under plow. Yes, surely many farms would see boosted yields after implementing modern organic techniques, but to do so they'd need a lot more organic fertilizer. Organic food is affordable today for much the reason that there is relatively little demand for organic fertilizer. With more farms competing for it, we'd expect it to get more expensive.

In addition to rewarding farmers for planting cover crops, we should make it easier for them to apply compost to their fields — a practice that improves not only the fertility of the soil but also its ability to hold water and therefore withstand drought. (There is mounting evidence that it also boosts the nutritional quality of the food grown in it.) The U.S.D.A. estimates that Americans throw out 14 percent of the food they buy; much more is wasted by retailers, wholesalers and institutions. A program to make municipal composting of food and yard waste mandatory and then distributing the compost free to area farmers would shrink America’s garbage heap, cut the need for irrigation and fossil-fuel fertilizers in agriculture and improve the nutritional quality of the American diet.

For all I know there are big efficiency gains here. However, note that packaging can prevent a lot of waste as well:

The average household in the United States generates one third less trash each year than does the average household in Mexico, partly because packaging reduces breakage and food waste.

Recycling Rubbish Eight great myths about waste disposal

Posted by OneEyedMan at 6:51 AM | Comments (0)

October 13, 2008

Not everyone deserves government funded healthcare

Many uninsured Americans can afford insurance and don't want it.

Universal health care only looks like medical care for the poor paid for by the rich. It is just as much a subsidy of the poor and sick by the poor and healthy.

Posted by OneEyedMan at 2:15 PM | Comments (0)

October 11, 2008

A ratio from the NY Times

I saw the following diagram on the NY Times this morning:

Swings in the Market and Our Moods

This reminded me of Tobin's Q, which is the ratio of the a firms debt + equity to the replacement cost of its capital. I wonder if there is something to this. It needs some refinement. First, it isn't what you don't know that makes you uncertain, it is what you know you don't know. You don't have to know it exactly, but you have to have a sense of what you don't know in order to worry about it. Similarly, the things that you know but don't know you know can't make you more certain. In a Rumfeldian sense, the appropriate ratio is:

Uncertainty ratio = known unknowns / known knowns.

Posted by OneEyedMan at 11:20 AM | Comments (0)

October 10, 2008

The biggest unintended consequence of all?

For Christmas this year, the west is getting a socialized banking system. Maybe there isn't any alternative; although, I doubt it. What percentage of legal nationalizations (the kind where you pay for them) have been profitable? What percentage were better run than before?

The rescue plan Britain announced yesterday will trigger a domino effect; if everyone knows British banks will be recapitalised, then British banks will look relatively safe. But this makes other European banks look relatively risky. To stem outflows of deposits, loans, and shareholders, other European governments will have to recapitalise their banks. America will follow. By the end of 2008, most of the world’s main financial firms will be government owned or controlled.

Since this is going to happen anyway, let’s hope our great leaders think it through. Let’s hope they decide to make the best of a bad hand of cards. If they announce this weekend that they are all going to recapitalise their banks in coordinated fashion, it will look like bold action. Leadership. A place in history. It might restore confidence.

If they continue to dither—like the famous four did in Paris last weekend—it will look like the crisis is spiralling out of control, and that governments are being forced by circumstances beyond their control to do things they said they didn’t want to do.

Lead, follow, or be forced by events

While I agree the domino effect predicted above is likely, I'm not sure the economic logic is sound. Why not let your own banks fail, especially in Europe where you share a common currency. Sure, your banks might go out of business but their assets would be purchased by the bailed out banks. Won't that be a subsidy paid for by the citizens of other countries?
In the car industry this is also mentioned with regard to foreign subsidies of research and factories. Industry tries to argue that Americans suffer while libertarians argue that it others want to subsidize our car purchases, why not let them? Whether that is true here depends upon several factors. Are we in a panic or have the economic fundamentals really changed? If they have, do we really want the banks to lend more? Those assets aren't a bargain if the fundamentals have changed. They really are worth a lot less. Would we want more government money on the line? Are there large economic returns to having a banking industry largely headquartered in your own country? If the major US banks were all foreign owned, but employed a large number of Americans and were subject to American regulation, would that be a worse situation?

Posted by OneEyedMan at 7:08 AM | Comments (0)

October 9, 2008

A bit of genius

Many of you know that I play a bit of role playing games (dungeons and dragons type stuff) in my non-belligerati life. Lately I've been playing a game of Mage which is part of the World of Darkness role playing system. The following bit of role playing related silliness struck me as dead on, a perfect use of role playing systems and philosophy to shed some light on a piece of fiction that I had to share.

In response to Shepherd:
"ferris bueller is a great example of the coincidental mage i was talking about.
he doesn't "do" anything, he just believes..."

Actually he does plenty. A lot of it is ritualistic, too. I would say Ferris is a pretty powerful orphan, with probably time 3, corr. 3, entropy 2-3, and mind 3(maybe even 4), and has his own idiosyncratic paradigm -- but he actually takes time to share with the audiences some beliefs and rules of his paradigm, and how his magic works.

The computer, the sound FX through the synthesizer, this is all part of his ritual to create a blanket mind meme effect, that Ferris is sick. He even gives us some pointers to his ritual (how to fake being sick to your mom without being sent to the doctor). Now some of this is quickly done (licking the palms), but some is pretty elaborate ritual (Setting up the dummy, the recordings set to the door buzzer...etc.)

Of course, the only people unaffected are an unawakened NWO pencil-pusher (Rooney), and Ferris' sister Jeanie (who has a high willpower, for reasons that will become apparent later.).

He has two acolytes (Cameron and Sloan), who aid him in his magic use. (Cameron might actually be a familiar, I'm not sure on this one)

Most of Ferris' magic seems to be of the time/space-warping type, allowing him and his buds to do in one day in Chicago what it would take your average tourist a week to accomplish.

We even get to see a oft-used rote of Ferris' twice -- The Multiple-Line Phone Dupe. There is a lot more if you look for it, but those are some of the best examples.

By the afternoon, Ferris must be pretty magically drained (especially after his using Wayne Newton-and-Beatles-as-focus magical effect -- the incantations of which we see him practicing in the morning shower.), so he heads to a node (The Art Institute of Chicago) for some meditation and quintessence-refueling.

Now on Cameron being a familiar: There is the fact that Ferris seems to know intuitively that Cameron will be home on the day he needs him. In fact, Cameron might not be visible to Sleepers. The only other person we know that really interacts with Cameron (not counting when he does his phone-voice as part of Ferris magic) is Sloan, who as we know is Ferris' acolyte and sees the world through his paradigm.

The minor exception to this is the garage attendant, who though he and Cameron do not actually exchange words, appears to look at Cameron, and seems to direct words at him (though it's not explicit). This makes sense, since the garage attendants are minor paradox spirits out for a little reality payback for some of Ferris' earlier exploits. Cameron, of course, can smell this as soon as they get in the garage, and tries to warn Ferris not to leave the Ferrari there. This next part is my primary reason for thinking Cameron is Ferris' familiar: I see his comatose state after witnessing the milage increase on his dad''s car (paradox) as Cameron eating the paradox for Ferris.

There have been some minor paradox effects from all the magic Ferris uses through out the movie, such as the afore mentioned milage add-on from the garage attendants and the Dad showing up "coincidentally" at the same restaurant at the same time as the trio, but they are dealt with as they come, for the most part.

Now so far, this has been a lot of coincidental magic in one day, and the domino effect is starting to add up the paradox, and so finally, near the end of the day, when Ferris is attempting an effect to cover their tracks, which is already compounded by the paradox from before (the extra milage) the strain on reality is just a little too much, and paradox backlashes, destroying the Ferrari.

It is at some point around here that Jeannie, who knows something is up and has been trying to catch Ferris all day, is sitting in the police station and meets - who? Charlie Sheen?

No.

Her Avatar.

Yep, that's right. In the police station Jeanie meets her Avatar and has her awakening. The whole day has been leading up to this, and when she is reunited with Ferris, it all becomes clear to her as she works right into Ferris' paradigm (the "visiting our sick grandmother" schtick) and she performs one of her first magical feats - presenting Rooney's wallet, which he "left" on the kitchen floor.

Actually, since most of Ferris' magic seems to diverting attention from what is really happening and including others in a greater experience, this whole "day off" of his might have really been orchestrated to get his sister to awaken. Ferris Bueller might actually be someone of much greater power that previously thought (Archmage? Oracle? Who knows?).

Posted by OneEyedMan at 8:52 PM | Comments (0)

OPEC should begin to panic

Having spent their enormous oil windfall the OPEC nations are beginning to realize that lower oil prices are here to stay for a while. Poorer Americans are continuing to cut back on their driving now that they realized how easy it was to save money on gas. The WSJ reports:

Gasoline prices here have tumbled even more than in most places, to less than $3 a gallon, but drivers say they still aren't filling up their tanks and zooming down the highways.

Instead, the sour economy is prompting them to stick to their new fuel-efficient ways, a pattern that is likely to hold across the country even if gas gets cheaper. This means demand for oil will probably continue to slacken, putting more pressure on petroleum prices.

Cash-Strapped Drivers Scrimp Despite Cheaper Gas

Meanwhile OPEC is trying to reduce output.

OPEC is "very likely" to cut oil production at the Nov. 18 meeting in Vienna because prices have fallen "dramatically," the group's president, Chakib Khelil, said today.

Oil drops again as economic concerns trump hinted OPEC cuts

They won't have much luck with that. OPEC seems better at keeping its members from building up additional capacity then it is at reducing the utilization of the capacity it already has. I expect a small cut and cheating on top of it.

Posted by OneEyedMan at 8:46 PM | Comments (0)

Feeling cynical

I found the modifications of the bailout bill disturbing. It shook my faith in American politics and took with it some of my optimism in the American economy. The following quote really captures my mood:

"Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies." -- Groucho Marx

Daily Show Moment of Zen: Debt Clock

Posted by OneEyedMan at 9:07 AM | Comments (0)

October 6, 2008

Remember, if you take Herpex, do not change the past.

Posted by OneEyedMan at 9:55 PM | Comments (0)

Past performance is not a predictor of future success

While the National Journal has rated [Obama] the most liberal member of the Senate in 2007, the methodology that generated this result is suspect (as it was in 2004). I’d turn instead to the results of the far superior Poole-Rosenthal NOMINATE ideal point estimation algorithm, which finds Obama to be one of the more, but not the most, liberal Senators (just slightly to the left of Senator Clinton).

But what about Obama’s service in the Illinois General Assembly representing Hyde Park? How liberal was he then? So far, it’s been quite difficult to tell. Of course, both sides of the political debate have strong incentives to spin his record; the Democrats want to portray him as more centrist, the Republicans more liberal. During the primary campaign, Clinton attempted to critique Obama as insufficiently liberal, pointing to his voting “present” on a number of controversial topics.

So what’s the truth? The answer: Obama as an Illinois state senator was very liberal, but there were others substantially more liberal still. Of all 295 incumbents who served from 1996-2004 in Illinois, State Senator Obama ranked in the 14th percentile on my liberalism scale. In the Democratic party, he ranked in the 27th percentile. Comparing Obama to all incumbent state legislators in the United States in the mid 1990s to the mid 2000’s, he was in the top 11th percentile. He was about as liberal as James Meeks, pastor and Illinois state Senator. Obama was more liberal than Emil Jones, the president of the Senate and one of Obama’s political mentors, is not as liberal as his protege, ranking in the middle of his party for liberalism, and in the top quarter of the Legislature as a whole. Michael Madigan, the Speaker of the Assembly, is slightly more liberal than Obama, ranking in the top 16 percent of his party and in the top 8 percent of the legislature as a whole.

How Liberal Was Obama as a State Senator in Illinois?
So if he was on the liberal end of his party in the Illinois senate, then in the liberal end of his party in the senate (although seemingly right of where he once was), and in some cases running to the right of his senate positions. What, therefore, should we expect of a president Obama? I predict right of where he currently is but left of typical presidents, even Democratic ones.

Posted by OneEyedMan at 11:51 AM | Comments (0)

October 5, 2008

What to do about mark to market accounting

There has been a lot of discussion in the press about mark to market accounting and what role it had on creating the financial situation we now find ourselves in. The SEC caught a lot of flack for revising their rules on mark to market accounting in response to this situation, and while I'm certainly not a securities expert in a position to comment on the whole thing, they've made some good points that haven't been properly appreciated.

Mark to market accounting has replaced hold to maturity accounting in most modern financial entities. Hold to maturity accounting was the older method, and in it you assumed in your company's financials that as long as the entity that owes you money continues to make their payments (the alternative is called impaired) that it was worth what you paid for it. Under mark to market accounting, the idea is that the price that you hold something on your books should be the price that the instrument is actually worth. When markets are well functioning, most experts agree that mark to market is a better system. This way when you hold an asset that loses value you gradually reduce its value rather than hold it at full value until it essentially worthless and then rapidly revalue it. This prevents management from deluding itself, shareholders, regulators, and creditors on the value of the firm's assets by forcing them to use available information of their assets. This may sound difficult, but as long as the assets in question are traded regularly in competitive markets it is easy. All you have to do is hold an asset on your books at the price that it is selling for. When that price goes up you raise the price you hold it at and when it goes down you lower it.

A problem happens when the asset is not regularly traded in competitive markets. Imagine a financial derivative that that for some reason has only a single market maker firm A. They sells one unit of this product to firm B for $100 and 1 unit to firm C for $100. At some point firm C runs into unrelated financial trouble. A and B both decide that they have the right amount of the product for their needs and don't want any. After much searching firm B finds that firm D will buy the product for $50. Grant Arguendo, that the economic fundamentals haven't changed enough to justify this massive price change, and that firm C's problems don't have anything to do with this asset. Say firm A has mark to market accounting. At what price should they hold their derivative? It would seem naive to hold it at $50. If the economic fundamentals haven't changed and firms A and B are unlikely to be in the same desperate straights that firm C found itself in then holding the assets at $50 each would underestimate the amount of money they owe to firm B and now firm D. Sometimes in illiquid markets the price can move away from fundamental value because there are not enough participants with the money to force the price of assets to be the most correct one. In that case using market prices is not optimal. Yes, always using an externally validated price is transparent but it need not be accurate or sensible as the example above shows.

Which brings us to what the SEC has clarified:

Can transactions in an inactive market affect fair value measurements?

Yes. A quoted market price in an active market for the identical asset is most representative of fair value and thus is required to be used (generally without adjustment). Transactions in inactive markets may be inputs when measuring fair value, but would likely not be determinative. If they are orderly, transactions should be considered in management's estimate of fair value. However, if prices in an inactive market do not reflect current prices for the same or similar assets, adjustments may be necessary to arrive at fair value.

A significant increase in the spread between the amount sellers are "asking" and the price that buyers are "bidding," or the presence of a relatively small number of "bidding" parties, are indicators that should be considered in determining whether a market is inactive. The determination of whether a market is active or not requires judgment.

SEC Office of the Chief Accountant and FASB Staff Clarifications on Fair Value Accounting

I'm not saying that SEC wouldn't want to weaken mark to market accounting as a matter of political expediency. I surely know that allowing too much discretion outside of market pricing allows traders, portfolio managers and CFO to abuse the system. Yet if an independent observer would agree that markets are not functioning it seems silly to use their prices to mark your own assets. Especially when covenants in your loans might force you to liquidate as a result, making an accounting convention into real economic damage as you are forced to sell into a dysfunctional and frozen market.

Posted by OneEyedMan at 2:19 PM | Comments (0)

October 3, 2008

The bailout passes

The bailout passed and the stock market is essentially flat at this writing. That puts it within 150 points of where the Dow Jones Industrial Average finished after the crash on Monday. If the market continues to operate at this level it seems that it was wrong to blame the crash on the failure of the bailout bill. Yes, the new employment and factory order numbers came out and they were bad, but people have said we have been in a recession for a while now, and the numbers didn't seem so horrible that they justified a stock market crash.

Unfortunately, the bailout bill that passed is probably the worst version yet. It is stuffed to the gills with pork, most likely pointless tax cuts that are not offset, further weakens the money markets with a higher FDIC insurance of $250,000 making bank accounts more attractive, and shows the world what a disgusting, greedy, self-serving and dysfunctional place Washington is.

I also see that my humble state's finances are a shambles. In California, Short of Cash, May Ask U.S. for Loan I learned that California wants to borrow $7 billion bucks from the federal government because they claim that they can't borrow the money they need to continue critical state operations. It must be that they don't want to pay the rates that have to pay to borrow this money because California's budget is a $143 billion, so this isn't much of a credit risk issue. I'm sure California could issue some bonds if it wanted to raise this money, they just don't like the coupon that they'd have to issue. At the heart of all this is the bloated and late budget, still unfinished and 85 days overdue with $15 billion shortfall they can't close.

My rage at the incompetence of California's government may be even larger than the rage I have at the federal government for this bailout bill. Yes, tax revenues are down with the overall economy. Nevertheless, spending more than they had and having expenditures that don't fluctuate with their tax revenue is the entire reason they are in this mess. What they would do in a downturn should have been a consideration when passing expensive entitlements legislation. Although there is little chance of it, I hope the federal government let's California burn, forcing us to retrench our spending, balance our budget, and experience some pain so that we understand that the public purse must be run more seriously..

Posted by OneEyedMan at 11:37 AM | Comments (0)

October 2, 2008

Something good to read

Dr. Scott Nelson, history professor at William and Mary argues that it is the financial crisis of 1873 and not the great depression of the 1930's that is the best historical analog to our current circumstances. I'm in no place to corroborate his examples, but if they are correct, his argument seems sound.
The Real Great Depression: The depression of 1929 is the wrong model for the current economic crisis

Posted by OneEyedMan at 8:38 AM | Comments (0)

October 1, 2008

People say dumb things

I'm trying to make a list of proposals which, while superficially appealing are in fact terrible and nearly discredit the people offering them.

The four worst so far are
1) Short selling bans.
2) Stopping mark-to-market accounting and replacing it with hold to maturity.
3) Bulldozing houses without substantial time try to sell them.
4) Unlimited government insured deposits.

Please let me know if you think I should add any. I'm looking for policies that make financial systems more opaque, destroy actual capital, or worsen moral hazard. In general these policies treat a symptom of the current economic woes but worsen an underlying cause.

Posted by OneEyedMan at 8:06 AM | Comments (0)

The people speak

The article in yesterday's NY Times, Lesson From a Crisis: When Trust Vanishes, Worry explains why so many Americans turned on the bailout bill.

It’s not enough to say that markets could freeze up, loans could become impossible to get and the economy could slide into its worst downturn since the Great Depression. For now, the crisis has had little effect on most Americans, beyond their 401(k) statements. So to them, the specter of a depression can sound alarmist, and the $700 billion bill that Congress voted down this week can seem like a bailout for rich scoundrels.

I have to say that I've spoken to a lot of economists who think the current bill is bad for the same reason.

Mr. Bernanke and his fellow worriers need to connect the dots. They need to use their bully pulpits to teach a little lesson on the economics of a credit crisis — how A can lead to B, B to C and C to Depression. ... Why are we talking about the Depression, anyway? Almost no economist thinks that even a terrible downturn would look like the Depression. The government has already responded more aggressively than it did in Herbert Hoover’s day. So a Depression-like contraction — a 30 percent drop in economic activity — is highly unlikely. The country is also far richer today, which means that a much smaller portion of the population is living on the edge of despair. No matter what happens, you’re not likely to see shantytowns.

It is exactly a failure to make this case that leads many professionals and much of the public to be against this bailout. Instead, Paulson decided to appeal to fear and panic, depriving us of well designed policy and the opportunity to see how matters progressed more calmly.

In late 1930, however, a rolling series of bank panics began. Investments made by the banks were going bad — or, in some cases, were rumored to be going bad — and nervous customers besieged bank branches to demand their money back. Hundreds of banks eventually closed. Once a bank in a given town shut its doors, all the knowledge accumulated by the bank officers there effectively disappeared. Other banks weren’t nearly as willing to lend money to local businesses and residents because the loan officers at those banks didn’t know which borrowers were less reliable than they looked. Credit dried up.

Against this is significant evidence that credit has dried up on a local level. Credit card limits remain unchanged and many small business owners report no problem making loans. The credit markets are very different now, and you don't need as much expertise as you once did to make a $250,000 loan because of greater geographic and portfolio diversification and more sophisticated lending protocols. This could still matter, but it is hard to see it as important a factor as in the 1930's. Yet that same data showing that standards are tighening are showing that total lending is at an all time high (New Banking Data: Where's The Credit Crisis? Total Bank Loans and Leases Exceed $7T For First Time). That is, total lending and leasing from commercial banks is at an all time high. Though only up a tiny amount in the last couple of months, it hasn't declined in a way consistent with a credit contraction. Which I see as more important than the price of credit. There isn't nearly as large a problem with credit getting more expensive as there is with there not being some at any price.

Alternatively, CNBC speaks to the National Small Business Association lobby and they say they are hurting. I liked this article for the surveys it provided and a few anecdotes. Most of the article suggests credit is more difficult to get rather than impossible, which would be consistent with a credit tightening than a credit freeze. Obviously, up until the last year or so standards have been pretty lax, so some tightening is to be expected.

That said, while I still would be for doing nothing and getting this over with quickly and painfully, I would be more comfortable with a bailout if there were a genuine credit crunch.

Posted by OneEyedMan at 7:09 AM | Comments (0)

I liked this graph

A picture is worth a thousand words is a neat graphic that shows the various sources of greenhouse gasses and where they end up. It suffers a bit because it has to depict carbon sinks and sources, and when you take land use changes, if deforestation is responsible for 18.3% of emissions and aforestation for -1.8% of emissions then you can't neatly break up land use into buckets. How can you show a -1.8% bucket? Perhaps it would be better to have a separate graph for GHG sinks.

Posted by OneEyedMan at 7:04 AM | Comments (0)