Monday, May 4, 2009

Audit the Fed

If anyone is feeling politically active at the moment, I would like to ask you to contact your local Congressional Critter to request their support of HR 1207, a piece of legislation which would require the first audit of the Federal Reserve since its creation in 1913. You can google the name for plenty more info.

The bill is a Ron Paul creation, but I honestly don't see this as a remotely liberal/conservative issue. It is rather astounding that with all the power the Fed has, Congress currently has virtually no oversight power of its activities. I have long considered the Fed completely unconstitutional, and while this legislation is a small step, it would at least shed some light on the what the Fed does with its massive and virtually unchecked power. I would think both liberals and conservatives could agree on that value of some accountability.

So write an email or make a 2-minute phone call. It's not sexy legislation, but it's important.

Sunday, May 3, 2009

On Chrysler's Bankruptcy

I haven't been monitoring the Chrysler situation all that closely, but what I have seen, I find pretty disturbing.  Most pundits' reactions have had a flavor similar to Restless' take...
...but nonetheless it seems to me that this is likely the best solution for essentially everyone, with the glaring exception of the bondholders.
Mark me as a hopeless finance romantic, but from my perspective, the mistreatment of the bondholders by the government is a pretty serious issue.   The bondholders in question hold senior debt, which means under the rule of law, they have senior rights to the company's assets.  But under the rule of Obama, that seems to no longer be the case, as some union benefits, which should be junior to the bondholders in the pecking order, have been elevated to equal status by Obama fiat.   This is a wonderful political gambit by Obama, thrilling to to his constituency, even if leaves tired, old, rule of law cranks like me feeling chill.   I am guessing any potential lenders in the future will share my queasiness.  Why loan anyone money if the government can wipe out your claim at its whim.  I thought Obama was trying to revive the credit markets, not suffocate them.

As far as the bankruptcy itself goes, I have already demonstrated by inability to comprehend bankruptcy law, and I'll leave it to the smarter legal heads on KP to sort out mysteries like section 363 of the bankruptcy code.

Finally, if you haven't read any of the allegations concerning intimidation by the Obama administration, you absolutely need to take a gander at this.   Pretty lively stuff, and while it is purely he-said-she-said at the moment, you must be well into your second pitcher of the Kool-Aid not to believe this type of thing is going on.

UPDATE:  I found a nicely presented argument from a hedge fund manager echoing some of my thoughts above.   It's hard to pity hedge funds or their managers, considering some of the astronomical bonuses that have been received over the last decade, but before you give Obama a giant huzzah and gleefully throw those greedy hedge funds under the bus, at least consider their point of view.

More on Swine Flu

I find it remarkable that so many commentators are playing down the swine flu. I have heard several comparisons to Y2K - as if that "bust" of a crisis means that all future crises will be busts. Yes, at the moment, the swine flu is not all that dangerous here in North America. It is not flu season, and the survivability of the virus is limited under these conditions. But the virus is just starting to pop up in the Southern hemisphere, and it could gain traction there. Also, a bit of history on past pandemics is useful.

In each of the four major pandemics since 1889, a spring wave of relatively mild illness was followed by a second wave, a few months later, of a much more virulent disease. This was true in 1889, 1957, 1968 and in the catastrophic flu outbreak of 1918, which sickened an estimated third of the world's population and killed, conservatively, 50 million people.

There is good news.   The current swine flu does not have some of the genetic elements of more fatal flus, and our ability to spot and respond to outbreaks is much better than it was during any previous pandemic.  But there is also worrying news.  They have confirmed human to swine transmission in Canada, which means the flu may bounce back and forth and have additional opportunities to recombine.   More importantly, this virus has a novel genetic makeup, so existing treatments may not work if it mutates into a more virulent form.  

There is an additional factor to consider.  We survive on resources that are provided to us on the tail-end of global, low-inventory, just-in-time, supply chain system.    While this supply chain gives us access to a remarkable array of goods at low prices in good times, it is not clear how it would respond to the stress of a truly dangerous pandemic.   My read is that any serious disruption would lead to wholesale breakdown.   Your local grocers have sufficient inventory to feed the populace for about three days.  The government certainly has more resources, but post-Katrina, I have a little confidence in the government responding well, especially when the significance of a virulent pandemic would dwarf Katrina.

In short, the odds are that this will not be a catastrophic flu pandemic, but on the other hand, if the virus happens to mutate to a truly virulent form, the consequences could be far worse that most people are predicting.  The good people of recommend you have sufficient foodstocks to last you three months in an emergency.    It's an annoying expense, and odds are, you will be donating most of it to a food bank sometime down the road, but it's a matter of risk management.   

Personally, I am building that inventory and hoping it all goes to waste.

Saturday, May 2, 2009

On Facebook and other Existential Questions

I must begin by apologizing for my neglect of KP. All kinds of things going on, including buying a car, a house and lots of comings and goings at my day job. I wanted to get us up to speed with a couple of issues being widely commented upon by the MSM, several on several of which I have a different perspective or need the Occam's Razors of this forum to clarify my thoughts.

1) Swine/Mexican Flu

About 10,000 people apparently die from the flu in Mexico in a normal flu season, I haven't seen a number for the US. Sounds like a lot, but it's less than 0.01% of the population there. Normally the unfortunate victims are the elderly or the very young (even more tragic) but my point here is that we are definitely not talking crazy numbers on this swine flu thing yet, and likely won't be. The measures taken by the Mexican government are nothing short of amazing. They identified this strain with very, very few deaths and have made extraordinary economic sacrifices to contain the contagion. They should be given a medal, not subject to the rantings of the jackass, Jay Severin, in Boston (shocking, really, to find racism there) on the radio. I'd leave that schmuck in his underdrawers, with $100-bills taped to his body and a kilo of heroin shoved up his rump (and info to that effect posted on, in the worst neighborhood in Tijuana and see if he could get home to Boston intact. He want "criminaliens", we got "criminaliens". F-ing lowlife.

I also wanted the - ahem - less liberal members of KP to comment on Hong Kong's approach to quarantine. WWRPD?

2) Chrysler's bankruptcy

Very, very interested in everyone's take on the structured bankruptcy of the Littlest of the Big Three. Fiat? Giggles ensue, but nonetheless it seems to me that this is likely the best solution for essentially everyone, with the glaring exception of the bondholders. From my years in Argentina I am pretty immune to feeling bad for bondholders. What are we talking about anyway? It's not like it's a loan, or something. It's an investment that went south, right? Tee, hee, tee, hee.

3) The Mainstream Media - aka Ourselves

How much do we like to scare the shit out of ourselves? Generally, a fair amount, no? Discuss.