Kodiak Pyramid

GammaBoy's 10 Outrageous Predictions for 2010 - PART 2

2009-12-30T22:41:00.004-05:00

Sayonara 2009! Considering the financial turmoil that accompanied your arrival, you were a comparatively gentle and unremarkable year. You gave a frenzied welcome to our first black president and a frenzied goodbye to our first sort-of-black, sort-of-white, sort-of-alien pop star, but between those high and low moments, you kept Americans convinced that, despite their woes, everything was just about to get better. Alas, in the view of future generations, you will be little more than a footnote, a year of quiet, stubborn hopefulness than unleashed a torrent of outrageous and mostly unhappy events in 2010.

As I mentioned in my 2009 report card, I think some of those predictions were not wrong, but early, so I won't bother to reiterate them. Fortunately, that gives me the freedom to crow about any successes come December 2010 without having to explicitly admit the failure, or rather, continued delay, of the rest.

Now then, 2010 in an outrageous nutshell....

U.S. stock markets put in new lows

You heard it here. The stock market will give back all the gains of 2009 and more, as a second and more sinister wave of the still continuing financial crisis comes ashore. My guess is that when the decline gets going, it will be faster and scarier than anything we saw in late 2008 or early 2009. The essential problem is that none of the issues that led to the decline in 2008 have been fixed. They have been papered over with government largesse and the loosest federal credit in history, but these salves will actually make things worse as the U.S. Ponzi economy begins to unwind. Many other markets, such as most commodites, will join in the selling, and we may see new multi-year lows in crude and even gold. Mid-level luxury goods will get wiped out, as the few extraordinarily rich benefactors of administration policies reach new heights of consumption even as the other 98% of the population gives up any hopes of ever leasing a Beemer and is simply thankful they can afford a single family car at all.

Saudi Arabia catches fire

The Saudis finally get their due. Pinched between the Iran/Israel conflict, which will likely go hot, and accompanied by more general Shia/Sunni violence, Saudi will get bombed by somebody. U.S. protectorate or not, the Saudi will discover that the love for the sheikhs from its many poor serfs does not run deep, and when the going gets tough for Saudi, the people will stand down and watch things collapse. The event might lead to a short-term pop in energy prices, until people realize that cheap energy is a necessity for the world economy, and the world economy tumbles down a staircase with energy prices sliding along in its wake. The worst case scenario is that the events that unfold in the Middle East in 2010 lead to World War III. Hopefully, saner minds will someow prevail, but the dominos are certainly set up to make 2010 a more likely candidate for world war than any of the previous twenty.

U.S. Bond Market Failure

The U.S. bond market is completely out of control and will come to a head in 2010. There is simply not enough money in world to fund the deficits that are envisioned, and one of two things will happen. Either interest rates will rise precipitiously, destroying any hope of a short-term U.S. recovery, or the Federal Reserve will be forced to print money to buy bonds from the Treasury to extend the Ponzi scheme, thereby setting off very real fears of hyperinflation. I've given up trying to understand the machinations of the Treasury and the Fed, so let's just say that any way it plays out, it will be bad.

Real unemployment touches 25%

The current official unemployment rate is hovering around 10%, but if you use the calculations that were in use in the U.S. up until a series of beautification adjustments were made by the Reagan and later administrations, the comparable unemployment rate is already closer to 20%. The unemployment rate will get worse, and the effect will get more noticeable as more people are no longer eligible for unemployment insurance. The federal government has been working to extend this insurance, but the bond issue listed above will stymie their efforts. Moreover, many state unemployment funds have been emptied. Unemployment is much less of a social problem when you are able to keep people on some sort of income, but there is no money left in the kitty, and we are about to see how people behave when the government is no longer writing them emergency checks.

Many cities and several states either default on bonds or declare bankruptcy

Municipal budgets are in the worst shape in recent history, and for many municipal entities there is no way to make the math work. Potentially, the federal government will sweep in with its unlimited checkbook and bailout these states and cities, but short of that, there will be a wave of defaults and bankruptcies. The biggest issue for most of these places is spiraling health care costs and the absurdly generous deals that were inked with public unions in better times. Most of these deals, laden with sizable salaries, free health insurance, and ridiculously sweet pensions, are simply untenable, and there will be increasing conflict between these unions and the taxpayers being asked to pony up. The defaults will force the issue into the public, and it will get very rancorous.

Domestic terrorism re-emerges

Keeping with my failed riot call for 2009, let me double down with a prediction that there will be one or more serious domestic "terrorist" events this year. These will be completely unrelated to the Islamic terror threat and more in line with the Timothy McVeigh kind of threat. An assassination of a major politician would also fit into this prediction.

Republicans have a very good mid-term election

This isn't particularly outrageous, as the out-of-power party historically always does well in mid-term elections. But I think this cycle will be particularly dramatic, as the above events will crystallize a lot of anger and lead Republicans to make significant inroads on the Democratic majorities.

Many major retailers fold

A few retailers folded after the crappy Xmas season of 2008, but I think the numbers will be much worse in the first half of this year. Headline numbers for Xmas 2009 have been touted in the media as pretty solid, but I think beneath the headlines, the numbers were actually quite weak. Look for a lot more open storefronts in your local mall. In fact, some malls will close down altogether, and you will see stories by the end of the year suggesting using some large, previously commercial, space such as malls as emergency housing for many of the emergent poor.

Severe violence in the UK, Italy, and China

As the global economic crisis progresses, you will see severe domestic violence emerge in a number of nations. The UK is ready to blow at any moment, as the economy there is a full-blown disaster and the Islamic population is restive and a convenient target for native anger. Look for the BNP to strengthen. In fact, as Europe goes down the tubes over the next couple of years, the BNP might emerge as the most reactionary group in Western Europe. Italy has similar disfunctionality, but unlike a resurgence in the UK, Italian disfunction has a long history. Nonetheless, 2010 seems like a good year for some of the tension in that country to explode. China is the most interesting and dangerous of the three. China's economy is in an amazing bubble at the moment, with virtually every company and many individuals involved in real estate development. When the bubble explodes, which I am guessing will happen in 2010, there will be a lot of angry people in the cities to get violent alongside the already various rioting rural populations. Since the Chinese government is much more ruthless than its Western counterparts, it's difficult to guess how things will play out, but some sort of violence seems assured.

The United States wins the World Cup

With all the deeply pessimistic predictions above, I figured I throw in one outrageously optimistic prediction. The U.S. squeaks out of the first round, shows sparks of brilliance in victories in the rounds of 16 and 8 and then shocks Brazil in the semis before soundly trouncing a stunned Spanish team in the finals. Seriously, though, isn't the World Cup a prime potential target for terrorism? I mean, how good can the security really be in South Africa? I was thinking that if I was an ambitious Al-Qaeda group, and I was scanning the global calendar looking for targets, the World Cup would look like a jackpot. Western celebrities, global audience, and a deeply third-world civic administration. So as a pessimistic footnote, I'll add the potential for a Munich style terrorist act against a Western squad.

GammaBoy's 10 Outrageous Predictions for 2010 - PART 1

2009-12-30T21:34:00.008-05:00

2009 is coming to a close, so I thought it was time to give a report card on my predictions from 2009, and notwithstanding the mediocre grades, forge ahead and make some more predictions for 2010.

First, in this post, the report card....

A major riot in a U.S. city

EPIC FAIL

The populace was chastened by Obama's election, government goodies, and a levitating stock market. There was some turmoil surrounding various state government cuts, like education in California, but even prime candidate Detroit has been relatively quiet. I underestimated the government ability to appease its citizens over the short-run, but I am not giving up on this prediction in 2010.

Shortages of Goods/Supply Chain Breakdowns

EPIC FAIL

The credit turmoil of late 2008 and early 2009 subsided and everything held together. The only shortage I know of was Xmas superstar Zhu Zhu pets and that was certainly not what I had in mind when I wrote the prediction. I take some solace in the failure of this prediction in the massive revocation of credit cards facing many Americans, but it is still an epic fail.

Pensions are the #1 financial crisis story
SORTA RIGHT

Mortgages and foreclosures still seem to have the limelight as financial crisis story #1, probably followed closely by unemployment. Nonetheless, the visibility of the coming pension debacle has been raised during the year, and if you were one of the many Delphi retirees who awakened to see your pension benefits slashed by the PBGC, you are feeling it directly. This manner of failure of this prediction seems to be shared by many others in that I assumed the effects of the continuing financial crisis would become obvious much more quickly than they have. That does not change my underlying belief that this will happen. I prefer to consider myself early, rather than wrong. Dangerous for a trader, but no so much for an wannabe oracle with nothing more than pride on the line.

Inflation/Deflation mix
SORTA RIGHT

My Maslow theory seems to be holding up, although with so many different markets flashing different signals, it is difficult to assess this prediction precisely. Prices on many high-end goods have been slashed dramatically even as prices for more basic things like energy and food seem to have flatlined or increased. This will continue. It will be very visible in the real estate market, where homes above $1 million are basically unsellable right now, even as bidding wars have erupted for low-end foreclosures. Further, there is a core cultural change taking place in Americans' willingness to buy shit they don't need.

Russia goes nuts

EPIC FAIL

To be honest, I threw this prediction in here, so I would have a necessary tenth prediction, although in retrospect, 9 predictions for 2009 would have had a nice ring to it. Anyway, it failed. Russia has been active undermining Ukraine and Georgia and throwing their heft around in the Middle East, but they have done it quite calmly and methodically. Going forward, I expect Russia to be more visible in efforts to capitalize on American weakness.

The Euro crumbles

EPIC FAIL

The Euro ran roughshod over the dollar this year, but I still stand by my statement that "2009 will be the beginning of the end of the Euro as a functional currency". The very beginning admittedly, but the Euro is starting to slide, and I expect it to keep sliding throughout 2010. The debt situation, especially in East Europe, will start to pull pieces apart. And whispers have started of the possibility of countries leaving the Euro, although to be fair, Greece was not on my radar as an initial possibility.

Crude trades above $100 again
FAIL, but not EPIC

$100 did not happen, so strictly speaking I was wrong, but my basic sentiment was right: "my sense is that the recent fall in crude prices is a short-term anomaly and prices will rise again. Along with all other commodities actually." I am now leaning the other way and think commodity prices will test or blow through their recent lows. The world economy is in that bad a shape.

War and more war

FAIL

Plenty of war as always, but no more than usual, with the tension in Mexico and Obama's expansion of Afghanistan potentially saving me from the "EPIC" modifier. Again, I think I was early here, rather than wrong. Actually, since these were predictions were for 2009, I was wrong, but you get what I'm saying.

Bonus prediction: Crime levels explode in the United States.

EPIC FAIL

Crime has apparently decreased, not increased, despite our economic woes. I find that a bit of head-scratcher, but I completely underestimated the ability of the government to appease people with goodies.

Ron Paul movement strengthens

EPIC SUCCESS

Finally, I can claim unabashed success. RP went from a fringey also-ran to a frequent guest all over television news, and the Tea Parties and their resulting controversy made it clear that Ron Paul ignited a more substantial political movement. It still remains to be seen if the GOP rejects this movement, embraces it, or is overwhelmed by it. Two interesting Congressional candidates that will help decide this question are Rand Paul, Ron Paul's son, who is leading in Kentucky's primary as a rank party outsider, and financier and fellow doomer Peter Schiff in Connecticut, who is trying to steal the party's nomination as they collectively assault scumbag Chris Dodd.

The party hierarchy loathes both candidates, and it will be curious to see if strong grassroots support for these candidates will be able to upend the party machine.

Secession discussions

EPIC SUCCESS

Another success, even if I would have bet against it compared to some of my failed predictions. Texas was the first to gain notoriety for such blasphemous ideas, but in the wake of the health care legislation, "autonomy" movements have blossomed in a couple of dozen states. It's still all very fringy, but the talk will become louder as debacles in 2010 unfold.

All in all, a mixed bag. The prediction I was most certain about, a riot, was an abysmal failure, while the biggest reach, talk of secession, actually happened. Not that even complete failure would stop me from setting myself up for more failure in 2010.

The Hypocrite-in-Chief

2009-08-02T00:50:00.002-04:00

I could go on for days about the hypocrisy of the messiah, the chosen one - Barack Hussein Obama. Just for starters, see the transcript below from Randi Rhodes' radio broadcast on Air America. The program aired on November 22, 2004. It featured an interview with then Senator-elect Obama.

BARACK OBAMA: ...When you rush these budgets that are a foot high and nobody has any idea what's in them and nobody has read them.

RANDI RHODES: 14 pounds it was!

BARACK OBAMA: Yeah. And it gets rushed through without any clear deliberation or debate then these kinds of things happen. And I think that this is in some ways what happened to the Patriot Act. I mean you remember that there was no real debate about that. It was so quick after 9/11 that it was introduced that people felt very intimidated by the administration.

Sound familiar?
Intimidation by the administration?
Rushing huge bills through Congress without sufficient debate?
Where is the "Change we can believe in?"

This Settles It, Right?

2009-07-28T23:59:00.001-04:00

When the editors of the National Review announce that Barry was born in the USA, that should be the end of the story. Fortunately for all real Americans, the denizens of the Free Republic message board refuse to drink the kool-aid.

No, it is not a distraction, it is something that the cult of personality seems to have swept into the trash bin … It is called the LAW. This is just another reason why I no longer subscribe to the National Review.
I actually don't care where he was born as he is not a "natural born citizen" since his father was Kenyan.
Gibbs said yesterday obama was a citizen; He did not say he was a 'natural born' citizen.
it is all part of the same web of lies that the POSOTUS is fabricating. This Kenyan buttwipe needs to realize he may or may not be legaly the president….but if he tries to touch the constitution with his criminal touch (he did promise to obey and protect and follow the constitution) he will be in a world of hurt….and wind up losing states to secession, and where that will follow.
Hey! We have all been screaming for the msm (controlled media) to get onboard on the BC story—so here it is! They all want a piece of the pie now—didja think they were going to take the Patriot side of the issue? Fat chance—they are just going to cloud the issue even further now. The state gubmint in Hawaii is going to glorify him now. At least Rush and Glenn Beck are spelling the truth out to the American people now (not We The People—the wee sheeple), on other issues that is. On the other hand, GB has not attacked the real issues lately—that I have heard anyway—y'know, the BC issue, of course, and those "camps", ML, etc. Who knowa? perhaps he too will wake up…???
The National Review is a periodical that I have done without for over 30 years. I began to fall out of love with the magazine about the time William F. Buckley joined Jimmie (the Geek) Carter in pushing for the giveaway of the Panama Canal which is currently operated by interests of Communist China.
Once again the National Review lets down the conservative movement. Lowrey is a naive boob. Goldberg is unreadable. And when will he apologize to Ann Coulter?
which is why I think he was primed for this position for over 20 years and those behind the scenes have been planning on taking the country since Ayers stopped his bombing. He knew it would never work and as Marx and Hitler said or realised. We cannot further our agenda by violence it has to be done by getting into positions of power and influence. What better position than the presidency. He has no clue but they have covered his background up, they set his background up by the two books instead. There are so many questions and yet the media sit there and say , nah he is an America he had something in the paper or he had a thing on a website. All he has to do is show the damn thing. All the media have to do is go to Kenya and ask why two of his family say they saw him born there and ask why they are charging tourists to see bozo's birth place in Kenya
It's easyh to believe this editorial was written by "The Editors". It appears that different editors wrote different paragraphs and they never got together to compare.
Yes, BS is an undocumented worker residing at 1600 Pennsylvania Ave. Certain groups can't govern themselves. Look at the Bahamas - Burned out ends of Grand Bahama Island are a testament to the fervor of certain groups when they feel empowerd.
National Review was sinking but they have hit rock bottom. It seems like it all fell apart after Bill died. Sad. We keep hearing the "let's move on" or "let's forcus on…" - it takes 5 minutes to provide the long form BC. It does not distract from anything.
If you send a Letter to the Editor of NR, you get an Out of Office reply from them. Hmmmm?
I think National Review is almost out of business. The print magazine may no longer exist. Rich ?? forget his name left and Lucianne's son was running it but he really is not up to the task. I guess they don't get the Saudi money like Huff Po or LGF. Maybe they decided to start taking it.
I National Review "Editors" smarter than you, come down from on high and ask you to "please move along" nothing to see here citizen. I will not reveal to you that we expended no money or resources, hired no investigative journalist to support the band wagon conclusion that BO is your new official and certified master.
Coulter is a disappointment. Where is HER plan? What is SHE advocating to save our country. Just shooting her mouth off on TV is entertaining but what has she done any different from us? We make noise. She makes noise and Democrats continue to destroy our America. Anne, run for the Senate. If Franken can win, so can you…..

23% Annualized Return for the American Taxpayer

2009-07-22T19:34:00.001-04:00

Not too shabby. Goldman buys some positive PR at a time it desperately needs it and W gets some post-White House credit.

Audit the Fed

2009-05-04T00:32:00.004-04:00

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.

On Chrysler's Bankruptcy

2009-05-03T23:48:00.006-04:00

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

2009-05-03T10:51:00.004-04:00

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 flutrackers.com 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.

On Facebook and other Existential Questions

2009-05-02T20:28:00.002-04:00

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 narco.com.mx), 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.

Thoughts on the Mexican Flu

2009-04-27T22:42:00.003-04:00

Last time I can remember having Mexican fever was watching Salma Hayek in From Dusk til Dawn. I am much less excited about our contemporary version. Technically, they both involve rather gruesome deaths, but at least battling vampires is scary in a fun way, whereas my new boogieman, the cytokine storm, is just hide-in-the-basement terrifying.

When something freaks me out, I tend to read about it incessantly. The additional knowledge, even if dispiriting, at least gives me the illusion of control. To that end, I recommend the site Flutrackers.com.

In particular, I want to point you at this thread here (nerd alert! this is extra nerdy stuff). I found the discussion fascinating. The fact that this level of detail is available this quickly is simply amazing to me. I am a layman, obviously, so this might be old hat to the researchers among us, but I guess the fact that this data, and accompanying analysis, is actually available to a layman like me is part of what amazes me.

Now I have a question for the researchers of KP. On one of the other blogs I read, a couple of commenters made the argument that it is just a matter of time before this Mexican flu strain ends up infecting someone that is also hosting one of the virulent Asian flu strains. A couple of recombinations and other genetic hoodoo later, and they stated that it was virtually a certainty that a virus emerges with the unique genetic code of the Mexican strain combined with the virulence of the Asian strains. The discussion on the thread above obliquely suggested a similar conclusion. So KP brains, is that a reasonable conclusion? Is this destined to turn into a superflu next winter after some Asian tweaking or is it more likely to join the pantheon of false alarms flus?

While we're at it, let me pose another question. The whole cytokine storm thing really bothers me. Not only am I smack in the middle of the 20-50 age range that takes the brunt of cytokine storm fatalities, but philosophically, I'm annoyed that my own immune system would go Benedict Arnold and betray me. I'm defending the Alamo here, and I look over to see my artillery men doing shots with Santa Ana as they turn their cannons on me. Thanks, dicks!

My question, and I actually mean this seriously, is whether, in the face of a known flu pandemic where otherwise healthy people are getting capped, it makes sense to purposefully degrade my own immune system. If a stronger immune system leads to a heightened risk of a cytokine storm fatality, shouldn't I greet the news of a serious flu pandemic with all-night sessions of Marlboro Reds, bottom-shelf tequila, and Ho-Hos?

Not so outrageous any more

2009-04-15T22:20:00.003-04:00

Well, the least likely of my outrageous predictions has shown some legs. To recap...

Secession discussions begin
Of all the unlikely happenings suggested above, this is by far the least likely, but it will eventually happen, just maybe not in 2009. As it becomes increasingly apparent that the federal government cannot meet its obligations, or conversely, as the tax load required to meet those obligations explodes, there will start to be discussions in states about secession. At first, it will be quackery, but as the situation worsens, it will gain traction with people. It is unlikely to actually happen, but the thought alone that people might start to take the idea seriously is by itself remarkable. The most likely candidate, of course, the Republic of Texas.

You scoffed and rightly so. But read this. Very surprising, especially from a governor.

More on tax revolts

2009-04-13T00:01:00.002-04:00

Between his various ad hominem attacks, Aztec actually made an interesting comment regarding tax revolts...

Now, it's nice to see that GG is concerned about civil servants' pensions because she doesn't give a shit about the pensions of union members. And I really hope all of the traders really do take to the streets in full scale tax revolt. Surely the general public will understand the OUTRAGE of having to pay an additional 4% of income tax on ever single dollar earned above $375,000. How will Obama sleep at night knowing that poor hedge fund managers will be forced to liquidate their Hampton beach houses because soon they will be taxed not at the capital gains rate, but at normal income tax rates? Yes, please let them REVOLT at the mere thought of being treated just like everyone else.

Aztec is probably correct that Obama's tax increase on the "rich" is unlikely to ruffle many feathers. The targeted population is small enough and generally well-educated and conservative enough that they won't start brandishing torches. If anything, Obama's policies might lead to a slow-motion capital strike ala Atlas Shrugged, but it will be difficult to separate that behavior from the overall recession.

But Aztec is missing the point by focusing on federal income taxes. The anger behind the tax revolts is focused on two separate problems. One, the federal government is spending like crazy, and most Americans are smart enough to understand that this will translate to a heftier tax burden down the road. Two, and this is much more visceral, is the anger at rising state and city taxes, particularly property taxes. Mish coincidentally just discussed the problem, and I have personally seen multiple examples over the last week. A friend in Hoboken, NJ just saw his property taxes raised from $4K to almost $12K. Add to that the increases in NJ income taxes, and you have the recipe for an angry electorate. Many other states are doing similar things. Rather than cutting spending to reflect recessionary conditions, they are raising taxes on an already strapped middle class.

As an aside, I also want to address one of the most unjust but least talked about side effects of rising property taxes, the forced sales of properties by elderly people. I know of three cases personally of elderly individuals living on fixed incomes who are being forced to sell their properties because they cannot meet the rising tax burden. One couple in NY bought their home two decades ago for less than $150K, but they now face an annual tax bill above $20K a year. They have to sell. Another woman I talked to today is putting her MD property of 30 years on the market because she can no longer keep up with the tax obligation.

These are people who own their homes outright and have for years. For the state to essentially force them to leave is immoral and ought to be criminal, but it is happening all over the U.S. now has governments looks for new sources of revenue.

A nationwide tax revolt is coming. It might not reach critical mass this year, but it is just a matter of time.

In any case, I will be marching April 15th. And not for my 4% as Aztec smugly suggests, but because out of control government spending threatens the basic values of life, liberty, and property, and apparently the only way to stop it is to take credit card from the politicians' hands.

Pavlovian Aztec

2009-04-11T11:37:00.005-04:00

Ah, Aztec. Thanks for proving yourself to be as predictable as always. I knew we'd get that link out of you; arch-typical, straight out of the playbook, knee jerk leftist crap.

1. My link was a response to your pathetic Sarah Palin attack link, which was in poor taste, required zero research, and less relevant than BO's bow/denial. The fact that you responded to GB's callout with such venom says a lot.

2. I always hated the fact the the Bushes and their clan are so tight with the Saudis. Unlike you, I am not a hyperpartisan automaton, incapable of criticism of those toward my side of the political spectrum. My post wasn't about Bush. It was about Obama and his administration's denial of the obvious. He should be honest with the people rather than following the Clintonian playbook. Of course, I never would expect you to admit that a simple admission of a misstep would have been a better response from BO.

3. I love how I can poke you in your leftist cage and you come out smearing anything on the right. The condescending tone is a nice touch, too. Especially when you don't even address the issue. I'm surprised you haven't tried to get a job on one of BO's hit squads.

Wingnuts Angry That Obama Didn’t Suck Off Saudi King, Like Bush Always Did

2009-04-11T10:12:00.001-04:00

This is why I wish Hoss would post more often. Responding take no research (except the ocassional Snopes check) and let's me feel less guilty about reusing Wonkette posts wholesale. It also obviates the need to cut and paste portions of the Freeper message boards.

Keep posting Hoss. Don't let the crypto-objectivist/libertarians dominate the right wing discussion on KP.

BTW, can some of the KP vets post on the Gates Budget? Voodoo, I'm looking at you.

Wingnuts Angry That Obama Didn't Suck Off Saudi King, Like Bush Always Did

via Wonkette by Ken Layne on 4/8/09

Oh noes the wingnuts are very, very upset! Why? This street negro, Barack Obama, allegedly kowtowed to the Saudi King while meeting said Saudi King at the G-20. (The White House says, "Uhh, Obama is a lot taller than that old dwarf, so he bent down to look at him.") It is shameful for an American president to politely bow one's head while being presented to a Saudi Prince/King. You are supposed to smooch him up and hold his hand and walk him around your ranch and then give him a loving blowjob, like George W. Bush Junior always did! Let's remember the good times, together.

See, black people nod politely to the Royal Head of State Monarch, while white people romantically caress the fat old dude's hand — foreplay, it is called — and then robustly lick his ass for a few hours.

And then you just get in close with that Grecian-formula goatee and jam that tongue in there, old school:

Thanks, Wingnuts! Without you people, American might've forgotten the proper way for an American president to deal with the Arab Monach: just cold suck on his peter.

Obama - Abdullah's Bitch

2009-04-10T17:32:00.007-04:00

What a disgrace. What is even more disgraceful is the response of the administration - total denial. I would have a lot more respect for the adminstration if Obama would simply acknowledge his error. Next we'll probably hear that it is Bush and Cheney's fault.

Maybe next time he'll drop completely to his knees.

Obama's a bitch. Only Jimmy Carter projected more weakness as President.

Ron Paul on the 15-year Depression

2009-04-08T23:34:00.004-04:00

From the FT.

Fifteen years sounds about right to me. I tend to be a believer in historical, generational cycles, from the Kondratieff wave to even some of the sort of tin-foil literature on cycles like The Fourth Turning (which I have not actually read). While I can understand skepticism of this kind of analysis, I am of little doubt that national psychology seems to go through huge generational shifts. For example, virtually ever one I know whose grandparents suffered through the Great Depression remember them as pack rats, storing stuff that would strike us as disposable. Most of the generation is now dead, and their experience largely forgotten.

The approach of that generation towards "stuff" is basically the polar opposite of our generation's willingness to junk something at a moment's inconvenience to buy a new one, but I think we are witnessing the very beginnings of a shift to that generation's mentality. Over the last few months, I've noticed a pronounced tendency in the media to celebrate the coolness of being frugal. The hipness of frugality will subside as things worsen and frugality becomes a requirement rather than a fashion statement. I'm afraid that when our generation emerges in the 2020s, we may not think so differently than our grandparents, and, unfortunately, that kind of polar shift in psychology can only come as result of severe national trauma. Which, as you know, I am forecasting.

The optimistic counterpoint is that might see a renaissance for our republic as people start to spend less energy debating the American Idols on TV and more debating the American Idles in Congress (god awful pun copyright Gammaboy 2009). Perhaps we might actually see more from real political thinkers in Congress (RP to start) rather than the daily idiocies of clowns like Barney Frank.

Pension update

2009-04-07T23:37:00.005-04:00

There have been about a dozen different important threads that I have been meaning to link and expound on, but I haven't had the time, so I am afraid many of them are lost in the ether of good intentions. Since I just railed on Aztec's posts with proper invective (surprisingly alcohol free), I thought I would add an update to my prediction concerning pensions. I still think the pension crisis will be one of the big headlines come year-end, and frankly, the situation looks worse than I had imagined. Read this story.

As far as other big picture economic data, everything has been coming in disastrously, the current stock market rally notwithstanding. I have actually been quite long stocks all year and think we probably have one more leg up in this rally through early May before things really start to go downhill this summer. April 15th should be interesting. I am hoping, rather desperately, that the various tax protests taking shape will get some footing, but I frankly think turnout will not be big enough to be more than a footnote on the evening news. Regardless, once the government starts counting its dough in the weeks following, I expect the deficit to come in significantly worse than expected, and the financial crisis to begin its next calamitous chapter. The summer of 2009 certainly has the possibility of becoming one of those landmark periods in American history like '68. Interesting times, as per the Chinese.

I'll also reiterate my possibly eyes-wide-open, possibly I-am-taking-crazy-pills, suggestion that everyone have some place well-stocked and far from the urban streets to flee should things get, well, crazy. I realize the notion has a survivalist-tinged ridiculousness to it, this being America and all, but just in case, do yourself a favor and have a plan. It costs nothing, and with full knowledge of the future mocking I risk should this (hopefully) prove to be hyperbole, it might literally save your life.

The Gift that Keeps On Giving

2009-04-04T12:26:00.001-04:00

Remember the heady days with Sarah Palin gave the GOP its own dose of much needed energy and hope? As it turns out, Palin was a gift to the Dems that keeps on giving. How many meth dealers, cat burglars, and bundling teens can one extended family have?

Obama's Bitch

2009-04-04T12:16:00.001-04:00

Mark Stanford is Obama's bitch. He took the money even though he still doesn't have his state legislature's promise to use state funds for debt relief.

More on Treasury looting

2009-03-31T16:04:00.003-04:00

I continued to be amazed at the disconnect between the blogosphere and the MSM on this Geithner plan. The blogs have made excellent arguments that the whole Geithner plan is basically a scam, created to steathily move massive losses from a handful of banks and funds to taxpayers. Mish has another good rant on the subject, but I particularly wanted to highlight a post from Steve Waldman, to which Mish himself linked. The first two sentences particularly capture my sadness at the way this looks like it is going to play out.

I am filled with despair, not because what we are doing cannot "work", but
because it is too unjust. This is not my country.

I think that critics of the Geithner plan are missing some of its tactical
brilliance. My guess is that behind the scenes, Geithner has arranged a kind of
J.P. Morgan moment.

I don't think the scandal of the Geithner plan is going to turn out to be
the subsidy to well-connected investors embedded in the non-recourse loan put
option. On the contrary, I think that Treasury has already lined up participants
for the "Legacy Loans Public-Private Investment Fund" and persuaded them to
offer prices so high that despite the put, investors will expect to take a major
loss. My little conspiracy theory is that the Blackrocks and PIMCOs of the
world, the asset managers who do well by "shaking hands with the government",
will agree to take a hit on relatively small investments in order first to help
make banks smell solvent, and then to compel and provide "good optics" for a
maximal transfer from government to key financial institutions.

Why would PIMROCK go along with this? Because they feel it is their
patriotic duty to work with the government for the good of the financial system,
even if that involves accepting some sacrifices. And because they hold $100B in
J.P. Citi of America bonds, and they've received assurances that if we can get
the nation out of the financial pickle it's in, there will be no haircuts on
those bonds. "Shaking hands with the government" means that nothing ever has to
be put in writing.

The caveat here is that this is just Waldman's theory. But there are several other plausible theories out there, and they all suggest that however exactly this plays out, connected players are going to game the hell out of the system. You (and your children aand their children) will be paying down debt for years to ensure bondholders get fully paid and bankers get their bonuses.

Ron Paul Dominates Level Playing Field

2009-03-28T12:10:00.002-04:00

Hoping to make him look ridiculous, the liberal MSM is constantly setting traps for Ron Paul. But as this clip shows, when you give Rep. Paul a level playing field and let him debate his intellectual peers, he can really shine.

Bankruptcy Primer

2009-03-26T08:28:00.001-04:00

Conceptually, there are two types of bankruptcies: liquidation (Chapter 7) and reorganization (Chapters 11, & 13). Liquidation occurs when the debtor surrenders all of its assets, which are then sold and the proceeds distributed to the creditors. After the completion of liquidation, all of the debtor's debts are discharged (i.e., the debtor no longer owes any money to its creditors) and the creditors end up with pennies on the dollar.

In a reorganization, the debtor becomes a debtor in possession, which not only allows the debtor to hold on to its assets during the bankruptcy, but also allows it to temporarily suspend debt payments. During the reorganization, any interested party can propose a reorganization plan, which may include modification of certain lending agreements or rejection of pre-bankruptcy contracts (think union or pension contracts here). In the event that creditors cannot agree upon or "confirm" a reorganization plan, then the bankruptcy court may unofficially step in and modify the plan in an effort to obtain confirmation. Modification may include changing or restructuring the terms of preexisting contracts. After the plan is approved, the debtor emerges from the bankruptcy with all of its assets and creditors end up with (a) new payment terms, (b) something more than pennies on the dollar, or (c) jack shit (see e.g., unions members and pensioners). If it turns out that the debtor's income or assets cannot support any reasonable reorganization plan, then the court may convert the reorganization into an involuntary liquidation.

Now, to clear up some confusion: Friedmanite: While it is true that homes are protected in personal bankruptcies, that is a result of state and federal homestead protections and preferences (in the non-legal sense) given to secured creditors. If a debtor stops making all its credit payments, but keeps its mortgage payments current, then the court isn't going to touch the home. By the same token, the Court and the Chapter 13 Trustee are going to give the debtor some breathing room, amortize the arrerage, and try to deal with the unsecured creditors. But, bankruptcy provides no protection in the event that a debtor defaults on bankruptcy plan payments.

What the Obama plan does is apply the reorganization bankruptcy principles to debtors seeking to prevent foreclosure on their home. If a person files for bankruptcy, lenders would be forced to reach commercially viable compromises with homeowners. If the lender and homeowner can't agree, the court may step in and present proposals of its own. Of course, lenders are going to take a haircut - but they almost always do in bankruptcies. And in the event that the homeowner's income can't reasonably support a revised loan or if the homeowner stops making payments on the revised loan, then the lender may liquidate through foreclosure.

Nothing in the Obama plan would provide state court judges with the power to alter contracts. The proposal is simply a change in existing federal bankruptcy legislation.

The new legislation is unlikely to affect future lending. First of all, the amendment is limited in time. It won't affect new mortgages and will only affect mortgages created in past few years.

Second, even secured creditors have to renegotiate existing contracts in Chapter 13 cases. The legal and conceptual framework exist for the Court, Trustees, and creditors to work out issues such as market values and market rates. The assets you typically see involved are large trucks or construction equipment. Modifying existing contracts to protect a distressed borrower is really the core concept in Chapter 11 and Chapter 13 cases.

Third, even if the change to the bankruptcy code were to affect new mortgages, lending institutions absolutely know how to account for bankruptcy risk and know how to factor a potential reorganization into their lending decisions. To the extent that that the new laws create any market externalities, they are know quantities and are unlikely to present any major issues. GG - this is why these new laws will not freeze home lending. If the potential for bankruptcy reorganization really did present as grave a risk to lending as GG foresees, then there would have been no commercial lending over the last 100 years.

What will likely happen is that the new laws will mitigate against moral hazards and help promote better lending decisions. The moral hazard in this instance is that current bankruptcy law makes the home mortgage a unique type of secured lending that is almost completely insulated from bankruptcy risk. The ability to lend without the risk of a potential reorganization creates much looser lending standards for home mortgages than for small business or commercial lending. Go out and find someone who has actually applied for a individual commercial loan and ask them to compare the lending process with the home mortgage lending process. I guarantee you that no one has ever provided a commercial loan based on a stated income application. The availability of reorganization plays into the difference in the loan making process. If the elimination of speedy home foreclosures means the elimination of the liar loan, then we will all be better for it.

Third and finally, the new bankruptcy rules will eliminate the perverse lending incentives created by real estate booms. If prices are steadily rising, lenders may have an incentive to create products that encourage default and foreclosure. Take the ever-popular 5-year, interest only loan. This is a product with a ridiculously high balloon that seems specifically designed to get people to move into houses they cannot afford. Now, the lender knows the borrower's purported income and knows that the borrower is unlikely to be able to afford payments on a refinanced 3-year ARM in year 6. Why not make the loan, buy the MBS, or the CDO but for the fact that you would likely make more money if the borrow defaults and you sell the house at a higher price? The prospect of having to renegotiate the loan in bankruptcy court helps to reduce the incentives behind this type of lending speculation in boom markets.

And you thought this recession sucked...

2009-03-24T23:10:00.002-04:00

I'm always a little freaked out by stories like this. With plenty of "real" things to worry about, phenomenon like this seem like a waste of mental energy, but then there seem to be a quite a few phenomenon like this that occur every few hundred years (Tunguska). At some point, the laws of probability will catch up with us.

In the meantime, my greater fear is a Bruce Willis/Ben Affleck movie coming out of this.

TALF = Total, Apparently Legal Fraud

2009-03-22T08:31:00.003-04:00

If all of you are suffering from outrage fatigue, I am sympathetic. Outrage is exhausting, and with banks and the Administration working overtime designing creative and opaque new policies to deal with existing outrages, while inevitably, inadvertently, through the law of unintended consequences, create a dozen new outrages, it is tough to keep up. Personally, I have began about a dozen posts over the last year that were intended to shred the latest government proposal, but I usually gave up after a few sentences, certain that the exhaustion I felt at detailing the outrage was probably only slightly greater than the exhaustion you would feel after reading it. Everyone gets numb to the drumbeat of bad news after a while, so I wanted to save my bullets.

I am using one now. The latest Treasury plan as I understand it constitutes the single biggest fraud and theft of taxpayer dollars I can remember. The leaders of Treasury, especially Geithner, are either galacticly stupid, or alternatively, should they actually understand what they are creating, bigger criminals than anyone in Nixon's posse.

Let's begin with the basics. Here is the plain vanilla news story explaining the upcoming announcement of the program. Try to read it. My guess is that your eyes will glaze over within a couple of paragraphs. I fear that is completely intentional.

The fact is that this may be the single greatest opportunity to game the system that the government has ever created. There are probably several dozen different ways banks and hedge funds can game this legislation to basically create a heads-I-win, tails-you-lose arrangement. In essence, if the assets under discussion appreciate, banks and hedge funds will make windfall profits. If the assets continue to depreciate, the taxpayer will bear virtually all the losses.

Here is some relevant discussion from the blogs...
Zero Hedge: The Amazing TALF bait and switch
Naked Capitalism: One would have to be a criminal to participate in this

Even Krugman, the Keynesians' chirpy pet parakeet, hates the plan.

If you care at all about fairness, justice, your tax dollars, etcetera, etcetera, you should be writing an email to your local Congressmen right now trying to stop this plan.

On the other hand, if it passes, you might as well buy bank stocks. If your tax dollars are going to be used for a wholesale bailout that saves shareholders and bondholders, you might as well share in some of that upside, because you are definitely in for lots of downside.

Why South Carolina Doesn't Want 'Stimulus'

2009-03-21T11:33:00.003-04:00

This is from the Wall Street Journal. Italics are mine...

Why South Carolina Doesn't Want 'Stimulus'
By MARK SANFORD
Columbia, S.C.

America's states are laboratories of democracy. They are both affected by, and relevant to, the larger national debate. What we've found in our own corner of the country is that carrying a substantial debt load limits our options when it comes to running government.

A recent report by the American Legislative Exchange Council ranked us 47th worst in the nation for annual debt service as a percentage of tax revenue. Our state dedicates nearly 11% of its annual tax revenue to paying debt. On top of that, South Carolina has another $20 billion in unfunded, long-term political promises for pensions and other liabilities. The state budget has already been cut four times in recent months as the national economic downturn has impacted South Carolina and driven down tax revenue.

President Barack Obama recently signed a "stimulus" bill that will spend about $2 billion through "programmatic means" in South Carolina. In other words, the federal government will put this money directly into existing funding formulas and programs such as Medicaid. But there is an additional $700 million that I as governor have influence over, and it is the disposition of this money that has drawn the national spotlight to South Carolina.

Here's the background: Before the stimulus bill passed, I asked for states not to be bailed out. After it was signed into law, I said that a state bailout would create more problems than it solved, and that we shouldn't spend money we don't have. That debate was lost, so I looked for a reasonable middle ground. I asked the president for his support in using the $700 million to pay down state debt.

If we're going to spend money we don't have at the federal level, it becomes all the more important that our state balance sheet is in good order -- particularly if this is a protracted downturn. But many people do not realize that the stimulus money runs out in 24 months -- at which point South Carolina will be forced to find a new source of funding to sustain the new level of spending, or to make sharp cuts. Sure, I could kick the can down the road; in two years, I'll be safely out of office. But it would be irresponsible.

If South Carolina could use stimulus money to pay down debt, in two years we will be able to spend, cut taxes or invest even if the federal government can no longer provide more money -- not a remote possibility. In fact, paying debt related to education would free up over $162 million in debt service in the first two years and save roughly $125 million in interest payments over the next 13 years -- just as paying off a family's mortgage early frees up money for other uses.

When you're in a hole, the first order of business is stop digging. South Carolina is in a hole, and it's not a shallow one. Spending stimulus money on ongoing programs would mean 10% of our entire state budget would be paid for with one-time federal funds -- the largest recorded level in state history.

Also, spending stimulus money will delay needed state restructuring. General Motors recently found itself in a similar spot. It needs to be restructured if it is to prosper, but a federal bailout enabled it to put off hard decisions. Likewise, taking federal stimulus money will only postpone changes essential to South Carolina's prosperity. Though well-intended, it forestalls hard choices we must make.

One of Mr. Obama's central campaign themes was his pledge to do away with politics of the past. In his inaugural address, he proclaimed "an end to the petty grievances and false promises, the recriminations and worn-out dogmas, that for far too long have strangled our politics."
This idea connected with millions of voters, myself included. I've always believed ideas should rise and fall on their merits. In fact, I saw such historical significance in his candidacy and the change he spoke of that I published an op-ed on it before South Carolina's presidential primary last year. It was not an endorsement, but it did note the historic nature of his candidacy and the potential positive change in tone it represented. That potential may now be disappearing.

Last week I reached out to the president, asking for a federal waiver from restrictions on stimulus money. I got a most unusual response. Before I even received an acknowledgment of the request from the White House, I got word that the Democratic National Committee was launching campaign-style TV attack-ads against me for making it.

Is this the new brand of politics we were promised? Instead of engaging with me and other governors on the merits of our dissent, I am to be attacked in television ads? In the end, I just don't believe a problem created by too much debt will be solved by piling on more debt. This doesn't strike me as an unreasonable or extremist position.

Nevertheless, the White House declined my request for a waiver yesterday afternoon. That's unfortunate. But in coming months we'll continue advancing the debate at the state level about the merits of debt repayment. The fact remains that while we'd all like to spend unlimited dollars on the very real needs that exist in our state, we must spend in the context of what is sustainable.

Mr. Sanford, a Republican, is the governor of South Carolina.

Gams Pedictions Part I

2009-03-20T07:41:00.000-04:00

Not exactly food riots, but...

I have detailed files

2009-03-17T06:56:00.001-04:00

I'm pretty sure this is how Skynet started. In any case, it sounds mind-blowing.

An educational 30 minutes

2009-03-16T23:23:00.002-04:00

I know my drumbeat of bearish news probably gets old, but if you can stomach it, I strongly recommend this interview with Jim Rogers. He pretty much echoes my read on the situation (or probably more correctly considering his stature, I have been echoing his read).

http://www.silverbearcafe.com/private/03.09/rogers.html

You'll notice he thinks the bailouts are as damaging as I do. I'll go a bit further and tie in the recent infuriating news about AIG. If AIG had been allowed to die as it should have, none of those bonuses would have been paid, nor would we have the spectacle of taxpayer money flowing to banks, both domestic and more troubling, foreign.

The bailouts need to end. Insolvent banks need to die. Insolvent insurance companies need to die. Insolvent auto companies need to die. A recession is capitalism's natural way of clearing out the dead wood. The longer we wait to allow that to happen, the bigger the final inferno is going to be.

Conservatism and minorities

2009-03-16T18:33:00.003-04:00

Shelby Steele has a very well-written and thoughtful column in today's WSJ about conservatism and minorities. More than thoughtful, actually. Landmark. It really is a must-read. I have been trying to decide which paragraph to quote, but there are at least a half-dozen worth repeating. Please, please, read the column.

I have some thoughts, but I am curious to see everyone else's reactions first.

Re: Contracts

2009-03-16T18:30:00.000-04:00

Aztec, another good post and Friedmanite, good response.

Aztec, your post notwithstanding, I stand by my statement that Obama is undermining contract integrity.

But let me first confess my ignorance about the connection of TARP funds and mortgage restructuring. I didn't realize the policy was restricted to TARP recipients. I would agree that if a bank comes hat in hand to the government, there is a reasonable quid pro quo in making changes at the behest of the government. The only problem is that many of the TARP recipients did not need the money nor want it. Many were essentially strong-armed into taking the money, and now, aware of all the strings attached, are now furiously trying to return it as fast as possible.

Regardless, my complaint is not with bankruptcy law. Unless I'm mistaken (again), Obama's plan for mortgage restructuring is unrelated to whether or not someone declares bankruptcy. That would make sense. For the most part, foreclosures are completely separate from bankruptcies as they are non-recourse loans. Anyone can mail in their keys at any time, and the banks only recourse is to take the property. I would wager that the vast, vast majority of home owners who are facing foreclosure will not declare bankruptcy.

Absent a bankruptcy, as far I know, courts have never rewritten the terms of mortgages. Why would they when the bank can always take the collateral? If Obama wants to change the rules of mortgage lending, as you suggest, that's up for discussion, but it shouldn't be allowed ex post facto. If he wants to screw up the mortgage market going forward, he's welcome to do that, but to unilaterally change existing contracts is disgraceful, and as Friedmanite points out, it will put a massive chill on any future lending. Why would I ever lend money to anyone when all they need is a good sob story for the government to step in, change the rules, and revoke my rights?

To again echo Friedmanite, your point on moral hazard makes no sense. When a bank forecloses, they take the property. If housing prices have dropped, they take the loss. The only loss to a previous homeowner that put zero down is a blotch on their credit record. To the extent that the bank lent "with little or no risk", it is only because they immediately sold the mortgage to another bank or investor. But someone at the end of the transaction is taking the loss, and it is not the homeowner. Banks will be much more cautious in the future without any threat of renegotiation. Adding renegotiation as a risk will just push them from caution into complete inactivity.

Finally, regarding the Big Three, I don't support bankruptcy because I want to punish workers. I support bankruptcy because the Big Three cannot function as profit-making companies under their current structure. The only thing keeping them alive is government help, which means government money is basically being funneled through zombie car companies to workers. This is a waste of money and unsustainable. In the long-run, workers will be better off working for a restructured, profitable company rather than depending on government largesse.

Finally, just to distill the point, bankruptcy is the proper channel to handle an insolvent company. It is also the proper channel to handle an insolvent individual. But it is has nothing to do with home foreclosures, which are a separate, non-recourse transaction. If Obama intends to comingle bankruptcy rules with foreclosure rules, he is making a grave mistake.

Gamma: Some Contracts Are More Equal Than Others

2009-03-15T10:18:00.001-04:00

GG writes:

The Obama administration is focusing on the short-term pain of families losing their houses and neglecting the long-term costs of undermining the integrity of contracts.

This mischaracterizes what the foreclosure plan does. First, it allows millions of homeowners to refinance. Second, it uses TARP funds to provide liquidity to lending markets. Third, it sets guidelines for modification of sub-prime loans. Now this portion of the plan does require payment reduction and caps on monthly payment amounts, but these mandatory guidelines apply to institutions that receive assistance from the federal government. If you're a lender that doesn't want renegotiate your sub-prime loans - fine: stop taking taxpayer money. Seems like a reasonable quid pro quo.

But GG's primary beef is with loan modification as part of a bankruptcy proceedings, then he just doesn't see eye to eye with the framers of the constitution. Article I, Section 8 of the Constitution gives Congress the power to establish uniform bankruptcy laws throughout the United States. This explicit grant of power is in the same section of the Constitution that give Congress the power to coin money, organize and provide for a military, and declare war. From this, one can infer that the Constitutional Convention found the provision of national debtor protection laws was less controversial that say, the freedom of expression, religious freedom, or freedom of the press.

Since then the US has had a long history enacting pro-debtor laws that have benefited not only individuals, but also large corporations. In fact, lenience for corporations with debt problems is one of the hallmarks of American bankruptcy law. This tradition is codified in Chapter 11 of the Bankruptcy code and is called reorganization. While not unique to the US, the idea that a debtor can hold on to its assets, renegotiate credit terms, and continue to operations without the immediate threat of liquidation or foreclosure is a truly American legal tradition. Under Chapter 11, if the creditors and the debtors can't find mutually agreeable terms for restructuring the debt, the Court may step in and create terms that would allow approval of the restructuring plan.

Therefore, for at least the last 125 years, commercial lenders have always entered into lending agreements with the understanding that a court could rewrite the terms of the loan agreement. Yet American credit markets have grown through these years and America's companies have been able to borrow plenty (perhaps too much). Thus there is ample evidence credit markets can function and grow, even with the threat that a bankruptcy judge may not honor the "integrity" of the original contract.

Now, over the years, Chapter 11 reorganization has been available only to companies and high net worth individuals. The average person couldn't file for bankruptcy and hope to hold on to their home. The Obama administration means to change this by providing all Americans with the same protections afforded to corporations and the rich. Of course, if the debtor is unable to meet its restructured obligations, all bets are off and the lender can foreclose.

Ironically, the absence of any means for an individual to renegotiate home loan terms in bankruptcy may have created a moral hazard wherein lenders (using the faulty assumption that home values would always rise) could offer sub-prime mortgages with little or no risk. Lenders could extend credit with confidence knowing that if the borrower did default, they could quickly foreclose on the house and never have to deal with the borrower again.

With this change to the bankruptcy laws, lenders will have to be more cautious in lending with the knowledge that the terms may have to be renegotiated and that easy foreclosure is not an option.

What is hypocritical here is that just months ago, GG was demanding that the Big Three be placed in bankruptcy so that a judge could rewrite the terms of union and labor contracts. Apparently, there is no need concern ones self with the "integrity" of contracts when average working folks are the ones getting the shaft. But God forbid using the same laws for the benefit of average working folks if it means lenders may have to renegotiate terms of some of their more boneheaded loans.

The myth of tax brackets

2009-03-14T07:20:00.002-04:00

I'm basically just venting here out of frustration, but I am hoping someone, somewhere with a bigger platform than KP will eventually start to discuss the myth of tax brackets. Tax brackets exist, certainly, but the endless layers of different tax credits and phaseouts pretty much moot their value for any sort of relevant discussion. For example, this opinion piece defending Obamanomics, which I frankly do not recommend reading unless you are prepping for a nap, makes quite a fuss about tax brackets and their historical fairness. At first glance, it makes a strong argument that tax brackets have not changed that much over the last couple of decades.

The problem is (and here I turn to personal venting) tax credits and their phaseouts skew the tax burden immensely. For example, GammaGirl and I have been thinking about buying a home, and we got pretty excited about the $8000 tax credit available to first-time buyers. But then we read the fine print, and as with every other tax credit , we are phased out....

Are there any income limits for claiming the tax credit?
Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

The flip side is that someone with zero tax liability gets sent a check by the government...

I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

This is just one example. There are a multitude of tax credits out there. I would guess that with enough of them lumped together, someone with a minimum tax liability could probably "earn" themselves a check of close to $15-20K from the government. How is that not income redistribution?

Weekend reading

2009-03-14T05:09:00.004-04:00

If you have twenty minutes and a cup of coffee this morning, may I suggest this post as an excellent educational companion on the way banking works.

[Warning: The piece is not hysterical, apocalyptic or sensational. It is actually borders on textbook boring, but it is totally suitable for a curious mind on a quiet morning, and I am guessing even the MBAs in our cohort will learn something. I certainly did.]

Google doesn't kill people; people kill people

2009-03-11T22:23:00.002-04:00

I can't imagine there is any chance of this inane legislation passing, but stranger things have happened.

It's interesting to hear the same kind of arguments trotted out for this legislation as are trotted out for gun control. Liberals want to restrict guns; this goofy Republican wants to restrict Google Earth. Both arguments are dopey (although I will gladly concede that this idea is considerably more dopey than most well-meaning but completely wrong-headed attempts at gun control).

The biggest crook in history?

2009-03-11T15:10:00.002-04:00

I think this scumbag may earn the title of biggest crook in the history of the world. I am looking forward to the media savaging him like they have savaged Madoff.

P.S. To the lawyers on KP, is there any existing legal mechanism to clawback seemingly undeserved bonuses like this?

Dear Gold

2009-03-10T23:51:00.003-04:00

Dear Gold,

We have had a wonderful run together, and I still take heart in the bits of you I keep safely stashed away in case of a very, very rainy day, but to be honest, I've lost that loving feeling.

It's not you. It's me. Or more precisely, it's all the articles like this I have been reading lately. I liked you when you were the uncool outsider, but over the last couple months you have been on everybody's lips, and it's made me very uncomfortable.

I will always keep mementos of our time together hidden away in a dark corner of the closet, but I won't invest any more of my time (or money) with you. It's certainly possible that in a couple of years I will deeply regret ending things like this, but as long as everyone else loves you, I can't.

And yes, since you asked, I have started flirting with both oil and natural gas. I feel the beginnings of a beautiful relationship with both.

More on Mexico

2009-03-10T23:35:00.003-04:00

US military chief backs counter-insurgency for Mexico

...In talks with top Mexican defense and military officials, he said he emphasized the Pentagon's readiness to provide new intelligence, surveillance and reconnaissance help, such as unmanned drones to spy on armed drug gangs, especially along the U.S. border.

...The admiral said he and his Mexican hosts did not discuss the possibility of placing U.S. troops on the U.S.-Mexican border, an idea suggested by Texas Gov. Rick Perry.

Technical assistance for counter-insurgency. Call me paranoid, but doesn't this sound very similar to the baby-step-by-baby-step escalation we have seen in the past from the U.S. government in other countries (I am guessing there were almost identical statements in the early stages of our involvement in Vietnam).

If some American citizens end up murdered as a result of the spiraling violence, particularly if they happen to be on U.S. soil at the time, look for the next baby step - calls for U.S. special forces to assist in "training".

Some apologies are in order

2009-03-10T23:06:00.003-04:00

The media, Europe, and Hollywood were apoplectic for much of Bush's second term about Guantanamo Bay, and the sheer injustice of Americans imprisoning innocent goat herders and whatnot. Somehow, I doubt we are going to hear many apologies now that evidence is mounting that the cries of injustice were utter nonsense.

Unintended consequences

2009-03-10T22:55:00.003-04:00

Here is an interesting post from Naked Capitalism, which exposes some of the unintended consequences that inevitably pop up every time the government gets involved in bailing out an entity. When this is all said and done, I expect there will be many dissertations written on the game theory involved in sorting out this mess.

Conversation or Gibberish?

2009-03-10T14:56:00.002-04:00

The message board conversation is funny but completely irrelevant...let's go with irreverant.

"Investors: Ok, per our agreement, I am going to foreclose on the propertyand you will be clear. I may take a loss, but at least this albatross will beoff from about my neck."

How many investors do you know who want to foreclose today? I don't know any. They want a bailout as much as the lendees. In fact, if lendees could be assured of being free and clear (check your HELOC terms closely), most would likely jump at it. The lenders would be crying foul as they incur significant transactional costs to then put the property on the market and maybe get 0.50 on the dollar. They would also simply go bankrupt at that point; the trustee could then incur further transactional costs and sell the property at 0.25 on the dollar.

Let's be realistic. The lenders need and want the current lendees to keep paying whatever they can. They will not get the "contracted" for rates, but they will be happy getting anything. And yes, they are to blame as much as the idiot who signed the loan. (Assuming the idiot is the bus driver trying to buy a million dollar home, and not the poor Bear Stearns manager who clearly is not facing this problem and deserves better.)

A Conversation on Mortgages

2009-03-09T06:25:00.003-04:00

I am blatantly copying this from a msg board (hat tip ucodgen), but I thought it was illuminating and worth sharing...

Investors to Home-purchaser: I will loan you money to purchase the property
using the property as security for the loan. If you can’t pay, I’ll take the
property since, after all, it was I that really paid for it. Since I will
have taken back the property, you will owe nothing else at that point. When
you have paid off the loan, the house will be yours free and clear. Since
house prices always go up, the principal is guaranteed.

Home-purchaser to Investors: Sounds good, This way I
can avoid being priced out of the market. Since house prices always go up, I
can sell it to cover the principal if paying the mortgage might be too
difficult. I may even exit with a profit

(looks like two guilty parties here )
From a month to a few years later..

Home-purchaser: I can’t pay the current mortgage and I can’t sell the property to get clear– for whatever reason

Investors: Ok, per our agreement, I am going to foreclose on the property
and you will be clear. I may take a loss, but at least this albatross will be
off from about my neck.

ObamaAdmin to Investors: Oh no, you can’t do that. Who cares about contract
law. We can’t deny people their dreams, their wants, no matter how unrealistic
it is for them to be buying a million dollar house on a bus driver’s salary.

Investor1 to ObamaAdmin: It was my money that was loaned to buy the
property.

ObamaAdmin to Investor1: Tough, you are rich. You should stop exploiting
the poor people.

Investor1 to ObamaAdmin: If I am forced to take an additional loss and therefore to take a risk greater than specified on the original lending agreement, why should I ever loan money out for people to buy houses?

ObamaAdmin to Investor1: Tough, you are rich and have the money.. besides,
the government will take care of everybody so everybody has what they wish..
except the rich.. and if there are any problems, well figure it out later..

Investor2 to ObamaAdmin: What about us? We are not rich, but are running a
pension fund for retirement and health benefits. What happens if we can’t pay
out what has been promised?

ObamaAdmin to Investor2: If they have a pension fund, they must be rich. If
there are any problems here, we’ll figure it out later.

End the War on Drugs

2009-03-08T08:32:00.002-04:00

In this week's issue, The Economist has a good opinion piece on the value of the ending the war on drugs. Worth reading.

From the opposite end of the spectrum, I think I caught Fox News floating a bit of a trial balloon this morning about Mexico.

Even by their own standards, Fox News has been remarkably sensationalistic about the violence in Mexico. Last week, Bill O'Reilly spent a good half hour ridiculously trying to terrify parents into banning their kids' spring break jaunts to such murder hotspots as Cancun and Cabo.

This morning, the host was talking to an "expert" on the violence in Mexico, and I caught this tidbit of dialogue (I Tivoed it to get it right):

Expert: ...The fact the military is stepping in and taking control of this fight shows you how little trust the public down in Mexico has in the police. And it also shows you the seriousness of the problem that they have to bring the military in.

Host: Well, we might have to bring our military in too. A lot of people saying, hey, we might need a surge like we did in Iraq and Afghanistan. Put our own troops there....

I'm not sure who the "lot of people" are, as this is first I have heard anyone seriously suggest any value in putting U.S. troops in Mexico. Expect more chatter in the coming days - it feels like Fox is going to push this idea and force other media outlets into a debate.

One final question for Aztec and others - I am hearing anecdotally that gun sales in places like Houston are through the roof. A fellow trader based in Houston told me it is now virtually impossible to get a new handgun in Houston; there is a six month backlog. Any truth to that tale?

Uh oh

2009-03-05T23:40:00.002-05:00

I thought I was about as bearish as they come. But Karl Denninger has topped me. He is always a bit hyperbolic in his writings (like yours truly), but from the beginning, he has been a pretty good forecaster of the crisis. I warn you not to click on the link unless you are prepared to be scared shitless.

From an optimist's POV, writing like that suggests we may have actually hit bottom in this crisis. The pessimist would answer with one of the oft-repeated quotations from the Great Depression - "just when we thought it was over, it turned out it was just beginning."

Put me in the pessimist camp sadly.

Re: EITC

2009-03-05T22:17:00.007-05:00

Aztec, that was one of your best posts ever. Solidly researched and persuasive. It was also an excellent example of a favorite, if disingenuous, tool of debaters -it was a red herring. I never mentioned the EITC at all.

As it happens, I agree with you completely on the value of the EITC. Of course, I would go much further. I would personally prefer a 100% EITC for everyone (i.e. no federal income tax at all on business or individuals). That's a total separate argument, so I'll spare everyone a Ronpaulesque journey into that topic.

So like any poor debater, I am going to allow myself to get sucked into your false rebuttal for the moment, to point out why your arguments for the EITC prove my point exactly.

1) It is less expensive. It is much less expensive for the government to forgo $2000 or $4000 in tax revenue from a working family than it is to flatly support an entire non-working family.

This is true. Unfortunately, the situation is not as simple as your present it. Instead of an EITC or government support, we currently have both. The government is forgoing the revenue and it is supporting additional services. The EITC might be great, but when packaged with a whole host of other government programs, it loses its value.

2) and 3) ....you must pay taxes.

You must pay taxes. Maybe in its original intent the EITC was structured that way, but all you have to do now is file a tax return. For the 32-some percent I mentioned before, there are no taxes paid at all. The credit was never originally structured to exceed the amount of taxes paid, but that is now how it works (i.e. income redistribution).

But to reiterate, my problem is not with the EITC, even in its current bastard form. The problem is the amount of government services that are being provided at essentially no cost to a huge portion of the population. One ironclad rule of economics is that when you begin providing a service for free, demand skyrockets. We now have developed a structure where a significant minority of the population gains access to all kinds of services without having to contribute any skin in the game. The natural result of this dynamic is ever louder clamoring from this group for additional services. Why not, it's free. Democratic policy seems to be founded on a) expanding the number of services available and b) expanding the group eligible for such services at little or no cost. This leaves a shrinking set of people the responsiblity to fund the cost, which with both expanding services and an expanding set of beneficiaries, grows at a nearly geometric rate.

This has been a recipe for disaster. The costs of all these government programs long ago outpaced incoming revenue, leading to almost perpetual deficits. So we now have a shrinking portion of the population that is responsible for both the growing service cost as well as a growing interest cost to fund the debt of all the previous years of too many services. That has accelerated the geometric growth rate.

Check out this chart...

Notice how the green line has a vaguely exponential shape. It would actually be much worse if the full present value of all future obligations (Medicare, prescription drug benefit, etc.) were included. Notice the blue line keeps pretty good pace. This is partly due to the exceptional productivity increases our country has enjoyed and partly due to the accounting fiction shown in the graph below.

Notice that "Social Insurance and Retirement" (i.e. Social Security) is included as tax receipt and makes up a significant portion of federal income. In essence, we are spending Social Security contributions to cover current expenses. If those were properly set aside, the deficit would be much larger (i.e the slope of the blue line would be much less than that of the green line).

The point is that government costs are growing exponentially, revenues are not nearly keeping up, and every attempt to accelerate the increase in costs through expanded services, while shifting that burden onto a smaller portion of the population just makes the problem (exponentially) worse.

To make the picture even bleaker, this dynamic existed even before the current economic crisis this year. Tax receipts are going to fall off a cliff this year - the purple and blue areas above are going to shrink dramatically.

With his current budget, Obama may be solidifying his voting base by expanding its number of members and the value of the services they receive, but his policy goals are completely disconnected with the realities above. Unless something changes dramatically, either a drastic cut in spending levels or (hope hope) some dramatic and exceedingly unlikely leap in worker productivity, it is a mathematical certainty that the above dynamic is going to end in disaster.

Kindle 2

2009-03-04T21:37:00.003-05:00

I got the new Kindle 2 for my birthday (thank you Restless Resident Alien). It's pretty f-ing outstanding. I am getting the NY Times (I know, liberal rag) and I am totally happy paying $0.50 a day for otherwise free content based on the delivery vehicle. I have also bought more books in a week than I would normally in a month. These fellas over at Amazon are no dummies. They are going to provide content on Apple's handheld platforms and some are shocked, but I will guarantee they are dead on giving the first bump for free, or almost free. Works in schoolyards.

If you have the means, I would not hesitate to get one. For those of you who live in proper cities with public transportation, it is a must-have. The text-to-speech jobby doesn't sound totally Steven Hawking, but is a whistle/bell I could do without, given I am sighted. The experience very definitely makes you forget you don't have a real book in your hands.

Fantastic.

Jeff Bezos, I'll take a modest 10% on all residuals sold through this medium. I am pretty influential. You're welcome.

Gamma Claims: Nixon, Reagan - Not Capitalist, Favored Redistribution

2009-03-04T00:49:00.001-05:00

First, I will start off with a quote of my own:

"There is no reason why in a society which as reached the general level of wealth which ours has attained the first kind of security should not be guaranteed to all . . . . [B]ut there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody."

The Road the Serfdom, F. A. Hayek.

Adhering to these principals, the Nixon administration first proposed the earned income tax credit. This Republican-created tax policy rewards work and discourages welfare-induced sloth. At its outset, the EITC was touted as a superior alternative to either welfare, or increases in the minimum wage:

1) It is less expensive. It is much less expensive for the government to forgo $2000 or $4000 in tax revenue from a working family than it is to flatly support an entire non-working family.

2) It rewards work. The earned income tax credit ensures that a person working even the most humiliating, minimum wage job will have a higher standard of living than those surviving on welfare alone. In order to be eligible for the credit, you must have a valid SSN, you must work, and you must pay taxes.

3) It rewards income reporting. In order to receive the credit, a person has to report income and pay taxes just like everyone else. This encourages people into legitimate labor pools and discourages cash-only, non-incoming reporting jobs.

Reagan liked the program so much, he pushed for and obtained an expansion of the EITC in 1986.

Now, under a Democratic president, a similar expansion is being touted by some as redistributionist, socialistic, and anti-capitalist. Sadly, these folks have strayed from the ideals and policies of their political and ideological heroes.

To the extent GG alleges that an EITC expansion amounts to people voting themselves benefits from the public treasury, the argument lacks perspective. The EITC costs a modest $36 billion a year; whereas "the majority" helped themselves to ten times that much worth of tax cuts in 2004. But when Republicans vote themselves largess, it's virtuous; when Democrats do it, it's a step on the road to tyranny.

So let's forget that the Bush tax cuts cost us $2 trillion. Let's forget that the war in Iraq (not a war of necessity, but a war of convenience) cost us $3 trillion. Let's forget that the final tab for the Bush years is going to run us $10 trillion. The real threat to our democracy is embodied in a $36 billion per year program that gives up to $4,000 in tax credits to a family of 4 earning less than $38,000 a year.

What is really at work here is the need to mitigate the complete stagnation in real wage increases for the vast majority of Americans. Take a look at the graph below:

This charge tells at least two stories: First, it explains the increased tax burden for high earners (they were earning a lot more money than the rest of Americans). Second, it illustrates that the middle and lower classes obtained very little wage growth during the Bush years. In the absence of real wage growth for many of these Americans, the EITC is an effective tool for adjusting real wages and is preferable to increasing in the minimum wage. Don't take my word for it: conservatives consistently made this argument in the age before Obamanomics. So why value consistency and intellectual honesty when it's so easy to vilify and tar the policies (which conservatives created and once championed) as redistributionist?

GG's argument focuses on federal income taxes, which ignores the fact that 36% of Federal revenue comes from payroll taxes. If one takes all federal taxes into account, then the top 5% of earners (whose income started at $224,850 and who took home 32% of all income in 2008) will end up paying 44.8% of all federal taxes (which also includes corporate and estate taxes). Meanwhile, the bottom 40% (those with incomes of $37,257 and below) earned 11.4% of all income and actually did pay federal taxes to the tune of 3.4% of the total. If those poor people weren't so poor, they would pay more taxes.

In summary, the EITC expansion is not socialism; rather, it attempts to achieve acknowledged and legitimate social goals using a Republican-created policy device that conservatives supported for decades. The relative cost of the expansion is modest and is dwarfed in comparison to the credits the GOP heaped upon their wealthy constituents.

Re: Obama comes out swinging in weekly address

2009-03-03T00:05:00.005-05:00

Aztec, you seem to have a low threshold for awe at rhetoric. That quote from Obama rings of boilerplate populist nonsense. I wouldn't be surprised if that was plagiarized from one of Hugo Chavez's notoriously long-winded populist tirades.

Even a progressive such as yourself must realize the silliness of his claim that he will defy "special interests and lobbyists". His budget was a laundry list of special interest and lobbyist favors. The only change has been the flavor of the favored parties - the conservative pet projects are out, the liberal pet projects are in - but the government trough continues to expand to feed the favored set of interests.

I want to take special issue with this fiction about tax cuts "for most families while raising them on a few".

Look at this chart. For all of Obama's rhetoric about cutting taxes for the poor and middle class, as it is, 32.6% of households pay zero in federal income taxes. How exactly is Obama going to cut these taxes? He's not. Rather, he is going to give them money - a negative tax rate. In the old days of capitalist America, this was termed "income redistribution".

Also look at the chart below.

The top 5% of income earners are already paying over 50% of the tax base (and for all the hatred of Bush and his tax cuts, this progression actually expanded during his time in office). The top 50% are paying 97% of taxes, meaning that the other half of the population is getting a smorgasbord of services essentially for free. This is a recipe for long-term disaster.

I will leave you with my own quotation, which I would argue has stood the test of time and has much more depth than the empty populist blather you offered from Obama.

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship." -Alexander Tyler 1747-1813

Obama has taken us one step farther down this road.

Obama Comes Out Swinging in Weekly Address

2009-03-01T21:29:00.001-05:00

Love the escalating rhetoric here.

Obama Comes Out Swinging in Weekly Address

via Matthew Yglesias by myglesias on 2/28/09

In 1936, Franklin Delano Roosevelt delivered an important campaign speech in Madison Square Garden, saying among other things:

For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent. […]

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me‹and I welcome their hatred.

For some time now, I think many progressives have been waiting to hear something similar from Barack Obama. And in today's edition of the weekly YouTube address, I think we get something like it. Talking about a budget that will cut taxes for most families while raising them on a few, increasing federal aid to college students while reducing federal aid to private sector student loan writers, and boost health care coverage while reducing subsidies to health insurance firms, Obama says:

I know these steps won't sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they're gearing up for a fight as we speak. My message to them is this: So am I. The system we have now might work for the powerful and well-connected interests that have run Washington for far too long, but I don't. I work for the American people. I didn't come here to do the same thing we've been doing or to take small steps forward, I came to provide the sweeping change that this country demanded when it went to the polls in November.

I'm not sure whether or not this kind of feisty presidential rhetoric and leadership is actually as decisive as some liberals think, but it is nice to hear.

Rick Santelli for President

2009-02-19T12:09:00.002-05:00

I watch CNBC most days and am a fan of Joe Kernen (listen for the Caddyshack reference in his Thanksgiving broadcast here) and Rick Santelli.

It's always been fun to listen to Rick's morning rants, but I fell in love with guy back in the fall, when in response to some of the early TARP ideas, he suggested we just put a hammer and sickle on the flag.

We he almost matched that performance today. If you read Drudge Report, you've already seen the clip as it is ighlighted, but it is really refreshing to hear someone, somewhere speak the obvious truth on a mainstream network.

The silly racism accusations begin

2009-02-18T19:14:00.008-05:00

I wondered in an earlier post (or perhaps an email) if one of the chilling side-effects of the first black presidency would be the use of the cry of "racism" to deflect political attacks on Obama. We have our first example, although frankly it is so dumb that I can hardly believe anyone, even a spread-legged media whore like Al Sharpton, would bother.

Incidentally, the cover of the NY Post was plastered with the story on the chimp, so the idea that the cartoon refers to Obama is absurd.

Nonethess, expect to see more of this from the Obama's allies on the hard left. You come at Obama, you better be a minority (The Republicans are not total idiots).

The irony is that it was perfectly acceptable to say anything about Bush, no matter how disrespectful, obscene, or ridiculous. Nothing wrong with that. We the People earn the right to trash a guy when we give him the office. Or we did. I think we are going to find that right has been severely curtailed in an Obama presidency. People are going to think twice before ridiculing Obama. No one wants to be called a racist.

A Ray of REAL Hope in Dark Times

2009-02-11T14:14:00.001-05:00

GB, this one's for you.

Creepy Ron Paul Cartoon To Get Ass Kicked By Scary Barack Obama Cartoon

via Wonkette by Ken Layne on 2/10/09

Ho ho ho, street thug Barack Obama is gonna kick whitey's ass clear back to Texas! Wait, what is this horrible thing? Oh, a fanzine for, uh, Ron Paul, the brief and inexplicable Internet fad of late 2007. (At least LOLcats were kind of funny!) Well listen up socialists, the elderly Texan congressman and very loosely aligned Republican is still alive and still has a few fans. They got together and made this "DIY" magazine. One of them drew this picture. For a donation of $500, you can hang a copy of this very drawing on your dorm wall or whatever. Chicks love this shit! Youth!

And now, the giant terrifying version:

[Young Americans for Liberty]

It all comes back to evolution

2009-02-09T23:58:00.006-05:00

It's Darwin's 200th birthday, so evolution is an even bigger topic in the media right now than usual.

That reminded me of a question I meant to pose to our posse some time ago. It has do with this book...

For those of you unfamiliar with Behe, he is one of the leading forces in the Intelligent Design movement. In other words, Creationism. He first gained notoriety with this book...

I have not read the above book, but I did read some of The Edge of Evolution.

As you guys might remember, I have always been a little uncomfortable with the complete theory of evolution. It's not something I'm happy to admit. Richard Dawkins has said, "It is absolutely safe to say that, if you meet somebody who claims not to believe in evolution, that person is ignorant, stupid or insane (or wicked, but I'd rather not consider that)." I'm not fond of the application of any of the adjectives to myself, so I tend to keep my reservations about evolution to myself.

The Edge of Evolution spoke to some of my concerns. It's been a while since I read it, but as I recall Behe basically argues that two parts of evolutionary theory are unimpeachable - natural selection and genetic passing of traits. But he then argues that on a microscopic level, many biological systems are "irreducibly complex": the molecular systems involved in even basic biological functions like flagella are incredibly complex and would fail without the existence of multiple different biological processes existing simultaneously. Behe argues that since the overall function would completely fail without the multiple processes, the sucess of the biological function, in evolutionary theory, would require all the processes to evolve simultaneously in a single organism at a single time. He then demonstrates that even if you consider all the generations of all organisms in all time, this is basically mathematically impossible.

When I cracked the book, I sort of expected a mix of Christian evangelism and pseudoscience. As a result, I was pleasantly surprised by the extent of detailed biochemistry in the book. Here is a typical passage, the likes of which made the head of a lowly trader like myself spin.

For an otherwise scientific and reasoned closet evolution skeptic like myself, his argument was very seductive. Apparently some scientists see plausibility in his arguments (see the Amazon page endoresements). Yet from what I can glean from other things I have read, "irreducible complexity" is considered a flawed argument, and moreover, there are specific flaws in many of Behe's arguments. The problem I've had is that the rebuttals I've seen are either rather scattershot (again see some of the Amazon comments) or the arguments seem to focus on details of biochemistry that are completely over my head. For example, I could not make heads or tails of this recent discussion in Behe's blog. I have not had much luck finding a comprehensive rebuttal that is still comprehensible to a layman.

What I have noticed in some comments is a complete pre-emptive dismissal of Behe's argument, because he is obviously a tool of the Creationist/Intelligent Design fanatics. See Dawkins quote above. It reminds of the tone you sometimes hear in dismissals of anyone challenging the prevailing global warming orthodoxy as they are obviously tools of the Oil Companies.

Fortunately, our readership, while limited, does have some excellent minds in the biological arena. I am curious whether, in their experience, there is any serious discussion at all of Behe's arguments or if evolutionary theory as it currently exists is considered settled law. If so, could they point me to a relatively coherent rebuttal of Behe's arguments. It's been months since I cracked his book, but his arguments continue to entice me, and if they are irretrievably flawed, I would like to understand why that is.

This is Unbelievable.

2009-02-06T13:09:00.002-05:00

I had to check snopes after seeing this. I still cannot fathom it; the snopes comments make it even more incredible.

Robert Kiyosaki

2009-02-05T13:50:00.000-05:00

Has anybody heard of this guy before? I heard him on the radio yesterday, and the opinions seem 50/50...either he is a kooky Tony Robbins-esque money guy without any real advice or he is a savior. I was mainly surprised I'd never heard of him; he has a rabid following and an equally rabid set of critics. Gamma, I'm interested in your take because I'm thinking RP running mate....

Re: David Leonhardt

2009-02-04T22:58:00.004-05:00

That was a helluva long article and, at least to my tastes, pretty incoherent. Lots of scattershot analysis, some of it pretty good, but lots of it was utter garbage. I was just going to post a comment, but the more I tried to respond succinctly, the more things I saw in the article that required rebuttal. Sorry KP readers, but you're in for more Gammaboy ~~ranting~~ analysis.

The first section, "Whither Growth?" was the worst part of the article. I am actually going to reprint alot of the article in this section, because virtually every sentence was flawed. The rest of the article is not nearly as awful, so I'l spare Blogger's capacity and your patience by not reprinting the rest of the article.

The economy will recover. It won’t recover anytime soon. It is likely to get significantly worse over the course of 2009, no matter what President Obama and Congress do. And resolving the financial crisis will require both aggressiveness and creativity. In fact, the main lesson from other crises of the past century is that governments tend to err on the side of too much caution — of taking the punch bowl away before the party has truly started up again. “The mistake the United States made during the Depression and the Japanese made during the ’90s was too much start-stop in their policies,” said Timothy Geithner, Obama’s choice for Treasury secretary, when I went to visit him in his transition office a few weeks ago. Japan announced stimulus measures even as it was cutting other government spending. Franklin Roosevelt flirted with fiscal discipline midway through the New Deal, and the country slipped back into decline.

Let me begin by saying that Timothy Geithner was an awful choice for Treasury (Obama's biggest mistake so far). He and Summers were both complicit in many of the bad decisions that led to this fiasco. To think he is going to ride in on a white horse is ridiculous. The main lesson of the past century is that government meddling usually makes a bad situation worse. Yves has a must-read analysis of the latest "bad bank" proposal. Seriously, if you have only five minutes, skip the rest of my response and read his analysis. As for Leonhardt's article, his lines about Japan and the New Deal are typical of his shoddy analysis. He implies Roosevelt's attempt at fiscal discipline directly led the country back into decline. That is simply not true.

Geithner arguably made a similar miscalculation himself last year as a top Federal Reserve official who was part of a team that allowed Lehman Brothers to fail. But he insisted that the Obama administration had learned history’s lesson. “We’re just not going to make that mistake,” Geithner said. “We’re not going to do that. We’ll keep at it until it’s done, whatever it takes.”

After reading Yves post, Geithner's point should be clear. The Treasury will do "whatever it takes" to protect the big banks, even at the expense of the larger economy. Admittedly the Treasury has a good selfish reason for doing this, as at least half of its primary dealers are technically insolvent, but let's be clear that the Fed and Treasury are doing this to protect their own operations, not the economy at large. If protecting the economy at large was a concern, most of the biggest banks - Citi, Merrill, JPMorganChase - would need to be nationalized, as they are all basically insolvent at this point.

Once governments finally decide to use the enormous resources at their disposal, they have typically been able to shock an economy back to life. They can put to work the people, money and equipment sitting idle, until the private sector is willing to begin using them again. The prescription developed almost a century ago by John Maynard Keynes does appear to work.

Arrrghhh! The revisionist history of late on Keynes is almost incomprehensible to me. His work was as discredited as Malthus only a few decades ago. I am afraid I am going to have to digress here for a moment, because the assumptions in this paragraph are so completely wrong.

The only way you can have economic growth is when you "put to work the people, money and equipment sitting idle" in some kind of productive enterprise. If I wanted, I could create 4 million jobs tomorrow. Two million people would dig a ditch from L.A. to New York and another two million would be tasked with filling it back up. This would create jobs, but it would be completely unproductive. In fact, paying for that work would require either taking or borrowing money from people who are doing productive jobs, thereby reducing the capital those people would otherwise use to expand their productive enterprises. You create jobs, but you actually damage the long-term health of the economy. This is the genius of Keynes. The broken windows fallacy is a much more elegant description of this situation, and if you really want to understand the issue in full, you should go ahead and read this short but classic book.

That's not to say that there aren't productive roles for the government (rebuilding roads, for example), but the end result of efforts should raise the productivity of everyone in the economy. The problem with stimulus is that instead of having good productive projects in search of funds, you have funds in search of good, productive projects, and inevitably in the race to spend the funds, lots of unproductive projects are funded.

Skipping ahead...

Richard Freeman, a Harvard economist, argues that our bubble economy had something in common with the old Soviet economy. The Soviet Union’s growth was artificially raised by massive industrial output that ended up having little use. Ours was artificially raised by mortgage-backed securities, collateralized debt obligations and even the occasional Ponzi scheme.

Where will new, real sources of growth come from? Wall Street is not likely to cure the nation’s economic problems. Neither, obviously, is Detroit. Nor is Silicon Valley, at least not by itself. Well before the housing bubble burst, the big productivity gains brought about by the 1990s technology boom seemed to be petering out, which suggests that the Internet may not be able to fuel decades of economic growth in the way that the industrial inventions of the early 20th century did. Annual economic growth in the current decade, even excluding the dismal contributions that 2008 and 2009 will make to the average, has been the slowest of any decade since the 1930s.

So for the first time in more than 70 years, the epicenter of the American economy can be placed outside of California or New York or the industrial Midwest. It can be placed in Washington. Washington won’t merely be given the task of pulling the economy out of the immediate crisis. It will also have to figure out how to put the American economy on a more sustainable path — to help it achieve fast, broadly shared growth and do so without the benefit of a bubble. Obama said as much in his inauguration speech when he pledged to overhaul Washington’s approach to education, health care, science and infrastructure, all in an effort to “lay a new foundation for growth.”

Did Leonhardt not miss the irony of decrying our similarity to the Soviet Union and then claiming that Washington needs to save the economy? The downfall of the Soviet Union was central planning, but Leonhardt now wants Washington to decide how to invigorate the economy. This sounds like something out of The Onion. Perhaps Leonhardt is correct that the epicenter of economic growth right now is Washington, but that is precisely the problem.

Who knows where the next source of growth will come from. That is the magic of a capitalist economy. Nobody knows where the next growth source is, but a million different people are independently experimenting to find the next source. Someone will develop the next great productivity-enhancing device, and like the personal computer, mobile phone, GPS, etc. before it, it will boost the economy by making people more productive. [Incidentally, I completely disagree with Leonhardt on the waning of the information technology boom. We are still at the infancy of the information technology era. The biggest productivity gains are still ahead of us. Despite my well-documented bearishness, my main hope for our economy is derived from this fact. If Washington would stop picking winners and losers and let creative destruction do its thing, there is no reason we couldn't ride this productivity wave to shockingly new levels of prosperity. You should read the article he linked. It's odd that he chose that article as it in no way supports his contention that the information technology boom is over, and in fact, pretty much argues that Washington should get out of the way.]

And that takes care of the first section. I need to hit the sack, so I'll spare us all any more detailed analysis. Anyway, the rest of the article is much more sound, although it ranges all over the place and is pockmarked with small but serious errors. I particularly had to snicker at Leonhardt's love for the so-called "Rahm's doctrine":

You never want a serious crisis to go to waste,” Emanuel said. “What I mean by that is that it’s an opportunity to do things you could not do before.”

Rahm's doctrine. Like it's some breakthrough in political thinking. Gimme a break. Sun Tzu and Machiavelli said the same thing. Caesar used a crisis to become emperor; Hitler used one to become fuhrer; Bush used one to attack Iraq. Pretty much every American war had a hyped-up crisis that was used as pretext to galvanize the country.

Anyway, there is some good stuff in the article, but between those bricks, the mortar is filled with nonsense. Not a Leonhardt fan.

Mrs. Warner Seen In The Nude

2009-02-02T10:37:00.003-05:00

BS Title to get your attention.

David Leonhardt wrote this piece in the NY Times Magazine yesterday. It touches on a whole slew of things we have been discussing. He went to Yale and worked for the Washington Post, and now the Gray Lady, so I would venture to say that some here might dismiss him as a whack-job liberal (see his reference to Keynesian economics working in the third paragraph), but I would love to hear what Gams, VD, Hoss and Friedie have to say about his myriad musings. I am overwhelmingly behind most everything he wrote here.

The Best Cheap Booze

2009-01-30T14:24:00.001-05:00

With all the doom and gloom found on the pages of KP, I figured this was a highly appropriate feature that will assist in assuaging angst and mitigate against market meltdown.

If I recall correctly VD was a big fan of Evan Williams.

The Best Cheap Booze

via Esquire.com|Features Article Feed on 1/30/09

Fifteen bucks, it turns out, can buy you some damn decent liquor. Our drinks correspondent brown bags it for the recession, with a recipe and a history lesson to boot.

Black Swan author's rules for living

2009-01-30T11:53:00.001-05:00

I guess looking your best does not include wearing at tie. I like ties. I wear them every day. I've got a particularly nice Black Fleece number on right now. Of course, I am a serious person with serious knowledge.

Black Swan author's rules for living

via Boing Boing on 1/30/09

Avi sez, "Nassim Nicholas Taleb, gadfly author of The Black Swan, gives his 10 rules for surviving an unpredictable world with dignity."

1 Scepticism is effortful and costly. It is better to be sceptical about matters of large consequences, and be imperfect, foolish and human in the small and the aesthetic.
2 Go to parties. You can't even start to know what you may find on the envelope of serendipity. If you suffer from agoraphobia, send colleagues.
3 It's not a good idea to take a forecast from someone wearing a tie. If possible, tease people who take themselves and their knowledge too seriously.
4 Wear your best for your execution and stand dignified. Your last recourse against randomness is how you act — if you can't control outcomes, you can control the elegance of your behaviour. You will always have the last word.
5 Don't disturb complicated systems that have been around for a very long time. We don't understand their logic. Don't pollute the planet. Leave it the way we found it, regardless of scientific 'evidence'.
6 Learn to fail with pride — and do so fast and cleanly. Maximise trial and error — by mastering the error part.
7 Avoid losers. If you hear someone use the words 'impossible', 'never', 'too difficult' too often, drop him or her from your social network. Never take 'no' for an answer (conversely, take most 'yeses' as 'most probably').
8 Don't read newspapers for the news (just for the gossip and, of course, profiles of authors). The best filter to know if the news matters is if you hear it in cafes, restaurants... or (again) parties.
9 Hard work will get you a professorship or a BMW. You need both work and luck for a Booker, a Nobel or a private jet.
10 Answer e-mails from junior people before more senior ones. Junior people have further to go and tend to remember who slighted them.

Nassim Nicholas Taleb: the prophet of boom and doom (Thanks, Avi!)

Re: Education

2009-01-28T15:31:00.006-05:00

Since I commented that I totally disagreed with R. Native's post, here is my response. To keep it from getting to free-wheeling (read rantish), I am going to respond to specifics in Native's post.

I am thrilled that $150,000,000,000 in federal funds are slated to be disbursed for education. This is the single best investment that this country can make at this time. Public schools are what makes America what it is, and this money is desperately needed, all over the country.

I need to correct my earlier comment. I do agree with one statement, that education is the single best investment we can make as a country. But the suggestion that flooding the existing school system with more money is the answer is completely misguided.

Republicans are screeching that this is going to radically change the nature of federal involvment in education. Good. Why, besides being the default setting, should local and state governments have sole discretion on this issue? Why should we let Mississippi elect to have shitty schools? Because local people know best how to educate (or not) their children? Why should Kansas be able to mandate creationism be taught in science classes?

The arrogance of this paragraph is breathtaking. You are implicitly suggesting that a federal education department staffed by career bureacrats located in D.C. has more concern for a child's welfare than his own parents. But that is completely backwards. The people most concerned with the welfare, values, character, and success of any particular child are the child's parents. Next in rank would be the wider family. Then the local community. Then the county and then the state. The federal government is at the very end of the list. My suggestion would be that the closer the party is to the child, the more power and responsibility they should have in the child's education.

So what if people in Kansas want to teach creationism. How is that your problem or your children's problem? I certainly encourage you to talk to the good people of Kansas and explain to them the error of their ways, but in the end, the decision should be theirs and not yours. That is the nature of liberty.

Besides the principle, local autonomy allows for much more experimentation then you would find in a monolithic national system. The charters are a result of experimentation. I think it is safe to say that if we had a single national system, charters would never have been given a chance.

Again, I am reverting to East Coast liberal egg-head status, but I honestly think there should be national standards (oh, and that they be funded). The state testing for monitoring NCLB is wildly inconsistent. Not to pick on Mississippi again, but apparently their test is considerably less, ahem, demanding than most other states.

Again, your reasoning seems to assume that things would be better if the nimble and wise federal government would step in a save the incompetent states from their foibles. But what if the federal government is, in fact, even more incompetent than the state governments? And how could you tell since there would be no competition between school districts, so it would be impossible to tell what was working and what wasn't.

Why do kids in Montgomery County, MD have a different deal in education than those from DC, or Prince Georges? Talk about un-American. This most basic opportunity is a sham for most kids in inner cities or rural areas. I know some favor vouchers for private schools. I think this would effectively gut public education and produce an inevitable, protracted decline in our national education. Sure, some would likely benefit in the immediate term. The cost to society as a whole over the longer term would be incalcuable. Charter schools are great. Innovation is great. I am not advocating a NEA position where the status quo is fantastic and no one should be held accountable, but public schools are way too important to give up on.

Here we agree again - "This most basic opportunity is a sham for most kids in inner cities". Absolutely. Some inner city schools are a travesty. But some of these same schools have some of the highest per student spending. The correlation between spending and student achievement is terrible. America's educational problems are structural, not financial.

Since you support charter schools and innovation, may I suggest that rather than throwing money down the existing rabbit hole, you restructure the education system so that EVERY school is a charter school. Every student gets a voucher, every school is autonomous in most decision-making, and students apply to the schools that meet their interests. Good schools with good teachers would attract students and funding. Crappy schools would be closed. Teachers are regular employees judged purely on merit and paid competitively (so a good teacher might be recruited by a neighboring school). The principal is the effective CEO of the school and has wide decision-making power to structure the school as he see fits. These types of schools are already popping up all over the country.

I have never understood why people fight this kind of structure, which seems an obvious one to me. It is still a "public" school, since the state is financing the student's education. The difference is that the decision-making power on the student's education is moved from the school system to the parents and their children. How is that not sensible?

Again, I am ecstatic that the new administration has stated that education is a top priority and, incidentally, is putting its money where its mouth is

Despite whispers to the contrary from the administration, until I see hard evidence otherwise, I will continue to believe Obama and the Democrats are in the teacher's union's pocket. Your extra spending will mainly go to buttress collapsing teachers' pensions. And one-third of American high-schoolers will still drop out of school. Congrats on that.

Housing prices-to-income ratios

2009-01-28T11:42:00.002-05:00

How the hell did no one notice this? From roughly 3.25 to 4.75, most of which came sharply between 2000 and 2006. Gams, were people talking about this? What was the CW on the "why"? How were people justifying this in their head?

Education

2009-01-28T11:27:00.002-05:00

I am thrilled that $150,000,000,000 in federal funds are slated to be disbursed for education. This is the single best investment that this country can make at this time. Public schools are what makes America what it is, and this money is desperately needed, all over the country.

Republicans are screeching that this is going to radically change the nature of federal involvment in education. Good. Why, besides being the default setting, should local and state governments have sole discretion on this issue? Why should we let Mississippi elect to have shitty schools? Because local people know best how to educate (or not) their children? Why should Kansas be able to mandate creationism be taught in science classes?

Again, I am reverting to East Coast liberal egg-head status, but I honestly think there should be national standards (oh, and that they be funded). The state testing for monitoring NCLB is wildly inconsistent. Not to pick on Mississippi again, but apparently their test is considerably less, ahem, demanding than most other states.

Why do kids in Montgomery County, MD have a different deal in education than those from DC, or Prince Georges? Talk about un-American. This most basic opportunity is a sham for most kids in inner cities or rural areas. I know some favor vouchers for private schools. I think this would effectively gut public education and produce an inevitable, protracted decline in our national education. Sure, some would likely benefit in the immediate term. The cost to society as a whole over the longer term would be incalcuable. Charter schools are great. Innovation is great. I am not advocating a NEA position where the status quo is fantastic and no one should be held accountable, but public schools are way too important to give up on.

Again, I am ecstatic that the new administration has stated that education is a top priority and, incidentally, is putting its money where its mouth is.

Where's The Liberal Media When You Need it?

2009-01-28T09:39:00.001-05:00

81 Times

via Matthew Yglesias by myglesias on 1/27/09

Remember when conservatives were saying there was a CBO report out debunking the claims of the stimulus plan's authors even though there was no such report? Ah, good times. Turns out that this information was broadcast at least 81 times on Fox News, CNN, MSNBC, CNBC, and the Sunday shows.

That's based on a study done by my ThinkProgress colleagues. And of course they had a limited number of media outlets they could monitor. There's no telling how many times this myth was pushed on local television or talk radio or newspaper columns and the like.

Card Check Union Elections

2009-01-26T22:05:00.001-05:00

Email from Hoss:

"Card Check: Obama is 100% behind the Employee Free Choice Act. This is about as left as it gets.
Taking away private balloting is about as undemocratic as it gets. I find it hilarious that the democrats
held private balloting when they changed house leadership, yet want to make workers declare publicly if they
don't support unionization. Go ahead, [Tomb]. Spin away..."

I promised to respond to the question from memory and I have - for the most part. I did wait to confirm a couple of things with the union-busting attorney down the hall (he's a labor attorney and a union-buster in the literal sense), so here it goes.

First off all, the Hoss' initial statement is factually incorrect. During the campaign, Obama indicated that he would sign the EFCA if placed on his desk. Since the election, however, he has softened his position. He stated that if there is a way to achieve the same goals with a measure that doesn't anger business quite as much, he would consider it. He has also stated that the EFCA is not an administration priority at this point. So, he stills supports it, but it's not the 100% support Hoss alleges.

Second, many KPers might be shocked to learn that card check elections already exist [gasp]! In fact, organizers use card check procedures to demonstrate consent for the 30% of employees needed to obtain an NLRB secret ballot election.

Now, under current law, if organizers obtain the consent of the majority of workers using card check procedures, the organizers can submit the results to the NLRB for certification. Existing rules allow a large percentage of employees or the employer to challenge the card check election and request a secret ballot. Employers almost always demand a secret ballot. According to labor advocates, employers use the previously signed cards to identify union supporters and use the extra time before the next NLRB election to apply pressure to employees and influence the outcome of the final ballot.

So, here is the requested spin: union supporters believe that providing employers the right to demand an NLRB election even after a majority of workers have already indicated their desire to organize provides employers with an unfair advantage. In effect, it provides employers with two bites at the apple, even after workers have already spoken.

The EFCA would require the NLRB to certify a majority vote obtained through card check procedures. Employers can still challenge the results by citing evidence of coercion or fraud in the card check process. In those instances, a secret ballot NLRB election would follow. Absent that, certification and collective bargaining would proceed.

Thus, the EFCA does not do away with secret ballot elections. They would proceed either under the 30% rule or if it appears there were irregularities in obtaining a majority of card check authorizations.

What is curious is how so many opponents have seized on the notion that the EFCA does away with secret ballots. In addition to being factually inaccurate, the argument is a bit of a red herring. Based upon personal experience and familiarity with Roberts Rules of Order, elections by secret ballot within private organizations are the exception, not the rule. The default is a voice vote, which is followed by a roll call vote if the voice vote is not definitive. The idea that a vote to organize must be secret simply does not find support in practice or in history.

Finally, I think we can all agree that employers and unions have a strong sense of mutual distrust. Employers will argue that the EFCA subjects employees to coercion. Organizers say the the EFCA would have the opposite effect and actually decrease the amount of employer coercion. What is clear is that the EFCA does provide a secret ballot election in those cases where there is objective evidence of unions attempting to obtain card checks by dishonest means. This appears to strike a common sense balance.

500 days and counting...

2009-01-26T20:38:00.003-05:00

Dust off your American flags, Croatia jerseys and Viking hats. Cataclysmic worldwide recession or not, the World Cup is only 500 days away.

Isn't Gamma From Iceland?

2009-01-26T16:04:00.002-05:00

Gamma earlier posted a comment along the lines of, "There is no good government but smaller government." This editorial does a good job of responding. There is always a problem when you speak in absolutes, and Gamma, while your statement may have been true at some point, I don't think that is the present case. Obama says you can fix goverment, and we have no other choice but to believe him. Otherwise, I think many of your improbables become that much more likely.

Inauguration Speech

2009-01-24T22:22:00.002-05:00

The Tomb is friends with the managing editor a major conservative news magazine. He asked for my thoughts about Barry's inauguration address. Here's my response.

"Wow. I'm honestly excited that you would ask.

I just got finished watching it for the second time. I watched it live and the left for a depo, which lasted until 6:30. I haven't read any coverage and so the following is pure, unfiltered first impression.

I think it struck the right tone. Ever since he accepted the Democratic nomination, he has dialed back the soaring rhetoric that we saw at the 2004 convention and in the primaries. And since he won the election, all of his nationally-aired speeches have taken a somber tone.

This is very smart. In his desire to build consensus and broad-based support, he as been painfully careful not to present an air of self-congratulation or to foster a sense that he and the Democrats are on a victory lap. And I think that today's speech definitely falls into that mode.

If one takes a look at the substance, much of what he said today should provide heart to conservatives. He made an unequivocal declaration that America will win the war against terrorism. He explicitly rejected the foreign "blame the west" crowd and implicitly rejected their domestic counterparts. He acknowledged patriotism as a core American value and free markets as the best generator of wealth. He acknowledged that it is the American people, not the government that makes our country great. And, most memorably, he promised to help usher in a new era of personal responsibility.

What was missing was a memorable phrase that will sink into the national consciousness (although an era of personal responsibility comes close). Many were looking forward to such a moment - a moment that never really came. I'll reiterate, this was likely by design. Fewer rhetorical flourishes leaves Obama less open to the criticism that he purely form over substance. I don't think we will see the call and response style or the joyful energy of the primaries until the economy is in better shape, we have victory in Iraq, and he identifies a core group of centrist Democrats and moderate Republicans that will help him enact his agenda.

All that being said, today's speech raises an interesting question - just how much original drafting were John Favreau and Ben Rhodes doing last year? After all, knowing what we know about BHO's self-regard, one has to assume the last few major speeches were all penned by Barry. Could it be that many of the high notes reached last summer were composed by a recent Holy Cross grad? Ultimately, I would say no. Obama's 2004 convention speech was all his own and Favreau never made Kerry sound half as good. But perhaps Obama will need learn how to delegate and collaborate (like he did while on the trail) in order to achieve the same level of oratory we saw last summer.

Why Ron Paul Will Never Win

2009-01-24T22:04:00.003-05:00

Because Ron Paul would never do this:

And Jay-Z returns the favor at the Obama Staff Ball (99 Problems But a Bush Ain't One):

Obama Stimulus Math

2009-01-24T18:19:00.004-05:00

One problem with government spending is that it is usually so gigantic that is nearly impossible for people to put their minds around it. It's hard to differentiate between a sum like $25 billion and a larger sum, such as Obama's propose stimulus, of $825 billion. Certainly, it's difficult to personalize an astronomical number like that. Here is my attempt. I have done this routine before on here, but I am doing it again because I think it is easy to forget just how big a stimulus package this is.

The current U.S. population is about 305 million people. At $825 billion, that comes out to about $2700 per person- that's over ten grand for a family of four!

Redonkulous.

P.S. Despite my unrelentingly bleak viewpoint, I feel like America's great political hope lies in initaitives like this. Look at the spreadsheet that is linked. First, it is remarkable that kind of information is now available at your fingerprints and that it has been supplied (and will be supplied going forward) by a growing army of volunteers. Second, one glance at that spreadsheet should make it clear that the stimulus is being pumped based completely on politics and not economics. Virtually all that money will be wasted.

GammaBoy's 10 Outrageous Predictions for 2009

2009-01-24T00:40:00.001-05:00

Saxobank published a list of 10 outrageous predictions every year. "Outrageous" as in unlikely, as their call in 2008 that Ron Paul would win the election. Here are their 2009 calls. In the spirit, I have decided to create my own list of 2009 predictions. These are relatively low probability, or at least, if probable, are far from being conventional wisdom. Most likely I am setting myself up for well-deserved ridicule on January 1, 2010, but here goes...

A major riot in a U.S. city

I made this prediction for end of 2009 way back end of 2007. It sounded crazy then. Not so much now. There are numerous potential drivers for a riot (shortages, bank runs, dollar collapse, general shock and disappointment that Obama is not the messiah), but I am thinking the odds are good several come together to drive people into momentary insanity. It is already happening in Iceland, Greece, and the Baltics. Iceland has been the canary in the coal mine for this whole global crisis. Odds are good the contagion of violence spreads to the the UK first, and from there to its former colony. Just pray China doesn't catch the bug.

Shortages of Goods/Supply Chain Breakdowns

Between the turmoil mentioned above, waves of bankruptcies, and a breakdown in global credit finance, there is a very significant risk of breakdowns in global supply chains. Either suppliers in a specialized niche of a supply chain will disappear, or as has already happened in a few cases, buyers will be not be able to get the credit necessary to complete a purchase. Considering the complexity of modern supply-chains, a few broken cogs can lead to unexpected and chaotic outcomes. The risk of goods shortages is high, particularly in agricultural goods.

Pensions are the #1 financial crisis story

Pensions will be to 2009-2010 what the mortgage crisis was to 2007-2008. Most pensions are ridiculously underfunded, and the market events of 2008 destroyed what meager hopes some pension managers had for recovery. Public employee pensions, which have been much more generous to employees than their private counterparts for years, are in particular peril. CalPERS, the California Public Employees' Retirement System is a textbook case. There is simply not enough money in pensions to pay out anywhere close to what retirees are expecting. A battle is brewing between working people/taxpayers and retirees. Somebody is going to get the shaft. The media is still pretty silent on this crisis, but that will change, and pensions will start to steal the headlines. [The only good news is that most retired people are not up for rioting.]

Inflation/Deflation mix

If you follow economic blogs, there are ongoing debates about how this crisis will unfold. Will the government start printing money to make up for all the shortfalls leading to inflation (and maybe hyperinflation) or is the destruction of wealth so complete that we are headed for massive deflation? Personally, I have no idea. The wild card is the federal government, and since their economic initiatives seem to change daily, you need to be a Kremlinologist to even begin to discern the way things are going to play out.

Nonetheless, as a trader, you learn to think in terms of "spreads", the comparative price difference between two separate things. In that framework, it matters less whether the absolute price of A and B go up or down but how they behave in relation to one another. So here is my inflation/deflation theory. The price spread between goods is going to follow Maslow's hierarchy of needs. The more basic a good is for survival the better it's relative value is going to hold up. The more inane, luxurious, or superfluous a good, the more the relative value of the good will decrease. For example, the price spread between a used Ford F-150 and a new BMW 7-series will decrease. And so with a penthouse in Manhattan and a flat in Oklahoma City. A Cartier watch and a Seiko. Granite counters and laminate counters. Etc.

In short, I'm not sure if the price of gasoline will go up or down. But if it costs 25,000 gallons of gasoline for a BMW today, rest assured, the price of the BMW in terms of gasoline will drop over the next several years.

Russia goes nuts

Russia is going to step back on to the world stage in a big way in 2009. Their affair with Georgia and their recent tiff with Ukraine are just initial feints in what I expect to be a crazy and tragic year for Russia and its neighbors. Even as the country continues to hollow from the inside out, I expect it to become much more aggressive with its ex-satellites. Their tanks will roll again this year.

The Euro crumbles

2009 will be the beginning of the end of the Euro as a functional currency. I expect at least one country currently using the Euro to pull out. Once the first country (perhaps Italy) has the courage to do it, other countries will fall like dominos. This will set stage for a new era of intra-European squabbling, as the Irish realize they actually dislike the French and the Polish rekindle their fears about Germany and so on. The framework of the EU will slowly fall to pieces (although not until after 2009).

Crude trades above $100 again

If I was more certain of this one, I could make a lot of money, but my sense is that the recent fall in crude prices is a short-term anomaly and prices will rise again. Along with all other commodities actually. This again is a spread view - commodities, which are always needed and a limited resource, versus fiat currencies, which are being printed by the wagonful in Europe, and shortly, the U.S. I realize this contradicts my "no idea" statement above, and admittedly, this is very speculative. Nonetheless, given the choice now, I would trade my greenbacks for gold, an oil company, or a future delivery of food.

War and more war

If history is a guide, times of economic despair often breed militancy, and I expect that pattern to re-emerge in 2009. There are plenty of candidates (India/Pakistan, Russia/Ukraine, China/Taiwan, countless civil wars, and even (gasp), U.S./Mexico), but somewhere on this planet, recession, shortages, and the political expediency of deflecting the resulting anger at a foreign country, are going to lead to violence. 2009 will be a violent year. Bonus prediction: Crime levels explode in the United States.

Ron Paul movement strengthens

The Ron Paul arm of the GOP will gain traction and begin to become a larger presence on the political scene. He was virtually blacked out by the media during the campaign, but as the recession has deepened, he is starting to become a fixture on cable news. I would expect that presence to grow throughout 2009, although this may just be wishful thinking on my part.

Secession discussions begin

Of all the unlikely happenings suggested above, this is by far the least likely, but it will eventually happen, just maybe not in 2009. As it becomes increasingly apparent that the federal government cannot meet its obligations, or conversely, as the tax load required to meet those obligations explodes, there will start to be discussions in states about secession. At first, it will be quackery, but as the situation worsens, it will gain traction with people. It is unlikely to actually happen, but the thought alone that people might start to take the idea seriously is by itself remarkable. The most likely candidate, of course, the Republic of Texas.

How stupid is Ken Lewis?

2009-01-23T22:09:00.003-05:00

(a) marginally
(b) pretty
(c) really
(d) extremely
(e) galactically

The answer is "e." He is galactically stupid.

Ken Lewis is the CEO of Bank of America. In September, Merrill Lynch CEO John Thain watched as Lehman Brothers went bankrupt. That is, its common stock was completely worthless because of overwhelming debt obligations on its balance sheet--primarily due to the "toxic" mortgage-backed securities and related derivatives we've all been reading so much about. Thain thought, "Wow, our risk management is just as bad as Lehman's, if not worse, and we're also up to our eyeballs in CDOs. The government will probably opt not to bail us out either. I better find some sucker to buy our steaming shit sandwich or we're going to go bankrupt too."

So, Thain called Lewis and, over the course of a few hours, got him to agree to buy Merrill Lynch for $50B. The deal was announced that Monday and closed January 1. So Merrill's closest peer in the broker-dealer business was worth nothing, but Lewis spends $50B--WITHOUT DOING ANY DUE DILIGENCE. Who does that?

Surprise! Merrill posted a "worse-than-expected" $15.3B loss in Q4. Even though he had a chance to walk away from the deal before it closed on January 1, he declined. Sure, the government eventually pumped in (a probably-insufficient) $20B from the TARP, but the damage to BofA's stock price was done. It's down 83% since doing the Merrill deal in September.

This is who we're bailing out. He fired Thain yesterday. If Lewis himself isn't ousted next week, Obama should be held to account until it happens. This is long past absurd.

Anybody want to join me in starting a bank? There's really very little risk. Even if you're a total douchebag.

Editorial from the London Daily Mail, 3 Jan 2009

2009-01-20T01:32:00.001-05:00

A victory for the hysterical Oprah Winfrey, the mad racist preacher Jeremiah Wright, the mainstream media who abandoned any sense of objectivity long ago, Europeans who despise America largely because they depend on her, comics who claim to be dangerous and fearless but would not dare attack genuinely powerful special interest groups. A victory for Obama-worshippers everywhere. A victory for the cult of the cult. A man who has done little with his life but has written about his achievements as if he had found the cure for cancer in between winning a marathon and building a nuclear reactor with his teeth. Victory for style over substance, hyperbole over history, rabble-raising over reality.

A victory for Hollywood, the most dysfunctional community in the world. Victory for Streisand, Spielberg, Soros and Sarandon. Victory for those who prefer welfare to will and interference to independence. For those who settle for group think and herd mentality rather than those who fight for individual initiative and the right to be out of step with meager political fashion.

Victory for a man who is no friend of freedom. He and his people have already stated that media has to be controlled so as to be balanced, without realizing the extraordinary irony within that statement. Like most liberal zealots, the Obama worshippers constantly speak of Fox and Limbaugh, when the vast bulk of television stations and newspapers are drastically liberal and anti-conservative. Senior Democrat Chuck Schumer said that just as pornography should be censored, so should talk radio. In other words, one of the few free and open means of popular expression may well be cornered and beaten by bullies who even in triumph cannot tolerate any criticism and opposition.

A victory for those who believe the state is better qualified to raise children than the family, for those who prefer teachers' unions to teaching and for those who are naively convinced that if the West is sufficiently weak towards its enemies, war and terror will dissolve as quickly as the tears on the face of a leftist celebrity.

A victory for social democracy even after most of Europe has come to the painful conclusion that social democracy leads to mediocrity, failure, unemployment, inflation, higher taxes and economic stagnation. A victory for intrusive lawyers, banal sentimentalists, social extremists and urban snobs.

Congratulations America!

London Daily Mail

70's Flashback

2009-01-15T21:48:00.001-05:00

Y'all gotta read this. Funniest thing I've seen in a while.

http://15minutelunch.blogspot.com/2007/10/strap-in-shut-up-and-hold-on-were-going.html

Searching for Stimulus Opponents

2009-01-12T21:22:00.001-05:00

Pretty telling if you ask me.

Searching for Stimulus Opponents

via Matthew Yglesias by myglesias on 1/11/09

The House GOP's efforts to publicly solicit the names of economists opposed to the idea of an economic stimulus package is an interesting gambit. On the one hand, it reveals how crass and political John Boehner really is—he picked his policy position first, and then started looking for experts to back him second. Beyond that, it reveals how shallow the depth of opposition really is.

Brad DeLong observes that "no current or former member of the President's Council of Economic Advisers–Democrat or Republican, living or dead, sane or insane–has signed up for the Republican House caucus's list of economists opposed to the stimulus package."

Reshaping the Economy

2009-01-09T09:48:00.002-05:00

Interesting piece on Pittsburgh in the Times yesterday. Made me think about growing up in Houston during and after the oil boom. Houston remade itself much the same way Pittsburgh has, by reducing dependence on a single industry and diversifying into cleaner, more sustainable industries, like computers, education and healthcare. While for both cities there was a ton of painful dislocation, both have emerged as much better places to live and work. Obama and the circus they call Congress should make a concerted effort to do for the nation what these cities have done for themselves.

Investment, government or private, into "green" technology (and I don't mean ethanol from corn, I mean genuinely beneficial stuff), healthcare and education are critical and will pay dividends for decades. Tax the shit out of oil if you don't want the gov't spending money, so that the "market" will be incented to develop the technology. We need a coherent approach and not to rely on the fits and starts of the price of a barrel of West Texas Light Sweet Crude. Provide for universities to really ramp up their research. Do it in places that are currently dependent on a single, or precious few, industries that do not have real good prospects (automakers in Michigan come to mind). Give EMU a boatload of cash to start a fuel cell research center. Retrain the auto workers to be the labor for these new industries. Gamma Boy's take on college as an investment notwithstanding, let's do something about it.

If we take the examples of H-town and the 'Burgh as our map, we should be able to develop something thoughtful and coherent that makes solid, lasting improvements to peoples' lives and to the economy.

My Top 30 CFB Rankings

2009-01-09T09:38:00.000-05:00

I haven't looked at the post-season polls, just the results of the bowl games and follows my final top 30 of college football. Discuss.

1 Utah
2 Florida
3 Texas
4 USC
5 TCU
6 OU
7 Ohio State
8 Penn State
9 Ole Miss
10 Alabama
11 Oregon
12 Iowa
13 Georgia
14 Texas Tech
15 Oregon State
16 Boise State
17 Virginia Tech
18 Mizzou
19 Florida State
20 Oklahoma State
21 Pitt
22 Georgia Tech
23 Tulsa
24 Cincinatti
25 Michigan State
26 West Virginia
27 Cal
28 Rice
29 Nebraska
30 Rutgers

All the news that's fit to print

2009-01-05T23:15:00.006-05:00

Good stuff from the NY Times this Sunday illustrating how fucked we are. KP friend Michael Lewis co-authors a two-part op-ed with David Einhorn, a hedge fund manager (not sure why it's two articles). Joe Nocera has a lengthy article for the magazine on Value-at-Risk (VaR) and its role in the financial crisis; KP friend Nassim Nicholas Taleb--the Black Swan guy--is prominently featured as both a VaR critic and an asshole. Nobel Laureate Paul Krugman says Obama's fiscal stimulus package must be big and quick to prevent "Great Depression II." Lastly, the Business section gives a good overview of the commercial real estate market's growing vacancy problem and its effect on the viability of both large national banks and smaller regional banks. Happy New Year!

Yo Gabba Gabba sees Tinseltown in his Future

2009-01-02T22:26:00.001-05:00

The bright lights, the Greyhound Station... YGG, your dreams aren't dead

Little Girl Calls Gamma Boy Out

2009-01-02T22:17:00.003-05:00

I hate to be the one who posts this, but better a fellow-KPer than to see it on some sordid website. Gams, you've been served.

Go Rice Owls

2008-12-30T19:19:00.004-05:00

BEAT WMU!

Don't Call it a Comeback

2008-12-30T13:00:00.003-05:00

I have been here for weeks. After a brief hiatus due to somewhat not-planned parenthood (Let's hear a hearty welcome for little baby Restless Chicano), I am back with some comments generated by a brief, off-KP discussion on kids and guns. To get everyone up to speed, Aztec's children (all less than 10) received a veritable arsenal of Nerf weaponry from Jolly Old St Nick. They are currently delighting in SWAT-like special ops involving taking or holding the 3rd floor playroom in idyllic Inner Suburbia. Your correspondent fired off a 3/4 joking scolding to Aztec for introducing his children to firearms, if only in Nerf form.

After some to-ing and fro-ing, I thought I'd post a quick summary of my thoughts on this matter, which are summed up by not having toy guns in the house and expressing my dislike for guns in general to my children, contemporaries of Aztec's.

Yes, they will use other items to represent guns. Partially eaten peanut butter sandwiches make a nice Glock. The vacuum cleaner extensions make a pretty solid shotgun or rifle. I frown on this at home and I do draw the line at pointing them at people. That's where I actually get a little conflicted with the Nerf stuff. I recognize the sheer joy associated with drawing a bead on your older brother and then pulling the trigger while squealing in delight like a feral pig. I just find it creepy and potentially not healthy.

I know I am on the wrong side of the Ruby Ridgers and, more normally, hunters in general, but I really see no reason for anyone to have a sidedarm who is not a cop or a soldier/sailor/marine/flyboy. I know we were all worried about the British taking our guns in the late 1770's. I just honestly don't think we can get to that point in this country (and if Bush couldn't pull off a constitutional putsch, then no one can). I also saw and loved Red Dawn. Seems pretty far-fetched these days, though. I frankly see very little need to hunt, but I am willing to pass on this one and defer to this tradition and the alleged bonds it forms. Hunting with guns, unless I have been misled, is almost always done with single-shot rifles and shotguns, so I suppose we can keep those around.

I firmly believe that the damage our current obsession/legislation with guns does is really awful. To a point made by VooDoo, while knives and swords are certainly a bit bloodier and gorier, I think there are a couple of important distinctions:

1) You want to cut someone you have to get up close and personal (unless you have crazy Ninja skills and can throw a knife with some degree of accuracy across a room). Guns take away the immediacy of the act. You can't tell me that a guy flying a B-2 has the same experience killing people as a guy with an M-16 on the ground. Likewise, the ease and impersonal nature of pulling a trigger makes it seem a bit easier to me to do so. I am admittedly guessing here, having neither shot nor stabbed anyone ever, though not for want of impulse. Waiting periods seem pretty reasonable. Remember Homer: "But I need a gun NOW!"

2) It would be pretty tough to walk into Columbine and kill dozens with a knife or sword (the latter of which, I am almost certain, is much harder to acquire than a gun). While you'd likely get one or two kills in, which is no less tragic for the victims and their families, the sheer numbers go way down. I also have to think that the physical act of slashing someone might have shocked even those kids and they may have stopped much quicker (see Point 1).

3) Knives have plenty of practical purposes outside of killing or maiming. Like picking one's teeth. Try that with a Sig Sauer. Whoa, boy.

At the end of the day, I am really just trying to instill in my children the same East Coast liberal egg-head ideas about guns my mother instilled in me. Recognize their utility (fighting wars, providing protein-based food if the supermarket somehow disappeared) and recognize the toll that these take on a society that has come to regard life so cheaply that drive-bys in the hood no longer make the evening news.

As a provocative corollary here, I find it somehow odd that the majority of right-to-lifers probably also support the 2nd Ammendment and the death penalty, while the NARAL-types generally loath guns and the death penalty. Far be it from me to give the Vatican anything that could remotely pass for praise, but they are at least consistent with their "seamless garment" approach.

Is College Worth It?

2008-12-29T10:21:00.002-05:00

After RN's comment a few posts back, I decided to do a back of the envelope calculation on the college investment.

Let's start with the ROI. Here are some stats on average earnings based on education level. There are two statistics - average earnings and average lifetime earnings. Both statistics are troublesome since a lot of details are excluded, but since this is a very rough calculation, let's use the lifetime earnings calculations. A high school degree nets you lifetime earnings of $1.2M and a bachelor's degree nets you lifetime earnings of $2.1M, a $900K difference. I assume this is over around 40 years of working, which correlates reasonably closely with the average annual earnings difference of $22K.

So college clearly boosts earning potential. Now let's look at the investment side of the ROI equation. Here are some college costs statistics. Again, there are a range of costs, but let's take a mid-point number and assume that college costs $25K a year. Add to that the lost earnings, which according to the previous link, should be around $30K a year. For a four-year college, that's a $220K investment.

Let's be a bit silly and assume you could take that whole investment and earn 5% a year on it over 40 years. You would end up with $1.575M, which compares very favorably with the $900K difference quoted above.

There are at least a dozen serious problems with this comparison as calculated above, but even taking those into account, it should be clear that college is not the slam-dunk choice that most people consider it to be.

At a minimum, it is a very bad idea to send your child to a $40K a year college so they can earn a liberal arts degree that will barely boost their income. Financially, at least, it is better for them if you stick that money into an annuity and teach them a real trade.

A few years down the road, I am guessing the plumber with a nice annuity is going to be in much better financial (and possibly mental) health than the Comparative Lit major with the $100K+ in college debt.

If the Leader of the Free World Has a Six-Pack

2008-12-22T13:51:00.001-05:00

There is no excuse for the rest of us:

Bubble Trouble

2008-12-22T00:12:00.008-05:00

Karl Denninger has some required reading on our current economic troubles. My take on the situation pretty much mirrors his thoughts, although I could never have articulated my concerns with the precision that he has.

I have been thinking about bubbles a lot lately, and I am starting to wonder if many of the seemingly insane societal trends that we have witnessed develop over the last couple of decades are going to implode in concert with our economic bubbles. Over the last week, I ended up thinking about two potential examples: baseball salaries and weddings. There are probably many more, but I happened to think about these two because I read the New York Post and my wife watches TLC.

Let's start with baseball salaries. Here is a crude and hastily assembled chart of each year's highest salary in baseball.

This was brought to mind by the Yankees' recent $243 million signings. Now I am not impugning Sabathia and Burnett (although Burnett strikes me as an easily impugnable pitching talent), but the economics of supporting a roster like this are difficult. For example, apparently the new list price for a seat behind the dugout for a regular season game is $2500. We are not talking World Series here. We are talking a Wednesday night game in June versus the Mariners.

During the salad days, companies may have been willing to cough up such absurd amounts, but when it comes time to cut costs, season tickets seem like they would be an early victim of the hatchet. There are certainly going to be a lot less Wall Streeters guzzling $8 beers in 2009. And I was told anecdotally the other day that a little company called Kraft finally threw in the towel on their season tickets, deciding they were just too expensive. If Kraft is crying uncle, there must be many lesser organizations in the same position.

Like any poor trader, I am calling a top in baseball salaries. Even as the top talents are able to bring in absurd salaries, overall free agent prices are weakening. I think the combination of a weak economy and baseball's many issues are going to change the landscape so dramatically that a decade from now we will look back on these salaries in astonishment.

And now to nuptials, another institution gone cuckoo on the back of cheap credit. The average wedding costs over $30K. In a nation where the median household income is only $48K, this is insane. It is particularly insane because the funding source for a wedding has changed...

This year only a quarter of brides will count on mom and dad to pick up the tab.
Instead, nearly one-third of brides and grooms will forgo tradition and foot the
entire bill themselves.

For a young couple, "foot the bill" really means "create a pile of debt". Historically, weddings were celebrations funded by families where guests provided cash and gifts to the happy couple. It was a carefully orchestrated transfer of wealth to the younger generation to give them a financial foundation on which to build their life. We have now completely flipped the script, burdening newlyweds with a pile of debt instead of a pile of assets. It has been an insane and destructive trend, but as with the baseball's insanity, perhaps a dose of recession will wake us up to our own many follies.

The First Real Voice for Labor in Over 30 Years

2008-12-20T12:06:00.002-05:00

Perhaps for only the second time in our lifetime, labor will have an advocate at the cabinet level. YGG may not be a fan, but Solis is the only overtly liberal cabinet appointment so far. Gates at Defense, Salazar at Interior, and Clinton at State have been giving progressives fits. On the whole, there is very little room for any "I told you so" moments.

A Real Estate Story

2008-12-19T05:43:00.004-05:00

I don't have independent confirmation of this story, so there is a chance that it is inaccurate, but it came directly from a source, so I think it is probably accurate:

For those of you unfamiliar with New York's various social strata, the Hamptons is the preferred vacation area of NYC's moneyed class. The prices have been stratospheric over the last few years. As the national real estate market has weakened, there has been a reassuring conventional wisdom that Manhattan and Hamptons real estate was immune.

Well, this story suggests otherwise. A successful trader decided to take some cash and make some bids on property out there. He asked a real estate agent to show him five properties with asking prices of about $5 million each. After touring the stunning properties, he made bids on all five properties.

$1.25 million each.

Two sellers came back and hit his bid. At 25 cents on the dollar.

If this is true, it is so stunning as to be almost unbelievable. But before you scoff, consider some other assets.

S&P: trading 89, down from peak of 149 (down 40%)
Oil: trading 37, down from peak of 147 (down 75%)
Gasoline: trading .96, down from peak of 3.11 (down 69%)

Based on these numbers, it is certainly not inconceivable that real estate should be down 50-75% from the peak. Especially when you consider that the above assets are "productive" assets. They are "productive" in the sense that they should either be creating wealth (corporations), or they should be a necessary component in the creation of wealth (energy).

For the most part, residential real estate is not a productive asset; I don't see how you become more productive by living in a 10-bedroom house versus a 3-bedroom home. As an individual, you actually probably become less productive when upkeep and maintenance are included in the calculation.

When people upgrade their kitchen with granite counters, they like to tell themselves they are making an investment in their home, but this is largely incorrect. Capital investments should make the people involved more productive. In a home, such capital investments might be certain appliances (e.g washer/dryer) or improved internals (e.g. a more efficient heating system). But outside of these few components, larger, more lavish homes do not make the individuals living there any more productive, and again, when taxes, utility, and maintenance costs are considered, the individuals are arguably much less productive.

With all that said, 25 cents on the peak dollar sounds just about right.

Hedge Funds, R.I.P.

2008-12-17T15:37:00.004-05:00

For the last several years, I have been preaching to those few with the kindness and fortitude to tolerate my rants that hedge funds are an absolute scam and will eventually be viewed in our collective rear-view mirror with the same hungover disbelief with which our society regards the dot-com bubble and the real estate crash. "I did what last night?" has become "I bought what last year for how much?" Ugh, I need an aspirin.

If you think Pets.com and Inland Empire real estate were overpriced garbage, consider your average hedge fund. Your average hedge fund will charge you an annual fee (usually about 2% of assets) for the privilege of putting your money in their hands. They will then take a percentage of any profits (usually about 20%). It's called two and twenty, and it is the greatest racket in the world.

If the fund makes money, you get your piece minus your substantial costs. If the fund loses money, you get a ringing phone, unreturned emails, and potentially a visit from an SEC agent with tragic news. I regret to inform you your investment was killed in a mortgage deal in Boca Raton.

It is simply astonishing to me that people will pay these levels of fees, only to be told that their money is locked up and cannot be returned. For $10 a trade, Schwab will do my bidding and send me money on request. Why would you pay more for less access to your own money?

There is something else to understand about the average hedge fund. The trader is, most likely, pretty much average. Traders move back and forth between Wall Street firms and hedge funds like the swallows of Capistrano. After a couple of years of successful trading on a Wall Street desk, a trader puts up a shingle, raises some money, and then does basically the same thing he did for the bank. Except as generous as payouts have historically been at banks, hedge fund payouts are simply ridiculous.

The real problem is that the incentives in most hedge funds are designed to benefit the fund, not the investor. Because their payout is linked to upside performance, funds are incentivized to leverage up and swing for the fences. And because most performance fees are calculated annually, funds are incentivized to do everything they can to make a single year's numbers look good. With enough capital, one good year can set a trader up for life, and should the position blow up spectacularly in following years, there is usually no mechanism to claw back the ill-gotten bonus. A case in point.

There are excellent money managers out there, but there are really only a handful that are consistently successful. The best of the rest, on aggregate, are probably only a few percentage points better than the rest of the market herd. By the time you remove your annual fee and 20% of your upside, you have pretty much wiped out that advantage. Add in the risk of either fraud or a massive loss, and investing in hedge fund seems like a loser's game.

The biggest losers lately seem to be pension funds. Eventually someone is going to ask why pension funds are paying these ridiculous fees to funds (and funds of funds) for results that are pretty ordinary. The retirement capital of millions of people is being used to finance highly leveraged trading that is making a few people enormously rich at enormous risk. I don't often say this, but where the hell is the AARP when you need them?

Dream Come True

2008-12-15T09:52:00.002-05:00

Instead of bemoaning the horrendous state of pretty much everything, take a quick second to read this article and tell me all of you haven't had a fantasy that went something like this. Maybe not hockey, but really...you are at the Phils games with a couple of buddies. Game tied and goes to the bottom of the 22nd. No pitchers left so they bring J. Werth in from right field. This begs the question, "Who do we put in right?" Charlie Manuel sees you in the crowd, with your official jersey, your own name and a number not on the roster currently. Oh, and you brought your glove. "Hey Native, get down here. You're going in in Right." Oh, man. Best part is you drop a routine fly ball, the Marlins win, and you get to shower with the team. Towels snapping everywhere. Perhaps an unfortunate accident involving the soap. You'd make SportsCenter for sure.

In Preparation for the Texas Bowl

2008-12-13T09:53:00.000-05:00

Ponziriffic

2008-12-12T01:27:00.003-05:00

The headlines today are likely to be about GM and the collapse of bailout talks (hooray!), but this story is mind-boggling. $50 billion. Holy crap!

As a conservative, I love to beat up the government for rampant corruption, but the private sector can clearly compete in this dubious field.

Check out some of their website before it evitably disappears. Lots to marvel at, such as this gem...

In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door. Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark.

It would be funny, except some very well-meaning people have undoubtedly been ruined. That seems to be a theme from what I've witnessed on Wall Street. Many "wealthy" people were actually leveraged to the hilt. The pain from this recession is going to run the full height of the socioeconomic ladder.

New Ad Campaign for the Big 3

2008-12-11T12:56:00.001-05:00

Car Czar: Crazy

2008-12-09T21:15:00.003-05:00

Apparently, we're going to give the car industry $15B and they will have to the end of March to restructure the entire industry or there will be no more money. Here's how Pelosi explains it:

"Unless the restructuring that is called for in this legislation and the goal of viability is achieved by March 31, there is no justification for spending more taxpayer dollars."

Against my better judgment, I will go ahead and assume that "viability" means the car companies will be able to function on their own by the end of March. They are going to "achieve" the goal of "viability" is by putting a presidential political appointee "in charge" of sorting out the whole mess and making the tough decisions if Detroit is not willing to make them itself.

Huh? WHAT?!?

Isn't this what Chapter 11 bankruptcy court is for? There is no way a political appointee is going to be able to make the tough decisions required to break union contracts, change dealership deals, restrain creditors, etc. "Oh, yeah, sorry Barack. I know you really don't want to be known as the president that told Detroit to drop dead. But, you know, I wanted to do the right thing. Got any more appointments for me?" Please. I don't understand why we can't do this in court. It has worked for the airlines. I'm actually okay with the government fronting the money because it's unavailable in the credit markets right now. But I see a real danger entrusting this mess to anyone other than a bankruptcy judge.

The Black Swan Speaks

2008-12-08T18:43:00.003-05:00

Nassim Nicholas Taleb was on Charlie Rose recently. Here's the video.

As a counterpoint, here is a good contrarian viewpoint from Seeking Alpha citing Taleb and Nouriel Roubini as the reasons he sees a market bottom.

Two Funny

2008-12-04T14:09:00.003-05:00

The first link continually makes me laugh for some reason. I think it is how Gamma and Ron Paul view the environment. Seriously though, if you have not watched BBC's Planet Earth in HDTV, you are missing a tremendous experience. We'd keep it on in repeat in the background without sound when people would come over just for the awe it inspired.

The below I received via e-mail. Not sure who wrote it, but pretty damn good. One would think a UT fan wrote it, but then again, it is clever. Thank god there were playoffs in 1945.

BCS DECLARES GERMANY WINNER OF WORLD WAR II
US Ranked 4th

After determining the Big-12 championship game participants the BCS computers were put to work on other major contests and today the BCS declared Germany to be the winner of World War II.

"Germany put together an incredible number of victories beginning with the annexation of Austria and the Sudetenland and continuing on into conference play with defeats of Poland, France, Norway, Sweden, Denmark, Belgium and the Netherlands. Their only losses came against the US and Russia; however considering their entire body of work--including an incredibly tough Strength of Schedule--our computers deemed them worthy of the #1 ranking."

Questioned about the #4 ranking of the United States the BCS commissioner stated "The US only had two major victories--Japan and Germany. The computer models, unlike humans, aren't influenced by head-to-head contests--they consider each contest to be only a single, equally-weighted event."

German Chancellor Adolph Hiter said "Yes, we lost to the US; but we defeated #2 ranked France in only 6 weeks." Herr Hitler has been criticized for seeking dramatic victories to earn 'style points' to enhance Germany's rankings. Hitler protested "Our contest with Poland was in doubt until the final day and the conditions in Norway were incredibly challenging and demanded the application of additional forces."

The French ranking has also come under scrutiny. The BCS commented " France had a single loss against Germany and following a preseason #1 ranking they only fell to #2."

Japan was ranked #3 with victories including Manchuria, Borneo and the Philippines.

United States head coach Harry S Truman was criticized by many as having poor taste for scheduling a "politicking" interview during halftime of the German bombing raids over Great Britain.

In that interview, Truman stated, "Any way you look at it, there is going to be a really good military force that gets left out. But when you come right down to it, our head-to-head victory over the Germans has to be the deciding factor."

A US fan also made the point that "Germany is getting all the style points right now because of their sexy offense, which continues to obliterate weaker opponents and show off their might after the battle is already won. But what about defense?"

StateStats - Search Popularity by State

2008-12-04T12:33:00.001-05:00

Don't start typing in search terms unless you have a good amount of time to kill.

StateStats - Search Popularity by State

via Neatorama by GeekAlerts on 12/4/08

StateStats is an online tool that can show you how popular a Google search query is in each U.S. state.

It then compares this ranking with other ways of ranking states, like average income or population density, using Spearman's rank correlation.

Link

Free Plaxico

2008-12-04T06:54:00.002-05:00

I should be elated about Plaxico's situation. I never particular liked him as a player, and since he plays for the Giants, his loss was theoretically my gain.

But damn my conservative principles, I now find myself forced to become a drum-banging, black armband-wearing activist crying for justice for poor Plaxico. I was going to rail on about the injustice today, but the WSJ pretty much beat me to it.

Consider the possibilities

2008-12-03T20:45:00.002-05:00

Check out this announcement from Michelin on Monday. It's hard to tell just how viable this solution really is. But wouldn't be amazing if it or something like it turns out to be true and commercially available in the next few years? It would absolutely change everything.

Maybe all the bad news recently is us merely collecting all the hearts on our way to shooting the moon. This could be the queen of spades. It's fun to think optimistically for a change.

Some cogent analysis (not from me)

2008-12-03T14:14:00.003-05:00

The MSM has finally come to the realization that this recession is going to be a little worse than they expected, but the blogs are still the place for solid analysis. I recommend two posts that Mish put up today...

http://globaleconomicanalysis.blogspot.com/2008/12/prepare-for-depression-level.html

http://globaleconomicanalysis.blogspot.com/2008/12/auto-sales-plunge-to-lowest-level-since.html

Unfortunately, in the long-term, every one of Paulson and Bernanke's current interventions will make this recession that much worse. And the size of these interventions suggests the effect could be long-term catastrophic.

Here is some perspective (emailed to me)...

Aztec, I am hoping to get a reply to your earlier arguments posted soon.

Sean Avery Suspended for Off-ice Comment

2008-12-03T10:19:00.002-05:00

I don't know how the League suspends a guy for this. While tasteless, it does appear to be true. He's done a lot worse things on the ice and never been suspended before. Weigh in and let KP know what you think.

Here's an article outlining the issue.

Manliness

2008-12-02T11:28:00.002-05:00

World Series of Poker - Phil Hellmuth - Hot Babes

Monster Truck Rally - Truckzilla v. Gravedigger - Car-crushing Extravaganza

Guns - Hunting - Beaver - Buck

Fishing - Large-mouth Bass - Small Mouth Bass - Trout

Cigars - The Governator

Beer - Kegs - Funnels - Beer Pong

Regulation, Not Participation (because we haven't bashed Fannie/Freddie in awhile)

2008-12-01T19:32:00.004-05:00

While I agree with Aztec's comment that the government had to step in and do what they did with Fannie and Freddie, they still deserve to be bashed.

The GSEs go well beyond the realm of regulation into the realm of government participation in the markets. This has led to the ultimate manifestation of the moral hazard problem (public risk, private gain); enormous leviathans that dominated the market; and an expansion of scope well beyond their original charter into risky assets.

Government should set the rules of the road and actively enforce them. (And I agree with Aztec's point that the CDS market should be regulated...probably like the insurance industry.) But that's it. Government should not become an active market participant that distorts competition through unfair advantages like below-market borrowing costs, guaranteed debt, and weak oversight. Fannie and Freddie's size and market power today would make them subject to anti-trust laws if they weren't already government entities with powerful lobbies. And all of this to what end, exactly? Increasing home ownership in America to include people who cannot afford to buy homes? Bad governmental policy + poor implementation = disastrous results not just for America, but for the global financial system. I wonder how Chris Dodd and his ilk can sleep at night.

Essentially, the GSEs are off-balance sheet financing for the federal government. The only good explanation is that they were set up that way to hide debt obligations from creditors and the American public. It's not a stretch to say that such an approach is Enron-esque. Now that they are in conservatorship, the government should break them up, sell off the parts to private investors, and get out of the mortgage business once and for all.