28 September 2008

The Dominoes Continue to Fall

From the AP. Monday morning ought to be nuts!

Get Schooled

If you've got about an hour to spare then watch this video which explains simply and accurately the current economic and financial market turmoil that we are experiencing.

23 September 2008

The Most Important Criteria to Consider...

This is from an open letter to Congress on the possible bail-out plan. I think it's the most important consideration...

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, Americas dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.
Thanks to Marginal Revolution for the post.

22 September 2008

Food For Thought

Oil just jumped over $20 a barrell today. Looks like people are responding to the potential jump in inflation due to the federal government's decision to tack on $1 trillion in debt to "save" the financial system and the economy. In case you cannot tell, I'm not very confident that current actions by the Federal Reserve, Treasury, and Congress are going to "save" anything. It's looking more and more like the implications of decisions to assauge current issues will seriously endanger our long-run economic stability. So what's next?

19 September 2008

Light Reading

Will Wilkinson with an interesting post...

The Best...err, Worst is Yet to Come

A good point from David Roche in the WSJ:

When bank credit does contract, the impact on the real economy will be more marked than we have seen thus far. The reason is that most bank credit is the sort of money that gets spent in shops and garages, or is used by the corporate sector to invest in real assets. NDFI money is used to invest in financial markets, causing security prices to rise and fall, which only indirectly affects the real economy by changing the value of wealth.

The Future of Regulation

From Paul McCulley at Pimco...

17 September 2008

What Lies Ahead

While most are concerned with the present moment (and have every reason to be), Kenneth Rogoff is looking beyond the current situation to the future implications of our attempts to avoid total catastrophe by giving bail-out after bail-out.
A large expansion in debt will impose enormous fiscal costs on the US,
ultimately hitting growth through a combination of higher taxes and lower
spending. It will certainly make it harder for the US to maintain its military
dominance, which has been one of the linchpins of the dollar.

The shrinking financial system will also undermine another central
foundation of the strength of the US economy. And it is hard to see how the
central bank will be able to resist a period of allowing elevated levels of
inflation, as this offers a convenient way for the US to deflate the mounting
cost of its private and public debts.

So even if all the magic tricks work and we avert a complete meltdown caused by exotic finance and the folly of making too much money off of money, the repercussions of our rescue efforts (whether successful or unsuccessful) will be felt for years to come.

15 September 2008

REBELS!!!

Okay, so the Rebs upset No. 15 ranked ASU on Saturday night in a thriller of a game. Of course there was barely any coverage on the television, but at least there was an article [actually just a game recap] posted on ESPN.com. Something that made me chuckle:


"No disrespect to them, but we let them hang around in the game, and look what
happened -- they beat us," ASU safety Troy Nolan said.

Well, just take a look at the stat sheet and try to tell me again that ASU "...let [UNLV] hang around in the game..."

Owned son! 'Nuff said. Good luck against Georgia next week....CHUMPS!

10 September 2008

The Political/Economic Debacle

From Tyler Cowen at Marginal Revolution regarding the Fannie Mae and Freddie Mac bailouts...

In essence we already agreed to the bail out some time ago.  Have you ever spent $17,000 on a car and asked the dealer what the warranty for the car "really meant"?  Well, the Chinese spent $340 billion on agency debt and probably asked the same question at least once or twice.  They live in a world of secret agreements with leaders, not transparent democratic arrangements.  So when it comes to the U.S government decision, we're not just starting from scratch here.  How many phone calls do you think Hank Paulson has received from the Chinese central bank since August 2007?

"Are you *sure* that paper is safe enough for us to keep on buying?"

We'll never know exactly what kind of verbal dance Paulson concocted in response, but just look at the resulting flow of purchases and the relatively slight mark-up over Treasuries over that period of time.  The Chinese (among others) thought we were standing behind the securities, at least in any world-state short of federal government quasi-bankruptcy.  (In fact Paulson is in a total bind once that phone call comes in.  He doesn't have much incentive to just say "tough luck" and precipitate a crisis when otherwise no crisis is on the horizon.)

So should we try this: "Oh, is that what you thought?  Guaranteed?  Did we use that word? Sorry, try reading our signals better next time.  We love you.  Great job with those Olympics.  And when it comes to those Treasury Bills, we really do still mean it.  And don't forget to support us on Iran and North Korea."

I think Mr. Cowen has brought up an important point that I haven't heard many (if any) people talking about, and that is the political implications of this credit crisis.  The global economic implications have been pondered.  But the political have yet to be speculated upon.

There's no shortage of people arguing against the bailouts, but they seem to fail to understand that we cannot just tell all the foreign institutions that bought Fannie and Freddie debt to eat crap.  We still have to maintain relations with them.  The common (and even preferred) shareholders are more ambiguous entities that are easy to forget, and we can wipe them out without fear of significant negative repurcussions; but foreign countries that bought hundreds of billions of dollars in debt from these companies can't be disregarded.  Take the Chinese for example, as Mr. Cowen has.  They've been buying American debt (both private and public) for probably the past decade (I'm not sure how long exactly and haven't looked up the figures).  Their investment has fueled American economic growth from the late 90's on.  If we crap out on them now by refusing to guarantee the debt they've bought then we won't be seeing much capital coming from them for the next decade or so, severely limiting our government's ability to borrow money and our national economy to grow.

The political implications are mentioned in Mr. Cowen's hypothetical situation.  Where do foreign relations end up if we screw them over on this?  They probably won't be likely to back us in foreign disputes and could potentially become hostile regarding trade.

I was skeptical at first about the bailouts, even a bit weary.  But as more light is shed on the situation, it's becoming more and more clear that this is a necessary action, even though it's putting taxpayers on the hook for potentially hundreds of billions of dollars.

08 September 2008

The 20 Rule

Update: More thoughts from Arnold Kling.

Arnold Kling thinks you should have to put 20% down to get a mortgage.

"My approach would make it more difficult for many families to achieve home ownership, because many families find it hard to save the money for a 20 percent down payment. I am willing to let those families deal with being renters. As fantasy mortgage czar, I value stability of housing markets and financial institutions more than raising the home ownership rate."

I don't think that's too bad an idea. In the past decade, getting a mortgage was so easy because you could come in with basically nothing down. This encouraged excessive demand, leading to rapid building and resulting in the over-supply of homes. Combined with the general distress in credit-markets, the over-supply has combined with tight credit to drive prices down and set off a chain of events that have caused a lot of economic turmoil.

George W. Bush has been talking about and advocating increasing home ownership for a while now (since at least 2002). Here, here, and here. In fact, he said in a June 18, 2002 speech:

"...I believe owning a home is an essential part of economic security."

and

"The goal is, everybody who wants to own a home has got a shot at doing so. The problem is we have what we call a homeownership gap in America."

Now what is so important about owning a home? How does it increase economic security and why should we care about the "homeonwership gap in America"? As long as people have a roof over their heads then we're doing okay. Whether you are renting an apartment or living in a home with a mortgage on it, you have a place to live. Owning a home isn't for everybody. There's maintenance and taxes that go along with it, in addition to lack of mobility. Renting is just plain better for some people. As far as I know, nobody was complaining about not being able to have the chance at owning a home. Mr. Bush just started blabbing about the American Dream one day and decided to do something that looked patriotic.

If you can't save the money to put 20% down on the home you want to buy then you shouldn't own a home. Some may say this is "unfair" (that's the vibe I get from Mr. Bush's statements and stated goals -- oddly a Republican is talking about social and economic equity, ha!), but life ain't fair. In my opinion, as long as people can afford to put a roof over their head (via renting or purchasing), then we are doing just fine.

Kling opines that the housing market would be more stable if 20% down were required, and I'm inclined to agree. It just makes sense. There's risk there. If you have to put 20% down, that is cash out of your pocket. Even if housing prices decline one day in the future, your 20% is gone and you still owe on a mortgage. I would think you'd be less inclined to walk away and let the bank foreclose. But if you only had to put $2,000 down then you don't have much to lose when times get tough, making you more likely to walk away. In the current situation this "walking away" by a large number of borrowers is causing banks further losses and driving home prices down further, making everything worse off for everybody. The situation might not be so bad, or in existence, if we had stuck with the 20% down principle of lending for homes.

07 September 2008

Voting

From Michael Munger.

"All votes are wasted unless the election is decided by a single vote. The question is, how are you going to allocate that single vote that you have? Are you going to honor your principles or vote for the lesser of two evils?"

That didn't take long

It was pretty much inevitable.

"The Treasury Department on Sunday seized control of the quasi-public mortgage finance giants, Fannie Mae and Freddie Mac, and announced a four-part rescue plan that included an open-ended guarantee to provide as much capital as they need to stave off insolvency."

But will this really help make things better in the short-run? I don't believe so. The downward spiral of housing price declines will continue nonetheless because the supply of homes is simply too great. When the new equilibrium is reached prices will settle and stay low for quite a while.

05 September 2008

Wants and Needs

Here is a little something original. I wrote this a few years ago and just stumbled across it while rummaging through old files trying to clean up my drive. I was probably high or drunk (maybe not drunk; this is too coherent for a soused writer like me) and feeling profound. Anyway, as I read it again I realize that I still hold some of these beliefs. I guess I haven't changed as much as I thought I have since then.
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Want is the desire to fill need.

Most people don’t understand this. Most people view need as the superior to want. Everyone agrees that want is a desire; but most people think that need is something beyond human control, beyond human manipulation.


‘Tis not so. Need is not above want. It is the other way around. Want is beyond anything in the world, anything in existence.

I’ve come to this conclusion after analyzing the standard interpretation of want and need. What put me on to this subject of thought was the idea of value. I know that my life is pointless, so is everybody elses. There is no purpose, no point, no value in this life. The only value that exists is that which we create.


The general consensus is that for people to feel valued they must be needed. I feel differently. For me to feel valued I must be wanted. For people to need me gives me no value; at least not to myself. Everybody needs other people, but when somebody, or other people, want you, you become a commodity in demand. It’s basic economics. When I am in demand I am of value, both to myself and to others. Anybody can satisfy a need, but only those who strive to please and fulfill the needs of others are wanted. The only way to place any value on oneself is to be desired by others.


It’s simple, really. When others need you they just utilize you because you will do the job. You will suffice. I don’t want to suffice. I want to go beyond expectations, to go beyond need. When you are wanted others desire you; others will go out of their way to use you.


It’s far to common, people being used just because they are available. We see it everyday. Relationships, jobs, friendships. They are all out of need.

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Something funny

I got a good chuckle out of this. It's funny on a couple of levels.

One Utah community is cheering a special bear — but don't call him Smokey.

I'm not dead!

A really good article from the New York Times Magazine.