29 October 2008


This makes me sad and ashamed of not only my fellow countrymen, but of humanity in general. My pessimistic world view has just been given new life.

I like the guy with the Acorn banner; he isn't even coherent.

I support neither McCain nor Obama. It doesn't matter who the hate is directed towards, the fact that it's bred in ignorance and thrives in a modern society is unacceptable.

Thanks to Rob Pitingolo for the post.


I laughed so hard for two minutes straight because of this. I still can't pin why it's so damn funny.

23 October 2008


I've had about enough of the complaint that the media is unfair in the coverage of the Presidential candidates.

Honest, I just heard a Fox News employee say that he has been in the media for 10+ years and that the media is absolutely biased (except for Fox News, you know, because they're "fair and balanced"). Well that's a shocker! For some crazy reason I thought the media had my best interests in mind. I mean, why would they be concerned about drawing the largest audience possible to make profits from advertisers? The media wants to bring me the truth. Anyone who believes that is a damn fool.

On top of telling us something that any intelligent person already knew, this guy goes on to complain that bias causes unfair coverage of the candidates and the "liberal media's" excessive positive coverage of Barrack Obama is going to discourage McCain supporters and thus ultimately shape the outcome of the elction in favor of Obama! Are you serious! I didn't really just hear that.

I guess that the biggest problem I have is the supposed premise behind this type of complaint. For whatever reason, some people seem to think that the media has a responsibility to the public to be fair and balanced. I'm not sure if I believe media outlets have any responsibility to the public. They are competitive firms, offering a product to people who desire it. The cost to the consumer is advertisements, which firms make a tidy profit from. End of story. They can get up and say anything they want, spin the facts any way they wish and endorse (implicitly or explicitly) whomever they prefer. Don't whine about unfair coverage and the possible effects on voters actions as a result. If McCain supporters are going to admit defeat and not cast their ballot because the media made it look like a landslide victory for Obama then so be it. They're responsible for their own actions (however stupid those actions may be). But don't get up and whine about fairness because things aren't going your way.

22 October 2008

George is gettin' UPSET!

"What should you -- the young -- do? First, get angry..."

That's what Mr. Robert J. Samuelson says about this election and the candidates. A good article in the Washington Post.

21 October 2008

Who said patience is a virtue?

A fairly scathing criticism of Fed Chariman Ben Bernanke.
Bernanke suggests that “prompt passage of the financial rescue legislation” will allow financial firms to fulfill “their critical function of providing new credit”, but even there he misreads the problem. Banks don’t so much lack money to lend as they don’t trust the balance sheets of other banks. The latter in mind, the alleged financial rescue plan will only serve to make the health of banks and the securities on their balance sheets even more opaque due to the insertion of money not from market-disciplined investors, but from the federal government itself.

This part of the piece really hit the nail on the head in my mind. Tyler Cowen posted a while back over at Marginal Revolution on the same idea. His example was something along the lines of this:

Suppose there are 10 banks in an economy, 3 of which are insolvent. The public doesn't know which ones are insolvent, but the insolvent banks know who they are. If the Fed steps in and starts giving all 10 of them money then we end up prolonging the process of discovering which banks are the bad apples and should be allowed to fail.

It makes sense when you think about it. Masking the problem doesn't fix it. But I guess some would argue that giving the bad banks money may actually resolve their problem of insolvency...changing the bad apples into solvent institutions. But this would only happen if the insolvent banks received enough cash. The biggest banks in America are only receiving a proposed $125 billion. If you're a bank in serious trouble then a relatively small injection from the government will only delay your failure. The banks that are in good shape know that there have to be some minimum number of insolvent banks out there that will go under in time. The smart thing would be to shorten the amount of time it takes for the discovery to take place. Injecting capital into financial institutions is only increasing the amount of time needed; we should be doing exactly the opposite to hasten this crisis of trust.

The Bubble: Part 2

An interesting excerpt from a piece at RealClearMarkets:
The market responded to the price signals given by the Fed and loaned money that the Fed deemed nearly worthless. When the price of anything is held artificially low the logical result is a future shortage. Thus we now have a shortage of credit just as one would predict based on past experiences with price controls.

At first reading I completely disagree with this statement. "Easy money" no doubt contributed to the current debacle, but it was not the primary reason. Government policies that encourage excessive levels of home-ownership (and thus artificially high demand for mortgages) and the absence of anything else profitable to invest in are a much bigger cause of this mess.

During the tech boom of the late 1990's the big investment banks like BearStearns and Lehman Bros were making profits on the deals they brokered to bring ".com" ventures online. After the bust of that bubble they were caught sitting on their hands with not many ways to generate the large level of profits they had during the boom, so they got into a new market: mortgages. The only way to make big profits is to take big risks. But nobody wants too much risk, so enter the MBS (mortgage backed security). Let's bundle mortgages together and issue bonds that pay from the interest stream of the mortgages. The risk gets spread around to everybody; the risk is mitigated now, so let's keep demanding more mortgages to securitize, encouraging the banks originating mortgages to increase their risk tolerance (really not even tolerance, since they didn't hold the loans on their portfolio's anyway---they were sold off for fat premiums). Hello subprime! Banks will originate mortgages to nearly anyone, because they're not holding the loan for it's life. Brokerage houses package them up and "distribute" the risk and collect a hefty fee for the securitization services. And the ultimate investors buy the bonds backed by the mortgages because house prices never decline!--the interest will keep on coming because any mortgage borrower in trouble can simply refinance.

The point of my ramble is that "easy money" wasn't the sole issue. There were artificially high levels of demand too, leading to the inflation of a bubble that how now burst.

Investor's were used to the excessive profits of the tech boom and demanded that Wall Street continue to perform; and Wall Street delivered, by finding new ways to make boatloads of money without ever creating any real value. It was a repeat of the tech boom, with mortgage assest substituting for tech stocks.

The rest of the article is good though; I actually agree with the idea of letting the market work everything out on it's own, even though Keynes is probably surely looking at me incredulously for saying that.

20 October 2008

On Krugman

Here is a good article from the Economist on Paul Krugman's contributions which earned him the Nobel prize in economics. If you've never read his blog or his columns in The New York Times, you should start.

15 October 2008

It'll be like an extended tailgate...

An excerpt from the Beige Book on the 12th District of San Francisco concerning retail sales:

"...outdoor equipment such as camping gear was one bright spot, as households gravitated towards low-cost vacation options."

Low cost vacation or preparation for 1929 again? Well, if we do end up with Hooverville's again,

at least we'll have some very nice camping gear (thanks to technological improvements) to get us through.

06 October 2008


From the Prime Minister of Iceland:

There is a very real danger, fellow citizens, that the Icelandic economy, in the
worst case, could be sucked with the banks into the whirlpool and the result
could be national bankruptcy.

The task of the authorities over the coming days is clear: to make sure that
chaos does not ensue if the Icelandic banks become to some extent

It's crazy to hear the leader of a nation talking like this. Could this ever happen to the United States? I'm a pessimist, so you know my answer. I fear, "Yes."

04 October 2008

Interest Rates

Greg Mankiw asks why real interest rates are rising. Short term Treasury bill yields are very low (because of increased demand for safe assets) but the yields on 5 year government bonds (inflation adjusted) are rising. He says "It's a puzzle."

It sort of is. I'll admit now that I don't know much about how rates typically move together and my simple conjecture is probably inadequate, but it's the best thing I can think of off the top of my head so I'm going to make it.

There's obviously great uncertainty out there about what's going to happen in the near future and in the medium-run/long-run as a result of the crisis we're in and the attempted rescue by the federal government. That said, even though 5 year government bonds are probably a pretty safe bet, I would think that most savers want to maintain liquidity right now. A 3 month T-bill is a much better purchase compared to bonds considering that nobody knows what's going to happen over even the next few months, let alone 5 years (Even though the bonds are inflation adjusted people may be so freaked out right now that they are only concerned about the return of their money and not the return on it [thanks to Mark Twain for that phrase]). As a result, demand for longer term assets is not as strong as that for very short-term assets such as T-bills. People holding longer term assets may actually be selling off and putting their cash into the T-bills.

Adidas has a good slogan for the current times: Impossible is Nothing. We've seen things happen over the past year that basically had a P(0) or damn close to it; so why would faith in the government's going concern not be shaken. It's not very likely, but there is that slight chance that the government might not be able to pay back those 5 year bonds, and with all the fear out there right now people are considering such a default more seriously.

Oh Thank Heaven!

7-Eleven is offering coffee cups that show everybody which presidential candidate you support (or dislike the least). They started with the 2000 election (I've never heard of this) and the poll has successfully predicted the two elections it's covered. It's called 7-Election (cute). Here is the website. Results are published weekly in USA Today newspaper.

Thanks to NPR's Wait Wait... Don't Tell Me!'s website for the tip.

The Crisis Continues

Now even municipal governments are having trouble getting the short term funds they need to operate. This thing gets wilder by the minute.

Thanks to Marginal Revolution for the lead.