Tuesday, September 30, 2008

Obama - Say it isn't so

From Ben Smith, Politico:
Part of Barack Obama's appeal in the early days of the campaign -- scoffed at by the Clintons -- was a promise of moving past the bitter partisanship of the 1990s and the present.

Since then, the partisan realities have set in, however, as Obama acknowledged in an offhand remark to ABC's John Berman tonight:

"I don't think me calling House Republican members would have been that helpful, I tend not to be that persuasive on that side of the aisle," he said.


From The Weekly Standard Blog by Matthew Continetti:

The rise of new powers in recent years has led to the theory of economic decoupling. The theory says that, as places like China, India, Brazil, Russia, and to a lesser extent Vietnam and other southeast Asian countries rise, they are less dependent on the American economy. Problems in the American economy therefore matter less to these new powers, as they can always trade with one another. They don't require American capital or even confidence in American economic power and leadership. They've "decoupled."

Interesting theory. Except recent events have exposed it to be, what's the word, totally false.

The New York Sun closes

A sad day for those hoping for something better than the New York Times:
What a run. A newspaper founded by a company that was scheduled to be created on September 11, 2001, announces its last issue on September 29, 2008, the day of the largest one-day point drop in the history of the Dow Jones Industrial Average. It's easy to forget the boom years in between that were bracketed by the terrorist attacks and the financial crisis.

Beginning a new daily newspaper in New York was an optimistic project. And in many ways the optimism that animated this venture has been borne out. The Bush tax cuts did unleash tremendous economic growth. Iraqis are building a better country in freedom. The expansion of charter schools in New York has improved educational outcomes. The Republican Party can nominate a presidential candidate who stands for welcoming immigrants to America. The Bush administration's counterterrorism policies and those of the New York Police Department have prevented another attack from succeeding, a track record that the next president and the next mayor will be lucky to emulate notwithstanding complaints by the civil libertarians.

So while this is a sad day for the Sun's editors and employees and readers and backers, and a worrisome day and month for those many, many New Yorkers whose fortunes are tied to the financial markets, we end this project marveling at what a land of opportunity America is and what an open and dynamic city New York is. A few little-known editors and reporters managed to win backing for a project and nurse it to the point where — and we are very touched by this — even our competitors are saying it made a difference in the national and local debate and won the respect of the city's leading citizens.

We wouldn't want to overstate our accomplishments. We failed to make a profit, which was one of our goals. But neither would we want to understate our accomplishments. It is not nothing that when the Washington Post and the New York Times wanted to report on Arab oil money and monarchs funding the Clinton library, they quoted reporting by our Josh Gerstein. Or when the Wall Street Journal editorial page wanted to understand the roots of the financial crisis, it cited reporting by our Julie Satow.

Or that when President Bush nominated Michael Mukasey as attorney general after we suggested it in a New York Sun editorial, the White House quoted the front-page profile of the judge that had been written in the Sun by our Joseph Goldstein on the moment of his retirement. Or that when the news broke that the Sun's future was in doubt, the directors of both the Metropolitan Museum of Art and the Museum of Modern Art spoke of the newspaper's importance, as did three of the former governors of New York, two Democrats and one Republican. Or that Ambassador Bolton said that our Benny Avni had provided the best U.N. coverage of any newspaper, anywhere.

We can only hope that some day in the future our own record will inspire some new generation of newspapermen and women with dreams to pick up the flag that today we put down. We hope it doesn't take 50 years for the next new start, but even if it does take that long, we hope that they have as much fun as we have had and meet with as much success.

Bret Stephens collects some of Joe Biden's baggage

in his suggested debate questions.

Who am I? Why am I here?

Taylor Stockdale writes about his dad, an American hero:

Dad entered the race reluctantly, and only due to the deep gratitude he had for the aid Mr. Perot extended to him and my mom while he was a prisoner of war in Vietnam.

As everyone saw that evening, he was not a politician. He was a fighter-pilot ace, a Medal of Honor recipient, and a wonderful dad and human being. During his eight years as a POW, he slit his scalp and beat his face with a stool to prevent his captors from parading him in the streets for propaganda purposes. He gave starving men his food rations when he himself was starving. And at home, after his release in 1973, he was a respected leader, scholar and writer. He considered himself a philosopher.

He studied the Greeks -- specifically Epictetus, an ancient slave and stoic who espoused the idea that individuals have free will and absolute autonomy over all matters within their control. He believed we must not wallow in self-pity when the chips are down, but rather recognize that we have the power to choose how to respond to everything.

My father adopted this philosophy while a graduate student at Stanford University in the early 1960s. So he never took pity on himself -- ever. Not as a POW when he was tortured, forced to wear leg irons and to live in solitary confinement. And not after the debate. He knew he had put himself into that arena.

It strikes me that we weight media appearances far too heavily in judging leadership today.

FDR could not have hidden his polio symptoms, nor Abraham Lincoln his mug. Strange to imagine an America without their fingerprints in the White House.

'Mark-To-Market' Isn't To Blame For Meltdown That Led To Crisis

From IBD:

People who say that it's not proper to value a long-term asset at today's value miss the point. Most such assets were never meant to be long-term investments for the banks that had just issued them or still held them when the credit crisis struck.

Suspending the rules won't slow this crisis. With or without the rules, nobody knows what certain securities are worth. Investors didn't short Lehman Brothers' stock because the company had written its opaque securities down to zero (it hadn't). They shorted Lehman partly because they didn't think that it had written such securities down far enough.

As for the charge that it's ridiculous to value some mortgages at 22% on the dollar, as a buyer for Merrill Lynch securities did, and that fair-value accounting helps to create the absurdity: maybe, maybe not.

The stark truth is that when you consider that banks wrote mortgages against houses that may have been more than 100% overvalued, and when you consider how much it costs such institutions to foreclose on a house and maintain it for a few months or longer before sale in a tough market, it's easy to see how values get down to less than half. Subtract some more money for uncertainty — which markets do all the time — and you're down to 22%.

The only thing that was wrong with "fair value" accounting was that it was a mirror of the modern financial industry. Financial institutions thought that they could trade anything, anywhere, at anytime, safely and virtually risk-free and for an instant profit. They couldn't. But the anti-"mark-to-market" crowd may well get its wish, because investors will regard the business behind such rules more carefully. Financial institutions needed money from the outside world to create all of those fair-value investments. It's unlikely they'll replenish their now-depleted coffers to do the same thing in the future, because investors now understand what complex securities and assets structured to trade instantaneously do — not only on their way up, but on their way down.

Quotes of the day

If the defeat of the bailout is a victory for liberty, it's a victory whose costs I'm not prepared to bear.--Ross Douthat

Everyone wants to go to heaven, but nobody wants to die.--Megan McArdle's grandma

So they are saying that Republicans chose to oppose something they think is in the national interest merely because of a partisan slight. Thank heaven these guys weren't at Valley Forge.--WSJ Editorial Board

My scorecard now shows that Barack Obama is supported by Mahmoud Ahmadinejad, Harry Reid, Nancy Pelosi, John Edwards, William Ayers, Rev. Jeremiah Wright, Fr. Michael Pfleger, Jesse Jackson, Al Sharpton, the entire Kennedy clan, the vast majority of French and Germans, the ladies on The View, and the urine-throwing punk protestors in St. Paul -- not to mention entertainers, trial lawyers, and college professors by a margin of at least 9 to 1.--

If Sarah Palin isn’t enough of a reason for you to get over whatever your problem is with Barack Obama, then you damn well had better pay attention. Anybody toting guns and stripping moose don’t care too much about what they do with Jews and blacks.--Rep. Alcee Hastings of Florida

Marcy Kaptur is an idiot

I heard the Representative from Ohio on the morning show circuit saying we need to suspend mark-to-market practices.

Yes, let's avoid putting prices on assets. She wants to suspend reality. This is not the change we need.

We've noted her bimbo-ness in the past here.

UPDATE: CNBC's Matt Nesto reporting that the SEC and FASB (Federal accounting standards board) is actually considering following this course of action. Are all our federal agencies filled with bimbos?

Monday, September 29, 2008

Obama ahead in the Intrade electoral college prediction markets


Democrat: 269 [-4]
Republican: 200 [-27]
Dead Heat: 69 [+31]
Total: 538 (270 to win)

According to these projections Barack Obama needs only ONE of 5 states to win: Florida, Nevada, New Hampshire, Ohio, or Virginia. John McCain would need to take ALL five to tie.

In the event of a tie, the House of Representatives, which came through for the nation in defeating the economic rescue plan today, would select the next President.

Pelosi - 2 heartbeats away

Just a reminder that the next person in line after the Vice President is the Speaker of the House....

House of Representatives votes against credit rescue plan

207 yeas to 226 nays.

One theory about this surprising outcome is that Speaker Nancy Pelosi lost some Republican votes, after her partisan attack speech today. Democrats voted 141-94 in favor; GOP voted 66-132 against.

Maybe we need to see a couple of million jobs disappear first, before Congress will pull the other way. To paraphrase Churchill, democracy is really ugly, but still the prettiest girl at the dance of governing systems.

Large corporations and small businesses require credit flow to make payrolls. No credit, no payrolls.

UPDATE: Vote remains open with consent of both leaders. There may be a swing of 20 or so votes at one time, after another round of negotiation.

UPDATE: No additional voting today. Minority Leader Boehner says Pelosi "poisoned my conference". I guess Pelosi is not interested in bipartisanship. Perhaps she should be moved aside.

UPDATE: Barney Frank promises to "talk uncharacteristically nicely" to 12 GOP representatives who were hurt by Pelosi's attack, in order to put the country ahead of their feelings.

Arturo Bris makes sense on short selling

Don't ban it:
For every short sale, there is a commitment to buy. That generates liquidity. Giving pessimists and optimists equal opportunities to commit their capital engenders competition that enhances price discovery. Since much short selling in equity markets is done to hedge risks, market volatility suffers in its absence.

Liquidity, price discovery and, above all, allowing both optimism and pessimism to act, unfettered, will bring back investors' confidence. America's market is one of the world's most resilient; its leaders can guide the way out of this difficult time if they learn from the mistakes and work together.

Chairman Cox, the decision that you and your commissioners must make this week, then, is an easy one. Stop the folly. End the ban.

Soteria Trader and I agree.

Sweden finally figures out how to reduce unemployment

Reduce taxes, stupid:

With the economy struggling, at least some people are urging a pro-growth tax cut. Too bad they live in Stockholm. As a recent headline in Agence France-Presse put it: "Sweden Announces Income Tax Cuts to Boost Jobs." The government is planning to cut business taxes and the personal income and payroll tax.

Sweden remains a high-tax country overall, with individual rates well above 50% plus pension and payroll obligations. Maria Rannka, president of the Swedish think tank Timbro, has reported that entrepreneurship had become such an alien concept that more than half of Sweden's 50 largest companies were founded before World War I and only two after 1970 -- the period when taxes and social welfare programs proliferated.

Quotes of the day

The genesis and aftermath of Lehman's downfall illustrate the difficult position policy makers are in as they grapple with a deepening financial crisis. They don't want to be seen as too willing to step in and save financial institutions that got into trouble by taking big risks. But in an age where markets, banks and investors are linked through a web of complex and opaque financial relationships, the pain of letting a large institution go has proved almost overwhelming.--CARRICK MOLLENKAMP, MARK WHITEHOUSE, JON HILSENRATH and IANTHE JEANNE DUGAN

I have the body of a god. Too bad it's Buddha.--New Orleans T-shirt

Apologies for the light blogging

I was in New Orleans since Thursday. I'm back, but things are pretty busy at work today.

Sunday, September 28, 2008

The Problem of Unregulated Leverage

A little long but worth a read.


It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions. --Joseph J. Cassano, a former A.I.G. executive, August 2007

Saturday, September 27, 2008

Marriage of convenience or the beginning of a beautiful friendship?

From the WSJ: Chávez Bolsters Links With Russia

Venezuela's President Hugo Chávez signed new energy agreements with Russia on Friday, shortly after obtaining a $1 billion loan to buy more Russian arms...
...Moscow recently sent two long-range bombers to visit Venezuela. Moscow also dispatched a nuclear cruiser, the Peter the Great, to take part in exercises with the Venezuelan navy...
...Russian Energy Minister Sergei Shmatko said the country's five leading oil and gas firms would form a consortium to invest billions of dollars in Venezuela's oil fields by next year...
...Earlier this month, Mr. Chávez expelled the U.S. ambassador to Caracas.

The article goes on to say that the relationship between Venezuela and Russia appears to be a marriage of convenience as Russia tries to keep Venezuela at a prudent distance.

But from IBD:

For Chavez, America's meltdown is a golden opportunity to strike at the U.S. by introducing Russian power into the hemisphere. Wasting no time, he barreled over to Russia in a hasty trip last week, saying bilateral cooperation on weapons sales would speed forward. He made no secret of exploiting U.S. difficulties. "We are facing a new geopolitical dynamic and for that reason we are moving faster," Chavez told a Miami-based press agency...

...Vladimir Putin said Thursday that Russia now makes relations with Latin America a top foreign policy priority. Moscow's loans and weaponry won't just go toVenezuela, but to Chavez's anti-American allies in the Caribbean, too. Last week, Russia promised to modernize Nicaragua's military...

I find this situation extremely disturbing. Our financial challenges are great,but meanwhile, the world around us is changing quickly. Will the next President be ready?

Obama says "Me too!"

Except it looks like he forgets the soldier's name and has to look at the bracelet.

Friday, September 26, 2008

Kissinger Unhappy About Obama

Henry Kissinger believes Barack Obama misstated his views on diplomacy with US adversaries and is not happy about being mischaracterized. He says: "Senator McCain is right. I would not recommend the next President of the United States engage in talks with Iran at the Presidential level. My views on this issue are entirely compatible with the views of my friend Senator John McCain. We do not agree on everything, but we do agree that any negotiations with Iran must be geared to reality."

Palin on the wane

From the NYT:

The drip, drip, drip of bad reviews keep falling this week against Gov. Sarah Palin, whose two-day segments of interviews with CBS’ Katie Couric have weakened conservatives’ initial embrace and enthusiasm for the vice-presidential nominee.

Another Palin interview

With all the focus on the bailout, somewhat lost in the shuffle was Palin's interview with Katie Couric:

On the “CBS Evening News” on Thursday, Katie Couric asked Ms. Palin, Senator John McCain’s running mate, what she meant when she cited Alaska’s proximity to Russia as foreign affairs experience. Ms. Palin could have anticipated the question — the topic of their interview, pegged to her visit to the United Nations, was foreign affairs. Yet Ms. Palin’s answer was surprisingly wobbly: her words tumbled out fast and choppily, like an outboard motor loosened from the stern.
“That Alaska has a very narrow maritime border between a foreign country, Russia, and on our other side, the land — boundary that we have with — Canada,” she replied. She mentioned the jokes made at her expense and seemed for a moment at a loss for the word “caricature.” “It — it’s funny that a comment like that was — kind of made to — cari — I don’t know, you know? Reporters —”
Ms. Couric stepped in. “Mocked?” Ms. Palin looked relieved and even grateful for the help. “Yeah, mocked, I guess that’s the word, yeah.”
Ms. Couric pressed her again to explain the geographic point. “Well, it certainly does,” Ms. Palin said, “because our, our next-door neighbors are foreign countries, they're in the state that I am the executive of.”

Can't wait for Oct 2...

Thursday, September 25, 2008

Ahmadinejad's vote

From the Boston Globe:

Iranian president Mahmoud Ahmadinejad weighed in on the US presidential election today, noting that only one of the candidates supports restoring diplomatic contact with Iran.
In response to a question from an American student about whether he supports Democratic nominee Barack Obama or Republican John McCain, Ahmadinejad did not explicitly name Obama but said: “The American government 28 years ago decided on its own to cut its ties with Iran . . .We do prefer to have relations, whereas one of the candidates in this election would prefer that.”

Wednesday, September 24, 2008

How well do you know the Constitution

Quiz here, courtesy of Andrew Roth.

What's $700 billion of trades

when Congress is trying to jam $7 billion in earmarks? Andrew Roth reporting.

At least with the Paulson plan, we'll have paper that might be worth something at maturity. With these earmarks, we'll have nada.

The US taxpayer bailout of lending institutions should approximate Warren Buffett's bailout of Goldman Sachs

i.e. preferreds pay 10%, plus warrants equal to preferreds infusion.

Warren Buffett, Salomon Brothers and Goldman Sachs

A brief history.

Is Hank Steinbrenner a hypocrite?

Or is it just his fan base? Mike McDermott reports:

Steinbrenner also tears into the league's revenue-sharing system, which is meant to give small-market teams a chance to compete against his behemoth Yankee empire, calling it a "socialist system."

"Is it right? Is it even American? I'd argue no on both of those points."

The funny thing is that most Yankee fans support universal healthcare AND inequality for their baseball team.* Make up your minds!

The NFL works much better precisely because of the salary cap, and the parity which comes from revenue sharing. It is an equal opportunity sport, where superior management, skill and work ethic translate to victory.

On the the other hand, New York city is a huge baseball market, and the Yankees enjoy a huge revenue advantage relative to the other teams in its division and conference. So endless stupidity does not prevent playoff contention (e.g. Carl Pavano, Kyle Farnsworth, Jaret Wright, Steve Karsay, Mike Stanton, Kevin Brown, Javier Vasquez, Randy Johnson, Raul Mondesi ... having the best shortstop in the league play third base ... inferior farm system ... trading away their best prospects for over-the-hill former stars).

It's nice to be able to pay your bullpen more than some small market teams' entire payroll.

But equal opportunity is not about Robin Hood economics. It is about giving every individual a chance for competitive success, based not on relative income measures, but rather by every individual's management, skill, and work ethic. Of course, some folks are born into advantage. But there is no government program that can substitute for 2 responsible and loving parents--if you don't have that, you really start with disadvantage (which Barack Obama was able to overcome).

Incentives are everything. Any system that incents people to be their best will yield inequal outcomes, but also maximize outcomes for everyone. David Ricardo 101.

If you still aren't tracking with me, well imagine every baseball player who was tall and good looking and in the top 20% of pay and endorsement contracts only getting 2 strikes at the plate, and the shortest, ugliest, and poorest quintile getting 4 strikes with each at bat. Now that's silly (but it approximates our government sentiment much more accurately than I prefer).

*Not that most Red Sox fans understand economic consequences, either.

Russell Roberts fact checks Paul Krugman


Back in July, as Fannie and Freddie were starting to implode, Krugman concluded that Fannie and Freddie weren't part of the subprime crisis:

But here’s the thing: Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.

His conclusion is quoted approvingly by Economist's View, a couple of days ago.

Alas, Krugman has his facts wrong. As the Washington Post has reported:

In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending.

Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing.

Krugman needs to deny that the government was the problem, in order to recommend that government is the solution.

Glenn Hubbard on the Paulson Plan

in today's WSJ:

Any solution should observe three guiding principles: It should (1) restore the stability of the financial system quickly and at the lowest possible cost to the taxpayer; (2) punish those who are responsible for losses; and (3) address the root cause of the crisis -- the price collapse in the residential real-estate market. In doing so, the solution should respect the rule of law by spelling out the proposal in sufficient detail for the Congress and the electorate to pass judgment. To the extent possible, it should follow proven precedents.

The administration's current proposal fails to meet these principles. The Treasury's plan has three significant problems:

First, there is the central issue of how to price the assets ...

A second issue is whether we are better served by buying assets or institutions ...

The final problem is potential cost ...

Efficient institutional design can reduce the share of costs borne by taxpayers, while repairing the financial system's ability to match borrowers and lenders and provide risk-sharing, liquidity and information services. Keeping costs down is important, as such a large increase in taxpayer support will constrain significantly, if not overwhelmingly, the fiscal initiatives of the next president.

UPDATE: Please watch Senator Dodd like a hawk:
As Senator Chris Dodd's Banking Committee Web site explains it, "The only way to really help homeowners keep their homes is to allow borrowers to get the mortgages on their first homes reduced to the market value of those homes through bankruptcy." This may sound like a great idea to troubled borrowers, but since taxpayers are increasingly now the lenders in these transactions, it will simply increase the cost of Mr. Paulson's plan.

Quotes of the day

Yes, it’s true that the Chinese have been selling us toxic toothpaste, toxic pet food, toys with toxic lead paint — but all the while we were selling them toxic investments.--Anonymous

I view the ratings agencies as one of the key culprits. They were the party that performed the alchemy that converted the securities from F-rated to A-rated. The banks could not have done what they did without the complicity of the ratings agencies.--Joseph Stiglitz

On the UAW's website, it provides information for "consumers who want to purchase vehicles produced by workers who enjoy the benefits and protections of a union contract," and lists the vehicles made in the U.S. by members of the UAW, including the TOYOTA COROLLA and the TOYOTA TACOMA, along with the Mazda 6, Mitsubishi Eclipse, Mitsubishi Galant, Isuzu i-Series Truck, Mazda B-series Truck, and Mitsubishi Raider Truck. The UAW doesn't discriminate against foreign car companies, why should McCain or you?--Mark Perry

... no rich country has a coin as worthless as the U.S. penny ... What a waste of resources — and what a move inside the production-possibility frontier! Each penny costs much more than 1 cent to manufacture ... It’s time to join the rich world; it’s time to stop wasting resources; and it’s time to stop transferring taxpayer money as subsidies to zinc producers.--Daniel Hamermesh

It's nice to have a lot of money, but you know, you don't want to keep it around forever. I prefer buying things. Otherwise, it's a little like saving sex for your old age.--Warren Buffett

Tuesday, September 23, 2008


To put the world right in order, we must first put the nation in order; to put the nation in order, we must first put the family in order; to put the family in order, we must first cultivate our personal life; we must first set our hearts right.--Confucius

For all the talk of “change” this political season, let’s remember where it all begins… not with a political candidate, but you and me.--Foster Friess

But more seriously...

Interesting questions with uncertain answers:

Question One: Is the current financial crisis the only crisis affecting the economy?

Question Two: Is a big bureaucracy solution the only answer?

Question Three: Will the Paulson plan be implemented with transparency and oversight?

Question Four: In two months we will have an election and then there will be a new administration. Is this plan something we want to trust to a post-Paulson Treasury?

Have I got a deal for you!

I've seen something like this somewhere before...

NY Yankee fans = NE Patriots fans

That's my thesis, and I'm stickin' to it.

The nice thing about short sellers

is they buy at the bottom. Now that they are defined out of existence, this will not happen.

Saul Alinksy and Barack Obama

Obama has already translated several of Alinsky's rules into battle tactics, including:

• Rule: "Rub raw the resentments of the people; search out controversy and issues." In the mortgage meltdown, for instance, Obama vows to prosecute "predatory lenders" for "abusing" minority borrowers. He's also stoking class resentment by painting Wall Street and other executives as villains.

• Rule: "Pick the target, freeze it, personalize it, and polarize it." In an ad to woo Hispanic voters, Obama demonized Rush Limbaugh by falsely claiming he made racist statements against immigrants.

• Rule: "A mass impression can be lasting and intimidating." This explains why Obama moved his acceptance speech to a football stadium and bussed in 85,000 supporters. Alinsky's son was so impressed, he praised Obama for learning his father's "lesson well."

• Rule: "Multiple issues mean constant action and life" for the cause. This is why Obama never harps on one issue, as Hillary did with health care. His platform is packed with grievances from "economic justice" to "reproductive justice" to "environmental justice."

Obama is following almost to the letter the blueprint for socialist revolution drafted by the father of community organizing.

More on Bill Ayers and Barack Obama

by Stanley Kurtz:

Mr. Ayers's defenders claim that he has redeemed himself with public-spirited education work. That claim is hard to swallow if you understand that he views his education work as an effort to stoke resistance to an oppressive American system. He likes to stress that he learned of his first teaching job while in jail for a draft-board sit-in. For Mr. Ayers, teaching and his 1960s radicalism are two sides of the same coin.

Mr. Ayers is the founder of the "small schools" movement (heavily funded by CAC), in which individual schools built around specific political themes push students to "confront issues of inequity, war, and violence." He believes teacher education programs should serve as "sites of resistance" to an oppressive system. (His teacher-training programs were also CAC funded.) The point, says Mr. Ayers in his "Teaching Toward Freedom," is to "teach against oppression," against America's history of evil and racism, thereby forcing social transformation.

The Obama campaign has cried foul when Bill Ayers comes up, claiming "guilt by association." Yet the issue here isn't guilt by association; it's guilt by participation. As CAC chairman, Mr. Obama was lending moral and financial support to Mr. Ayers and his radical circle. That is a story even if Mr. Ayers had never planted a single bomb 40 years ago.

Quotes of the day

How can we sign a $700 billion bill without any assurances that it will work?--Sen. Richard Shelby

SOX [Sarbanes-Oxley] was sold as the way to prevent future market bubbles and crashes.--Larry Ribstein

A Central Banker should stand up to fear-mongering. Even when it comes from a Treasury Secretary.--Arnold Kling

Medicine isn't about Health
Consulting isn't about Advice
School isn't about Learning
Research isn't about Progress
Politics isn't about Policy--Robin Hanson

If [Fannie Mae and Freddie Mac] fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.--Peter Wallison, back in 1999

And so, in a single week, the era of the independent investment bank has ended. Wall Street as we've known it for decades has ceased to exist. Six months ago there were five major investment banks. Two -- Lehman Brothers and Bear Stearns -- have failed, Merrill Lynch is selling itself to Bank of America, and now the last two are becoming commercial banks. Adam Smith, that great market disciplinarian, is punishing excesses and remaking American finance long before Congress can get into the act.--WSJ Editorial Board

From Glass-Steagall to Gramm-Leach, from the Great Depression to the Golden Age, from isolationists to internationalists, from underdogs to champions, this bill, in my opinion, Mr. President, is an American success story for our economy, for our financial institutions, for our communities and consumers and for my state of New York. And I was proud to have played a role with so many others in ensuring its passage.--Chuck Schumer

Now that some financial institutions are in trouble, Mr. Schumer has changed his tune. Last week, he took to the Senate floor to blame the financial crisis on "Eight years of deregulatory zeal by the Bush administration."--NY Sun Editorial Board

... you sort of feel like you have to hide [your conservatism]. When you meet, you give each other a secret look — ‘Are you a Republican, too?’ It’s the new gay.--David Zucker

Chemotherapy is an effective treatment

in the short term. The problem is, it can actually increase overall risk, such as short term damage to critical organs and more cancer over the longer haul.

I'm glad that Hank Paulson and Ben Bernanke are the financial oncologists on the job now. I'd be happy to find out if you think there are better doctors for this task of healing the financial markets.

And I shudder to think about Paul O'Neill behind the surgical mask ...

Monday, September 22, 2008

Cartoon of the day

From the Boston Globe.

I don't disagree with Richard Posner often (nor lightly)

But I disagree with him on this:
I do not think that the government does bear much responsibility for the crisis. I fear that the responsibility falls almost entirely on the private sector.
He hangs the crisis on private sector use of leverage.

I hang it on off-balance sheet government accounting, easy monetary policy, and the federal executive branch twisting the arms of Fannie and Freddie to make risky loans.

Maybe we are both right.

The ghost of Deng Xiaoping

haunts Zimbabwe (in a good way).

Change you can count on

Is this the kind of change he's talking about?

And this week the Obama campaign modified his position on a sensitive issue: Social Security. Compare the current "Seniors & Social Security" page with the previous version. Now, tell me why, oh why, would the Obama campaign decide to delete the following sentence: "[Obama] does not believe it is necessary or fair to hardworking seniors to raise the retirement age." Is he trying to stoke anxiety about his position on Social Security?

Why I blog

in Wretchard's eloquence (from a comment on his post):
The unbridled campaign of disinformation and bullying is creating tens of thousands of radicalization moments and Obama will pay for this. But he won’t pay for it until someone — probably not McCain — comes along and creates its dual: the Empowerment Moment. The Empowerment Moment is the instant when you realize you can strike back at your tormentors. People have glimpsed it before. When Buckhead took down Dan Rather, for example. But it doesn’t happen by accident. An Empowerment Moment is the result of thousands of radicalization moments parsed through discussion and reflection. That’s what the Anbar Awakening was. But where is the Petraeus of politics?

In case you missed it...

Here are more emails found from Sarah Palin's account:

Speech of the day

The Sarah Palin speech we won't hear due to her dis-invitation at today's rally.

Barack Obama's Top 10 Reasons

for voting against the Born Alive Infants Protection Act.

Now that's nuance.

Will Collier points out that entertainers shoot themselves

when they think they can also be experts in reality.

What can save Social Security?

Alcoholism, it seems.

NY Times piece calls for Wall Street Journal to get a Pulitzer

Finally, some good journalism from the NY Times, even if it's a guest blogger:

The Wall Street Journal editorial page has been giving chapter and verse for years on why this was a disaster waiting to happen (Pulitzer Prize judges, please note). The Bush administration tried way back in 2003 to change the system. It got nowhere. Alan Greenspan, then the chairman of the Federal Reserve, frequently noted the danger of Fannie and Freddie’s weak capitalization. He was ignored. Congressman Mike Oxley, then chairman of the House Financial Services Committee, introduced a bill in 2005 to correct the situation. Lobbyists from Fannie and Freddie succeeded in gutting it to the point that Rep. Oxley pulled the bill.

Why were Fannie and Freddie so successful at maintaining the status quo? Check it out.

Senator Chris Dodd — formerly ranking member and now chairman of the Senate Banking Committee, with oversight over Freddie and Fannie — recently said on Bloomberg Television: “I have a lot of questions about where was the administration over the last eight years.”

Excuse me? Just where the hell were you, Senator? Oh, right. You were standing in line at the bank in order to deposit the political contributions Fannie and Freddie were lavishing upon you. At least they got their money’s worth — until the party ended and the American people got the bill.

Yep, follow the money.

Why was the financial alarm system

turned off? Find out here.

It is yet more evidence that more regulation does not work.

The benefits of repealing Glass-Steagall

according to Tyler Cowen:
Most of all, the Act enabled financial diversification and thus it paved the way for a number of mergers. Citigroup became what it is today, for instance, because of the Act. Add Shearson and Primerica to the list. So far in the crisis times the diversification has done considerably more good than harm. Most importantly, GLB made it possible for JP Morgan to buy Bear Stearns and for Bank of America to buy Merrill Lynch. It's why Wachovia can consider a bid for Morgan Stanley. Wince all you want, but the reality is that we all owe a big thanks to Phil Gramm and others for pushing this legislation. Brad DeLong recognizes this and hail to him. Megan McArdle also exonerates the repeal of Glass-Steagall.

Quotes of the day

... something that is good for the public ... is not necessarily a public good (something that taxpayers ought to subsidize).--Arnold Kling

Other people may have Ph.D.s in economics, but they're not economists. They don't think like an economist.--Milton Friedman

We are all prisoners of where we have been. The longer you are attached to a place, the harder it is to see it without rose-colored glasses. When [John] Thain got to Merrill, he started moving quickly to put the problems behind him.--James Cox

In order to avoid a federal bailout like the one we saw with the savings and loan industry, policymakers may want to consider a variety of alternatives, including privatization of one or more of the GSEs.--Jay Cochran & Catherine England, back in 2001

When [Cato Institute President Ed] Crane responded that Cato never accepts government funding, he received a starchy letter from Fannie Mae hotly denying that it was in any way a government entity.--George Will

Fundamentally, the Fannie and Freddie debacle is about the role of government in a free society. If government is limited to protecting people and property, and individuals are allowed to keep the fruits of their labour and to bear the risks of loss, then capital will be efficiently allocated.--James Dorn

These financial problems are not market failures but government failure. The Community Reinvestment Act of 1977 is a federal law that intimidated lenders into offering credit throughout their entire market and discouraged them from restricting their credit services to low-risk markets, a practice sometimes called redlining. The Federal Reserve, keeping interest rates artificially low, gave buyers and builders incentive to buy and build, producing the housing bubble. --Walter Williams

...the total liabilities of Deutsche Bank (leverage ratio over 50!) amount to around 2,000 billion euro, (more than Fannie Mai) or over 80 % of the GDP of Germany. This is simply too much for the Bundesbank or even the German state to contemplate, given that the German budget is bound by the rules of the Stability pact and the German government cannot order (unlike the US Treasury) its central bank to issue more currency. The total liabilities of Barclays of around 1,300 billion pounds (leverage ratio over 60!) surpasses Britain’s GDP. Fortis bank, which has been in the news recently, has a leverage ratio of "only" 33, but its liabilities are several times larger than the GDP of its home country (Belgium).--Daniel Gros & Stefano Micossi

Never again will we risk another Holocaust.--Sarah Palin

For [Jerry] Manuel, the team is what counts; while for [Willie] Randolph, his main focus was on himself, and the team came second.--Michael Gorman

McCain is an idiot for wanting Andrew Cuomo for SEC Chair

He says:
This may sound a little unusual, but I’ve admired Andrew Cuomo. I think he is somebody who could restore some credibility and lend some bipartisanship to this effort. […] He has respect, and he has prestige.
I'm so angry, I am voting for Obama today.

After all, Cuomo was the senior executive in the federal government pushing for no-money-down, no income requirement mortgages in the first place.

UPDATE: Felix Salmon on Hank Paulson's idiocy.

Saturday, September 20, 2008

Quotes of the day

Now explain to me how an “auction facility” works when there’s only one buyer.--Josh White

Like a needle needs a vein
Like someone to blame
Like a thought unchained
Like a runaway train
I need your love--Bono

If unusually many airplanes crash during a given week, do you blame gravity? No. Greed, like gravity, is a constant. It can’t explain why the number of crashes is higher than usual. And let me add: This isn’t a morality play. What we’re seeing are the consequences of monetary-policy distortions of interest rates and regulatory distortions of incentives, amplified in some degree by private imprudence, not the consequences of blackheartedness.--Josh White

Don't believe the devil
I don't believe his book
But the truth is not the same
Without the lies he made up
Don't believe in excess
Success is to give
Don't believe in riches
But you should see where I live
I, I believe in love

Don't believe in forced entry
Don't believe in rape
But everytime she passes by
Wild thoughts escape
I don't believe in death row
Skid row or the gangs
Don't believe in the Uzi
It just went off in my hand
I, I believe in love--Bono

Friday, September 19, 2008

What the ???

Short selling banned? What a freaking joke.
Like it was short sellers who should be blamed for the demise of BSC, LEH, FNM, FRE, AIG, etc and etc...
Tim Knight says it better here.
Btw, it worked so well the last time for those 19 financial stocks!

Maybe reviving the uptick rule would be a better starting place but an outright ban on shorting these stocks is ridiculous.

John McCain is an idiot for hanging Christopher Cox

out to dry:

"The chairman of the SEC serves at the appointment of the President and has betrayed the public's trust. If I were President today, I would fire him."

Wow. "Betrayed the public's trust." Was Mr. Cox dishonest? No. He merely changed some minor rules, and didn't change others, on short-selling. String him up! Mr. McCain clearly wants to distance himself from the Bush Administration. But this assault on Mr. Cox is both false and deeply unfair. It's also un-Presidential.

I'm so mad, I'm thinking of voting for Obama today.

UPDATE: Megan thinks McCain has Alzheimer's.

Quote of the day

If we're going to ask questions about who has been promulgating negative ads that are completely unrelated to the issues at hand, I think I win that contest pretty handily.--Barack Obama

Thursday, September 18, 2008

Torre being Torre

Who was betting in April that the Dodgers would be playing in October but the Yankees wouldn't be?

Risk/reward anyone?

Anyone who likes to think in terms of risk-reward should check this out:
How do the real people of America, those who do the work, raise the families, pay the taxes, defend the nation and make America the truly exceptional place that it is, feel about an arrogant young man whose self-esteem is so much greater than his accomplishments?

Do they want a president who has seldom held a real job, never run a business or done much of anything other than promote himself? And what about the young idealists preparing to cast their first votes? Do they really intend to vote for an illusion? Do any Americans want a president who regards himself as a citizen of the world and may have mixed loyalties?

The potential downside consequences of an Obama presidency are enormous. And on the upside, what is to be gained? The frisson of having voted to elect an African-American president? A last-minute slap at President Bush, who will be out of office in January anyway? A pointless protest against a war that is now being won and will soon be over?

Does anyone seriously think that Barack Obama will do better than John McCain in keeping America safe and prosperous? Surely not. Risking a lot to gain nothing is a very bad bet — potentially even fatal — but that is exactly what the Democrats and the media are asking voters to do.


Maybe Obama can write copy for the McCain campaign:
Obama admitted in his book, "Dreams From My Father": "When classmates in college asked me just what it was that a community organizer did, I couldn't answer them directly." He'd also be hard-pressed to explain what he accomplished in that role. But don't expect the media to press him.

At a forum last week on national service, Obama was asked if Democrats, in going after Palin's qualifications to be vice president, have belittled the service small-town mayors perform every day.

"We've had an awful lot of small-town mayors at the Democratic Convention, I assure you," Obama said. "I meet them all the time. The mayors have some of the toughest jobs in the country because that's where the rubber hits the road. You know, we yak in the Senate; they actually have to fill potholes and trim trees and make sure the garbage is taken away."
Sort of like being a community organizer, only with actual responsibilities.

Play the name game

And now for something completely different...

the Palin name generator.

McCain's radical agenda?

I'm no expert on the healthcare system but treating employer-paid health benefits as income that employees would have to pay taxes on doesn't seem like a good solution.

Manny being Manny

is pretty awful if you happen to be his teammate, it seems.

Megan's got some great advice for newly minted MBAs

their job prospects and their outlook in these stressed markets. Good advice for many of my friends, too.

A journalist destroys more value than a naked short seller

Well, it's true for a journalist from the NY Times (via Larry Ribstein):
Editors’ Note
An earlier version of this article cited two sources who were said to have been briefed on a conversation in which John J. Mack, chief executive of Morgan Stanley, had told Vikrim S. Pandit, Citigroup’s chief executive, that “we need a merger partner or we’re not going to make it.” On Thursday, Morgan Stanley vigorously denied that Mr. Mack had made the comment, as did Citigroup, which had declined to comment on Wednesday.

The Times’s two sources have since clarified their comments, saying that because they were not present during the discussions, they could not confirm that Mr. Mack had in fact made the statement. The Times should have asked Morgan Stanley for comment and should not have used the quotation without doing more to verify the sources’ version of events.

BCWUW4: If the US goes universal healthcare

Canada is in big trouble (via Freakonomics). And of course, the U.S., too.

Be careful what you wish for.

Resolution Trust, Redux

Like we were saying on Tuesday

... so it gets announced today.

I bought Goldman shortly after the IPO in 1999

At that time, all the fundamental ratios looked really attractive. Little did I know that the enormous money to provide tax gross-ups to the employees would eat up half the revenues I was anticipating. In disgust, I sold it several weeks later for a small loss.

It looks like getting access to all that capital as a publicly traded company--printing your own currency, i.e. your stock--has it's downside too, if people will dump it with fear to spare:

Not that I'm laughing in even the least bit right now.

A guide to navigating Wall Street euphemisms

at Dealbreaker. Some translations:
"We Might Encounter A Slight Correction" = "Expect A 40% Drop" (AIG)

"We Believe We Are Sufficiently Capitalized" = "Our Leverage Is Still 24:1" (Lehman Brothers)

"Another Front Is Opening" = "No One Wants Our Stock Anymore" (Barclays)

"It's Unclear Who Is Going To Be A Credit Provider Going Forward" = "No One Will Lend To Us" (Concordia Advisors)

"EU Has Tradition Of Bailouts" = "Don't Look At Me Like That, Germany" (Financial Times)

Criticize Paulson all you want

I'm glad he's on the job, as opposed to Bush's first appointee (who was quite the weenie).

I suppose this means there are no pure capitalists in foxholes.

Quote of the day

I just get a chuckle hearing a Congressman complain about someone spending other people's money.--Arnold Kling

We are faced with two bad choices. File for bankruptcy tomorrow morning or take the Fed's deal tonight.--Robert Willumstad, CEO of AIG

This is how a federal bailout works these days. The government purchases 79.9 percent of the company in question. It can’t be more than that, because if it goes over the magical number of 80 percent, the company’s debts are then required to be consolidated onto the federal government’s balance sheet. Keeping it at 79.9 percent allows the government to maintain the fiction that it is still not responsible for the company’s solvency.--Steven Davidoff

No free lunch

Not even for Vladimir Putin:
The current carnage on Russian markets comes amid global market turmoil. But the dive in Moscow began before the wider world cared about AIG's balance sheet, and its chief causes are home-grown. To wit, the bill for eight years of Putinism is coming due. And a Kremlin leadership that only weeks ago brimmed with menacing self-confidence is struggling to slow this financial free fall.

The first sign of trouble came in late July when Prime Minister Vladimir Putin lashed out at a Russian coal and steel company, Mechel, for alleged price gouging and appeared to threaten personally its chief executive ...

Another trigger was last month's war in the Caucasus. The Russians routed the Georgian army in four days and annexed -- in all but name -- its provinces of South Ossetia and Abkhazia. Then Russia got routed by the global economy. Since the war started, investors have pulled more than $35 billion from Russian markets. Russian businesses are having trouble getting access to international financial markets, as foreign lenders wonder if they can get paid back. Some $45 billion in foreign debt held by Russian corporates must be refinanced by the end of the year, and the cost of doing so is rising.

Russia's economy is hugely dependent on natural resources. In good times, the Kremlin pocketed the billions and didn't worry about pushing economic reforms. The outside investment needed to diversify was discouraged by the Kremlin's backsliding on the rule of law. Now the drop in crude prices is squeezing the country's blue chips and the Kremlin's coffers, even though on the current budget the Russian state will break even with oil at $70 a barrel or above.

As it has turned out, much faster than anyone realized or hoped during the Georgian war in August, Western governments haven't had to do anything to have Russia pay a price for its aggressive behavior. Which is fortunate, considering the weak stomachs in Europe and at the State Department for any serious response to the war. Investors did it for them.

The war has also exposed the fiction that Russia is the next China -- an authoritarian political regime that's stable, predictable and on a path toward becoming a free-market economy. It's authoritarian all right, but it lags China on other counts. After this war, Russia is unlikely to join China in the World Trade Organization. Georgia and Ukraine, another potential target for Russian aggression, are in that club and in a position to block entry. But the bigger hurdle ought to be the WTO's standard that candidates be "market-based" economies ready to respect the commitments and rules of this international organization. By this standard, Russia doesn't belong there, or in the OECD or G-8.
The markets always have the last laugh. Anyone who thinks otherwise is swimming in an Egyptian river.

Wednesday, September 17, 2008

Greetings from Soteria Trader!

Hello everyone!

Thanks to CB for letting me crash his blog. I've been a regular reader and decided I have to weigh in more formally on many of the issues CB is so passionate about. While I may not be as prolific a contributor as he, I look forward to engaging in the dialogue and hearing your feedback. Thanks!

Introducing Soteria Trader, a new author here

ST is an old friend, from a rival hockey school, with a lot of real trading experience.

I think he will really improve the content here. Thanks, and Welcome!

I think Greg Mankiw defeats Stephen Harper

on energy policy.

Megan McArdle for Chief Regulator

Her piece on government reforms in financial regulation is the best thing I've read yet on this.

Quotes of the day

In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.--Assar Lindbeck

If Chrysler goes belly up, it also might have forced some deep introspection at Ford and G.M. and might have changed their attitude toward fuel efficiency and manufacturing quality.--Barry Ritholtz

Naked I came from my mother's womb, and naked I will depart.--Job

Lo and behold, the CFTC found that index traders and swap dealers actually reduced their stake in crude oil futures as prices spiked. The number of contracts held by these investors betting that prices would increase -- the net long position -- fell by 11%, and more were shorting oil than going long over the six-month period. In other words, index traders and swap dealers were driving the future price of oil down.--WSJ Editorial Board

Many assets are highly illiquid and the institutions that hold them, such as banks, are in the business of providing liquidity to the economy and holding such assets as collateral. Making those assets "mark to market" meant that reserves were drawn down and converted into ever more loans during the upswing, and now must be built back up at a time when asset prices are plummeting and capital is scarce. Instead, a more stable capital adequacy rule -- such as a leverage ratio that was based on the original asset values -- would limit this pro-cyclical behavior. This means that the complex approach taken in the Basel II discussions for international capital rules need to be scrapped, and the process restarted.--Larry Lindsey

Charts of the day

by Erick Schonfeld, depicting the $4 trillion sea change:

Recent history of investment banks

by the Epicurean Dealmaker, aka "TED":
So when fixed commissions were eliminated [in 1975], the huge capital markets business of a typical investment bank could no longer support itself financially. Banks needed to find another use for all that investment in infrastructure. Pace the supposed genius of the innovators at Salomon Brothers, it was only a small and intellectually undemanding step from using relatively small amounts of in-house capital to support underwriting and market-making activities to using a much larger amount of money trading for their own account, on a proprietary basis. Because they were "in the flow" and saw the securities markets from the privileged position of market makers, "prop desks" at investment banks started making money hand over fist. In other words, they started acting like hedge funds.

Add in the ballooning federal deficits of the Reagan years (and the resulting huge trading volumes in fixed income securities and related derivatives), the explosion in equity trading which accompanied the internet boom, and Alan Greenspan plying the financial markets with liquidity like a whorehouse madam plies shore-leave sailors with booze, and you can readily see that capital markets operations became the dominant business line of all major investment banks over the past couple of decades.

Of course, there was trouble in paradise. Trying to incorporate a volatile principal-oriented business like proprietary trading into an organization that was otherwise focused on agency business like M&A advisory, capital raising, and underwriting caused all sorts of problems. When the prop traders made a bundle betting for the firm, they brought home annual bonuses that struck even the highly overcompensated bankers in M&A and corporate finance as nothing short of obscene, and when their trades blew up in their faces everybody else at the firm suffered big cuts in compensation regardless of how good their individual years had been. Bankers off the trading floor began speaking bitterly about the "trader's option," while the unlucky traders got fired and sauntered across the Street to another prop desk at another bank.

If I had to venture a guess—you didn't think I wouldn't, did you?—I would say that we will see a repopulation of the middle of the industry over time. At the top end, in size and revenues—but not necessarily prestige or reputation—we will continue to see hedge fund-i-bank hybrids flinging their balance sheets about and trying to be all things to all people. Most of these will be combinations of commercial banks and investment banks, but there may still be a place for a Goldman Sachs or a Morgan Stanley if they remain religiously devoted to careful risk control.

Such firms should be successful, at least among the clients who truly need the services they deliver. The current market environment, and the current systemwide flight from risk, may mean that these banks will have to settle for lower returns on equity, and their bankers will have to settle for lower compensation, than they have been used to in the recent past. If this is the case, you will see higher-profile investment bankers—"rainmakers" who can write their own ticket (or persuade others they can)—bleed out of such leviathans into smaller, more prestigious advisory boutiques, where they can eat what they kill.
TED starts off talking about reptiles, amphibians, and mammals. It just struck me that law firms could be the fish in this metaphor. The i-banking boutiques may be more attorney than banker in the next phase.

Tuesday, September 16, 2008

Obama wins or loses the Scott Adams economist poll?

He comes out ahead, 59 - 31%, but only 17% of respondents were Republicans.

Larry Ribstein spanks NYT Gretchen Morgenson's coverage

of the Fannie Mae/Freddie Mac debacle, and good.

Quotes of the day

What's the difference between a journalist and a watchdog? Rabies.--James Taranto

It's a little scary that the world's largest insurance company hasn't planned for a rainy day.--Tyler Cowen

You can argue that nobody is ready to be president. You can argue that even if you've been vice president for eight years, that no one can be fully ready for the pressures of the office--Bill Clinton

By allowing firms that took excessive risks to fail, regulators also reduce the political pressure to overregulate the system in the aftermath of the crisis. Let's hope they hang tough for at least a little while longer. --Ken Rogoff

We don't need more financial regulation

as much as we need less government meddling:

The current panic is the ugly aftermath of the credit mania that took flight in the middle years of this decade. As students of economic historian Charles Kindleberger know ("Panics, Manias, and Crashes"), financial manias throughout history have shared one trait: the excessive expansion of credit. This bubble was no different.

The Federal Reserve kept interest rates too low for too long, creating a subsidy for debt and a global commodity price spike. The excess liquidity and capital flows this spurred became the fuel for the wizards on Wall Street and in mortgage-finance who created new financial instruments that in turn fueled the housing bubble.
I recently identified the co-authors of the mortgage credit crisis here, including a President, Fed Chairman, and Secretary of Housing and Urban Development.

The proposed solution is intriguing, especially a similar response worked last time there was a panic of these levels:
Which leads us to suggest another Resolution Trust Corp. as one more tool to calm financial markets. The first RTC helped to buy, stabilize and liquidate troubled assets amid the savings and loan mess of the late 1980s. Then it blessedly went out of business. Former Fed Chairman Paul Volcker endorsed an RTC II yesterday in a speech in Naples, Florida, and we suspect the idea will gain more traction. He said he "reluctantly" embraced the idea for "dealing with the market breakdown, breaking the logjam of mortgages and other assets of uncertain value [and] restoring a sense of reasonable valuation and market confidence."

... a new RTC would provide a buyer for securities for which there is no market, set a floor under the market, hold the securities until markets stabilize, and liquidate them in an orderly fashion, perhaps at a profit. Failed institutions and managers would not be bailed out. There's always a risk that the politicians will meddle, which is one reason for the Bush Administration to do this now so it can insist on enough political insulation.

Thirteen months into this crisis, the best choices are the same as they were last August: energetic emergency plumbing to protect the financial system, steady monetary policy to defend the dollar, and a tax cut to spur growth
I like this idea because distressed assets can actually be marked-to-market again, which will increase loans.

UPDATE: Steven Davidoff raised similar thoughts on the history of the Drexel bankruptcy during the Bear Stearns fade-to-black.

The Charlie Rangel Tax Evasion Story keeps on giving

The latest allegations:

Rangel's papers over the past 10 years show no reference to the sale of a home he once owned on Colorado Avenue in Washington.

The details of a property bought in Sunny Isles, Fla., are bewildering at best. The stated value changes significantly from year to year, and even page to page, from $50,000 to $100,000 all the way up to $500,000.

Some of the entries for investment funds fluctuate strangely, suggesting that the person either didn't have accurate information or didn't fill out the paperwork correctly.

Previous post here.

Obama wants to DELAY troop withdrawal from Iraq now?

Yikes, make up your mind, sir.

The fat cat demographic can still give to Obama

$28,500 for a dinner with Barry & Babs.

Where in an efficient economy

do people get paid for doing nothing? In the public sector, of course.

You would never shop at a store this wasteful, because the costs would be passed on to you. Unfortunately, we don't get to shop for government.

Monday, September 15, 2008

Intrade lists short-dated options

Announcement here. They appear to list every Friday with expiration on the following Friday.

The leverage opportunity is attractive, but I suspect liquidity will keep these trading fairly wide for some time.

As Colorado goes, so goes the White House

Here is the latest vote projection derived from Intrade prediction futures:

Democrat: 264 [+4]
Republican: 265 [+18]
Dead Heat: 9 [-22]
Total: 538 (270 to win)

In my first post of this series back in June, Barack Obama had Ohio and Virginia in his corner. Now both are leaning towards John McCain. Colorado looks to be the only state on the fence right now.

As a result, the McCain and Republican President contracts are up over 50% for the first time in the life of this race:

This is why a 2-bdrm apartment in Manhattan lists for $6,000 per month

About 70% of the city's rental apartments are either rent controlled or rent stabilized.

Will Wilkinson exposes David Brooks

to be a man-bo (via Arnold Kling).

Arnold loses his religion, the religion we call "science"

which makes him skeptical about macroeconomics and global warming.

Quotes of the day

Fannie's and Freddie's troubles are textbook examples of what happens when gain is privatized while risks and losses are socialized: private decision makers are led by an invisible hand to screw things up. The same underlying dysfunctionality that created America's housing-market troubles is needlessly driving up health-care costs: Medicare and Medicaid privatize the benefits of health care (medical attention for patients and handsome fees for physicians) while socializing the costs. Spending other people's money leads patients and doctors to overuse, and to use inefficiently, health-care resources - and, thus, to unnecessarily drive up health-care costs--Don Boudreaux

With the division of labor in financial markets, risk premiums are related to one another. If A lends money to B to lend money to C to lend money to D, what happens when A starts to worry that B, C, or D might be riskier than previously thought? Well, A starts to demand a higher interest rate from B, which means that B demands a higher interest rate from C, which means that C demands a higher interest rate from D, and D may already be on the skids, so everything just comes crashing down.--Arnold Kling

Blogging is light today

I've got too many friends, neighbors and acquaintances employed at Lehman, Merrill, and even Bank of America. At dinner last night, hosted by a hedge fund CFO, I got an alert on the Merrill acquisition announcement, and was sitting right next to a Merrill employee and broke the news to him.

Things are surreal here in Manhattan, and I'm grinding risk. Maybe I'll blog a little later.

Friday, September 12, 2008

Charlie Rangel's divorce was a tax ploy?

I'm scratching my head in puzzlement.

Joe Biden's tax returns

show that he's not the best Catholic in more ways than one:

Oh ye of little faith.

Professor Caron also notes:
Independent Sector reports that 89% of American households contribute to charity, with an average contribution of $1,620 -- 3.1% of income.

IRS statistics reveal that the average taxpayer with AGI over $200,000 makes over $20,000 of charitable contributions:

  • $15,000-$30,000 AGI: $1,916 average charitable deduction
  • $30,000-$50,000 AGI: $2,158 average charitable deduction
  • $50,000-$100,000 AGI: $2,703 average charitable deduction
  • $100,000-$200,000 AGI: $4,057 average charitable deduction
  • $200,000 or more of AGI: $20,434 average charitable deduction
UPDATE: Mark Perry has a great chart:

Stat of the day

Dustin Pedroia has swung the bat 1,114 times this season. He has connected with 1,027 pitches and missed 87. Think about that. It’s the best percentage in the majors this season.

Palin's earmarks

Sarah Palin requests about $193 million for FY09. She is awful!

But only half as awful as Joe Biden.

Eric Gillin and Thomas Cahill analyze debris from 9/11/2001

and discover the air after the terrorist attack was not as bad as we thought it might be.

What do we want? Choice!

Where? Florida!

And everywhere else, too.

Yours truly, explaining prediction markets

to the Marginal Revolution readers. Scroll to see each of my comments.

Perjury happens

At least, it has since the dawn of the Nuclear Age.

Q. What is the difference between a journalist and an Obama supporter?

A. You tell me

Who fact checks the fact checkers?

Charlie Gibson is too soft on Sarah Palin? C'mon:
Gibson - probably relying on a sloppy Associated Press report - told Palin she has said that, "Our national leaders, are sending [U.S. soldiers] out on a task that is from God."

In a part of the interview that was edited out (but is available on ABC's Web site), Palin says, "You know, I don't know if that was my exact quote."

Gibson snaps: "Exact words."

Sorry, Charlie - let's go to the tape.

In the video of her remarks, Palin says "Pray for our military men and women who are striving to do what is right. Also, for this country, that our leaders, our national leaders, are sending [US soldiers] out on a task that is from God." She is clearly praying for wisdom for our national leaders - praying that they are following God's will.

This is Christianity 101, not some fundamentalist plot to wage a holy war. Presumably, Obama, as a Christian, utters similar prayers for our country as well.

There's more: Gibson also accused her of saying of Iraq, "There is a plan and that that plan is God's plan."

Here's what she really said: "That's what we have to make sure that we're praying for, that there is a plan and that that plan is God's plan."

Despite Gibson's insistance that she'd said things that she clearly hadn't, Palin was polite and seemed unrattled.

We need to get beyond the stereotypes. Palin has been cast as a right-wing nut job in the media, yet her actual record suggests something more complex. She is a Republican who made herself the enemy of oil companies in Alaska. She raised funding for pregnant teens and learning-disabled children. She has expressed concern that we don't have a clear strategy in Iraq.

Quotes of the day

But we can't build a school system that depends on everyone being a gifted natural teacher with a fire in the belly for imposing civilization on thirty godless savages every term. We need a system that produces good results even when the teachers are just there to do a job.--Megan McArdle

We are friends of Israel….We cannot second-guess the steps Israel thinks it needs to take to defend itself.--Sarah Palin

A commenter on Marginal Revolution complains that [Sarah Palin] thought Fannie and Freddie were government entities. I think we have to give her a pass on this, given how many of the world's central bankers made the same mistake.--Megan McArdle

Palin was out there in plain sight, but Democrats didn't see her, presumably because they didn't anticipate that McCain would be so daring. But McCain was trained as a fighter pilot. Fighter pilots don't shoot down enemy planes by doing what the enemy anticipates.--Michael Barone

I think here the media is on very dangerous ground. I think that when you see them going through every single expense report that Governor Palin ever filed, if they don’t do that for all four of the candidates, they’re on very dangerous ground. I think the media so far has been the biggest loser in this race. And they continue to have growing credibility problems.--Mark Penn, former Clinton campaign chief

Palin's beliefs are compared to those of the Rev. Jeremiah Wright -- though it turns out that she was caught on tape requesting prayers for the success of her country instead of railing against it. In that sense, Palin sounds most like President Franklin Roosevelt, who prayed on D-Day that, "by Thy grace, and by the righteousness of our cause, our sons will triumph."--Michael Gerson

I think the Republican Party is moribund. Its long tenure has made it corrupt, and depleted its stock of ideas. It has gotten too cosy with the bureaucracy and the lobbyists, and lost touch with its first principles. I do not think that this is some feature of conservatism--indeed, it reminds me quite a bit of the House under Tip O'Neil. But I think the party needs a time out to think about things.--Megan McArdle

Film actor arbitrage opportunities

Via Tyler Cowen, here is Forbes' list of most overpaid and best value actors:
1. Nicole Kidman $1 gross per dollar paid
2. Jennifer Garner $3.60
3. Tom Cruise $4
4. Cameron Diaz $4
5. Jennifer Lopez $4.10
6. Jim Carrey $4.11
7. Nicholas Cage $4.16
8. Drew Barrymore $4.38
9. Will Ferrell $4.67
10. Cate Blanchett $4.97
Vince Vaughn tops Forbes' charts at $14.73, and Tobey Maguire comes in second at $13.44. It seems like they only looked at 40 or so "A-list" actors.

Christopher Dodd and Barney Frank should not blame Bush

for the GSE mess (via Greg Mankiw).

Here are some superior candidates.

Perhaps someone will need to teach Senator Dodd on the basics of recursion, and how it applies to his blame() method.

Bimbos for Obama

These girls are carrying water for Barack, in trying to undercut Sarah Palin:
Pamela Anderson
Annette Bening
Candace Bergen
Gina Gershon (who I think is the hottest one on this list)
Lindsay Lohan
Susan Sarandon
Barbara Walters, Joy Behar (admittedly not hot, but near Elizabeth Hasselbeck)
I think if I spent my early adulthood being thrown all this money because I was attractive and/or knew influential people in the media, and was surrounded by assistants who told me how talented and smart I was, I might get, um, a false sense of my own intelligence.

Sure, some of them are gifted (even without the cosmetic alterations) and work really hard, but they've never had to work as hard as me (unless they've done 80-100 hour weeks for 5 years and spent a week a month overseas for 5 years)

Still, I've never gone to where they live and emitted tons of carbon with my personal trailer.

Thursday, September 11, 2008

Joe Biden's earmarks for FY09

look to total about $330 million. This is one of 100 senators, one of 535 federal legislators, whose state population is so small it only affords 4 electoral votes.

No wonder we have huge deficits. Taxes are too high--it's the spending, stupid.

Sarah Palin's ideal fantasy

in her own words, here.

Remembering 9-11

The picture is from Boston Globe, by way of Paul Kedrosky.

The red dot is where I was living, from where my wife was running with our baby in stroller when the first tower collapsed.

It's hard to look at it. But it reminds me that as bad as Bush has been, I don't regret pulling for him over those other C-average Yalies.

Last year's observance here.

UPDATE: James Lileks' 2003 piece, written as though he lives across the street from me (I actually live even closer to Ground Zero now):
The world will not end. It will roll around in its orbit until Sol expires of famine or indigestion. In the end we’re all ash anyway - but even as ash, we matter. The picture at the top of this page is a sliver taken from a 9/11 camera feed. It’s the cloud that rolled through lower Manhatttan when the towers fell. Paper, steel, furniture, plastic, people. The man who took the picture inhaled the dust of the dead. Somewhere lodged in the lung of a New Yorker is an atom that once belonged to a man who went to work two years ago and never came back. His widow dreads today, because people will be coming and calling, and she’ll have to insist that she’s okay. It's hard but last year was harder. The kids will be sad and distant, but they take their cues from her, and they sense that it's hard - but that last year was harder. But what really kills her, really really kills her, is knowing that the youngest one doesn’t remember daddy at all anymore. And she's the one who has his eyes.

Two years in; the rest of our lives to go.

Inequalities in healthcare

In 2003, the poorest quintile spent more on healthcare than the richest quintile!

This is actually not surprising, if you would believe that the rich spend more in preventative care, organic foods, gym memberships ... and the poor are more obese (as junk food yields offer more calories per dollar) which leads to many more conditions requiring expensive treatments.

What say you, Felix Salmon? That's another $5,000 for someone on the poverty line, which gets them even closer to the $250,000 middle class household in Manhattan.

2008 global surface temperatures average 0.365 Celsius over GISS baseline

This means that, unless Sep-Dec 2008 temperatures average 0.95 over baseline (and the single month record, since 1880 when the data collection begins, is 0.85 in Jan 2007), this contract will expire at 0.0:

Some monthly temperature, mt, statistics from Goddard Institute for Space Studies, 1880-present:
min(mt) = -0.87
avg(mt) = -0.023
median(mt) = -0.05