Correlation, causation, whatev ...

Dan Riehl finds:

Bush's speech was 1945 words, 54 paragraphs, or 123 lines. He used I, I'm, or my a total of 18 times. That's once in every 108 or so words.

Obama's speech was 2799 words, 29 paragraphs, or 179 lines. He likes longer paragraphs. He used I, I'm or my 42 times. That's once in every 67 or so words, or nearly twice as frequently as Bush.

Richard Grasso on Bernie Madoff's legitmate business

Interesting.

If an ACORN falls in the woods but the NY Times spikes the story

does it still change history? (Via Glenn Reynolds)

Information with representation

In a posting on its Web site, Microsoft said that the move reflected the change in the way people use reference material. It didn't mention Wikipedia by name, but I think we all know the biggest change to encyclopedias to come around in recent memory.

Information, but alas not taxation. (Via Chris Masse)

Uh oh, the stock market may be going lower

if you follow this contrarian indicator.

David Henderson calls fascism

fascism.

Quotes of the day

We self-censor less than American reporters.--Tim Shipman

The American health-care system may be a crazy mess, but it is the prime mover in the global ecology of medical treatment, creating the world’s biggest market for new drugs and devices. Even as we argue about whether or how our health-care system should change, most Americans take for granted our access to the best available cancer treatments—including the one that arguably saved my life.--Virginia Postrel

There is so much talk about how banks amplify risk but don't toss out the classical model altogether. Banks also share in risk. If your banks are less risky, often something else is more risky, and vice versa.--Tyler Cowen

Over all, [the FASB's weakening of mark-to-market accounting] seems like a recipe for weakening, not increasing, investor confidence.--Rob Cox and Richard Beales

Does anyone else think it would be a good idea to require that campaign monies returned due to scandal be given to the opposing political party rather than some cushy charity? It always rubbed me the wrong way that, as a Senator, your shady contribution collection return/adjustment likely put your name in lights amongst the highest donors for [fill in the blank]. An immediate shift of the funds to the party of your closest contender in the last general election, would make for an interesting disincentive.--Equity Private

It would have been better to keep a distance from G.M. and prepare the region for a structured bankruptcy process. Instead, Obama leapt in. His intentions were good, but getting out with honor will require a ruthless tenacity that is beyond any living politician.--David Brooks

President Obama proclaims that it is "ingenuity and resilience that makes us who we are." Nice words. But if he really believes his rhetoric, why is he using taxpayer dollars to protect GM and Chrysler from bankruptcy? Surely an ingenious and resilient people can weather the bankruptcy of these ancient behemoths.--Don Boudreaux

The 400,000 [job loss] figure is a made up number. It's just a guess. [President Obama] just wanted to make it sound as big as possible. He has to. The UAW is so small, just 190,000 workers. One estimate of the bailout of the auto industry is $130 billion. That's only about $684,000 per worker. What a bargain.--Russell Roberts

Many of GM's dealers will receive lavish buyouts as an inducement to close their doors, for a total cost in the billions of dollars. That's disgusting, but it's required both by GM's contracts with them and by the welter of state laws that protect the dealers. (If you want to know who the political power brokers are in any given city or town, look for the car dealers.) This is going to be kept scrupulously out of the news, because car dealers contribute huge sums to every last man and woman in Congress and the Senate. The public was ready to torch the private residences of AIG executives, but they won't make a peep about paying billions of their own hard-earned dollars to provide a cushy retirement for thousands of already-rich auto dealers.--Red State

A change in auditors is usually the first leg of a death march for slimy companies like Overstock. And believe me, they don't get any slimier.--Gary Weiss

We’re all familiar with it: the world where Lincoln was a Democrat, Bull Conner a Republican, Martin Luther King a Democrat and when the Vietnam War was started by Tricky Dick, instead of by John F. Kennedy and Lyndon B. Johnson. Not that anybody’s got something against JFK, but facts are facts.--Richard Fernandez

... the evangelicals’ role in the [housing] market may have prevented home prices from getting even more out of whack.--Zubin Jelveh

All the value of a Stanford MBA in a single post

here, courtesy of Chris Wyser-Pratt '72:

I learned exactly seven things at Stanford Graduate School of Business getting an MBA degree in 1972. I always used them and never wavered. They were principles that enabled me to put the cookbook formulas that everyone revered in context and in perspective. I think they served my clients (and perhaps me) rather well. Here are those seven principles, and who taught them to me:

1. Don't use many financial ratios or formulas, and when you've picked the few that will actually tell you what you want to know, don't believe them very much (Prof. James T.S. Porterfield);
2. Remember that any damn fool can compute an IRR or DCF. The trick is to find a business that can return 20% after tax, understand its critical indigenous and exogenous variables, and then run it so it meets its return target. (Prof. Alexander Robichek.)
3. Always ask what can go wrong (Porterfield);
4. Never extrapolate beyond the observed points of a distribution, you have absolutely no information outside the observed range (Prof. J. Michael Harrison);
5. Remember that you can always break the bank at Monte Carlo by doubling your bet on red at the roulette table every time you lose. The problem is it will break you first; It's called "the takeout." Therefore, always manage your financial structure so that takeout is not an issue. (Porterfield.)
6. Big M (today Nassim Taleb's Black Swan) is never a part of the optimal solution. If it shows up in the answer with any coefficient greater than zero, you have the wrong answer and have to continue to do program iterations. (Harrison.)
7. There is never any excuse for looking through the substance of an economic transaction, whatever the accounting, and if the accounting permits you to do so, it's wrong (Prof. Charles T. Horngren.)

Conspicuously absent from this list are Prof. Jack McDonald and his Efficient Market Theory and Random Walk, Prof. William Sharpe, Nobel Prize winning author of the Capital Asset Pricing Model (which he later acknowledged didn't work because his data were wrong, but it's still used everywhere and they didn't take away his prize) and Prof. James Van Horne, who believed that the Fed actually controlled the economy through its monetary policy actions. Gene Webb -- who at least tried to improve my people skills -- and Ezra Solomon in International Finance deserve honorable mention.

There, I've just provided you $103,000 in tuition savings (less the relational opportunities, and of course, the degree).

Quotes of the day

What general rule compels us to conserve water but not to conserve on resources devoted to education? The blunt truth is that there is no pattern, and the general rule is simply this: Only the teacher can tell you which resources should be conserved. The whole exercise is not about toothbrushing; it is about authority.--Steven Landsburg

But of course, when we tax the rich, they don't just cut back on their yachts; they also cut back on their saving and investment activity, which in the long run means that we will all be a little poorer. Life is full of tradeoffs that can not be vanquished with even extremely biting sarcasm.--Megan McArdle

The [mortgage securitization] software proved to be more sophisticated than the people who used it, and that has caused the whole world a lot of problems.--Michael Osinski

Maybe I’m old-school, but “President fires CEO” looks as wrong as “Pope fires Missile.” --James Lileks

We never should have tried to stop the bankruptcy process, which is the only path toward dealing with reality for these companies. We have a competitive, successful US automobile industry; it just doesn't happen to be unionized, or owned by the "big three," and it isn't based in Detroit.--Charles Calormis

In fact, banks have been subject to strict, risk-based capital requirements. It was these very capital requirements, which favored triple-A-rated securities, that produced the boom in the creation of structured products backed by subprime mortgages. Risk-based capital requirements were a response to the savings and loan crisis of the 1980s, and regulators were confident that with those requirements in place, we would not see a repeat. As we watch Mr. Geithner's plan make its way through Congress, we should be wary that it, too, will seem like the correct response to the present crisis while laying the basis for the next one.--Arnold Kling

I think that [Matt] Taibbi's basic "power play" narrative is correct. His view that the government money going to AIG is more of a bailout of Goldman Sachs than of AIG strikes me as on target. However, his implication that it is a one-way takeover of Washington by Wall Street is incorrect, in my view. I think that all along we have had a Washington/Wall Street industrial complex, particularly with regard to housing finance.--Arnold Kling

Homeless children in bikini statistics

Mickey Kaus' BS radar 5x5 these days:

Chappell's question is based on this study by an anti-homelessness advocacy group with every incentive to maximize the estimate of the problem. 1) The report apparently counts all people who are "homeless" even one night over the course of a year. That's very different from saying that one-in-50 are homeless at the same time--e.g., "now." 2) More significantly, the report counts as "homeless" families who've "doubled up"--e.g., moved in with relatives--apparently on the grounds that while these children in these families do have a home, they don't have "a home of their own." That's not what most people mean by homeless, and not the image Chappell conjures (tent cities, sleeping under bridges). Will I be "homeless" if Fire Mickey Kaus succeeds and I have to move in with my brother's family? Don't answer that. ... The study also counts families living in motels and trailer parks--again, lousy living arrangements, maybe, but not what we usually mean by "homeless."

Previous BS post here.

Statistics are like a bikini. What they present is suggestive, but what they conceal is vital--Aaron Levenstein

Photo link here.

Hollywood stops bashing profiteering capitalism

when it's about how they get paid.

The silence deafens.

Q. Why can regulation be worse than nothing?

A. Because regulators want to be above regulations like everyone else, but unlike everyone else, they have the power to grant themselves the exceptions.

UPDATE: Glenn Reynolds also links, saying:

Remember, when a private company wants to cover up billions in losses and the responsibility for them, that’s a major scandal and proof of the evils of capitalism. But when a government regulator does the same thing, that’s just how people are, these things happen, whaddyagonnado?

Isn't one political party's decision to keep Madoff contributions

as noteworthy as its rival party's decision to keep Enron contributions?

Apparently not.

Is Jesus a fox or a hedgehog

This is what got me wondering:

Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don't give great sound-bites, they are far more likely to get things right.

Black paint is the new tinfoil

in California (via Andrew Roth):

The California legislature is considering regulating the color of cars and reflectivity of paint to reduce the energy requirements to cool them. A presentation on the proposed legislation by the California Air Resources Board is below.

The problem isn't the color per se, but the reflectivity of the paint overall. And dark colors just don't reflect well, so they are likely out. "Jet black remains an issue," says the report.

Anyone who's ever entered a very hot car knows that it can be cooled down immediately by driving a few feet with the windows open, effectively neutralizing any color-caused heat issues before engaging the air conditioner. But whatever, black is evil.

The biggest reason to be skeptical about global warming

The data is really funky.

Secrecy for me

but not for thee:

I think I have a better idea now why the White House was so sensitive about my story Monday questioning the legality and wisdom of secret meetings held by subcommittees of President Obama’s economic advisory panel.

It was because officials planned to announce within days that Obama intended to use just such a subcommittee to prepare his tax simplification and enforcement initiative. And it looks like they’re laying the groundwork to allow the new tax panel to do its work behind closed doors.

...
But Obama has promised to create "an unprecedented level of openness in Government.” Given that Democratic lawmakers have called the subcommittee exception a “loophole” in federal law and that a House committee voted early this month for a bill that would close that “loophole,” it may look a bit odd if the White House tries to leap straight into a "loophole" their Congressional colleagues are trying to close.

(Via Glenn Reynolds)

UPDATE: Bruce McQuain notices, too.

The United Nations does not believe nor defend free speech

as a human right (via Don Surber).

Housing has never been more affordable

than now:

... the typical household earning the median family income of $59,726 in February would have 173.5% of the qualifying income to purchase a median-priced existing single-family house ($164,600) with a 20% down payment, which would be the highest level of housing affordability since the NAR started reporting housing affordability in 1971.

I suspect that students from Wake Technical Community College are more proficient in economics

than Ivy League graduates (via Don Boudreaux):

Why is one-sixth of the world—the “first world”—different from the rest of the world? What did these countries do right that the rest of the world is not doing? This question is the focus of Adam’s Smith’s Wealth of Nations. I want to give my students the building blocks to answer this question. So, a year after I began teaching here, I tossed out the heavy principles text that I was given, adopted a small one, and narrowed the focus of my course.

In several principles-of-economics textbooks, the first chapter is devoted to the basic elements of economics such as scarcity, tradeoffs, opportunity costs, incentives, marginal thinking, etc. Most instructors spend very little time with this chapter.

I spend weeks on these concepts. These principles are at the heart of economics, which is, essentially, the study of human behavior. Economics explains how people make decisions—important ones such as where to go to college and unimportant ones such as which shampoo to buy.

Economics teaches us that if given a certain set of conditions and incentives, rational humans behave quite predictably. We need to look no further than the macroeconomic crisis that our nation is currently experiencing. As well-meaning government officials promoted homeownership over the years, the incentives they put into place led, gradually but almost inevitably, to a housing boom and then a bust. Those incentives included lower mortgage standards, the Federal Reserve’s low interest rate policy in 2002-2004, and changes in accounting rules that allowed financial institutions to expand their capital when asset prices rose but reduced their capital when asset prices fell.

Just as my students learn to understand the causes of today’s problems, they learn why conventional wisdom is often wrong. For example, most people think that rent control—government limits on rent increases—make the poor better off by keeping housing affordable. But my students understand the unintended side effects. In cities like New York, rich insiders are often the ones who get the breaks. Because landlords can’t get a market rent, few people want to build more apartments, so existing houses often cost more. When rents are low, landlords don’t want to make necessary repairs and in extreme cases they abandon the apartments.
...
What do the first-world nations have in common? Quite a bit: the rule of law, competitive markets, tax rates that are not excessive, efficient capital markets, etc. In short, the successful countries tend to have the most economic freedom.

The Obama administration believes in smaller government

at least when it comes to the Treasury Department (via Conor Clarke).

Arnold Kling agrees with Paul Krugman on the problems with mortgage securitization

But not on the parties to blame for them:

My view is that securitization of mortgages would never have emerged in a free market. Instead, it came from our country's industrial policy supporting housing. Every major advance in mortgage securitization was a regulatory/accounting gimmick, encouraged or created in Washington.

1. Mortgage securitization began in 1968 as a way for government to get FHA and VA loans off its balance sheet, to save Lyndon Johnson the embarrassment of having to ask Congress to increase the debt ceiling.

2. Mortgage securitization took off big time in the early 1980's, with a program designed to allow S&L's to liquidate mortgage assets that had declined in value without having to recognize the loss of value on their balance sheets.

3. Mortgage securitization took another leap forward in recent years when the Basel capital accords created a huge demand at banks for AAA-rated assets, and Wall Street was able, with the help of the credit rating agencies, AIG, and Freddie Mac and Fannie Mae, to create securities backed by mortgage loans--even subprime loans--that received the coveted AAA rating.

Paul is worried that Washington is trying to artificially resuscitate the mortgage securities market. But it was always thus.

History repeats itself

Yes it does, Professor Mankiw.

2009:

President Obama's budget chief hinted Wednesday that the president's signature campaign issue -- a middle-class tax cut -- will not likely survive a budget battle with Democrats on Capitol Hill.

1993:

Seeking to explain why he is backtracking on a campaign promise to cut taxes for the middle class, President-elect Bill Clinton said Thursday that the plan was never a major theme in his race for the White House. Mr. Clinton, speaking at a news conference a day after saying he would have to "revisit" his tax-cut plan, said Americans voted for him because of the "big things" he wanted to do.The middle-class tax cut, he said, was not among them....

Mr. Clinton spoke throughout the campaign of the need to redress declining middle-class incomes during the 1980s. He proposed a tax cut for the middle class nearly a year ago, in New Hampshire, and repeated the pledge frequently.

Quotes of the day

The mother of excess is not joy but joylessness.--Fredrich Nietzsche

If you see something with suspiciously consistent and positive returns, and if you have no idea how those returns are generated, then tread with extreme caution.--Felix Salmon

Let’s not fool ourselves into thinking the past was better than it was. I think it’s much better for banks to be in the banking industry rather than the household appliance industry.--Eddy Elfenbein

Public pensions are woefully underfunded — they’re promising defined benefits, but may not be able to deliver. Defined-benefit private pensions are dragging companies like GM, Ford and Chrysler toward bankruptcy. And Social Security is on an unsustainable trajectory, which the political system knows but which politicians can’t bear to confront. At least when 401(k) balances go down, the whole system isn’t rendered insolvent.--Glenn Reynolds

Greenspan then goes on to argue, as he has often in the past, about the regulatory difficulties of bursting a bubble. He has a point here, but he also undermines that point by arguing that back in 2002 he said the housing fever would eventually end. And yet, Greenspan, the most powerful Fed chairman in many decades, never budged to consistently decry the danger or even to use his various powers as a regulator and as a sage to tighten the reins. He wasn't going to rock the boat. But now he can't have it both ways. If he didn't see what was happening -- particularly in housing -- then he was blind. But if he did (and he claims he did, sort of, maybe) then he was a coward. And that's a judgment beyond ideology.--Robert Teitelman

And the McCain campaign, love 'em, you know, they're a lot of people around me, but nobody I could find that I wanted to hold hands with and pray.--Sarah Palin

Hey, I’ve got an idea — why don’t we organize society so that it rewards hard work! We could even see that people who work harder and do better make more money! And then their efforts would pay off in more general societal prosperity, making life better for everyone! And we could . . . Naaaah.--Glenn Reynolds

For a guy who talks so much about wanting a new era of responsibility, President Obama spends an awful lot of time blaming Republicans for all the wild and reckless spending he crammed into his own budget.--Charles Hurt

Indeed, as best I can tell, Obama has more than a Geithner problem. He has what I would call a Rumsfeld problem. That is to say, in the infamous words of the imperious defense secretary, the president made the mistake of going to economic war with the army he had--which was built for political speed and presidential comfort--instead of the army he needs to beat back the crisis of confidence that is crippling our markets and feeding the AIG blood lust.--Dan Gerstein

Mickey Kaus gets forwarded a lengthy discussion thread from the super-secret JournoList and, well, it turns out it's exactly the kind of thoughtful and high-brow policy salon we all imagined it to be.--Mark Hemingway

Pascal's Wager is actually a serious problem for those of us who want to use Kolmogorov complexity as an Occam prior, because the size of even the finite computations blows up much faster than their probability diminishes.--Eliezer Yudkowsky

You think your job sucks? Try working for Lenny Dykstra.--Kevin Coughlin

Legislators have waaay too much time

on their hands.

Quotes of the day

[America has] been lectured by France on the fact that we're not fiscally responsible right now.--Senator Judd Gregg

If it were up to me, the charitable deduction would be 100 percent for everyone. That way, if anybody wanted to spend money bailing out AIG, they would have to hold a bake sale.--Arnold Kling

The Tytler Cycle

Alexander Tytler had this to say about democracy:

A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship. The average age of the world's greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence:

• From bondage to spiritual faith;
• From spiritual faith to great courage;
• From courage to liberty;
• From liberty to abundance;
• From abundance to complacency;
• From complacency to apathy;
• From apathy to dependence;
• From dependence back into bondage.

Here is a diagram. Where do you think we are?

Jeffrey Sachs warns that the Geithner-Summers plan could create a lot more poverty

Scary:

Tim Geithner, Treasury secretary, and Lawrence Summers, director of the White House national economic council, suspect that they cannot go back to Congress to fund their plan and so are raiding the Federal Reserve, the Federal Deposit Insurance Corporation and the remaining Tarp funds, hoping that there will be little public understanding and little or no congressional scrutiny. This is an inappropriate institutional use of the Fed, the FDIC and the Tarp. Mr Geithner and Mr Summers should at the very least explain the true risks of large losses by the government under their plan. Then, a properly informed Congress and public could decide whether to adopt this plan or some better alternative.

He provides an alternative solution, so read the whole thing. (Via Greg Mankiw)

The devalued Prime Minister of a devalued Government

Beautiful! Unfortunately I don't see something like this ever happening in our hallowed chamber of Congress.

Freeman Dyson

The smartest man alive today?

Maybe not: we both graduated from the same university, we never got advanced degrees, and we are both skeptics of the global warming hysteria popular in culture today.

He is a little bit smarter than me, though.

(Via Russell Roberts)

The dating game conundrum

Solved by Tim Harford.

Also, if you were wondering why your boss is overpaid and you are underpaid, he solved that one, too (with a little help).

If George Soros is so concerned about carbon emissions

why is he snapping up coal companies?

Q. How do politicians promise to halve a deficit?

Why, triple it first, silly.

This explains a lot

The majority of our subjects, regardless of size, sex, or race, exhibited extreme mood swings, often crying one minute and then giggling playfully the next. Additionally we found that most ... had trouble concentrating during the day, often struggled to sleep at night, and could not be counted on to take care of themselves—all classic symptoms of manic depression.

Chains we can believe in

Ouch.

President Obama is listening to Soteria Trader

so it appears. ST's post here.

I am wishing I had taken a class with Professor Thomas Krannawitter

Elesha Coffman reports:

Most controversially, Krannawitter ended his guest stint in my class by suggesting that, despite President Obama’s many evocations of the Lincoln legacy, the only thing the men have in common is Illinois roots. Lincoln, to Krannawitter, represents the individual rights school of thought. Obama comes from the group rights school founded by early 20th century Progressives (whom Krannawitter really dislikes). Lincoln saw the role of the U.S. government as preventing some citizens from infringing upon the natural rights of other citizens. The list of rights is small and never essentially changes. Obama, as a Progressive, sees the role of the government as granting rights not just for protection from other citizens, but for things like health care, a living wage, and decent housing. The list of rights grows whenever the government is willing and able to expand it.

Don Boudreaux points out how Orwellian our Congress has become

here:

Sen. Sherrod Brown snarls at the notion that protectionist policies reduce freedom (Letters, March 18). Let's see. If I want to buy a pair of pants from China, armed agents from U.S. Customs stop me from doing so unless I fork over to them a fee that Mr. Brown and his colleagues on Capitol Hill determine I should pay for the privilege of engaging in this voluntary transaction.

If I resist and try to buy my pants without paying the fee demanded by Uncle Sam's armed goons, I will be imprisoned. If I resist too adamantly, I will be shot dead.

For Mr. Brown to deny that protectionism infringes people's freedom is disgraceful Orwellian newspeak.

We've just unwound the benefits of our anti-smoking programs

All those billions of dollars, down the drain.

The greatest irony, of course, is that the President is a big fan of preventative healthcare programs. Doh!

Mayor Bloomberg is right on taxes

He says to Governor Paterson:

51, 52 percent of our taxes come from people making $500,000 or more

Five thousand people back in 2006, it's probably a little more diverse today, but in 2006, 5,000 people paid 30 percent of the taxes in New York City.

If only 1,500 of that 5,000 people move to Connecticut, that would cut 10 percent of our tax base, that's another $3.5 billion.

No free lunch, you tax increase advocates out there.

Sometimes, Black Swans are a good thing

Take Tsutomu Yamaguchi, who survived the atomic bombings at both Hiroshima and Nagasaki.

(Via Don Surber)

No surprise here

Both males and females viewing opposite sex photos displayed a significant increase in risk tolerance, whereas the control subjects exhibited no significant change.

While sex is indeed risky business, I always think back to my favorite CEO, who used to always say:

We don't avoid risk. We manage it.

Anything that important needs proactive management.

A trader strikes back

Jake DeSantis, formerly of AIG:

I have the utmost respect for the civic duty that you [CEO Liddy] are now performing at A.I.G. You are as blameless for these credit default swap losses as I am. You answered your country’s call and you are taking a tremendous beating for it.

But you also are aware that most of the employees of your financial products unit had nothing to do with the large losses. And I am disappointed and frustrated over your lack of support for us. I and many others in the unit feel betrayed that you failed to stand up for us in the face of untrue and unfair accusations from certain members of Congress last Wednesday and from the press over our retention payments, and that you didn’t defend us against the baseless and reckless comments made by the attorneys general of New York and Connecticut.

My guess is that in October, when you learned of these retention contracts, you realized that the employees of the financial products unit needed some incentive to stay and that the contracts, being both ethical and useful, should be left to stand. That’s probably why A.I.G. management assured us on three occasions during that month that the company would “live up to its commitment” to honor the contract guarantees.

That may be why you decided to accelerate by three months more than a quarter of the amounts due under the contracts. That action signified to us your support, and was hardly something that one would do if he truly found the contracts “distasteful.”

That may also be why you authorized the balance of the payments on March 13.

At no time during the past six months that you have been leading A.I.G. did you ask us to revise, renegotiate or break these contracts — until several hours before your appearance last week before Congress.

I think your initial decision to honor the contracts was both ethical and financially astute, but it seems to have been politically unwise. It’s now apparent that you either misunderstood the agreements that you had made — tacit or otherwise — with the Federal Reserve, the Treasury, various members of Congress and Attorney General Andrew Cuomo of New York, or were not strong enough to withstand the shifting political winds.

I know this man. Smart guy, and he consistently speaks the truth.

Doing business with the government IS doing business with the mob.

UPDATE: Megan McArdle comments on Jake's letter:

Are we better off because a skilled trader has left, and his book will now be wound down by someone who doesn't know it, or the markets, as well? What trader with any alternative job opportunities would voluntarily walk into the mess at AIG Financial Products? Normally you would attract outside talent into the disaster zone by promising to pay them better than normal--but of course, AIG can't do that any more.

Quotes of the day

If you look at the sequence of housing finance crises (the Depression, the S&L crisis, and the current mess), the response to each crisis became the basis of the next crisis.--Arnold Kling

We tend to think of the task of regulation as one of making systems hard to break. An alternative to consider is making systems easy to fix. Think of a computer. You can try to use firewalls and anti-virus software to make your computer hard to break. But it still pays to back up your data to make it easy to fix.--Arnold Kling

We have investors who were invested with Madoff, and they can’t thank me enough.--John Paulson

A cynic knows the price of everything and the value of nothing.--Oscar Wilde

But persuading one’s fellow citizens is one thing, and imposing one’s views in absence of democratic majority will is something else. I would no more require a State to criminalize homosexual acts–or, for that matter, display any moral disapprobation of them–than I would forbid it to do so.--Justice Antonin Scalia

Our Constitution is color-blind, and neither knows nor tolerates classes among citizens. In respect of civil rights, all citizens are equal before the law.--Justice John Marshall Harlan

In effect, [President Obama's proposal to limit the tax deductibility of charitable contributions] would be a tax on the charities, reducing their receipts by a dollar for every dollar of extra revenue the government collects. It is hard to imagine a rationale for taxing schools, hospitals, medical research budgets and arts organizations in this way. I suspect that the administration officials who drafted this proposal did not understand that it would have this perverse effect.--Martin Feldstein

Scarcely does one see Africa’s (elected) officials or … African policymakers… offer an opinion on what should be done, or what might actually work to save the continent from its regression. This very important responsibility has, for all intents and purposes, and to the bewilderment of many an African, been left to musicians who reside outside Africa.--Dambisa Moyo

We’ve blogged about David Gray’s “Babylon” being used as a tool of torture, and how Barry Manilow records were played in Sydney, Australia, to flush teenage loiterers from its parks. But music can also heal, of course. --Freakonomics

Heard an interview with running back Fred Taylor on the radio recently and he sounds like a colorful, intelligent, quotable man. Clearly, he has yet to take the Patriots’ media training classes.--Tony Massarotti

The Upper West Side

160 years ago:

Nice lawn.

Surprising facts about US healthcare

from Scott Atlas:

Americans have better survival rates than Europeans for common cancers:

• Breast cancer mortality is 52 percent higher in Germany than in the United States, and 88 percent higher in the United Kingdom.
• Prostate cancer mortality is 604 percent higher in the United Kingdom and 457 percent higher in Norway.
• The mortality rate for colorectal cancer among British men and women is about 40 percent higher.

Americans have better access to treatment for chronic diseases than patients in other developed countries:

• Some 56 percent of Americans who could benefit are taking statins, which reduce cholesterol and protect against heart disease.
• By comparison, of those patients who could benefit from these drugs, only 36 percent of the Dutch, 29 percent of the Swiss, 26 percent of Germans, 23 percent of Britons and 17 percent of Italians receive them.

Lower income Americans are in better health than comparable Canadians:

• Twice as many American seniors with below-median incomes self-report "excellent" health compared to Canadian seniors (11.7 percent versus 5.8 percent).
• Conversely, white Canadian young adults with below-median incomes are 20 percent more likely than lower income Americans to describe their health as "fair or poor."

Americans spend less time waiting for care than patients in Canada and the United Kingdom:

• Canadian and British patients wait about twice as long -- sometimes more than a year -- to see a specialist, to have elective surgery like hip replacements or to get radiation treatment for cancer.
• All told, 827,429 people are waiting for some type of procedure in Canada.
• In England, nearly 1.8 million people are waiting for a hospital admission or outpatient treatment.

I am struck that, without the "awful" American system, the rest of the world would lose the benefits of innovation for new treatments, and also free-riding on drug costs.

Personal finance wisdom

Great interview of financial advisor Less Antman (via David Henderson). Read the whole thing; here are a few tidbits:

Eventually, I found a sure-fire timing strategy involving naked option writing and reliance on the Elliott Wave, which made money like clockwork until October 19, 1987, on which day I managed to lose everything I had accumulated in my entire adult life except for my IRA.

Commodity futures have a strongly negative correlation to stocks over intermediate time frames, and are the only equity investments with such a relationship. ... I wasn’t that enamored of commodity futures initially, because I confused them with commodities, and didn’t realize the critical differences (gold futures and gold are not identical investments).

I think at least 80% of someone’s long-term assets belong in set-it-and-forget it lazy portfolios. For those who want to try and beat the market with timing or trading, put up to 20% in a trading account and have a blast, but only if you actually ENJOY doing it.

I started out a Graham and Dodd stock picker, became a market timer, and then a committed diversifier, all before starting to manage other people’s money for a fee. The main changes in my strategy have been tax-motivated, as I started developing individual stock strategies that actually produced higher after-tax returns than index funds, especially for clients with other gains needing offsets, and later I started using margin, but only to the level needed to offset investment income, so that expected returns stayed about the same but income taxes diminished further.

It takes patience to be a saver, patience to accept the uncertainties of equity investing, patience to diversify and give up the possibility of a quick killing, and patience to wait the several years it takes before equities become as close to a sure thing as you’re likely to find in the real world.

And here are Antman's top financial mistakes:

The most serious non-investing financial mistake, bar none, has involved the choice of living quarters. This is related to my difficulty in bringing down the spending of some clients, because they committed to houses that were too expensive, or bought when they should have rented, or rented luxury apartments in the best areas when they should have lived in a slum next to a pig farm. Many people now facing foreclosure will find out it was the best thing that ever happened to them.

Going without disability insurance is second on my list, since disability is the one event that can truly destroy a person’s life, and disability insurance is the one insurance that can become impossible to obtain after a single incident involving illness or injury, so delaying can mean never obtaining it.

Doing their own tax returns is third. While not a problem for the simplest situations, there are things I’ve learned from my client’s tax preparer that I never would have learned from them, and people constantly miss deadlines for filing, contributions, and estimated payments because they insisted on doing it themselves. By the way, I don’t prepare tax returns for clients anymore.

Carrying credit card balances, not maxing out on tax sheltered savings opportunities, not spending $40 and a few hours at the computer to prepare some basic legal documents, buying cash value life insurance and variable annuities when not appropriate, and buying an SUV just to have a bigger purse, have all cropped up from time to time.

Quotes of the day

Complexity is an ally of bureaucracy because anything that the public cannot figure out is effectively autonomous and removed from public scrutiny--John Carney

I diversify widely as an admission of ignorance.--Less Antman

We’re in a government-dependent financial system; I never thought I’d see the day.--Paul Volcker

We have no rule of law in this country. We slammed Russia for years, saying we would not do business there because there was no rule of law. Look what’s happening here. We don’t know what Congress will do next. They’re ignoring all the old rules, and they’re making new rules whenever they want.--Wall Street executive

Dr. Goolsbee: I’ll Stop Impersonating an Economist If You Quit Underwriting Mortgage Loans--Tanta

I am beginning to consider the possibility that [Maxine Waters'] entire career on the House Financial Services Committee is some sort of elaborate performance art.--Megan McArdle

Securities based on risky mortgages are what toppled financial institutions but it was the government that made the mortgages risky in the first place, by making home-ownership statistics the holy grail, for which everything else was to be sacrificed, including commonsense standards for making home loans.--Thomas Sowell

Public Outrage as a Systemic Risk: without bankruptcy, it is hard to avoid rewarding failure.--Philip Levy

[Mark Haines and his CNBC colleagues] want rapid action on money issues when everything works out but condemn the action when it doesn’t.--Stan Collender

Even if it’s a totally different situation, you have to get the financial system in order and in order to do that you have to get confidence. Franklin Roosevelt did it by closing all the banks and reopening the sound ones, we did it with a blanket guarantee to creditors and depositors. And Japan, well, they didn't do anything, to be honest. Now the question is what can be done in the US. You don't need the same techniques, but you need to restore confidence.--Bo Lundgren, architect of the Swedish bank nationalization

Obama comes from the tradition that thinks you can get your way on social justice and economic issues without affecting productivity very much—and that's simply living in a dream world. [Obama and his economics team] are very smart, but the problem is these high-IQ guys always think they can square the circle; they always believe they can beat the system with a cleverer system, and they always fail.--Richard Epstein

Using sex as a basis for charging a person with a felony is a slippery slope to go down. The truth is, currently, boys and men are being punished in our society for their gender as payback by feminists and their enablers, and no one cares except for their families, the men and boys who are harmed by this, and a few good men and women.--Helen Smith

Welcome to America, 2009

Change we can believe in:

I think that critics of the Geithner plan are missing some of its tactical brilliance. My guess is that behind the scenes, Geithner has arranged a kind of J.P. Morgan moment. You know the story. During the Panic of 1907, J.P. Morgan locked a bunch of bankers in a room and insisted they lend to stave a panic. We've already seen one twisted parody of this event, when Henry Paulson locked a bunch of bankers in a room and insisted they borrow money from the Treasury. This second one is more clever. I don't think the scandal of the Geithner plan is going to turn out to be the subsidy to well-connected investors embedded in the non-recourse loan put option. On the contrary, I think that Treasury has already lined up participants for the "Legacy Loans Public-Private Investment Fund" and persuaded them to offer prices so high that despite the put, investors will expect to take a major loss. My little conspiracy theory is that the Blackrocks and PIMCOs of the world, the asset managers who do well by "shaking hands with the government", will agree to take a hit on relatively small investments in order first to help make banks smell solvent, and then to compel and provide "good optics" for a maximal transfer from government to key financial institutions.

Consider a hypothetical asset manager, PIMROCK. PIMROCK reviews a pool of loans held by the bank J.P. Citi of America, and its analysts determine they are worth 30¢ of par value. The bank holds them at 80¢ on its book. PIMROCK agrees to put down $10B to purchase loans from the pool at 82¢ thrilling stock markets everywhere. It was all just a bad dream!

Under Geithner's plan, PIMROCK's $10B permits a $10B equity investment from the Treasury. Then the FDIC levers the whole thing up, providing $6 of debt for every one dollar of equity. So, $140B of bad loans are lifted from J.P. Citi of America, nearly $90B of which is sheer overpayment to the bank.

Of course, as cash flows evolve, PIMROCK's $10B is wiped out entirely, as is the Treasury's investment. The FDIC gets repaid in a bunch of securities worth about $50B, taking a $70B loss. But, as Calculated Risk, likes to say "Hoocoodanode?" These were real market prices, Geithner or his successor will argue. Our private partners lost everything. There was no subsidy here.

Meanwhile, taxpayers will be out around $80B.

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

UPDATE: Arnold Kling with the sports metaphor:

Suppose that right now my bracket is looking weak, with only about half the teams I picked to make the sweet 16 still in the tournament. I have not been mathematically eliminated from winning the pool, but I need extremely good luck the rest of the way. (Incidentally, this example is hypothetical. I don't follow college basketball, and I don't enter any pools.)

At this point, my entry is no longer worth $10. If I were to sell it, I might get fifteen cents for it. If I were a bank, my bracket would be a toxic asset.

Now, along comes Tim Geithner with a fistful of taxpayer dollars. The way his plan works, you can put up a nickel to get a share of my bracket, and Tim will lend you forty-five cents, which you do not have to pay back if you lose. If you win, you and Tim split the proceeds. You're happy, because for a nickel you're picking up half a share of a bracket worth fifteen cents. I'm happy, because I sell my toxic bracket for fifty cents instead of fifteen cents. Somebody should be unhappy. Guess who?

Chris Dodd is not the only person up to his armpits in AIG muck

Seems as if his wife Jackie Clegg is, too.

A top school plus athleticism correlate with higher incomes

rounds up Robin Hanson.

Curt is done

Curt Schilling announces his retirement from baseball.

Photo link here.

UPDATE: I liked this quote from Terry Francona, who managed him both in Philadelphia and later in Boston:
On Schilling's pregame demeanor:

"The surlier, the better. The few times where he did speak, I remember thinking, 'He's not ready to pitch.' That wasn't very often. The surlier the better. The first time I talked to him was usually whem I would take him out."

The Fed's toxic asset cleanup plan looks really toxic itself

notes Henry Blodget:

Given the rate at which debt "assets" are depreciating these days, 6X actually isn't wildly conservative. If an asset leveraged at 6X falls 17% in price, the equity is wiped out.

And in reality, unfortunately, the leverage ratio will be far higher than 6X. Why? Because the Treasury will be providing half of the equity. So the taxpayer's leverage is really 12X to 1.

With 12X leverage, an asset only has to fall 8% to wipe the equity out.

UPDATE: Felix also worries:

The minute the Treasury plan is put into action, we'll have a lot of public price discovery for the banks' bad assets. And if the prices don't clear -- if the minimum price the banks will accept is higher than the maximum price that the public-private partnerships are willing to pay -- then no one will any longer be able to perpetuate the fiction that America's banks are solvent. And without that fiction, the Hempton plan -- the muddle-through status quo -- is toast.

The big hope of the Treasury plan is that the private sector will be willing to pay a higher price for leveraged assets than it would for unleveraged assets. The returns on private capital are being leveraged by five or six to one in this scheme, if not more, which means a high chance of them making lots of money, and also a high chance of the capital being wiped out entirely. During boom years, that was a wager that many investors were willing to take. But now? I'm not sure. Chalk it up as yet another thing-which-has-to-go-right in order for this scheme to work. There are far too many of those for comfort.

Gotta love the teachers' union protection

It's really effective. These offenders will probably collect full pay until their retirements.

Not that John McCain would have done any better

but here is Don Surber's accounting of President Obama's 1.08 gaffes per day accounting.

That certainly seems more than Dubya's first 2 months.

Tax arbitrage or tax fraud?

You decide (via Don Surber):

California's Rep. Pete Stark, a senior House Democrat who helps write the nation's tax laws, has been claiming a $1.7 million Maryland home as his principal residence in recent years, although he represents the Golden State's 13th District on the east side of San Francisco Bay.

The 77-year-old Stark has saved himself nearly $3,900 in state and county taxes by claiming the six-acre waterfront estate as his principal residence, according to an investigation by Bloomberg News.

Moral hazard hits a new bottom

Credit-rating companies, widely assailed for their role in fueling the financial crisis with overly rosy debt ratings, stand to make a billion-dollar windfall in the government's latest attempt to heal the credit markets.

I am speechless.

Did Natasha Richardson Die from Socialized Medicine?

David Henderson wonders about the same thing I did.

Outpouring of sentiments on the Battlestar Galactica finale

Over at Bryan Caplan's. Check out the comments.

I think CNBC's Melissa Francis just equated getting money from Tim Geithner

to getting it from Tony Soprano.

Sounds about right to me. Photo links here and here.

UPDATE: Jon Fisher agrees:

Government could do something that’s unconstitutional or of questionable legality, like this 90% tax. The government is not operating with rhyme or reason

Quotes of the day

It's ironic that the left decries the income disparity between men and women, but in the instance when women earn equal pay it is used to inflame class warfare.--Steve Walde

There are no [economic] solutions. There are only trade-offs.--Thomas Sowell

Facts, like jade, are not only costly to obtain but also difficult to authenticate.--Steven Cheung

Much of [the stimulus legislation] doesn't have any short-term stimulus. If you raise research and development, I don't see how it's going to short-run stimulate the economy. You don't have excess unemployed labor in the scientific community, in the research community, or in the wind power creation community, or in the health sector. So I don't see that this will stimulate the economy, but it will raise the debt and lead to inefficient spending and a lot of problems.--Gary Becker

Are you punch-drunk?--Steve Kroft, to President Obama

I have never before doubted the resilience of the American economy – its ability to survive inevitable downturns after periods of excess, and to weather the burdens heaped on it by politicians. Obama, however, has me shaken, perhaps because I am not stirred by his rhetoric. --Irwin Seltzer

One must remember that Barack Obama is not referring to the benefits of any change that he’s made in Iraq policy — because he hasn’t made any. He is saying that the Iraq War and the future U.S. commitment there, as outlined by the Bush and Maliki governments, have left him with the smoothest, most promising issue on his daily agenda. It turns out that with the heat of campaigning lifted, the Iraq War is finally acknowledged as what it is: a success.--Abe Greenwald

The funny thing is, in your twenties you try and look serious, and after your twenties, you just try and look hot.--Meredith Whitney

Gold buyers beware

Via Joe Weisenthal, Matt Stiles talks about why gold may not be a great hedge against possible inflation. In sum:

1) Money and Credit are similar, but not the same thing
2) Central banks control only a portion of the money supply
3) Demand for US Dollars should continue to exceed demand for gold

Previous gold warning here.

UPDATE: Eddy Elfenbein sums it up in a picture:

Reasons why bonus tax on TARP recipients is not a good idea

Via Rob Cox:

1) It's unconstitutional
2) It will affect innocent and guilty banks alike
3) It will remove capital from the banking system
4) It will undermine other Fed efforts
5) It increases the risks for private investors to work with the government
6) Foreign banks will be given a competitive advantage over domestic banks

Hmph; any questions?

Seal of the Day

He's not so slick without his teleprompter...

Big Red down 25-29 at the half vs. Missouri

Could be worse, like last tournament vs. Stanford. I like that the team has some playoff experience this time.

Photo link here.

Intrade lists 2009 Global Warming Contract!

Here is the announcement:

Will 2009 be one of the hottest on record?

Monday, Mar 9, 2009

We have listed a market on 2009 being one of the five warmest years on record. This market can be found under Climate and Weather -- Global Temperatures.

Contract Rules:

This contract will settle (expire) at 100 ($10.00) if the Global Average Temperature for 2008 is among the five warmest years on record.

The contract will settle (expire) at 0 ($0.00) if the Global Average Temperature for 2008 is NOT among the five warmest years on record.

Expiry will be based on the data published by the NASA Goddard Institute for Space Studies. Further details can be found HERE.

The data used to expire this contract will be based on "surface air measurements at meteorological stations and ship and satellite measurements of sea surface temperature", as also used in the GISS Surface Temperature Analysis 2008 Summation.

The contract will be expired once the information required for expiry is available. The contract may therefore remain open into 2009.

Due to the nature of this contract please also see Contract Rule 1.7 Unforeseen Circumstances.

The Exchange reserves the right to invoke Contract Rule 1.8 (Time Protection) if deemed appropriate.

Any changes to the result after the contract has expired will not be taken into account - Exchange Rule 1.4

Claudia Rosett has got me wondering about Franklin Raines' $90 million in bonuses

I mean, the taxpayers were on the hook for Fannie Mae for much longer.

Why does AIG get the flak, and not Fannie or Freddie?

All those who think Canada's universal healthcare is superior to the U.S system

may wish to reconsider:

The actress Natasha Richardson, who died on Wednesday from a brain hemorrhage after a fall on a beginner’s ski slope in Quebec, was not admitted to a hospital until nearly four hours after her accident, according to ambulance dispatch records obtained by the New York Times on Friday.

That is nearly three hours later than the timeline officials at the Mont Tremblant ski resort, about 90 minutes north of Montreal, offered on Tuesday, the day after Ms. Richardson’s fatal fall.

The first paramedics to arrive were turned away after Ms. Richardson declined treatment, ambulance records show, though they reported seeing the 45-year-old actress briefly from a distance. In that instance, they said they saw her sitting on a stretcher — not laughing and walking off her fall, as a resort spokeswoman said on Tuesday.

Those discrepancies seemed to introduce new questions about whether Ms. Richardson, who suffered an epidural hematoma — an accumulation of blood between the brain and the skull — after her fall, could have been saved had she been treated faster.

BCWUW4: be careful what you wish for.

Quotes of the day

Enlightened statesmen will not always be at the helm.--James Madison

The really distressing part is what this tax will do to the corporations that we now own and are supposedly trying to save. (Remember? That's the reason we bailed Citigroup, AIG, GM, and the rest of them out--to save them. Because we convinced ourselves that civilization would end if we didn't.) Thanks to our stupidity bailouts, we now own major stakes in these firms (at mind-boggling expense). So it's not clear why we want to destroy them. But that's what we seem determined to do.--Henry Blodget

President Obama, Congress and our friends at Treasury, you can't have it both ways. Either you are making investments and letting the private sector decide what to do with it or you are taking control and restructuring troubled businesses. By choosing a middle-of-the-road strategy, you have guaranteed failure.--Roger Ehrenberg

This [bonus tax] bill is much, much worse than that. It is mob rule. It is an abdication of the duty of Congress to legislate thoughtfully and with due process. And it is an act of cowardice in which what is right or wrong means nothing and what is expedient means everything.--Evan Newmark

But yesterday there seemed to be little irony when Congressman and bill sponsor Charlie Rangel accused Wall Street of single-handedly destroying America. “These people are getting away with murder. They’re getting paid for the destruction they caused to our communities.” It’s an odd accusation. Rangel’s district — like all of New York City — has been living off of Wall Street’s bonuses and tax revenues for years. I should know. Rangel, a long-time beneficiary of rent-subsidized housing, is my Congressman--Evan Newmark

I also note, just as an aside, that [journalist David Leonhardt's] definition of "very rich" seems increasingly to be set at "just above the level a top-notch journalist in a two-earner couple could be expected to pull down".--Megan McArdle

Consistent with that lack of understanding of moral hazard, in laying out, fairly well, actually, how AIG got in a heap of trouble, Obama never said a word about the fact one reason AIG could take such risks is that politicians like Obama and McCain would bail them out if things went bad.--David Henderson

[My bowling score of 129 is] like the Special Olympics or something--President Obama

[President Obama] can't beat me--Kolan McConiughey, a Special Olympics competitor who has bowled three perfect 300 games

Frankly, I am disgusted and saddened. And I will be sending a donation to the local Special Olympics people today. All of the howls about how Bush couldn’t form a sentence ring pretty hollow when you hear things like this. I can only assume there is more to come.--Dan from Madison

Now I think I understand

It would be too simple:

Since the beginning of the crisis I’ve wondered why the government has found neither the will nor the way to attack the root of the problem -- the people who borrowed money to buy homes they shouldn’t have bought.

... People would understand a lot of small payments to the guy down the street who doesn’t deserve them, and become outraged. Far better to throw trillions at opaque corporations, the inner workings of which no one still really understands.

The long-tenured politician cannot directly assault the voters head on. Instead, attack a third party, and subtly bleed the voters dry. And the more progressive the taxation, the fewer people are affected.

The latest poster child for smaller government

is Hank Morris (via Bess Levin):

A key political consultant and a top aide to former Controller Alan Hevesi were slapped with corruption charges Thursday over the state's $120 billion pension fund.

State Attorney General Andrew Cuomo, whose office conducted a two-year pension fund probe, warned there could be more indictments.

Hevesi consultant Hank Morris and David Loglisci, a former deputy controller for pensions, were named in the devastating 123-count indictment.

Cuomo said Morris and Loglisci plotted "to sell access to billions of dollars in exchange for millions" in kickbacks.

"The indictment charges crimes that go beyond the grossest manifestation of pay to play," Cuomo said.

Morris pocketed $30 million in pension-related fees over four years from companies that won business with the fund. Companies that wouldn't pay often didn't get business, the indictment said.

When envy was funny

here.

I think Bernanke is the smartest guy in the room

He let the new administration try their things, and then Ben got down to business, namely, Quantitative Easing:

It is cheaper and quicker than fiscal stimulus; this should have been our first move. It is more likely to work. There are two effects: lowering long-term interest rates and the helicopter drop of the cash. It belies previous talk of a liquidity trap.

Alas, there is no free lunch, as Tyler continues:

It does not address most of the underlying problems in the real economy and as you know I see the "sectoral shift" element of this downturn as very much underrated. In that sense don't expect too much. It shows that at the limit fiscal and monetary policy blur together. The more the Fed takes on its balance sheet, the more the long-run independence of the central bank is damaged. Monetizing so much government debt is what Third World nations do. Draining the new money from the system will someday be a problem. It may introduce a round of "beggar-thy-neighbor," central bank-engineered currency depreciations. ... If this fails the U.S. economy, and the stock market, will test new bottoms.

I've expressed confidence in Bernanke before. I don't know of a better candidate for Fed chair.

On the other hand, Jamie Dimon for Tim Geithner might be a good trade ...

Economic cycles and fertility

Calculated Risk notes:

... both the number of births, and the birth rate, declined precipitously in the late '20s as more and more families put off having children because of hard economic times (Times were tough for many families even before the stock market crash of 1929).

The original baby bust last throughout the '30s.

There is no evidence in this 2007 data of families putting off having children now. In fact the birth rate and total fertility rate were increasing in 2007.

Now we know who will pay off all that debt!

March Madness 2009

This is my first NCAA tourney sans Tradesports in many years, a sad time of reflection ...

OK, I'm not trading, but I still did a few brackets. My Final Four picks are: Louisville, Memphis, Pitt, and Gonzaga, with the non-#1-seeds meeting in the championship game.

Eddy Elfenbein had some good advice:

You’ll also notice that some seeds are pretty choice locations. For example, #12 has a decent record against #5—even better than #11 against #5, and close to #10 against #7. Whenever a #12 wins, it’s often reported as a big upset, but it’s really not. On average, more than one #12 wins each year.

After that, #12 plays the winner of #4 versus #13. They actually have a winning record in the second round. A total of 16 #12 seeds have made it to the Sweet Sixteen.

Compare that with #8 or #9 who have always had to play #1 in the second round. The lesson is that the longer you avoid a top three team, the better.

UPDATE: So did Chris Wilson:

Act as if you're a hedge-fund manager in the good old days: Risk is your friend, and the consequences of making a bad bet are small. And unlike with a multibillion-dollar hedge fund, you're not playing against opponents with equal fidelity to statistics and information. Your office pool is full of people making decisions based on snippets of games they happened to catch and whatever allegiances or vendettas they're bringing to the table. This is your chance to take advantage.

Again, your overall strategy should be to look for situations where the national bracket values a team much higher than the objective statistics.

UPDATE: John Carney provides an alternative approach to Wilson:

You should choose your brackets like a short seller. Instead of trying to pick winners, pick losers. Direct your analysis to detecting weaknesses within teams that have been overlooked by the fans. This may involve more work, including looking at the fundamentals of teams and paying attention to individual players, than stat arb but it also doesn't depend on just crossing your fingers and hoping the bell-curve rings at the end of each game.

Quotes of the day

[Capitalism's] very success undermines the social institutions which protect it.--Joseph Schumpeter

What I tried to leave my students with is the view that the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy.--Larry Summers

The auto industry situation is incredibly complex, and it would be a little silly of me to try to reduce it. But you could say it was like the entertainment business. They didn't make movies that people wanted to see. They had the infrastructure, they had the technology, they had the manpower. They just didn't make vehicles that enough people wanted to buy. They ended up trying to protect their existing business and not concentrating on the future.--Michael Eisner

Somebody said that we're not in President Obama's Final Four, and as much as I respect what he's doing, really, the economy is something that he should focus on, probably more than the brackets--Duke coach Mike Krzyzewski

When I was a younger man, I despised small talk, thinking only serious conversation to be worth the air we breathe. Anything less was bad stewardship of my vocal cords. I've come to realize that deep conversations have rhythm and depth only when preceded by lots of small talk. Small talk is like lay-ups before a basketball game—routine, mundane, predictable, but absolutely necessary to stretch tight muscles and get one's timing down, so that when the real game begins you do not pull a muscle or lose the grace of your jump shot.--Mark Galli

The latest reports on Britain's Universal Healthcare Program

BCWUW4 (via Don Surber):

Gordon Brown promised relatives they would be entitled to an independent review of case notes and said standards "fell far short" of what people could expect from the NHS.

A damning report form the Healthcare Commission yesterday detailed a catalogue of failings at Mid Staffordshire NHS Foundation Trust, which runs Stafford and Cannock Chase hospitals.

Dehydrated patients were forced to drink out of flower vases, while others were left in soiled linen on filthy wards.

Relatives of patients who died at Staffordshire General Hospital told how they were so worried by the standard of care they slept in chairs on the wards.

...

The commission's report - revealed in yesterday's Daily Mail - said at least 400 deaths could not be explained, although it is feared up to 1,200 patients may have died needlessly.

...

Among the findings of the report were:

• Receptionists carrying out initial checks on patients;
• Two clinical decision units - one unstaffed - used as 'dumping grounds' for A&E patients to avoid missing waiting targets;
  
• Nurses who turned off heart monitors because they didn't understand how to use them;
• Delayed operations, with some patients having surgery cancelled four days in a row and left without food, drink or medication;
• Vital equipment such as heart defibrilators was not working;
• A savings target of £10million met at the expense of 150 posts, including nurses.

Be careful what you wish for.

Now You Tell Us, Mr. President!

Imagine that last fall before being elected, Barack Obama had outlined the positions he has embraced since being inaugurated as president. An honest campaign speech could have gone something like this:

I just got long some of these Geithner contracts at Intrade

Quotes of the day

We find a strong link between Congressional activity and stock market returns that persists even after controlling for known daily return anomalies. Stock returns are lower and volatility is higher when Congress is in session. This Congressional Effect can be quite large - more than 90% of the capital gains over the life of the DJIA have come on days when Congress is out of session.--Michael Ferguson and Hugh Witte

There are two guys out on a life raft and they drift out to sea. They're surrounded by sharks, there's a huge tidal wave, and one guy says he's scared, and the other guy sells him a policy. That's a credit default swap. Stop laughing, it's not funny. We're crying.--Rep. Gary Ackerman

While the Senate was constructing the $787 billion stimulus last month, Dodd added an executive-compensation restriction to the bill. The provision, now called “the Dodd Amendment” by the Obama Administration provides an “exception for contractually obligated bonuses agreed on before Feb. 11, 2009” -- which exempts the very AIG bonuses Dodd and others are now seeking to tax.--Rich Edson

Before you throw “Spygate” at me, let’s be honest. Every team in the league does it. I played on teams that had a guy go through the visiting team’s hotel after they checked out to look for any type of game plan material that was “mistakenly” left behind. So please, don’t go there.--Matt Bowen

Congress does not want to address the big problems in our nation

Just the little teensy ones that make for good TV:

The AIG bonuses now being debated in Congress and everywhere else represent about .001 percent of annual GDP. If a typical Congressman spent that fraction of a 2000 hour work year on the topic, it would consume only about 1 minute of his or her time.

Yes, I know, that calculation is silly in many ways, but here is my point: Regardless of how outraged you are about the AIG bonuses, it is probably not an optimal allocation of resources for our elected leaders to spend large amounts of time and energy on the topic. The economy has bigger problems right now, and it would be better to focus attention on those.

I don't trust Dr. Doom with my money

nor my daughters:

Among Roubini’s Facebook friends is Sarah Austin, a pretty blond who is featured in a black minidress on the website she runs, Pop17.com, which posts interviews with internet “personalities.” Austin says she received an unsolicited email from Roubini last fall—complete with links to articles about himself—praising her site and inviting her to a party.

This all sounds rather ... Bushie

A teleprompt blunder has led to Barack Obama thanking himself in a speech at the White House in a St Patrick's Day celebration.

A laughing Mr Obama returned to the podium to take over but it seems the script had finally been switched and the US president ended up thanking himself for inviting everyone to the party.

Mr Obama is an accomplished orator but is becoming known in America as the "teleprompt president" over his reliance on the machine when he gives a speech.

Ed Glaeser wonders about New York City's moderate unemployment

here:

New York’s historically high unemployment rates have much to do with the city’s ability to attract less-well-educated workers. New York has strong social services, abundant public transportation and ethnic enclaves, which make the city more livable for poorer people, especially those from outside the United States. Today, only 16 percent of adult Americans are high school dropouts, while more than 21 percent of New Yorkers lack high school diplomas.

...

Yet despite the city’s many less-well-educated workers, and even though this recession was supposed to decimate Wall Street, New York has, so far, gotten through it with relatively little unemployment. As of January, the city’s unemployment rate was 6.9 percent while the national rate was 7.6 percent. The epicenters of the current recession are California and Michigan, where the state unemployment rates are already in double digits. Nine California metropolitan areas have unemployment rates above 12 percent.

Big Red on the tape

Despite the political silliness of the day, Cornell athletes are competing well:

#14 seed in the NCAA Men's Basketball Tourney

#2 in the nation in wrestling

#3/#4 in lacrosse

heading into the ECAC semifinals in hockey

How Congress Deprives Us Of Prosperity

If a tax is levied on a corporation, and if it is to survive, it must raise the price of its product, or lower dividends or lay off workers. In each case, it is people, not some legal fiction called a corporation, who bear the burden of any tax levied on the corporation.

An important subject area in economics called tax incidence says that the entity upon whom a tax is levied does not necessarily bear the burden of the tax. Some of the tax burden can be shifted to another party. That's precisely what corporations do and as such they are merely government tax collectors....

It's not rocket science to conclude that whatever lowers the cost of capital formation enables workers to have more capital to work with and enjoy higher wages. Policies that raise the cost of capital formation such as capital gains taxes, low depreciation allowances and high corporate income taxes, and thereby reduce capital formation, serve not the interests of workers, investors nor consumers.

Taxes also reduce transactions. I need my computer repaired. You and I agree that the job is worth $200. Suppose there's the imposition of a 30% income tax on you. That means you would net only $140 and might refuse the job.

You might suggest that if I were willing to pay you $285, you would do the job because at that price your after-tax earnings will be $200 — what doing the job is worth to you.

There's a problem. The repair job was worth $200 to me, not $285. So it's my turn to say the heck with it. Or would we — and society — be better off if you and I agreed to the repair job but did not tell anybody? I'd say yes, but we'd be criminals.

You might wonder how congressmen can get away with taxes and other measures that reduce our prosperity potential. Part of the answer is the anti-business climate promoted in academia and the news media. The more important reason is that prosperity foregone is invisible.

In other words, we can never tell how much richer we would have been without today's level of congressional interference in our lives and therefore don't fight it as much as we should.

All I know is that there is plenty of congressional interference going around to know that our future looks a lot poorer.

Deja vu all over again

Here's another fable:
(authorship unknown)

Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later.

She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around and as a result increasing numbers of customers flood into Heidi's bar. Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages.

Her sales volume increases massively. A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral. At the bank's corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed.Nevertheless, as their prices continuously climb, the securities become top- selling items.

One day, although the prices are still climbing, a risk manager of the bank, (subsequently of course fired due to his negativity), decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar. However they cannot pay back the debts. Heidi cannot fulfill her loan obligations and claims bankruptcy. DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy; her beer supplier is taken over by a competitor. The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.

The funds required for this purpose are obtained by a tax levied on the non- drinkers.

Universal health care saves money, not lives

BCWUW4:

This is America.

[Don Imus] has a 99.3% chance of surviving prostate cancer for 5 years.

In Europe, he would be 32 times as likely to die.

That continent has only a 77.5% five-year survival rate for prostate cancer.

There’s your government-run health care for you.

Be careful what you wish for.

Quotes of the day

Talent is God-given. Be humble. Fame is man-given. Be grateful. Conceit is self-given. Be careful.--John Wooden

China's work force stays employed by giving American consumers the equivalent of a pay raise--Steve Conover

... it’s easy for [Democrats] to sit here and advocate higher taxes because — you know what? — they don’t pay them.--Rep. Eric Cantor

The vulgar Keynesian does not understand that policy activism itself works against economic prosperity by creating what I call “regime uncertainty,” a pervasive uncertainty about the very nature of the impending economic order, especially about how the government will treat private property rights in the future. This kind of uncertainty especially discourages investors from putting money into long-term projects.--Robert Higgs

This is why politicians love summits -- they get credit for doing something while they are in fact doing nothing.--William Easterly

If Congress and the White House really want to reduce the abortion rate, we will welcome their suggestions. So far, their specific proposals are doing the exact opposite.--Christianity Today Editorial Board

Until my encounter with conservatism I had only known the racial determinism of segregation on the one hand and of white liberalism on the other -- two varieties of white supremacy in which I could only be dependent and inferior.--Shelby Steele

I think many of us ... have had to go through changes, sometimes abandoning or modifying our earlier beliefs in an attempt to stay faithful to our understanding of the truth.--Richard Fernandez

Deja vu all over again

Paul Kedrosky points to a fable:

My neighbor came over the other day. His name is Andrew Ignatius Greedling. He prefers to be know by his initials. He asked if we could loan him some money to pay his gas and electric bill. My wife and I listened intently as he explained how if he didn't pay is energy bills that his home would go into foreclosure, he and his family would be homeless and the vacant house would have a very depressing effect on the whole neighborhood. Glancing over his shoulder I noticed that here in New England in the middle of the winter all of his doors and widows were wide open. I think it was for this reason that I suggested we bring this up at our next neighborhood meeting.

At the meeting he came and made his presentation stressing many of the same points that he had shared with us before. After a vote the neighborhood pledged to give him the money to bring his energy bills current. It's been several weeks now and he's back asking for more money. As before, I glanced over his shoulder and noticed that not only were all his doors and windows still open, but the house next to his was now the same with all its doors and windows open. When I asked him what had happened to the first payment he stated that after some consideration while on a weekend trip to Las Vegas he had decided to use it for a down payment on the house next door and to raise his children's allowances.

Being perplexed by this whole affair, I decided the best thing would be to consult a financial advisor living in the neighborhood. His name is Fredric Edsel Dimsal. He also prefers to be know by his initials. His advice was that our neighborhood organization has no other option then to give Andrew Ignatius Gregory what ever he asks for. I consulted with an elected government official and the answer I received is that keeping the credit lines open is of utmost importance* and that the government was now sending money directly to Andrew Ignatius Gregory to use as needed. This same official said that the government was aware that Andrew Ignatius Gregory was sending a large amount of this money onto his friends in Europe and England who had similar habits as Andrew to save them the embarrassment of having to ask their governments for help.

RELATED: Steve Conover has a nice poker parable about the U.S. and China and treasuries.

Cartoon of the day

(Via Mark Perry)

No bonuses; no campaign donations!

Christopher Dodd strikes back at his benefactor.

Not long ago, in our very own galaxy

'Star Wars' scientists create laser gun to kill mosquitoes (via Tim Kane).

A surefire way to take from the poor

is through price controls.

March Madness trivia of the day

Justin Wolfers reports:

Here’s my favorite new fact about N.C.A.A. basketball: teams that are behind by one point at halftime are actually more likely to win than teams that are one point ahead. This striking finding comes courtesy of a terrific new paper by my Wharton colleagues, Jonah Berger and Devin Pope. Their findings are summarized in this graph, which collects info from 6,572 N.C.A.A. basketball games since 2005:

Congress: Let's do more of what has failed miserably

Peter Wallison writes about one of Barney Frank's latest flashes of genius:

After their experience with Fannie Mae and Freddie Mac, you'd think that Congress would no longer be interested in creating companies seen by the market as backed by the government. Yet that is exactly what the relevant congressional committees -- the Senate Banking Committee and the House Financial Services Committee -- are now considering.

In the wake of the financial crisis, the idea rapidly gaining strength in Washington is to create a systemic risk regulator. The principal sponsor of the plan is Barney Frank, the chair of the House Financial Services Committee. A recent report by the Group of Thirty (a private sector organization of financial regulation specialists), written by a subcommittee headed by Paul Volcker, also endorsed the idea, as has the U.S. Chamber of Commerce and the Securities Industry Financial Markets Association.

...

But increased government power and higher costs are not the worst elements of the proposal to designate and supervise systemically significant companies. The worst result is that we will create an unlimited number of financial institutions that, like Fannie Mae and Freddie Mac, will be seen in the financial markets as backed by the government. This will be especially true if, as Mr. Frank has recommended, the Federal Reserve is given supervisory authority over these institutions. The Fed already has the power -- without a vote of Congress -- to provide financing under "exigent circumstances" to any company, and will no doubt be able to do so for the institutions it supervises.

A company that is designated as systemically significant will inevitably come to be viewed as having government backing. After all, the designation occurs because some government agency believes that the failure of a particular institution will have a highly adverse effect on the rest of the financial system. Accordingly, designation as a systemically significant company will in effect be a government declaration that that company is too big to fail. The market will understand -- as it did with Fannie and Freddie -- that loans to such a company will involve less risk than loans to its competitors. Counterparties and customers will believe that transactions with the company will generally be more secure than transactions with other firms that aren't similarly protected from failure.

As a consequence, the effect on competition will be profound. Financial institutions that are not large enough to be designated as systemically significant will gradually lose out in the marketplace to the larger companies that are perceived to have government backing, just as Fannie and Freddie were able to drive banks and others from the secondary market for prime middle-class mortgages. A small group of government-backed financial institutions will thus come to dominate all sectors of finance in the U.S. And when that happens they shall be called by a special name: winners.

Senator Grassley, do you subscribe to bushido?

No, not "Bush I Do". The Japanese warrior code.

Because the U.S. Congress may eschew responsibility even more than greedy corporate executives.

Yet here is what Grassley had to say:

AIG executives should follow "the Japanese example" by publicly apologizing and "do one of two things: resign or commit suicide."

If the government won't enforce contracts, then who will?

It doesn't matter whether it's AIG executives or mortgages. And then what of property rights? With no property rights, individual rights will erode, too.

And in the short term, this type of uncertainty creation will not help markets or households.

UPDATE: Andrew Ross Sorkin agrees, and with much more meat.

UPDATE: Robert Higgs agrees, with the meaty uncertainty of Vulgar Keynesianism.

Yes, educational vouchers could leave some kids behind

But what if it is less than what the current arrangement leaves behind?

Quotes of the day

Of course, if a scholar or commentator makes claims about what financial markets are going to do - or offers general advice about prudent investing - I think it's entirely appropriate to ask them about the content of their investment portfolios. "But... that would be a tax upon hypocrisy!" Precisely.--Bryan Caplan

The problem with Jim Cramer is the problem with the Jonas Brothers: what he does simply isn't much good, for all that people seemingly have a large appetite to consume it. ... this is a minor sideshow. Going after Jim Cramer is like trying to fix your marriage by getting new drapes.--Megan McArdle

A. Because Congress charters them

JEROME S. FONS and FRANK PARTNOY ask:

Why, more than a year into the crisis, do regulators and investors continue to rely on ratings? No one has been more wrong than Moody’s and S&P. Less than a year ago both gave high ratings to 11 of the largest distressed financial institutions. They put the insurance giant A.I.G. in the AA category. They rated Lehman Brothers an A just a month before it collapsed. Until recently, the agencies maintained AAA ratings on thousands of nearly worthless subprime-related securities.

Here is the link to the SEC's regulations on Nationally Recognized Statistical Rating Organizations ("NRSROs"). Any more questions?

Have we reached the bottom of the stock market?

The Ron Insana Employment Index suggests Yes!

The Meredith Whitney Indicator agrees.

For the new reader, these are not official statistics, just narratives.

Another reason to keep Congress unseated (except for emergencies)

Guess who exempted credit derivative swaps from gambling legislation:

In the manic years of this decade, credit default swaps took off as a way to bet on the likelihood of default by a firm or an investment portfolio, without having to own any financial interest in the firm or portfolio. That is definitely not insurance, it is gambling. The reason it is not illegal gambling is that, in 2000, Congress specifically exempted credit default swaps from state gaming laws.

Nobody's home? No big deal?

But it's the White House. (Via Don Surber)

When we discriminate against immigration

we lose good jobs and higher tax revenues.

Quotes of the day

In physics there may one day be a Theory of Everything; in finance and the social sciences, you’re lucky if there is a useable theory of anything.--Emanuel Derman

Ultimately, I find Stewart disturbing because in some sense he's doing exactly what Cramer is--making powerful statements, and then when he gets called on him, retreating into the claim that well, you can't really expect him to act as if he were being taken seriously. ... Financial journalism isn't, as Stewart argues to Cramer over and over, entertainment. So how come Stewart acted as if it was? --Megan McArdle

I represent millionaires against billionaires.--Scott Boras

Why cap-and-trade carbon emissions?

I mean, it's illegal for stimulus projects!

Bush vs. Obama in the Delusional Math Olympics

Megan McArdle thinks:

Of course [the administration's economic forecasts are] too optimistic. In fact, the word optimistic is too optimistic. A better choice might have been "insane".
...
Having defended Obama's candidacy largely on his economic team, I'm having serious buyer's remorse. Geithner, who is rapidly starting to look like the weakest link, is rattling around by himself in Treasury. Meanwhile, the administration is clearly prioritized a stimulus package that will not work without fixing the banks over, um, fixing the banking system.
...
But [Obama] has now raced passed Bush in the Delusional Budget Math olympics.

Here's my list of predicted similarities between Bush and Obama from Inauguration Day. Unlike Megan, I did not believe that Obama would be more non-partisan nor more accountable than Bush. Anytime I can beat Megan in a game requiring smarts, lookout for the blue moon.

The Top Ten Billionaires in Finance

as rounded up by Matt Turner:

1. Warren Buffett, 78 years old, $37 billion.
Buffett, chairman and chief executive of financial conglomerate Berkshire Hathaway

2. Michael Bloomberg, 67, $16 billion
Bloomberg was the only man in the top 20 whose wealth increased last year, despite his only taking home $1 a year in compensation as mayor of New York City.

3. Prince Alwaleed Bin Talal Alsaul, 54, $13.3 billion
The “Buffett of Arabia” saw shares in his Saudi-listed investment vehicle Kingdom Holding fall 60% last year, as his ill-timed bet on Citigroup backfired, with shares in the U.S. financial conglomerate falling in 86% in a year.

4. David Thomson, 51, $13 billion.
Chairman of Thomson Corp, now Thomson Reuters, the media conglomerate in which has family own a 70% stake.

5. George Soros, 78, $11 billion.
Soros founded the Quantum Find in 1969, and is said to have made $1 billion in a day in his fight with the Bank of England over sterling.

6. Ronald Perelman, 66, $10 billion.
Renowned corporate raider Perelman famously bid for Salomon Brothers in the late 1980s, and sold Golden State Bancorp to Citigroup in 2002 for $6 billion.

7. Mikhail Prokhorov, 43, $9.5 billion.
Despite losing more than half of his wealth last year, Prokhorov is now the richest man in Russia, and owner of a 50% stake in Renaissance Capital, through his investment vehicle Onexim Group.

8. Carl Icahn, 73, $9 billion.
Activist investor Icahn, a former Wall Street trader at Dreyfus & Co, was hit by a 71% fall in the value of shares in his holding company Icahn Enterprises last year.

James Simons, 71, $8 billion
Founder of hedge fund Renaissance Technologies, Simons’ wealth actually increased last year. According to Forbes, his quant hedge fund has returned 80% net of fees last year.

John Paulson, 53, $6 billion
Hedge fund manager Paulson reaped handsome profits by betting against subprime-mortgage securities in 2008, personally pocketing $3.5bn. Paulson, who previously worked for Bear Stearns, has continued to benefit from the credit crunch by betting against U.K. bank shares.

Maxine Waters: A reason to hope for change

Representative Maxine Waters, Democrat of California, requested the September meeting on behalf of executives at OneUnited, one of the nation’s largest black-owned banks. Ms. Water’s husband, Sidney Williams, had served on the bank’s board of directors until early last year and has owned at least $250,000 in stock in the institution.

Treasury officials said the session with nearly a dozen senior banking regulators had been intended to allow minority-owned banks and their trade association to discuss the losses they had incurred from the federal takeover of Fannie Mae and Freddie Mac. But Kevin Cohee, OneUnited’s chief executive, instead seized the opportunity to plead for special assistance for his bank, federal officials said.

Quotes of the day

People ask, 'Where are they going to go?' The good ones will always have somewhere to go...the good ones will have a job. The last thing I want them to do is go to our hedge fund competitors, who don't have those [compensation] restrictions. I find that a little offensive, by the way.--Jamie Dimon

Fortunately for his investors, John Paulson, unlike Madoff, is not a crook.--Felix Salmon

One of the great ironies is that if you had talked to the average investor 18 months ago, he or she would have thought it was a pretty good idea to buy stocks. In recent months, the same investors despair about their portfolio and are fearful about putting money into the equity market. That’s 180 degrees wrong. They should have been cautious 18 months ago, when prices were much higher than they are now. They should be enthusiastic today.--David Swensen

[Jim Cramer]'s like a dartboard that talks.--Jon Stewart

Hey Jon Stewart, are you listening?

Jamie Dimon quotes Teddy Roosevelt:

It is not the critic who counts: not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows, in the end, the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.

If bank executives who take federal assistance must have their pay capped

why not all institutions who receive federal support?

Tax progressivity has its limits

We are close to reaching them:
Instead of 2 wolves and 1 sheep deciding what's for dinner, it's 50 to 1.

On the other hand, incent larger incomes, collect larger tax revenues, support larger programs.

UPDATE: Like I was just saying:

In February, individual income taxes fell 64% to just $8.7 billion. That's the lowest monthly total for individual income taxes since May 1985.

Right-to-work states see much less unemployment than unionized states

Data don't lie.

Photo link here.

Did Paul Krugman go underground

rather than respond to Greg Mankiw's challenge?

A prolific speaker and writer does not need to have courage of convictions, I guess.

Alan Greenspan says the Taylor Rule would not have worked

here:

However, starting in mid-2007, history began to be rewritten, in large part by my good friend and former colleague, Stanford University Professor John Taylor, with whom I have rarely disagreed. Yet writing in these pages last month, Mr. Taylor unequivocally claimed that had the Federal Reserve from 2003-2005 kept short-term interest rates at the levels implied by his "Taylor Rule," "it would have prevented this housing boom and bust. "This notion has been cited and repeated so often that it has taken on the aura of conventional wisdom.

Aside from the inappropriate use of short-term rates to explain the value of long-term assets, his statistical indictment of Federal Reserve policy in the period 2003-2005 fails to address the aforementioned extraordinary structural developments in the global economy. His statistical analysis carries empirical relationships of earlier decades into the most recent period where they no longer apply.

Moreover, while I believe the "Taylor Rule" is a useful first approximation to the path of monetary policy, its parameters and predictions derive from model structures that have been consistently unable to anticipate the onset of recessions or financial crises. Counterfactuals from such flawed structures cannot form the sole basis for successful policy analysis or advice, with or without the benefit of hindsight.

Given the decoupling of monetary policy from long-term mortgage rates, accelerating the path of monetary tightening that the Fed pursued in 2004-2005 could not have "prevented" the housing bubble. All things considered, I personally prefer Milton Friedman's performance appraisal of the Federal Reserve. In evaluating the period of 1987 to 2005, he wrote on this page in early 2006: "There is no other period of comparable length in which the Federal Reserve System has performed so well. It is more than a difference of degree; it approaches a difference of kind."

Earlier post on John Taylor and his eponymous rule, here. I'm still thinking that Taylor is closer to optimality than Greenspan.

What's worse: AIG or the Space Shuttle program?

John Carney says the shuttle.

Focusing on home runs instead of on-base percentages is an inferior strategy

And not just for baseball, but also for drug development.

Quotes of the day

Just because a regulator allows you to do something does not mean you should do it.--Jamie Dimon

But the relation between different kinds of investments and the risk of loss is entirely too indefinite and too variable with changing conditions, to permit of sound mathematical formulation. This is particularly true because investment losses are not distributed fairly evenly in point of time, but tend to be concentrated at intervals, i.e., during periods of general depression. Hence the typical investment hazard is roughly similar to the conflagration or epidemic hazard, which is the exceptional and incalculable factor in fire or life insurance.--Ben Graham

Over the last generation, better governance technologies have evolved through private equity, venture capital and hedge funds. This should be the model for the reorganization of Wall Street, and much of the rest of what used to be called "corporate" America.--Larry Ribstein

Has the administration gone mad? This entire fracas was set off by the president himself, who lowered his office by targeting a private citizen by name. Limbaugh had every right to counterattack, which he did with gusto. Why have so many Democrats abandoned the hallowed principle of free speech? Limbaugh, like our own liberal culture hero Lenny Bruce, is a professional commentator who can be as rude and crude as he wants.--Camille Paglia

We should be focusing on whether or not the nominee can do the job, not whether there is some small breach of an onerous regulation in his history that can possibly be dug up. It feels good in the short term, but when ability to find a native-born nanny becomes a more important qualification for the presidential candidate than experience relevant to the job to be done, it's time for a national rethink.--Megan McArdle

More redistribution

Limiting tax deductions for charitable giving is just another arrow in Obama's quiver to turn us into the SSA.*

White House budget chief Peter Orszag wrote on his blog: "If you're a teacher making $50,000 a year and decide to donate $1,000 to the Red Cross or United Way, you enjoy a tax break of $150. If you are Warren Buffet or Bill Gates and you make that same donation, you get a $350 deduction -- more than twice the break as the teacher." This Administration wants to turn even philanthropy into a class issue.

Mr. Orszag revealed the real agenda at work when he pointed out that the money taken from the "rich" would be used to fund such Obama state-run charities as universal health care. The argument is that any potential declines in private gifts, whether to universities or foundations, will be balanced by increases in government grants paid with higher taxes -- redistribution by another means. This is how Europe's welfare state works: Taxes are so high that private citizens have come to believe it is only the state's duty to support cultural institutions and public welfare. The ambit for private giving shrinks.

The real implications of this plan reveal how diametrically opposed this administration is to free markets. Everything is becoming a class issue and the prevailing philosophy is to redistribute so that the government is in charge of outlays to sectors like healthcare and education. Now it makes total sense why Obama has always given such a low percentage of his income to charity, as we've pointed out in the past. He just fundamentally views the state as the primary driver. It's a very different way of looking at things. It'll be interesting to see if this tax deduction limit makes it through to the final bill.

* Socialist States of America

The danger of earmarks

What the public does not understand is that the more earmarks there are in a bill, the harder it will be to vote against it. The reason is simple: With every earmark, a congressman or senator gains a personal stake in the passage of a bill he or she might otherwise oppose.

Which brings us to the real scandal here -- that 8,500-plus earmarks adding up to $8 billion will end up sticking the American taxpayer with a $410 billion spending bill that is filled with large and significant provisions that have gone largely undebated.

Arizona Republican Rep. Jeff Flake understands the logic of earmarks. And he knows how lonely it can be to stand up against them.

"Look at the 2005 Highway Bill," he says. "This was a $286 billion bill that we knew we couldn't afford, with a record-setting 6,300 earmarks. But when the time came to vote, there were only eight of us who voted against it -- probably the same eight who had nothing in it."

Jed Christansen has not posted for awhile

But his blog entry published this past weekend was great:

Prediction markets are interesting tools, but the lessons learned from public prediction markets are different than those learned from internal prediction markets. It’s important that these two applications are not confused. There will always (and rightly) be questions about the accuracy of prediction markets. In some cases it’s clear that markets are superior, in some internal cases it doesn’t matter since nothing is forecasted right now, and in other cases markets will be about as accurate as what’s already predicted. But in all three cases there is still a valuable argument as to why prediction markets should be used.

Graph of the day

(Via Mark Perry).

UPDATE: Wait! It's a tie!

Poignant reminder from Steve Levitt

that the short-run can matter a lot in the long run. Levitt quotes Steven Sieden:

Before he got on the train, little Alexandra looked up and asked, “Daddy, will you bring me a cane?” Bucky [Fuller’s nickname] promised he would bring back the souvenir as he set off for an enjoyable day of football and friends.

Harvard won that day, and Bucky spent most of his time lost in drink, camaraderie, and parties, forgetting his troubles as well as his family on Long Island. When he arrived in Pennsylvania Station in New York the following afternoon, Bucky telephoned Anne [his wife] who could barely speak. She told him that Alexandra had suffered a relapse and was in a coma. Stunned, Bucky caught the next train to Long Island. Arriving home, he found Alexandra still unconscious and a doctor doing all he could to save her life.

Bucky could only sit near her bed looking on helplessly as the doctors and nurses continued their work well into the night. Eventually, the situation calmed down, but Alexandra’s condition did not improve. Then, in the early hours before dawn, she opened her eyes and smiled up at Bucky. As he bent close to his daughter, Bucky heard her tiny voice ask, “Daddy, did you bring me my cane?”

Fuller could only turn away in shame and agony. In the furor of drinking and celebrating, he had forgotten his daughter’s simple request. Following her question, Alexandra closed her eyes for the last time and died in her father’s arms a few hours later. Bucky never forgave himself for that incident, which, even in the last years of his life, would bring tears of remorse to his eyes.

Don't forget to live a little for today, while planning for the long run. Eat, drink and be merry ...

More evidence for shutting down Congress

[Steve] King is a member of the House Judiciary Committee. Recently, the Committee has been meeting about the "cram down" bill, a proposed law that would give the power to judges in bankruptcy meetings to alter the terms of people's mortgages. King, realizing that the bill is likely to pass, was trying to minimize the harm it would do. So he offered an amendment that would prevent anyone from taking advantage of this special deal if he/she had engaged in any material misrepresentation during the original mortgage process. His amendment passed by a vote of 21-3.

But later the staff of the Committee, who report to Chairman John Conyers, altered the amendment, after it had been voted on, to state that no one could take advantage of the special deal if he/she had been convicted of fraud. Of course, there's a huge difference. What they voted for is very different from the language that the staffers substituted without the permission of those who voted.

I was shocked. I asked King if there was anything he could do about this dishonest behavior on the part of Conyers's staffers. He said that there wasn't.

David Henderson spanks Laura D'Andrea Tyson

and good.

Income and genetic inheritance

Bryan Caplan notes:

This 2002 paper by Bowles and Gintis reports that identical twins' incomes have a correlation of .56, versus .36 for fraternal twins. Using standard formulae, this implies that genes explains 40% of the variance of income, family environment 16%, and non-shared environment 44%. A recent working paper by David Cesarini gets income correlations of .545 for identicals versus .266 for fraternals, implying that genes explain 56% of the variance, shared environment -1%, and non-shared environment 45%.

It's easy at this point to say, "Of course! Intelligence has a large effect on income and is highly heritable, so it follows that income will be highly heritable, too." But Bowles and Gintis show that the heritability of income is far larger than the IQ effect can explain. (See Arnold's doubts here).

Destructive Creation

Arnold Kling believes that:

The Great Depression got rid of a lot of farms and a lot of urban manufacturing work. What emerged twenty years later was a suburban economy, with a lot of businesses based in shopping malls.In some sense, the period from 1930-1955 completed the transition brought about by the automobile and the electric motor. Now, we may be in the painful process of completing the transition brought about by Internet communications.

Concrete and steel more enviromental than grass and trees?

Grow a forest. Protect it from axes that hack.
Then the Lorax and all of his friends may come back.--Dr. Seuss

From Ed Glaeser's The Lorax Was Wrong (via Greg Mankiw):

But cars represent only one-third of the gap in carbon emissions between New Yorkers and their suburbanites. The gap in electricity usage between New York City and its suburbs is also about two tons. The gap in emissions from home heating is almost three tons. All told, we estimate a seven-ton difference in carbon emissions between the residents of Manhattan’s urban aeries and the good burghers of Westchester County. Living surrounded by concrete is actually pretty green. Living surrounded by trees is not.

Maybe Dr. Seuss got his doctorate at the same place Dr. Ruth got hers.

Myron Scholes seems lost without Fischer Black

or maybe just a money-losing anti-Midas-touch disaster:

Myron Scholes, the Nobel prize- winning economist who helped invent a model for pricing options, said regulators need to “blow up or burn” over-the-counter derivative trading markets to help solve the financial crisis.

The markets have stopped functioning and are failing to provide pricing signals, Scholes, 67, said today at a panel discussion at New York University’s Stern School of Business. Participants need a way to exit transactions and get a “fresh start,” he said.

The “solution is really to blow up or burn the OTC market, the CDSs and swaps and structured products, and let us start over,” he said, referring to credit-default swaps and other complex securities that are traded off exchanges. “One way to do that, through the auspices of regulators or the banking commissioners, is to try to close all contracts at mid-market prices.”

You figure the guy might have learned some lessons from the LTCM blow up. Imagine what his recent suggestion would have done to that Nineties venture of his.

That's me in the spotlight

losing my religion. (Via Drudge)

Quotes of the day

... is the multiplier for the stimulus positive or negative?--Arnold Kling

The real downside of trashing private jets is job losses. The business-aviation industry employs more than a million workers.--Robert Frank

Call me bourgeois, but I think that when you sign your name to a document promising to repay money you've borrowed, you have an obligation to repay the money you've borrowed.--Megan McArdle

The U.S. housing bubble drew too many workers and too much capital into construction and related industries. So funding public works projects to keep those companies in business is the wrong solution.--Ben Powell

... having the highest level of income does more to increase economic thinking than does having the highest level of education.--Eric Crampton

... the fact that rent control protects her from "worrying about material things" means that the owner who takes the loss must do so.--David Henderson

This is the paradox of deleveraging: it’s good for borrowers to reduce their debt, and good for lenders to be more rigorous in their standards, but when everyone deleverages at once it does real damage. It’s like a drug addict whose dealer cuts him off: it’s good to stop using, but withdrawal is painful. The end of the credit-card boom isn’t going to wreak as much havoc as the end of the housing boom. But it is helping to put a brake on our spending. And, at this point, every little bit hurts.--James Surowiecki

A centrist administration would have thought about how to create a political constituency for cost control in health, and in public spending more generally. The [Obama] administration rightly emphasises that healthcare cost control is the single biggest challenge in fiscal policy. Without it, public debt will stay on its present unsustainable path until it hits the wall of a new financial crisis. The need to create a wider constituency for fiscal discipline is the best argument for associating healthcare reform with a new and broadly based tax. Instead, the budget makes this already small constituency even smaller, telling almost all taxpayers they can have everything for nothing.--Clive Crook

Watchmen may well be the most audacious literary challenge to utilitarianism ever written. If you think it's just adolescent violence, you're missing the point.--Bryan Caplan

The grist of academic elitism

is mildly entertaining when involving Ann Coulter, Keith Olbermann, Rush Limbaugh, and--in a surprise cameo--President Obama and his junior college days at Occidental.

Disclosures: I graduated from the non-Ivy engineering school. Some poor A&S grad married me, though.

Sociology in five words

There's poverty and America sucks.