Are we at a bottom?

Paul Krugman wins the economics Nobel prize. The temperature in hell may have briefly dipped below 0 degrees Celsius. Alex Tabarrok nicely summarizes Krugman's New Trade Theory.

Russell Roberts is disappointed.

Bryan Caplan makes a prediction:

When Obama wins, Krugman will quickly drop his partisan hackery. He's unfair to his enemies, but he does not suffer fools gladly. And it's safe to say that a year into Obama's presidency, there will be plenty of folly for Krugman to decry.

Tom Firey affirms Bryan's call, in juxtaposing Krugman's treatment of Jimmy Carter and Ronald Reagan.

Former New York Times ombudsman Daniel Okrent captured it best:

Op-Ed columnist Paul Krugman has the disturbing habit of shaping, slicing and selectively citing numbers in a fashion that pleases his acolytes but leaves him open to substantive assaults.

Megan McArdle once said:

Paul Krugman is voting for doom. It's worth keeping in mind, however, that Paul Krugman has predicted eight of the last none recessions under the Bush administration.

Jon Henke rounded up Krugman's recession predictions during the Bush Administration. People who would have sold stock at the newly minted Nobel laureate's doomsday prediction would still be underwater, given the Dow was trading around 8,000 from 2001-2003 and it paid out a couple of percentage points annually in dividend yield.

Don Luskin says:

Krugman's New York Times column drawing on economics is the equivalent of 2006's Nobelists in Physics, astronomers Mather and Smoot, doing a column on astrology -- and then, in that column, telling lies about astronomy.

Earlier prediction market prices and observations here.

Effective ways of achieving poverty

here. My favorites:

You feel entitlement

You don't like to learn

You buy things you don't use

A stress test from John Tierney

over at John Tierney's place:

Do you see an object in each blurred image?

If you see an object in the left image, you may be stressed. There is an actual image of Saturn and its rings in the right image.

World income inequalities

at the Global Rich List.

If you make $850/year, you are the median earner out of 6 billion people.

$1,840/year puts you in the top quintile

$26,000/year gets you in the top 10%

$48,000/year pushes you into the top 1%

$186,000/year ranks you in the top 0.1%

This is a good way to slice at things, but household income per household member might be better.

Projected tax rates under Barack Obama and John McCain

at TaxProf Blog.

This is not change I can believe in.

Stephen Green wonders why Barack Obama is not investigated

for violating the Logan Act.

UPDATE: WSJ wants to know why Christopher Dodd is not testifying for his Countrywide Financial history.

David Merkel allocates blame for the credit crisis

Here are some of his targets:

1) The Federal Reserve, especially Alan Greenspan.
2) Congress and the Presidency
3) Lenders

4) Borrowers
5) Appraisers
6) Those that originated MBS

8) Realtors
9) Mortgage insurers and financial guarantee insurers
10) Hedge funds, investment banks and their investors

11) Regulators
12) America
16) Academics

The US banking system now lags Namibia

as well as Germany, Barbados, and Estonia, in 40th place according to the World Economic Forum.

Canada is #1, followed by Sweden and Luxembourg.

Quotes of the day

... we partied like it was 1929--Stephen Green

It can be very difficult to hedge against several big market moves happening at the same time, which, when counterparties are going bankrupt, is usually happening ... Ultimately, you try to hedge what you can hedge; what you can't hedge, you try to quantify; what you can't quantify, you try to understand; and what you can't understand, you keep small enough not to sink the firm.--Anonymous credit derivatives trader

We now have the $700 billion package to prop up the mortgage security market -- just like [Jim] Cramer said we needed. We have interest rates down to 1.5% -- just like Cramer said we needed. On top of that we have the Fed stepping in to buy billions in commercial paper. These structural changes provide a rebuilt foundation upon which our financials can actually reap the benefits of capitalism. Capitalism doesn't work without a market. Now we have a market. And Cramer decides to bail! Over the ensuing months he must be held accountable for this one.--Jason Schwarz

Oh, thank you, thank you for this wheel chair! By tasting hell in this life, I’ve been driven to think seriously about what faces me in the next. This paralysis is my greatest mercy.--Joni Erickson Tada

I wonder why Intrade is not doing the Nobel Economics contracts this year

Probably too little liquidity. Here is Steve Levitt on what's happening at Pinnacle:

Here are the odds they are offering as of my writing this post:

101 Martin Feldstein +751
102 Thomas Sargent +1181
103 Robert Barro +1341
104 Paul Romer +1344
105 Jagdish Bhagwati +1359
106 Paul Krugman +1617
107 N. Gregory Mankiw +4310
108 Any other person -136

My hunch is that the bargain here is “any other person.” There is plenty of randomness in the choices each year, and this list excludes a number of people who I would think would be on the short list, e.g. Gene Fama, Peter Diamond, Oliver Hart, and Richard Posner, just to name a few.

I can't believe Krugman is pricing over Mankiw. I guess the stock market is not the only apparently insane market out there.

Neel Kashkari: The $700 Billion Dollar Man

Nice bio up at WSJ:

Kashkari is smart, dutiful, detail-oriented, and takes orders well. In the parlance of investment banking, he is a good “execution guy”: He leaves strategy to the bigwigs. But if you give him a project, he will prioritize, delegate and finish it.

These people report he has an amiable manner and is a good, intent listener. He doesn’t make waves and never dominates a discussion; he thinks before he speaks and he lets people express themselves. He is particularly good at presenting complicated ideas and leading team projects that depend on gaining cooperation from others. Those include the Sunrayce project to build a solar car as well as his work on the James Webb space telescope.

Goldman’s investment bankers were most impressed by Kashkari’s science background. His experience working on the James Webb Space Telescope for NASA contractor TRW gave him a comfort with technological jargon that would help Kashkari communicate with technology-company executives. Kashkari also spoke passionately of his entry in a car competition, the 1997 Sunrayce event in which Kashkari’s team built and race a solar-powered car. His team didn’t win, but it did earn kudos. While other bankers at Goldman would often discuss their project du jour or details of a presentation even in their off-time, Kashkari often discussed cars and the Sunrayce experience.

UPDATE: The New York Times has a Neil "Cash & Carry" Kashkari piece as well.

Might as well face it

Inspiration from Robert Palmer.

Your lights turn off, when you're at home
Your Fed Funds Rate, is not your own
Your heart sweats, your body shakes
Another cut, is what it takes (Not!)

You can't sleep, you can't eat
There's no doubt, you're in deep
Your throat is tight, you can't breathe
Another ease, is all you need

Whoa, you might think it's all a known unknown
Oh yeah

It's closer to the truth that you're leveraged to the bone

You know you're gonna have to face it you're addicted to loans

Graph of the day: Top 1% of earners pay more taxes than the Bottom 95%

via Mark Perry:

Obama's tax plan will make this inequality even worse. And I'm not sure that McCain, on the slight chance he took the White House, would be very different.

Resource should not be the only candidate for redistribution

Don Boudreaux recommends that political power be redistributed.

National Debt Clock update

here, up over the $10 trillion mark.

Why it doesn't really matter, here.

UPDATE: Household net worth has dropped from $59 trillion in the third quarter of 2007 to $56 trillion in the second quarter of 2008.

YOUR Family share $550,000. (See, it doesn't really matter).

Quotes of the day

No wonder Obama is against making it legal to wiretap terrorists. If it had been in 1979, who would have helped him launch his political career?--James Taranto

Someday, Labour will win an election. Our job is to hold on until they are sane.--Margaret Thatcher

There’s nothing wrong with being a socialist. I called myself one for the better part of twenty years. Millions of people have and many still do. But there is something very wrong with hiding who you are or who you were from the electorate—especially if you want to be President of the United States. Yet that seems to be a habit of Mr. Obama’s, with the collusion of the press.--Roger Simon

You know that postulate, the one where if you placed a million monkeys in a room for a million years, one of them would eventually type out Hamlet? I think the rest of them would be banging out film reviews.--Glenn Perreira

Why more regulation just doesn't work

Congressman Barney Frank, who oversees Fannie Mae, sleeping with one of it's executives from 1987-1998.

We told you so.

Where your federal tax dollars go

On top of this, you have the privilege of paying state and local taxes, taxes to corporations and utilities and other institutions (e.g. airports). Unless you are in the bottom quartile of income, in which you can pay negative taxes, i.e. get money back from the government.

The coordinated 50-bp cut isn't going to help

In fact, tell me if you have seen this before:

Act 1: some threat drives the central banker to ease money

Act 2: the easy money inflates a bubble

Act 3: the bubble bursts, and we reach new lows

Lather, rinse, repeat!

UPDATE: Greg Mankiw has a better idea.

The primer on the mortgage crisis

If only any of this 7 minute clip were fictional ...



UPDATE: Michael Barone on the Democrats kiboshing the Bush administration attempts to regulate Fannie Mae and Freddie Mac. And now the Democrats blame Bush, and the press is complicit in the coverup.

Quotes of the day

There is nothing so useless as doing efficiently that which should not be done at all.--Peter Drucker

There's a constitutional amendment that I've been pushing for years without success. It says "Anyone willing to do what is required to become President of the United States should be barred from taking that office." I'm only half-joking.--Alan Greenspan


Dear Wells Fargo: I'm writing to inform you that I have decided not to make my next eight (8) mortgage payments. There are nine (9) rooms in my home; I only have one (1) high-definition television. You do the math. If you have any questions, please feel free to contact Treasury Secretary Hank Paulson. He is responsible for keeping me in my home. Whatever that means. Best Regards, Jeff Lehner

McCain not talking straight

about some of his mishaps as a naval aviator.

The strength of mind, rising in a Darwinan world of physical strength

Here.

Of course, Dilbert's Scott Adams must take that to it's logical conclusion.

Still, I am heartened for all of those in the subspecies.

Some CEOs ARE way overpaid

Michael Lewis:

To both their investors and their bosses, Wall Street firms have become shockingly opaque. But the problem isn't new. It dates back at least to the early 1980s when one firm, Salomon Brothers, suddenly began to make more money than all the other firms combined. (Go look at the numbers: They're incredible.)

The profits came from financial innovation -- mainly in mortgage securities and interest-rate arbitrage. But its CEO, John Gutfreund, had only a vague idea what the bright young things dreaming up clever new securities were doing. Some of it was very smart, some of it was not so smart, but all of it was beyond his capacity to understand.

Ever since then, when extremely smart people have found extremely complicated ways to make huge sums of money, the typical Wall Street boss has seldom bothered to fully understand the matter, to challenge and question and argue.

Gary Becker

Provides sanity in the panic:

Although it is the most severe financial crisis since the Great Depression of the 1930s, it is a far smaller crisis, especially in terms of the effects on output and employment. The United States had about 25% unemployment during most of the decade from 1931 until 1941, and sharp falls in GDP. Other countries experienced economic difficulties of a similar magnitude. So far, American GDP has not yet fallen, and unemployment has reached only a little over 6%. Both figures are likely to get quite a bit worse, but they will nowhere approach those of the 1930s.

One troubling provision is that the government can take an equity stake in banks it helps. Some economists have proposed a similar role for government equity in these banks. I believe it is unwise to give governments equity in private companies, even if the government does not have voting rights in company policies. Many examples in recent history, such as the current Alitalia fiasco, show that political interests outweigh economic ones when governments have some ownership of private companies. This is likely to happen in this bailout if some banks that are helped decide to sharply cut employment in the districts of some congressmen, or to transfer many jobs overseas.

The temporary banning of short sales is an example of a perennial approach to difficulties in financial markets and elsewhere; namely, "shoot the messenger." Short sales did not cause the crisis, but reflect beliefs about how long the slide will continue. Trying to prevent these beliefs from being expressed suppresses useful information, and also creates serious problems for many hedge funds that use short sales to hedge other risks. Their ban can also cause greater panic in other markets.

The main problem with the modern financial system based on widespread use of derivatives and securitization is that while financial specialists understand how individual assets function, even they have limited understanding of the aggregate risks created by the system. That is, insufficient appreciation of how the whole incredibly complex financial system operates when exposed to various types of stress. In light of such limitations, it is difficult to propose long-term reforms. Still, a few reforms seem reasonably likely to reduce the probability of future financial crises:

- Increase capital requirements.

- Sell Freddie and Fannie.

- No more bailouts.

Myth busting

at the WSJ:

One such myth is that the Treasury's bank asset-purchase plan that passed Congress last week is somehow a financial silver bullet. It is merely a single tool, and in any case it can't do much about the panic now afflicting banks across Europe. It also can't rescue the property markets in Dubai, or the flight from emerging market stocks that also marked yesterday's news.

Another myth is that exports to the rest of the world would somehow rescue the U.S. economy. This was the idea behind the devaluationists -- in Washington and at Harvard -- who pushed a weak dollar to promote exports to counter the U.S. housing slump.

A third mistaken idea is that Federal Reserve rate-cutting would save the day. This is the poor sister of the weak-dollar lobby, popular on Wall Street and at Chairman Ben Bernanke's Fed. Despite a year of falling rates, the financial panic is worse than ever and now the real economy is getting hit. The Fed's rate cutting led to dollar flight that produced a commodity spike and oil as high as $147 a barrel. That only made a recession more likely as it sapped consumer discretionary income around the U.S. and worried families and business alike.

The fourth illusion to burst is that temporary Keynesian "fiscal stimulus" would make all the difference. The Bush Administration and Congressional Democrats teamed up for that mistake in January, promising that $165 billion in tax rebates and spending would spare us from recession. Just a month ago, President Bush was still promoting these rebate checks as a blessing.

And a call for leadership:

It ill serves voters if the two men running for the Presidency of the United States offer little more than campaign boilerplate amid a crisis of this magnitude. The whole world is focused on these sobering events. The time is now for the country's next President to match the moment.

Frankly, Barney Is Trouble

Barney Frank: one of my least favorite people in the world.

Democrats created the mortgage crisis by forcing banks to give loans to people who couldn't afford them. Now Obama and Biden want bankruptcy judges to bail out the same deadbeat homeowners. And once again, Barney Frank is helping.

Natural selection is weakening natural selection?

So claims Steve Jones, via Drudge.

I don't know if the stock market has hit bottom

but I sold money market and bought stock in the 401(k), anyways. Been waiting all year to do that.

Quotes of the day

Sen. Obama has accused me of opposing regulation to avert this crisis. I guess he believes if a lie is big enough and repeated often enough it will be believed.--John McCain

Now our opponent's campaign is claiming for the first time Barack Obama wasn't aware of Ayers' radical background. He didn't know he launched own political career in the living room of a domestic terrorist? What's next, claiming he didn't know that two of his biggest supporters were running Fannie Mae? ... Maybe he just thought they were just guys in his Washington neighborhood.--Sarah Palin

Bless your heart, sir. My son is over in Iraq fighting for your right to protest.--Sarah Palin, to heckler

* * *

For example, the survey asked, "What poses the greatest threat to your own economic situation?" The runaway winner was "higher taxes," which 50% cited as their first or second biggest worry. "The low value of the dollar abroad" was runner-up, picked first or second by 30% of respondents. The "housing market collapse" clocked in at third, with 25%, the federal budget deficit and debt next at 20%, and "corporate fraud and abuse" at 17%.

Perhaps this explains why all that pounding by John McCain and Sarah Palin about corruption on Wall Street hasn't done much for their standing in the polls. Perhaps this also explains why Barack Obama is at such pains to conceal his plans to raise taxes.--WSJ Editorial Board

It just shows the problems with regulation

Warren Buffett:

Well, it's really an incredible case study in regulation because something called OFHEO was set up in 1992 by Congress, and the sole job of OFHEO was to watch over Fannie and Freddie, someone to watch over them. And they were there to evaluate the soundness and the accounting and all of that. Two companies were all they had to regulate. OFHEO has over 200 employees now. They have a budget now that's $65 million a year, and all they have to do is look at two companies. I mean, you know, I look at more than two companies.

And they sat there, made reports to the Congress, you can get them on the Internet, every year. And, in fact, they reported to Sarbanes and Oxley every year. And they went--wrote 100 page reports, and they said, 'We've looked at these people and their standards are fine and their directors are fine and everything was fine.' And then all of a sudden you had two of the greatest accounting misstatements in history. You had all kinds of management malfeasance, and it all came out. And, of course, the classic thing was that after it all came out, OFHEO wrote a 350--340 page report examining what went wrong, and they blamed the management, they blamed the directors, they blamed the audit committee. They didn't have a word in there about themselves, and they're the ones that 200 people were going to work every day with just two companies to think about.

And now we are going to get OFHEO times 100 ...

Megan McArdle likens the stock market crash

with the space shuttle Columbia disaster, and Richard Feynman's post-mortem of it.

Apologies for the light blogging

but work is sick.

Any money you are using within 5 years

should NOT be in the stock market in the first place! Jim Cramer is ever more a contrarian indicator. Be wary of his recommendations (and if you have an appetite for risk, maybe take the other side of his trades).

Quotes of the day

What Buffett is doing is similar in ways to what Morgan did in 1907. It’s what you might call profitable patriotism.--Richard Sylla

And even though the Palins ($294,000) earned only about half the income of the Bidens ($569,000) in 2006 and 2007 combined, the Palins gave almost 6 times as much to charity ($8,205) in those two years as the Bidens ($1,375).--Mark Perry

Soledad O'Brien polls the 32 "persuadables" by asking them to indicate, by a show of hands, who they thought won. She calls the vote for Biden "overwhelming". The magic of Tivo allows us to freeze frame and count: 11 or 12 for Palin, 12 or 13 for Biden (some people are hard to see). Thanks, Soledad, for giving credence to everyone who thinks women are bad at Math.--Megan McArdle

Great journalism from the New York Times today

Charles Duhigg on the Fannie Mae debacle.

Although it seems as Duhigg was careful to keep Senator Charles Schumer out of his spotlight.

Quote of the day

... there is no such think as a "cookie fastball" you dork.--Curt Schilling, to Curly Haired Boyfriend

Thomas Sowell hits it out of the park

Five years ago, Barney Frank vouched for the "soundness" of Fannie Mae and Freddie Mac, and said "I do not see" any "possibility of serious financial losses to the treasury."

Moreover, he said that the federal government has "probably done too little rather than too much to push them to meet the goals of affordable housing."

Earlier this year, Senator Christopher Dodd praised Fannie Mae and Freddie Mac for "riding to the rescue" when other financial institutions were cutting back on mortgage loans. He too said that they "need to do more" to help subprime borrowers get better loans.

In other words, Congressman Frank and Senator Dodd wanted the government to push financial institutions to lend to people they would not lend to otherwise, because of the risk of default.

The idea that politicians can assess risks better than people who have spent their whole careers assessing risks should have been so obviously absurd that no one would take it seriously.

...

If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.

It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.

Phasing out Fannie Mae and Freddie Mac would make much more sense than letting politicians play politics with them again, with the risk and expense being again loaded onto the taxpayers.

Palin's financials

Today, the McCain-Palin campaign released Governor and Todd Palin’s tax returns for 2006 and 2007.

Charitable Contributions:

In 2006, Sarah and Todd Palin donated $4,250 to charity in cash/check donations and $630 in non-cash/check donations, for a total of $4,880. This is 3.3% of their adjusted gross income.

In 2007, Sarah and Todd Palin donated $2,500 to charity in cash/check donations and $825 in non-cash/check donations, for a total of $3,325. This is 1.5% of their adjusted gross income.

House passes rescue plan, stock market sells off

Too bad all those short sellers who would be buying to cover are not around to do so.

More spirited than the Biden/Palin debate

The Bill O'Reilly/Barney Frank debate:

REP. BARNEY FRANK, D-MASS.: I think this is a case where Fannie and Freddie are fundamentally sound, that they are not in danger of going under. They're not the best investments these days from the long-term standpoint going back. I think they are in good shape going forward.

They're in a housing market. I do think their prospects going forward are very solid. And in fact, we're going to do some things that are going to improve them.

(END VIDEO CLIP)

O'REILLY: Well, obviously, that statement turned out not to be true.

Joining us now from Washington is Congressman Frank. And we appreciate you coming in, being a standup guy, but shouldn't everybody in the country be angry with you right now?

• Video: Watch 'The Factor' face-off

FRANK: No. You've misrepresented this consistently. I became chairman of the committee on January 31st, 2007. Less than two months later, I did what the Republicans hadn't been able to do in 12 years — get through the committee a very tough regulatory bill. And it passed the House in May.

I've always felt two things about Fannie Mae and Freddie Mac, that they had an important role to play, but that the regulations should be improved.

Now from 1995 to 2006, when the Republicans controlled Congress and we were in the minority, we couldn't get that done. Although in 2005, Mike Oxley, of Sarbanes-Oxley fame, a pretty tough guy on regulation, did try to put a bill through to regulate Fannie Mae. I worked with him on it. As he told The Financial Times, he thought ideological rigidity in the Bush administration stopped that.

But the basic point is that the first time I had any real authority over this was January of 2007. And within two months, we had passed the bill that regulated.

O'REILLY: OK. And that's true, all of that is true.

FRANK: And then also, one other point: The Senate was dragging its feet, as often happens. And in January of 2008, I asked Secretary Paulson to put in the stimulus bill. So, the earliest chance I got to put tough regulation of Fannie Mae and Freddie Mac, we did it.

O'REILLY: All right, that's swell. But you still went out in July and said everything was great. And off that, a lot of people bought stock and lost everything they had.

...

O'REILLY: Don't — look, stop the B.S. here. Stop the crap! From August '07 to August '08…

FRANK: You know, here's the problem going on your show...

O'REILLY: …under your tutelage, this industry…

FRANK: Here is the problem going on your show.

O'REILLY: …declined 90 percent. 90 percent.

FRANK: Yes, but…

O'REILLY: Oh, none of this was your fault! Oh, no. People lost millions of dollars. It wasn't your fault. Come on, you coward! Say the truth.

FRANK: What do you mean coward?

O'REILLY: You're a coward. You blame everybody else. You're a coward.

FRANK: Bill, here's the problem with going on your show. You start ranting. And the only way to respond is almost to look as boorish as you. But here's the facts. I specifically said in the quote you just played that I didn't think it was a good investment. I wasn't telling anybody to buy stock. I said it wasn't a good investment.

Secondly, I wasn't presiding idly over this. I was trying to get the regulations adopted. We got them adopted in May.

O'REILLY: Look, bottom line is you're there two years. Bottom line is stock drops 90 percent.

FRANK: Yes.

O'REILLY: In any private industry, you're out.

FRANK: We couldn't get…

O'REILLY: In any private concern, you're out on your butt. But not here in the federal government.

Barney Frank, right on prediction markets, wrong on pretty much everything else. O'Reilly is a huge blowhard with a huge head, but I agree that Frank is lying. Here are some quotes from 2003 that contradict his statements above:

I worry, frankly, that there's a tension here. The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasury, which I do not see. I think we see entities that are fundamentally sound financially and withstand some of the disaster scenarios. . . .

I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. . . .

Rep. Frank: Let me ask [George] Gould and [Franklin] Raines on behalf of Freddie Mac and Fannie Mae, do you feel that over the past years you have been substantially under-regulated?

Mr. Raines?

Mr. Raines: No, sir.

Mr. Frank: Mr. Gould?

Mr. Gould: No, sir. . . .

Mr. Frank: OK. Then I am not entirely sure why we are here. . . .

Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists.

House rescue plan approval trading around 90%

DISCLOSURE: I am short BAILOUT.APPROVE.OCT08 and long HOUSE.BAILOUT>220. This is a change from my previous position.

Quotes of the day

There's never a problem so bad that a politician can't make worse.--Unattributed

So the way to persuade Members who claim to oppose a "bailout" is apparently to increase the cost of that bailout. And the same Members denouncing bankers who took reckless risks are delighted about a measure that will encourage bankers to take more such risks. Your Congress at work.--WSJ Editorial Board

The opposite of 'pro' is 'con'. The opposite of 'progress' is 'Congress'.--Will Rogers

He also loses credibility by sheer fact that he is Bill Maher—an ardently liberal, slightly greasy elitist with a penchant for condescension. Maher doesn't help break the "out of touch liberal" stereotype when he smokes pot on camera, for instance. And on Larry King Live in August, Maher exposed his amoral approach to life when he defended John Edwards' extramarital affair, saying, "people like new; you can't stop human nature." This "anything goes" view of adultery is doubtless not an opinion many people share with Maher.--Brett McCracken

THE WAY things are is not the way things have to be.--Emmanual Katongole & Chris Rice

Sarah Palin did well in her debate against Joe Biden

but not well enough:

DISCLOSURE: I am short PALIN.VP.WITHDRAWN

UPDATE: The Tax Foundation does some fact checking on the debaters.

Let's stick with mark-to-market accounting

for assets with some trading liquidity.

The only thing worse than credit seizing up is trade seizing up. Once prices are manipulated, that will happen.

Share and share alike

Chief Executive Officer Lloyd Blankfein, Chief Financial Officer David Viniar and Co-Presidents Gary Cohn and Jon Winkelried are named in the ``material definitive agreement'' disclosed yesterday by New York-based Goldman in a regulatory filing.

The accord prevents the executives, their families and their estates from selling more than 10 percent of the common stock they own until Oct. 1, 2011, or until Berkshire redeems its $5 billion in preferred stock, whichever comes soonest. Blankfein last month turned to Buffett, the second-richest American and a cult figure in the investing world, to shore up the investment bank's capital base and restore market confidence after Goldman's stock tumbled and its borrowing costs spiked.

``The bet he's making is not just on the horse but on the jockeys,'' said Douglas Ciocca, a managing director at Renaissance Financial Corp. in Leawood, Kansas, which manages $1.8 billion including Goldman shares. ``That's the kind of commitment that is really being sought after in a lot of efforts to protect investors.''

Hey, Hank Paulson, are you paying attention? These are your boys!

Arnold Kling and Nick Schulz on inequality

It's not a bug, it's a feature:

In order to make a dramatic impact on inequality, government would have to do something about the fundamental causes: technology and marriage patterns. However, putting a brake on technological progress seems hardly feasible or desirable. And forcing people to select mates at random rather than on the basis of similar backgrounds and tastes seems similarly unlikely.

Except for Asians in American schools

Simple justice requires that public funds, to which all taxpayers of all races and national origins contribute, not be spent in any fashion which encourages, entrenches, subsidizes or results in racial discrimination.--John F. Kennedy

UPDATE: Apparently, we need to make an exception for subprime mortgage borrowers, too.

The government needs to blame itself for the credit crisis

Via Paul Kedrosky, Peter Wallison & Charles Calomiris explain how the government led us to the mortgage credit crisis:

..., it seems likely that the event responsible for the GSEs' change in direction and culture was the accounting scandal that each of them encountered in 2003 and 2004. In both cases, they lost their reputation as well-managed companies and began to encounter questions about their contribution to reducing mortgage rates and their safety and soundness. Serious observers questioned whether they should be allowed to continue to hold mortgages and MBS in their portfolios--by far their most profitable activity--and Senate Republicans moved a bill out of committee that would have prohibited this activity.

Under these circumstances, the need to manage their political risk became paramount, and this required them to prove to their supporters in Congress that they still served a useful purpose. In 2003, as noted above, Frank had cited an arrangement in which the GSEs' congressional benefits were linked to their investments in affordable housing. In this context, substantially increasing their support for affordable housing--through the purchase of the subprime loans permitted by HUD--seems a logical and even necessary tactic.

Unfortunately, the sad saga of Fannie and Freddie is not over. Some of their supporters in Congress prefer to blame the Fannie and Freddie mess on deregulation or private market failure, perhaps hoping to use such false diagnoses to lay the groundwork for reviving the GSEs for extra constitutional expenditure and political benefit in the future. As the future of the GSEs is debated over the coming months and years, it will be important to remember how and why Fannie and Freddie failed. The primary policy objective should be to prevent a repeat of this disaster by preventing the restoration of the GSE model.

Intrade lists October 8 "bailout" approval contract

OK, it's not a bailout, but it's a great contract.


I am not taking a position in this contract.

UPDATE: I took a position on Fri Oct 3, because of a perceived arbitrage opportunity vs. the HOUSE.BAILOUT>220 contract.

Boston Red Sox up 1-0 vs. Los Angeles Angels

At game time, I got out of my Angels long at a small profit. I remain long the Red Sox. This trade has made me smile, and I've been frowning a lot these last few weeks.

Glenn Hubbard's $340 billion rescue alternative

Hubbard is my choice for Bernanke's backup:

We propose that the Bush administration and Congress allow all residential mortgages on primary residences to be refinanced into 30-year fixed-rate mortgages at 5.25% (matching the lowest mortgage rate in the past 30 years), and place those mortgages with Fannie Mae and Freddie Mac. Investors and speculators should not be allowed to qualify.

The direct cost of this plan would be modest for the 85% of mortgages where the homeowner owes less on the house than it is worth. Lower interest rates will mean higher overall house prices. The government now controls nearly 90% of the mortgage market and can (and should) act on this realization. Remove the refinancing option and you can have lower rates without substantial cost to the taxpayer. Homeowners would have to give up the right to refinance their mortgage if rates fall, although homeowners could pay off their mortgage by selling their home. For borrowers with lower credit scores, the mortgage rate would be greater than 5.25%, but it would be less than their current rate.

Now, what about mortgages on homes that are worth less than the total amount of the loan? These mortgages could be refinanced into a 30-year fixed-rate loan to be held by a new agency modeled on the 1930s-era Homeowners Loan Corporation. New mortgages would be made of up 95% of the current value of a home.

The government might use two approaches to mitigate its losses. It could offer owners and servicers the opportunity to split the losses on refinancing a mortgage with the new agency. Servicers would have to agree to accept these refinancings on all or none of their mortgages, to avoid cherry-picking. Or the government should take an equity position in return for the mortgage write-down so that the taxpayers profit when the housing market turns around.

Our calculations based on deeds and Census data suggest that the total amount of negative equity for all owner-occupied houses is $593 billion. However, capping an individual's write-down to $75,000 would reduce the government's total liability to $338 billion and cover 68% of individuals with negative equity. Even this loss will be reduced as the proposal spelled out here raises housing values and economic activity, and contemplates loss sharing with lenders, hopefully matching the experience of the old Homeowners Loan Corporation.

While the net cost is modest compared with many plans on the table, it would require that the government could assume trillions of dollars of additional mortgages on its balance sheet. But we have already crossed this bridge with the explicit "conservatorship" of Fannie Mae and Freddie Mac. In any event, these mortgages would be backed by houses and the verified ability to repay the debt by millions of Americans. In addition, by putting a floor under house prices, this proposal would raise the value to taxpayers of trillions of existing home mortgage assets already owned or guaranteed by the FDIC, the Fed, the Treasury, Fannie Mae and Freddie Mac, among others.

Improvements in household and financial institution balance sheets will increase investment and consumer spending, which will mitigate the extent of the current downturn. Americans, on average, spend about 5% of the equity of their homes on consumer goods and services. So if home prices increased 10% above where they would have been without government intervention, we estimate consumers will have an additional $100 billion annually to spend.

Congressional quotes on the goodness of Fannie Mae and Freddie Mac

rounded up by the WSJ.

Folks who assured us that everything was hunky dory and no changes were needed:

Barney Frank, Rep. MA, 2003, 2003
Maxine Waters, Rep. CA, 2003, 2003
Gregory Meeks, Rep. NY, 2003

Chuck Schumer, Sen. NY, 2003, 2005
Christopher Dodd, Sen. CT, 2004
Jack Reed, Sen. RI, 2006

Folks who were leaders in addressing the GSE risks:

Richard Shelby, Sen. AL, 2004
Chuck Hagel, Sen. NE, 2006

Notice which ones represented the coastal elites, and which ones represented Mid-America. Robert Bennett (Sen. UT, 2006) was also quoted, but he hedged.

I had to leave university to learn about the world--I was brainwashed in college, especially in the 3 economics courses I took in Cornell's School of Arts & Sciences. I guess I should have aspired to join the Cornhuskers or Crimson Tide.

UPDATE: I've found some agreement today:

The real heroes of the House are the Members who tried to reform Fannie when that was unpopular and are now trying to defend the financial system while that too is difficult. We have in mind Paul Ryan, the Wisconsin Republican, who has had the guts to support the Paulson plan while his GOP colleagues in safe seats, like Jim Sensenbrenner, run for cover.

Mr. Ryan and some other stalwarts are proof that political leadership does exist in Washington, albeit not always at the highest ranks. In this sense, too, the votes this week in Congress are about bailing out our political class from its own embarrassing performance. Americans are anxious, even frightened, about the financial system. They are looking for leaders who will act to defend it.

What's more scarce than credit these days? How about guts and heroes?

The Senate approves the economic rescue plan

74 yeas to 25 nays.

I wonder if the Biden/Palin debate will influence the House vote.

Quotes of the day

If banks, in spite of every precaution, are sometimes betrayed into giving a false credit to the persons described, they more frequently enable honest and industrious men of small and perhaps of no capital to undertake and prosecute business with advantage to themselves and to the community.--Alexander Hamilton

Several years ago, when the Journal's editorial board met with Fannie Mae's top executives and pressed the issue of financial risks, we were told by way of ending the conversation that Fannie was merely fulfilling the "mandate of Congress" to spread home ownership across the land. Congress, of course, is a temple to moral hazard.--Daniel Henninger

It’s interesting that those who are responsible for solving the biggest economic crisis in generations don’t have the educational background to know the difference between commercial paper and copy machine paper.--James Bowers

Manny had canned his old agents and hired Scott Boras, one of the worst human beings in America who hasn't actually committed a crime.--Bill Simmons

* * *

R: "I'm quite pessimistic about the current financial system. I've been buying gold."

A: "Gold? That's not pessimistic enough. I've been buying rice."--GMU economists

* * *

Every year there is always something that happens that is a little bit of a setback, but the great teams, the great players, the great people in life overcome those things. They find a way to work through it.

It comes down to consistency. Each one of us, as an individual, has talent. But it's about doing it every single day. Anybody can go out there and have one good day, one good test, or one good game. The really exceptional ones are those who do it day after day, week after week, year after year, kind of like Ernie Davis did.--Bill Belichick

Brian Wesbury jumps the shark in advocating for relief from mark-to-market accounting

Brian Wesbury is one of the best macro economists alive today. He was wrong about the stock market this year. But his skill seems to be Triple Crown, relative to the other blatherers we hear and read.

Which is why I was shocked to read this.

He may hate the prices of these assets, but prices reflect reality. Yes, markets do overreact, but these depressed prices reflect a scarcity of investment capital. Rather than change the prices--like a good Stalinist would--it might be better to change the capital environment, sir.

There are fundamental reasons why seedless table grapes are depressed in China or even in Chinatown, vs. Whole Foods.

Bill "The Sports Guy" Simmons goes constitutional

in his ripoff of Bill Maher's New Rules. Some excerpts:

No uniforms for baseball managers. It becomes a little harder to get into the drama of the NL East race each time Phillies manager Charlie Manuel waddles out to the mound.

No more bullpens emptying during baseball fights. All those relievers do is clutter the field and make it harder for me to see sucker punches and headlocks on YouTube.

Only cities with locals who can play hockey outside in the winter can have an NHL team.

You don't apologize if you haven't done anything wrong.

Neither Simmons nor I agree with Bill Maher on much, but I suppose he's one of the best proofs that some First Amendment rights still exist. Maher is pretty stupid when it comes to policy consequences, but he's so much sharper than the average media head. Simmons ends with this:

See, here's the thing: Of all the things currently wrong with this country—a trillion-dollar war, a flagging real estate market, a crippled stock market, high fuel prices, Lynne Spears, the Jonas Brothers—the fact that nearly everyone with a platform is terrified to say anything might be the most depressing subplot of all. Whatever happened to freedom of speech? Hell, whatever happened to speech?

And you wonder why I watch Bill Maher.

Tort abuse in Joe Biden's Delaware

with son Beau Biden in the eye of the storm:

The trial bar's strategy has been to overwhelm Delaware's once-sensible legal system, taking advantage of rules that pressure companies to settle. In the 22 months following SimmonsCooper's first asbestos filing in Delaware, the state was hit with 412 suits, primarily from SimmonsCooper and fellow asbestos giant Baron & Budd.

According to the Madison County Record -- a legal journal that has doggedly followed this story -- clerks in Wilmington were "working nights and weekends to keep up" with the filings. The trial lawyers drew sympathetic judges that have already overseen big verdicts against defendants, primarily Detroit auto makers. Plaintiffs have obtained certain procedures that raise the costs of defense, and restrict defendants' ability to take discovery.

To keep the jackpots coming, the tort bar has focused on reshaping Delaware's political and judicial landscape. SimmonsCooper knows all about this, having spent a fortune on judicial and county board elections in Madison County. The trial bar poured money into the 2004 re-election campaign of Democratic Governor Ruth Ann Minner, who happens to control judicial appointments in Delaware. Some 24 national asbestos and plaintiffs attorneys -- including Dickie Scruggs, since convicted of bribery -- contributed the legal maximum in the run-up to Ms. Minner's victory. SimmonsCooper has also contributed nearly $35,000 to Jack Markell, the Democrat running to replace Ms. Minner this fall.

Also up for special attention was Beau Biden, son of Senator Biden. SimmonsCooper needed a local firm to file its Delaware suits, and it settled on Bifferato, Gentilotti and Biden, where Beau was a partner. This gave young Beau a share of the firm's asbestos winnings. Beau Biden was also widely known to have political ambitions, and SimmonsCooper donated $35,000 to help Beau get elected state attorney general in 2006. Meanwhile, SimmonsCooper employees have funneled $200,000 in campaign donations to the senior Biden.

"Delaware is fast becoming asbestos lawsuit central," says Steve Hantler, president of the American Justice Partnership Foundation, and a former Chrysler assistant general counsel. "A tsunami of lawsuits being filed by the SimmonsCooper firm, along with the flow of campaign dollars to Delaware politicians is quite the troubling coincidence."

Mr. Biden is one of the tort bar's staunchest allies in Congress, blocking reform at every opportunity while trying to defeat conservative judicial nominees. His quid pro quo with SimmonsCooper in Delaware helps explain why asbestos suits continue to weigh down the courts even after tens of thousands of cases have been shown to be invented. The "change" lawyers will believe in if Mr. Biden makes it to the White House is cold, hard cash.

Edmund Phelps on good economic rescue planning

He concludes:

A program of asset purchases, however needed, is limited in scope. It cannot be counted on to increase the equity capital of the banks -- to shore up their solvency. Underpaying for the toxic assets would actually inflict a further loss of capital. Overpaying the banks for their toxic assets could contribute capital, but that may not be politically feasible or attractive.

So it is clear that the main prong of any "rescue" plan must serve to advance the recapitalization of the banks. Cash transfusions in return for warrants are a good way to do it, as it lets taxpayers share in the upside. The rescue of Chrysler used warrants. This past Monday the FDIC got $12 billion in preferred stock and warrants in the deal that saw Citigroup buy Wachovia. The question is which banks are to be thrown a lifeline, which will have to sink or swim. This one-time dose of corporatism is unpleasant, though the banking industry is to blame for its necessity.

But these steps toward making the system operational again will leave it dysfunctional. We don't want to restore the system as it was. And the risk that the industry would cause another round of wreckage is not the only reason.

What has occurred is not just an old-fashioned banking crisis but also a banking scandal. Most of the big banks were shot through with short-termism, deceptive practices and self-dealing. We must institute basic changes in corporate governance and in management practice to restore responsibility and honesty for the sake of the economy and for the self-respect of the country.

We also need to return investment banking to its roots. There is more to the influence of the financial sector than merely its effects when it goes off the rails. The financial system is not a sort of circulatory system that passively carries fresh saving to the places in the economic body that demand the greatest investing -- as if guided by some "invisible hand." Judgment and vision -- of bankers, fund managers, angel investors and the rest -- matter hugely. So do the distortions, the limits and the license created by the regulatory system and the moral climate. To prosper and advance, the American business sector is going to need a financial system oriented toward business, not "home ownership."

I called for warrants as well last week, after seeing Warren Buffett scooping some from Goldman. I don't think Buffett is an expert on economics (re: Berkshire Hathaway's currency trades), but is there a better value investor?

UPDATE: Buffett does a capital infusion deal with General Electric, similar to the one he struck with Goldman Sachs. He also tells CNBC's Becky Quick that he would love to put $7 billion into the government's rescue plan, if they are buying assets at current market prices.

MLB Payrolls

		Highest Payroll ($ millions)
1		New York Yankees	$ 209
2		New York Mets	$ 138
3		Detroit Tigers	$ 138
4		**Boston Red Sox	$ 133
5		**Chicago White Sox	$ 121
6		**Los Angeles Angels	$ 119
7		**Los Angeles Dodgers	$ 119
8		**Chicago Cubs	$ 118
9		Seattle Mariners	$ 118
10		Atlanta Braves	$ 102
		Lowest Payrolls
1		Florida Marlins	$ 22
2		**Tampa Bay Rays	$ 44
3		Oakland Athletics	$ 48
4		Pittsburgh Pirates	$ 49
5		Washington Nationals	$ 55
6		Minnesota Twins	$ 57
7		Kansas City Royals	$ 58
8		Arizona Diamondbacks	$ 66
9		Baltimore Orioles	$ 67
10		Texas Rangers	$ 68

** Playoff team. Other teams are Milwaukee ($81 million) and Philadephia ($98 million).

There is a case here that that Tampa Bay Rays are the best managed team in baseball right now. Is it a coincidence that Wall Street's own Stu Sternberg is the managing partner of the team?

John Henry, another money manager, bought the Red Sox in 2002 and has won 2 World Series titles. No other team has won more than 1 title since his purchase. Sure, financiers have too much hubris and their questionable leveraging and valuation practices are huge black eyes on the industry. But they seem to be succeeding in baseball, at least relative to the owners who inherited their teams or who came from other walks of life.

A final tidbit: the New York Yankees' non-starting pitchers account for $39 million, almost double the entire Marlins payroll.

Quotes of the day

I have steak at home, why go out for hamburger?--Paul Newman, to Playboy magazine

A bank is a place that will lend you money if you can prove if you don't need it.--Bob Hope

In my view, the claim by Keynesians that the economy can be stabilized around a satisfactory employment level, thanks to economic science, is false. So is the claim by latter-day neoclassicals that such stability is automatic, thanks to the market. Both dogmas fatally miss the point that the normal activity level is driven by structural shifts, which monetary policy and price-level changes usefully accommodate but cannot reverse.--Edmund Phelps

There's no way a smart person can go broke; unless he borrows money.--Warren Buffett

Mr. Obama's "deregulation" trope may be good politics, but it's bad history and is dangerous if he really believes it. The U.S. is going to need a stable, innovative financial system after this panic ends, and we won't get that if Mr. Obama and his media chorus think the answer is to return to Depression-era rules amid global financial competition. Perhaps the Senator should ask [Bill Clinton] for a briefing.--WSJ Editorial Board

Give a man a fish and he'll eat for a day. Give a fish a man and he'll eat for weeks!--Takayuki Ikkaku

Ifill - Not a neutral moderator

This really irks me. How could the McCain campaign allow this to happen without any guidelines imposed? The moderator of the VP debate has a positive book on Obama scheduled to be released on Inauguration Day! At the very least, she should be required to make a disclosure at the beginning of the debate.

Obama and ACORN

I've been fighting alongside ACORN on issues you care about my entire career.--Obama

Obama - Say it isn't so

From Ben Smith, Politico:

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

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

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

Coupling

From The Weekly Standard Blog by Matthew Continetti:

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

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

The New York Sun closes

A sad day for those hoping for something better than the New York Times:

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

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

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

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

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

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

Bret Stephens collects some of Joe Biden's baggage

in his suggested debate questions.

Who am I? Why am I here?

Taylor Stockdale writes about his dad, an American hero:

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

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

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

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

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

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

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

From IBD:

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

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

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

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

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

Quotes of the day

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

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

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

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

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

Marcy Kaptur is an idiot

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

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

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

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

Obama ahead in the Intrade electoral college prediction markets

here:

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

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

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

Pelosi - 2 heartbeats away

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

House of Representatives votes against credit rescue plan

207 yeas to 226 nays.

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

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

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

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

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

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

Arturo Bris makes sense on short selling

Don't ban it:

For every short sale, there is a commitment to buy. That generates liquidity. Giving pessimists and optimists equal opportunities to commit their capital engenders competition that enhances price discovery. Since much short selling in equity markets is done to hedge risks, market volatility suffers in its absence.

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

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

Soteria Trader and I agree.

Sweden finally figures out how to reduce unemployment

Reduce taxes, stupid:

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

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

Quotes of the day

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

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

Apologies for the light blogging

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

The Problem of Unregulated Leverage

A little long but worth a read.

QOTD

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

Marriage of convenience or the beginning of a beautiful friendship?

From the WSJ: Chávez Bolsters Links With Russia

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

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

But from IBD:

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

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

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

Obama says "Me too!"

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

Kissinger Unhappy About Obama

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