Moody’s is skeptical about the No Bailout promises of Dodd-Frank. In particular, Moody’s doesn’t buy the FDIC’s claim that it can “resolve” large, complex financial institutions without risking a disorderly disruption in the marketplace. Which means that regulators would likely resort to a bailout when the chips are down. The higher credit ratings make it cheaper for the banks to borrow—which means that the US taxpayer is essentially subsidizing them with an implicit guarantee. This is worth billions to the banks. It also means that the banks are likely less financially sound than their credit costs would make them appear to be—because bond buyers don’t have to be as vigilant about risks. In short, they’re our new Fannie Maes and Freddie Macs.--John CarneyPhoto links here and here.
Scott Sumner has made a big splash with his idea to “target the forecast of nominal gdp.” You can think of Scott as proposing what is currently a missing prediction market. The deeper way of understanding Scott’s proposal is to see money as missing a price and wanting to create a new way of pricing money, namely in terms of nominal gdp forecasts. Until money has the correct price, we won’t know the correct quantity of money or the correct time path for monetary policy. Scott of course was one of the early contributors to the NME literature and he and I once had a published exchange on related matters, way back when. We are now paying interest on reserves. Is Fischer Black’s claim true that, under these circumstances, the central bank cannot control the price level and the price level will be whatever people want it to be? Optimistic expectations will lead to lots of borrowing and rising prices, while pessimistic forecasts will lead to lower levels of borrowing and weaker inflationary pressures. I’m not so sure of this claim, but at the very least a) it is worth thinking about, b) it now gets debated a lot, and c) it really matters.--Tyler Cowen
So what would Q1 GDP have looked like if the government had used the government's own estimate of inflation for Q1 (5.7%), instead of 1.9%? Q1 GDP would have been -1.82%.--Henry Blodget
[Margaret Thatcher] took science subjects at school; she studied chemistry at Oxford, arriving during World War II and coming under the influence (and comment) of two excellent women scientists, Janet Vaughan and Dorothy Hodgkin. She did a fourth-year dissertation on X-ray crystallography of gramicidin just after the war. She then gathered four years' experience as a working industrial chemist, at British Xylonite Plastics and at Lyons. Second, my argument is that, having lived the life of a working research scientist, she had a quite different view of science from that of any other minister responsible for science. This is crucial in understanding her reaction to the proposals—associated with the Rothschild reforms of the early 1970s—to reinterpret aspects of science policy in market terms. Although she was strongly pressured by bodies such as the Royal Society to reaffirm the established place of science as a different kind of entity—one, at least at core, that was unsuitable to marketization—Thatcher took a different line.--Jon Agar
The cyber-warfare operation [Operation Cupcake] was launched by MI6 and GCHQ in an attempt to disrupt efforts by al-Qaeda in the Arabian Peninsular to recruit “lone-wolf” terrorists with a new English-language magazine, the Daily Telegraph understands. When followers tried to download the 67-page colour magazine, instead of instructions about how to “Make a bomb in the Kitchen of your Mom” by “The AQ Chef” they were greeted with garbled computer code. The code, which had been inserted into the original magazine by the British intelligence hackers, was actually a web page of recipes for “The Best Cupcakes in America” published by the Ellen DeGeneres chat show.--Duncan Gardham
IPOs are not all alike. In the lingo, they are sometimes “financing events” and they are sometimes “pricing events”. When IPOs are financing events, insiders are selling substantial fractions of their firms, trying to to divest their holdings or raise large sums for corporate purposes. When they are “pricing events” insiders are selling a small fraction of their shares in order to gain various benefits that come with being a public firm. In a “financing event”, when insiders are selling a lot of stock, the money left on the table from an IPO pop might amount to a substantial fraction of total equity value, too much money to be treated as a transaction cost. But in a “pricing event”, the money left on the table in a pop — the “opportunity cost of issuance” — may not be so large.--Steve Randy Waldman
Koreans still dominate the small-grocery business in New York; the Korean Produce Association estimates that they own 70 percent of the city’s stores. But their ranks are thinning as they face the same forces that threaten all sorts of mom-and-pop businesses: rising rents, increased competition from online and corporate rivals, and more scrutiny from city agencies that impose fines.--SAM DOLNICK
150 years ago today Stephen Douglas, the emanate Northern politician, died. ... Douglas was called Little Giant, because although he was short, he was very important in politics. He was one of the most important senators in the 1850s, and was responsible for the passage of several important bills. Even though he was defeated by Lincoln, he later encouraged his supporters to support him. But Douglas died of typhoid today at the age of only 48. If Douglas had defeated Lincoln in the election, history would have taken a different term. The South probably would not have seceded, and if they did, Herschel V. Johnson, a Georgian who would have became president after Douglas's death, probably would have let them. There would have been no Civil War, and America would have been allowed to split in peace.--Joshua Horn
Friday, June 03, 2011
Quotes of the day
Marc Faber never pulls punches
Too bad for President Obama:
Photo link here.
I predict we will have more Boomers clinging bitterly to their grandchildren's employment and wealth opportunities. Why be afraid of China when we have the AARP?He is by far one of the worst Presidents the US has had. I’m very upset that none of what he said he would do, mainly change, has actually occurred. So I think he’s certainly intellectually dishonest. And he’s probably made the geopolitical situation worse and also the economic situation worse. And he’s actually vote-buying through handing out money and through increased transfer payments. [I don't think he has his priorities straight], because the priority would be to essentially make the US competitive, and by pursuing expansionary fiscal policies that enlarge the government, you atrophied the private sector. In other words, the private sector is hurt by too much government involvement. Like my friends, they say, we have to pay more and more tax for government officials to harass us more and more and implement more and more regulation. And that of course is not a way to create prosperity. If you have a large corporation or a corporation, you are more likely to hire people outside the US than in the US.
Photo link here.
Thursday, June 02, 2011
The data will fit whatever worldview you bring to it
Here is a clever test from Scott Adams:
Boston Consulting Group reports that millionaires own 39% of global wealth. That is up from 37% in 2009. When you see that statistic, which way do you interpret it?Call it what you will; just not 'science'.
1. The rich have transferred more wealth from the non-rich to themselves.
2. The rich have created more wealth and kept it all.
3. The rich have created more wealth for everyone and kept most of it.
4. More people have achieved millionaire status.
5. There is not enough information to form an opinion.
6. Asset values went up as the economy improved. Rich people own most assets.
Being too literal-minded
If genius is being comical and melancholic simultaneously, Tim Harford defines:
“Dad, we need a savings account paying more than 25 per cent interest. Is there one?”
“Not at the moment, dear.”
“Anything close?”
“No. Actually, the banks are grumbling that they can’t begin to compete with the 0.5 per cent interest, after tax and inflation, on offer from the government.”
“I’m not sure what your demonstration of compound interest is supposed to be teaching me, Dad. Is there any way to get a 10 per cent return?”
“You can take more risks. But the thing about this savings bond is it’s backed by the government and is therefore completely safe.”
“I see. Is that because governments always pay back their debts?”
Quotes of the day
Photo links here, here, here, and here.Nothing is easier than self deceit.--Demosthenes
So apparently authorities believe that spreading knowingly false information with the intent of manipulating asset prices is acceptable behavior, when it is done by the authorities and the matter is deemed serious. Seriously!--David Einhorn
Potomac fever is contagious and incurable. I know one economist who deliberately hired an undocumented nanny as a commitment device to avoid the temptation of government.--Bob Hall
... clinging to a failed monetary peg causes problems that can drag on for years. Look at Argentina in the 1990s, or the entire developed world during the Great Depression: the longer a country clung to the gold standard, the longer and deeper the economic suffering. I think the chances of the euro zone surviving intact are now less than 50%. They're not 0%. But they do seem to be shrinking every day.--Megan McArdle
You do [have more Twitter followers] these days, that’s for sure. You’ve got to give me your tips.--Paul Ryan, to Anthony Weiner
... bankers have always been greedy, what they didn't have was government not merely telling them that they should lower their underwriting standards, but that if they didn't they would be sued for disparate impact. Any CEO seeing this trend, and asking 'well, what have our losses been on these riskier home loans government wants us to make?', would have been told 'not much', because historically the collateral had always risen. That is, while default may have been high, recoveries were higher, and defaults were also masked by the higher collateral that made refinancing easier. In this environment, it is easy to see how banks slowly eliminated their previous lending criteria.--Eric Falkenstein
It’s well known that analysts rarely put sell ratings on the stocks they cover. Typically, the explanation for this is that banks don’t want to jeopardize their investment banking business. The reality is much more complicated. Skeptics and whistle-blowers risk huge career costs that go beyond conflicts of interest. Investors think they want unvarnished advice, but many don’t truly appreciate it. Most banks don’t want employees to play detective. Regulators abandon whistle-blowers, acting tardily and ineffectually.--Jesse Eisinger
Heaven presses into hell, and this is why you get up and breathe again when you’d rather not, because even when you are in hell, grace comes to you. Especially in hell.--Tony Woodlief
A few years ago, I spoke here and had Carl Icahn speaking after me, and that didn’t go too well. And then last year, I’m told that I had the worst choices in the whole thing. And so I wondered if I should come back this year, and I realized that the conference gets bigger every year. They’ve expanded the speaker list. So it’s going to be harder for me to have the worst ideas this year.--David Einhorn
The next best thing to being wise oneself is to live in a circle of those who are.--C.S. Lewis
We take for granted many intuitions, but its important to remember what intuitions are truly universal, and which are the function of explicit training. For example, speech is hard-wired into our brains, and children exposed to people talking will naturally learn to talk. In contrast, kids won't learn to write or read without years of instruction. Empathy and appreciating motive are innate (mirror neurons), but understanding that evil is usually the result of ignorance, is not. ... even geniuses don't 'get' certain things that seem like pure logic, but really require a non-intuitive way of looking at things. It's like the story of Paulos Erdos not understanding the Monte Hall problem.--Eric Falkenstein
It may well be that many US workers have been hurt by the forces of globalisation. But the iPhone and iPod show why the whole business is complex. Products that are made in China may actually be rewarding producers in Japan and California, and, of course, consumers across the world. It’s a curious paradox: the more pervasive globalisation becomes, the less we understand it by looking at trade statistics.--Tim Harford
... we know of one culture that's very, very good at helping people build wealth: academia. Of course, academics start with a solid base: if you're a tenured professor, you are definitionally good at delaying gratification. But one thing you learn from financial reporting is that the ability to delay gratification in your career does not always translate into wise financial stewardship; there are lots and lots of doctors, lawyers, and MBAs who clearly had what it took to go through a long initiation process, and nonetheless manage to end up with no savings and a lifestyle that can't survive more than a few weeks of job loss or other financial distress. Academia pays modestly, and yet on average, tenured professors have quite a lot of wealth built up by the time they retire. ... So while the material people have to work with might be genetic, that doesn't mean that a more frugal culture couldn't produce better results.--Megan McArdle
Yesterday I went to Walmart and demanded that they give me a cartload of merchandise for free. This demand was not well-received, so I didn’t get to the second part of my plan which would have involved criticizing the job performance of the people who were giving me free stuff. Okay, I didn’t really go to Walmart and demand free stuff. You probably knew that because it sounded ridiculous on face value. We all understand that no entity can survive for long if it gives away its resources while asking nothing in return. And this leads me to my point: In the United States, 51% of adults pay zero federal income tax, and yet they have the right to vote. That’s the very definition of a system that can’t last.--Scott Adams
Take heart, even Triple Crown Winners hit into double plays
Aaron Ross Sorkin interviews David Rubenstein on his biggest whiff.
Let's just not make a habit of it. We just need to get on base a little more than most other guys.
Let's just not make a habit of it. We just need to get on base a little more than most other guys.
Wednesday, June 01, 2011
Quotes of the day
Photo links here, here, here and here.Put a frog in a kettle of boiling water and he’ll jump out faster and further than any of those blue ribbon winners at the Calaveras County jumping frog contest. Put him in a pot at room temperature, however, slowly turn up the temperature to boiling, and you’ll have frog legs for dinner. This latter, more unfortunate toad temporarily adapted to his external environment, which seemed like a practical thing to do, until – well, until he reached 212° at which point he was cooked. Today’s bond investors are experiencing a similar fate with nary a “ribbet” of complaint. ... There was this other frog who instead of being tossed into a pot of hot water was left to cool its heels in a pitcher of cold milk. Unable to jump out, he churned and churned those frog legs until eventually the milk turned into butter and the hardened butter allowed him the platform to leap to froggy freedom! Well, let’s get churnin’, fellow frogs. If the U.S. or the U.K. or any other government is going to attempt to boil us alive, let’s make butter! Butter in this instance is what PIMCO characterizes as “cheap bonds.” ... Journalists, financial advisors, and perhaps even some clients marvel at how PIMCO can be doing so well in 2011 while being underweight the Treasury/durational component of the bond market. Folks – we’re making butter. If you’re being repressed, our strategy is to churn those legs, get out of the pitcher, and above all stay away from boiling pots of water.--Bill Gross
Immigration is a boon to American science and math, a new report asserts, noting that 70 percent of the finalists in a recent prestigious science competition are the children of immigrants. ... children of immigrants took 70 percent of the finalist slots in the 2011 Intel Science Talent Search Competition, an original-research competition for high school seniors. Of the 40 finalists, 28 had parents born in other countries: 16 from China, 10 from India, one from South Korea and one from Iran. ... Still, children of immigrants face barriers outside of the education system. According to the Georgetown report, racial disparities in pay persist even within science fields. Whites with an undergraduate major in engineering out-earn Asians with the same degree by about $8,000 a year. African-American and Hispanic engineering graduates fare worse, making about $60,000 and $56,000 per year, respectively, compared with whites' $80,000. Asians out-earn whites in the fields of health, law and public policy; psychology and social work; and biology and life sciences.--Stephanie Pappas
When less legal work is available, more illegal "work" takes place. The economist Gary Becker of the University of Chicago, a Nobel laureate, gave the standard view its classic formulation in the 1960s. He argued that crime is a rational act, committed when the criminal's "expected utility" exceeds that of using his time and other resources in pursuit of alternative activities, such as leisure or legitimate work. Observation may appear to bear this theory out. After all, neighborhoods with elevated crime rates tend to be those where poverty and unemployment are high as well. But there have long been difficulties with the notion that unemployment causes crime. For one thing, the 1960s, a period of rising crime, had essentially the same unemployment rate as the late 1990s and early 2000s, a period when crime fell. And during the Great Depression, when unemployment hit 25%, the crime rate in many cities went down. ... Culture creates a problem for social scientists like me, however. We do not know how to study it in a way that produces hard numbers and testable theories. Culture is the realm of novelists and biographers, not of data-driven social scientists. But we can take some comfort, perhaps, in reflecting that identifying the likely causes of the crime decline is even more important than precisely measuring it.--JAMES Q. WILSON
The current National Football League labor dispute is sometimes characterized as a battle between billionaire team owners and millionaire players. What's often left out, however, is the role that the American taxpayer is playing in this dispute. Through rich stadium subsidies and cartel powers granted to professional football by our representatives in Congress, we have helped to bankroll the gains in revenues that are now at issue in this clash. ... if these telecasts don't interest you much, then the next time some member of Congress complains about spiraling cable TV fees and vows to hold hearings on the subject, you might shoot him an e-mail asking if he plans to introduce legislation repealing the 1961 Sports Broadcasting Act. While you are at it, you might raise questions about the tax-free status of municipal debt that governments often float to build stadiums for professional teams, stadiums that might be empty this fall.--Steven Malanga
If the Chinese economy is really so strong, why are Chinese regulators preparing a bailout of bad loans made to local governments that may amount to almost a half trillion dollars?--John Carney
In the wake of the Dominique Strauss-Kahn scandal, as more Frenchwomen venture sexual harassment charges against elite men, the capital of seduction is reeling at the abrupt shift from can-can to can’t-can’t.--Maureen Dowd
I just quoted Maureen Dowd. Hell freezes over.--Cav
Wall Street's money might never sleep, but the auto business shreds it
Your money, if you're a taxpayer:The Treasury Department said in a May 10 report that its estimate of auto bailout losses as of March 31 is $13.9 billion. The Congressional Budget Office also estimates a $14 billion loss. The CBO has written off $8 billion of the government's auto bailout as an unrecoverable loss.Photo link here.
Tuesday, May 31, 2011
Quotes of the day
The U.S. spent $10,498.66 on each public school student in 2009, according to the U.S. Census. The figure is a high as $18,126 in New York and as low as $6,356 in Utah. Surprisingly, Utah’s high school graduation rate is higher than New York’s.--Michael B. Sauter, Charles B. Stockdale, Douglas A. McIntyrePhoto links here, here, and here.
Not surprising to a parent in New York. Have you ever taken a close look at schools here?--Cav
Because big-time college football and basketball are so entertaining, most people prefer to ignore the cesspool that recruiting has become, and could care less about the academic abilities of the players who represent what we like to refer to as institutions of higher learning. It's the hypocrisy of it all that is nauseating.--Jim Donaldson
Unfortunately, Medicare illustrated an immutable law of economics: Cut the marginal price and demand will skyrocket. With Medicare services seemingly free, the elderly used far more services. Costs raced upwards. In 1967 Medicare debuted with a cost of $2.5 billion. The same year the House Ways and Means Committee predicted that Medicare would cost $12 billion in 1990. Alas, that turned out to be an $86 billion underestimate. Medicare first exceeded $12 billion in 1975.--Doug Bandow
If the minimum wage is a good idea, shouldn't unpaid internships be illegal as well? If not, why not? Name the main arguments in favor of the legality of unpaid internships. Aren't all of them equally good arguments for allowing people to work for wages greater than zero and less than the minimum wage?--Bryan Caplan
If ticket scalping laws that make it illegal to sell a ticket to a concert or sporting event above face value are a good idea, shouldn't selling a coin, bond, car, or house above face value, sticker price or list price also be illegal as well? If not, why not? Name the main arguments in favor of selling a coin, bond, car or house above face value/list price. Aren't all of them equally good arguments for allowing people to sell tickets above face value?--Mark Perry
[Steve] Jobs is inflicting his own version of personal revenge by causing major nightmares for traditional PC vendors with the new products and services that he has brought to market since he returned to Apple in 1997. While his moves are all business, his intentions are clearly to make sure that this time he wins the battle for producing the next big thing in personal computers. ... he realized that just creating a hardware device and a great OS is not enough. In his long-range planning way of thinking, he spent the last decade building out a rich service component that includes iTunes, the App Store, and the soon to be announced cloud service. These services combined with the new personal computing device give users a richer experience. To Jobs, perhaps the more important aspect of this is that the whole package is hard to replicate.--Tim Bajarin
There's one problem with this global-warming chicken little-ism. It has little to do with reality. National Weather Service data on weather-related fatalities since 1940 show that the risks of Americans being killed by violent weather have fallen significantly over the past 70 years. The annual number of deaths caused by tornadoes, floods and hurricanes, of course, varies. For example, the number of persons killed by these weather events in 1972 was 703 while the number killed in 1988 was 72. But amid this variance is a clear trend: The number of weather-related fatalities, especially since 1980, has dropped dramatically.--Don Boudreaux
Harold Camping — what an idiot! He predicted the end of the world on May 21. Last week, the Christian radio station owner said he was kind of right, though no one else noticed, and anyway the judgin’ will continue until (new date!) Oct. 21 of this year, when the world really and truly will be destroyed, probably. What you didn’t know is that after his loony prediction, Camping was promoted to full professor at Stanford and rewarded with adoring mainstream press coverage, more than a dozen appearances on “The Tonight Show,” prestigious awards and praise from the Obama administration’s chief science advisor. Sorry, I got one detail wrong. It wasn’t Camping who reaped those earthly rewards for his cosmic wackiness. It was Paul Ehrlich. In his psychedelically doomy 1968 catastrophe tract, “The Population Bomb,” Ehrlich argued that birthrates were out of control and would cause worldwide crisis. ... Ehrlich has groused that he was kinda sorta right, and the worst you can say is that, like preacherman Camping, he was a little early. President Obama’s point man on science, John Holdren, is an Ehrlich man. A text version of a speech Holdren gave in 2006 was accompanied by a footnote in which he praised Ehrlich’s call to end population growth “a key insight . . . the elementary but discomfiting truth of it may account for the vast amount of ink, paper and angry energy that has been expended trying in vain to refute it.” There are Ehrlich-men everywhere, and that ehrlich is German for honest just makes it so much richer, doesn’t it? ... All Harold Camping has to do to be treated as a genuine visionary is to change the words at the beginning of his doom sermons from “the Bible says” to “science says.”--Kyle Smith
I was shocked by Ms. Warren’s blatant sense of entitlement. She was apparently under the assumption that she could dictate a one-hour time limit for her testimony to Congress, and that we were there at her behest instead of the other way around. This is just further example of her disregard for Congressional oversight.--Patrick McHenry
... telecoms are capturing most of the wealth being generated from the Internet. For all the new world hype, the old world has a major role to play. And sometimes focusing on what is not changing help us figure out how to best master changes. We still need to find, delight, and excite customers. We need business models that pay people fairly for their work. Businesses must make a credible case to government that they act in the public interest. And the best asset for mastering change is still that old classic: leadership.--Rosabeth Moss Kanter
Email is a task list created for you by someone else.--Chris Sacca
... the other day I decided to try a game called Angry Birds just to see why it's so popular. I wasn't expecting to like it. I was wrong. The game is instantly addictive. But why? Or more generally, what makes one game a hit and another a dud? My hypothesis is that we humans have a dozen or so natural impulses that evolution has provided. When we exercise any of those impulses, we feel most alive. For example, a first person shooter game primarily appeals to males, probably because it taps into a man's most primitive urge to eliminate other males as reproductive competition. And more generally, we males have a natural impulse to fight. A well-designed shooter game allows males to spend hours per day unleashing the urges that are socially inappropriate. You can see in almost any successful game the elements needed for hunting, gathering, self-defense or reproduction. Puzzles probably use the part of our brain designed to figure out where the food is. Lots of games require us to gather up resources. And any game that requires you to quickly spot abnormality is the same skill you need to identify healthy mates. I would argue that Tetris and Mahjong are good examples of games where you have to quickly spot abnormality. And it is no surprise that both games have attracted female gamers.--Scott Adams
The Mets came up with a buyout plan: Beginning on July 1, 2011, they would pay Bonilla $1,193,248.20 per year for 25 years, or $29.8 million. The payment was based on the return Bonilla would've received had he invested the $5.9 million at an interest rate of 8% (which was just below the 8.5% prime rate at the time). Why would the Mets make such a deal? The Bonilla money would be invested with Madoff, from whom the Mets expected the usual 10 to 12% return, or two to four percentage points above the rate they guaranteed Bonilla. "We were going to make money on Bobby Bo's $30 million," says one official who was at the meeting. "I remember the chuckling in the room." By deferring the money to Bonilla, the Mets freed cash to fortify their roster for the 2000 season. On Dec. 23, 1999, they traded for pitcher Mike Hampton and outfielder Derek Bell in a deal that added $8.1 million to the payroll. Eleven days later they officially released Bonilla. The 2000 Mets would win the NL pennant. The Madoff fund made the roster moves possible.--Tom Verducci
Monday, May 30, 2011
In Flanders fields the poppies blow
Between the crosses, row on row,
That mark our place; and in the sky
The larks, still bravely singing, fly
Scarce heard amid the guns below.
We are the Dead. Short days ago
We lived, felt dawn, saw sunset glow,
Loved and were loved, and now we lie
In Flanders fields.
Take up our quarrel with the foe:
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.
To you from failing hands we throw
The torch; be yours to hold it high.
If ye break faith with us who die
We shall not sleep, though poppies grow
In Flanders fields.
by John McRae
Photo link here.
UPDATE: From Eric Falkenstein:
... who is more courageous: a professional warrior, raised from birth in a tradition of service and self-abnegation, facing a known opponent at arms length, or an 18-year old Specialist, fresh off the boat from America, driving a Humvee through the IED-riddled streets of Ramadi.
Then, please, do me a favor: Say a prayer of thanks, and protection, for all our young men and women in harm's way. They deserve it.
Friday, May 27, 2011
Hurricane Katrina's silver lining
The public school system was destroyed along with much else, and the new charter school system is educating kids much better.
Freedom!
Freedom!
This is why we cannot trust government any more than the markets
Barney Frank. Truth be told, I trust the markets more than I trust many people in Washington, D.C. Gretchen Morgenson's interview with Dave Davies:
One of the really big beneficiaries (of Fannie Mae lobbying and political favors), albeit indirectly, was Congressman Barney Frank of Massachusetts. Back in 1991, when Congress was writing the legislation that would, you know, enhance or improve the oversight of Fannie Mae, or so they thought, Frank actually called up the company and asked them to hire his companion, who had just gotten an MBA from the Amos Tuck School of Business.Via Greg Mankiw. Photo link here.
Of course the company was happy to provide a job for his companion and rolled out the red carpet in a series of interviews with a variety of executives, and it ultimately did hire the man. And he stayed there for I believe seven years.
So that was an example of the kind of thing that Fannie Mae would do. Now, when I asked Mr. Frank about this, I asked him, did it have any impact on his approach to the company. You know, was it a conflict? Did he feel that it had been a conflicted, put him in a conflicted spot? And he said absolutely not, that he didn't really remember being interested or having much to do with the 1992 legislation.
But the record shows that he was very aggressive and really tough on those who were testifying in Congress about reining in Fannie Mae and Freddie Mac. He was very aggressive to, for instance, the head of the Congressional Budget Office at that time, who was trying to call for increased capital requirements and to call for a focus on safety and soundness at Fannie Mae, that Frank really took him apart in testimony.
Quotes of the day
Professional athletes have taken the "Dancing" title six times in the past 12 seasons. Since the show premiered stateside in 2005, three Olympians, two football stars and one race-car driver have been named "Dancing" champs. Three other NFL stars and an Olympic skater finished the popular show in second place.--Mark DivverPhoto links here, here, here and here.
Do you not know that in a race all the runners run, but only one gets the prize? Run in such a way as to get the prize. Everyone who competes in the games goes into strict training. They do it to get a crown that will not last, but we do it to get a crown that will last forever. Therefore I do not run like someone running aimlessly; I do not fight like a boxer beating the air. No, I strike a blow to my body and make it my slave so that after I have preached to others, I myself will not be disqualified for the prize.--Paul
Analogies are like spices: a judicious application can enhance and bring out the flavor of a dish; too much can overwhelm it and even change its character entirely. ...Football teams and quarterbacks can put up better statistics than anyone else in the league, but if they don't win games, it just doesn't matter. Football is simple: over the course of a season each team in the league competes against all the others, and the playoffs and championship determine—by definition—the "best" football team of the season. There is no equivalent in the world of business. The metrics of success in business are far more multiform, variable, and relative: revenue growth, income growth, operating margins, free cash flow, market share, etc. You cannot point to a company's results at the end of a fiscal year and definitively declare that it "won" or "lost." Even if it outperformed its entire history in terms of growth, margins, and profitability, that does not mean it outperformed its competitors.--Epicurean Dealmaker
The problem (of deflationary food prices) began with the invention of the spear.--Don Boudreaux
Married couples have dropped below half of all American households for the first time, the Census Bureau says, a milestone in the evolution of the American family toward less traditional forms. Married couples represented just 48 percent of American households in 2010, according to data being made public Thursday and analyzed by the Brookings Institution. This was slightly less than in 2000, but far below the 78 percent of households occupied by married couples in 1950. What is more, just a fifth of households were traditional families — married couples with children — down from about a quarter a decade ago, and from 43 percent in 1950, as the iconic image of the American family continues to break apart.--SABRINA TAVERNISE
We find that both women and men equally value physical attributes, such as age and weight, and that there is positive sorting along age, height, and education. The role of individual preferences, however, is outplayed by that of opportunities. Along some attributes (such as occupation, height and smoking) opportunities explain almost all the estimated variation in demand. Along other attributes (such as age), the role of preferences is more substantial, but never dominant.--IZA Discussion Papers, number 2377
So yes, we're pickier about marriage partners but we're drawing them from the same pool that we rather indiscriminately assembled in the first place.--Eric Barker
The USPS has 571,566 full-time workers, making it the country's second-largest civilian employer after Wal-Mart Stores (WMT). It has 31,871 post offices, more than the combined domestic retail outlets of Wal-Mart, Starbucks (SBUX), and McDonald's (MCD). Last year its revenues were $67 billion, and its expenses were even greater. Postal service executives proudly note that if it were a private company, it would be No. 29 on the Fortune 500. The problems of the USPS are just as big. It relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining—in 2005 it fell below junk mail for the first time. This was a significant milestone. The USPS needs three pieces of junk mail to replace the profit of a vanished stamp-bearing letter. ... Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. In contrast, 43 percent of FedEx's (FDX) budget and 61 percent of United Parcel Service's (UPS) pay go to employee-related expenses. Perhaps it's not surprising that the postal service's two primary rivals are more nimble. According to SJ Consulting Group, the USPS has more than a 15 percent share of the American express and ground-shipping market. FedEx has 32 percent, UPS 53 percent. The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year it will reach its statutory debt limit. After that, insolvency looms. --Devin Leonard
The core structure of medicine—how health care is organized and practiced—emerged in an era when doctors could hold all the key information patients needed in their heads and manage everything required themselves. One needed only an ethic of hard work, a prescription pad, a secretary, and a hospital willing to serve as one’s workshop, loaning a bed and nurses for a patient’s convalescence, maybe an operating room with a few basic tools. We were craftsmen. We could set the fracture, spin the blood, plate the cultures, administer the antiserum. The nature of the knowledge lent itself to prizing autonomy, independence, and self-sufficiency among our highest values, and to designing medicine accordingly. But you can’t hold all the information in your head any longer, and you can’t master all the skills. No one person can work up a patient’s back pain, run the immunoassay, do the physical therapy, protocol the MRI, and direct the treatment of the unexpected cancer found growing in the spine. I don’t even know what it means to “protocol” the MRI. Before Elias Zerhouni became director of the National Institutes of Health, he was a senior hospital leader at Johns Hopkins, and he calculated how many clinical staff were involved in the care of their typical hospital patient—how many doctors, nurses, and so on. In 1970, he found, it was 2.5 full-time equivalents. By the end of the nineteen-nineties, it was more than fifteen. The number must be even larger today. Everyone has just a piece of patient care. We’re all specialists now—even primary-care doctors. A structure that prioritizes the independence of all those specialists will have enormous difficulty achieving great care. We don’t have to look far for evidence. Two million patients pick up infections in American hospitals, most because someone didn’t follow basic antiseptic precautions. Forty per cent of coronary-disease patients and sixty per cent of asthma patients receive incomplete or inappropriate care. And half of major surgical complications are avoidable with existing knowledge. It’s like no one’s in charge—because no one is. The public’s experience is that we have amazing clinicians and technologies but little consistent sense that they come together to provide an actual system of care, from start to finish, for people. We train, hire, and pay doctors to be cowboys. But it’s pit crews people need.--Atul Gawande
If a pension fund has a shortfall of $X, and amortizes its shortfall over a 30-year period, that does not make annual amortization payment $X/30. Because of the need to pay interest, the actual figure is closer to $X/11. This means that funding shortfalls (which arise because pension funds make risky investments) impose meaningful short-term fiscal costs. Given the performance of the stock market over the past five years, it is likely that a typical pension fund that was fully funded in mid-2006 is now only 75 percent funded; as a result, doublings of annually required pension contributions should be considered typical, not unusual. Some funds, such as New York's, which use shorter amortization schedules are seeing even more rapid rises in current-year costs. So while pension costs have historically consumed about 4 percent of state and local budgets, that figure is likely to be far higher in the next several years, making pensions a major driver of state and local fiscal crises.--Josh Barro
An increase in the debt limit that contains no reforms for Fannie and Freddie is effectively a blank check for continuing the policy of massively subsidizing housing finance, one that has already cost taxpayers more than $153 billion. The longer Fannie and Freddie stay in business as subsidized federal policy instruments, the more unlikely any private-sector alternative will develop. Although most of the taxpayer losses came from bad mortgage loans made from 2005-2007, each new loan purchased by Fannie and Freddie involves the implicit issuance of more Treasury debt.--CHRISTOPHER PAPAGIANIS
T. Boone Pickens wants the U.S. Government to give him 8 million 18-wheelers
on CNBC right now.Do you know 8 million people who can be drivers? Do you 8?
At $200,000 per truck plus natural gas trailer with a 4 year depreciation schedule, and $100,000 per driver ($80,000 per year in wages and benefits, plus 25% in administrative overhead), this is a $1 trillion program, before infrastructure and other operational costs.
This plan will start making sense once the average household consumption of gasoline hits about $2,000 per month.
I don't know who is more out of their mind, T. Boone Pickens, or the post-Haines CNBC for giving him the airtime.
Photo link here.
Einhorn speaks; the market agrees
Shares of Microsoft rose more than 2 percent on Thursday after David Einhorn urged that Steven A. Ballmer be removed as chief executive of the company.
$4 billion in market capitalization. Just like that.Photo links here and here.
Thursday, May 26, 2011
Treason: I love Mariano Rivera, and I am a Red Sox fan
Has any athlete in the history of New York (or the history of anywhere) given fans a more assured feeling than Mariano Rivera? I would suggest: No. When Rivera warms up, the Yankees almost always win. It's that simple. Mickey Mantle ... Joe Namath ... Mark Messier ... Clyde Frazier ... Babe Ruth even ... none of these players, despite their obvious greatness, could grant the peace of mind that comes with the familiar pitching motion of Mariano Rivera. If he's up, the Yankees are probably winning, maybe tied, at the very least in position to tie. And if he enters the game, the Yankees will almost certainly win. I think this helps explain why Rivera is so beloved. Certainly it mostly has to do with his own greatness -- his 572 saves, his 205 ERA+, his 0.71 ERA in the postseason and so on. But it also has to do with his role, his particular circumstances, with being the best closer who ever lived. Yankees fans have come to connect the very sight of Mariano Rivera and victory. No pitcher in the history of baseball, not even Cy Young, has been on the mound at the end of so many victories. And I would argue that no player in the history of American sports, not even Bill Russell, has been more synonymous with that blast of joy that comes when your favorite team wins.
But don't worry fans, my oldest is the only known Red Sox fan in her school in NYC, and when asked why, she responds "because they win!" I'm worried about the youngest though, and I might have jinxed it, breaking down and buying him a Laser Show jersey.Photo links here and here.
Quotes of the day
Photo link here.The high-frequency traders are like the beautiful women. If their biggest “threat” is to stay home, we are not worse off for their existence. If we fear their flaky departures enough, we may prefer to trade in other markets or at other time horizons, namely very long.--Tyler Cowen
Said a Harvard professor of econ,
"That Google's got something unique on:
They have cash by the score,
Yet still borrow more;
This is something I've puzzled all week on."
Said an expert in cross-border taxes,
"I should hope the professor relaxes;
As Google keeps cash
In an overseas stash,
'Til taxation here wanes and not waxes."--Dr. Goose
The three largest U.S. metropolitan areas, New York, Los Angeles, and Chicago, contain 13 percent of the population and generate 18 percent of GDP. This (crudely) suggests that densification could increase GDP considerably.--Reihan Salam
If normal growth theory is right, it takes a lot of work just to keep a rich economy rich. Just replacing the old, depreciating physical capital is an enormous task that only a highly productive economy can accomplish. The more capital you have, the more capital you have to replace every year. If you fall behind in replacing the fast-decaying capital, you quickly become less productive. The fact that the US has been able to keep its relative ranking is evidence that it has stayed highly productive over the decades. Solow’s growth model captures this fact—and it’s why a one-time massive gift of capital can’t make a poor country rich. It’s a gift that keeps on wearing out.--Garrett Jones
I just pre-ordered Ezra F. Vogel, Deng Xiaoping and the Transformation of China, which looks to be an important book.--Tyler Cowen
Our exchange rate is just a price — the price of the dollar in terms of other currencies. It is not controlled by anyone. And a high price for the dollar, which is what we mean by a strong dollar, is not always desirable. Some countries, like China, essentially fix the price of their currency. But since the early 1970s, the United States has let the dollar’s value move in response to changes in the supply and demand of dollars in the foreign exchange market. The Treasury no more determines the price of the dollar than the Department of Energy determines the price of gasoline. Both departments have a small reserve that they can use to combat market instability, but neither has the resources or the mandate to hold the relevant price away from its market equilibrium value for very long. In practice, all that “the exchange rate is the purview of the Treasury” means is that no official other the Treasury secretary is supposed to talk about it (and even he isn’t supposed to say very much). That strikes me as a shame. Perhaps if government officials could talk about the exchange rate forthrightly, there would be more understanding of the issues and more rational policy discussions.--Christina Romer
In addition to his wide-ranging influence within the academic and policy spheres of economics, Harvard Economics Professor Martin S. Feldstein ’61 has perhaps had his greatest impact in the classroom. While sitting in a meeting about Social Security reform in the West Wing of the White House in 1999, Harvard Kennedy School Professor Jeffrey B. Liebman—once a Ph.D. student of Feldstein’s—realized he shared something with the others at the meeting. “[I noticed] that three of the four economists in the room—Larry Summers, Doug Elmendorf, and myself—had been Marty’s students,” he said. “The fourth economist had studied at MIT under someone who himself had been a student of Marty’s.” Feldstein, a professor at Harvard since 1967, has taught every level of economics, from introductory to upper-level graduate courses—training some of the world’s foremost economists in the process and spurring the Wall Street Journal to term him perhaps the “most influential economist of his generation.”--Benjamin M. Scuderi
Washington relies too much on off-the-cuff comments and tweets to drive policy debates. Serious policy addresses like these three provide depth that is essential to the national dialogue. I also wish we had more frequent serious policy speeches on the House and Senate floors. Today I will begin to respond to the Geithner speech, which is the most effective presentation of the Administration’s fiscal policy argument I have seen. It’s a long speech with a lot that deserves analysis and response. Since the partisan policy battle is already fairly heated, and since I haven’t written in a while, I’ll start today with a reach-across-the-aisle post. ... Secretary Geithner is reflecting the conclusions of the Social Security and Medicare Trustees, issued last Friday, and he is saying something different from the Washington Consensus, which focuses only on health care cost growth. In fact demographics is a bigger deficit driver over the next 10-20 years than health care. Kudos to the Secretary for emphasizing both. He also correctly identifies the two subcomponents of an aging population: more Baby Boomers becoming retirees and longer lifespans. The first of these is big but temporary (one generation), the second is gradual and permanent. ... Secretary Geithner is right that the ultimate forcing action will be when investors lose confidence in American fiscal policy and take their funds elsewhere. He is right that, if this happens, it can happen suddenly and without warning. He is right that this would be extremely painful and costly to stop. And he is right that it is unpredictable. We may not know the market-imposed deadline until it has already passed.--Keith Hennessey
So much for rational ideas in public debate.--Peter Suderman
The fact that I would want to be able to involve the police if my daughter became a streetwalker, but not if she became a Hari Krishna, tells me something important about what kind of legal regime I should support.--Ross Douthat
(A map of slave ownership by county)
You have now shown under the most adverse circumstances that the great mass of the people of Western Virginia are true and loyal to that benificent [sic] government under which we and our fathers have lived so long. ... The General Government cannot close its ears to the demand you have made for assistance. I have ordered troops to cross the Ohio river. They come as your friends and brothers, as enemies only to the armed rebels who are preying upon you. Your homes, your families, and your property are safe under our protection. All your rights shall be religiously respected, notwithstanding all that has been said by the traitors to induce you to believe that our advent among you will be signalized by interference with your slaves. ... I call upon you to fly to arms and support the general government, sever the connection that binds you to traitors, proclaim to the world that the faith and loyalty so long boasted by the Old Dominion are still preserved in Western Virginia, and that you remain true to the stars and stripes.--General George McClellan, May 26, 1861
In terms of basketball talent, I’ve been covering pro basketball for more than 40 years, and I’ve never seen a guy Rodman’s size play like he did and shut down opponents who were half a foot taller and 100 pounds heavier. When he played for the Bulls from 1996 to 1998, I remember 7-1, 335-pound Shaquille O’Neal trying to back Rodman into the paint to posterize him with a dunk. But Rodman would body up, using his leverage and pelvis to impede Shaq’s progress.--Lacy Banks
He has six of the 17 best seasons in history for offensive-rebounding percentage, and six of the 12 best for defensive-rebounding percentage. And unlike most top rebounders, one skill didn’t impede the other. Most players who are great on the defensive glass aren’t as good at corralling offensive rebounds, perhaps because they are behind their teammates in getting down the floor.--Carl Bialik
Wait, what? Dennis Rodman is a Christian? Not yet, but wait for it. This one is going to happen and when it does, we’re going to lock in a phenomenally colorful rebounder.--Jon Acuff
A great economist challenges a great journalist
David Leonhardt posits:
As much as I am a fan of great journalism, I still think that my engineering curriculum was a lot more challenging than any journalism program anywhere. I concede I'm not a great writer, storyteller, or entertainer. That's why I talk to my computer more than people for a living.
I think Mankiw is more evidence-based than Leonhardt, and I weight my truth sourcing portfolio accordingly. I don't believe I can improve things until I know where things are first.
The United States no longer leads the world in educational attainment, partly because so few low-income students — and surprisingly few middle-income students — graduate from four-year colleges. Getting more of these students into the best colleges would make a difference. Many higher-income students would still graduate from college, even if they went to a less elite one. A more educated population, in turn, would probably lift economic growth.Greg Mankiw responds:
The finding [that students from higher income backgrounds have significantly higher grades throughout college conditional on college entrance exam (ACT) scores] is the opposite of what the Leonhardt story suggests. What this means is that if you are a college admissions officer trying to identify the students who will do best in college, as measured by grades, you would give positive rather than negative weight on family income. I am not proposing that they should do this, as colleges have many goals when putting together a class. But it does seem that the hypothesis implicit in Leonhardt's article is not supported by the data.There's a lot to think about here. For one, Peter Thiel's program to incent kids not to go to college, because we have too many college graduates. But the biggest thought is, what are we trying to normalize here: intelligence, income, or status? Bryan Caplan and Arnold Kling have interesting thoughts.
As much as I am a fan of great journalism, I still think that my engineering curriculum was a lot more challenging than any journalism program anywhere. I concede I'm not a great writer, storyteller, or entertainer. That's why I talk to my computer more than people for a living.
I think Mankiw is more evidence-based than Leonhardt, and I weight my truth sourcing portfolio accordingly. I don't believe I can improve things until I know where things are first.
I don't know how abysmal Mark Zandi's Sharpe Ratio is
but it sure ain't positive. Neither are Peter Schiff's or Nassim Taleb's. Jumping into the markets isn't easy; most of the guys on TV and in the newspapers either couldn't or didn't hack it, at least in terms of buying and selling financial assets, generating revenues, and managing risk. Here is my first entry into evidence.
Via Eric Falkenstein.
Via Eric Falkenstein.
Wednesday, May 25, 2011
Quotes of the day
Potential teachers out there- beware! You are blamed for everything and children and parents and administrators get away with murder. Prepare yourself to not be respected or appreciated ever. Teachers are under so much pressure to perform that there is a huge emphasis on test prep. You are lucky if you get to do projects.--former Teach for America teacherPhoto links here and here.
I suppose [congressional representatives yielding significant positive abnormal trading returns] are good at stock investing for the same reason Hillary Clinton was a savvy commodities trader, and Obama was good at playing poker with Illinois lobbyists. If the guys who set my property taxes want to bet on something, anything, I'm willing to post great odds. Just be sure to remember me, you know, later--Eric Falkenstein
U.S. Transportation Secretary Ray LaHood unveiled new fuel-economy window stickers for cars and trucks, saying "we're not just sitting around waiting for high gasoline prices to come down." His ride of choice to the unveiling: This 12-mpg Chevy Suburban SUV.--Justin Hyde
For months now top economic officials in Washington have been arguing that the Congress should vote to increase the debt limit without any reductions in the growth of spending—in other words a “clean debt limit hike.” Just last Thursday Ben Bernanke compared linking the debt limit and spending reductions to playing a game of chicken with U.S. credit worthiness, adding “I think using the debt limit as a bargaining chip is quite risky.” CEA Chairman Austan Goolsbee and Treasury Secretary Timothy Geithner have been saying much the same thing. But these arguments do not take account of important economic advantages of linking the debt limit to spending reductions. Such a link is good economics in theory and in practice. It is essential to a credible return to sound fiscal policy and an end to the ongoing debt explosion. Here’s why. In the current political and economic environment—where more people than ever in the United States and around the world are aware of, and paying attention to, the country’s debt problem—the decision about the debt limit will be precedent-setting. They also know that government spending has increased rapidly in recent years, rising from 18.2 percent of GDP in 2000 to over 24 percent now. If Washington does not change the budget game now, people will sensibly reason, it will never change the game. If politicians just increase the debt limit now when spending has been growing so rapidly compared to revenues without correcting that rapid growth of spending, then they will be expected to do so in the future. In contrast if they tie any increase in the debt limit to a halt in the explosion of spending, then people will be more likely to expect them to control spending in the future. Linking the debt limit vote with spending establishes a precedent and valuable credibility.--John Taylor
Economies of scale in fonts, as often in the corporate world, do not seem to stand in the way of diversity for long. There have never been so many alternatives to Helvetica, and new fonts are created at an unprecedented rate. There is always demand for the next forward-looking font. Barack Obama used a 21st century font, Gotham, for his 2008 election campaign. Evidently some people think it helped his fortunes: Gotham has now been adopted by Sarah Palin.--Tim Harford
Asian-American success is typically taken to ratify the American Dream and to prove that minorities can make it in this country without handouts. Still, an undercurrent of racial panic always accompanies the consideration of Asians, and all the more so as China becomes the destination for our industrial base and the banker controlling our burgeoning debt. But if the armies of Chinese factory workers who make our fast fashion and iPads terrify us, and if the collective mass of high-achieving Asian-American students arouse an anxiety about the laxity of American parenting, what of the Asian-American who obeyed everything his parents told him? Does this person really scare anyone?--Wesley Yang
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