Law of the Bad Premise---Second Hand News

JANUARY 7, 2009

We really are built for political debate. The more important question is what the legitimate boundaries for the debate are. If the boundaries for debate are too wide or too narrow we risk poor outcomes. An example of the former would be if Congress took up the question of allowing 65 year olds to be "euthanized" to save on medical costs (yes, I believe a modified more "reasonable" version of this is coming our way---after all, are not "right to die" laws on that path? What is the word most linked to "rights"? Responsibility). An example of "too narrow" is one party debate. Roger Simon in Unhappiness in Obamaland implicitly makes this point. He believes the debate in Congress will clearly exist among Democrats in many areas, just not the important ones, such as the "Stimulus Package", Nationalized medicine and others.

(posted at 10:08 am by Mike Rulle)

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What is interesting about the political news of late, to me at least, is the repetitiveness of it all. This tends to deaden the emotions on certain issues. This can be both good and bad. For example, when Bobby Rush in Illinois tries to raise racial issues (when there really are none---the State's black Secretary of State is the person who won't "certify" "Blago's" choice of Roland Burris) in the seating of Roland Burris in the Senate (which I have stated from the outset should be allowed), my sense is everyone yawns Burris Circus and the Politics of Race. This is a good thing. When Americans of all races are bored with discussing race, that is a pretty good indicator race is less of an issue. However, when there are continued critiques on the proposed economic actions by Obama, which frankly most politicians on both sides seem to generally support, that too is beginning to generate yawns. This is not a good thing. The risks of "yawning" are  outlined by Charles Krauthammer in his recent column. The risks in most simple terms can be called "Socialism".

(posted at 9:45 am by Mike Rulle)

  

This is a useful "thought experiment" Would You Have Been A Nazi? Anyone who saw the Woody Allen comedy Zelig recalls the crazy funny images of "Zelig" inserted into Nazi propagandist Leni Riefenstahl's "newsreels". One of the many insights of this movie is the recognition that man is a social conforming species. A reason for this thought experiment's usefulness is it can help tone down the self-righteousness of much of our public discourse. I am not speaking of "civility". One can still be passionate about one's position. But recognize that you are considerably less than perfect.

(posted at 8:33 am by Mike Rulle)

  

Have you heard that "Senator" Al Franken has been banned by NBC from appearing on its Network?  Neither have I. But Ann Coulter apparently has Coulter v. The Counter-Coulter. How is it that Coulter keeps publishing best sellers yet is viewed in the media as a pariah?  The reason is she mixes comedic hard edged sarcasm with political critique---aimed at the left. The sarcasm is certainly no worse than we would see from liberal political comedians such as Lewis Black, who is funny; or the formerly funny "Senator" Al Franken. The answer to the Coulter question is obvious and Brent Bozell spells out why in his column.This kind of censorship is brought to you from the promoters of the ludicrously named Fairness Doctrine

(posted at 8:05 am by Mike Rulle)

International economists, Peter Boone and Simon Johnson, essentially argue for even greater deficit spending and greater monetary easing Obama Plan Is Bold, but Not Bold Enough. It is difficult to understand how a crisis which supposedly was created by an increase in total leverage can be solved by a massive further increase in total leverage. In Atlantic City this is called "doubling down".

(posted at 7:45 am by Mike Rulle)

JANUARY 2, 2009

Irony may not be the correct term. But it is disturbing that Governor Paterson is the successor of a scandal ridden Spitzer himself as he appoints, or appears about to, the entitled Caroline Kennedy. He can, of course, appoint whomever he wants. Governor Blagojevich of Illinois can also legally appoint whomever he wants. The Illinois Legislature will not impeach him and he is innocent until proven guilty.  But the US Senate say they will not seat his choice, Roland Burris. There are articles on his qualifications Burris Could Be Illinois’s Senator But Was He a Good AG? and one thing he has over Kennedy is he at least has run for elected office. As far as I know, he also did not offer to buy his seat. So why is Burris not being seated while Kennedy will be treated like a rock star?  Have we really looked into all the non-public discussions among Paterson, Kennedy and Bloomberg? Do you really believe there has been no "quid pro quo" somewhere? Why, among millions or more non-politicians, did Paterson happen to choose Kennedy?  Joe Biden also is making sure his former seat is being kept warm for his son upon his return from Iraq. But Beau Biden Did Not Accept Senate Appointment  even though he could have. He is expected to run for office in the next election while the seat is temporarily being filled. He also had been Attorney General in Delaware when his name was first "floated". Beau Biden demonstrates dignity for fulfilling his Iraq obligations and not taking an easy "freebie", unlike Kennedy, who apparently has no shame. What has Kennedy done to deserve to be Senator? The answer, of course, is nothing; and that's just the way it goes sometimes.

(posted at 12:30 pm by Mike Rulle)

  

We just keep on movin' on. It does sometimes feel like all is fear and loathing but the reality is better than that, as this Reason magazine article summarizes The Good News from a Bad Year

(posted at 10:49 am by Mike Rulle)

  

If you want to see a perspective 180 degrees from mine, read this post about how the Federal Reserve should buy stock (from Greg Mankiw's weblog) UCLA economist Roger Farmer suggests the Fed buy some stock. It is people like Robert Farmer that Robert Higgs had in mind who fail to understand how markets really work (see below).

(posted at 10:33 am by Mike Rulle)

I am probably overly attracted to the concept that the simple and mundane are what gets us every time (speculation in California housing, for example), not the "profound" (for example, a 50 year secular cycle of increasing leverage has finally caught up with us) . On the Financial Crisis and Recession weblog today's post discusses Consumption Surprise. Basically, real consumption is increasing, i.e., the amount of goods and services purchased went up in November as their charts show. In particular, the authors speculate that while it is too early to really know what this deflationary trend means, "(we) may get some grip on the question of how much of the drop in consumption was the reaction to the spike in oil prices during the summer and how much from the financial events of the fall". I like the more mundane concept that it was the price of gasoline. This also fits with the post right below that the sky is not falling.

(posted at 10:24 am by Mike Rulle)

Bryan Caplan discusses Robert Higgs in The Crisis Prophet Speaks. Higgs is highly critical of so called "free market economists" who basically have panicked over the last 3 months and abandoned their free market principles. He refers specifically to the "second" law of supply (and demand): "although we can expect markets to respond to price changes, we must recognize the responses take time; and the greater the time the greater the responses". In other words, when the market crashed and Bush went on TV to tell us markets were not functioning, he was ignoring the second law of supply and demand. You cannot expect a real estate collapse of that magnitude to be sorted out by markets in a week. It takes time. Meanwhile the Government engaged in actions which simply added confusion and further complexity to the market's analytical problem. Eventually, assuming we do not want to become the Soviet Union, we need to let markets adjust to reality. Remember, we all are part of the "markets". Markets may seem like something "out there" but all our individual actions, even choosing to buy a pair of shoes, is part of that market. Higgs adds, "we must appreciate the sky is not falling". As Caplan says, "I still can't believe it was FDR, not Higgs, who said "There is nothing to fear but fear itself." 

(posted at 9:58 am by Mike Rulle)

I believe something about physical science which probably appears eccentric if not out right stupid. If it can be imagined by mankind, it will be attempted and likely eventually succeed. Remember when the first Matrix movie came out in 1999? Many who saw it, myself included, had a hard time following it even after the fact. Yet the premise of it, that one's brain can be manipulated to simulate reality, is easily imagined today. For example, Brain-Computer Interfaces for Manipulating Dream and Monitoring and manipulating the human brain: new neuroscience provide a glimpse of what scientists are working on. The premise of The Matrix to me is now obvious. But scientists are already well ahead of such visions. One can spend 10 minutes or so and read about human genome "sequencer" Craig Venter in this article Craig Venter's Epic Voyage As one commentator put it he is working on artificial life forms "where your dog becomes your cat". And so forth.

(posted at 9:43 am by Mike Rulle)

   
In Lectures on Macroeconomics, No. 12 Arnold Kling points out what many have observed before in many contexts; mankind is a trend follower. John Bogle, founder of the Vanguard Funds, has pointed to this tendency in equity markets. The bottom line is we, as a group, tend to "buy high and sell low". This really is a phenomenon of sorts, but not that difficult to at least sympathize with, if not quite fully understand. When markets are rising we feel "richer" and more secure, so we "buy more" of everything. Conversely, when markets are falling we feel "poorer" and more insecure, so we feel protective and engage in less risky activity. The problem is when we all do this at the same time it over accentuates the things we fear and the things we desire at exactly the wrong time. This is fascinating and probably not something which can be changed. Interestingly, Keynesian policies of stimulus spending are designed to address this aspect of human nature. The problem is empirically it has never been proven to work.

(posted at 9:22 am by Mike Rulle)

   

Have been saying this myself for years, as many have, but could not say it better myself UK official: man-made climate change is a con. One of the real tragedies of this, which Bjørn Lomborg has been most outspoken about Our priorities for saving the world, is the diversion of funds from more critical real global environmental problems and the restrictions on growth these global warming policies impose. It is a true travesty, not just of science, but of justice.

(posted at 8:22 am by Mike Rulle)

When I wrote Pinball Wizards, my intention was to also discuss Social Security and other unfunded "Ponzi" schemes the Government supports.  George Mason Economics Chair, Don Boudreaux of Cafe Hayek, writes the following in the NY Times

"Like many people, Ben Stein was assured that Bernard Madoff "never lost money" ("They Told Me That Madoff Never Lost Money," Dec. 28). Unlike many people, Ben Stein wisely understood this assurance to be nonsense. Americans should apply Mr. Stein's wisdom to the greatest Ponzi scheme going: Social Security.  Many pols and pundits assure us that this program is a great financial deal for ordinary Americans. But in principle Social Security is identical to Mr. Madoff's fraudulent scheme: rather than generate wealth through productive investments, both schemes transfer wealth from newer 'investors" to older "investors." As long as a sufficient number of newer "investors" keep coming aboard – either by being duped a la Mr. Madoff or by being coerced a la Social Security – such schemes appear brilliant. This appearance, however, is a dangerous apparition."

Imagine if your employer had an "employee savings" plan. You contributed 15% of your income. But you discover that instead of actually investing the money, he used it to pay operating expenses of the company. That is, you have no savings at all. You have just the "promise" that you will be paid at retirement. That is Social Security. The only way you can get paid is if the number of employees grow "ad infinitum" along with the company's ability to pay. The size of this problem is large. It also can be fixed. The media, however, calls Social Security the "third rail" of politics; touch it and you die.

(posted at 8:00 am by Mike Rulle)

   

Yesterday, I stated Greenspan Fed's monetary policy probably contributed to the housing bubble but was not the sole cause. Some think this is an obvious statement. Meaning, it is obvious he should have been more restrictive. If only we could know what is obvious now. Proof that there is no such thing as "obvious" is the complete lack of look forward consensus among economists today. People forget that there was a reasonably strong view we were about to enter a Japan like deflation back in 2002. The lack of consensus today exists not just among economists, but sometimes even within any particular economist's own ideas. If there had been more care taken on "teaser rates" and "credit quality" at 1) mortgage originators in the West like Countrywide, Washington Mutual, and Golden Gate; at 2) the rating agencies like Moody's and Fitch; at 3) the banks like Citi, Lehman, and Merrill; and 4) if there were more care taken at Fannie and Freddie on sub-prime guarantees, we would not now be discussing any of this. Greenspan is not the first Fed chairman to have pushed real rates negative and Bernanke proves he is not the last. "Woulda, coulda, shoulda"

(posted at 7:45 am by Mike Rulle)

JANUARY 1, 2009

To many, Alan Greenspan's tenure as Fed Chairman is the progenitor of the current financial crisis. An arrogant "deregulator" and free market proponent he created the unchecked cowboy financial environment for the housing collapse. This is a version espoused by many who believe in "more regulation". Another anti-Greenspan group believes he provided easy money through a de facto negative real interest rate policy. This created the asset bubble in housing. Yet another critique states he was an early proponent of "bailouts" in 1998 during the Long Term Capital collapse. Of these 3 critiques, which I do not think are "straw men", the second one has plausible validity, though it was not "the" root cause of the housing bubble but a component of such. The other two do not. I mentioned regulation in a comment yesterday. Regarding LTCM, one myth, as described by Brad Setser (and noted by Arnold Kling), is that Greenspan bailed out the banks and/or LTCM.  In fact, the banks were "bailed-in". The banks never relinquished their credit exposure to LTCM.  Greenspan encouraged banks to lend to LTCM in order to create an orderly liquidation of their assets. His view was they would be guaranteed to lose money if they did not. This settled the markets and the banks basically got out "whole". One could argue, if losses had occurred, the Fed would have bailed them out. But this would be merely conjecture. This, as Kling also notes, is what the policy should have been this time around. Why wouldn't we try what worked "last time" before we tried anything else, at least with regard to "inter-institutional" exposures? To repeat what I have written before, Paulson (who usurped Bernanke in power and was running the show) had enormous ethical conflicts of interest with Goldman Sachs. This clouded his objectivity to the extreme. This is the kindest way possible to state it. As also stated several times before, it not is a coincidence that financial crises under Greenspan never reached the current state. He got through the one-two punch of the Tech bubble collapse and 9/11, not easily, but effectively. We should have forced, as Kling states, "all of the creditors (firms who have obtained credit protection from counterparties such as AIG) to sit back and wait for the underlying bonds to default before taking action. Make them bear more risk, just as LTCM's creditors did, rather than reduce the choice to a government bailout or a bankruptcy".

(posted at 12:51 pm by Mike Rulle)

  

Another calendar year begins. This time of year, while containing its own stresses, is still an optimistic and hopeful time. So why am I thinking about "demographics"? Because George Will writes about health care and demographics in his syndicated column  If You Think Health Care is Expensive. The Census Bureau estimates there are 301 million people in America Excel (24k). The median age continues to grow annually; that is, we are getting older as a nation. Since 2000 alone our median age has increased 1.3 years to 36.6 years. By comparison, our median age in 1965 was about 28 years. One of the reasons is we are living longer, so presumably that is a good thing. I do mean "presumably" because I do not take that for granted in our society. Another reason is we are having less children as a percent of the population. Of the 301 million people, about 136 million are employed. "Full employment" as defined by Government statistics would increase the working to 140 million. About 89 million people are under the age of 24 and do not work (I assume 2/3rds of people between age 20-24 work--probably a high guess). That means at full employment about 73 million people over the age of 24 do not have a paid job; which is over 1/3rd of the "adult population" (ignoring "stay at home parents" which overstates the "non-working" by some number---this is a complicated economic issue---one cannot just add the stay at home parents "1 to 1" to the work force). 33% seems like a lot to me even though 27 of the 73 million people are over the age of 70. George Will notes that our unfunded Medicare costs are about $34 trillion over the next 75 years. My guess is in present value dollars it is about $6-10 trillion. This is the equivalent of a society wide loss equal to some multiple of the losses incurred in the current financial crisis. Except it is a loss based on a "promise" to be paid by "today's" young "tomorrow". Promises are made to be broken. This does not count Medicaid which may be comparable in size. It also does not count Social Security or unfunded state and federal pension plans which may be as large too. Ominously, Will also notes that 30% of all health costs happen in the last year of life. Of course, one only knows that after the fact. But do you think it is possible to come up with "models" which "on average" can "predict" death one year out, thus denying health care to those who fit the model? I do. If we do not address our dysfunctional health care system and if more adults do not enter the labor force, thus contributing to societal wealth, we will be reading about such "models" in the not too distant future.

(posted at 11:08 am by Mike Rulle)

DECEMBER 31, 2008

I can only assume this is not bad news Jobless claims drop by much more than expected and is the steepest decline since 1992. But the folks over at Big Picture say do not put too much stock in the number as an economic indicator due to the apparent volatility of this number in Christmas week. Apparently the same for this week. Still, the forecasters are aware of this too. Guess we have to wait until the first and second week in January to get a more clear picture.

(posted at 10:33 am by Mike Rulle)

How kind and gentle of these authors For Kennedy, Self-Promotion Is Unfamiliar. When one is so selfless it can be shocking to learn you actually have to tell people what you think and believe before they simply hand you the keys to the Senate office. "Self-promotion"---that sounds so grimy. Is that the key to political success? Is self promotion a necessary evil and we therefore prefer our politcians to be naifs, as it reflects their inherent goodness? What is the point? The NY Times is really stretching the limits of credulity here. Kennedy is quite good at self promotion. I have always had a favorable image of her as most people probably have. Why not? Its the audacity of the request to be Senator that is galling, which I am beginning to believe was never her idea to begin with. This has to be very uncomfortable for her. Maybe not, but she sure seems really uncomfortable. She has never engaged in serious political activity and no amount of redefining her past to fit the requirements of the position will change that. Let her run in the Democratic primary in 2010 if she wants to be Senator so bad.  

(posted at 9:41 am by Mike Rulle)

 

I have not written about Charlie Rangel, in part because I always liked the guy at the personal level Newshounds should stay on Rangel’s scent. I am pretty sure I never agreed much with him but he always seemed like a practical non-ideologue who just had, like any good politician, his views on what should be done. Plus, the intial charges seemed petty and probably apply to anyone who has been in Congress for any length of time. But I have been deluding myself. Where there is one, then 2, then 10 exposed lies, there probably are 100 that are not---time for him to go. Chris Dodd too, by the way Halos and Horns. Dodd, who I have never liked, so far has just been accused of getting a sweetheart deal on a Country Wide Mortgage, who he is supposed to be overseeing! You know there is more where that came from, but who cares? Does anyone not see the pure corruption in this? My new rules on political "due diligence"; if a politician is caught in an overt monetary illegality/conflict of fiduciary responsibility (with proper due process)--gone. That would help sweep the Congress clean from time to time---maybe keep it clean. But first we need to get rid of McCain Feingold--the pro-incumbent, pro-billionaire rights law for political office.

(posted at 9:38 by Mike Rulle)

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I have not read the full report Full Report: The Origins of the Financial Crisis  but I have a hunch I know where it is going. There is this "meme'" out there that somehow the financial problems have been caused by "deregulation". Of course, this is utter nonsense. We have more regulation in more areas of our economy than we can keep track of. But that is not what this meme is really about anyway. Deregulation is code for "less Government". "Regulation" is code for "more Government". There were plenty of regulations which contributed to this problem and plenty of situations where the lack of regulations was helpful. This is not a "regulation" versus "deregulation" issue. The problem is we have many regulations working at cross purposes to each other. The authors begin their tale with the horror of derivatives not being regulated. Of course they were regulated, but regulated by the Bank for International Settlement rules, rather than Futures Exchange rules which I gather the authors seem to prefer--without seeming to understand why. Personally, I prefer the latter too. But its not because one is "regulation" and the other "deregulation". That meme causes more confusion in an area where we have quite enough confusion already. Worse, it has become a normative political term rather than one with the neutral meaning it should have.

(posted at 8:33 am by Mike Rulle)

Crooks steal $50 billion with ease; unemployment rises rapidly; Israel torches Hamas; housing prices plummet; the Financial Sector will have to learn how to shrink itself permanently; but Newsweek informs us that the most important thing for us to do is Fight Climate Change Fast . What is the exact or semi-exact definition of "climate change"? It is difficult enough to define "global warming", but at least its name narrows down the field. "Climate change" is an absurd concept concocted because the global warming forecasts were not working. This particular article highlights that CO2 emissions have surprisingly increased. No one disagrees that we have had increased CO2 in the atmosphere, almost as high as when before mankind existed (what caused that, I wonder?). The utter lack of scientific consensus is not on whether there is increased CO2 in the atmosphere, but what its impact is on weather. So far the alarmists have got it wrong--hence the undefinable concept of "climate change" has emerged.

(posted at 8:16 am by Mike Rulle)

Amity Shlaes discusses the mistakes of the Roosevelt Administration in the Washington Post Economic Mistakes to Avoid in '09 and warns that the greatest error was the uncertainty he created through "bold" experimentation. Paulson and Co. have done enough of that and lets hope it ends on January 20th.

(posted at 7:55 am by Mike Rulle)

There is an active trader at a website called Market Preview who writes a daily commentary on market related events. He has written a summary today of the year's financial problems and their causes. He invites commentary. I recommend it. I will be commenting on it as well.

(posted at 7:50 am by Mike Rulle

Did you know Obama played golf? Shhhh! As the world waits for Obama to voice his opinion on Gaza .I wonder how that would have gone over with the left wing of his party last Spring. Back in July I joked he was soon going to be to the right of Reagan; I hope I am right. Not that Liberals can't or don't play golf, mind you. Just my sense is more Conservatives do---although I could be stereotyping! By the way, what is his opinion on "Gaza"?

(posted at 7:36 am by Mike Rulle)

What else would they call it? RNC draft rips Bush's bailout At least some group in the Republican Party sees things for what they are, Bush going "big Government" aka Socialism. Is it full blown Socialism? Of course not. These things do not happen over night. The party of the "free market" declares markets don't work as they create bailouts. Markets only work when they go up? So far nothing they have done has made "markets work". They should have left it alone. Obama's administration needs to be very clear upfront what it is willing and unwilling to do regarding interference in markets. As bad as interference is, combining it with uncertainty is even worse.

(posted at 7:28 am by Mike Rulle)

DECEMBER 30, 2008

It is difficult to discuss Caroline Kennedy these days without also discussing Sara Palin Not Ready for SNL. I have done this myself. But it is a joke to do this even by way of being favorable toward Palin. Palin is someone who draws crowds like few politicians can. This is called "charisma". Liberal noteworthies who have met her, (like Alec Baldwin and Lorne Michael on SNL), have commented on the strength of her personality. She single handedly opposed a local power structure, almost like an up and coming mob boss, and just took over. Caroline Kennedy does not even understand the most basic requirements of a politician. Isn't this as obvious as it can get? We can only guess why she is doing this at all. My hunch is she is as much a believer in the myth of Camelot as the media (or what is left of it from that time). She actually believes, almost without arrogance, (with innocence even), that there is a place in the Senate for her because of her ancestry. The party wants her because there is money in them Kennedy Hills---plus she is a guaranteed vote. But to seriously compare Palin with Kennedy is absurd. There is not an inkling of comparability between the two women.

(posted at 9:55 am by Mike Rulle)

 

First we have Killer asteroids to destroy us. But if they do not get us, perhaps the Yellowstone Caldera will. There has been "unusual earthquake swarms" happening in Yellowstone of late Yellowstone Earthquakes Under Supervolcano Caldera. Unfortunately, were this to really occur, it would be as far from funny as hell on earth.

(posted at 9:50 am by Mike Rulle)

 

The impact of leverage certainly is demonstrated by the collapse of the housing market. While the entire housing stock is back to 2005 values (according to the latest OFHEO housing report--purchase only index) and only 10-12% from its high, it created a huge calamity. Interestingly, the average mortgage level as a percent of home values is only 55%. So how did a 10% drop create so many defaults? Because a relatively small group of home owners and speculators (and as I will never tire of saying, almost all in California, Vegas, Phoenix and Florida) leveraged to the maximum at or near the peak of the housing market which their activity itself caused. One lesson to learn is never underestimate the power of the mundane to wreak havoc.

(posted at 9:41 am by Mike Rulle)

    

A subtle thought by Arnold Kling as he comments on Louis E. Carabini's "Inclined to Liberty"."In general, though, I think of all people as status-seeking. Ultimately, the business executive and the politician may be after the same thing. Sometimes, the status-seeker in business does harm to others. Sometimes, the status-seeker in politics does good. Overall, I think that the business system works better than the political system at transforming status-seeking behavior into conduct that improves general welfare and preserves liberty. The challenge is to convey that in a persuasive way." It is a very traditional view of mankind as self interested "actors", yet still with the ability to advance society. I prefer "the business system" over the "political system" as well, even as both need to exist. The business system simply has more competition in it, and therefore we get better results over the long run. It is interesting that this is not more obvious to more people to the degree it should be. Hence, as Kling puts it, the "challenge" of those who believe this to be more "persuasive".

(posted at 9:32 am by Mike Rulle)

Sometimes I think this website should just send you to Kling's website. He discusses a web TV show hosted by Reason Magazine. The topic is Bailout Rage which many feel toward the Government, such as this author too. It has been a transfer of wealth from the "prudent to the profligate". Worse, it has provided an opportunity for those who believe in "big Government" (has not that term become a euphemism for Socialism?) to rail against the private sector's imperfections. Could there have conceivably been a more chaotic response (putting aside whether it actually caused much of it) by the Government than that of the last 3 months? As has been stated before, it also has created the horrible precedent of virtual unchecked power of the Executive Branch of Government, the Federal Reserve system included. How do we back away from this and "privatize" again? With Obama coming in, do not expect it for some time. If he were to unwind it by some miracle, my political support would shift to him in a nanosecond. But I won't hold my breath.

(posted at 9:21 am by Mike Rulle)

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I commented on the Economics Liberty website yesterday in a discussion on "Moral Hazard" and the impact that had on the current financial crisis versus a "failure of regulation". Clearly both had an impact. Here is my comment on Mark Thoma on the Risk Premium

"One can imagine that investment banks and rating agencies did not engage in high risk activity because they thought they would ultimately be bailed out if they failed. I also agree that regulation failed because of inability to understand how similar risks had different rules applied to them (for example, CDS versus the underlying instrument). Also, the now obvious absurdity of relying on "terminal value" to assess risk has been ruthlessly exposed. I recall working on M&A assignments as a young associate on Wall Street. We would spend days and weeks getting the details of the cash flows and balance sheets correct to determine value. Then we would randomly assign some multiple to the company at the end of the analysis period 5 or 10 years hence.This "terminal value" determined 80-90% of the present value--all the detailed analysis being shown as almost immaterial. The rating agencies and CDO producers also did detailed cash flow analysis---but at the "end of the day" they relied on "terminal values" to justify their ratings. They thought they were safe because home prices had never declined. Still, government driven Moral Hazard played an enormous role. Who in their right mind would have bought a Fannie or Freddie bond, were it not for the assumed Treasury Guarantee the markets have always believed in? It was impossible to even come close to understanding their financial statements. This in turn let those GSE's engage in the most reckless of leveraged activities. Additionally, they had enormous free reign to bypass the income statement with those ridiculous "hedge accounting" rules. Whatever impact the GSE's had in causing this crisis would have been non-existent had their been no implicit guarantee on their debt. Debt buyers did not care what the GSEs did. This is almost a text book definition of Moral Hazard."

(posted at 8:30 am by Mike Rulle)

DECEMBER 27, 2008

This is right up Bloomberg's alley. I am surprised he did not think of it first New York's Soda Tax Scam. Why can't they just call it a tax and justify it by saying "we know you soda guys will still keep on drinking it"? Instead, we need to create "epidemics", "diseases", "threats against the children" to justify it. The tax is not bad enough, but we also need to create an avalanche of unintended future legal and tax consequences through Government declared disease formations. When will we be so sick of impositions into the most micro details of our lives that we just "won't take it anymore"?

(posted at 11:59 pm by Mike Rulle)

 

Charles Krauthammer of the Washington Post has superb reasoning skills, common sense and intuition. So I will simply say this article is the exception which proves the rule A time of $1.65 gasoline is our chance to enact a net-zero gas tax What is with these gas tax ideas? First of all, lower energy prices benefit the less well off the most because it is a higher percentage of their income. So now we will tax them? Secondly, the idea is based on the perpetually discredited Malthusian concept that mankind is continually running out of resources. Third, he admits to being an agnostic on global warming, but hey, lets lower CO2 emissions just in case. Some people are agnostic on God, so shouldn't we have the Government mandate Church attendance "just in case"? It would be for our own good, wouldn't it?

(posted at 11:55 pm by Mike Rulle)

 

It is difficult for these environmental spiritualists to get more bizarre, yet they do a good job trying. "It’s almost like cars are the sea within which we live and we’re so attached to them, it’s so habitual. We are trying to lead the way, to set an example about how to get away from cars altogether." While we have not yet been forced to ride tricycles, don't think it is not on some bureaucrat's agenda somewhere, because it surely is. Related story

(posted at 11:47 pm by Mike Rulle)

 

Why is California going bankrupt? One reason is it prefers to pay triple for the cost of energy  With aid from the state, Californians warm to rooftop solar power Just remember when some one forks out $32k for rooftop solar power other Californians get to pay for half of it. That is euphemistically called "aid from the state". That means you. But as a solar purchaser, Ms Gerdes explains, "its the right thing to do". For the environment of course. Just why is it the right thing to do? 

(posted at 11:42 pm by Mike Rulle)

 

She's a Kennedy, but she's a lot like us. While F. Scott Fitzgerald might have disagreed, I like the more subliminal message of this article A Kennedy Just Like Us. Is the "dog which did not bark" supposed to be that most Kennedys are not just like us? Which are and which are not? Inquiring minds want to know, in case another one steps forward for a position of "public service". Oh, I get it. Like many "midlife women" who have raised "kids" she is now returning full time to the "work force". I promise you, I laughed out loud as if it were a Sam Kinison video when I read that.These Caroline supporters are remarkable.

(posted at 11:21 pm by Mike Rulle)

 

I have not been following activities in Israel lately, so I admit to some surprise when reading that Israel resumes airstrikes on the Gaza Strip One would think this was unprovoked, as I do not recall recent "top of the fold" headlines on Hamas air strikes on Israel. But buried deep into the AP version of the story we read "Palestinian militants have fired some 300 rockets and mortars at Israeli targets over the past week, and 10 times that number over the past year" While the EU, the UK, and the Vatican issued their usual call for calm, I don't recall reading equivalent calls for calm on the part of Hamas. Like I said, I have not been following this story closely, so I am sure I must have missed it. What other explanation can there be?

(posted at 10:57 pm by Mike Rulle)

   

Well, at least he doesn't call it a 5 year plan, as was de rigueur for the the old Soviet Union-- Obama's Down Payment . How does this article by renowned economist Larry Summers irritate me? Let me count the ways. I realize Summers is on record for maximum deficit spending to get the economy growing again. I have already quoted many economists who admit this is a policy prescription with weak empirical support, as are most macroeconomic theories. But that is a discussion for another time. I object to the manner in which this is being "sold".  First the title. Obama's down payment? This is a taxpayer funded enterprise, so lets at least get that straight. Second, it is classic "industrial policy" where the Government chooses what money should be spent on--without taxpayer approval of course. He mentions "energy", "health care", "infrastructure", "libraries, "laboratories" "classrooms" and "education". A lot for the teachers unions it seems. Great. Third, the mission is high "social returns". Instead of those other dreary measures, "economic" returns, which can actually be measured, "social returns" are in the eye of the beholder. They can always be deemed "successful". Fourth, even though economic returns are not emphasized, they are still "investments", not "earmarks". Finally, these investments are "long term" and Washington will be held "accountable". Summers did not outline the "accountability" plan.

(posted at 10:41 pm by Mike Rulle)

  

All is permitted? It is thoughts such as these The Law--Going from Bad to Worse expressed by Bryan Caplan that can lead to a complete breakdown in the social order. "At risk of offending my many friends in the legal academy, I think that law is a shockingly phony discipline.  Virtually everyone - liberal, conservative, Marxist, libertarian, or whatever - imagines that the law conveniently agrees with what they favor on non-legal grounds.  Almost no one admits that many, if not most, laws are so vague that there is no "fact of the matter" about what they mean"  The reason such ideas are seductive is that they are partly true, perhaps predominantly true. If they really were 100% true, however, we should ignore such intellectual intricacies all together and go back to the Hobbesian state of nature. No society can maintain existence if it self consciously believes its foundations are pure artifice and trickery. Yet, as implied by Caplan's musings, the age we live in is dangerously influenced to the extreme by relativism in all forms of moral and political thought. Can there be any more vivid example of this than the Festivus Display Approved For Washington State Capitol ? Festivus, of course, was an artificial holiday created by George Costanza's parents in the 1990s comedy, Seinfeld. Ivan Karamazov ("The Brothers Karamazov") was the vehicle for Dostoevsky's profound and complicated insight that if there is no God, all is permitted. One need not be a theist to understand that a State sponsored Festivus display; or a view of "the Law" as only a phony argument for self aggrandizement is about a millimeter away from "all is permitted".

(posted at 11:12 am by Mike Rulle)

Lets face it, who has not at one time thought the following? "For centuries, the State (or more strictly, individuals acting in their roles as "members of the government") has cloaked its criminal activity in high-sounding rhetoric. For centuries the State has committed mass murder and called it "war"; then ennobled the mass slaughter that "war" involves. For centuries the State has enslaved people into its armed battalions and called it "conscription" in the "national service." For centuries the State has robbed people at bayonet point and called it "taxation." In fact, if you wish to know how libertarians regard the State and any of its acts, simply think of the State as a criminal band, and all of the libertarian attitudes will logically fall into place" History + Comedy = Rothbard. It is a very appealing view, but in my opinion an unfortunate illusion. Mankind is a species consisting of a dynamic mixture of the inspired and the mundane, the courageous and the cowardly, the corrupt and the honest, and so forth. To make it even more complex, all these characteristics are inside each of us simultaneously to various degrees at various times. Certainly Rothbard cannot believe that if somehow Government just disappeared all would be dandy, could he? One could even say that thought itself is a non-sequitur as mankind has never lived without Government. Even without the State there are still all those pesky irritating humans to deal with. Yet Rothbard's libertarian "angle of sight" is instructive and his point retains some validity. At the very least, we should understand not to look to the State for "salvation". In the realm of Government, less is more.

(posted at 10:26 am by Mike Rulle)

  

Arnold Kling states we have less of an "animal spirits" problem, than we do a "credit crunch" problem Lectures on Macroeconomics. It is difficult to believe it is empirically possible for us to observe the difference, although it is easy to believe they both exist. The latter is an "objective" limitation on future lending caused by current losses leaving little left to invest. The former is fear of failure preventing future risk taking. We certainly have achieved massive real losses in mortgages, enough seemingly that it has prevented growth in lending to the economy generally. Investors have also become more risk averse as the percent of risky assets owned has declined on the margin. Individuals saved more in November as risk aversion leads to less consumption too. Less consumption and less investment in risky assets leads to a weaker economy. Maybe, like resting when one is ill, this is what is needed to recover.

(posted at 10:06 am by Mike Rulle)

  

Ever since the car companies had the audacity to jump on the already corrupting financial bailout bandwagon, my image of them has deteriorated greatly. In this story GM, Chrysler Face To-Do List of Cutting Debt, Jobs the auto companies suddenly see the light as the American public has now been forced by Bush to become their banker. For whatever reason, maybe not all of it their fault, this set of companies has been living on borrowed time for many years. They did a good job on SUVs and trucks, but their car line-up has always been at best 2-3 years behind the competition. When their advertisements play on television, I cringe. All I see are dead cars walking. My larger concern is they will become an even more expensive tax payer funded laboratory for "green technology" under an Obama administration.

(posted at 9:29 am by Mike Rulle)

  

H.L. Mencken was renowned for his cynical (or realistic) take on the political class. Cafe Hayek's Professor Don Boudreaux summarizes some of Mencken's observations Mencken's timeless insights. Is there really some kind of Adverse selection bias in who becomes a politician? Are politicians, on average, more odious than the rest of us? Perhaps and perhaps not. Either way, however, we need them to have less influence over the rest of us. How we stop this trend is clear but difficult. I like to believe it is harder to fool "all of the people some of the time and some of the people all of the time" than many big Government politicians think. If so, then candidates will emerge who will promote a more limited agenda. But where are they?

(posted at 9:14 am by Mike Rulle)

DECEMBER 24, 2008

In classic Paranoid Style in American Politics, I cannot help but think that all this "centrist" preliminary staging by POTUS elect Obama is just so much political trickery Obama and Peeved Progressives. How does someone, whose entire ideological history is from the "New Left" school of American Politics, suddenly become the poster president for idealized Centrism? The last 3 months of George W. Bush's presidency must go down in American history as the single biggest Government attack on both private property and the rule of law, yet it has happened with hardly a whimper from the American public. Perhaps this unexpected and unforeseen move shocked even Obama. After all, precedents have now been established for almost any action by Government. He just needs to turn the electricity on and the "Bushian" FrankenGovernment will be set in motion. While I have large reserves of "good feelings" for Bush based on his reaction in NYC after 9/11, they will eventually run out, if they have not already. His September 25th, 2008 television address to the nation is a "speech that will live in infamy" President Bush Speaks On The Economy.

(posted at 9:44 am by Mike Rulle)

    

Holman Jenkins locks into a heightened negative outlook in his Get Ready for a Lost Decade editorial. While my emotional attitude is almost identical to his, there has to be a better way to encourage the collective self to get out of this "destined for doom" funk that has consumed the country. I agree that watching the Government in action is painful as they promote policies with virtually no plausible premise for success. Equally painful is watching Barney Frank lustily discuss that this is the greatest opportunity to do good since the New Deal. The last refuge of the hopeful fantasist, perhaps, might be that private business can succeed despite the best efforts of Government to take from all to give to a few. After all, like greed on Wall Street, isn't corruption and inadequacy in Government just another "universal constant", present in times both good and bad? Need this be the excuse to just give up and die? Where are those ghostly, ephemeral "animal spirits" of Keynes?

(posted at 9:02 am by Mike Rulle)

    

Here is a good one. We now discover that Caroline Kennedy is the secret power behind the Kennedy family. Is that supposed to be a good thing? Caroline Kennedy: "No Drama" Before "No Drama" Was Cool Author Giordano refers to her as "Attorney Kennedy", to highlight that she is a lawyer, I suppose. Is that too supposed to be a good thing? "Caroline, at the helm of the Kennedy library, has served as the true executive director of the family and all its political and policy interests. She has also been the family's ambassador nationwide and around the world: the one that attended funerals and other matters of statesmanship on the family's behalf. That she generally avoided the spotlight in doing so, and always avoided personal scandal - a particularly difficult challenge for anybody named Kennedy - is testimony to her skill and finesse at the political game". She attended funerals, avoided personal scandal, and committed "other matters of statesmanship", all while avoiding the spotlight. Wow. Why does she want the spotlight now? This is the most ridiculous article conceivable justifying someone's appointment to Senator of the United States.

(posted at 8:23 am by Mike Rulle)

DECEMBER 23, 2008

There is still much talk about the Madoff problem and the lack of "due diligence" performed by managers when they were Investing in Madoff's activities. Where is the discussion about due diligence for the Paulson $350 billion, or the Obama proposed $1 trillion? There has been none and there will be none. Should we all just give up and trust those to whom the power to approve spending resides; and to those who implement said approvals? It is not exactly like we have any choice in the matter, at least until the next set of elections. For now, it is Pelosi and Frank in the House and Reid and Dodd in the Senate to whom we place much of this "trust". In the executive branch, it will be the various Cabinet heads who will administer the "stimulus" package. Who will they give this money to and why? Does this make you feel better than tax cuts, where thousands of entrepreneurs and millions of consumers would  make decisions instead of a few select politicians and bureaucrats? It doesn't me. It is not as if there is some unified field theory of Macroeconomics supporting such "stimulus" proposals. To quote Greg Mankiw, "My advice to Team Obama: Do not be intellectually bound by the textbook Keynesian model. Be prepared to recognize that the world is vastly more complicated than the one we describe in ec 10. In particular, empirical studies that do not impose the restrictions of Keynesian theory suggest that you might get more bang for the buck with tax cuts than spending hikes."

(posted at 6:30 pm by Mike Rulle)

 

Like Kling, I too am "gobsmacked" that Glenn Hubbard, Dean of my Alma Mater Columbia Business School, is proposing to prop up the price of housing. This is clownishly ridiculous Subsidizing Mortgages. To quote Kling, who says it quite clearly,"The problem with subsidizing mortgages is you're subsidizing people getting into debt. You're putting people into houses with no equity," said Arnold Kling, a former economist at both the Federal Reserve and Freddie Mac. The goal should be getting people to own homes on a sound basis. Among the many problems with the Hubbard-Mayer idea is that trying to prop up home prices is crazy when so much overbuilding has taken place and so many housing units are unoccupied. We need another two or three years of record low housing construction to get rid of the overhang". It simply continues to amaze me how the concept of Moral hazard- Wikipedia, the free encyclopedia has just been tossed aside as irrelevant.

(posted at 10 :00 am by Mike Rulle)

    

The reality is that in the current scheme of things, Bernie Madoff is small potatoes. When the entire Federal Government seems dedicated to the proposition that there is no irresponsible behavior too big that should not be paid for by the American Taxpayer, it is difficult to get exorcised by the mere pittance of a $50 billion dollar Ponzi scheme (Pinball Wizards). Still, old Bernie is going to cause a lot of headaches for a lot of officials before his days are done Madoff had steady presence in Washington.

(posted at 9:45 am by Mike Rulle)

    

Many commentators have said this, and of course it has been a constant refrain of mine before most observers, but Yale Chief Investment Officer David Swenson is quoted by Fareed Zakaria (Newsweek, WaPo) about the ineptness of the Bush administration's response to the financial crisis. "And the administration's actions have actually increased uncertainty and unpredictability. Its measures have been ad hoc, its response to each institution has been different, its reasoning has been opaque -- all this creates confusion, and that drives capital away." The quote unfortunately appears in an article whose larger point is the usual Zakaria bloated exaggeration of Obama's superhuman skills versus Bush's subterranean skills "Can Obama Save Capitalism?" Nothing Obama has proposed has changed my view of the ineptness of the Executive Branch of Government. But, admittedly, there is still plenty of time.

(posted at 9:35 am by Mike Rulle)

   

Hillary is supposedly seeking to expand the role of the State Department. In a big picture generalized sense, the State Department historically "manages relationships" with other countries. Think of them as a Marketing Department for an Administration. The reason "State" is often criticized is like any good marketing group, they tend to identify with their "clients" and often are advocates for their position. If this article in the NY Times is accurate--obviously a big if---Hillary has other ideas Clinton Moves to Widen Role of State Dept.She wants State to have a bigger role in setting policy. That is often a bad idea for any "marketing" organization. Of course, it does all come down to the details. One thing that may seem surprising, is I believe Obama will give her, and much of his cabinet, more free reign than is typical.

(posted at 9:22 am by Mike Rulle)

     

When I was in school, still half my life, as old as I am, one of the features about the Great Depression---(I don't recall the term the "Great" Depression until recently; it was just "the Depression")--that stood out was the phrase "Cash is King" Real Time Economics : On Black Friday, Cash Is King. The truth behind that statement is that in a deflationary environment, cash in the mattress increases in value as prices decline. Certainly, all assets today have declined precipitously in price, from the entire productive capacity of America (sometimes called "the stock market"), to large pockets of real estate collapse (yes, California, Florida, Vegas and Phoenix). Even for consumers cash is king. Not a bad time to have a job, have been a renter, and have invested only in liquid assets Get that Aston Martin for the Price of a Honda.

(posted at 8:55 am by Mike Rulle)

   

As mentioned earlier, Caroline Kennedy's support base is really Manhattan and the "downstate" Democratic Party establishment, not all of New York City. Queens Congressman Gary Ackerman says Kennedy's only qualification is her name recognition, a quality he says she shares with J. Lo. I object to that insult to Ms. Lopez. The difference between Kennedy and J.Lo is that the latter earned her name recognition Good-Bye, Gentry.

(posted at 8:43 am by Mike Rulle)

DECEMBER 19, 2008

As mentioned on this site before, John Kass of the Chicago Tribune is definitely the go to guy on everything Blagojevich. Today he unmasks the absurd transformation of Jesse Jackson Jr (who Kass calls the Congressman of the Bud Light party because of this The Jesse Jackson Steal Deal). Jackson is morphing from corrupt candidate "Senator #5" to federal informant, or "Big Pussy" of the Sopranos. Jackson doesn't know which sounds worse, which tells you a lot of what one needs to know about Illinois politics.

(posted at 11:56 am by Mike Rulle)

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I even bore myself on this topic, but how is Paulson still in charge of the "TARP" money? Paulson: Congress Needs to Release Second $350B He has yet to state how the "operating mechanisms" of any of his actions or proposed actions will "support financial market stability". He has never come close to explaining this. One of the many problems with Government largess is there is zero accountability. We all know this but never internalize what this means. If there were a Government sponsored organized drive to have a group of bankers go around to Americans door to door asking for money to help "support financial market stability", how would it be received? How is this different? We presume it is different because someone in Paulson's position is supposed to be an expert. But every economist today knows there are no such thing as experts and Paulson more than most demonstrates that point. More importantly, we do not think of Government money as our money because it is not directly our money. It is all Americans' current and future money with an unknown outcome as to who benefits and who loses. Give me door to door every time.

(posted at 11:32 am by Mike Rulle)

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One has to recall that Hillary was the presumed Democratic Nominee and the betting favorite to be the next President of the United States. Meanwhile old Bill was out their collecting dollars for his "charitable foundation" In Clinton List, a Veil Is Lifted on Foundation  from various good guys in Nigeria, Ukraine and Saudi Arabia. They did not get a President, but did get a Secretary of State. Personally, I would demand a partial refund. Republican Senator Lugar said Mr. Clinton’s activities would raise legitimate questions, adding, “I don’t know how, given all of our ethics standards now, anyone quite measures up to this who has such cosmic ties.” Now there is an understatement. Not to worry though, "Senator #1" in the Blagovjevich scandal, Valerie Jarrett, has assured us that "Mr. Clinton (has) to disclose his past donors by the end of the year and any future contributors once a year." Man, that's a relief.

(posted at 11:00 am by Mike Rulle)

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Easter Sunday, April 13th, 2036? Only a 1 in 44,000 chance according to NASA, just slightly worse odds than what happened in the Mortgage market Forget the economy: Killer asteroids could pose real danger

(posted at 9:11 am by Mike Rulle)

It is interesting how Caroline Kennedy supporters do not see the obvious sense of entitlement her appointment communicates Senate Hopeful Kennedy Takes A Beating From Upstate Media. There is an increasing awareness on the part of the American public that politics is an inside game. The political class is not materially different than any other large organization of people with shared self interests. Except the political class ultimately controls the purse strings for everyone else. As self dealing and favoritism become more obvious, whether it be criminal like Blagojevich or merely distasteful like Kennedy, people take notice. Not sure where it goes, but it is generating more distrust.

(posted at 9:03 am by Mike Rulle)

DECEMBER 18, 2008

The chart below is one we have seen countless times if one has followed the ravings of James Hansen: Man of Science. The problem with the chart are many, not least of which is the nature of the data and how it was gathered over the years; where was it gathered from; what were the different measuring methods used, etc. The global cooling between 1940 and 1980 is not helpful either.  In theory, these data collecting issues have had adjustments made to rationalize the data. That begs the question, of course, because these adjustments too need to be scientifically examined. Having said that, the earth has been coming out of a little ice age for 300 years, so the trend of higher temperature is consistent with that. The real question, however, is "what is the operational description of the hypothesis which which states that this graph is a function of man made activities and where is the empirical predictive evidence that demonstrates this hypothesis is accurate"? I have contended that there has never been one because it does not exist. The reason man made ("anthropogenic") global warming is a "content free" or a logically meaningless concept is that often the alarmist scientists have not been able to set up experiments which at least have the potential to be disproved or "falsified". When predictions have been made that have proven "false", the alarmists redefine the problem, the theory and/or the data. Hansen in particular engages in this activity. In the sphere of science, it has been difficult to even classify Anthropogenic Global Warming as wrong, as it does not even rise to that standard among its supporters. It is meaningless. Its meaninglessness derives from the fact that regardless of the evidence, supporters of AGW claim it supports their view. A growing body of "falsifiable" experiments with "operational definitions" have been established by many scientists who themselves have become alarmed over the politicization of this supposed scientific issue. The Senate Minority Report which I have referenced earlier this week highlight some of these.

Here’s the trend as the Goddard Institute has charted it: