Wednesday, September 24, 2008

Neoconservative Speculators?

Man, hold onto your wallets …. Do you hear them? The speculators? Surely you hear them … they are coming for your wallets! They are going to be speculating, and the next thing you know your gas prices are going to speculatively leap, the value of your home is going to speculatively crash, your savings will flush down some speculative black hole of insolvent banks that have collapsed into themselves. It’s the Wall Street party man! Regulators asleep at the wheel! Someone has got to do a little sumpin sumpin for the little guy who had two nickels to rub together in the late 90s, got a nice loan to buy a three-hundred thousand dollar starter cottage in the tree-lined American dream suburbs of the great megalopolis and then who, through the cigar smoke-filled room machinations of the partying Wall Street speculators! found himself a dollar short and a day late on the mortgage.

“What can we do, old boys club of nefarious speculators, to augment our profits at the expense of the little guy?”

“Let’s lend him enough money that they will never be able to pay back, so that they’ll default on our loans, leaving a glut of houses in our hands with no buyers, so that we’ll take possession of all of these homes that are worth 75 percent of the cash we fork over to them!”

A brilliantly dastardly idea worthy of the speculator hall of fame! Why, who would ever think of bankrupting their own banks by making loans that wouldn’t be repaid? Sure, the banks have lost billions of dollars in the process, but these first time home-buyers are out $5k a piece on the down payments, and this just shows the lengths, the mind-boggling lengths! To which these speculators (dare I say neoconservative speculators) will go – flushing their own bank equity right down the toilet in order to make your $5k investment go with it. Fiendish!

And of course this is the mindset of the Republican candidate for President, which tells you something about the economic trouble we are headed for no matter which one of these guys gets elected. It is enough to depress the Hatcher. Except it’s only money, and that is nothing to get depressed about.

Here is my completely uninformed opinion on the whole financial mess, which, while potentially factually inaccurate in a number of respects (perhaps all), nevertheless is consistent with how I want to view the whole mess. Because it is more important that my attitude toward the crisis confirm my free market principles than that it be accurate, this spares me the messy task of having to actually check facts or read articles, etc. Where’s the money in that? (For that matter, where’s the money in this?)

In the late 1990s, the Clinton administration pushed for regulations and such that would require banks to extend mortgage loans to people who traditionally weren’t able to get the loans. Banks were fined if they didn’t have a certain amount of these loans in their portfolio. Thus was created the entire category of subprime mortgage loans, which is a term that did not exist before, because all sub-prime mortgage lendees were living in apartments trying to save up a big enough nut to no longer be sub-prime mortgage lendees.

All of these new homebuyers made it great for those already in a starter home looking to move up, because demand was up and with it the price of their homes. This worked its way up the chain – being able to sell their starter homes for more money, people looking to upgrade could spend more one wrung up the ladder, and thus was born the rapid appreciation of home prices.
The banks that initially made these loans created all kinds of new financial instruments by packaging them together for sale so that they could get rid of them as fast as they possibly could. They played hot potato selling them to and fro for years, until they all felt that the risks were spread fairly well across the banking system. But then the loans started to go bust, some banks were caught with more than they could handle, and bam, just like that the value of their assets fell beneath their liabilities, which for a bank is not good, to put it mildly.

Now, to the bailout, of which I admittedly know nothing. In the old days, solvent (healthy banks) often went bust in the midst of banking panics when people lost faith in the banking system. As a result, the Fed was established as a means of lending to these solvent banks in times of need, so that healthy banks could be saved. This was desirable because of the importance of the banking sector to the overall economy – the intermediary role they play in the economy is extremely important. But the intent then was not to lend money to insolvent banks experiencing trouble – if the liabilities outweighed the assets, you couldn’t rationally expect to recollect the loan because you add the same amount to their liabilities (an outstanding loan to the Fed) as you do in cash to their assets. So the best policy is to let the bad banks fail. I don’t quite understand why that isn’t happening, or why that isn’t the preferred course. Any enlightenment on this issue from economists (please, only the economists, the rest of you peasants cannot begin to understand the subtleties of the dismal science!) would be most welcome.

I suppose some of these banks have human resources that, due to their scale, may negatively impact the economy through creating a temporary lack of supply in financial intermediation. Blah blah blah

Ok, enough of that. That is more economics then even I can pretend to be interested in, especially given the real important development in the country; I am talking about the Phillies destroying all would-be competitors in the last two weeks to erase a four game wild card lead, overtake the Mets in first place, and guarantee themselves at least 26 more innings of fall baseball beyond game 162. At to that the fact that the Yankees aren’t even making the playoffs, making the last game in the house that Ruth built a snore-fest with the minor league team from Baltimore, and despite the economic Armageddon headed our way once either Marx or Engels gets elected, you have the makings for a good post-season. I said it before and I’ll say it again – zero World Series wins for the Yankees during the Bush tenure; four during the Clinton years. Nuff said.

On an administrative note, nowadays it seems I have to approve comments prior to their posting, so you don't get the immediate fame you are looking for when you go to comment. At times I am trying to do this remotely on my Blackberry; but times are so tough that my remote connection to the internet via the Blackberry doesn't always seem to process my approvals, making me convinced that there has never been a worse time or a worse place to be alive from an economic perspective, which is a belief I now share in common with most Democrats.

Tuesday, September 16, 2008

An Important Election

"Dad, can you buy a box of cupcakes for me to bring to school?"

"Well, I suppose I can Bill, but why do you need to bring cupcakes to school?"

"I am running for class president, and I want to give them out."

Ahhh, wonderful instincts, give the people what they want. The difference between the goodies promised in a 3rd grade election and those promised in a national election is that the 3rd graders deliver them up-front. Unless, of course, ethics reform has reached right down into the 3rd grade. Which it has. The parental consent form informs parents that the candidate is not permitted to distribute candy to kids in or out of the classroom. I am guessing this was to stop business as usual in 3rd grade government; or perhaps it was to keep these kids from bouncing off the walls in election season. I suspect that this was the first foray into effective regulation, which is never full-proof, as people with incentives to influence elections will find a way. But the second sentence reveals the likely second round of regulation: members of the PTA and staff members are not permitted to hand out candy on behalf of any given candidate. It is not surprising to me that you have to restrain certain overzealous PTA moms and dads, but members of staff? How can a 3rd grader have the school janitor in the bag?

Anyway, the good news is I am not signed up for the PTA, and I am not a member of the staff. There may be other laws against 40 year old men covertly passing out candy to a bunch of third graders during recess, but Bill won't be disqualified on that basis. But beyond that, I think when the law of a third grade election goes beyond the laws of the land, we've got a problem. Senator Obama, in one of his groundbreaking reform legislations, lead the Senate to change certain rules that disallow members of Congress dining with lobbyists, but in that legislation dining requires that you be sitting. So a lobbysit can eat all the candy in the world with a Senator, but both must stop chewing if they momentarily sit down. Now, that is not a real big restriction for 3rd graders - requring that they stand while eating, but still if it is good enough for the guy who is going to feed the poor, take care of the sick, and have the ocean waters recede, it should well be damn good enough for 3rd grade.

In any event, absent the sure cupcake path to victory, it was necessary to work on Bill's rhetorical pitch.

"Bill, you have to distance yourself from the prior administration. Paint a picture of doom and gloom where all natural and unnatural disasters occurring during the second grade are laid at the feet of your predecessor. Success in this campaign requires that you appear more distant from the prior president than the others in the race."

"But dad, won't that be a little difficult since Joe was class president in the 2nd grade."

"Ooh. OK, scrap that. What you need to do is establish your bona fides regarding your stance on the Iraq war. Back in March of 2003, do you remember what your stance was?"

"Dad, I was 3 years old back then, barely in preschool."

"That doesn't really matter; some people were in even more politically insignificant places, like the Illinois state legislature, and it aint hurting them. But I digress. Is there anyone back in your preschool who would have heard you make statements in support of the invasion of Iraq?"

"No, I don't think so."

"Anyone back in preschool who you crossed in some way?"

"No. But dad, even if I was against the war, wouldn't it matter what my rationale was for being against the war? I mean, I could have been one of these freaks living in the trees in Berkely who would have argued against the war because it was clearly going to lead to the loss of more trees."

"No. It doesn't matter at all. Your reasons do not matter. Just assert that you can exercise the right judgment, even if the truth is that your a pacifist against all wars. Just count your lucky stars that things went wrong in the course of things, and public opinion has turned against the war."

"But hasn't the surge been successful?"

"Yes it has, but that is not the point. Pretend that every variable of war that went wrong prior to the surge was something that was clearly predictable, even if you never predicted them, but do the reverse for the surge - if things have gone right, claim no one could have predicted that, and that hindsight is 20/20. Have it both ways - it's not like they will have any follow-up questions pointing out the glaring double standards you apply in your vaunted judgment."

"But dad, do you really think that anybody in the 3rd grade cares that much about my stance on the war?"

"Bill, probably not, but if they can't have a cupcake, it may matter. Ideally you could give them the cupcakes in addition to a stellar record of judgment on the war. Even better, it would be great if the second grade economy turned so far south that no one could afford a cupcake by June of last year. The thing is Bill - bad news is great news for you. It may be too much to ask for a hurricane to hit the school during recess one day, but a tropical storm wouldn't hurt, especially if we could get the National Weather Service to name it after your opponent."

Friday, September 05, 2008

Press to People: Take Serious Who We Take Serious

I watched the speech last night - Palin's that is; I had it DVRd. I thought it was a good speech and it was interesting hearing it in its entirety after hearing commentary on it through the day. From what I heard, the typical press guys are characterizing it as taking the gloves off, etc. This is because, shocker, she had the audacity to mock the man with the audacity to hope. How can you resist mocking this guy who unabashadly considers himself quasi-Messianic (is that a word?)? But she did it with a smile on her face, which galls them even more; they are only capable of the same with a sneer plastered on their mugs. Olberman is a perfect demonstration of this - comparing her to the Reese Witherspoon character in election while trying to maintain the demeanor of the anchorman with objective gravitas.

I would say the only personal aspect of her criticism of him regarded his saying one thing in Scranton and another in San Francisco, which of course he did. That's a personal swipe when you point out that a guy is a phoney populist even if you got the tape-recorded evidence. But there are 2 types of people in this world - those in the Harvard set (not restricted to Harvard grads of course) and those who (like it or not) need to be governed by them. And the hard part is the necessary pandering the Harvard set has to go through to get the yokels to vote for them. It is the height of impoliteness to call a guy out for such pandering, given that the pandering is for their own good.

You think about the differences between Palin and Obama, and then the differences in press treatment, and it really is amazing. The press position is that this man is to be taken seriously because we the press take him seriously. His entire launch onto the national stage was basically a creation of the press; he gets a pretty key speech at the 2004 convention, but again with really nothing that preceded it in the way of accomplishment and within weeks he was donning the cover of either Newsweek or Time as the guy who is going to make us purple instead of blue and red. With Palin, the press position is completely the opposite - if she was meant to be taken seriously we would have taken her seriously prior to her being announced the VP nominee.

There is no reason to believe that Obama will make the country purple, and I for one want to stay red, and I am pretty sure Professor Vic would prefer to stay blue. Bipartisanship is really not to be considered a worthy goal in and of itself; if a Dem wants more government spending, and a Republican wants less, what bipartisan solution will satisfy both. The only time you see real bi-partisanship is when you have some bill where the Congress is making it illegal to publish pornographic pictures of baby seals; it's easy to get on board for something like that and monstrous not to, but in the end no one's life turns on the legislation. But if for whatever reason crossing the aisle is to be desired for its own sake, McCain is actually the one who has the track record in this area; Obama would have to show up in the chamber in order to cross the aisle, and he has been a straightline partisan vote for the Dems.

This is precisely why the more leftwing of the Democratic party is so enthused with Obama; they don't want bipartisanship, they want their guy. It is the same for the conservative base of the Republican party - if they wanted bipartisanship, they would have been enthused with McCain from the outset. If Obama wins, and I don't think he will, that will be the irony: whereas he is being sold to independents as a bipartisan guy bent on reforming government, McCain is far more bi-partisan, and together with Palin, the ticket has a real record of reform and taking on corruption. Obama has nothing to point to as evidence of bipartisanship or reform. Nothing. Zero. Nada.

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