Afferent Input

For Whom does the Bailout Bail Out?

2008-10-03T15:34:00.000-07:00

Cross posted at Angry Bear

Both the Senate and the House have passed the big $700 billion bailout (actually now larded up to $800+ billion) to save the “financial system” from complete collapse. This is to supplement the various actions taken by the Fed and the SEC to shore up financial institutions, including halting short selling of hundreds of corporations and the creation of an alphabet soup of lending windows to “provide liquidity” to troubled institutions.

Much has been made of the fact that if nothing is done, the markets could come crashing down. Having watched some of the House floor debate this evening in my Berlin apartment thanks to the wonders of live-streaming from C-SPAN via the intertubes, I heard this argument over and over again from many members of the House. The big drop on Monday was cited as an example many times as a sign of impending doom if nothing is done. Of course, all of this is especially ironic given that the markets took a huge nosedive as soon as the House passed the bill.

Anyway, there is no doubt that a 1929-style crash would have an incredible impact upon the economy. But for whom in our society would a market crash have the most direct impact upon?

I found the answer to this question via the Economic Policy Institute in their report titled The State of Working America 2006/2007. They have a table which lists the concentration of stock ownership by income level from the year 2004, which I found particularly interesting. I decided to make a figure that illustrates some of the data from this table:
This shows that the 2.5% of the population that makes more that $250,000 a year own 44% of the shares on Wall St. Another way to look at it is that the 16.1% of the population that makes more than $100,000 per year own 73.2% of all shares. The rest of the 83.9% making less than $100,000 per year only own 26.8% of all the shares. The 57.2% of the population making less than $50, 000 own a paltry 9.2% of all shares.

To reiterate, many in Congress who supported the bailout package admitted that this needed to be passed in order to prevent a crash on Wall St. My guess is that allowing corporations to offload toxic assets onto the backs of taxpayers will certainly ease the strain on those corporations balance sheets. But do keep in mind, going forward, just who among stands to benefit the most in this "transaction".

House Bill Voted Down Open Thread

2008-09-29T12:27:00.000-07:00

by Afferent Input

Current iteration of the bailout bill goes down in flames 205-228.

Dow is down over 700 pts. NASDAQ and S&P 500 both down over 8%.

Ugh-lee.

Go Cubs

2008-09-24T12:01:00.000-07:00

Mrs. AI has the details.

They'll probably blow it in the end, however. They always do.

Some Thoughts on Bailouts

2008-09-20T06:48:00.000-07:00

First, there was the shotgun marriage of Bear Stearns and JPM. Then $85 billion to AIG. Next came the loans to shore up money markets. Finally Friday’s announcement of a special program (most of the important details still unknown) that will cost “hundreds of billions of dollars”.

And of course don’t forget the alphabet soup of special facilities created by the Fed to protect the big money movers.

Bailouts, all. A lot has already been said, of course. But there are two things that I wanted to add to the conversation.

First, folks on the left and the right have referred to the recent onslaught of government bailouts as “socialism”. On the surface, it may seem that way, given that government now “controls” vast swaths of the nation’s financial system. But nothing could be further from the truth.

Let me say it more plainly; this is not socialism. Socialism is a form of government that seeks to equalize the playing field for all, insuring that that the fruits of labor are shared equally (but not fairly, necessarily. That’s one of the major reasons why socialism doesn’t work). Does anyone seriously think that captains of finance have embraced the philosophy of “workers of the world, unite!”? The same guys with multi-million dollar “golden-parachutes”, sometimes taking home more than a billion dollars in a year. The same guys who have embraced shady accounting practices so that they and their companies pay as little in taxes as possible, sometimes percentages of income far less than the average American worker. The same guys who have broken union after union over the decades. We’re supposed to believe that just this week this crew has decided to abandon Friedman and embrace Marx with open arms? Come on…

Let’s look at it another way; does anyone seriously believe that the average American stands to benefit financially from the actions taken this week? That the profits of AIG, or BS, or Fannie and Freddie will be split equally amongst the masses? Of course not. Instead, tax payer money will flow from the Treasury to shore up the accounts of what should be insolvent corporations. Essentially out of your pocket and into the hands of Wall St, only making a quick pit stop in DC. Or worse, putting it on the national credit card by selling even more treasuries. This is not socialism. Instead, this more resembles a different form of societal structure: kleptocracy.

Second, how did we get to the point that simply the failure of one company would mean utter chaos for society at large? This fact alone illustrates very nicley that the financial system ceased to be a free market long before last week. The lifeblood of free markets is competition. Competition gives birth to fair pricing of goods and services as well as efficiency of commerce. If one business fails, another takes its place.

The fact that these corporations were to big to fail means they were too big. Period. If AIG couldn’t hack it, then some other corporation would have stepped up to the plate. That is if the market place was truly free. But clearly it was not. Instead, what existed was at the very least a pseudo-monopoly. Many markets left to themselves will gradually evolve into monopolies, and one of the roles government needs to play is to insure that monopolies don’t get to the point where they distort free markets to the point where they aren’t really free anymore. Obviously government failed to meet that obligation in the financial sector the last few years.

I suppose that’s what happens when the foxes are put in charge of the hen house. Only time will tell if the foxes can keep fooling everyone into believing that there are still some hens left.

Note: It should go without saying that the above is my opinion and my opinion alone. No doubt that many of the other Angry Bears would disagree with at least some parts, if not the whole. But I'll say it anyway.

OTC Derivative Growth Since 1998

2008-09-18T07:46:00.000-07:00

CROSS POSTED AT ANGRY BEAR

As the world financial markets head into complete meltdown, it is worth taking a moment to look back to see where all this began. Much of the current crisis stems from the shadow banking system’s dependence upon the explosive growth in derivatives market. These complex financial instruments are meant to monetize risk of default. Futures contracts, options, swaps, and many others allow one party to insure money is exchanged, but the outcome of the contract depend upon many underlying factors that make up the terms of the contract. Though many forms of derivatives are traded in exchanges, many are not necessarily.

Derivatives that not necessarily traded on market floors are known as “over-the-counter” derivatives. They are usually bilateral contracts between investment banks and a customer and can be generated simply over the phone or over the internet. This form of contracting is largely unregulated. The OTC market has been monitored by the Bank for International Settlements since at 1998, and they publish detailed information on various forms of OTC derivatives every six months. The most recent data can be found here.

This market was very big in 1998, but it has exploded since then. I’ve generated a figure of the amounts outstanding of OTC derivatives since 1998 broken down into their various types.

You should note that the Y-axis is in billions of dollars. Yes, billions. That means, as of Dec 2007 (for which BIS has the most recent data), the total OTC derivative market was almost $600 trillion dollars. In 10 years, it has gown 826%.

The growth is even more disturbing if you look at some of the subcategories of OTC derivatives. Below is a figure illustrating the ratio of amount outstanding contracts relative to the amount outstanding in June 1998 for interest rate contracts, commodity contracts, and credit default swaps.

Though commodity contracts still make up only a small proportion of the total OTC contracts outstanding (1.5%), its growth has been astronomical, increasing over 2,000% since June of 1998. Even interest rate contracts, which make up the largest portion (66%) of all OTC derivatives, increased over 900% in 10 years. And most troubling of all is the credit default swap market. These are contracts that are activated in the event of a default.
This market has increased 905% in just three and a half years since BIS starting monitoring this form of derivative. It was a mere $6.4 trillion in Dec 2004; In Dec of 2007 this market ballooned to $57.9 trillion. Just think of the unwinding of credit default swaps that is involved when big investment banks like Lehman Bros. go under.

Of course, all of it is very complicated, because derivatives are essentially a “zero-sum” instrument. They way derivatives are supposed to function is that money is exchanged depending on the outcome. Nothing is lost, at least in an ideal environment; it is only exchanged hands. But what happens when one party of the contract can’t pay?

I think we’re going to see that many times over very soon…

Ugly Ass Costume

2008-09-09T11:26:00.000-07:00

WTF is up with this costume?

Don't get me wrong; the kid is cute enough. I just don't what's up with the two headed Curious George. I say again, WTF?

Suckers = us

2008-09-07T10:07:00.000-07:00

Atrios says:

Reading through what's been released I still don't really get a sense of the important details. "Who eats how much shit" is the big question and it isn't entirely clear.

As the old saying goes, if you're sitting at a table, and you don't know who gets to eat how much shit, guess who gets to eat the most.

PTCRHMHIOD

2008-08-24T05:54:00.000-07:00

Last week John McCain was asked just how many houses he and wife own. This may seem like a simple question to answer. For instance, if someone were to ask me how many houses I own, I would reply very quickly with:

0

McCain, on the other hand, had this to say when asked such a simple question:

"I think — I'll have my staff get to you," McCain told Politico in Las Cruces, N.M. "It's condominiums where — I'll have them get to you."

Is McCain an out-of-touch elitist who is so f-ing rich he doesn't even know how many homes his family owns? This may seem like the case, but only if you are completely ignorant of the demons that haunt McCain day-in and day-out. McCain's campaign was alluding to this affliction when asked to respond to the fact that McCain has no idea how many homes he owns. His campaign spokesman, Brian Rogers, had this to say:

“This is a guy who lived in one house for five and a half years — in prison.”

This may seem like McCain is, yet again, pulling out the ole "Noun, Verb, POW" card to shield himself from any criticism over any subject. But this is simply not the case. Instead, McCain suffers from PTCRHMHIOD, or Post Traumatic Can't Remember How Many Houses I Own Disorder. This horrible condition has forever altered the lives of countless Vietnam Vets, and especially former POWs, after their return to the States. In fact, it is the number one cause of divorce between former POWs and their millionaire liquor-heiress wives.

It is a shame that Democrats, and especially the Obama Campaign, will exploit McCain's ailment just to win an election. Obviously they will trivialize the service of any and all former military men-turned-politicians that use any suffering they endured while serving to deflect criticism of any kind, even it's about how much f-ing money they have.

Dems should be ashamed. Leave this honorable man and his ~~four~~ ~~seven~~ ~~ten~~ twelve houses alone!

House-gate

2008-08-21T13:43:00.000-07:00

Or is it Houses-Gate? The question of the day is:

HOW MANY HOUSES DOES JOHN McCAIN OWN?

Honestly, you might think this would be an easy question to answer. At least for regular folks. For instance, I own exactly zero homes. Just like most of the people I know.

I do know one guy who's a lawyer and does very, very well. He also owns some investment properties. If I were to ask him how many homes he owns, this is how the conversation would go:

Me: Hey, how many homes do you own?

Him: 4, my house and three other that I rent.

Me: Cool, thanks.

Him: How many you own?

Me: None. You know that; I make jack shit as a scientist.

Him: oh...

Yet here's what John McCain said when asked the same question:

"I think — I'll have my staff get to you," McCain told Politico in Las Cruces, N.M. "It's condominiums where — I'll have them get to you."

He doesn't even fucking know how many homes he owns? WTF? Is he that f-ing rich? Or is he just senile? How can anyone not know how many homes they own? WHAT. THE. F?

Anyway, the DNC has put together a helpful guide to let McCain know just how many homes he owns:

Must be nice to be so f-ing rich that you don't even know how many homes you own...

Update:

Here's the audio of John "I'll have my staff get back to you on that" McCain

Clipped Quote = Same old regular BS

2008-07-30T13:17:00.000-07:00

Jesus Christ, I'm so glad I'm not there to watch this BS on a regular basis...

Wake me when the stoopid season ends...

Ricahrd Cohen is an idiot

2008-07-30T06:38:00.000-07:00

Richard "ultra-liberal" Cohen says this:

McCain's true virtue is that he is a lousy politician. He is not a convincing liar, and when he adopts positions that are not his own, they infect him, sapping him of what might be called integrity energy.

I think the best response I've seen for this vapidity is this from the comment section at Yglesias's place from Tim Conner:

You know, to take Richard Cohen seriously, you would have to think he was an honest man.

Like McCain, he is not. You see, to be honest, it's not enought to be uncomfortable with lying. You have to tell the truth when it's inconvenient.

At least, that's what my mom told me when I was little.

How Cohen can look at McCain's flip-floppery and see something honorable completely escapes me. McCain's a douchebag for flushing his integrity down the toilet; Cohen is even for worse respecting it.

Go Obama Go!

2008-07-28T14:36:00.000-07:00

We went to the Obama rally last Thursday. I don't have time to give a recap, and it's already old news anyway. But Mrs AI gave a nice recap here, and check out this video a friend took of baby AI getting on gettin' on with a good ol' "Go Obama Go" chant and finishing it off with a classic terrorist fist jab. He's such a cute little terrorist.

I said halb Kilo of Cherries!

2008-07-21T14:02:00.000-07:00

I went to the local farmer's stand today to get some produce. It's a little weird here; you don't get to pick your produce. Instead, you stand in line and wait your turn to talk to some guy to let him know what you want. Then he puts your produce in a bag and then you pay.

So I wanted funf Apfel und vier Pfirsiche (five apples and four peaches) and ein halb Kilo Kirschen (half a kilogram of cherries). The guy put my apples and peaches in the basket, and then piled the cherries into a paper bag. He gave me my basket and I walked into the store to pay.

When I got up to the counter, I noticed that I had TWO paper bags of produce in addition to my plastic bags of apples and peaches. Both bags had stickers that said the they had about 1/2 a kilo each. I figured that the guy outside gave me two bags of cherries, or one 1/2 kilo too many. I started to tell the guy, using my 100-word vocabulary of German, that I only wanted 1/2 a kilo of cherries. And he looked at the bags and said "OK, you want half kilo, you have half kilo." I kept pointing to the bags as saying, "No I only want ONE 1/2 kilo", and he kept saying "yeah, you get one half kilo" but kept trying to make me pay for both bags. I finally gave up, figuring these guys were trying to take advantage of the dumb American who can't speak German, sticking him with some extra cherries like some dumb schmuck!

Anyway, I got home and was pretty steamed. I told Mrs AI about what happened, and she was pissed that I paid for both bags. I tried to explain to her that I just gave up and something was being lost in translation. I started to put the produce into the fridge, and lo and behold, the second bag didn't have cherries in it at all. Instead, it was filled with Turkish Apricots that the guy outside accidentally put in my basket! No wonder the guy thought I was such a douche for wanting ONLY half a kilo of cherries! Next time I'll be sure to actually look inside the bags!

Man am I an ass...

Brunch

2008-07-13T13:08:00.000-07:00

Holy Fuck. The brunches here are Ah - Mazing! I guess it's a Berlin (German?) tradition to have brunch on Sunday. We had one last week, and one today. These things are all you can eat, and are filled with fine cheeses, meats, various breakfast dishes such as scrambled eggs (but good ones with great spices and cheese and real eggs, not the shitty kind you would get in a crappy American cafeteria that is made from a toxic powder and water. Oh yeah, and they call scrambled eggs "omelets". What's up with that?). Belgian waffles with fresh fruits and jams and syrup and real butter.

The place we went to today was an Italian resturant in Prenzlaurer Berg called Belluro. They had this bowtie pasta cooked to perfection with bits of what I was pretty sure was some kind of crayfish. Not shrimp, for sure, but some kind of crustacean that was similar to crayfish. Tiramisu that was simply heavenly. Pretty damn good pizza. And of course really good coffee.

Anyway, we made our way to Tiergarten this afternoon and checked out the Berlin Siegessäule, or Victory Column. It was kind of late this evening, so things were slow and there weren't too many people (and the weather sort of sucked; grey and had rained earlier). But here are some pics.

In thie pic on the left you can see the famous Berlin TV tower in the lower right, a major landmark in East Berlin and remnant of the Communist past. An interesting dichotomy.

Research in Bird Brains Uncovers Cure for All Human Suffering

2008-07-09T12:08:00.000-07:00

Well, not exactly. But it is an interesting step in understanding the underlying molecular mechanisms that mediate neurodegneration of brain circuits due to the withdrawal of circulating hormones. From the press release:

Neurons in brains of one songbird species equipped with a built-in suicide program that kicks in at the end of the breeding season have been kept alive for seven days in live birds by researchers trying to understand the role that steroid hormones play in the growth and maintenance of the neural song system.
It is the first time scientists have shown that inhibiting an enzyme involved in programmed cell death can protect a brain region in a living animal from neurodegeneration following the withdrawal of steroids.
In addition, the University of Washington research being published in tomorrow's edition of the Journal of Neuroscience reports that the infusion of this enzyme inhibitor into one brain region also kept another connected brain structure from degenerating.
The research has potential to help scientists develop clinical strategies for treating strokes and such human age-related degenerative diseases as Alzheimer's, Parkinson's and dementia, all of which may involve the death of brain cells.
Previous work by the co-authors Christopher Thompson and Eliot Brenowitz showed that neurons in a brain region called the HVC begin regressing within 12 hours after the withdrawal of the steroid hormone testosterone, followed soon thereafter by cell death. The new study indicates that enzymes called caspases, which play a key role in a cell suicide process called apoptosis, are involved in this process of neurodegeneration and that inactivation of caspases protects brain cells for at least a week.
Thompson, who just earned his doctorate in neurobiology and behavior at the UW and is now a postdoctoral researcher at the Freie Univeristät in Berlin, and Brenowitz, a UW professor of psychology and biology, study the brain regions controlling the singing behavior of a white-crowned sparrows.

This work was also featured in "This Week in The Journal" in the Journal of Neuroscience. Yay me again.

100

2008-07-09T08:01:00.000-07:00

100 posts. Yay me.

From an email I sent to a friend, which I figured might be funny to others:

This morning, I was doing my hausufgabe on the train (which sort of makes it zeugaufgabe). I had to read two paragraphs, one about Heidi Klum, the other about Arnold Schwarzenegger, and then fill in the blanks of sentences below. For example: "blank" ist eine Model. Really hard stuff.

A girl, who was apparently a student from Humboldt University, sat next to me and worked on some of her homework. Hers was a little more complicated; it looked to be some kind of advanced calculus. The really sad thing was that I think I was having a harder time with my homework than she was with hers. I'm such a loser.

Not Enough Water

2008-07-06T11:18:00.000-07:00

Since I arrived in Berlin 1 week ago, I have had nothing but coffee and beer, both of which are delicious beyond belief. I had better coffee at the Deutsche Bank when we were opening up our bank account than any F-ing Starbucks I have ever been too. Ever.

And the beer here is A-M-A-Z-I-N-G!!! They come in 0.5L bottles, about twice a 12oz bottle at home.

Incidentally, the color of my pee has turned from clear, to yellow, to this weird orange-ish brown-ish color. I'm pretty sure I should be drinking more water.

Anyway, enough about my excrement. I've been too busy adjusting to the time change, getting my visa stuff in order, going to language classes, working on papers from my thesis, and fighting a stomach bug to post anything. But if you're interested in following the in-and-outs of how the Afferent Input family is adjusting to life in Germany, I encourage you to check out Mrs. Afferent Input's blog 50% of my DNA. Lot's of funny details, including pics of Dr. AI and baby AI.

More soon later this week.

In Germany

2008-06-30T02:35:00.000-07:00

Wow.

What a move. Got here and there are German flags all over the place. Made it home just in time to see the Euro2008 Cup. This morning there are many sad faces walking the streets of Berlin. More on that later.

But not us. We're really excited to be here. We had an amazing breakfast with some of the best coffee I've ever had, went to the grocery store and bought some essentials, and got home to eat tasty cherries (not from WA, though).

Anyway, I'm off to the language institute to prove that I know "kein Deutsch." Then they will put me in a class with kindergartners (I mean the US translation of "kindergarten" here).

half-moved

2008-06-23T11:03:00.000-07:00

We've moved our stuff from where we lived the last eight years to my parent's house. Now I have to figure out what of my earthly possessions are most important to me and put them into two suitcases to take to Europe where we will live the next two years.

The thing is, all of it seems kind of like crap. I think I'd prefer to move there with just two changes of clothes and my toothbrush.

Suicide and Economic Downturn

2008-06-15T06:43:00.000-07:00

Hat tip to Mish, I was struck by this article he highlighted on the increase in activity at a suicide hotline, and in particular the increase in percentage of those contemplating suicide that claim economic woes as their primary reason:

A local hot line has seen a dramatic spike in suicide calls from people in Palm Beach County who are facing foreclosure and can't pay their bills, according to numbers released today.

Since the start of the year, 256 people in the county told operators at the 211 hot line that they were thinking about suicide. Of those, 44 told operators that their main reason was that they had lost a job, were facing foreclosure, couldn't afford to pay their bills or were homeless.

During the same period in 2007, from Jan. 1 to June 10, the hot line received 137 suicide calls from people in Palm Beach County. Only 15 of those gave economic reasons.

The callers' problems seem markedly different than in the past, said Susan Buza, executive director of 211 Palm Beach/Treasure Coast. Many callers, she said, have tried to find work for months.

Buza said she began adding up the numbers after operators noticed a rise in calls from people who could lose their homes.

"When we started looking at it, we were really shocked," she said.

I'm particularly struck by the consequences of economic situations like the one currently facing the US on society at large. The official statistics are starting to paint a more gloomy picture, but it's interesting to see these things first-hand in action. Some things I've noticed:

lots more vacant space at local strip / shopping malls
more homeless in downtown Seattle areas
lines outside the "cash stores" in the morning before they open
less traffic congestion - It used to take 45 min for my morning and evening commute of just 15 miles. Now it takes just 20 min.
Fewer people taking care of their yards
More vacant homes

And this area is supposedly one of the areas better off economically. I'd hate to see what it's like elsewhere.

What are you noticing in your 'hood?

NOTE: I'm moving overseas in about 2 weeks. I'm going to be insanely busy during that time, so posting will continue to be a trickle. I hope to get something up on AB soon (maybe right now if the little one stays asleep for about an hour). I'll be able to get posts up on a more regular schedule once we've moved and settled in.

Doctor

2008-06-05T10:00:00.000-07:00

I successfully defended my thesis yesterday. You have to call me Dr. Afferent Input now.

No, I can't write prescriptions.

Yes, I realize that means I'm not a "real" doctor.

Males: An Endangered Species

2008-06-03T07:02:00.000-07:00

I don't know anything about Kathleen Parker, the author of Save the Males. But just based the following quote, I don't think I need to know much more than this:

"There are a lot of vaginas out there. And you thought Wahhabism was a problem.”

No, really. She really wrote that. Insane.

First Post

2008-05-18T18:22:00.000-07:00

My first Angry Bear post is up. It's about this opinion piece in the Indy Star by a professor at Notre Dame that reads like it was written by the love child of The Petroleum Institute and the Republican National Committee.

Brooks on Neuroscience

2008-05-16T17:04:00.000-07:00

Still swamped with stuff. But I happened across this excellent analysis of David Brooks' recent column on Buddhist Neuroscience. I didn't know about Steve Novella's blog before, and when I get a chance I'm going to add it to the blogroll.

I've long expected that neuroscience would soon rise the ire of the religious. In fact, a major tenet of intelligent design creationism relies upon the rejection of a naturalistic, materialistic explanation of the mind. Some day when I have more time I'll pick up on that topic.

Bush Legacy

2008-05-13T07:26:00.000-07:00

Kinda sums it up. In pictures! Yay!

Angry Bear

2008-05-05T10:53:00.000-07:00

The gang at Angry Bear has invited me to post there on a semi-regular basis. Given that I'm swamped with stuff right now, most of the blogging I'll be doing over the next two months will be over there. When every I get an AB post up I'll put up a link here, too, so that my three regular readers will know to check it out there.

The economic stuff will end up at AB, and most of the political and snarky stuff will end up here. So there will be reasons to keep checking Afferent Input. I know you don't want to miss out on AI-certified snark. It'll put hair on your chest. Good stuff.

Stein Says Science Kills

2008-04-30T11:52:00.000-07:00

Ben Stein, one-note supporting actor, former game show host, and wanna-be economist, plays a leading roll in the new creationist propaganda film Expelled. The movie is filled with misinformation, much of it cataloged at the website ExpelledExposed.com. But Stein has been making the round with the most sundry elements of the far religious right in recent weeks and made some especially pernicious comments about science.

A few weeks ago, the producers of Expelled provided a private showing for Answer in Genesis, a young earth creationist think tank specializing in indoctrinating youth into believing that the Universe is only 6,000 years old and that Noah took all the animals, including dinosaurs, on the Ark during a worldwide flood only 4,000 years ago. Here's a picture of Stein meeting with Ken Ham, creationist kook that heads up AiG:

Ham had a glowing review of Expelled and had exuberant praise for Stein. Ham said Stein was a "a 21st-century Einsteinian figure" and went on to say:

Ken pledged AiG’s strong promotional support to Mr. Stein, indicating that AiG will use its multiple outlets to spread the word about his excellent film. After previewing the documentary last month, Ken declared that the film was “riveting, eye-opening, even astonishing. Ben does a masterful job of exposing the ruthlessness of evolutionists who will go after anyone who challenges or merely questions Darwinian orthodoxy. I was on the edge of my seat—entertained yet instructed.”

Stein was recently on the Trinity Broadcasting Network, the cable televangelist station dedicated to separating people from their money. Stein had a conversation with Paul Crouch Jr, heir to the TBN empire. Here's the transcript excerpt of the interview :

Stein: When we just saw that man, I think it was Mr. Myers [i.e. biologist P.Z. Myers], talking about how great scientists were, I was thinking to myself the last time any of my relatives saw scientists telling them what to do they were telling them to go to the showers to get gassed that was horrifying beyond words, and thats where science - in my opinion, this is just an opinion - thats where science leads you.

Crouch: Thats right.

Stein: Love of God and compassion and empathy leads you to a very glorious place, and science leads you to killing people.

Crouch: Good word, good word.

[emphasis added]

Einsteinian indeed. If there was any doubt the intelligent design creationism is not a revolution within science but an effort to destroy science, it should be explicitly clear where Stein and his ilk stand. They claim science leads one to kill people.

The man's a crank, molded from some caricature of a Dark Ages bishop hellbent on burning heretic scientists at the stake.

Third rail

2008-04-17T22:00:00.000-07:00

I'm swamped. I'm trying to finish my thesis in a timely manner, and make preparations to move overseas two weeks after my defense. No time for blogging. It'll be that way for a while; 2 months or so.

But I still find minutes here and there to read, and I thought this post One Drop was right on (via kos):

Don't let all of the blathering about which candidates are "elitist" or "out of touch" distract you from the real significance of "Bittergate." The issue isn't really that Obama talked about people who "cling" to guns or religion. The issue is that he got too close to the real Third Rail of politics

Social Security is not the Third Rail, no matter what the media tells you. No, the Third Rail is economic class. Try talking about income disparity in America, what do you get? "You're engaging in class warfare!" The same cries of protest are sounded whenever one suggests that the Bush tax cuts were mostly aimed at the wealthy, or that doing away with the estate tax was only beneficial to something like the top 1% of Americans. No, we musn't talk about the working class or the middle class getting a raw deal economically. In other words, we musn't criticize the real elites in this country, namely the wealthy and the politically connected.

There is a powder-keg of class angst in America. Obama had it exactly right, people are bitter, they are frustrated, they are skeptical of more slogans, more promises. That anger is real. It is legitimate. And it is incredibly dangerous to the existing power structures in this country.

The ruling class has spent the last several decades perfecting the art of distraction and misdirection. Take the anger that people feel, and convince them that what they're really upset about, what they really want to fight, is something other than the ruling class itself...

Good stuff. Read the whole thing.

Bitter?

2008-04-15T07:52:00.000-07:00

You bet I'm fucking bitter, given the last seven years.

you?

On Central Banks

2008-04-11T16:55:00.000-07:00

I came across something interesting earlier this week. Steve Waldman at Interfluidity had some very interesting thoughts about central banks, those pseudo-public entities who are supposed to insure the financial systems run efficiently but instead tend to manipulate market to benefit the super-wealthy. Anyway, here are some excerpts:

For now, central banks are all we have to prevent a catastrophic unwinding of our unstable financial system. But they had everything to do with getting us here. It's not just the Fed, with its famous "serial bubble-blowing", its cheering on of any novelty as beneficial innovation, its absolute refusal to peer into the magical sausage factory that Wall Street had become. The problem with central banks is much bigger than that...

In the USA, Japan, China, Europe, central banks have indeed been "active practitioners of the art of stabilizing macro confidence". For most of those years, it seemed like they were succeeding. They were never succeeding. Call it what you want, call it "Bretton Woods II", call it "financial imbalance" or a "global savings glut" or "exorbitant privilege". Each central bank, while trying to stabilize its own bit of the world, found itself with little choice but to support and expand unsustainable financial flows on a scale so massive they have reshaped the composition of every major economy on the planet...
[W]hat the US economy produces is no longer well matched to what Americans consume, and we are structurally unprepared to generate tradables, goods or services, in quantity adequate to cover the difference. The Fed's magic wand will be of no use if manufacturers in Asia and oil producers in the Gulf stop giving us stuff for free, using central-bank financial alchemy to hide their generosity.

Things may turn out okay. We've already begun to "adjust", and knock on wood, we'll manage a worldwide reequilibriation before things get too ugly. But it'll be a close call. That financial alchemy by central banks is the ultimate source of skyrocketing inflation in China and the Gulf states, and an ominous sign that Stein's Law is beginning to bite. We may yet escape, but we have been drawn very close to something very dangerous, to a genuine crisis of scarcity in the United States and a catastrophic failure of Say's Law in China, to mass unemployment, social instability, and fingers and missiles pointed in both directions across the Pacific. This is serious stuff. And central banks are largely to blame.

He suggests that if markets had been allowed to correct in response to the imbalances when they were created, then problems would not have grown to be as large as they have. I think they is something to this, for sure. It only because central banks have facilitated these imbalances because it benefited the super-wealthy. Off-shoring manufacturing to 3rd world countries is the prime example of that.

I'd like to think that the edifice is falling and this will create an opportunity to design the economy so that it benefits ingenuity and is fair to all actors. But I realize that's naive. This shot will never change...

Home Builder Bailout

2008-04-10T15:04:00.001-07:00

The US senate passed a bill today that would give special tax rebates to distressed home builders. Via Calculated Risk is this Reuters report:

At a cost of $15 billion over 10 years, the Senate bill would give a $6 billion tax break to home builders by temporarily extending a rule that lets businesses count current losses against taxes from prior profitable years.

Home builders such as Pulte Homes and KB Home would benefit from this proposed two-year extension of the net operating loss carry-back rule, according to analysts.

The US is supposedly a capitalist society. But it hard to see how that could be if taxpayers are expected to shoulder the burden of the mistakes of corporations like these idiotic home builders. "Privatize the profits and socialize the losses" is not capitalism.

Let's count the bailouts so far:

$30,000,000,000 to JP Morgan's acquisition of Bear Stearns
$200,000,000,000 or so from TAF to take worthless paper off the hands of banks
$15,000,000,000 to "distressed" home builders in the form of a tax break

Let me know if I've forgotten any in comments.

UPDATE:
I thought of one more bailout; the $165,000,000,000 fiscal "stimulus" package being sent out to US Taxpayers. Not exactly targeted per se, but it's hard to argue it's not a type of bailout.

HotPads.com

2008-04-09T12:37:00.000-07:00

I found this via the Big Picture. I don't know anything about what behind hotpads.com or how long they've been around. But let me just say that I'm impressed.
I was playing around with their foreclosure tool. They have an interactive map in which you can look at specific foreclosures (or homes for sale, or homes for rent). But they have a really cool feature that appeals to the uber-geek in me. They have a heat map which will tell you how many foreclosures there are per capita.

I was looking at Seattle and the surrounding area. Let's just say things are interesting. Here's a map for King Co that I stole from hotpads.com:

Click on image for larger version

Red is bad, lots of foreclosures per capita. Green is average. And blue is good, fewer foreclosures per capita.

You can see lots of red in KingCo. Not surprisingly, the most distressed areas are in South King Co. And the it looks like the areas in Seattle north of Eliot Bay and in north Seattle are holding up better than areas in south Seattle. This isn't too surprising, given the high density of pink ponies in Ballard and surrounding areas.

I'm especially surprised that foreclosures are relatively high in eastern King Co. I didn't think those areas were particularly distressed. The other surprising thing is the highest rates of foreclosure are in the industrial district. I think this is probably explained by the relatively low population density and high business foreclosure rate.

Here's Pierce Co:
Even more red than King Co. This is to be expected given the high rates of shady lending in this area the last few years. I'm surprised the areas around Ft Lewis are holding up, though.

Here's Snohomish Co:
Not as much red as Pierce Co, but plenty of orange. Areas near Everett not holding up very well.

So how do these images compare to other cities? I decided to look at nearby Portland, which from what I understand has been seeing significant housing price depreciation lately. I figured that I would be pretty similar to Seattle. Boy was I in for a surprise:

Blue, blue blue all around. I thought Seattle was special? Could it be that Portland is even more special-er?

Anyway, hotpads.com is my new goto site for housing info. It's amazing.

Absence and Housing Update

2008-04-07T14:13:00.001-07:00

Sorry for the hiatus. I'm trying to finish my PhD, and it looks like it's going to happen in about two months. So I'm busy, really busy. I just had a paper accepted at a major publication last week, and I'm writing up another one at exactly the same time. And I'm writing my thesis. And I'm still doing some lab work. And I'm editing the proof for an invited review I co-wrote with a colleague.

And I've been dealing with some major health issues with my mother. I don't have the time to go into detail here. But it's bad. I'll probably update with a post sometime later this week.

Anyway, the latest stats from NWMLS are out. Housing is basically the same as last month: down YOY by a little bit, down by more than a little bit if you look from the peak.

Seattle Bubble has the detailed round up. But I thought I'd post some of the data I've been collecting.

The local media has a tendency to focus on YOY changes when it comes to home prices. But I've argued several times that this isn't necessarily justified. This month isn't any different. The Tim gives a reporting roundup at his place that illustrates this obsession with YOY.

You can understand why. The numbers don't look too bad when you look YOY. But when you look from the peak, which was mostly last summer and early fall, things don't look as peachy:
Note that I had to change the axis from last month to -18% because of the continued decline in Pierce CO condos.

SFHs across all counties didn't change month from last month. Condos improved in King and Sno Co. And as I mention, they got worse in Pierce Co, with median price dropping -2.75% in one month to $193,475, which is way down from $231,750 set in Feb 07.

Stop the Mortgage Bailout!!!

2008-03-28T12:01:00.000-07:00

Came across this via Angry Bear. I agree, whole heartedly. Especially with this:

A bailout is morally irresponsible because it encourages irresponsible and irrational behavior. Here is a short list of the many "moral hazards" that a bailout enables:

A bailout sends the a wrong message about personal responsibility. It tells Americans in no uncertain terms that their financial decision have no consequences; the government will pick up the tab.

A bailout tells responsible Americans that they are suckers. If responsible American had been smart, they would have overextended themselves, purchased homes they could not afford, and taken out home equity loans based on the paper value of their property. Then, when the bill came due, they could pass it to the government like the irresponsible want to do.

A bailout allows banks, mortgage brokers, speculators, and refinancers to benefit from their abuse of the system. By doing so, it encourages these people to act irresponsibly in the future.

A bailout will force Americans who acted responsibly to pay for those who did not. The average American -- who saved and scrimped for years to buy a house but could not because speculators and over-extenders boosted home prices beyond affordability -- will now be forced to pay for the homes of those who were less scrupulous.

Take the time to click through on the link. This is a huge issue and will have an enormous effect on YOU and generations to come. We can't allow politicians to bailout greedy bankers with taxpayer money. Act today!

Income Disparity - Then and Now

2008-03-26T21:55:00.000-07:00

I've written several posts on income disparity using data provided by the CBO. In short, the US is a society of the haves and have-nots, and the haves have accumulated more and more of the income for themselves over the years.

I've heard it mentioned several times before that income disparity was especially bad right before the Great depression. Unfortunately the CBO data only goes back to 1979, and thus all of the analysis I've done on the CBO data is quite limited in scope.

Anyway, I happened upon a post the other day at Jesse's Café Américain on the Minsky moment. The post itself is definitely worth reading, since we may be living through a Minsky moment as I write this. At the bottom of the post, though, was a figure breaking down income by quintile in some of the years prior to the Great Depression. It's not year by year, but it will do:
I decided to reorganize the data so that it matched the format in which I've presented the CBO data before. Here it is:

Unfortunately, there are only three years, but you can see that there is a general trend that income distributed to the highest quintile has steadily increased at the expense of the bottom 80% of the population. This is strikingly similar to what has happened since 1979.

This is pretax income, which what was used in the figure for the preGreat Depression data. As you can see, it's the same trend leading up to the Great Depression: an increase in share of income for the top 20% and a decrease for everyone else.

What's especially striking is when you break down the top 20% into various categories: Top 1%, Top 5%-1%, Top 10%-5%, and Top 20%-10%.

The amazing thing is that the share of income has only increased for the wealthiest of the wealthy. In fact, the Top 1%, representing only 1% of the population, was earning less than 10% of total income in 1979. In 2005, the Top 1% was earning more than 18%.

It's clear that we live in a society made up of the ultra-wealthy and everyone else, and that the ultra-wealthy has only become even wealthier in recent years. It particularly interesting that incomes during the period of time leading up to the Great Depression reflected a similar pattern of income. I'm not suggesting that the current credit crunch will lead to a Second Great Depression. But I hope that one of the results of the current crisis is realignment of this disparity so that the wealth of the nation benefits the commonwealth and not just the moneyed few.

I'd love to find a full data set that includes income broken down by quintile that goes back all the way before the great depression. If anyone knows where to find these data, please let me know in comments.

Newport Beach Bubble

2008-03-26T14:05:00.000-07:00

A woman living in Newport Beach, CA got her $168,000 HELOC from Citibank shrunk down to a paltry $10,000. She feels like she's been robbed; after all, it's her money!:

“Remember that credit is money.” – Benjamin Franklin

I’ve always considered my primary residence to be one of my most solid investments. So it came as a surprise yesterday when we got the letter from Citibank about our $168,000 line of credit:
We have determined that home values in your area, including your home value, have significantly declined. As a result of this decline, your home’s value no longer supports the current credit limit for your home equity line of credit. Therefore, we are reducing the credit limit for your home equity line of credit, effective March 18, 2008, to $10,000. Our reduction of your credit limit is authorized by your line of credit agreement, federal law and regulatory guidelines.

Reduced to $10,000!? Hello!? Please don’t f-ck with my house in Newport Beach…

Of course, I’m calling them today to dispute it. Why? Because unlike the Phoenix property, I believe I can prove our home has retained its value and hasn’t declined. We have a Newport Beach address but live in what I’d describe as the low rent district of the city. It’s on the cusp of Eastside Costa Mesa and I believe the lender is using comps from Costa Mesa for comparison.

One reason why we bought in Newport is because we believed that property values would retain their value over time. After all, how many of you have heard of Costa Mesa? But most people have heard of Newport Beach. It’s considered desirable. People want the Newport Beach address. As real estate declines, it will decline more quickly in Costa Mesa. And it is.

But Newport hasn’t declined with any significance and if we compare current comps in our zip code, we can prove to the lender that our home has retained its value. Or so that’s my plan. I’m going to fight this one and I’ll write a follow up post about my success or failure with regards to the dispute.

This is my response:

First of all, despite what Benjamin Franklin has to say, credit is NOT money! Money is money! Credit can be converted to money, but it's not money until it is converted.

Second, we are in the middle of a credit crisis. There was an enormous, world-wide credit bubble. The bubble has burst. This means that credit will dry up and includes precious, unused HELOCs.

Third, the credit bubble led to inflated prices. This was especially true in real estate. I don't know enough about Newport Beach, but after looking some listings on Redfin, I found a couple that are selling for LESS than they were purchased just a few years ago:

311 32nd ST
Newport Beach, CA 92663
Last Sale: $1,270,000 (06/23/2005)
Asking Price: $879,000

209 38th
Newport Beach, CA 92663
Last Sale: $999,000 (11/03/2006)
Asking Price: $959,000

2227 Cliff DR
Newport Beach, CA 92663
Last Sale: $4,996,000 (11/30/2007)
Asking Price: $4,695,000

Many others are asking for basically the same price they were purchased for just a few years ago. That equals basically 0% appreciation.

According to Yahoo foreclosures, there are 113 listings for Newport Beach. More evidence of a housing bubble gone bad.

It's insane to suggest Newport Beach is immune from the housing bubble. Citbank probably did the right thing by shrinking your HELOC. Your house is no doubt worth less than it was.

Sorry to burst your bubble, so to speak...

Found this via Mish

Sleep-Deprived

2008-03-26T12:07:00.000-07:00

recounts

Existing Home Sales BS

2008-03-25T11:59:00.001-07:00

Inspired by two posts at The Big Picture, I decided to look a little more closely at the BS being flung around yesterday regarding the release of existing home sales data for Feb 2008. It was disgusting, to say the least. All the major media outlets were pushing hard on the fact that the seasonally adjusted annual rate (SAAR) was up a whopping 3% from January.

Now, there is some confusion about this increase. It's true that existing home sales increase every single February when compared to the month before. That's because fewer people buy homes in the dead of winter. Most people are up in arms because it sounds like the media is spinning that an increase in home sales occurs every year, and that this increase isn't any different from any other year. What people are missing, though, is that this an increase in the annual rate of sales. Basically, if sales stay at this pace, then 3% more homes will be sold this year than if home sales stayed at the rate at which they were selling in Jan 08. Here is a figure that illustrates the MOM changes in SAAR for existing home sales since Feb 2007:
You can see that, except for Feb 07, MOM change in existing home sales was basically very negative the whole year. This is because SAAR is essentially an estimate of how many homes will sell in a given year, and that estimate had to be downwardly revised as the market tanked. In addition, looking at MOM change in SAAR is essentially one way of assessing the instantaneous rate of change (if you consider a month to be instantaneous) of the estimate of how many homes will be sold in a year. Last year, the existing home market steadily declined. Thus, the MOM in SAAR was negative for basically the whole year. The fact that it's positive right now means that downward trend in the market has taken a breather. For now. You can see that here:

That little uptick is why the media was sooooooo excited yesterday. The market still sucks, and the SAAR is off -24% from where it was last year. But it sucks just a little less than it did yesterday. whoo F-ing hoo.

Barry asks about how they accounted for the leap year:

February 2009 was a leap year -- the month had an extra day, and without that I sincerely doubt we would have seen any gain (I wonder how they adjusted for that).

Me too. I'm going to look into it. Maybe they made a "mistake". One day of extra selling doesn't sound like a big deal, but one day is about 3% of a month. It would be some crazy shit if the whole media frenzy yesterday was all because there was one more day in Feb 2008 than Feb 2007.

Why the FDIC is hiring

2008-03-24T15:08:00.000-07:00

About a month ago, it was widely reported in the media that the FDIC was going on a hiring spree. WSJ explains why:

Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia

I was skimming through the FDIC website and came across some humbling figures. No wonder the FDIC is worried.

And the number of problem institutions is increasing:
Fasten your seatbelts people; 2008 is going to be an interesting year...

PZ Meyers Expelled from Expelled

2008-03-20T22:27:00.000-07:00

HO-LEE CRAP! This one of the funniest things I have read in a long time. PZ Meyers, professor at the University of Minnesota, has one of the most read science blogs on the intertubes, Pharyngula. Meyers has a particular penchant for ridiculing creationism in all its forms, especially Intelligent Design. He has a very sharp tongue, which makes him such a pleasure to read.

Anyway, there is a new documentary coming out next month called Expelled. It's about how intelligent design has gotten a "bum rap" and evil secular humanists have unfairly forced it from public schools. And it stars Ben Stein. Yes, that Ben Stein.

PZ Meyers got duped into being "interviewed" for the movie under false pretenses. Earlier this evening, he went attend a screening of Expelled. While standing in line, well, I'll let him explain:

I was standing in line, hadn't even gotten to the point where I had to sign in and show ID, and a policeman pulled me out of line and told me I could not go in. I asked why, of course, and he said that a producer of the film had specifically instructed him that I was not to be allowed to attend. The officer also told me that if I tried to go in, I would be arrested. I assured him that I wasn't going to cause any trouble.
I went back to my family and talked with them for a while, and then the officer came back with a theater manager, and I was told that not only wasn't I allowed in, but I had to leave the premises immediately. Like right that instant.

I complied.

I'm still laughing though. You don't know how hilarious this is. Not only is it the extreme hypocrisy of being expelled from their Expelled movie, but there's another layer of amusement. Deep, belly laugh funny. Yeah, I'd be rolling around on the floor right now, if I weren't so dang dignified...
They singled me out and evicted me, but they didn't notice my guest. They let him go in escorted by my wife and daughter. I guess they didn't recognize him. My guest was …

Richard Dawkins.

He's in the theater right now, watching their movie.

Tell me, are you laughing as hard as I am?

Yeah, I'm laughing my ass off! Too F-ing funny!

How Wall St lost its Marbles

2008-03-20T22:14:00.000-07:00

I've had a hard time trying to describe the current credit crisis to friends and family. They sense my panic, but they just don't get. Heck, I don't get it half the time!

But Steve Waldman at Interfluidity has written a primer for kindergarteners. Here's how it starts:

Alice, Bob, and Sue have ten marbles between them. Whenever one kid wants another kid to take over a chore, she promises a marble in exchange. Alice doesn't like setting the table, so she promises Bob a marble if he will do it for her. Bob hates mowing the lawn, but Sue will do it for a marble. Sue doesn't like broccoli, but if she says pretty please and promises a marble, Bob will eat it off her plate when Mom isn't looking.

One day, the kids get together to brag about all the marbles they soon will have. It turns out that, between them, they are promised 40 marbles! Now that is pretty exciting. They've each promised to give away some marbles too, but they don't think about that, they can keep their promises later, after they've had time to play with what's coming. For now, each is eager to hold all the marbles they've been promised in their own hands, and to show off their collections to friends.

But then Alice, who is smart and foolish all at the same time, points out a curious fact. There are only 10 marbles! Sue says, "That cannot be. I have earned 20 marbles, and I have only promised to give away three! There must be 17 just for me."

But there are still only 10 marbles...

This is where it gets interesting. As they say, read the whole thing.

Needless to say, writers as creative as Waldman are few and far between. I'll be checking Interfluidity daily from here on out.

S&P 500 and T-Bills

2008-03-20T15:34:00.000-07:00

There's a lot of talk about crazy low interest rates on short-term T-bills. In fact, the 13 week T-bill hit a 50 year low. Basically what this means is that people have no confidence that they will make any return by parking their money anywhere except Federally-backed notes. Thus the low, low rates.

Interest Rate Roundup compares recent 13-week interest rates to the S&P 500. He says it seems like a leading indicator. Sort of seems true, especially if you look at the fact that the 13-weeked topped before the S&P 500 recently.

Does this mean the S&P 500 has farther to go? I have no doubt. How much farther, though, is anyone's guess. It sure looks like it could be a lot, though....

UPDATE: See Mish for more. He's had a lot of good things to say on this issue for the past few days...

Perlstein and the Bush Legacy

2008-03-20T13:21:00.000-07:00

Polls show George W Bush has had dismal approval ratings for years and years. A lot of this has to do with Iraq, a war of choice started on false pretenses. But with the economy going south, no amount of good news they can rake from the sands of Iraq can save the Bush presidency.

So what will conservatives do to save their movement? After all, conservatism can never fail; it can only be failed. Will they rescue Bush's reputation? Or will they throw him under the bus to save conservatism? Amputate the limb to save the body, so to speak.

Rick Perlstein looks a Reagan's legacy. At one point, he was on the ropes, during Iran-Contra. but he finished his tenure at 63% approval, solidifying his position as the saint of the modern conservative movement.

What will they do about Bush. Perstein speculates:

What if... there had been no Reagan Rebound? What if progressives had thought ahead and launched a concerted campaign to keep Reagan's negatives down, where they deserved to be, of course, in the first place?

No President George H.W. Bush, certainly.

But even better. No headlines, in 1994, like "Reagan Name a Great Tool for Election"—and no chance of Newt Gingrich drafting off the public's vague perception that being called a "Reaganite" was a desirable thing, all the way to the conservative takeover of Congress. No headlines, like the ones in 2000, reading, "Bush: I'm Ronald Reagan's Heir."

Because the pathetic fumes of vestigial Reagan worship are the only card they truly have to play. We cannot give them the opportunity to play that card with Bush. We also can't let them get away with claiming Bush was somehow a betrayer of conservatism. If they do, conservatism can live to fight another day. "Don't like Bush? Doesn't matter. He wasn't a conservative. Conservatism is still the greatest thing since oven-fresh baguettes. We got rid of Bush, so now we can move on to a true conservative."

I have a problem with one of the premises in this post, though. Lemme explain.

Not that conservatives haven't mastered the art of cognitive dissonance, I have a hard time believing that the GOP will simultaneously try to rescue the legacy of George W Bush and throw him under the bus in order to save conservativism. Here's how I see it playing out.

We all know that the GOP is a coalition but one that is exceptionally hierarchical. They have an amazing capacity to maintain a unified message. My guess is that they will, initially, try to burnish the Bush legacy. But they probably will, and probably have already decided that it's futile save Bush. His reputation is already too far down the toilet, and it's only going to get worse as the economy slips further into recession, especially as job losses increase, as foreclosures skyrocket, as home prices crash, as gas prices soar, as the dollar weakens, etc, etc. He's toast, and they know it.

I think they've already started to cut him loose from the conservative movement. They know the tides are running against the GOP this year, and that McCain will probably lose by a lot. If McCain goes down in flames, expect them to hitch Bush to him as an anchor. "They" will have betrayed conservatism, and that's why "they" lost.

I'm going to keep my eyes peeled for examples of the GOP playing the "Bush betrayed us" card. My guess is that it's their only hope. There's no way Bush is going to end up with approval ratings higher that 50%, and I'd be shocked if they end up anywhere close to 40%. There's just no way they're turning the economy around in time, and that is the one issue that truly affects everybody. Look for updates on my blog.

Still, any effort to hitch Bush to the conservative movement is absolutely worthwhile. He's their albatross, and they will do their best to hide him from the public. It's our job to make sure the facts of the last eight years aren't erased from the national record. And the fact is that Bush is perfect exemplar of modern American conservatism.

Mideast and the Dollar

2008-03-19T14:11:00.000-07:00

A great post from last week from Interest Rate Roundup on the dollar's recent woes and the reaction by Mideats financial institutions:

a key source of weakness appears to be rumblings in the Middle East about dollar pegs. Many regional currencies, including the UAE dirham and the Qatari riyal, are pegged to the U.S. dollar at fixed exchange rates. The problem is, having a dollar peg in your country essentially links your monetary policy to the U.S.'s monetary policy. If the U.S. Fed cuts rates to stimulate the U.S. economy, your economy will be stimulated as well -- even if the LAST thing you need is an extra boost. And believe me, most economies in the Middle East don't need it -- after all, they're raking in billions and billions of dollars from oil sales.

The result of the Fed-provided stimulation ... on top of strong regional economic growth ... is a gigantic inflation problem in many Gulf countries. UAE inflation surged to a record high 9.8% last year, according to estimates, up from 9.3% a year earlier. The government is planning to cap certain food prices and considering building up a "strategic food reserve" in response. In Qatar, inflation is exploding higher at a 13.7% rate, prompting countermeasures such as rent caps.

Two days ago, Bloomberg did a story that UAE was keeping its dollar peg, but it came with considerable pressure. From the article:

U.S. Embassy officials last week told central bank Governor Sultan Bin Nasser al-Suwaidi of their concern about reports that the sheikhdom may drop the peg, the official said yesterday, speaking on condition of anonymity. Political leaders have stopped the bank from developing any plans to move toward another currency regime, the official said. U.S. Embassy spokesman Atalah Hoshan in Abu Dhabi wasn't immediately available for comment.

Abandoning the link would risk further weakening the dollar as the U.S. economy falters and the Federal Reserve battles a crisis of confidence in financial markets. The oil-rich Gulf states, including Saudi Arabia and the U.A.E., depend on the U.S. for political and military backing and are unlikely to abandon their closest ally at a time of financial turmoil, said Anoushka Marashlian, senior Middle East analyst at Global Insight in London.

``The U.S. has always been the guarantor of U.A.E. military security,'' Marashlian said. ``The U.A.E. wouldn't do anything to compromise that relationship.''

If a few more banks go under, things could change quickly. Stay tuned...

Bank Run Metaphor

2008-03-19T14:04:00.000-07:00

Paul Krugman put together a great post explaining what happens during a bank run. He describes it as what's happens when someone yells "Fire!" in a crowded theater:

Bank runs come in two kinds.

In some cases, the bank run is a pure self-fulfilling prophecy: the bank is “fundamentally sound,” but a panic by depositors forces a too-hasty liquidation of its assets, and it goes bust. It’s as if someone calls “fire!” in a crowded theater, provoking a stampede that kills many people, even though there wasn’t actually a fire.

In other cases, the bank is fundamentally unsound — but the bank run magnifies its losses. It’s as if someone calls “Fire!” in a crowded theater, and there really is a fire — but the stampede kills people who would have survived an orderly evacuation.

We’re in the second case. The Fed has spent the last 7 months trying to assure people that there isn’t any fire. But there is.

Worse yet, thanks to decades of deregulation, the theater doesn’t have a sprinkler system - and the town the theater is in doesn’t have a fire department.

And now we have to put together an emergency response.

OK, so I thought of a third scenario. What if there really is a fire, but that manager of the theater (Bernanke, Paulson, et al.) convinces basically everyone that there is no fire. How many people die in that scenario? Better to die fighting like hell to get out of the theater than sit compliantly while the flames lick around your ankles...

McCain Campaign Tries to Clean Up Mess

2008-03-19T09:34:00.000-07:00

McCain's campaign has released a statement trying to spin hard out McCain's insane claim that Iran is supporting Al Qaeda militants in Iraq. Think Progress has an excerpt:

In a press conference today, John McCain misspoke and immediately corrected himself by stating that Iran is in fact supporting radical Islamic extremists in Iraq, not Al Qaeda — as the transcript shows. Democrats have launched political attacks today because they know the American people have deep concerns about their candidates’ judgment and readiness to lead as commander in chief.

The problem is that McCain did not just misspeak. He repeated this claim TWICE in the same press conference. And then he said the same crazy thing on Hugh Hewitt's show (you can listen to it here).

This is no slip up. McCain really believed that Iran has been assisting Al Qaeda. What would make him claim something so obviously insane multiple times? How could we possibly trust McCain with CIC powers over the largest military in the history of mankind when he doesn't even know the basic details of our adversaries in the Mideast?

McCain: Not Just a Slip-up

2008-03-19T09:08:00.000-07:00

So it looks like McCain didn't just misspeak. He apparently has said the Shia Iran is training Al Qaeda extremists, Sunni radicals who hate Shia Islam, multiple times. This wasn't just the wires getting temporarily crossed in his 71 year-old mind. One might forgive the ramblings of a confused, old man, though it's hard to imagine giving a confused, old man absolute power of the greatest military on Earth.

No, McCain instead seems to have repeated this nonsense multiple times. MSNBC notes:

Mr. McCain said several times in his visit to Jordan — in a news conference and in a radio interview — that he was concerned that Iran was training Al Qaeda in Iraq...

Mr. McCain said at a news conference in Amman that he continued to be concerned about Iranians “taking Al Qaeda into Iran, training them and sending them back.” Asked about that statement, Mr. McCain said: “Well, it’s common knowledge and has been reported in the media that Al Qaeda is going back into Iran and receiving training and are coming back into Iraq from Iran. That’s well known. And it’s unfortunate.”
It was not until he got a quiet word of correction in his ear from Senator Joseph I. Lieberman of Connecticut, who was traveling with Mr. McCain as part of a Congressional delegation on a nearly weeklong trip, that Mr. McCain corrected himself.
“I’m sorry,” Mr. McCain said, “the Iranians are training extremists, not Al Qaeda.”

and

The Democrats noted that Mr. McCain, Republican of Arizona, had made similar comments about Iran training Al Qaeda in an interview with “The Hugh Hewitt Show,” a radio program he called from Amman. “As you know, there are Al Qaeda operatives that are taken back into Iran, given training as leaders, and they’re moving back into Iraq,” Mr. McCain said, according to a transcript posted on the show’s Web site.

You can listen to McCain on Hewitt's show here, and watch a clip of McCain saying Iran is assisting Al Qaeda here.

So what's McCain's deal here? We know he's wrong on this, and he quickly flip-flopped after Lieberman corrected him. So I think that means that we can rule out that he was deliberately lying. But he repeated it multiple times, so it obviously wasn't just some slip of the tongue. So what's going on here? Speculate in comments.

McCain: USSR not in Poland

2008-03-18T11:47:00.000-07:00

Ford's loss to Carter in 1976 was largely thought to be based on one major gaffe in debate #2. He claimed that the USSR did not dominate Eastern Europe. Reality said other wise. This from CNN's website:

Ford also made what most observers considered to be an important blunder. In response to a question asked by Max Frankel of the New York Times concerning the Soviet influence in Eastern Europe, Ford said, "There is no Soviet domination of Eastern Europe, and there never will be under a Ford administration." Frankel responded, "I'm sorry ... did I understand you to say, sir, that the Soviets are not using Eastern Europe as their own sphere of influence in occupying most of the countries there?" Ford responded, "I don't believe ... that the Yugoslavians consider themselves dominated by the Soviet Union. I don't believe that the Romanians consider themselves dominated by the Soviet Union. I don't believe that the Poles consider themselves dominated by the Soviet Union. Each of these countries is independent, autonomous, it has its own territorial integrity, and the United States does not concede that those countries are under the domination of the Soviet Union."
In response Carter said he'd like to see Ford "convince the Polish-Americans and the Czech-Americans and the Hungarian-Americans in this country that those countries don't live under the domination and supervision of the Soviet Union behind the Iron Curtain."
News reports about the debate were dominated by Ford's statement and its potential effect on the race. Most observers felt the debate proved to be a turning point and the key to Carter's narrow electoral victory.

Fast-forward to today. McCain is touring the Mideast, bucking up his foreign policy cred. But in a press conference yesterday, McCain made a HUGE gaffe:

Sen. John McCain, traveling in the Middle East to promote his foreign policy expertise, misidentified in remarks Tuesday which broad category of Iraqi extremists are allegedly receiving support from Iran.
He said several times that Iran, a predominately Shiite country, was supplying the mostly Sunni militant group, al-Qaeda. In fact, officials have said they believe Iran is helping Shiite extremists in Iraq.

Speaking to reporters in Amman, the Jordanian capital, McCain said he and two Senate colleagues traveling with him continue to be concerned about Iranian operatives "taking al-Qaeda into Iran, training them and sending them back."

Pressed to elaborate, McCain said it was "common knowledge and has been reported in the media that al-Qaeda is going back into Iran and receiving training and are coming back into Iraq from Iran, that's well known. And it's unfortunate." A few moments later, Sen. Joseph Lieberman, standing just behind McCain, stepped forward and whispered in the presidential candidate's ear. McCain then said: "I'm sorry, the Iranians are training extremists, not al-Qaeda."

The mistake threatened to undermine McCain's argument that his decades of foreign policy experience make him the natural choice to lead a country at war with terrorists. In recent days, McCain has repeatedly said his intimate knowledge of foreign policy make him the best equipped to answer a phone ringing in the White House late at night.

This is a blunder of huge proportions. How could we possibly trust McCain with CIC powers if he doesn't even know the basic details about our adversaries in the MidEast? How could we possibly let a man this clueless into a tour of the White house, let alone run the place? He doesn't even have the faintest idea of what he's talking about!

To be perfectly honest, I'm shocked. I know McCain is pretty clueless about most things, and really only cares about two things: 1) superficial politics related to his own stature and 2) War. I would expect him to say stupid stuff about all sorts of things, like the economy for instance. But he should get this war stuff down, right? To suggest Iran is training Al Qaeda is insane, to say the least.

Expect the media to take a pass on this, of course. They love McCain; they're his base. Just think if Obama or Clinton had said something like this. The media would be calling for them to quit the campaign immediately.

WOW

2008-03-14T15:32:00.001-07:00

So much has happened over the weekend. I haven't had time to get a post up because we have family in from out of town and I have been very busy writing up my thesis. But here's the short skinny:

Bear Stearn (BSC) was "orderly liquidated" this weekend, sold to JP Morgan for $2 a share. Yes, $2 a share. No really, $2 a share. At the end of the day on Thurs., BSC was trading for $57. One year ago, they were trading at $147. Today they closed at $4.81, presumably because many happy investors had to cover their shorts.

JP Morgan made out like a bandit. More from the Big Picture:

2) JPM looks to have gotten a great deal – the Fed is actually taking on the first $30Billion in risk; Unless BSC’s losses exceed that, it’s a winner for JPM.

3) The Fed took this risk because JPM could not possibly have done the due diligence over the weekend....

5) JPM gets a terrific scapegoat for the next 4 (or 8 or 12) quarters to blame for all of their crappy paper, leveraged risk, and counter-party obligation.

Many are saying Lehman Bros (LEH) are next. Could be. They tanked hard today, down over 40% at one point. But they crawled back to only take a 20% hit by the end of the day. And that seems to holding more or less afterhours. But I decided to look at the longer picture of LEH versus some of their competitors. All are down big in the last 6 months:

LEH was holding up pretty well until late Feb, whereas MS, UBS, MER, and BSC have been in steady decline. especially since late Oct. Even with the beating LEH took today, they're doing about the same as the others. Even better than UBS (ignoring BSC, R.I.P.).

Of course the problems facing LEH are eerily similar to those that were facing BSC. So the rumors may be true. We'll see.

Interesting times, indeed.

Bears Eat Bear Stearns

2008-03-14T08:03:00.000-07:00

The Big Picture is liveblogging the mauling Bear Stearns is getting this morning. Most of the damage has been done already; share price is currently off 47%. Earlier this week BS (nice acronym, eh?) Chief Executive Alan Schwartz said is well, that there isn't a liquidity problem at BS. Today, JP Morgan has gone to the Fed Discount Window to get money for BS. Lot's of money.

Spitzer vs Vitter; view from the right

2008-03-12T13:35:00.000-07:00

Sadly, No! checks out the wingnuts so we don't have to. Here's a highlight:

I know what the liberals are asking: Why is [Spitzer] such a big deal, and Sen. David Vitter’s previous experience with call girls isn’t?

Shut up, that’s why.

Who could argue with that? More at the link...

Spitzer Gets Nailed

2008-03-11T10:02:00.000-07:00

Some thoughts about the Spitzer situation:

First, he brought this upon himself. No one forced him to play with ladies of the night. He made his choice, and now he's paying for it. His career as an elected official is ruined.

Second, this is especially sad because Spitzer one of very few elected officials willing to take on monied interests. We live in a society run by very powerful, very wealthy, very few, very elite that accrue huge amounts of wealth for themselves. See this post that shows the long term trend of an increasingly wealthy elite

The wealthy elite game the system, paying off politicians so that our economy is structured to maximize profits for the few. Spitzer was working to counteract that trend. Now he is powerless to do anything, and there are very few politicians to replace him. Given that the current financial fallout is all because of scam built on scam built on scam, we are worse off with fewer elected officials willing to ferret out financial wrongdoing on Wall St.

Third, remember, this is a leak from a federal investigation. The wiretap happened less than one month ago. There's no way this case was ready to go forward, so someone wanted to see Spitzer crushed. He had lots of enemies, so that list is long. Obviously the "big" story is the prostitute, my guess is that there is an interesting narrative laying beneath the surface about how this investigation came to be. Of course, it's hard to imagine that anyone would use the justice system for political ends...

UPDATE: More on the reaction of the monied interests from the WSJ:

The news stunned traders on Wall Street, where Mr. Spitzer long has been viewed with fear and contempt. Some view the revelations as a huge hypocrisy for a man, who as New York's attorney general, had aggressively pushed for ethics and fair play on Wall Street earlier this decade. People who clashed hardest with Mr. Spitzer are among those crowing the loudest.

"He actually believes he's above the law," said Ken Langone, a former New York Stock Exchange director who now heads a small investment-banking firm. In his role as prosecutor, Mr. Spitzer sued Mr. Langone for his role in doling out the large pay package of former New York Stock Exchange CEO Dick Grasso. "I have never had any doubt about his lack of character and integrity -- and he's proven me correct."

His political rivals, too, jumped into the fray.

"This is not a victimless crime," said U.S. Rep. Peter King, Republican of Long Island. "I've never known anyone who was more self-righteous and unforgiving than Eliot Spitzer."

Read the whole thing for more on Spitzer's many spats with the jackals on Wall St.

Puget Sound Housing: What's the Sound a Bubble Popping?

2008-03-07T16:01:00.000-08:00

I've been following housing in the Puget Sound area for about a year now. In fact, my recent obsession with economics and finance all started with digging into the itty gritty details of the real estate market in the area.

Last spring, Seattle denizens deluded themselves into thinking that our little neck of the woods was a real estate paradise. A magical land where every homeowner rides a pretty, pink pony on streets made of crystal. A land where gooey, gooey gumdrops fall from the sky. A land where housing appreciates 10%+ per year forever.

Seattle was the last holdout (except for the research triangle in NC), the last large metropolitan area that hadn't yet seen its housing bubble burst. Even though last spring markets in So CA, AZ, Las Vegas, and Miami were imploding, there were plenty of entrenched business interests in Seattle that were arguing that our market would be immune to the troubles spreading across the land. The enablers in the local media only made things worse, ignoring data that ran contrary to the interests of the real estate / industrial complex.

Yet, a harbor of rationality gleamed as a beacon through the real estate fog. I started reading SeattleBubble blog every single day. Then I started responding in comments and on the forum. It was fun, because there were a bunch of fools (Mashugana in particular) claiming that there was no bubble. People who could look at the data objectively knew the writing was on the wall, but the bubble hadn't blown yet. But by the time it all started to unwind and the Seattle bubble started to burst in the fall of 07, I found Calculated Risk and other finance blogs which showed that a bigger problem loomed than Seattle Real Estate, the potential collapse of the financial system in the US. Let's just say the gravity of that situation drew me in, and I spent less time at Seattle Bubble.

But I still pay attention to Puget Sound housing. Here's an update. The Tim has given a recap of the most recent data released by NWMLS for the month of Feb. He has been doing this for a long time and has very good stats and charts. I'll try to fill in a couple of gaps, especially Snohomish and Pierce Counties.

NWLS reports various data for counties in WA every month. There are two categories of data I've been following for some time: median price for a single-family home (SFH) and median price for a condo per month. I've been following three counties: 1) King, which includes Seattle and most of the urban density around Seattle. 2) Snohomish, which includes urban areas north of Seattle, of note is Everett. 3) Pierce, which includes urban areas south of Seattle, of note is Tacoma.

SFH

For Feb, median price for a SFH in King Co was $429,900, down -0.01% year-over-year (YOY). Essentially flat YOY. Here is a figure that shows YOY for median SFH in King Co since Jan 2003:

You can see that peak appreciation was in Oct 05, when the median price for a SFH increased nearly 20% in one year.

Median price for a SFH in Snohomish Co was $355,000, down -2.74% YOY. Here is the figure for YOY data since Jan 2003:

Peak appreciation in SnoCo was in Aug 05, when the median price for a SFH increased 23.6% in one year.

Median price for a SFH in Pierce Co was $265,750, down -7.40% YOY. Here is the figure for YOY data since Jan 2003:

Peak appreciation in Pierce Co was in Oct 05, when the median price for a SFH increased 25.4% in one year.
CONDOS

Median price for a condo in King Co was $189,000, up 1.31% YOY. Here is the figure for YOY data since Jan 2003:

In general, appreciation in the condo market has lagged the SFH market. I guess this isn't too much of a surprise, given that as people were priced out of SFHs, only condos were left in their price range. Peak appreciation in King Co was in Feb 07, cresting at 24.58% in one year.

Median price for condos in Snohomish Co was $245,000, up 9.87% YOY. It jumped significantly from last month, which came in at only $224,999. Here is the figure for YOY data since Jan 2003:

Peak appreciation in SnoCo was in Aug 05, when the median price for a condo increased 26.22% in one year.

Median price for a condo in Pierce Co was weak, only $198,950, down -14.15% YOY. Here is the figure for YOY data since Jan 2003:

Peak appreciation in Pierce Co was in Apr 06, when the median price for a SFH increased 25.12% in one year.

YOY has a number of drawbacks which I described in an earlier post. Most important is that it's retrospective in 12 month increments and will miss dynamics that are more recent. Another way to look at price changes is to normalize them to a particular date. Here is a figure that shows median price for a SFH in each of the three counties since Jan 2002.

You can see that if you look YOY, the data look basically flat. But if you look from the peak at ~ July 2007, things have tanked. Hard.

Here are the condo data:Pierce Co appreciated more quickly, which interesting because if you look at the normalized SFH data, all three counties look basically the same. I decided to look at how far off each category of home (SFH and Condo) for each county is off from the peak.

For King and Sno, SFH have fallen more than condos. For Pierce, SFH have fallen about the same as King Co, but condos in Pierce are WAY worse than Sno and King. Obviously this is because of what I mentioned earlier; that Pierce Co condos appreciated much faster than the other two counties.

Looking ahead, things are only going to get worse. SFH and condos for all three counties are much higher than they were last year, and the number of sales is about half. The mortgage crisis just gets worse and worse, with lenders tightening their standards. And with hints that many very large banks are, at the very least, teetering on the verge of insolvency, means that banks can't lend money they don't have. And with a significant recession looming, things will only get worse as people who don't have jobs won't be able to pay their mortgages. This will also make the foreclosure situation even worse, further deteriorating the market.

Things are ugly right now. Prospects do not look good.

Congress meets the Tan Man

2008-03-07T11:49:00.001-08:00

I watched a little bit of the hearings. My favorite corporate criminal, Angilo "Tan Man" Mozilo was testifying. I didn't see much in the form of fireworks, but it was fun to watch him squirm when asked about selling $150 million in stock just before CountryWide plunged.

Also, I didn't know this: CountryWide started a share buyback program just as Mozilo was selling his shares off. They bought back $2.5 billion.

Here's the kicker; They borrowed $1.5 billion in order to buy back $2.5 billion. Captains of industry, indeed. Just like the captain of the Exxon Valdez.

UPDATE: I found an article in Forbes that provides some of the transcript for the share buyback issue I mentioned above:

In particular, lawmakers wanted to know how Mozilo justified selling $150 million of his Countrywide stock in 2006 and 2007, even while the company had to borrow money to buy back its own shares.
"That doesn't speak well of your faith in the company's stock," Waxman told him. Mozilo responded that that there was "no relationship between the buyback of stock and my sales," explaining that he was planning for retirement and that his net worth was tied up in Countrywide.

I wonder if the allow tanning booths in Club Fed?

Non-Borrowed Reserves

2008-03-06T07:49:00.000-08:00

In the comments over at Angry Bear, Edward Charles Ponzi Jr. pointed to a major recent development in the Fed's reports on non-borrowed reserves at banks. I put together a figure that illustrates this "change":This is non-borrowed reserves held by banks per week since 1975. You can see it that it varies little over the long term. It looks like reserves increased in 1985 (maybe related to Plaza Accords or unwinding of the dollar?) and started to drop in about 1995. There is a VERY sharp peak right after 9/11 2001, which makes sense given the uncertainties following the attacks on the WTC, a major financial hub. Then it basically holds steady, except it appears to be much more variable from week to week.

But in Jan 08, a funny thing happens. Non-borrowed reserves go from about $40 billion to -$20 billion in about three weeks time. WTF? Seems bad, right?

Well, it sounds like it might be that banks are making heavy use of the Term Auction Facility (TAF). This is a device created by the fed to ease the liquidity crunch and encourage lending between banks and others. They already have a method of doing that called the discount window. But there are some major differences between the discount window and TAF. Caroline Baum at Bloomberg explained this difference:

Q: What is the difference between the discount window and the TAF?

A: About 50 basis points, at least at the Feb. 25 TAF auction. The minimum bid at the auction is determined by the expected fed funds rate over the term of the loan, which is 28 days.

The Fed awarded $30 billion at 3.08 percent last week. The discount rate is 3.5 percent. (That rate doesn't include the implied cost of any stigma that accrues to the borrower for going to the window.)

Also:

The Fed had already taken steps in August to encourage banks to borrow directly from its discount window, compressing the spread of the discount rate over the federal funds rate to 50 basis points from 100 and expanding both the type of collateral it would accept and the terms of the loans to 30 days.

No matter how nicely the Fed asked, banks were unwilling to incur the stigma associated with discount window borrowing, especially at a time when financial institutions were reporting large losses and any intimation of trouble could cause depositors to take flight.

Fed Chairman Ben Bernanke decided to respond to the liquidity crisis with, appropriately, added liquidity. (See ``Federal Reserve'' and ``lender of last resort.'') That didn't stop the yammering about the assumption of credit risk by the central bank.

A blog at the WSJ made the same point last month, but less elegantly:

A number of people on Wall Street have noticed a recent plunge in non-borrowed reserves in the banking system and wondered it is a sign of distress in the banking system or of unusually stringent monetary policy. They dropped from $42 billion last November to negative $2 billion at the end of January.

It’s probably a false alarm, though. The drop is purely technical, a function of how the Fed has chosen to classify the money lent through its new Term Auction Facility.

Some background. All banks are required to hold some reserves in the form of either cash on deposit at the Fed or currency in their vaults. The Fed manages interest rates by increasing or decreasing these reserves. The Fed ordinarily does this through open market operations: It buys, usually temporarily, Treasury bonds and bills from dealers, and the funds get deposited in the dealers’ bank accounts at the Fed. That causes reserves to go up. Banks usually lend out anything in excess of their requirements, putting downward pressure on the federal-funds rate. Banks also obtain reserves by borrowing at the discount window, which often occurs if they fall short of their regulatory requirement.

According to economic theory, the Fed can target either the price (interest rate) or the quantity of reserves, but not both. Back when the Fed hated to admit it controlled interest rates, it targeted reserves. Since the amount banks borrowed from the discount window was somewhat beyond their control, they focused on reserves minus discount window borrowings, or “non-borrowed reserves.” In 1990, the Fed began to explicitly target the federal funds rate in one of its most important and least appreciated moves towards greater transparency. Since discount window loans were usually pretty small, total reserves and non-borrowed reserves were pretty close.

Last December, the Fed concluded that open market operations weren’t providing relief to some quarters of the interbank funding market and introduced the TAF. Like open market operations, the TAF enabled the Fed to lend a predetermined amount of funds to the banking system, with the interest rate at which they were lent determined through an auction process. But like the discount window, the money was lent directly to banks rather than primary dealers, and against a wide range of collateral rather than just Treasurys and agency securities. The TAF didn’t add to the money supply because for each dollar lent through the TAF the Fed was careful to liquidate a dollar of its holdings of Treasury bills and bonds to keep its overall balance sheet unchanged. But because the TAF is essentially discount window credit, the Fed decided to classify it as borrowed reserves.

OK, so it's all just a misunderstanding, right? Well, take a look at most of the comments at the WSJ blog post. They're not buying it. Some examples:

Carl:
So borrowing from the TAF is counted very much like borrowing from the discount window? What you are telling us then is that banks found it advantageous to borrow $50 Billion from the functional equivalent of the discount window (formerly used only by banks in trouble as there was a perceived stigma) and that this is business as usual?
The clear purpose of the TAF is to allow banks in difficulty to borrow from the Fed ANONYMOUSLY so as to avoid the stigma previously attached to the discount window (which was not anonymous). TAF borrowing allows banks to post as collateral assets that are not marketable and therefore to obtain cash that is needed for either reserves or lending without trying to sell assets into a nonfunctional market.
While the TAF is a clever and useful addition to the Fed’s toolkit, its heavy use last month indicates that a crisis did exist and was at least partially resolved. I suspect that the TAF will need to be used again soon as certain structural problems will cause further capital losses to the banks. False alarm, indeed.

tom a taxpayer:
Where is George Orwell when we need him for this blog “Non-Borrowed Reserves: False Alarm”.

How about this Orwellian beauty: “The drop is purely technical, a function of how the Fed has chosen to classify the money lent through its new Term Auction Facility.” Isn’t that a sweet way to deal with a drop from $42 billion to negative $2 billion.
Purely technical, my good man. Why it’s just a matter of how you classify things…how you view things. If you stand on your head and look at the world, up is down, and down is up.

The key quote: “But like the discount window, the money was lent directly to banks rather than primary dealers, and against a wide range of collateral rather than just Treasurys and agency securities.”

Yes, my good man, a wide range of collateral rather than just stodgy old low-yielding Treasurys and agency securities. The Fed can make great returns by taking these high-yielding, mortgage-backed CDOs as collateral.

So, the Fed is lowering lending standards…precisely the behavior that created the subprime fiasco. The Fed is supposed to set the standard for good behavior, for a sound and sober central bank. But don’t be alarmed. It’s just a technicality…just a matter of how you classify things.

There's a lot more on this. My impression was best summarized by yves in the comments at Angry Bear in a follow up post on this issue:

My concern is that the powers that be are all treating the Fed's Term Auction Facility, which was created to deal with money market stress, as no big deal. The operation of the TAF is what leads to the negative net non-borrowed reserves.

I am bothered that an emergency facility, which was initially presented as "let's try it a couple of times and see how it goes," has not only become pretty permanent, but has been enlarged with little fanfare (it went from $40 billion in outstandings to $60 billion). And per some recent sightings, such as a WSJ story just posted, the money markets are looking rocky again.

There's more on this issue, especially from the doom-and-gloom contingent. If I get enough done today, I'll look over what they have to say and post more later. I'll also keep an eye on this issue from here on out.

More on dollar index; Why YOY?

2008-03-05T08:49:00.000-08:00

In my post below on Kudlow's latest column, I didn't provide a justification for illustrating the dollar index since 1974 in year-over-year (YOY) terms. It isn't necessarily intuitive, nor is necessarily the "correct" method, but I have some reasons.

The historical dollar index data is given per month since 1973. I could look at the percent change month-to-month (MOM), which would provide an instantaneous rate of change. I decided to use YOY instead of MOM for a couple of reasons.

YOY is often used to account for seasonal fluctuations in data. A classic example is number of houses for sale in a given market. Real estate is a seasonal industry; business usually is twice as brisk in the summer than it is in the winter. Every spring the number of houses for sale increases, and every fall that number decreases. If you want to assess the health of a market like that, the best comparison is to compare houses for sale this year vs the same month last year. This removes any seasonal bias.

The problem is that it doesn't account for any changes that occur since 12 months ago. I wrote a post about this last year about median price for SFH in King Co, WA.

OK, back to the dollar index. There isn't a seasonal pattern in changes within the dollar index. So why use YOY? I felt that I wanted to assess the effect that a presidential policy may have on the index. The force of a policy is somewhat limited, given all of the factors that influence currency rates. Thus, if an administration favors a particular "strong" dollar policy, you would expect to see pattern of positive YOY % changes over the long term.

My point was that during virtually Reagan's entire second term YOY % change in the dollar index was negative. Kudlow claimed Reagan favored a "strong" dollar policy. But the data suggest that either Reagan was impotent to implement a strong dollar policy, or he didn't favor such a policy. Given the Plaza Accords, the evidence suggests the latter.

Bomb Iran: McCain sings!

2008-03-04T14:54:00.000-08:00

This video is really quite catchy:

Update: I'm posting this mostly to see if I can actually embed a YouTube video. Success!!!

Record Oil; been there, done that

2008-03-04T14:46:00.000-08:00

Wow, just wow.

It's no secret that the price of oil has been skyrocketing. This week the price for a barrel of oil broke the all-time inflation adjusted record set back in 1980. But I haven't seen the price of oil, inflation adjusted over time.

Big Picture has snatched an image from the NYT. It's worth a look.

Kudlow: Reagan for strong dollar?

2008-03-04T09:26:00.000-08:00

Two posts at Angry Bear tear into a recent Larry Kudlow column at the National Review about politics of the strength of the dollar relative to other currencies. Anyone that has been overseas the last few years, or anyone that lives near the Canadian border, knows that the dollar ain't what it used to be. In fact, the dollar is at historic lows against the Euro, and is really weak against a bunch other currencies, including the Canadian loonie and the Yen.

Anyway, Kudlow, who is a very prominent anchor at CNBC, could best be described as one of the nation's lead cheerleaders from which only happy-talk spills from his mouth. A column in which he admits anything negative about any facet of the economy might be seen as a very bad sign for the economy. But Kudlow makes one claim about Reagan and his policies on the dollar:

Right now the greenback is in virtual freefall. It’s a disorderly drop... Something must be done to reverse this trend, and McCain is in a good spot to do it. Remember, McCain was a foot soldier in the Reagan revolution. Borrowing a page from the Gipper — who always said a great nation has a strong currency — he should argue on the campaign trail for a dollar surge.

cactus at Angry Bear wrote a post about whether it really is true that Reagan favored a strong dollar. He noted that:

Case in point: The Federal Reserve's Major Currencies Dollar Index for January 1981 was: 96.023. In January of 1989, it was 90.5499. Sure, that wasn't the collapse we've enjoyed during the presidency of Bush the Incoherent (Jan 2001: 103.5074, Feb 2008: 72.5747) but it takes a full load of delusion to be simultaneously in favor of a strong dollar and Reagan's dollar policy.

In comments, cursed said this in response:

Please go and look at the strength of the US dollar in 1985 before the Plaza accord purposefully engineered weakening of the dollar in order for US manufactures to compete. Leave going off half cocked to me, and being a cooperate hack to Kudlow.

cursed suggested that looking at the end points of a data set may not be very informative. I have to agree. So I decided to look at the data myself. I plotted year-over-year changes in the dollar index starting from 1974. I changed the color of the bars to indicate which party controlled the white house:
If the value is positive, it means the dollar index increased from one year to the next. If it's negative, the dollar index decreased. The magnitude of the change is reflected in the size of the bar.

So cursed is right; in general, during Reagan's first term, the dollar increased in value relative to other currencies. But the bottom dropped out on the dollar in 1985 after the Plaza Accord (which I don't know much about).

In general, over the last 30 years, the dollar index has performed "better" under Democratic administrations than under Republican ones. It's also clear that, though maybe Reagan "favored" a strong dollar policy, at the very least, he was impotent to maintain a strong dollar. In addition, if the major drop in 1985 is due to the Plaza Accords, then Reagan changed his position (dare I say flip-flopped?) on the importance of a strong dollar policy.

Now, all of this is just to demonstrate that Kudlow is looking back on the Reagan administration with rose-colored glasses. He can be forgiven for this; it's a requirement to be a member of the GOP to believe in the infallibility of Saint Gipper. But he's just plain wrong in this case.

Now, I have to agree with pgl that this whole "strong dolor vs weak dollar" argument is a lot more complicated than it might appear. He says:

Prestige? Patriotism? I guess if one is as clueless about economics as Lawrence Kudlow appears to be, then maybe all one has is prestige and patriotism as excuses for a really bad policy prescription. Kudlow’s line about inflation being the cause of recessions is idiotic. Now it is a lack of aggregate demand.

Kudlow is advocating contractionary monetary policy, which will have two adverse effects on aggregate demand. One is to drive up real interest rates which will discourage both business and residential investment demand. But the main on point transmission channel is the appreciation of the dollar that Kudlow wants, which would lower net export demand.

A "weak" dollar can help during a recession. A president could make things worse by pursuing a "stronger" dollar, especially given the import/export imbalances we've experienced in recent years. A correction was necessary.

I believe that the recent collapse of the dollar is probably temporary, however. There are strong signs that currency markets are highly imbalanced, given that there are specialized US retailers accepting Euros in lieu of dollars. And the financial "ebola" in the US is very contagious and will spread to Asia and Europe, which will force the central banks there to lower interest rates.

Anyway, I have some more thoughts on this, but I've run out of time.

Scott Horton for all things Siegelman

2008-02-27T10:02:00.000-08:00

I followed my own link to Scott Horton's post on the Siegelman case and decided to look at the rest of his blog. Needless to say, he's obviously the go-to guy for all things Siegelman. Lot's of background and lot's of info.

I'll be reading him regularly so that I can follow this case. If this case has sparked your interest. I encourage you to do the same.

Media Blackout worthy of Soviet Russia

2008-02-27T09:40:00.000-08:00

I’m in WA state, so lets just say that Alabama politics doesn’t rank very prominently on my radar screen. But I think that has changed in recent days.

Given I spend far too much time reading news and blogs, I’ve seen the case of former Gov. Don Siegelman mentioned a few times. Siegelman, a Democrat, served as Governor of Alabama from 1998-2002. He narrowly lost in the 2002 election after the Justice Dept hounded him with an investigation into supposed dubious dealings. He was indicted and the case was thrown out of court by the presiding judge on the very first day. He decided to run again in 2006. The Justice Dept started to hound him in an entirely different investigation. DDay at Digby’s place sums up the case:

The nub of the case is that Siegelman allowed HealthSouth CEO Richard Scrushy to remain on an oversight board on which he had already served, and in return Scrushy gave money to a noble effort to improve education in the state of Alabama, an effort Siegelman approved of. That's literally the reason that Siegelman is in a jail cell right now. This is the kind of thing that, were it actually considered bribery, would put every politician in America in jail. The case hung on evidence that Siegelman walked out of a meeting with Scrushy with the check, a baseless lie spouted by a convicted criminal on Siegelman's staff, and the Justice Department KNEW it was a lie and yet continued the case. 60 Minutes tried to talk with the accuser, a man named Nick Bailey, but the DoJ refused to authorize the interview (he's in a federal prison).

The prosecutors nabbed him and then told him he could get a light sentence if he worked with them to nail Siegelman, their real target. This very process is a perversion of the justice system, which as former U.S. Attorney Jones very properly says, requires that prosecutors investigate crimes and not people. But it gets still worse. Bailey testifies that he saw a check change hands at a meeting at which Scrushy’s appointment to the oversight board was decided. This is the evidence that landed Siegelman in prison. And it was false. And the prosecutors knew that it was false.

I never really knew many of these details until 60 minutes ran a piece last Sunday on the case. They interviewed former AG of Arizona Grant Woods, a life-long Republican, Co-Chair of the McCain for President leadership committee, and god-father to one of McCain’s kids. He’s a made man, IOW. He had this to say about the case:

“I personally believe that what happened here is that they targeted Don Siegelman because they could not beat him fair and square. This was a Republican state and he was the one Democrat they could never get rid of.”

Why did this case all of a sudden spark my interest? Well, it started when the Huntsville CBS affiliate went dark for 12 of the 13 minutes the Siegalman piece ran on Sunday:

[J]ust before the segment was to start, people in the northern part of the state who were tuned in to WHNT-TV, Channel 19 in Huntsville, found this on their screen instead:

We apologize that you missed the first segment of 60 Minutes tonight featuring ‘The Prosecution of Don Siegelman.’ It was a technical problem with CBS out of New York.

A problem out of NY? Then why was only the affiliate affected? Scott Horton of Harper’s contacted CBS:

“There is no delicate way to put this: the WHNT claim is not true. There were no transmission difficulties. The problems were peculiar to Channel 19, which had the signal and had functioning transmitters.” I was told that the decision to blacken screens across Northern Alabama “could only have been an editorial call.”

So it wasn’t NY, it was AL. So what really happened? Given that their initial explanation, the one the broadcasted to their viewers, was BS, WHNT changed their story:

The station later denied that it was an editorial decision, but it also changed its explanation. It was the receiver of the signal in Alabama, not the feed from CBS, that caused the blackout, the station said in a statement.

“We can assure you there was no intent whatsoever to keep anyone from seeing the broadcast,” Stan Pylant, WHNT’s president, told The Huntsville Times.

Word is that the station was bombarded with angry viewers that don’t really appreciate media blackouts like those seen in fascist dictatorships. So WHNT ran the segment at 10:00 that night. Opposite the Oscars.

If there was more to this than simple technical error, what would motivate the WHNT to tamper with the dissemination of the free press? As always, follow the money. From Blue Girl, Red Sate:

WHNT is owned by Local TV LLC, and the CEO is a man named Bobby Lawrence.

Now, why is that relevant? Let's have a look at what Robert Lawrence has given to politicans:

[snip long list of contributions]

So the CEO of the company that owns WHNT is a big-time donor to Republicans, and his station goes black when it runs a story about corruption carried out by the Republican Party?

What a coinkydink...

So the station is owned by a Republican who gives handsomely to GOP politicians and campaigns. Big surprise.

This case already stunk to high heaven. No were have media moguls blocking the free press using methods worthy of the former USSR.

I wasn’t paying attention to this case before. I am now. Thanks WHNT for pissing me off.

Russert: what a waste of journalistic space

2008-02-27T07:22:00.001-08:00

I didn't see the debate last night from the fine "journalists" from NBC. But I've seen the whole Farahkhan exchange between Russert and Obama. Classic Russert; he wanted Obama to denounce Farahkhan's comments about Jews, and he did. Then Russert went into the whole crazy train of logic and asked if Obama "rejects" Farahkhan. What the hell does "denounce" mean?

Anyway, I've watched enough Press the Meat to know Russert's shtick. He doesn't care about the dissemination of accurate facts or information. He doesn't care about the public good. He doesn't care about issues of policy or differences of substance between candidates. Instead, he's a gotcha journalist. Gotcha journalism has its place; it's an essential tool in any journalist's toolkit. But there is more to journalism than just trying to get a candidate to squirm about something you said ten years ago that contradicts something you said last week. Not that changes in position aren't important, but there has to be more than that.

Russert does this just to make news. He doesn't give a rat's ass about substance. Instead, his entire MO is gotcha. Yglesias covered this really well for the Washington Monthly a few months back. A snipet:

Actually, the balls Russert favors may be hard, but the pitches he throws aren't curveballs, which go someplace useful. They're sillyballs, which go somewhere pointless. Russert has created a strike zone of his own where toughness meets irrelevance. John McCain entered the zone last May, when he went on the show and repeatedly asserted that the Bush tax cuts had increased the federal government's revenue. Hearing this, a tough but conscientious journalist might have pointed out that this is demonstrably false. Russert, however, reached for a trusty hardball and sent it sailing. McCain, he pointed out, was now supporting extending the very same Bush tax cuts that he had once opposed.

Well, yes, but this was a bit like asking someone who says the world is flat why he used to say the earth was round. The contradiction Russert pointed out was real—but hardly central. In fact, if tax cuts actually had increased revenues, then McCain's change of heart would have been perfectly logical. The real problem was that McCain's theory of the relationship between tax rates and revenue wasn't true. In Russertland, though, as long as you acknowledge the contradiction, the questioner is satisfied. "You say the world is flat, but just three years ago you said it was round." "You know, Tim, yes, I used to say the world was round, but times change, and that's why I support the Bush administration's bill to construct a restraining wall to prevent ships from sailing over the edge of the sea." And so on.

The whole thing is worth a read.

Digby asks what we can do about Russert. If I feel more inspired later today than I am at 7:30 in the morning, I try to discus this later.

Ignoring Liberal Fascism; Worked Well for Dealing with Creationism

2008-02-25T14:31:00.000-08:00

As much as it would be nice to ignore Goldberg's stupid thesis, that is probably the worst response the left could embrace. Liberal Fascism is a lot like creationism: selective use of facts, quoting out of context, the supposed "oppression" from the intellectual elite. Most scientists think that the best response to creationism is to just ignore it. Yet it continues to fester. Right now, creationists are pushing change public school curricula standards in FL and TX to include creationist and/or anti-evolution view points.

Like creationism, there has to be some pushback against all forms of well-funded and highly orchestrated movements to propel ignorance into the mainstream. Goldberg's book hit #3 on the NYT best seller list. We can try to ignore, but unfortunately not enough of America will to make it a viable strategy. Helpful reviews like Michael Tomasky's and the work done at Orcinus that place well-deserved ridicule on Liberal Fascism are necessary, unfortunately.

Debt as Percent of GDP

2008-02-25T13:42:00.000-08:00

Inspired by this post at Angry Bear (ht Atrios), I noticed a striking pattern and decided to dig a little further into the data taken from the Economic Report of the President, table B-79. Over the last 30 years, when there has been a Republican occupying the office of the President, the national debt as a percentage of GDP has soared. You can see that it increased from about 35% at the beginning of the Reagan Admin to almost 70% by the time Bush Sr. was booted from office.

Another way to illustrate this is look at YOY change in the debt:GDP ratio. That is, if the ratio increased from Year 1 to Year 2, then the YOY change will be positive. Conversely, if the ratio decreased from Year 1 to Year 2, then the YOY change will be negative. This figure is particularly striking.
You can see that the debt:GDP ratio improved (ie became smaller) YOY under the Carter administration. This is especially surprising, because the US economy was in a recession and I imagine GDP growth was relatively stagnant. After all, this ratio could improve if GDP grew faster than the debt. Since a recession is, by definition, weak GDP growth, then that means there was no significant growth in national debt during Carters tenure.

Reagan/Bush Sr, in contrast, pushed the debt:GDP ratio to astronomical heights. No doubt this was a combination of increased military spending and decreased revenue due to massive tax cuts.

Clinton improved the debt:GDP situation somewhat, and in fact the debt:GDP ratios were most negative in 2000 Clinton's last year in office.

Bush, Jr has adopted his father's "charge it and forget it" ways and has pushed the debt:GDP back into record territory. Again, a nasty combination of tax cuts and rampant military spending.

Despite their claims, Republicans can hardly be called the party of fiscal responsibility...

Perk Oil

2008-02-14T11:00:00.001-08:00

So who has benefited most from the global oil economy and $100/barrel oil? Mish drops some hints here. Be sure to keep scrolling down to see the car made of pure silver.

Remember, Dubai is now the home of Haliburton. They abandoned the US of A for an Arab dictatorship swimming in money. And this is the same company Cheney was CEO of just before becoming Vice President of the United States of America.

You Walk Away

2008-01-30T07:30:00.000-08:00

Foreclosures are through the roof. There were 75% more foreclosures in 2007 than in 2006. Look for 2008 to be even worse.

But what recourse does a family have that bought at the peak and is paying a lot more per month for an "asset" that is depreciating in value? Meet You Walk Away:

I spoke with John Maddux a "senior advocate" with You Walk Away (YWA) about the business. As one might expect it is booming. For $995 one receives a half hour of legal counsel where individual strategies are mapped out and all the laws pertaining to recourse vs. non-recourse loans as well as judicial procedures are explained to the customer. YWA also files the necessary legal papers to stop mortgage companies from calling and informs you immediately of how many days you will be able to stay in the house for free. Should the lender take longer to process the documents, YWA will keep you informed of any extra time.

With the amount of money at stake, the fee seems reasonable for the services provided.

Unity08 on Health Care

2008-01-10T10:16:00.000-08:00

Unity08 is an astroturf organization whose major platform is ... uh... unity I guess. But fundamentally it's an organization whose major purpose is to shape the political debate for Campaign 2008, trying to reverse the slide towards populism. Populism is readily apparent in the platforms of the Democratic candidates, especially Edwards. But this year is especially surprising given the populism seen in the campaigns of some on the GOP side, particularly in Mike Huckabee's campaign but also amongst the Paul crowd (though they don't explicitly endorse traditional populism). Thus there is great angst amongst the "Village" elders that the rabble may actually have a voice in this campaign.

Anyway, Unity08 is a collection of "centrist" politicians that claim that partisanship is hurting the country. They' held a "convention" of sorts in Oklahoma last weekend, rallying around Michael Bloomberg, billionaire mayor of NYC, truly a man of the people. Lately they've been all over the MSM talking about forming an "American" administration, made up of Republicans and Democrats. Kumbaya and all that...

(Aside: Where the hell were these guys in 2000, when the country was truly split ideologically, and the man that made it into the White House got there by losing the popular vote by 500,000 votes but won a 5-4 Supreme Court decision after 5 weeks of legal wrangling? I could see the need for a "compromise" administration then; but Bush took all the marbles and filled the govt with far right ideologues. These guys haven't made a peep the last seven years.)

Anyway, it's looking like it's going to be a Democratic year, and populist sentiments are running high on both sides of the isle. Unity08's job is to undercut populism and shift the debate in favor the big money interests that truly run the country.

Unity is nice and all, but where does Unity08 stand on the issues? I went to their website to find out.

Turns out Unity08 doesn't take a position on any of the issues. Instead, it's all member driven. And some of runs so contrary to "unity" that you might feel like it's 1984.

Take health care for example. The members of Unity08 get to rank the issues, and they've placed health care at the 2nd most important, just behind energy independence. I would agree with that, but I wanted to find out more. The have a number of links under health care, including one that says "solutions to the problems".
This brought me to this Unity08 page, which has a single link to a site that has "good ideas". It's url is www.newt.org. Something was telling me that it wasn't a site about Urodela...
Sure enough, my fears were confirmed. The "solutions to the problems" facing health care in this country can be found in the Bishop of Bipartisanship, the Emperor of Unity, Newt Gingrich!!! Under the issues, Gingrich links to "the Center for Health Transformation". If you go back to the Unity08 health care page, you'll see another link to "Health care transformation". Hmmm... transformation... I clicked on the link, and sure enough it also links the Center for Health Transformation. So who is the Center for Health Transformation?

Sourcewatch says this:

Center for Health Transformation (CHT), a think tank founded in 2003 in Washington, D.C., by former Speaker of the House Newt Gingrich as a project of the Gingrich Group, is a for-profit consultancy and membership organization "comprised of corporations and organizations that all have a vested interest in transforming health and healthcare," its website states.

Be sure to take a look at the Sourcewatch page, especially the companies behind CHT. If you're familiar with the health care industrial complex, you'll recognize many of the names.

But what does the CHT stand for? They have a number of initiatives they're in favor of, including promotion of health savings accounts and tort reform. Basically the GOP platform. Some Unity that is.

But if Unity08 were to put together a truly bipartisan ticket, say Sharpton\Tancredo, I may change my mind...

Health Care in America

2008-01-09T15:38:00.000-08:00

I've seen this figure twice now, so I decided to go to the original article published in Health Affairs, Jan./Feb. 2008), by Ellen Nolte, Ph.D., and C. Martin McKee, M.D., D.Sc., both of the London School of Hygiene and Tropical Medicine.

It's a pretty interesting read. The measure rates of death due to amenable causes in 19 developed nations in 1997-98 and 2002-03. Their criteria for "amenable causes" is:

The selection of causes of death considered amenable to healthcare is based on our previous systematic review. In brief,for this paper we considered conditions such as bacterial infections,treatable cancers, diabetes, cardiovascular and cerebrovasculardisease, and complications of common surgical procedures. Wealso included ischemic heart disease (IHD); however, in linewith accumulating evidence suggesting that only up to half ofpremature mortality from IHD may be potentially amenable tohealth care, we here considered only half of IHD deaths to be"amenable." Throughout this paper, the term "amenable" mortalityalways includes half of IHD deaths.

They found the US was ranked 15th out of 19 in 1998 in our rate of death from amenable causes fr people aged 0-74. in 2003, we slipped to 19th. Dead last.

Here's the rub, though. We actually improved our death rate, but nearly as much as other countries improved theirs. Thus we got lapped. Here's the figure that illustrates the percentage change in death rate from 1998 to 2003:

We improved our rate by about 4%. The country that improved it's rate second worst was Greece, and they managed to improve it by 10.5%. Austria and Ireland managed to improve their rates by about 25%.

They speculate on what could be happening in the US:

The rate of amenable mortality is a valuable indicator of healthcare system performance, although it is important to note thatthe underlying concept should not be mistaken as definitiveevidence of differences in effectiveness of health care butrather as a an indicator of potential weaknesses in health carethat can then be investigated in more depth. At the same time,the findings presented here are consistent with other cross-nationalanalyses, demonstrating the relative underperformance of theU.S. health care system in several key indicators compared withother industrialized countries. The underlying reasons forthe observed lack in progress in the United States as a wholeare likely to be manifold; however, it is equally clear thatan aggregate national figure of amenable mortality as presentedhere will inevitably conceal large variations in terms of geography,race, and insurance coverage, among many other factors. Thiswas recently demonstrated in the State Scorecard on Health SystemPerformance, which revealed a twofold difference across thefifty states and District of Columbia on the measure of amenablemortality in 2002. It also estimated that if all states achievedlevels seen in the best-performing state on this measure, about90,000 premature deaths might be avoided annually. However,this figure still falls short of the 101,000 deaths that couldbe avoided if the United States were to achieve levels of amenablemortality seen in the three top-performing countries.

But don't let anyone tell that you we don't have the best health care in the country...

kos on the Clinton Haters...

2008-01-09T07:20:00.000-08:00

A good set of comments from General kos-imo about what Clinton hate from the left will bring:

[T]he more assholish her detractors behave, the more you help her. The way she was treated the past few days in New Hampshire was a disgrace, and likely a large reason for her surprise victory. So keep attacking her for bullshit reasons, and you'll be generating more and more sympathy votes for her. Obama's "you're likable enough" was likely worth 2-3 points all by its lonesome self...

The more she's attacked on personal grounds, the more sympathy that real person will generate, the more votes she'll win from people sending a message to the media and her critics that they've gone way over the line of common decency. You underestimate that sympathy at your own peril. If I found myself half-rooting for her given the crap that was being flung at her, is it any wonder that women turned out in droves to send a message that sexist double-standards were unacceptable? Sure, it took one look at Terry McAuliffe's mug to bring me back down to earth, but most people don't know or care who McAuliffe is. They see people beating the shit out of Clinton for the wrong reasons, they get angry, and they lash back the only way they can -- by voting for her.

I think this is probably what made all of the difference. Everyone is all a-buzz this morning about the discrepancy between the exit poll data and the final results in New Hampshire. Yet the exit poll data wasn't that far off, at least as far as Obama is concerned. Matt Yglesias shows here that Obama got pretty much the percentage that he got in the final polling before the election.

What probably happened is that the substantial number of undecideds broke for Clinton at the end because they grew sick about the media taking a giant crap all over her after what happened in Iowa. It's understandable; I wouldn't hesitate to vote for a candidate that doesn't really grab me if meant that Chris Mathews would feel at least little bit like the giant dipshit that he is.

Trading on CFC halted?

2008-01-08T10:17:00.001-08:00

Just read in forums at Calculated Risk that trading on Countrywide is halted. Bad, bad news. I'll update this if I find the news link. No luck yet...

Update: I still can find news on this. Still looking...

Update2: Yep, trading was halted, but resumed so that CFC could say that there is nothing to BK rumors.

Here:

Countrywide resume trade

08/01/08

NEW YORK (Reuters) - Countrywide Financial Corp shares recovered some of their earlier losses after the largest U.S. mortgage lender rejected market speculation on Tuesday that it was planning to seek bankruptcy protection.
In trading following the end of a trading halt, the shares were down $1.00, or 13.1 percent, at $6.64 on the New York Stock Exchange. They had earlier fallen to $5.76.

Problem is, this story is a few hours old. CFC is now down over 30% right before the end of trading. Ouch.

Big News on the Big $hitpile

2008-01-08T09:15:00.000-08:00

This ain't good

Countrywide Financial tells judge it 'recreated' letters -NYT
By MarketWatch
Last update: 11:25 a.m. EST Jan. 8, 2008

The Countrywide Financial Corp. fabricated documents related to the bankruptcy case of a Pennsylvania homeowner, court records show, raising new questions about the business practices of the giant mortgage lender at the center of the subprime mess, The New York Times reported on its Web site Tuesday.

The documents - three letters from Countrywide addressed to the homeowner - claimed that the borrower owed the company $4,700 because of discrepancies in escrow deductions. Countrywide's local counsel described the letters to the court as "recreated," raising concern from the federal bankruptcy judge overseeing the case, Thomas P. Agresti.

CFC is down 15% right now to $6.50 per share. Think Bank of America is rethinking their stake in this stinker?

Hard to imagine the a company led by such an upstanding, ethical CEO like Tan Man Mozillo would be caught fabricating legal documents. Hard to imagine...

The Bottom 40% vs. The Top 1%

2008-01-07T10:12:00.000-08:00

Yep, I'm still digging though the CBO data released a few weeks ago, so here's a little more on income inequality. I decided to put together a graphic which will clearly illustrate just how much income inequality has changed since 1979. Some of this I mentioned in a previous post, but I felt I needed to make a separate post to drive home this point.

In 1979, the average household from the Top 1% earned $326,000 in after-tax income. The average income for 40 average households from the bottom 40% was $870,000. In other words, 40 typical households in the bottom 40% would split $870,000 40 times for $21,700 each.

In 1979, the average Top 1% household earned 15 times more than the average Bottom 40% household. Still, when you add the total income accrued by the Bottom 40% in 1979, they earned almost three times as much as the Top 1%.

So how have things changed since then?

(Click on image for larger version)

If you read any of my previous posts, you know that income growth has skyrocketed for the Top 1%. Currently, the average after-tax income for the Top 1% is $1,071,000. That is greater than if you were to add up the average 2005 income for the Bottom 40%, which is only $980,000. And remember, that income needs to be split 40 ways, with only $24,500 going to each household in the bottom 40%. In 2005, the average Top 1% household earned nearly 45 times as much as the average bottom 40% household.

The average Bottom 40% has grown almost 13% since 1979. For the Top 1%, the average household income has grown a whopping 228%.

Income inequality was bad in 1979. It has only gotten much worse since then.

EtOH induced coma

2008-01-01T18:07:00.000-08:00

The first candidate to come out against limitless New Year's Eve shots taken from giant ice sculptures with little channels in them that lead to worshiping at the porcelain altar till daybreak gets my vote.

Rough night last night; even rougher day today.

Ugh...

War on Christmas

2007-12-25T13:23:00.001-08:00

The War on Christmas is hopefully the war to end all wars. Our noble leader had this to say:

"We actually misnamed the War on Christmas. It ought to be the Struggle Against Ideological Extremists Who Do Not Believe in Yuletide Greetings Who Happen to Use Secularism as a Weapon To Try To Remove The Christmas Spirit From The Free World."

Or at least something like that...

Holiday

2007-12-25T13:19:00.001-08:00

I'm in Chicago spending time with friends and family for the Holiday. I won't be posting that often, but I expect to get a post or two up about the changes the past few years in the CDO market the last few years. Sounds boring, I know, but we have seen AMAZING growth in finance the last fews, and it will blow your mind. The troubles happening right now in finance will have huge implications for everybody. Stay tuned.

In the mean time, have a Merry Christmas.

Huckabee Hate Stems From Only One Thing

2007-12-21T15:36:00.000-08:00

Where does all the Hate for Huckabee come from? You may have noticed that GOP talking heads have really started to pull out the long knives for poor ol' Huck. Matt Yglesias points to this bit from the gasbags at NRO. They think he's just too folksy, gosh darn it all ta heck!

Others have complained about his recent Foreign Affairs piece, which they say shows that he just isn't all that serious. Come on! Is Huck all that different that the rest of the GOP field when it comes to foreign policy? The only difference I can find between Huck and the rest of the lot is an inane argument about whether Bush Admin foreign policy was just plain ol' good, or was it freakin' great.

Push back against Huck has nothing to do with his foreign policy agenda or any policy agenda for that matter, save one.

TAXES

Huck raised taxes while Gov of Arkansas. And not by a little; he raised them a lot! This is the one unforgivable sin in the GOP.

You can diddle little boys, play footsie in public bathrooms, and bang hooker after hooker and the GOP establishment could give two shits. But you even think about raising taxes, the GOP establishment will take out both your knee caps and beat the crap out of your mother with a tire iron, just for good measure.

Problem is, Huck has impeccable Christian credentials. He's the real deal.

Compare him to the cross-dressing pro-gay, pro abortion "Catholic" from NYC.

Or the Northeast flip-flopping cult-member.

Or the 71 year-old former Episcopalian "Falwell is an agent of intolerance" now "I'm a Baptist, really!" with a giant goiter on his face.

Or the professional FrankenBerry-esqe lobbyist that thinks of nothing of lobbying for pro-abortion groups, as long as they pay.

Let's face it, Huck is gaining traction because the rest of the field is a bunch of fakes and frauds as far as the Evangelical base is concerned.

But the GOP establishment is very powerful, and they will stop at nothing to protect every last cent they have.

It's All About The $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$!

M-LEC is dead

2007-12-21T15:24:00.000-08:00

Long Live M-LEC!

ACA only one of many stinkers

2007-12-20T22:03:00.001-08:00

It's amazing; it's only been two weeks when I started to pay attention to ACA Financial. Their share price took a big fall, dropping about 60% in just two days. Surprisingly, their share price marched back after that, regaining most their losses. I was checking every day for news, but there was nothing for about a week. Then they were delisted from the NYSE. But the poo-poo really hit the fan when they were rated down to junk status by S&P.

Since then, there has been enormous fall out. A lot of attention has been paid, because it turns out ACA was a small fish in the big pond of bond insurers. And the rotting corpse of ACA is starting to make all the other fish in the pond very sick. A Google news search pulls up TONS of articles, so feel free to look there for much more expert opinion than anything I can pull out of my amateur ass.

I'll do some looking, but you can't go wrong visiting Calculated Risk. They've been covering the most important developments, and the comment sections are usually worth reading. I'm a wanna-be finance guy; Calculated Risk is the real deal.

Total Income

2007-12-20T15:15:00.000-08:00

Yes, I am truly trying to wring as much as I can from the CBO data; today is no exception. I have a new figure that also shows some very interesting patterns, but really isn't much of a surprise if you have already read my other posts on this topic.

I showed in a previous post that the rate of change is very unequal across groups. Things have been very, very good for the Top 1% in this country; for everyone else, less so. This new figure illustrates that point in a new way.

I calculated the total amount of after-tax income accrued by each category per year. The US economy has grown immensely since 1979, even when adjusted for inflation. Every single group earned more income in 2005 than in 1979, and in general people on average earn more than they did the year before. I have eight categories:

Lowest Quintile - 1-20 percentile; earn on average $15,300 = 20% of the population
Second Quintile - 21-40 percentile; earn on average $33,700 = 20% of the population
Middle Quintile - 41-60 percentile; earn on average $50,200 = 20% of the population
Fourth Quintile - 61-80 percentile; earn on average $70,300 = 20% of the population
Top 20% - 10% - 81-90 percentile; earn on average $96,127 = 10% of the population
Top 10% - 5% - 91-95 percentile; earn on average $125,426 = 5% of the population
Top 5% - 1% - 96-99 percentile; earn on average $200,533 = 4% of the population
Top 1% - 100 percentile; earn on average $1,071,500 = 1% of the population

Those wages are for 2005, after-tax income. I multiplied the after-tax income for each category by the number of people in that category. Part of the reason that total income has increased for every category is that the total number of households has increased since 1979. There were 81.1 million household in 1979. In 2005 there were 114.5 million. Thus total income given to each category per year has (in general ) increased because the number of household in each category has increased.

This figure shows the total after-tax income earned by each category since 1979:
I've bolded the line for the Top 1% because that category shows the most interesting pattern. In 1979, the Top 1% earned just a little bit more than the bottom 20%. Remember, the Top 1% is only 1% of the population, whereas the lowest quintile is 20%. In reality, the top 1% earned more than 20 times the average income of the lowest quintile in 1979. But here I am treating all the categories the same, ignoring the fact that the various categories actually represent differing numbers of people.

Anyway, in 1979 the Top 1% earned only 282 billion dollars, and only ranked seventh out of the eight categories. Since then, their total income growth has skyrocketed. They are now in second place, earning over 1.2 trillion dollars. The Top 1% now earns more than the bottom 40% combined (1.1 trillion).

Something else to note. The middle quintile, which could be considered at least a proxy for the middle class and representing 20% of the population, earned 2.2 times more than the Top 1% in 1979. In 2005, the middle quintile earned less as a group than the Top 1%.

Ironically, though it looks like the Top 1% is on it's way to take over the Fourth Quintile for the top spot given the category's exponential growth, I don't expect that to be the case, at least for 2007. The credit crisis will lead to massive losses on Wall St (it already has), and given that huge portion of the Top 1% are in finance (they're not all Google billionaires) I expect that we will see a significant crash in their income for 2007 and probably 2008. The current fiscal crisis is bigger than anything we have seen for a long, long time, and the fallout for the Top 1% will be significant.

Of course, that doesn't mean peaches and cream for the rest of us either. A recession hurts everyone, and 2008 will be no different.

The Edge of Evolution

2007-12-19T14:32:00.000-08:00

That's the title of Michael Behe's latest book. For those of you who aren't in the know, Behe wrote Darwin's Black Box in 1996, in which he argued that molecular machines are too complex to have evolved by natural selection. It was, and still is, a very important book in the Intelligent Design (ID) movement.

His new book has been reviewed by David E Levin, available at the NCSE website. The whole thing is worth reading, but I found this part especially interesting:

What is perhaps most remarkable about The Edge of Evolution is how much Behe now concedes to the evidence that supports Darwinian evolution. He not only accepts that life has existed on earth for billions of years, but that it has evolved over time. He now agrees with the Darwinian notion that all life on the planet "descended with modification from one stage to another." He even acknowledges that natural selection is the obvious mechanism by which adaptive gene variants spread through a population. It is difficult to imagine his core audience being receptive to this revised position. But at this point, Behe is stuck between the need to establish a semblance of scientific credibility and the desire to forward his distinctly unscientific creationist ideas.

Levin argues that the only thing Behe has left for God to do is act as a mutagen. Life can evolve all on it's own, but needs a little tinkering here and there.

Some things are not addressed in Levin's review, but they may be addressed in Behe's book. I haven't read it yet, but I would like to know if Behe suggests the first life form was "frontloaded" with all of the needed mutations for all of the life forms that were to follow. Or does Behe suggest that God intervenes whenever a mutation is needed? If that's the case, how does God accomplish these mutations? Are His interventions limited to just toying with DNA, or does he tinker in other ways?

Change in income over time

2007-12-19T12:34:00.000-08:00

My previous posts focused on change in share of income over time. Those posts showed that the highest 5% of income earners have greatly increased their share of total income, whereas the bottom 90% has actually decreased in share of income. That's a bit meta, given that it doesn't take into account overall increases in total income. I decided to create some new figures that just focus on income.

Some notes about what I did, first. I used the data that the CBO released last week. I used after-tax income; this is important because it is a more conservative assessment of income. If I used pre-tax income, the differences I show below would be even more exaggerated. In addition, given that some groups don't pay any federal income taxes, I felt it was probably better to use after-tax income so that we're comparing apples to apples. The data came from page 1C in their spreadsheet

Second, the CBO gives data in quintiles. They break down only the top quintile into smaller groups. Unfortunately, their breakdown is inclusive. Thus, their Top 5% includes the Top 1% and the rest of the Top 5%. I had to calculate the Top 5%-1% group by subtracting out the Top 1% from the Top 5% group, and so on.

Now to the data. This figure shows after-tax income per household since 1979. These are in 2005 dollars, which adjusts for inflation. Except for the numbers I calculated for the top percentiles, the raw data comes right off the CBO spreadsheet. (Sorry, no log scale. You want log scale? Make your own fig!)

In 1979, the lowest quintile made $14,400 in 2005 dollars; the top 1% made $326,400, or 22.7 times more than the average person in the lowest quintile. As the figure above shows, this gap has widened. In 2005, the lowest quintile made $15,300; the top 1% made $1,071,500, or 70 times more than the lowest quintile.

I also wanted to know how income has changed over time since 1979. The fig below shows percent change in income since 1979 adjusted for inflation. As you can see, every group is making more money now than they did in 1979. Yet some groups are doing a little bit better than others.
The after-tax income per household in 2005 for lowest quintile is 6.25% higher than it was in 1979, adjusted for inflation. The after-tax income per household in 2005 for the Top 1% is 228.3% higher than it was in 1979, adjusted for inflation.

There are some interesting facts to point out. It's clear that the income for the Top 1% is especially sensitive to good times and bad times on Wall St. The sharpest drop-offs in their income comes during the 1987 crash and the 2000-2001 tech bubble implosion. Yet despite all of that volatility, they are making 228% more than they were in 1979 when adjusted for inflation. Not too shabby.

The lowest quintile also shows a very interesting pattern. the 80's were especially hard on the poor. Their income decreased for the first five years and was flat for the rest of the decade. The 90's saw an interesting turn around for after-tax income for this group. They saw substantial growth in their income through the entire decade, growing to 13.2% greater than their 1979 income in 1999. Their gains were so impressive that they almost reached the same growth achieved by the second and middle quintiles.

Yet, since 2000, fortunes for the bottom quintile have waned. They shed nearly all of their gains by 2003, when their inflation-adjusted income was only 4.17% higher than it was in 1979. The Top 1% also took a hit in 2003, sinking to only 128% higher than their 1979 income. Luckily they have made it all back and then some in just two years.

I'll do some more thinking about all of this. For the time being, all of this brings to mind a saying:

A rising tide lifts all yachts...

Huckabee's rise = Giuliani's Fall

2007-12-18T16:27:00.000-08:00

TPM posted some interesting data from poll results from Oct to Dec. The rise of Huckabee, much to the chagrin of the GOP establishment, has been at expense of Rudy Giuliani's campaign. Things have gotten so bad for the Rudy-ites that they have pulled out of Iowa AND New Hampshire and are betting on Florida to snatchvictory from the jaws of defeat. It's not going to happen, only because wind is at Huckabee's back and blowing in Rudy's face.

Anyway, the fig our good friends at TPM put together kinda sucks, so I made one that shows the trend better. Here it is:
If the lines have an upward slope, the politician is rising in the polls. If they have a downward slope, the politician is sinking like a stone. As this shows, Huckabee is the rising star. And Giuliani, well let's just hope that those breast double as flotation devices...

More on Income Inequality

2007-12-18T13:26:00.000-08:00

My posts below on the distribution of income over time in US does not take into account a number of things.

One of those is that though the piece of the pie for the bottom 90% of the population in the US has grown smaller, the pie as a whole has grown larger. I am wadding through the CBO data to find out more on how to best represent this issue. I'll post more on it later.

The other thing that the CBO data released last week does not address is income mobility. The Center for American Progress released a study last year on income inequality and mobility in the US.

Some highlights:

By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.

And:

Since 1990-91, there has been an increase in the share of households who experienced significant downward short-term mobility. The share that saw their incomes decline by $20,000 or more (in real terms) rose from 13.0 percent in 1990-91 to 14.8 percent in 1997-98 to 16.6 percent in 2003-04.

And the middle class has more income volatility:

The middle class is experiencing more insecurity of income, while the top decile is experiencing less. From 1997-98 to 2003-04, the increase in downward short-term mobility was driven by the experiences of middle-class households (those earning between $34,510 and $89,300 in 2004 dollars). Households in the top quintile saw no increase in downward short-term mobility, and households in the top decile ($122,880 and up) saw a reduction in the frequency of large negative income shocks.

There is a lot more at the CfAP website, including race as a significant factor on upward mobility. Worth reading.

Cut out the middle man

2007-12-18T12:58:00.000-08:00

Looks like the Writers Guild is looking to make an end run around Big Media. They are in negotiations with venture capitalists to create new media organizations that will distribute programming via the web. Found this via The Big Picture. He quotes a piece in the LA Times:

"Dozens of striking film and TV writers are negotiating with venture capitalists to set up companies that would bypass the Hollywood studio system and reach consumers with video entertainment on the Web.

At least seven groups, composed of members of the striking Writers Guild of America, are planning to form Internet-based businesses that, if successful, could create an alternative economic model to the one at the heart of the walkout, now in its seventh week.

Three of the groups are working on ventures that would function much like United Artists, the production company created 80 years ago by Charlie Chaplin and other top stars who wanted to break free from the studios.

"It's in development and rapidly incubating . . ."

I've heard a similar story like this before. Something about big, lumbering dinosaurs and quick, nimble mammals...

Welcome Political Animal/Washington Monthly Readers!

2007-12-18T11:32:00.000-08:00

Thanks to Kevin Drum for linking to my post on income inequality. I'll be going through the more of the CBO data when I can and highlight anything else of interest that emerges. In addition, I tend to blog about finance issues, politics and science. I try to make it substantive, and I love to trudge through data and plot charts.

If America had $100 and 100 people...

2007-12-14T11:52:00.000-08:00

Here's an easy way to look at income distribution and how it has changed over the years. Let's pretend America has 100 people in it and that the total income for all of America is $100. If everyone made the same per year, everyone would get $1.00 each.

Obviously no free market society operates that way. Instead, there is variability in talent and capability, and some people are able to perform some very important jobs better than others. Those talented people are hired at a premium, and thus they make more than others. That gives us an income distribution, with some people making more money than others. In our example, some people are going to get more than a dollar and some will get less. That's reality.

So how has the income distribution changed in our society since 1979? I've been going through the latest data from the CBO and have come up with a couple of figs to describe this.

First a little about "binning". A data set is best illustrated when you put them into categories, or bins. The CBO has made five bins, called quintiles. Thus, the bottom 20% is the lowest quintile, the people who accrue on average between 20% and 40% the total share of income per year are in the second quintile, and so on. The problem with binning is that you lose resolution. The CBO only chose 5 bins, and therefore it is impossible to say what is happening within a given bin (except for the highest quintile; more on that later).

Below is a figure that illustrates how income would be distributed to the various quintiles if our economy were $100 large and the US had a population of 100 households. The value at any given point is the average amount of $100 dollars each person receives per bin.
Thus, in 1979 each of the twenty people in the lowest quintile received $0.26, and each of the twenty people in the highest quintile received $2.21. As you can see, though, that the amount of the pie each group gets per year has changed over time. The top 20% has expanded it slice of the pie, while the bottom 80% has gotten a smaller and smaller piece of the pie. For example, in 2005 the twenty people in the lowest quintile received only $0.19 each, and each of the twenty people in the highest quintile received $2.73. In other words, the top twenty people get $54 of the $100 and leave $46 for the rest of the 80 people. The change over time can be illustrated as a % change distribution of the $100.

This figure shows that the piece of the pie given to the wealthiest people in the US has grown by 23% over the last 26 years. The piece of the pie given to the bottom 80% has decreased since then, as much as 28% for the bottom 20 people. The percentages don't add up because this is how each piece of the pie has changed over time. The bottom has a small piece to begin with; thus, a small decrease for them is actually quite big, relatively speaking.

The CBO also provides data for income distribution for within the highest percentile. The break the data down by Top 10%, Top 5%, and Top 1%. I showed you above that, on average, each of the top 20 get $2.73. But what if you break the top 20 into categories themselves? How does the $100 breakdown after that? Glad you asked...

Remember, this fig represents how much each person in each group receives out of $100. Unlike above, when we were just looking at quintiles, not all the groups are the same size. The Top 1% has only 1 person, the Top 5% -1% has 4 people, and so on till we get to the quintiles where there are 20 people per group.

As you can see, the distribution of the $54 to the top 20 people is actually highly skewed as well. In fact, it is so skewed I had to magnify the y-axis in order to make room for all the other data points for the bottom 95%. This is because the share of the $100 the top 1%, which in our example is one household, is so much greater than everyone else. That one person received $8.73 of the $100 dollars in 1979; in 2005 that one person got $18.39. How has the percentages changed over time? Each of the 4 people in the Top 5% -1% group received $2.71 in 1979 and $3.18 in 2005, on average.
The only group that hasn't changed much is the people ranked from 5 to 10 since 1979. The bottom 90 people have gotten a smaller piece of the pie over time. The #1 person has more than doubled his take. The only people to significantly increase their share of the $100 over time is the top 5 people.

So how did we get to this situation? More on that later...

The widening divide

2007-12-14T09:28:00.001-08:00

The Congressional Budget office has released data detailing the change in income, share of income, and tax liability across incomes from 1979 to 2005. It paints the same picture that has been emerging in other data sets for years: the income gap between those that are the highest income earners and those that aren't is growing wider.

I made some figures from the data that they have available. This first figure lists the share of total income accrued by groups of income earners. The data is broken up into quintiles; that is, the bottom 20% is the lowest quintile, the people who accrue on average between 20% and 40% the total share of income per year are in the second quintile, and so on. Of course, the quintile to keep an eye on is the highest quintile, which represent the wealthiest 20% of our country.

(click on image for larger format)

Portraying the data this way reveals a particular pattern. The share of income in our country has decreased since 1979 for 80% of our country. This loss of income has been transfered to the top 20% of this country, who had 45% of the income in 1979 and now has 55% of the income in 2005.

These trends are even better illustrated in this figure:

This illustrates the change in share of income normalized to 1979. If a quintile increased its share since 1979, then the value for the year would be positive. If a quintile decreased its share, then it would be negative. Zero would mean there is no change in the total share of income.

The bottom 80% all show the same trend: an equal loss in share of income. For the top 20%, there is an increase. Clearly tax cuts directed to the top earners is having its desired effect. The amazing thing is that the share for each of the bottom quintiles has decreased by about the same amount. So it's not like it's just the poorest of the poor are getting squeezed. Instead, anyone who is not rich is getting screwed equally, including the middle class.

Mathew Yglesias has some information on this here, and Kevin Drum expresses his jealousy for not getting a cool looking figure up fast enough here.

The CBO also has data breaking down the top quintile into finer categories. I'll be looking at those data a little more closely later today.

ACA to be delisted from NYSE

2007-12-14T07:23:00.000-08:00

I've been watching ACA the past week or so since my last post on the firm. ACA Capital is an insurer for holders of structured finance, providing insurance to firms that have invested in CDOs, including mortgage backed securities. Basically, probably the worst kind of business plan in existence right now, even if you include those that provide insurance for dog poop.

Anyway, the $hitpile has hit the fan, and ACA has been notified by NYSE that it will be delisted:

NEW YORK, Dec 13 (Reuters) - The New York Stock Exchange has notified ACA Capital Holdings Inc. (ACA.N: Quote, Profile, Research) that it is not in compliance with the NYSE's continued listing standards, the company said on Thursday.
ACA Capital is considered "below criteria" because its total market capitalization has been below $75 million over a consecutive 30 trading-day period and its stockholders' equity is less than $75 million, the company said.

John C. Ogg at 24 hr Wall St has more:

ACA Capital Holdings, Inc. (NYSE: ACA) has been notified by the NYSE that it had fallen outside of the NYSE’s continued listing standards and is now "below criteria" and will have a ".BC"status on teh NYSE tape. This is due to its total market capitalization being less than $75 million over a consecutive 30 trading-day period and its stockholders’ equity is less than $75 million. ACA Capital had 45 days from receipt of the notice to respond with a business plan that demonstrates its ability to achieve compliance with the continued listing standards. But that is all for naught.

ACA Capital said in its press release that it does not believe that it can take steps which will permit it to satisfy the financial continued listing criteria of the NYSE within the 18 month cure period. ACA Capital DOES NOT intend to submit a plan to the NYSE. ACA Capital has been informed by the NYSE that it will commence suspension and delisting procedures as a result of the failure to submit a plan.

He also mentions this bit of info that I didn't know before this morning:

Bear Stearns (NYSE:BSC) owned a huge slug of this company. Shares closed down $0.02 at $0.68 today, and the 52-week trading range is $0.22 to $16.55.

I didn't know that BSC had a big stake in ACA. Like they need any more trouble given the meltdown that they had in August. Shares of ACA are currently down 55%. Ouch.

Will update with more info if anything else happens.

2007-12-13T11:26:00.000-08:00

Calculated Risk points to a very troubling development; the discount rate spread is now higher than it's been, at the very least, in a very long time. Worse than after 9/11, when markets were very shaky to say the least. Nemo, a frequent commenter on Calculated Risk, explains what this means here:

Suppose you run a business with $10 million in assets. Only assume most of those assets are manufacturing equipment, accounts receivable (i.e., money you are owed but have not yet been paid), and so forth... Not cash.

Now it's mid-month and time to pay your employees. The typical employee is not expecting to get paid with a lien on a lathe, or an IOU payable when your customers pay... The typical employee wants cash.

Now, you could sell some of your manufacturing equipment. But it's all in use; business is good!

So you head to the capital markets and say, look, I just need a 30-day loan so I can make payroll. I have all these great customers who will pay me later this month, plus worst-case I have all this equipment as collateral, so I am a very very safe risk. What interest rate will you give me?

Well, the market where you do that is called the Commercial Paper market, and it is -- er, was -- a $2 trillion market. The interest rate you can get is almost as low as a savings account or a Treasury bill would pay. That's what it means to say you are a very safe risk. And money market funds all over the world will be quite happy to loan you the money for 30 days to earn a little more interest than a T-bill.

And then every month you repeat the process, because you would rather have your capital tied up in productive equipment rather than in cash. You just borrow for the next 30 days in order to repay the loan from the previous 30 days. This is called "rolling the paper".

And continues it here:

Now, in recent years there has been an explosion in other kinds of commercial paper. Banks created these off-balance sheet entities called "SIVs" which buy mortgages and issue CP. So instead of CP collateralized by accounts receivable and capital equipment, this CP is collateralized by mortgages. And money market funds lapped it up, too.

Except now the MM funds are a little worried about the quality of the collateral, for some reason, so they are taking money OUT of commercial paper and plowing it into Treasury bills. That is why the yield on the 13-week T-bill has collapsed; insane amounts of money has been taken out of CP and put into "perfectly safe" Treasuries. You know, just until "this whole thing blows over". Better safe than sorry. Etc.

By some sort of "contagion" mechanism that I do not really understand (animal spirits?), this is affecting the CP market for real businesses. This is where they get their working capital to do things like, oh, make payroll. If these CP numbers continue their current trend for much longer, real companies -- not banks or brokerages or mortgage lenders, but real companies in the real world -- will have to start liquidating real assets and/or firing real people.

And this is the real problem in the entire crisis. MEW affecting consumer spending remains pure speculation, and financial firms writing down billions makes for great CNBC coverage, but commercial paper is the mechanism by which this crisis threatens the real economy, right now, today. It is by far the most important thing to monitor, IMO.

Nemo has his/her own page here.

Huckabee attack ad

2007-12-13T10:03:00.000-08:00

A new ad has emerged attacking the up and coming presidential candidate Mike Huckabee. He's a former governor of Arkansas, and one of his first acts was to release a serial rapist Wayne Dumond. I won't go over the story here, because others have done a better job summarizing it than I can. But the gist is that Huckabee released Dumond because the irrational Clinton haters thought he was railroaded by Clinton in order to get back at Dumond for "allegedly" raping his second cousin once removed.

Anyway, Mathew Yglesias points to the latest story in this saga. Click the link to see the video.

I'm always fascinated with the story behind where these types of videos come from. For instance, the Swift Boat Vets for Truth from the 2004 campaign illustrated just how dirty modern politics has turned. Yglesias speculates a little into the origins for this story, but it turns out the blog on the Arkansas Times has had no problem finding out who's behind this:

An Arkansas Republican, Keith Emis, takes responsibility. (And there wasn't a deep secret. He's encouraged the mother to tell reporters who did the piece and his phone number appears on the registration for the website set up to carry the video.)...
Emis, 29, grew up in Fayetteville and works in his family's Data Forms business in Greenland. He said he incurred no expenses, save gas and video tapes, and used friends as volunteer help, including one with video production experience. His uncle Donn Emis, a Fayetteville DJ, did the voiceover.

Emis said the stories about the Missouri victims "made him sad." He called Mrs. Davidson and asked if he could visit. She talked to him Sunday and he returned Tuesday and Wednesday to do the video. He declines to talk about politics, such as other disagreements he might have, if any, with Mike Huckabee. Emis comes from a part of the state where Huckabee has left many disaffected Republicans, however, on account of issues ranging from taxes to immigration. Emis wants to stick to Dumond.

"I am not supporting anyone in the presidential race," he said.
"It really made me sad. She's just a simple, nice woman [and a retired Wal-Mart employee]. Her daughter was murdered and it didn't have to happen. And it did happen because Mike Huckabee worked to get Wayne Dumond out of prison."

Emis says he incurred only small expenses and had volunteer help, and I believe him. He also says he has not given support to any of the other Republican candidates.

Yet I doubt this is the whole story. Huckabee released Dumond because of incessant hooting and hollering from the GOP machine due to irrational Clinton hatred. Your average GOP flack isn't going to put together something like this on his own without some push from the anti-Huckabee camp. Club for Growth? Some other group affiliated with one of the other campaigns, yet conveniently no "official" ties?

They should dig deeper on this. There may be nothing, but my guess is that this goes a little deeper than some dope with a camera running around Arkansas to film "simple" "sad" old women.

Fed cuts rate; Wall St cuts wrists

2007-12-11T14:43:00.000-08:00

The Fed cut the FFR by 0.25% to 4.25% this afternoon. The markets were predicting a 25bp cut today, yet there was some bad news that came through the bast few days, and some were speculating that the fed might make a bigger move. They didn't and the Dow sold off by about 300 points.

Ouch.

The market got a cut, but it wasn't big enough so they freaked. In fact, the market tanked immediately on the news. See it here:Now that's some cliff diving! The interesting thing is that the trend stayed down after the plunge. The Bulls on Wall St. didn't like the news, and I think the mood has turned sour. It will be very interesting to see what the international markets do overnight. I think we'll see a big sell off in Asia and a smaller one in Europe.

But it will be especially interesting to see how the central banks in the Mid East react to this cut. There is serious worry that some oil countries will unpeg from the dollar. I think they will hold for now; after all the cut could have been worse. Imagine what would happen if it was 50 bp, or god forbid 75 bp?

This will be interesting to watch over the next few days. If I see anything major or any good commentary, I'll be sure to post it.

As always, The comments herein reflect personal opinions about the markets. Under no circumstances does this information represent a recommendation to buy or sell securities.

First rule about fight club....

2007-12-11T11:00:00.000-08:00

There are some things that you are just NOT supposed to say in front of the cameras, and especially in front of Maria Bartiromo! CNBC just has Overstock.com CEO Patrick Byrne on, and he said that the run up in the economy is due to cheap credit and complicity of the Fed and the Treasury. He said that we are on the verge of a 1929 style crash and that the economy is a "house of cards". You have to see what Bartiomo and her sidekick have to say here.

CLAP HARDER PEOPLE!!! BUSINESS NEEDS YOU!!!

Ron Paul and Libertarians

2007-12-10T07:24:00.000-08:00

I came across this nice little short blurb in The Nation that gives some background about the Paul movement. Turns out there was an ideological split in the movement in the 80's, and the two sects have been at each other's throats since.

The division between paleolibertarians, centered around the Mises Institute, and cosmopolitan libertarians, centered around Cato, is also a case of "culture clash," according to Justin Raimondo, editorial director of Antiwar.com and prominent member of the Mises set. "There's the populist wing of the libertarian movement, and then there's the Washington crowd that's still trying to sell libertarianism, or their version of it, to elites. These people want to go along and get along. As long as they can abort their babies and sodomize each other and take as many drugs as they want to, they are happy. They don't care who is being killed in Iraq and how many Iraqis are dying. That's their hierarchy of values."

Sounds like a lovely group of folks.

I've been struck by the ideological fervor for the Paul campaign on campus. The number of acolytes is small, but they are an enthusiastic bunch. It makes me think that the Paul campaign has probably tapped into disenfranchised LaRouchies. They sure seem to have an awful lot in common, especially the propensity to not advertise too widely the crazy crap each believes.

Imaging dividing cells in the human brain

2007-12-07T13:45:00.000-08:00

Given that this blog is named after a neuroscience term, and the fact that I am a neuroscientist, I figure it's probably high time that I post something on neuroscience.

A team of scientists at Cold Spring Harbor Laboratory have developed a technique that allows them to image cells that are dividing the the brains of live humans. It has been known for some time that some parts of the brain actually add new neurons in adults, till the day we die. This has been shown by using a trick to label new DNA.

When a cell divides, the DNA strands split in two. The two strands split apart, and the cell splits in two. Meanwhile, the missing strand is replicated by an enzyme using free floating nucleotides (the ATGC's that everyone knows). The final product is two cells with exact copies of the DNA.

The trick is to give animals a compound that mimics one of the nucleotides (T usually). The compound gets taken up by any new cells that are making new DNA. This compound has something unique about that can be identified later. And by later, I mean once the animal or human has died and it's brain has been sliced into very thin sections and treated with all sorts of chemicals.

What the CSHL team did is use a trick of magnetic resonance imaging that up to this point had not been identified. It is possible to take images of the inside of alive, awake humans without any invasive procedures whatsoever. I won't explain How MRI works, mostly because I am no expert by far, but check out Wikipedia and How Stuff Works if you're curious. Basically, these broke down the various spectra of various cell types in the brain and identified a particular peak that is found only in cells that divide. The did this using cells isolated from mice brains, so they new what kind of cell they were looking at.

Next, they looked at the areas known to have dividing cells in the brains of rats and humans. Not dead sliced up brains, but whole brains still in the heads of their fully-alive owners. Sure enough, the band they saw in the mouse cells is also in these areas. Pretty cool.

They say this could be used clinically, but I see some very exciting possibilities for research. Many neuroscientists are interested in what controls the rate of neuron addition. This technique will allow scientists to test various treatments effects on cell proliferation in the same individuals over time. Very cool.

If you have access to Science, you can read their original paper here.

Must read

2007-12-07T12:45:00.000-08:00

Here's a must read. Herb Greenberg, who has a blog on Marketwatch.com, has been getting all sorts of juicy information from a mortgage industry insider. He has posted this insider's latest thoughts about the Bush plan and the state of the mess in general. An excerpt:

The 3/1, 5/1, 7/1 and 10/1 hybrid interest-only ARMS will reset in droves beginning now. These are loans that are fixed at a low introductory interest only rate for three, five, seven or 10 years — then turn into a fully indexed payment rate that adjusts annually thereafter. They first got really popular in 2003. Wells Fargo led the pack in these but many people have them. The resets first began with the 3/1 last year.

The 5/1 was the most popular by far, so those start to reset heavily in 2008. These were considered ‘prime’ but Wells and many others would do 95%-100% to $1 million at a 620 score with nearly as low of a rate as if you had a 750 score. No income or asset versions of this loan were available at a negligible bump in fee. This does not sound too ‘prime’ to me. These loans were mostly Jumbo in higher priced states such as California….

For those that aren't in the know, and I think I may even include myself, 620 is a VERY low score! Yet the industry has been making these crazy loans with no down payment to idiots with a credit score of 620 and calling it "prime"! That's like calling Taco Bell meat Grade A Black Angus New York Strip!

But this is the scariest part:

One final thought. How can any of this get repaired unless home values stabilize? And how will that happen? In Northern California, a household income of $90,000 per year could legitimately pay the minimum monthly payment on an Option ARM on a million home for the past several years. Most Option ARMs allowed zero to 5% down. Therefore, given the average income of the Bay Area, most families could buy that million dollar home. A home seller had a vast pool of available buyers.

Now, with all the exotic programs gone, a household income of $175,000 is needed to buy that same home, which is about 10% of the Bay Area households. And, inventories are up 500%. So, in a nutshell we have 90% fewer qualified buyers for five-times the number of homes. To get housing moving again in Northern California, either all the exotic programs must come back, everyone must get a 100% raise or home prices have to fall 50%. None, except the last sound remotely possible.

Kind of sums up the whole housing meltdown in just a couple of paragraphs. He says that only the lest sounds remotely possible, and I agree somewhat. We are going to see home prices fall A LOT. But I think the second option has a real chance as well. The Fed is keeping the printing presses very busy, and Helicopter Ben is warming up the rotary motors. Inflation of nominal prices of everything, including income, will lead to a smaller decrease in nominal prices of homes that would be seen otherwise.

2007 has been an amazing year to watch the financial markets. My guess is 2008 will make 2007 seem boring in comparison. Keep your seat belts fastened!

Brooks on Romney

2007-12-07T10:46:00.000-08:00

I can't stand David Brooks 99% of the time. But his column today on Romney's big "Sure I'm Morman, but I hate me some atheists" speech yesterday is quite good. Especially this:

The first casualty is the national community. Romney described a community yesterday. Observant Catholics, Baptists, Methodists, Jews and Muslims are inside that community. The nonobservant are not. There was not even a perfunctory sentence showing respect for the nonreligious. I’m assuming that Romney left that out in order to generate howls of outrage in the liberal press.
The second casualty of the faith war is theology itself. In rallying the armies of faith against their supposed enemies, Romney waved away any theological distinctions among them with the brush of his hand. In this calculus, the faithful become a tribe, marked by ethnic pride, a shared sense of victimization and all the other markers of identity politics.
In Romney’s account, faith ends up as wishy-washy as the most New Age-y secularism. In arguing that the faithful are brothers in a common struggle, Romney insisted that all religions share an equal devotion to all good things. Really? Then why not choose the one with the prettiest buildings?

It easy to pile on the nonreligious. Though those that profess no religious affiliation are the fastest growing demographic in the US and constitutes the largest group (used loosely) if you break down religious affiliation by denomination, the Washington-based Pew Research Center found in a survey in August that 61% of Americans would have reservations voting for an atheist for president. Compare that to 45% for a Muslim president. With all of the (wrong-headed) demonization of Islam the last 6 years, atheists are still despised more.

Typical November?

2007-12-07T10:07:00.000-08:00

Another way of showing that November was not so typicalYeah, 2007 was 0%. I didn't leave out the bar.

I don't have YOY data that goes back too far, but Seattle Bubble does. He shows that the YOY change was the lowest that he has on record, going back 14 years.

So, no, not so typical.

More on YOY

2007-12-06T22:14:00.000-08:00

I had another thought about the -10.6% fall in SFH prices in King Co since July to Nov. It has taken 5 months for prices to fall that much. But YOY prices are flat, exactly 0% change from Nov 06 to Nov 07. Time will eventually work it's way to July, 2008. Does anyone honestly think that the median price will be higher next July, especially if we are headed towards a significant recession? This means that the YOY change in median sales price will be AT LEAST -10.6%, and that's only if prices stay flat till July!

Sorry Seattle, but the bubble has done gone bust itself...

Why YOY doesn't tell you the whole story

2007-12-06T16:17:00.000-08:00

Reports on housing tend to use YOY (year over year) as way to assess change in the market. They do this because housing is a seasonal industry. Sales are higher in the spring and summer months and tail off in the fall and winter months. When it comes to reporting statistics like pending sales and number of sales, you have to make a YOY correction. These particular statistics vary enormously from month to month in a very circannual pattern. Thus YOY.

But when it comes to sales price, I am not convinced that there really is a seasonal pattern, or at least one that is that significant. This is especially true in Seattle, where prices have steadily increased without any seasonal pattern for the last few years. You can see that in the figure below. This is nominal price for single family homes (SFH) normalized to the price for SFH in January 2002. Thus, the value for January 2002 is 1.0 and it goes up from there. Red is King county, where Seattle is located. Black is Snohomish County, just north of Seattle. Blue is Pierce county, which is south of Seattle.

click on image for larger version

The latest data for the Puget Sound area on housing from NWMLS are out. Being real estate professionals, they obviously have put the sunniest spin on the latest numbers. They do this every month; it's their job. But it's getting harder lately, because the housing bust that has affected so many markets nation wide is starting to be seen in a big way in the Seattle area.

But here's their take:

A "typical holiday market," "the start of an optimum buy zone," "a good time to beat the spring rush," and a "wonderful time to be a home buyer" are among reactions by directors of Northwest Multiple Listing Service upon viewing the activity summary for November...

The latest recap report issued by Northwest MLS shows little price fluctuation from a year ago, ample inventory, [and] the expected seasonal slowdown of sales activity...

In King County, the median price declined 2.9 percent for the "blended" property types (single family homes and condominiums); the price declined from $397,500 to $385,990. The price for single family homes only (excluding condos) was unchanged at $435,000...

"We're slowly beginning to rebound from the effects of the turbulent mortgage market," Scott said. [edit: must mean we've hit bottom if things are rebounding, right?]...

Emphasis mine. Notice the emphasis on YOY changes. "Sure there are some declines here and there, but that is typical! After all SFH for King Co was unchanged. And this is a typical holiday market where things slow down and prices decrease.

But is this typical? Part of the problem is that they're emphasizing changes in price YOY. This misses the fact that the median price for SFH peaked in July of this year.

This figure illustrates what I mean:
Median prices SFH in King Co are actually -10.57% lower than they where in July of this year! Ouch! But maybe it has something weird to do with the scale. Perhaps we really are having a plain old normal holiday slump where the median price decreases from summer to winter. So I decided to look back over the past few years and look at the percent difference between July and November within each year. If the value is positive, it means price increased from July to Nov. If it's negative, price decreased. So what do we see?Prices actually decreased about 1.5% in 2002 from July to Nov. We were coming out of a tech bubble bust that actually hit the area pretty hard. But in 2003, 2004, and 2005, prices actually increased. In fact, in 2005 prices increased a whopping 3.6% from July to Nov, just 5 months! In 2006, prices were unchanged (perhaps the beginning of the end?) This year things are VERY different. Prices have dropped -10.57% in just five months. I would say there's nothing "typical" about what we saw in Nov, turkey or no turkey.

Bushism on Mortgage Help

2007-12-06T12:53:00.000-08:00

This is obviously small potatoes, but the commander guy made quite the boo boo today in his press conference on the Great Adjustable Rate Mortgage Freeze:

"I have a message for every homeowner worried about rising mortgage payments: The best you can do for your family is to call 1-800-995-HOPE," Bush said after a White House meeting with administration officials and lenders on a new plan to help.
Unfortunately he was a couple digits off, it is actually 1-888-995-HOPE (4673).

Turns out the number Bush gave will only give hope of a more heavenly kind...

Calls to the wrong number Bush gave out were met with a busy signal. A search on the Internet showed it belongs to the Freedom Christian Academy which offers religious-based curriculum for home schooling and is located in Ponder, Texas northwest of Dallas.

Can't imagine why the number would be busy...