Friday, April 30, 2010

Karl Denninger on the SAFE banking act bill

Although I'm generally not for regulation, if it's between this and our current state, I think there's enough payoff to do it.

Market Ticker:

This would put an instantaneous full-stop to the outrageous obscenity called “Wells Fargo”, which has $1.7 trillion in off-balance sheet “assets”, not to mention the other “big banks” that have hundreds of billions off sheet as well.

We now get to find out who is really for Wall Street reform – and who needs to lose their seat in The Senate.
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Barney Frank and Chris Dodd on Fannie and Freddie

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

Rep. Barney Frank, Sept. 25, 2003

"I just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time .. . ."

Sen. Chris Dodd, Feb. 24, 2004
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When states could do 'merit reviews' of stock offerings

Wall Street Journal:

For example, before 1996, certain initial public offerings of stocks were subject to merit review in certain states, where the state decided if a security is a "bad" investment and thus not appropriate to be offered to its citizens. In fact, this is exactly what happened to Apple Computer when it first went public in 1980. Massachusetts prohibited the offering of Apple shares because they were "too risky," and Apple did not even bother to offer its shares in Illinois due to strict state laws on new issues. What if federal bureaucrats had had the power to impose their judgment on a "risky" financial product (such as an IPO) on a nationwide scale, or every state followed Massachusetts' lead?
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How do television content providers make most of their money?

Above the Crowd:

You can spend plenty of time talking about other issues, but when it comes to understanding the key factor at play in nearly every major business decision in television, you will find affiliate fees – all $32 billion of them.

For those who do not know, affiliate fees are the primary revenue stream that funds today’s mainstream television content development. These are basically a “share” of the subscription fee you pay to your cable or satellite operator that is then shared back to the content owner/distributor (typically on a per subscriber basis). As an example, you will hear that some less notable cable-only channel was able to negotiate $0.25/sub/month, or that ESPN can negotiate $2.00/sub/month, because any aggregator would be afraid to market a television package without ESPN. Over the past 30 years, these fees have become the lifeblood of the TV content business – affecting how the major aggregators think and operate, and also affecting how content is produced, financed, and packaged.

Here are some specifics to help frame the issue. According to Matthew Harrigan at Wunderlich Securites, in 2009 DirecTV paid approximately $37/sub out of an ARPU of $85/sub to content owners for programming costs (i.e. affiliate fees). In this case, affiliate fees represent roughly 43% of total revenue for DirecTV. Similarly for Comcast, Matthew estimates programming costs at 37% of video revenue (Comcast has high-speed data and voice revenue that are separate). These are just two examples, but to give you a sense of scale these numbers represent around $7-8 billion/year each for Comcast and DirecTV. The recent, and very well written Business Week cover story on this same topic pegs the aggregate fees of all content providers at $32B per year. These are big, big numbers. To put things in perspective this is about 33% higher than Google’s annual global revenues including revenues for its advertising network.
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Zoning laws


Zoning laws are a violation of property rights. They destroy the sense of community in neighborhoods, increase crime, increase traffic congestion, contribute to urban and suburban air pollution, contribute to poverty, contribute to reliance in government — and, thus, reduce self-reliance — and contribute to the ruin of our schools. Most of our urban and suburban problems arose with zoning and other antiproperty laws, to which welfare programs and public housing projects have contributed. Each of these policies came out of the idea that society could and should be engineered from the top down to give rise to efficiency, community, and prosperity. What in fact resulted was the opposite outcome.

[...]As people get to know each other, there will be more respect for the neighborhood community. It is one thing to spray graffiti on the front of a grocery store, but it's another thing to spray graffiti on Chuck Johnson's store, where you went growing up and where Johnson used to give you a piece of candy when you were little.

Sure, this sounds like a romantic dream of the 1950s, but that era was more that way precisely because neighborhoods were communities. Zoning laws and other anticommunity government policies were not yet in place to atomize people, making them less dependent on each other and, thus, more dependent on more distant government bureaucrats. It's amazing what you can do by simply preventing someone from opening up a store in a "residential area."

[...]Zoning laws force you to have your business only in certain locations. This drives up the price of property for businesses, making it harder to start a new business. If I wanted to sell cookies (and I do make some good cookies), I would have to either buy some expensive commercial property or rent a place in a shopping center, get the proper permits and licenses (another barrier to entry into the marketplace), buy stoves and mixers, etc.
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Ireland demolishing vacant homes

Stacy Herbert makes a great point:

This is, of course, the exact same policy that happened during the 1930’s when the US government plowed under fields of crops in order to try to prevent deflation in crop prices.

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More on how Wall Street is screwing small town America


David DiCarlo, an Erie-based JPMorgan Chase banker, told Barker and the school board on Sept. 4, 2003, that all they had to do was sign papers he said would benefit them if interest rates increased in the future, and the bank would give the district $750,000, a transcript of the board meeting shows. "You have severe building needs; you have serious academic needs," Barker, 58, says. "It's very hard to ignore the fact that the bank says it will give you cash." So Barker and the board members agreed to the deal.

What New York-based JPMorgan Chase didn't tell them, the transcript shows, was that the bank would get more in fees than the school district would get in cash: $1 million. The complex deal, which placed taxpayer money at risk, was linked to four variables involving interest rates. Three years later, as interest rate benchmarks went the wrong way for the school district, the Erie board paid $2.9 million to JPMorgan to get out of the deal, which officials now say they didn't understand.

[...]During the past four years in Pennsylvania alone, banks have pitched at least 500 deals totaling $12 billion like the one JPMorgan Chase sold to Erie, according to records on file with the state Department of Community and Economic Development. Most of the transactions--which occurred outside the state's largest cities of Philadelphia and Pittsburgh--have been made without public bidding, which means that banks and advisers privately arranged the deals with small school districts, the records show.

[...]The Pennsylvania transactions involve interest-rate swaps, which are derivatives. Derivatives are financial contracts whose value is based on other securities or indexes; interest-rate swaps are tied to future changes in lending rates.

The Pennsylvania deals show that school districts routinely lose when making derivative deals. They pay fees to banks that are as much as five times higher than typical rates and overpay advisers by as much as 10-fold.

[...]Just five years ago, municipal derivative deals weren't sanctioned in Pennsylvania, the sixth-most-populous U.S. state. Then, in September 2003, the state legislature adopted a law allowing schools and towns to use interest-rate swaps to lower borrowing costs and raise cash.

[...]Forty states give government bodies explicit authority to make derivative deals, up from none 20 years ago, says David Taub, a lawyer who specializes in derivatives and is a partner at McDermott Will & Emery in New York. Derivatives aren't regulated by the SEC, the MSRB or by states. Pennsylvania offers a clear look at these deals because, by law, all the contract records must be publicly filed with the state.

[...]More than two dozen Pennsylvania school districts bought swaps that bet on the spread between two interest rates. Many bet wrong. Since 2006, at least 27 school districts gambled that the spread would widen between either the five- or 10-year London interbank offered rate on the one hand and weekly municipal bond yields or the one-month Libor on the other. The opposite happened: Spreads narrowed as long-term interest rates fell. The schools had to pay banks, or they could pay a steep exit fee, as Erie did with its swaption to cancel the deal. (What!? This seems so arbitrary. Why are they betting on the LIBOR?)

[...]In Pennsylvania, it's the financial advisers who are supposed to keep school district officials from getting fooled. That's why the 2003 law allowing for swaps requires districts to use independent advisers.
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One reason why Detroit (and others) are broke

Business Week:

A few years ago, Detroit struck a derivatives deal with UBS (UBS) and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city's credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That's precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab.

During late-night strategy sessions, Joseph L. Harris, Detroit's then-chief financial officer, scoured the budget for spare dollars, going so far as to cut expenditures on water and electricity. "I figured the [utility] wouldn't turn out our lights," says Harris. But there wasn't enough cash, and in June the city set up a payment plan with the banks.

Now Detroit must use the revenues from its three casinos—MGM Grand Detroit (MGM), Greektown Casino, and MotorCity Casino—to cover a $4.2 million monthly payment to the banks before a single cent can go to schools, transportation, and other critical services.

[...]The New Jersey Transportation Trust Fund Authority, for instance, must pay nearly $1 million a month at least until December 2011 to Goldman Sachs on derivatives deals tied to municipal debt—even though the state retired the debt last year. The Chicago Transit Authority (CTA), having entered into complex arrangements to lease its equipment to outside investors and then lease it back, could face termination fees of $30 million. The investors could collect penalties because American International Group (AIG), which backed the arrangement, has seen its credit rating tumble.
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Will more IRS inspectors actually catch tax cheats?

NY Times:

Mr. Harris said the limited number of Labor Department inspectors — a few thousand — makes it hard to protect the nation’s 140 million workers at nine million workplaces. “We cannot abide an economic calculus that exploits the fact that the Labor Department cannot and should not look over every shoulder,” he said.

Giving one example, Mr. Harris said companies that classify workers as independent contractors — often to avoid paying Social Security taxes and circumvent wage laws — would have to prepare a written explanation of why those workers should be considered contractors rather than employees. Companies would then have to give these workers the explanation.
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Thursday, April 29, 2010

Does the Dodd bill impose financial facism?

If this article is correct, and I believe it is, yes.

Washington Times:

The "Dodd financial reform" bill being considered by the Senate will make it illegal for 99.6 percent of the population to invest in needed new and promising start-up companies while at the same time ensuring that the 33 largest banks, which control 92 percent of all bank assets, will be required to purchase more federal government debt before giving loans to businesses and individuals. Quite simply, the government is continuing to practice financial fascism.

[...][T]he new financial reform bill will make it illegal to invest in a new venture or start-up company for anyone who does not have a liquid net worth of $2.2 million or an annual income of roughly $450,000 if single or $675,000 if married - which rules out all but fewer than 1 percent of the population. If this passes and is signed into law, Congress and the president will be saying to the American people, "Ninety-nine-plus percent of you are too stupid to know how to invest your own money." (They think the rest of us are as irresponsible as they are.)

[...]Inventors, from Thomas Edison (who started GE, among other companies) to the modern-day whizzes behind Apple, Google and all the rest, have relied on their ability to get "angel" investors to begin their companies. An angel investor is one who is willing to invest in a new and untried business with the hope of a very large return.

[...]In the name of "investor protection," the Securities and Exchange Commission (SEC) makes it almost mandatory that entrepreneurs approach only "accredited investors" when seeking investment capital. Currently, an accredited investor is a person who has a net worth of $1 million or an income of $200,000 per year. The SEC will argue that such a rule protects "widows and orphans" from unscrupulous promoters. This is the same SEC that failed to see the Madoff Ponzi scheme when it was dumped in its lap.

[...]The 1,300-page financial reform bill going through the Senate will, in essence, make the biggest banks (those considered too big to fail) wards of the state - which is classic financial fascism. The Obama Treasury, not the semi-independent Federal Reserve, will decide what these banks are allowed to invest in, in exchange for an unlimited U.S. government guarantee. Since September 2009, banks have been lending more to the government than to private industry. One does not have to be a rocket scientist to see where all this is headed.
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Non-government health care solution

Carpe Diem:

From the Qliance website: "Traditionally, over 40¢ of every $1 you spend on health care goes toward insurance billing and overhead (see chart above). This means your clinician must work harder and faster, seeing more patients each day just to make ends meet. As a patient, you experience longer wait times, shorter appointments and higher costs.

Qliance is like a health club membership, but for health care. Your membership gives you unrestricted access to your Qliance clinician and services for one monthly fee. Instead of dealing with costly overhead, we reinvest that 40¢ in our clinics, electronic medical records and in patient services. You experience shorter wait times, longer appointments and lower costs."

From the WSJ: "Qliance operates three clinics in the Seattle area that offer primary care treatment to patients who pay a monthly membership fee ranging between $44 and $84, depending on their age. The company accepts no form of health insurance for its services. Qliance intends to use its financing to expand in Washington State, with plans to open clinics beyond the state as early as next year.

The company argues that its care covers roughly 90% of the medical issues that people see doctors for, from checkups to minor fractures to vaccinations, as well as ongoing care for chronic illnesses like hypertension. Qliance members typically pay other companies for insurance to cover emergency procedures and serious illnesses, such as cancer.

Qliance is betting it can profit by wringing many of the administrative costs out of health, especially the overhead that comes with haggling with insurance companies and billing patients. The company’s clinics are open seven days a week and says its doctors are able to spend more time with patients – at least a half-hour for routine appointments and an hour for physicals – than most physicians who take insurance do."

MP: This is another great example of an innovative, market-based approach to health care (similar to the 1,171 retail health clinics currently operating in 40 states, but with expanded services) that continue to develop, despite the government takeover of the health care system. By elminating insurance and billing overhead, Qliance gets the monthly cost of health care down to about the same cost of a monthly cell phone plan.
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Cost and the internet


According to the FCC's National Broadband Plan, the no. 1 reason that those without broadband cite for not having broadband is cost. Given that broadband is more expensive here than abroad, it's no surprise the United States lags behind a growing list of other countries. Subscribers in the United States pay more per megabit of bandwidth than countries across both our oceans. To remedy this, the FCC has a plan that's the equivalent of the United States entering the Grand Prix with the goal of finishing last. The National Broadband Plan wants all Americans to have access to 4 Mbps download and 1 Mbps upload speeds by 2020. In that same time frame, the plan also proposes a neatly framed 100 Mbps download, 50 Mbps upload connection for 100 million homes.

By way of comparison, Taiwan already has near-universal access to 10 Mbps and South Korea achieved 1 Mbps universal access in 2008. By the end of 2010, Germany and Ireland both plan to reach universal 1 Mbps while Sweden, Denmark, and the U.K. are working to 2 Mbps to everyone by the end of the year. In essence, many nations expect to achieve goals by the end of 2010 that will rival what we hope to achieve in 2020. Furthermore, the 100 million households that will get 100 Mbps speeds represent only 75 percent of the population. By comparison, South Korea plans to have 50 Mbps available for 95 percent of the population in 2013, Sweden's goal is 100 Mbps for 90 percent of the population by 2020, and Finland is striving for universal 100 Mbps availability by 2015.

Many commentators have pointed out that competition is sorely lacking among broadband providers. As the FCC noted in its national plan, 96 percent of all households are served by two or fewer providers. But even when some choice is present, precious little information is available for customers to make informed decisions about their broadband service offerings. Speeds are advertised as "up to"—even though systematic testing documents that customers usually receive only half this advertised speed. And advertised prices almost always exclude hidden fees and additional costs, often require bundling with additional services that customers neither want nor need, are usually only good for short promotional periods, and come with a mountain of caveats and other fine print allowing providers to sever connections, manipulate customers' Internet traffic, and even spy on your online activities.
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Monetarist on the current crunch

Wall Street Journal:

To understand why, one first has to understand the nature of the current "credit market disturbance," as Ms. Schwartz delicately calls it. We now hear almost every day that banks will not lend to each other, or will do so only at punitive interest rates. Credit spreads -- the difference between what it costs the government to borrow and what private-sector borrowers must pay -- are at historic highs.

This is not due to a lack of money available to lend, Ms. Schwartz says, but to a lack of faith in the ability of borrowers to repay their debts. "The Fed," she argues, "has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."

So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is "the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue."

In the 1930s, as Ms. Schwartz and Mr. Friedman argued in "A Monetary History," the country and the Federal Reserve were faced with a liquidity crisis in the banking sector. As banks failed, depositors became alarmed that they'd lose their money if their bank, too, failed. So bank runs began, and these became self-reinforcing: "If the borrowers hadn't withdrawn cash, they [the banks] would have been in good shape. But the Fed just sat by and did nothing, so bank after bank failed. And that only motivated depositors to withdraw funds from banks that were not in distress," deepening the crisis and causing still more failures.

But "that's not what's going on in the market now," Ms. Schwartz says. Today, the banks have a problem on the asset side of their ledgers -- "all these exotic securities that the market does not know how to value."

"Why are they 'toxic'?" Ms. Schwartz asks. "They're toxic because you cannot sell them, you don't know what they're worth, your balance sheet is not credible and the whole market freezes up. We don't know whom to lend to because we don't know who is sound. So if you could get rid of them, that would be an improvement."
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Wednesday, April 28, 2010

Senate Bully Forces Legislators To Repeatedly Pass 'We Are Huge Homos' Bill

Nooo!!! Washington has truly fallen!!!

The Onion:

WASHINGTON—S. 4781, otherwise known as the We're All a Bunch of Huge Homos Act, was unanimously passed for the ninth consecutive time after pressure Thursday from Senate bully Rob Antonelli (R-NJ). "The bill passes. It is resolved that I am a fag. We are all massive fags," said Senate Majority Leader Harry Reid (D-NV), who has been repeatedly told by his constituents to defend himself and just pop Sen. Antonelli right in the face. "Let the record show that we are also big pussies who wet our beds at night." Aides to Antonelli told reporters the senator would be out by the bike racks behind the Smithsonian later if any of them would like to learn more details about the bill.
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How much have the big banks grown in the last 10 years or so?

Economic Collapse Blog:

Today financial power is being concentrated in the hands of fewer and fewer individuals. In fact, the six biggest banks in the United States now possess assets equivalent to 60 percent of America's gross national product. Back in the 1990s that figure was less than 20 percent. These six banks - Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo - literally dictate what goes on in the U.S. banking industry.
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Cato scholar on Glenn Beck

Did you know that New Zealand eliminated farm subsidies in the 80's? Did you know that Germany and others have privatized or partially privatized their post offices?

All that and more here.

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Cost to keep roads and bridges up to standard

Click through for plenty of suggestions on how to do it another way.

Commonwealth Foundation:

The Tribune Review has a story that transportation advocates are now claiming that Pennsylvania needs $3 billion in additional revenue per year just to keep roads and bridges up to standard. This is almost double what the estimated need was a few years ago, and far higher than the $400-plus million the state would have gotten from tolling I-80. It seems that when it comes to transportation - like many other areas of government spending - the solution is always "more money."
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Free trade in America?

Washington Times:

The U.S. government's stubborn refusal to allow safety-certified Mexican trucks on U.S. roads, in violation of our North American Free Trade Agreement commitments, has spurred Mexico to impose sanctions on $2.4 billion in U.S. exports. An additional $800 million in exports are in jeopardy because of the damage our cotton subsidies inflict on farmers in Brazil. The European Union and Japan are weighing a further $500 million in sanctions over the biased and World Trade Organization-illegal formula the U.S. Commerce Department employs for anti-dumping calculations.
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How does CO2 really effect plant growth?

Never mind that current CO2 levels have been found to increase the number of deciduous trees by up to 50%, and that forests in the eastern US are growing at their fastest level since measurement began. Let's see it with our own eyes.

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Did homebuyer tax break cost us $31B?

For something that's a waste of money.


The House voted Wednesday to slap higher taxes on Wall Street investment managers to help pay to extend $31 billion in tax breaks for a wide range of Americans, including popular deductions for local and state sales and property taxes.
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Tuesday, April 27, 2010

Can lower tax rates increase tax revenue?

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How is the flat tax system working for countries that have it?

The entire thing was interesting, but the discussion of Hong Kong and Estonia starting at 3:08 was particularly interesting to me.

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Where Obama's budget is taking us


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Housing tax break wasting money

NY Times:

Home buyers must have a deal by April 30 and close by June 30 to qualify for the federal tax break, up to $8,000 for first-timers and $6,500 for those merely moving to a different residence.

Though the Treasury Department and the real estate industry have termed the program a success, helping 1.8 million people buy homes, many tax policy experts say it has been singularly cost-ineffective: most of the $12.6 billion in credits through end of February was collected by people who would have bought homes anyway or who in some cases were not even eligible.
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Native Americans and property rights

Lew Rockwell:

Environmentalists who have cultivated the myth of the environmental Indian who left his surroundings in exquisitely pristine condition out of a deeply spiritual devotion to the natural world have done so not out of any particular interest in American Indians, the variations between them, or their real record of interaction with the environment. Instead, the intent is to showcase the environmentalist Indian for propaganda purposes and to use him as a foil against industrial society.

The Indians' real record on the environment was actually mixed, and I give the details in my new book, 33 Questions About American History You're Not Supposed to Ask. Among other things, they engaged in slash-and-burn agriculture, destroyed forests and grasslands, and wiped out entire animal populations (on the assumption that animals felled in a hunt would be reanimated in even larger numbers).

On the other hand, the Indians often succeeded in being good stewards of the environment – but not in the way people generally suppose.

Although we often hear that the Indians knew nothing of private property, their actual views of property varied across time, place, and tribe. When land and game were plentiful, it is not surprising that people exerted little effort in defining and enforcing property rights. But as those things became more scarce, Indians appreciated the value of assigning property rights in (for example) hunting and fishing.

In other words, the American Indians were human beings who responded to the incentives they faced, not cardboard cutouts to be exploited on behalf of environmentalism or any other political program.

In some tribes, family- and clan-based groups were assigned exclusive areas for hunting, which meant they had a vested interest in not overhunting, and in making sure enough animals remained to reproduce for future years. They likewise had an incentive not to allow people from other families and clans to hunt on their land. In the Pacific Northwest, Indians assigned exclusive fishing rights that yielded a similar kind of stewardship: instead of catching all the salmon, some were left behind with an eye to the future. Whites who later established control over salmon resources unfortunately neglected this important Indian lesson.
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Hernando de Soto on why derivatives are dangerous

Wall Street Journal:

These derivatives are the root of the credit crunch. Why? Unlike all other property paper, derivatives are not required by law to be recorded, continually tracked and tied to the assets they represent. Nobody knows precisely how many there are, where they are, and who is finally accountable for them. Thus, there is widespread fear that potential borrowers and recipients of capital with too many nonperforming derivatives will be unable to repay their loans. As trust in property paper breaks down it sets off a chain reaction, paralyzing credit and investment, which shrinks transactions and leads to a catastrophic drop in employment and in the value of everyone's property.

Ever since humans started trading, lending and investing beyond the confines of the family and the tribe, we have depended on legally authenticated written statements to get the facts about things of value. Over the past 200 years, that legal authority has matured into a global consensus on the procedures, standards and principles required to document facts in a way that everyone can easily understand and trust.

The result is a formidable property system with rules and recording mechanisms that fix on paper the facts that allow us to hold, transfer, transform and use everything we own, from stocks to screenplays. The only paper representing an asset that is not centrally recorded, standardized and easily tracked are derivatives.
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And what is the cost of subsidizing someone with 'pre-existing conditions?'

CNS News:

“Five percent of Medicare beneficiaries, who in most cases have one or more chronic conditions, constitute 43 percent of Medicare spending,” Dr. Mohit Kaushal, health care director at the Federal Communications Commission, told the committee.
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Housing starts

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Monday, April 26, 2010

Great links

Hey, check this out. Our brethren at UNC Chapel Hill have some great links on their website. They've got full books by Henry Hazlitt up there, Murray Rothbard, a video archive of John Stossel.

Good stuff.

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Remember that ash cloud over Europe? It didn't exist

Well, hopefully, we can still get our unified airspace.

Daily Mail:

Britain's airspace was closed under false pretences, with satellite images revealing there was no doomsday volcanic ash cloud over the entire country.

Skies fell quiet for six days, leaving as many as 500,000 Britons stranded overseas and costing airlines hundreds of millions of pounds.

Estimates put the number of Britons still stuck abroad at 35,000.

However, new evidence shows there was no all-encompassing cloud and, where dust was present, it was often so thin that it posed no risk.

The satellite images demonstrate that the skies were largely clear, which will not surprise the millions who enjoyed the fine, hot weather during the flight ban.

Jim McKenna, the Civil Aviation Authority's head of airworthiness, strategy and policy, admitted: 'It's obvious that at the start of this crisis there was a lack of definitive data.

[...]'It's also true that for some of the time, the density of ash above the UK was close to undetectable.'

The satellite images will be used by airlines in their battle to win tens of millions of pounds in compensation from governments for their losses.

The National Air Traffic Control Service decision to ban flights was based on Met Office computer models (Imagine that. A computer model not giving an accurate picture. ...Hmmm, where have I heard that before?) which painted a picture of a cloud of ash being blown south from the Eyjafjallajokull volcano.

[...]Evidence has emerged that the maximum density of the ash was only about one 20th of the limit that scientists, the Government, and aircraft and engine manufacturers have now decided is safe.
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Sunday, April 25, 2010

What was the environment really like inside the ratings agencies?

Washington Post:

Former officials at the nation's major credit-rating companies told a Senate panel Friday that a pressure-cooker culture fostered by top executives encouraged them to cut corners so their firms could handle an exploding volume of deals and keep raking in profits during the bubble years.

The testimony backs the findings of a probe by the Senate permanent subcommittee on investigations. The probe concluded that these firms used outdated models, gave high ratings to flimsy investment vehicles and waited too long to downgrade those investments in part because they were unduly influenced by their Wall Street clients and their own quest to make more money.

[...]Michalek described a "quantity-over-quality" mentality that rewarded analysts who accommodated clients and pushed out others who meticulously documented deals and asked probing questions.

Michalek described the "management by fear" style of the executive who once ran Moody's structured finance division. That executive arranged one-on-one meetings with each lawyer in the group to convey whether their Wall Street firm clients were satisfied with them, Michalek said. He said he was told that he was one of the "difficult analysts" because he made too many comments on deal documentation.

"The primary message was plain: Further complaints from the customers would very likely abruptly end my career at Moody's," Michalek said.

[...]Eric Kolchinsky said he thinks he lost his position as a managing director at Moody's because he raised concerns about some complex investments known as collateralized debt obligations.

He was expected to rate these CDOs, and the ratings would be based on the quality of related subprime bonds that he knew were going to be severely downgraded, Kolchinsky said. He said he successfully pressed his superiors to have the downgrades reflected in the CDO ratings.

A month later, he was notified that that his group's market share had dropped. Kolchinsky said he was asked to leave the group less than a month after that e-mail and less than two months after the run-in with managers.
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One key difference between American, Canadian and European banks


Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1.
Scared yet?

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Geithner says bailouts will cost less than 1% of GDP

This is a fucking lie. I hate this kind of shit. The real cost of the Wall Street bailout has been $4.6T. That's right trillion. The bailout of Fannie Mae and Freddie Mac alone cost us about $2T. And these people needed a bailout if they were only going to lose $87B on their investments (a roughly 4% loss)? Give me a break.

Raw Story:

US Treasury Secretary Timothy Geithner told top lawmakers Friday that much-criticized bailout programs in response to the 2008 economic meltdown will cost no more than 87 billion dollars.
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Did Bush 'deregulate?'

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Saturday, April 24, 2010

How did Argentina go from having the 4th highest income per person to being broke?


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Anyone wondering why the Post Office is going broke?

Downsizing Government:

The average postal employee earns $83,000 a year in total compensation and 85 percent of its workforce is covered by collective bargaining agreements. Labor accounts for 80 percent of the USPS’s cost structure.
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Think your state is getting tax revenue from its chain stores?

Reclaim Democracy:

Tax policy, too, is riddled with loopholes that benefit chain stores. As the Center on Budget and Policy Priorities has documented, about half the states allow national chains to avoid state income taxes by transferring profits earned locally to tax-free states such as Delaware. Small businesses, meanwhile, pay state income taxes on every penny of their earnings.
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Friday, April 23, 2010

Ron Paul schools Chris Matthews

"That's what Hoover did." Nope. Think again, Chris.

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Alan Grayson discloses that Dodd bill covertly eliminates already passed legislation requiring full Fed audit

Zero Hedge:

Once again we get confirmation that Chris Dodd is nothing but a paid manservant for his Federal Reserve masters, in addition to being a lame duck, whose last days in office are meant to do everything to allow the old-school Wall Street ways of endless secrecy and Fed bailouts to continue in perpetuity. As Ryan Grim points out “Alan Grayson and co-author Rep. Ron Paul passed legislation through the House that would allow the Government Accountability Office (GAO) to audit the Federal Reserve and, after a delay, release the information to Congress. It was a remarkable victory, with a populist coalition beating back the combined lobbying efforts of the Treasury Department, the Fed and Wall Street banks. The Senate has been more hostile territory for the Fed audit provision. Banking Committee Chairman Chris Dodd (D-Conn.) opposes the Grayson-Paul version, but allowed a much more restrictive audit proposal from Sen. Jeff Merkley (D-Oregon) into his bill.” Why and how Dodd believes he can stand against this critical issue, that over 80% of America supports by demanding Fed transparency, is beyond any rational attempts at explanation. How he hopes to get away with it is even more mindboggling.

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Reason on the auto bailout

GM had also become a financial company/auto maker, but the figures out GM vs. Toyota's profitability are particularly interesting.


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What do income and rule of law have to do with birth rate?


In 2002, Seth Norton, a business economics professor at Wheaton College in Illinois, published a remarkably interesting study on the inverse relationship between prosperity and fertility. Norton compared fertility rates of over 100 countries with their index rankings for economic freedom and another index for the rule of law. "Fertility rate is highest for those countries that have little economic freedom and little respect for the rule of law," wrote Norton. "The relationship is a powerful one. Fertility rates are more than twice as high in countries with low levels of economic freedom and the rule of law compared to countries with high levels of those measures."

Norton found that the fertility rate in countries that ranked low on economic freedom averaged 4.27 children per woman while countries with high economic freedom rankings had an average fertility rate of 1.82 children per woman. His results for the rule of law were similar; fertility rates in countries with low respect for the rule of law averaged 4.16 whereas countries with high respect for the rule of law had fertility rates averaging 1.55.

[...]Thailand's experience over the past 30 years exemplifies this process. During that time, female literacy rose to 90 percent; 50 percent of the workforce is now female; and fertility fell from 6 children per woman in the 1960s to 1.64 today. Although Thailand is classified as only moderately free on the economic freedom index, its gross domestic product (GDP) grew in terms of purchasing power parity from just over $1,000 per capita in 1960 to over $7,000 per capita in 2003.

The income, investment and consumption opportunities that people forego when they choose to rear children are even greater in truly free economies. The U.S. government estimates that it costs an American family making less $45,000 per year in before tax income almost $150,000 to rear a child to age 18. Families making over $77,000 will spend nearly $300,000 per child. And that's before paying for college. In modern societies, children are no longer capital goods, but luxury consumption items.
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Sinners in the Hands of an Angry Gaia

Is Mother Nature punishing mankind with the Icelandic volcano?
April 21, 2010

Hundreds of years ago, before the birth of the science of volcanology in the 19th century, mankind looked upon volcanic eruptions as warnings or punishments from the gods. The gods were literally blowing their tops, spewing forth fire and rocks and ash to express their disgust or disappointment with we mere mortals and our habit of messing things up.

Now, remarkably, this backward outlook, this idea that volcanoes are somehow semi-sentient forces giving fiery lectures to mankind, is making a comeback thanks to the eruption of Eyjafjallajökull in Iceland. The fact that ash from the volcano is spreading across Europe, leading to the grounding of flights and the closure of airports, is being interpreted—even celebrated—as evidence of Nature’s awesome power and “fury” in contrast to weak, pathetic mankind.

In Britain, some of the supposedly most liberal and rationalist media outlets have found it hard to contain their glee at Mother Nature’s volcanic vengeance. For The Observer, the eruption “provides a reminder of our status in relation to our planet over which we have arrogantly seized stewardship. We imagine ourselves its master and yet with one modest belch it hems us into our little island, sweeping instantly from the skies the aeroplane, which we consider to be an example of the irrepressible genius of our species.”

This idea that the volcano has exposed how stupid mankind is to believe he can control nature with his “arrogance” and “genius” is becoming widespread amongst the opinion-forming classes. The British tabloid the Daily Mail, which has published dramatic photos of the volcanic eruption and invited readers to behold “the terrifying cauldron of lava and lightning that has brought chaos to our airports,” celebrated the fact that even a relatively “modest rumbling” in the underworld is “enough to throw a gigantic spanner into the works of modern life.” The volcano “reminds us that nature is the boss,” said one Scottish writer, and also shows how deluded mankind must be to believe he is “sophisticated and clever enough to master nature.”

A Guardian writer thinks the volcanic ash has unwittingly provided humanity with a real-world vision of the low-carbon, flight-free, clear-sky future that we must allegedly move towards. “Greens should celebrate this timely reminder of what the world might look like when the oil runs out,” he said. Radio and TV shows have featured endless interviews with people saying how delighted they are to be able to look into the sky without seeing or hearing a plane. An economics correspondent for the BBC also says the volcano has given us a “glimpse of a post-carbon morning.”

Where ancient communities imagined that volcanic eruptions were warnings from the gods to change their sinful behaviour, and would then try to reorganise society and morality accordingly, today’s supposedly intelligent thinkers see volcanic eruptions as warnings about our sinful carbon emitting, and they use imagery of lava, ash, and deserted airports to terrify people into accepting the green argument for overhauling (that is, winding down) modernity.

In Canada, the Edmonton Journal ran an article headlined “Volcano exposes mankind’s limits,” arguing that Eyjafjallajökull’s “belch” has exposed the “striking incapacity of human beings, however smugly sophisticated, to either predict such phenomena or do much about them.” Once again, a so-called media report transforms swiftly into a morality tale, in which the volcano is cast as the boss and mankind plays a bit-part role as a ridiculous, insignificant force in need of some lava-filled re-education: “Much of humankind shares the conceit that we are somehow merely distant genetic relatives of our ancestors, virtually a new species living in another dimension given technological advances, able to transcend the elements,” the Edmonton Journal declared—but the volcanic ash reveals that this is a “foolish and even dangerous presumption.”

The truth about the volcano’s impact on Europe is far more mundane—and political—than these modern volcano-worshippers would have us believe. I hate to complicate their assertions that “one modest belch” by Mother Nature has brought mankind’s allegedly “genius” modern society to a standstill, but it is now becoming clear that the politics of risk-aversion played a greater role than Eyjafjallajökull in grounding flights over the past week.

More and more experts and aviation industry representatives are arguing that the historically long and punitive flight ban is the product of “over-caution” on the part of Europe’s leaders—a familiar problem in the European Union, which on every issue from genetically modified crops to plastic in children’s toys has become notorious for applying the precautionary principle (don’t act if there is an unknown risk) rather than carrying out rational risk assessments and showing serious leadership. Test flights by British Airways and Lufthansa have encountered no problems with the volcanic ash. I’m sorry to burst the eco-misanthropes’ bubble, but it wasn’t so much an awesome natural force that brought Europe’s skies to a standstill, as it was political cowardice—which is something we can predict, control, master, and change.

Many have used the volcanic eruption to argue that modern society is uniquely vulnerable to natural catastrophe. A BBC journalist said the volcanic chaos shows that “societies reliant on high technology and high development collapse really fast in the face of an overwhelming catastrophe.” According to the Guardian’s George Monbiot, where we imagined that “the miracle of modern flight [had] protected us from gravity, atmosphere, culture and geography,” this volcanic eruption has shown that “we have not escaped from the physical world after all.”

This is not only a perversely topsy-turvy and historically illiterate argument (history, right through to the recent Haiti earthquake, shows us that it is societies that lack high development which suffer the most when there is a natural disaster); it also reveals what lies behind the volcano-worshippers’ outlook in general: a discomfort with modernity, with internationalism, with border-busting human interconnectedness. For them, the volcano should make us get back in touch with, in Monbiot’s words, “gravity, atmosphere, culture and geography”—that is, to remain grounded, to stick with our own cultures, and to stop traversing the globe. To be imprisoned, in other words, by the limits imposed by nature.

What we effectively have here is an updated version of the Vulcan vs. Prometheus story. Vulcan, the god of volcanoes, punished Prometheus, the Titan, for stealing fire from the gods and giving it to mortals. In the telling of that story, Prometheus is normally seen as the hero, the cocky, bold, and cunning Titan who wanted to give a bit of godliness to mankind. Today, however, Vulcan (in this case Eyjafjallajokill) is held up as the conqueror of Prometheus (arrogant, aeroplane-flying mankind), as green-leaning thinkers rush to celebrate the volcanic taming of mankind.

In truth, this volcano has not tamed us—it has merely thrown up a practical problem, which, if we put our minds to it, we are more than capable of resolving.

Jefferson quote

A government big enough to give you everything you want is a government big enough to take from you everything you have.

- Thomas Jefferson

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"Give us the money! ...Save our children!"

A totally legitimate expression of concern for our nation's youth.

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Does Head Start work?

NY Post:

Head Start, the most sacrosanct federal education program, doesn't work.

That's the finding of a sophisticated study just released by President Obama's Department of Health and Human Services.

Created in 1965, the comprehensive preschool program for 3- and 4-year olds and their parents is meant to narrow the education gap between low-income students and their middle- and upper-income peers. Forty-five years and $166 billion later, it has been proven a failure.

The bad news came in the study released this month: It found that, by the end of the first grade, children who attended Head Start are essentially indistinguishable from a control group of students who didn't.

What's so damning is that this study used the best possible method to review the program: It looked at a nationally representative sample of 5,000 children who were randomly assigned to either the Head Start ("treatment") group or to the non-Head Start ("control") group

Random assignment is the "gold standard" of medical and social-science research: It gives investigators confidence that the treatment and control groups are essentially identical in every respect except their access to Head Start.
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How has the Tea Party been portrayed in the media?

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Thursday, April 22, 2010

Some regulations that helped lead to the housing bubble

Some, but not all.


My concerns focus on what was not addressed by the president by seems every bit as important as regulatory reform. The asset bubble that burst in 2007/08 was itself a product of public policy decisions. To be more specific:

* Ongoing regulatory pressure for relaxed underwriting standards as a means of promoting social goals (e.g., higher levels of home ownership, and under Bush, the “ownership society”)

* The Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which mandated that HUD set quantitative targets for GSE purchases of mortgages serving a low and moderate-income clientele (the target would ultimately reach 55 percent).

* The Taxpayer Relief Act of 1997 that exempted the first $500,000 in gains from any home sale (for couples, $250,000 for single filers)

* Persistent trade deficits that provided funds for reinvestment in mortgage-backed securities combined with Greenspan’s pursuit of historically low interest rates
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