Cute quote--Intermediate Accounting--Spiceland 5th Ed.

From my Accounting Textbook "The financial community continually devises increasingly exotic ways to flavor financial instruments in the attempt to satisfy the diverse and evolving tastes of both debtors and creditors." Chapter 15, Bonds

Wow.

Yes, clearly the evolving tastes of debtors and creditors are difficult to satisfy. Thank God for those busy investment bankers and their crazy hijinx--else us debtors would never be sated.

Thomas Friedman's - Op-Ed Today

Two blogs in one day! I know crazy! I must have nothing to do!

Hardly.

So Tom Friedman is an interesting columnist at the Times. He's liberally minded, but has an independent streak, and for several years during the Bush era, was pretty uncritical at a time when that sort of thing could have really made a difference.

But he has a piece today which pretty much sums up my opinion on Afghanistan. And Iraq. This will piss off the gf--she's a you break it you, you buy it kind of gal. The buzz on Afghanistan this month from a ton of people ostensibly in the "know" is that the real reason Afghanistan isn't getting any better is that the American presence isn't large enough and that the only a solid, longterm commitment from the US can achieve any lasting stability. NPR and Charlie Rose have been beating that drum to death.

First point: America is a democracy, far far away from Afghanistan. Even if we sent them half a million troops tomorrow--there could never be a firm committment. It would come up every two years at the very least. Foreign policing actions are black holes with a very low rate of success, and are almost unilaterally rife with corruption. So if the venture cannot succeed without a firm committment, and such a commitment is genuinely, logically, impossible--then it stands to reason that we should leave.

Second point: To those that say leaving Afghanistan and Iraq in such a terrible way would inflict a terrible human cost--you're right. But is it so much better now? Sure there may not be any massacres, but the bombs keep blowing up, and the taliban doesn't quit--and I'm not sure that a firm commitment would change that, so what's to gain but more death, and waste.

I spend a lot of time on these pages talking about caring for other people, and so I want you to understand that I do not think I am being hypocritical. But religous fundamentalism is beyond my ken. The handmaidens of fundamentalism, poverty, ignorance and cynicism, are too strong in these places.

The United States needs to regroup at the very least. This half ass continued engagement will be the end of us.

Oy! Idiots!! --New Home Sales in Surprise Drop

I'm going to try and make this brief. CNN reports that there's a surprise drop in new home sales.

I don't see why this is so surprising. Some good data in the article, but it's overall misleading. I'm not blaming the reporter this time--not really.

So new home sales dropped 3.6%. They've been rising for the past five months. But here's the kicker. Nothing has changed. The article even acknowledges that the drop off is likely due to the expiry of the New Home Buyer Tax Credit. A tax credit is a nifty way to stimulate the economy, without making overt signals the free-market flag wavers.

But think of the big picture. Employment continues to worsen--the dawn may be soon, but it's still pretty damn dark. The last estimate I read, in yesterday's Times Op-Ed, suggests the rate will exceed 10% by next year. Where do they think all of that home-buying power is coming from?

Allow me to apply a little amature pyschology, without the fancy words. Late in 2008 the market craters, the banks are closing, and you've started keeping a fat wad of cash under your pillow. January, new president, new times ahead, you start coming out of your fetal position, and start looking around. You know what people say about investing, buy low sell high. You were smart, you were saving your money, you probably would have bought a house in 2007 if you'd had the money saved. Now it's 2009, you have the money, prices are down, and Obama springs a fancy tax credit on you. Great. You buy.

But demand isn't just a current measure-it's a stream. And most of the demand of the last 5 months were from people who were ready to buy in 2008 and just put it off until things settled. So where is the new demand going to come from? Middle class wages continue to stagnate, and more jobs are still being lost than created. What's the big difference? Credit has totally evaporated, and the fake credit of a housing credit (which was a very good idea at the time) is really a go along to get along measure.

Obama had a really good opportunity to change things. But I think his team really wants things to just go back to the way they were--minus the Bush nastiness, of course. Look who his financial team is--all heads of the old order.

But things weren't cool. The kids were not all right. I don't know what the answer is, but I think I have a pretty good idea. The infrastructure of this country is rotten. Bridges over a hundred years old, crumbling highways, terrible rail and freight systems. Subways in metropolitan areas, like New York, falling apart, and totally inadequate to deal with demand.

People talk about Zeitgeist too much, but I have to say it. The Zeitgeist of this country has been in the shitter for 9 years now. The powers that be, the politicians, the media, the CEOs, they don't give us enough credit. We know that the rich are taking their money and leaving the party, we've been watching it for close to a decade. We don't blame them, but then they're puzzled when they don't see economic growth? I've yet to work through a period of economic growth. The Bush Boom was a boom only for the top 1%. That hasn't changed. And it's depressing as hell.

Wall Street Journal-When Bad Luck is a Crime

I never read the op-ed page of the WSJ. It's a reasonably good paper, definitely one of the papers of record, but even my nine-year old niece knows it's editorial page is wildly conservative. The insult of the day was penned by Holman Jenkins.

So the Bear Stearns Hedgfund criminal trial against Ralph Cioffi, and Mathew Tannin has been going on since the beginning of the week, and of course, the WSJ has to weigh in, their title: "When Bad Luck is a Crime."

In it Jenkins exonerates Ken Lay, Ken Lewis, Cioffi and Tannin with the pitiable lamentation, of "bad luck." This happens in every financial crime and is a crucial arrow in a defense lawyers quiver. It goes: "Plaintiff's say that there was wrong-doing here, that the defendants wanted to defraud their company and their investors. This is just plain silly. There was a system wide crash--an act of God--all the evidence the plaintiffs have provided actually proves that the defendants did everything in their power to prevent the demise of their company. And really--Defendant A got a 3 million dollar bonus in 2007, was it in his best interest to screw the company?"

I've seen this argument in dozens of securities cases now. It's hackneyed and played out. The problem is that a global economy is so intricately involved that, when the avarice reaches a certain point, one falls, and then the rest of the dominoes get knocked over. Cioffi and Tannin are perfect examples of this. Their hedgefund was at the very top of the stack of dominoes which became the Great Recession. It was one of the earliest signs of the obliteration of the investment bank.

This is one of my favorite sentences, "The Bear Stearns execs, Matthew Tannin and Ralph Cioffi, ran two subprime funds that depended heavily on leverage (i.e., borrowing) to make the rate of return expected by their high-rolling investors. " What a lark! Suddenly "leverage" is just the same as "borrowing," nevermind that the hedge funds here were levraged 30-35 to 1. This is good too: "to make the rate of return expected" those investors really held a gun to Cioffi's head. These sorts of excuses are really shameful coming from the Wall Street Journal.

It makes you realize, that the Paper of Record for the US Economy, really doesn't understand much about law, economics, or plan old business. The investment banking/real estate bubble was extremely reckless. And had not Bernanke, Paulsen and Geithner saved the banking system, we could have had a real problem. And we still do have a huge problem. With all these racial slurs spewing from the polluted mouths of Glen Beck and others, the continued job losses, and the fourth time this year that unemployment benefits have been extended, we could see riots like we saw in the 1960s and 70s all over again.

But I digress.

Jenkin lobs another at the prosecutors by calling their best evidence "The prosecution's pièce de résistance is a Tannin missive that wondered aloud whether they should liquidate the funds or, alternatively, double down on the subprime market. That is, Mr. Tannin was unsure whether he was looking at the mother of all meltdowns or the mother of all buying opportunities." Well, if he was properly hedged to begin with--he wouldn't have been so exposed in the first place.

So what? You can't stand the heat, you say? Well--consider this: Cioffi's hedgefund had the backing of a major investment bank, a bank that had been around for 80 years. Bear in fact, bailed them out, when the size of their losses became unavoidable. Bear Stearns didn't have to do this--they could have left the fund out in the wind. They chose not to. Why? Because their reputation as a successful firm that makes sound investments was on the line. A firm with a reputation for hard dealings doesn't bail out a fund for a half a billion dollars because it was unlucky. Which is why Jenkins begins rhapsodizing about luck and throws in a new paper presented at the Academy of Management, that says: "hard to tell who is competent and who is lucky." Please. The documents support the fact that the fund was hedged poorly, and that it's investment strategy was poor and based almost entirely on the false premise that the housing market would continue to rise, even as every other economic standard for the country continued to drop.

Most disappointing about the WSJ piece is that the writing is pretty crappy. I admit. I don't spend too much time editing my own work on this blog--but I don't get paid for this. They do. Look at these sentences: "How much more fun, when dealing with circumstances like these, to play the after-the-fact-know-it-all, naming heroes and villains with the confidence afforded by the rear-view mirror. Bad enough is when journalists give unreflective vent to this urge, but unhealthy for society is when prosecutors do it." huh?

Salon's Andrew Leonard-How The World Works

I like Salon, and though I've only read a few How the World Work's columns, I'm sort of ambivalent about Andrew Leonard. His post today made front page rotation. It's called, "The Break Up The Banks Delusion" Mr. Leonard, if by some chance you google your name, and this blog comes up, my apologies. I'd have commented on your blog. But I can't bear to get yet another password to sign in.

My issue here is the title is extremely misleading. I don't know if it was Leonard's idea or his editor's, but the title implies that Mr. Leonard is opposed to "breaking up the banks" and feels that those who believe in such are delusional. This is NOT what the post is about. In fact, the post is largely a cynical rant about how little progress has been made on the regulatory front. The "delusion" isn't that the people who believe in strict regulatory policy are delusional because of their ideals, they're delusional if they think Congress will pass it.

I'm just as cynical and I agree. But I hate it when bloggers do this. That title is incredibly misleading. And it's disappointing when any group does this (and Salon's titles are often misleading) but particularly frustrating for me when liberal groups do it.

The raison d'etre for headlines is that most people only read the large type. It's a teaser to make you read the small type--but if it doesn't work, your only impression of the article (blog) is gleaned from the headline. In this case, if you're scanning the headlines for something good to read, and you don't pick Leonard's columnm, all you're getting is that Salon think's it's bullshit to break up the banks. And that type of impression is irresponsible if it isn't the truth.

In the preceeding paragraph I touched upon another issue. Nothing to do with Mr. Leonard. The distance between articles and blogs is closing rapidly. Large reporting outlets would do well to delineate the difference with striking visual difference. And the word's "opinion" should always be nearby. Too many people take their news from columnists without ever realizing that it. I do it myself. Maybe I'm lazy, but I work hard, and I don't have too much time. Making that difference apparent would be really really easy. Salon, Slate, MSNBC, CNN, please do so.

Ross Douthat Op-Ed at the Times

So, Mr. Douthat writes some interesting columns at the Times. As most in the paper's employ, his columns are fairly thoughtful--even for a conservative! This time though I'm mighty peeved.

Douthat suggests that we consider the plans of Martin Feldstein. I haven't read his plan, but Douthat's summary of it is atrocious.

The basic problem with healthcare now, beside the lack of insurance for 30-40 million Americans, and the terribly inadequate care for millions more, is that the costs are rising well beyond what anyone can reasonably be expected to pay. Douthat sums that up well. Where I think he errs, is that he advocates for universal catestrophic coverage. As anyone who has ever had catastrophic plans can attest to--this is an utterly implausible idea.

His words:

"Such a system would provide universal catastrophic health insurance, in other words, while creating a free market for non-catastrophic care. In the process, it would marry a central conservative insight that we'll never control spending so long as Americans are insulated from the true price of their medical care” to the admirable liberal premise that nobody should go bankrupt paying for life-saving treatment.

The details would vary depending on your political predilections. Under the more free-market approach, championed by Harvard's Martin Feldstein, the government would provide vouchers for the purchase of private catastrophic plans. Under a more liberal version, like the one sketched out by Berkeley's Brad DeLong, the government itself would act as the insurer. And liberals and conservatives would no doubt disagree about where to set the income threshold, and what additional interventions to support."

First of all, insurers always argue what merrits a catastrophy, and there's no reason to suggest the government would act differently. So that's debunked. Also, as several commentators point out--the main issues with rising healthcare cost is that current costs are based on a catastrophic coverage already. There isn't enough preventative care, which is cheap and effective, so that people are forced to wait until problems become catastrophic. My gf is a case in point. She was having terrible abdominable pains. For months she sat on them, and just lay beside me on the bed at night, moaning in pain. And she couldn't go to see a doctor, because that was two-three hundred dollars per visit that she didn't have. Finally she was admitted to the hospital, and the bill ended up going into several thousand dollars. Which her catastrophy insurance paid for--and the catastrophic treatment was largely ineffective anyway.

This phrase was particularly offensive to me, "it would marry a central conservative insight that we'll never control spending so long as Americans are insulated from the true price of their medical care." Fuck you Douthat. We are well aware. Every stinkin' one of us. Even the insured. But two or three hundred dollars to have a doctor prescribe advil until things get worse? Bullshit.

I had an ankle sprain earlier this year. My healthcare provider paid for three months of therapy. And they hate that. But if I hadn't had that therapy--I couldn't have gone back to work for months, and may well have had that injury permanently. But no catastrophic plan would ever have paid for that. And left to my own devices, I never could have either.

There is a moral imperative here. The welfare of the people is the government's only going concern. And it's in their best interest. The more we work, the more we earn, the more we pay. Is that free market enough for ya?

And vouchers? Seriously? The voucher system is lousy, ineffectual, and adds entirely too much beauracracy.

Costs are rising. Largely because the government is prevented by law from bargaining with providers, and drug companies. This needs to change. The government is the single largest purchaser of drugs and healthcare--if they're not in the market, then the market prices are inflated and controlled by an oligarchic industry.

Novelist Mark Helprin on Econtalk

So, yet again, a comment on a months old Econtalk. This time with guest Mark Helprin. The subject is copyright and as usual both the guest and Russ Roberts have some very interesting things to say. To sum up quickly, Helprin wrote a book on copyright in America. Basically, Helprin wanted to extend copyright protection by at least another decade, maybe two. Apparently, this is a hotly disputed subject. His introduction is sort of funny, because he acknowleges that he chose to write about copyright in part because he didn't think anyone would find it controvercial. Instead, he uncovered a hotbed of neoliberalism that wanted to socialize creativity. To be fair, I certainly don't receive any hatemail, so I can't comment on Mr. Helprin's reaction to some very heated responses he received.

On the whole, I don't really have an opinion on the subject. I personally benefit from a release of copyright's because I listen to audiobooks. I read A Tale of Two Cities that way. Now Dickens, clearly is long dead, and his copyright expiration is not at issue here: Helprin fully believes that the public has a right to intellectual material. However, he makes an able case. If you're an industrialist or a business owner, you leave your assets to your offspring when you die. That's all you have. A copyright is an asset, so why isn't it protected the same way?

At anyrate, I don't take issue with that. But as usual in Econtalk, the palaver shifts toward cultural issues, and borh Helprin (who wrote speeches for Bob Dole, and Roberts are RightingRightatics.) Here are a couple issues:

1. One Worldism. Both Russ and Mark, (excuse me for addressing them so informally but I really feel as if I know them,) are complaining about people that want a world with "one government." Maybe I'm sheltered, but never in my Ravingest Leftaticist moments have I ever dreamed of such a condition. What does that even mean? Which is of course, what Helprin and Roberts point out, it would be madness, and tantamount to tyranny. But my issue is that by creating this sort of glossed-over tar-and-feathering of a group to which I belong. I'm an idealist, and I do think that social government programs are important, and that more government money ought to be devoted to them than less. But here they are, these two guys are rambling on like a bunch of old men playing dominoes on the stoop and muttering about "these kids today." This one government business is a gross mischaracterization of the American left. I mean, it's not even an intellectual argument, but as someone who reads a lot of liberal literature, on --gasp--the internets--I've never seen anything like it! Not even on Daily Kos!

2. Helprin spends a lot of time talking about how creativity is a solitary adventure. Whole parts of his speech here could have come straight out of the fountain head: "What you feel in the presence of a thing you admire is just one word – ‘Yes.’ The affirmation, the acceptance, the sign of admittance. And that ‘yes’ is more than an answer to one thing, it’s a kind of ‘Amen’ to life, to the earth that holds this thing, to the thought that created it, to yourself for being able to see it. But the ability to say ‘Yes’ or ‘No’ is the essence of all ownership. It’s your ownership of your own ego. Your soul, if you wish. Your soul has a single basic function – the act of valuing. ‘Yes’ or ‘No,’ ‘I wish’ or ‘I do not wish.’ You can’t say ‘Yes’ without saying ‘I.’ There’s no affirmation without the one who affirms. In this sense, everything to which you grant your love is yours." (Ayn Rand-The Fountainhead). I liked the Fountainhead--again, gasp--and I'm still a liberal. I liked it because it gave me the courage to speak my mind. As a teenager, trying to fit in and be liked, I would purposely let other people express their opinion before I expressed mine, then mold whatever I said to fit. Shameful, I know. And the Fountainhead was critical to my becoming the man I am today, anonymously writing my thoughts on a blog that no one reads. (that was a cynical joke)

I'm a big believer that creativity is an individual pursuit--but not always. And that's where I think Helprin is all wet. He thinks that all the greatest works came from one mind. Personally I think that's naive. Russ and Mark mention Shakespeare quite a bit in this discussion, but of course, Shakespeare was the most hackneyed and plagiarized writer of the English language. Not that I don't give mad props to Shakespeare, but the fact of the matter we know very little about him actually, and what we do know actually points to the opposite--his plays were workshopped by his theatre company--the very definition of collective writing. One of the best plays I've ever seen was my friend's performance here in NYC of Kafka's "Trial of K." The group adapted it to the stage, and did a brilliant job of it. But by now, I'm running shy of the point--Helprin would probably agree to all of that. My point is actually much subtler. Think of the most solipsistic work you can think of--let's say Catcher in the Rye. Sallinger protects his intellectual property like a mama bear protecting it's cubs. Is Catcher in the Rye really the work of one man? Helprin makes the point that when he started at the New Yorker, the editors wouldn't change a comma without the permission of the author. But then again, talk about creative barriers--just submitting your work to a magazine presumes that you're willing to change your vision if the portal of dissemination requires it. To suggest otherwise is ludicrous. And the second you've changed your vision to meet the demands of the portal--the sanctity of indivualism has been compromised. The only truly individual writers are the ones who can publish without permission. Take this blog. No one tells me what I can't write! (Oh please oh god, please someone tell me something!) Fact is--Helprin's been a somebody for a long time--somebody's have a lot more freedom to publish than nobody's. Helprin acknowleges this, but still manages this conceit about individuality.

3. Back on this common good theme that Helprin sets up as being naive. He says that the proponents of rolling back copyright law because writing is actually a collective really just aren't as creative as him. They're jealous, because they can't create the way he can, and so they have to hack apart other's work to make something of themselves. Of course, I'm paraphrasing, and Helprin says it in a very diffident gentlemanly manner. But that's what it comes down to. I don't think I even need to comment on that.


It's 1:38 am. I'm still at work, and I'm exhausted. I'm not editing this till tomorrow. Enjoy it in it's spastic, incorrect juicyness.

General Motors on Econtalk

So I'm months behind on my Econtalk podcasts. Also, sometimes it's hard to stomach the things my friend Russ says. For example, he invited a Wired writer to comment on his time working at Wal-Mart. The writer went to Wal-Mart to debunk a claim made by another reporter about working at Wal-Mart. Full disclosure: I have read neither the article on which the podcast was based, nor the article which sparked the responsive article. Also, Wal-Mart isn't one of my issues. I think it's part of a larger problem of a petroleum based economy, whereby large supply chains can distribute goods at cheaper cost, but at an ultimate cost to the environment and community.

Anyway, my example is getting longwinded. I take issue with the podcast because it doesn't address the central problem of low wage workers. It's extremely difficult to get by at 30,000 a year. Nothing in the podcast even addressed this point, though the article on which it was based seemed to have been based on that supposition. Moreover, this guy at Wired, he worked at Wal-Mart for one week, than quit to write the article. One week?! One week?! That is the basis for this lengthy defense of Wal-Mart? I'm no enemy to the company, but clearly, this was not an indepth study. And it did not in anyway address the needs and lifestyles of low-wage workers! This is my problem with Econtalk. Very interesting stuff, but often incredibly myopic. (I know, I used the word in my last post , but it's just so goood!)

Anyway, this week was GM.

So we've all heard about how lousy GM's business model was, and how the corporate ideology was ancient and top-down. But they don't ever really talk about GM's legal troubles. So what follows was an email I sent to the gf, reproduced here with some edits.

So they're talking about franchising, and this was important because of what happened to GM over the summer. You recall how there were too many dealerships open to maintain profitability--and you could point them out! Two or three to a town sometimes, even across the street from one another. So there are very interesting franchising laws. Most franchise laws are state, or local law, and so they're made to protect the franchisee. So GM can't close a dealership that bears it's name (or any of it's brandnames) because they don't own the store, and it's illegal in 27 states to do so. So you might say, well, why can't they just cut the product line? Well, written into the franchise contract is a caveat that states, "the line must produce x amount each year."

On top of that, the franchisor also has to pay to advertise for that product. 10 or 20 years ago GM tried to close some of those duplicative dealerships, but they couldn't because of the contract provisions and statelaw. Russ Roberts then asked about the term on the franchise, and the answer, unbelievably, was that in most contracts, the franchisee is the only one who can void the contract unless the franchisor can show cause. Now the next question, I'm not sure I believe. Why does the franchisee have such stringent protections?

Because of the house of representatives. (I know you know this, but the house of reps is the people's house. And so it's mostly local money.) He then went on to make another point slightly off topic--the auto industry only has a few market participants. He even went so far as to call it a cartel (which I would agree with, but which is unusual to hear from a Chicago school economist--in my experience) and stated that cartel's are sluggish and don't respond to market pressure quickly--because they can make profits at much lower rates of demand than can participants in a perfectly free market.

Another facet of the business is this: If the dealers haven't been making any money for the last few years, or lets say that their flow of sales has dwindled to a bare trickle, they can attempt to make up the difference through extremely competitive sharklike tactics with their neighbors and their clients. Then the manufacturer goes into a feedback loop where they keep hearing about how lousy the sales service is--but by then it's too late, because they've already gotten a name for themselves through the shoddy dealings of the dealerships.

And of course, all this is the government's fault. That's what Russ would like to infer. Meaning the protections on the industry at large--and I think he's right to some extent. But that's where the myth of the free market comes to play. No industry is unregulated. The people have protections, and so do the companies. Does this create market inefficiencies? Damn straight--and that requires reform.

To some extent I think laws are cyclical. After a period of intense regulation, I think it's perfectly acceptable to repeal some of those laws. This allows a period of profit clearing, as well as a chance for market innovation. However, when the reigns get pulled out of the government's hands, the horse must be stopped before it runs the carriage off a cliff.