Tuesday, September 30, 2008


So, senators and representatives are all coming out with statements re what to do about the current financial crisis. So far, this blogger hasn't read any that specifically chart out what to do to clean up the current mess vs. "feel good" measures or "after the fact" proposals that might prevent a future reoccurrence of the issue but are too late to help with the immediate crisis.

Example number one comes from Marcy Kaptur (D-OH, and serving her thirteenth term in the U.S. House of Representatives as the senior-most woman in Congress). The transcript (with this blogger's comments inserted):

The SPEAKER pro tempore. Under a previous order of the House, the gentlewoman from Ohio (Ms. Kaptur) is recognized for 5 minutes.

Ms. KAPTUR. Madam Speaker, I would like to place in the Record the measuring sticks against which I will weigh any proposal brought before this Congress to bail out Wall Street investment houses.

Number one, financial reform must come first. America needs reform, not a bailout. Over the last 20 years, legislation has been passed by this Congress, H.R. 1278 in 1989 called FIRREA, interstate banking in 1994 which created those big mega banks, and H.R. 10/S. 900 in 1999, which overturned the Glass-Steagall Act that allowed banking, real estate and insurance all to be under the roof of the same firm.

Well all those bills together have created a highly concentrated financial system, particularly in housing finance, rather than a decentralized one like that which we had for most of the 20th century. This bailout is the result of high-risk misbehavior by distant financial giants. They have sucked equity out of local communities and turned local markets into derivative, debt-ridden communities rather than independent, robust, credit markets with prudent savings and lending practices.

Reform should restore those prudent and transparent banking practices defining the difference between banks and investment houses and protecting and restoring the protections that existed prior to 1999 when that Glass-Steagall Act was eliminated. Conflicts of interest at bond rating agencies should be addressed by such agencies becoming public. Reform, as I say, and regulation should come first out the door before the money, not later.

  • Is she seriously suggesting going back to the pre-interstate banking days, before Riegle-Neal in 1994? And reversing FIRREA (which allowed bank holding companies to acquire thrifts - is that really a big problem now?) and Gramm-Leach-Bliley (which allowed commercial and investment banks to consolidate) to reinstate Glass-Steagall? Some argue that these measures increased risk... Maybe so, but is she suggesting the unwinding of JP Morgan Chase's 'rescue' of Bear Stearns? (Note: Bear Stearns as stand alone investment bank failed and it was acquired by a commercial bank.) Any way, even if (and it is a big if) she is correct here this is not something that addresses the immediate problem...

Number two, Main Street housing market deflation must be stabilized as step one. A moratorium should be placed on all home foreclosures for 120 days. That will take us into the new year. And deflation in the housing market really is what has triggered this credit crunch. The Federal Reserve could use its influence through its regionalized structure to bring parties together to work out affected loans in places like Ohio to stabilize local real estate and housing markets. That is where the real assets are and where the markets must clear and adjust.

What a crime it would be if people are thrown out of their homes and an institution somewhere over in England like Barclays becomes the owner of those assets and gets them at fire-sale prices. We need to put those assets back in the hands of the American people.

The traditional home loan backed by savings deposits was converted into a bond during the 1990s and then securitized into those international markets. The time-tested loan standards of character, collateral and collectibility were shelved, and therefore to reform this system it must be decentralized again, with the community savings and home loan bank system being reestablished with an emphasis on increasing savings deposits with enhanced local mortgage origination and oversight, as opposed to concentration of activity in Wall Street investment houses.

  • Here too, one can argue that a temporary moratorium on foreclosures is something that needs to be done. And it's true that we are no longer in the halcyon days when we would get our mortgages from the corner bank. However, suggesting that a foreclosure moratorium will stop housing deflation is... this blogger struggles for words. Suffice it to say that this is not cause and effect...

Number three, a new Financial Assets Management Board should be formed to manage this mortgage refinancing and workouts at the local level, similar to FDR's Homeowner Loan Corporation.

  • OK, perhaps a good idea., not exactly sure what this does for the current difficulties...

Fourth, the Department of Justice should be authorized to investigate the wrongdoers, to track down the fraud, misrepresentation of asset value, insider trading and related crimes in this scandal. There should be over 500 attorneys and accountants and support staff to conduct thorough investigations, forensic accounting and prosecution.

  • Ditto - perhaps a good idea., not exactly sure what this does for the current difficulties...

Fifth, any Federal dollar that is expended must result in equity to our taxpayers. If our people are going to be forced to fund unlimited private sector bad debt, our people must receive an equity share in every Wall Street financial company proportional to the amount of bad debt held that is shifted to the taxpayer.

Our people are being asked to take 100 percent of the risk. They should be afforded the benefit of any future profits. A 0.25 percent transaction fee should be charged on every Wall Street trade or Chicago Board of Trade transaction, and that $150 billion a year that will be yielded should pay the American people back over time.

  • A 0.25% transaction fee on every stock trade... True, it will raise the amounts mentioned, but who exactly does she think this money will be paid by? Hmm, this blogger will pay the 0.25% fee every time he trades - and when the company running his 401(k) trades, etc., etc. - and then he will be "paid back over time." Hmm, that's really sticking it to Wall Street and standing up for Main Street! Somehow, he's doubtful that he will ever get that money back once it's out of his pocket...

Sixth, a select congressional committee should be established to hold hearings, do proper oversight and advise the next President and Congress on mortgage and financial recovery operations and additional means to assure any necessary repayment of public investment.

  • As with numbers three and four above, perhaps a good idea, not sure what it does for the current crisis.

Seven, standards for executives and compensation structure in the financial services industry should be established. Those outlandish salaries that they get should be curbed, and all bonuses, stock options and exceptional compensation for those individuals and their boards of directors should be discouraged. We should help to pay the bill by going after some of their assets.

  • Ditto, as above (i.e. not sure what this does for the crisis). Note: not every CEO helped himself (herself?) to outlandish salaries and perks, though many did. Congress setting salaries doesn't exactly inspire confidence in this blogger. This is one of those "keep the crowd with pitchforks happy, and in a happy coincidence, going after the executives rather than the senators and representatives who also presided over this melt-down" type measures.

Finally, Madam Speaker, I would like to place this in the RECORD, and also include bankruptcy reform as one of the major changes that we need to make in any measure. These are the steps that would actually result in market recovery, not just bailing out unknown assets and bad debts from Wall Street.

Bottom line: Some of this might be useful for the future, but it doesn't give much re what to do to solve the immediate crisis!

Here is someone else who thinks that a 0.25% fee on stock trades will make sure that it is Wall Street who pays and not you and me! He also claims an added benefit - this fee on stock trading will "... tamp down toxic speculation, while encouraging healthy investment. The reason is pretty straightforward: When there's no cost to trading, there's no cost to gambling. The current system is like going to a casino where the house never takes anything; a gambler's paradise. Without costs to the transaction, people of large means are encourage to speculate - to, for example, buy a million shares of a particular stock over a day or two purely with the goal of driving up the stock's price (because everybody else sees all the buying activity and thinks they should jump onto the bandwagon) so three days down the road they can sell all their stock at a profit and get out before it collapses as the result of their sale..." Hmm, this blogger hadn't realized that a) there is currently no cost to trading, and b) he can easily time the market and move stock prices in the desired direction at no risk!

All about CDSs

Good article explaining credit default swaps - what they are, how they work, how many there are (see graph above), the danger they represent, etc. Some choice quotes:
  • "... CDS are easy to create: Often deals are done in a one-minute phone conversation or an instant message. Many technical aspects of CDS, such as the typical five-year term, have been standardized by the International Swaps and Derivatives Association (ISDA). That only accelerates the process. You strike your deal, fill out some forms, and you've got yourself a $5 million - or a $100 million - contract..."
  • "... You can guess how Wall Street cowboys responded to the opportunity to make deals that (1) can be struck in a minute, (2) require little or no cash upfront, and (3) can cover anything. Yee-haw! You can almost picture Slim Pickens in Dr. Strangelove climbing onto the H-bomb before it's released from the B-52. And indeed, the volume of CDS has exploded with nuclear force, nearly doubling every year since 2001 to reach a recent peak of $62 trillion at the end of 2007, before receding to $54.6 trillion as of June 30, according to ISDA..."
  • "... But traders say almost no new contracts are being written on any but the most liquid debt issues right now, in part because nobody wants to put money at risk and because nobody knows what Washington will do and how that will affect the market. ("There's nothing to do but watch Bernanke on TV," one trader told Fortune during the week when the Fed chairman was going before Congress to push the mortgage bailout.) So, after nearly a decade of exponential growth, the CDS market is poised for its first sustained contraction..."
Here's what this blogger doesn't understand in this scenario.... The big issue right now is that the credit market is "clogged." Banks are not lending, not to each other, not to businesses that need the money for growth, etc., etc. However, where is all the money that was going into these instruments? It's all being held as banks, institutions, etc. are scared of taking any risks and want to keep liquid... It's not the fact that they loaned money like drunks to anyone with a pulse (and even some without) that is causing the current credit "clog" problems, it's the fact that they have a hangover and have suddenly turned parsimonious and are hanging on tightly to their money and not loaning it to good prospects!! Possibly this is a ridiculously silly suggestion (otherwise surely someone would have suggested this), but perhaps the government intervention shouldn't be on the "back end" (i.e. helping the financial companies clean up their toxic waste), but on the "front end" i.e. some sort of guarantee of all new loans struck provided they meet certain criteria...

The $55 trillion question


This is sheer genius - this cartoon does a better job illuminating some parts of the current financial crisis than a good many articles that this blogger has read, including some by "big-name" economists! Check it out!

The Subprime Primer

No papal benediction...

His Holiness Pope Benedict XVI, Bishop of Rome, Vicar of Jesus Christ, Successor of the Prince of the Apostles, Supreme Pontiff of the Universal Church, Primate of Italy, Archbishop and Metropolitan of the Roman province, Sovereign of the State of the Vatican City, and Servant of the Servants of God, has rejected French President Sarkozy's nomination of Jean-Loup Kuhn-Delforge as French ambassador to the Vatican. This, en raison de son « profil personnel » - because of his "personal profile" i.e. because the gentleman is an open homosexual in a committed relationship. This has caused quite a kerfuffle and allegations of bigotry on the Pope's part. An article (my translation inserted in green):

Recherche ambassadeur hétéro et monogame (Looking for a heterosexual monogamous ambassador)

Le poste est vacant. Depuis près d’un an, l’ambassade française au Vatican est comme un navire sans capitaine. Mais pourquoi? C’est qu’on peine à trouver le profil adéquat.

The position is open. For almost a year the French embassy to the Vatican has been like a ship without a captain. But why? It is because it is difficult to find a suitable candidate.

Max Gallo avait été approché, mais il a décliné cette proposition. Une deuxième personne avait été pressentie, mais c’était un homme trois fois marié et deux fois divorcé, chose inacceptable pour le Saint-Siège. Une troisième candidature a été envisagée: il s’agit de Jean-Loup Kuhn-Delforge. Mais on attend encore le placet du Vatican, qui ne semble pas pressé de l’accorder. Il semblerait que le monsieur déplaise en haut lieu. Si catholique soit-il, il a le malheur d’être homosexuel déclaré, ce qui semble chagriner le souverain Pontiff.

Max Gallo had been approached, but he declined the proposal. A second person had been thought of, but it was a thrice-married, twice divorced man, something unacceptable to the Holy See. A third candidate was considered, we’re talking about Jean-Loup Kuhn-Delforge. However, one still awaits the assent of the Vatican, which does not seem in a hurry to grant it. It would seem that the he displeases (people) in high place. Even though he is Catholic, he has the misfortune of being a declared homosexual, something which seems to chagrin the Sovereign Pontiff.

Heureux comme Dieu en France, dit le proverbe; malheureux comme Benoît à Paris, faudrait-il ajouter. Récemment, en effet, le pauvre homme a été accueilli par un président de la République, trois fois marié et deux fois divorcé. Le pape a dû ensuite saluer Carla Bruni, dont le passé n’a pas toujours été très catholique. Pire encore, il a du faire face à Bertrand Delanoë, homosexuel notoire, hélas, et maire de Paris. Pauvre Benoît, et le gouvernement français voudrait encore lui imposer un ambassadeur comme Jean-Loup Kuhn-Delforge! Trop, c’est trop! Il faudrait donc une personnalité qui corresponde au poste. L’agence de presse italienne AGI a publié un article intitulé: «On ne trouve pas d’ambassadeur hétéro et monogame». Mais oui, car être hétérosexuel et monogame est une compétence fondamentale pour exercer ce noble métier d’ambassadeur.

Happy like God in France, says the proverb; unhappy as Benedict in Paris, we need to add. Recently, indeed, the poor fellow (Benedict) was greeted by a president of the Republic; himself three times married and twice divorced. The Pope then had to greet Carla Bruni, whose past has not always been very catholic. Even worse, he (Benedict) had to deal face-to-face with Bertrand Delanoë, notorious homosexual, alas, and mayor of Paris. Poor Benedict and now the French government wants to impose on him an ambassador such as Jean-Loup Kuhn-Delforge! Too much, it is too much! One needs a personality that fits the position. The Italian news agency ACTED published an article headlined: “One can’t find a heterosexual and monogamous ambassador.” But of course, being heterosexual and monogamous is a fundamental requirement to exercise the noble trade of ambassador.

Le 4 août 1992, M. Ratzinger, pas encore pape à l’époque, avait co-signé avec Jean-Paul II dans l’Osservatore romano un article intitulé Certaines considérations concernant la réponse à des propositions de loi sur la non-discrimination des personnes homosexuelles. Ayant pris leur plus belle plume, tous deux affirmaient sans ambages:
«Dans certains domaines, tenir compte de la tendance sexuelle n’est pas une discrimination injuste, par exemple dans le placement des enfants à adopter ou leur mise en garde, dans l’engagement d’enseignants et d’entraîneurs sportifs et dans le recrutement militaire.»

On August 4, 1992, Mr. Ratzinger, not yet pope at the time, had co-signed with Jean-Paul II in the Osservatore Romano newspaper an article titled “Certain considerations in answer to laws on non-discrimination against homosexuals”. Having taken their best pens, both affirmed without ambiguity: “In certain fields, taking account of a person’s sexual tendency is not an unjust discrimination, for example in the placement of children for adoption or their being place on guard, in the hiring of teachers and sports trainers and in military recruitment.

Ainsi, en lisant ces lignes, nous comprenons qu’il y a des «discriminations injustes» et d’autres qui sont justes. Donc, depuis 1992, pour le Vatican, l’hétérosexualité est une condition requise pour adopter, bien sûr, mais aussi pour être entraîneur sportif, militaire, et même pour enseigner. Par ailleurs, depuis 2005, le Vatican a aussi affirmé qu’il était nécessaire d’être hétérosexuel pour devenir prêtre. Depuis quelques jours, nous comprenons aussi qu’il faut être hétérosexuel pour devenir ambassadeur au Saint-Siège. Plutôt que de donner les informations de manière progressive, Benoît XVI devrait publier une fois pour toutes la liste exhaustive des emplois réservés aux hétérosexuels. Nous l’attendons tous avec impatience…

Thus, on reading these lines, we understand that there are “unjust discriminations” and others which are just. Thus, since 1992, for the Vatican heterosexuality is a requirement to adopt, of course, but also to be a sports trainer, to join the military, and even to teach. In addition, since 2005 the Vatican has also affirmed that it is necessary to be heterosexual in order to become a priest. Since the last few days we now understand that it is also necessary to be heterosexual to become ambassador to the Holy See. Rather than giving out the information bit by bit, Benedict XVI should for once and all publish an exhaustive list of the jobs reserved for heterosexuals. We all await this impatiently…

Diplomático y militante gay es rechazado por el Vaticano como embajador de Francia
Deux candidats pour un (Saint) siège

Previous posts referencing the Pope:
The danger we face - September 17th
HH Tekel - June 17th
One version permitted #1 - April 19th
Well said?!? - April 17th


Exclusive: Neither Obama nor McCain nor the Government Has a Plan in the Event of a Protracted Oil Stoppage - It Isn't Even Being Discussed is an article that introduces a book just published by the author Edwin Black (via Dialog Press) - The Plan: How to Save America When the Oil Stops—or the Day Before. There is also an associated web site, www.planforoilcrisis.com

OK this is an important topic and it is entirely possible that this is a great book, but this blogger isn't enticed into reading it by the breathless prose of the article, e.g. "... It is like seeing a hurricane developing without a disaster plan or evacuation route. Our allies have oil shortage interruption contingency plans, but America does not..."

Incredibly the article then goes on to say: "... The crude realities: America uses approximately 20 million barrels of oil per day, almost 70 percent of which is imported. If we lose just 1 million barrels per day, or suffer the type of damage sustained from Katrina, the government will open the Strategic Petroleum Reserve, which offers a mere 6 to 8 week supply of unrefined crude oil. If we lose 1.5 million barrels per day, or approximately 7.5 percent, we will ask our allies in the 28-member International Energy Agency to open their SPRs and otherwise assist. If we lose 2 million barrels per day, or ten percent, government crisis monitors say the chaos will be so catastrophic they cannot even model it..."

Hmm, as of today the Strategic Petroleum Reserve currently has 702.6 million barrels, so in the above scenario if we lose "1 million barrels per day" the SPR could close the gap for crude for almost two years (assuming that all the oil can be pumped out of the underground salt domes in Bryan Mound, Bayou Choctaw, Big Hill, and West Hackberry), and not "a mere 6 to 8" weeks. The 6-8 weeks figure is to replace 100% of US import volumes! Add to this that commercial stockpiles of crude in the U.S. are at least as big.

OK, so it's true that there are no stockpiles of refined products e.g. gasoline, jet fuel, etc. (as there are in some other countries). It is also true that the SPR's maximum drawdown is 4.4 million barrels per day and that crude from the reserve would normally only come on line thirteen days after a Presidential order (though it was done faster after Katrina). It is also true that if U.S. refinery capacity was greatly degraded that we would not be able to refine the crude in the SPR, etc. However, the article's gross error highlighted above, plus its suggestion that a 7.5% cut would make the U.S. dependent on its allies (way off the mark) certainly does not motivate this blogger to run out and purchase the book!

Alternative fuels

Nice presentation - Biofuels: Facts and Fallacies via R-Squared Energy Blog.


Sexual cleansing in Iraq
Don't Ask, Don't Tell, Do Kill
Gays Living in Shadows of New Iraq
Gays in Iraq terrorized by threats, rape, murder

Monday, September 29, 2008

Quick reminder...

Photo credit: Wikimedia Commons

Luca Pacioli, Franciscan monk and mathematician (picture) is known as the "Father of Accounting" for codifying double-entry accounting in his 1494 book, 'Summa de arithmetica, geometrica, proportioni et proportionalità.' So every accounting transaction has two sides - credits and debits.

Photo credit: Wikimedia Commons

Sir Isaac Newton (picture: Godfrey Kneller 1698 portrait of Newton) came up with his laws of motion. The 3rd law of motion states that "For every action, there is an equal and opposite reaction."

Robert K Merton (1910-2003), sociologist, popularized the notion of "unintended consequences." He listed five possible causes - ignorance, error, immediate interest (as opposed to long-term interest), basic values, and self-fulfilling prophecy....

OK, so where are we going with all of this? Well, it is good to keep these general concepts in mind while making decisions, something that our (U.S.) politicians are not very good at! Many of the decisions they make are regarding matters of great import (e.g. the recent proposed 'bailout'), yet they often act on minimal information and with a cavalier disregard of the intricacies of the matter at hand. As a result unintended consequences are rife... Small wonder when so many of our senators and representatives seem to specialize in ignorance, error, and immediate interest.

Crisis expanding...

So the 'bailout' went down in flames in the House and the crisis rolls on - a crisis of liquidity; a crisis of capital and cratering balance sheets; a crisis (for most) of falling home prices; and a crisis of confidence in the financial industry. To that we can now add... a crisis of confidence in the government and our elected representatives! Great...

Glenn Greenwald does a nice job of summarizing the absurdities of the process...
Aftermath by Daniel Larison

Listen to the linked podcast from This American Life, it is a real hoot! "... Producer Alex Blumberg teams up with NPR's Adam Davidson for the entire hour to tell the story—the surprisingly entertaining story—of how the U.S. got itself into a housing crisis. They talk to people who were actually working in the housing, banking, finance and mortgage industries, about what they thought during the boom times, and why the bust happened. And they explain that a lot of it has to do with the giant global pool of money..."

The Giant Pool of Money

Irony, thy name is E!

Yesterday this blogger was channel-surfing and happened to briefly see E!'s Fashion Police. They were busy critiquing the looks and outfits of the stars on "the red carpet." A fairly high quotient of catty remarks... What struck this blogger before he moved on to the next channel was the incongruity of a panel of badly dressed, fairly weird looking folks tut-tutting about the look of some very beautiful women!

E!, or should I say Eek! One guy with a goofy British accent, dressed in a suit and wearing a pair of yellow-colored boots (!) criticizing the star's ensembles... One weird looking guy with wild hair and short-sleeves revealing tattooed arms fussing about the stars' hairdos. OK, so they may be successful designers, but surely they could dress better and get a little grooming!

Sunday, September 28, 2008

Cool macro photos

Wired magazine held a macro photo competition and selected the top ten. Click on the post header or here to go to the slide show (the first picture is an extreme close-up of a gecko's eye...)

... and some more that didn't make the top ten can be seen here.

Looking glass

Extract: "... The 14 prisoners were brought in handcuffed. The few journalists present were ordered not to take pictures until the cuffs were removed. Behind each of the men sat a "guarantor" for a "bond" they would sign. "It's not an oath on the Koran," Frank explained. "It's on their honor. A guarantor is a mentor, just like in the US when an individual runs into trouble with the law and somebody steps up to mentor them. The reconciliation committee wants to see these 14 men do well." The Iraqis seemed slightly amused.

"We want to make this a special event," Frank said, asking the restless men to quiet down. "Thank you for being patient, but this is for you." Prisoners and guarantors got up pair by pair to sign each bond. An Iraqi lieutenant colonel played his part. "The government is in control now," he scolded, "not like before. There is a state and there is law." He urged them to join the army or the police. Frank was uncertain what to call the prisoners, since "detainees" was no longer accurate. "We will now ask each individual to stand," he said. "Raise your right hand. Guarantors, put your left hand on the shoulder of the individual."

The men began: "I acknowledge that recent signings of the Reconciliation Agreement have ushered in an era of peace and partnership between Shia, Sunni, Kurdish, Christian, the Jaysh al Mahdi, Iraqi Security Forces, and American Forces. Based on a review of my arrest record, Iraqi Government and Coalition Force leaders have agreed that my immediate release would be beneficial to the reconciliation process. I pledge to not commit any violations of the Reconciliation Agreement's 12 points, violate Iraqi Law, or attack Coalition Forces." The men were not told what the 12 points were. "As a proud Iraqi citizen living in Northwest Rashid"—a geographic designation that Iraqis do not use—"I will become a contributing member of the community in the historic effort to rebuild this proud nation." The guarantors swore that they were "bound by honor" to notify American or Iraqi authorities if the "individual" violated the oath.

Then Frank spoke. "The coalition would like to welcome all the members of the free Jihad community," he said. "The area of Jihad has been changed a lot. Violence has been reduced tremendously, and this reconciliation is proof." He did not explain with whom the freed men were reconciling. "With your release from detention, we expect that you will become part of the reconciliation, and we look forward to working with you and the guarantor, the person behind you. All the citizens of Baghdad are watching Jihad now," he added, even though the only Iraqi journalist present was a lone freelance cameraman..."

Read the rest at the link above.....

And reprinted from a Nov 13th, 2007 observation, 'Through the looking glass' about Iraqi civilian detainees/prisoners:
  • "Task Force 134 Detainee Operations... work daily to reunite detainees with their families during the holy month of Ramadan. As part of their release process detainees go through a reintegration and education program to help them succeed in Iraq today..." The "up tempo release schedule" has been releasing more than 50 detainees a day.
  • "... the Combined Review and Release Board (CRRB), which is an administrative review held for every detainee within six months of their arrival and periodically throughout detention. The board is comprised of Iraqi government officials and senior Coalition Force officers .... If the board determines that a detainee poses an imperative threat to security and stability here, the detainee is notified of the reasons in writing, and the case set for another review within six months. In addition to the CRRB, a separate board reviews each detainee case after 18 months of detention. The Joint Detention Review Committee (JDRC), comprised of Iraqi government officials and senior Coalition Force officers, is unique in that the presumption is in favor of release. Should further detention be recommended, the detainee as well as the detainee’s family are provided notice of the decision...."
  • Per Task Force 134 commander Major General Doug Stone "we had a mother so overjoyed she fainted." Detainees offered release, he added, became "just over-ecstatic that they get to make a choice" of which gate to use to depart.
  • "The Coalition Forces and the Government of Iraq have been working together to develop new education, medical and judicial programs to ensure preparation of detainees for release and reintegration into society..."
  • This past week over 500 detainees were released in a mass ceremony. While seated on rows of white chairs awaiting a speech from Nouri al-maliki, in the background a band struck up and started playing... The Battle Hymn of the Republic!

Freedom Journal Iraq
Release Ceremony for Almost 500 Detainees Overseen by Iraqi PM
Government of Iraq, MNF-I launch joint venture to expand detainee reintegration programs

Message sent...

The September 17th blog entry, Of Interest, noted Israel's opening of a large new airbase in the Negev. Well now this should be of even more interest - the U.S. just deployed a AN/TPY-2 Transportable Radar Surveillance/Forward Based X-band Transportable radar to the Nevatim air base, along with all its components and approximately 120 associated personnel (including technicians, maintenance specialists, and troops/security forces to operate and defend the installation). This radar is designed to detect and track ballistic missiles (presumably Iranian!) soon after launch.

This marks the "first permanent U.S. military presence on Israeli soil." Presumably a future President Obama and Vice President Biden are comfortable with this decision! However, this remains a huge, potentially problematic development....

EuCom deploys radar, troops to Israel
Obama: Israel's security is sacrosanct
Candidate Biden: U.S., Israel Joined at the Hip

Mental Health Break

Travel peeve #3

This blogger grumbled about this once before when it appeared that in the Denver airport the nice monitors placed everywhere for the convenience of the traveling public seemed not to be used to their full extent (in that long after the flight had arrived the baggage claim information for the flight was not updated for the traveler to know at which carousel to pick up his/her bag).

Well in July this blogger flew into San Antonio. The flight arrived on time at 3:40 p.m. and everyone deplaned and went to pick up their luggage. At 4:00 p.m. when this photo was taken the flight status was still 'On time' (rather than 'Arrived') and there was no information re which carousel the bags would emerge on. In fact twenty minutes later, at 4:20 p.m., when the bags had emerged and this blogger had picked up his checked luggage and was ready to head out to 'Ground transportation' he looked at the monitor and it still had not been updated.

OK, so two is admittedly a small N, but this blogger wonders why this issue? It would seem that the process should be automated in some fashion and high reliability...

Travel peeve #2 - March 21st
Travel peeve #1 - March 21st

Boondoggle or silver bullet?

Researchers (and the DHS) continue to look for a security "silver bullet" that will solve their problems. "Future Attribute Screening Technologies" a.k.a FAST is designed to remotely identify 'malintent' (sic) from indicators of their pulse rate, breathing, skin temperature, fleeting facial expressions, etc.

This blogger is all for them ponying up seed money for companies with possible avenues for research that might lead to actual products, but only if extreme skepticism is the order of the day...

Note; the DHS's Science and Technology Directorate Human Factors Division "...looks at biometrics, motivation and intent, suspicious behavior detection, human factors engineering, public perception information and the social/behavioral/economic sciences to improve detection, analysis, and understanding and prevention of threats..." in a number of different "thrust areas."

'Pre-crime' detector shows promise
Can a government remotely detect a terrorist's thoughts?
Draper Labs awarded $2.6 million contract by DHS
FAST Request For Information (RFI)
Future Attribute Screening Technologies Precrime Detector
OPED 14 Science to the rescue - from Feb 2002.

Saturday, September 27, 2008

Great quotes...

“It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those transactions.” - Joseph J. Cassano, (former A.I.G. executive in charge of AIG Financial Products) in August 2007. Read it and weep... Problems that originated in the 377-person London unit he ran contributed to the fall of the "... seemingly sturdy insurer with a trillion-dollar balance sheet, 116,000 employees and operations in 130 countries..." (AIG)

Redefining "too big to fail"

Painting 'Behemoth and Leviathan 'by William Blake (1823), via Wikimedia Commons

It seems to this blogger that the concept of "too big to fail" needs to be thought through and an agreed upon definition arrived at, and this not especially for the current crisis but in anticipation of the next! (Note: this blogger is assuming that the 'business cycle' is not going to be abolished any time soon, even though every so often business begins to believe that this is actually possible and that they have discovered some magical model that is exempt from it!) After all what exactly does it say that companies that currently are so close to fitting the description of "too big to fail" are being swallowed up by other companies.

OK, so Bear Stearns was so big (and its tentacles were so deeply intertwined with so many other parts of the financial system) that when it began to fail the U.S. government stepped in and facilitated its purchase by JP Morgan Chase rather than allowing it to fail. Bear Stearns was deemed "too big to fail"... Subsequently JP Morgan Chase also acquired WaMu when it failed. Surely, by definition, JP Morgan Chase is now also "too big to fail"!! Similarly, Bank of America purchased Merrill Lynch, is it now also "too big to fail.'

It seems to this blogger that the government's response to saving the companies "too big to fail" is to facilitate the creation of even bigger companies that presumably then also become "too big to fail." Is this really a good idea? Taken to its (very exaggerated) logical conclusion and looking a few decades ahead, after the next few bubbles there will be one BIG financial company! Then what that one fails, it's time to turn off the lights...

Note: (From Wikipedia) "In Jewish belief, Behemoth is the primal unconquerable monster of the land, as Leviathan is the primal monster of the waters of the sea and ZIZ the primordial monster of the sky. There is a legend that the Leviathan and the Behemoth shall hold a battle at the end of the world. The two will finally kill each other, and the surviving men will feast on their meat. According to midrash recording traditions, it is impossible for anyone to kill a behemoth except for the person who created it, in this case the God of the Hebrews." Hah, behemoth is "too big to fail."

Crashing the party...

OK, so the housing "party" is over... The electorate is unhappy and looking for someone to blame (and punish if they can); the politicians are looking for someone to blame (or rather, someone to shift the blame to); the titans of industry are looking for excuses (it wasn't us!) and resorting to Rice-like analysis ("no one could have foreseen..."); as are the regulators, etc. Fingers are being pointed in all directions, impassioned 'letters to the editor' are being penned, the call volumes at various politicians' offices are (forgive the pun) through the roof, etc.

Somewhere down the line, when the crisis has passed, a definitive analysis will take place as the entire sorry episode is unraveled and dissected. Many, many books will be written... OK, so this blogger is going to take a leap and anticipate that at that point the answer will be that all of the above parties were complicit in what happened, and that each bears a share of the responsibility, including:

  • The public: Although you would think from much of the heated rhetoric that passes for analysis these days that the public at large are unwitting victims of this mess, in truth they were a major participant. This includes many who cashed out their housing "piggy banks" to buy cars, take vacations, splurge, etc; all those who bought houses at the limit of their financial ability, hoping that continued appreciation and subsequent refinancing would make it easier; all those who knowingly bought houses they could not afford, gambling that rising prices and refinancing would bail them out; all those who thought they could ride the gravy train to a second, vacation house; and all those who decided that it was relatively risk free to buy and resell houses as a sure-fire investment. (Note: 22% of recent home purchases were for "investments" and not primary dwelling, while 14% were vacation homes..)
  • The politicians: Here we have a fine example that "bipartisanship" is not always an unalloyed good. Republicans continually pushed to reduce oversight and to loosen the rules. And notwithstanding Democratic politicians pointing fingers at Republicans for their reflexive distrust of regulation, many of them have also contributed mightily, their palms greased by massive contributions... Dig into the mess and some names start to pop up with amazing frequency, e.g. Chuck Schumer, Chris Dodd, Barney Frank, and many others. Additionally, some decisions made years ago ended up playing a part in allowing this, including some made during the Clinton and Reagan eras...
  • The regulators: Here too you find many that contributed - some actively e.g. by changing rules, etc., others simply asleep at the switch. Some that had been lionized and feted for years (e.g. Greenspan) were shown to have laid the conditions that inadvertently encouraged the housing bubble... (Note: if any reader runs into any articles blaming the FASB and FAS 157 please ignore, this is a complete red herring)
  • Industry and their leaders: A lot can and has been said here. When you get to the bottom of it all it is amazing that so many people supposedly knowledgeable about risk and how to mitigate it were so completely unaware of their own risk exposure! For example, "According to the KPMG survey, insurance executives indicated that the industry as a whole did not do a good job understanding its exposure to the credit and sub-prime issues in 2008. In fact, 40 percent gave the industry a grade of 'D' or 'F', while only 19 percent assigned a grade on 'B' or better. Forty-one percent assigned a grade of 'C'. Ironically, in the 2007 KPMG survey, 72 percent of executives indicated that they were confident their companies had a firm grasp on their exposure to the sub-prime market and related risks." Additionally, in this group should figure some companies that have mostly escaped the public spotlight so far, the credit rating agencies i.e. Moody's, Standard and Poor's, and Fitch, that initially rated the subprime financial instruments and continued to keep their ratings high until it was manifestly impossible to do so any more...

A Bipartisan Guide to the Financial Collapse: Who’s not taking money from Merrill and Lehman?
Foxes guarding the henhouse?
Andrew Cuomo and Fannie and Freddie
Anatomy of a Train Wreck: Causes of the Mortgage Meltdown
Insurance Execs See Significant Sub-Prime Impact on 2009 Results

Previous blog entries:
Makes the world go round ($$) - September 25th
One can dream - September 23rd
Finely calibrated reactions - September 16th
Fannie and Freddie - September 10th
Housing Stories III - July 29th
Housing Stories II - May 6th
Housing stories - April 5th

Friday, September 26, 2008

Carbon footprint

Calculating one's carbon footprint is all the rage, so this blogger ran through the questions at the two links below. Each came out with quite different results. Apparently this blogger's household carbon footprint is either approximately 22 tons/year or it could be 51 tons/year. Quite a large difference. Either way this blogger appears to be a 'carbon footprint hog' and significantly above the U.S. average, although below that of "similar US households." And let's not even talk about the world average... Oh well, even though these numbers look bad this blogger's adverse impact on the planet will probably be very significantly less onerous than the vast majority of those with a smaller footprint - as this blogger has no children his carbon contribution will end upon his cremation, while theirs will carry on (in probably increasing numbers) through the ages...

CoolClimate Carbon Footprint Calculator (University of Berkley)
Earthlab Earth Conservation Profile

Election peeves - I

This blogger has multiple election peeves, some of which he has vented about in previous posts. Here are a couple of smaller ones:

"My friends..." Could someone in the mix please ask Senator McCain to stop with the "my friends" line? This blogger finds this patently insincere, throw-away, "filler" line very annoying, if not insulting. Especially when it comes right before something that clearly shows that there is no 'friendship' there!

On the other side, could someone please tell Senator Obama to stop 'tailoring' his English depending upon his audience? When speaking to predominantly African-American audiences he seems to drop the last letters off his words, and his diction and pronunciation change. OK, tailoring your message to your audience is acceptable, but there is correct English and there is correct English. Obama is erudite and extremely well-spoken, this blogger (at least, he can't and doesn't speak for the audiences in question) finds it condescending that he does this... Annoying too.

Live blogging...

Could someone explain to this blogger what "live blogging" is all about? For example, multiple people are live blogging the presidential candidates' debate. What exactly is the thought, purpose, or value? And who is the intended audience?

Presumably there aren't people at home sitting at their computers hanging on the live bloggers' every update... After all they could simply be watching the debate themselves at the same time (on television or online)! Why not form your own opinion vs. seeing the debate through someone else's reaction to the debate? Why settle for a pale shadow vs. watching the real thing? And if folks want to see the reactions of Andrew Sullivan, Kevin Drum, etc. after the debate is over then what additional clarity do they get by reading 'micro-reactions' at 09:03, 09:07, 09:12, 09:25, etc. as opposed to a single, complete, coherent wrap-up and reaction blog post?

McCain, beyond the pale...

OK, so it has only been a little over three weeks since this blogger posted 'No longer...' However, he has to admit that he still drops by the Dish occasionally, for reasons perhaps somewhat similar to those that cause folks to slow down and rubberneck when passing accidents.

September 10th, 2008 Andrew Sullivan professed to have finally seen the light, realizing that John McCain is not "a decent and honest person." Sullivan finally lost all respect for John McCain. What did it? Well apparently the last straw was a) McCain picking Sarah Palin as his running mate, and b) McCain falsely accusing Obama of calling Palin a pig (the whole "lipstick on a pig kerfuffle). Rather weak stuff.

Sullivan then goes on e.g. "On core moral issues, where this man knew what the right thing was, and had to pick between good and evil, he chose evil." However, all of a sudden the bill of particulars (Iraq, torture, etc.) is a list of things that happened years ago - in 2004 (endorsing Bush over Kerry), 2006 (torture), 2007 , etc. Which begs the question, if John McCain showed again and again in 2004, 2006, etc. that he had no honor or integrity, that he put himself before the country, that he chose the path of evil, etc., exactly why did it take until 2008 for Sullivan to finally see the light? The fact of the matter is that even after all those things Sullivan cut McCain slack, and that it was only the Palin pick (for some reason Palin seems to push every one of Sullivan's buttons, and he is a quasi-irrational focus on her) that convinced him that McCain was beyond the pale... Truly bizarre!

Sullivan's maniacal obsession with Palin is confirmed by a post from today, where he says "... I stand by my statement that this Palin decision disqualifies John McCain outright from being president of the United States. Until she is removed from the ticket, no sane conservative can vote for this farce..." So, apparently Palin is the problem - if she is removed, the dishonest, integrity- and honor-free, pro-torture, 'me first and damn the country' person at the top of the ticket is suddenly worthy of votes! Wow!

Great (?) quotes...

"... We live in a very revolutionary, chaotic time in business. CEOs of most companies learned a model from the '70's or '80s, and they're holding onto it for dear life. 50 has none of that background. He gives a new definition of fearlessness. He is willing to take risks and create his own circumstances. He's like Talleyrand or Napoleon..." -Robert Greene (bestselling author of 'The 48 Laws of Power') in an interview with Fortune magazine, opining on 50 Cent. Together they have written 'The 50th Law.'

Thursday, September 25, 2008

Of great significance..

Photo credits: Xinhua

Perhaps obscured by all the attention being paid to the financial crisis gripping the U.S., and by the 'tainted milk' scandal which is in full bloom ("... at least 53,000 Chinese infants became ill from ingesting baby formula spiked with melamine, which is used in making plastics, fertilizer and flame retardants; four have died..."), the Chinese today launched their third manned space mission. Three "taikonauts" blasted into space in their Shenzhou 7 space craft, propelled by a Long March-II F missile. Later they will be conducting China's first space walk, making China only the third nation (behind the Soviet Union/Russia and the United States) to achieve this. Meanwhile, the Indian space program plans on launching a lunar probe next month...

Le vaisseau spatial chinois Shenzhou VII a décollé
Commentary: China's space dream flies high with Shenzhou-7
China primed for next great leap forward into space

All about Smith Dodd

This blogger went to the web site of the Senate Committee on Banking, Housing, and Urban Affairs to look for a transcript of the hearings yesterday with Messrs. Bernanke and Paulson. Found the above - although there are 21 members apparently all but one are ciphers! Thank goodness we have Senator Dodd, this country is amazingly lucky to have him single-handedly shouldering the immense burden and taking care of everything... The citizens of this country should sleep soundly at night!

Rough landing

Part of the hubbub raised against the proposed bailout plan involves the subject of CEO salaries, something that always generates strong emotions... Suggestions run the gamut from 'departing CEOs should forfeit their salaries and retirement packages' to the (ridiculous) McCain suggestion that CEOs of companies that accept bailout funds "... shouldn't make more than the highest-paid government official' (i.e. $400,000). The second suggestion isn't even worth laughing at... As to the first, this blogger's position is that companies involved (and government, etc.) should honor the contracts they have with these executives.

If these contract have provisions that departure bonuses, etc. can be withheld for instances of poor performance, malfeasance, etc. then these provisions should be invoked. Otherwise the CEOs should be paid in full, any bloviating by Congress notwithstanding.

Makes the world go round... ($$)

Above - top contributors to each of the presidential campaigns. Imp note: the donations are for the 2008 election cycle, and come from the organization's' PACs, isheirindividual members and/or employees or owners, and those individuals' immediate families, and NOT from the companies themselves (since that would be illegal...)

Below - the demographic breakdown by sex and size of donation...

Senator Obama from Opensecrets.org
Senator McCain

Wednesday, September 24, 2008

Confused, and nowhere to go... (updated)

OK, exactly where's a blogger to go to get a real understanding of what is happening with the U.S. financial meltdown and with what some are calling "the mother of all bailouts" (MOAB)? This blogger has perused what must be a couple of hundred articles in newspapers, financial magazines, and on the web; and just as he found it impossible to get a "correct' answer re why oil prices rose so far earlier in the year (supply and demand, speculators, value of the greenback, peak oil) it has been an exercise in frustration. Dueling economists, arguments re 'Wall Street' vs. 'Main Street; 'we have to intervene' vs. 'let them crash and burn', etc. Even getting solid numbers is not easy e.g. some figures are for mortgage delinquency and others for mortgage foreclosures (NOT the same thing).

So, this blogger's questions are:

1. Exactly how much "toxic waste" is out there? And exactly what are they talking about when they say "toxic waste"?

Simplifying greatly, financial institutions loan money to people to buy homes i.e. mortgages. These days they don't hold on to the mortgages forever, but sell them. These are pooled, packaged, and sold as securities, thus the name 'mortgage backed securities.' See the diagram above (source: Wikipedia). Mortgages can also be bundled into Collateralized Debt Obligations, or CDOs. These are split into three or more 'tranches', each with a different maturity, interest rate, and level of risk (which allows the seller to sell packages sell to different investors with different degrees of risk preference (for an explanation of CDOs see here). Not content with this , all sorts of other derivative, exotic, financial instruments were devised and built on top of these... Mortgages can also be further divided into 'prime', 'near-prime (Alt-A), and 'subprime', with the creditworthiness of the borrower decreasing as we move from prime to subprime. For the remainder of this entry let's assume that "toxic waste" refers to near- and sub-prime MBS/CDOs, and not to the more exoteric derivatives thereof... (however, this blogger has not seen Bernanke or Paulson define exactly what is "in scope" for the MOAB!)

The entire U.S. housing mortgage market stands at approximately USD thirteen trillion, while Fannie and Freddy have approximately USD 6 trillion of this. This blogger is assuming that since Freddie/Fannie have already been taken over by the government, Messrs. Bernanke and Paulson are not including them in their plan... That leaves USD 7 trillion. Assuming the split is 70% prime and 30% near- and sub-prime (the closest this blogger could find..), then we are talking about USD 4.9 trillion of prime and USD 2.1 trillion of near- and sub-prime. OK, right now delinquencies are running at 25% of near- and sub-prime and 2.5% of prime. Earlier we assumed that "toxic waste" did not include prime, so let us exclude that (the financial institutions need to manage some things themselves, and surely shouldn't be bailed out for every non-performing loan!) Scenario: 50% of subprime is "toxic" i.e. USD 1.05 trillion. Assuming that the MOAB pays 50 cents on the dollar, the "toxic waste" should be able to be purchased for the mere bagatelle of USD 525 billion. So, perhaps the USD 700 billion is "rounding up" plus swag, or else Messrs Bernanke and Paulson want to define "toxic waste" more broadly. Instead of speechifying and posturing it would have been nice if the Senate Banking Committee members had asked Messrs. Bernanke and Paulson to explain in plain English terms what exactly is the "toxic waste" they are proposing to buy up. And if the Senators were too shy to say that "in plain English" was for their own benefit (actually, we know they all consider themselves veritable Einsteins who don't need any explanations), then they at least could have requested it for the benefit of the viewing audience.

2. When this blogger bought his house (at the height of the bubble!) he was assessed PMI, private mortgage insurance, because he only put down slightly less than 20% of the value of the home. This is insurance that protects the lender - if the borrower defaults and the lender is not able to recover its costs after foreclosure and sale of the mortgaged property then the insurance kicks in. OK, since the vast majority of near- and sub-prime loans probably have a loan-to-value ratio appreciably above 80% they would all require PMI. So, how come this blogger has not heard word one re PMI. Looks like the banks should be covered and that it would be the insurers that are screaming about "toxic waste"! However, they don't seem to figure into any of the articles and news - are Messrs. Bernanke and Paulson bailing out the banks or the insurers?

Hard to say what is actually happening, this crisis is generating more heat than light!

Disclaimer: This blogger is no economist or expert. Perhaps the answers to both these questions are easy and somewhere out there.. Any pointers would be welcome!

Updated 09/25: Actually, of the $1.05 trillion in non Fannie/Freddie toxic waste the banks have already written off USD 500 billion so far this year, so (unless it has already been subtracted off the overall mortgage stock number) that would leave only USD 550 billion. Paying 50 cents on the dollar that would only cost the MOAB USD 275 billion and not USD 700 billion! More confusion, the numbers just don't seem to add up - which makes it even more important that there be clarity around this!

Second update 09/25: From a Forbes article: "In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy."It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."


One of the raps against the proposed bailout is that it is helping 'Wall Street' and ignoring "Main Street' This blogger doesn't understand how this is possible... Once the government buys and then owns the "toxic waste" MBS/CDOs don't they have to do what they can to clean up the underlying mortgages to get some value from them?

Mental Health Break

Would be nice to be able to afford these...

Tuesday, September 23, 2008

One can dream...

With the current economic crisis many people are looking to allocate the responsibility for this sad state of affairs. And, as is usual when the populace is angry and looking to place blame, our Judas goat senators attempt to place as much of the onus as they can elsewhere. In this case, while they do point a finger of blame at one another in an attempt to gain an advantage in time for the elections, they are mostly offering up various unnamed "CEOs and fat cats..." to bear the brunt of the blame.

So, Senator Obama highlights that "... Senator McCain's campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations..." In return Senator McCain's camp point out that the executives paying these lobbyists (Fannie Mae CEOs Franklin Raines, and Daniel Mudd, and chairman Jim Johnson) are Obama advisors and supporters.... and point out the role that Obama campaign's finance chair Penny Pritzker played in the origins of sub-prime loans....

One is tempted to say 'a pox on both your houses," and dream of a politician who will have the intestinal fortitude to stand up, admit to some fault, and do a mea culpa! This blogger would then immediately write a check to that politician's campaign, and vote for that politician...

Loan Titans Paid McCain Adviser Nearly $2 Million
Fannie Mae CEO calling Obama and the Dems the "Family" and "Conscience" of Fannie Mae
Fannie, Freddie, and Obama
Obama's Sub-Prime Conflict

Open letter to The Economist

May we please have a retraction and an apology on your part for the horrendous cover caption you subjected us to on your June 5th leader? At that time you said "Voters now have those five months to study them before making up their minds (and The Economist will be doing the same). But, on the face of it, this is the most impressive choice America has had for a very long time." Given that you have now had almost four months to study the candidates, do you still stand by your original estimation? Please redeem yourselves by either retracting your original statement, or by admitting that you were not really serious at the time and were simply indulging in some of that famous "Economist" whimsy!
Respectfully yours.